Slim Hope for Reason in Pay-TV Tax Fight

Few things are more discouraging in the government sphere than seeing a reasonable idea shot down because of a ham-handed presentation.

Was the Clinton health-care reform program worth considering? We’ll never know because it was buried under a tide of ridicule aimed at the way Hilary Clinton managed its development.

A particularly absurd version of this comedy is being played out in California, thanks to -- prepare for a shock -- Gov. Gray Davis’ office. The issue is whether to levy a tax on satellite television services that would be equivalent, in some way, to the taxes and fees that many cities and towns currently charge on cable TV.

Such a recommendation is under consideration by something called the California Commission on Tax Policy in the New Economy, five of whose nine public members were appointed by Davis. The gubernatorial cadre includes its chairman, Bill Rosendahl, who in his day job is -- here’s the rub -- an executive of the cable company Adelphia Communications Corp.

The idea that a cable-TV executive would promote a plan to tax his competitors from the satellite-TV business has, predictably, generated so much indignation within the Sacramento politico-lobbyist complex that the fundamental question of whether there should be a statewide unified levy on pay TV has been hopelessly obscured.

“This is an effort to eliminate the competitive advantage of a new technology,” fumes state Sen. Ross Johnson, an Orange County Republican whose Web site proclaims his belief in free enterprise and in “freeing the private sector from high taxes and excessive regulations.”

Of Rosendahl’s role on the commission, he adds: “This guy is an interested party who’s playing on the inside.”

Rosendahl, an amiable man who appears as the host of numerous public-interest programs on Adelphia systems across Southern California, professes to be perplexed at the furor. “My role as chairman of the commission is to be an honest broker,” he says.

“I’m not pushing for anything,” he adds of the satellite tax proposal. “By raising the issue we’re putting it out for people to discuss.”

Well, let’s discuss.

The argument for a satellite-TV tax is based on the idea that cable company customers now pay franchise fees or utility taxes, or both, to their cities, towns or counties. Depending on the community, these can add up to 10% of a cable bill, which supposedly places the cable companies at a competitive disadvantage to their upward-scuttling competitors, the satellite services, which aren’t subject to local or state excise taxes.

Hughes Electronics Corp.’s DirecTV and EchoStar Communications Corp.’s Dish Network, the two national satellite-TV providers, openly promote their price advantage over cable, which the cable guys argue is partially an artifact of this unfair taxation.

The satellite companies say, in turn, that those local fees aren’t really taxes. Rather, they are the price that cable operators pay to cities and towns in return for the right to a monopoly cable franchise and for ripping up local streets to lay their pathetically low-tech land lines. Because satellite signals arrive directly from the heavens, they say, there’s no need for municipalities to have their hands in their subscribers’ pockets.

These and other similar arguments were aired at a commission hearing Rosendahl bravely scheduled last week in El Segundo, which happens to be the headquarters of DirecTV. Much of the session was consumed by the chief financial officers of DirecTV and EchoStar on the one hand, and a man from the California Cable and Telecommunications Assn. on the other, taking potshots at one another across the table.

The satellite guys suggested that cable wouldn’t be losing customers to them in such numbers (satellite accounts for 20% to 30% of all pay-TV customers) if the cable guys had not greedily raised rates almost 50% over the last few years. The cable representative shot back that the satellite companies wouldn’t have a cost advantage if they met on a level playing field.

Both sides produced figures and statistics purporting to prove that they were already so saddled with government fees that any further taxation would be redundant.

EchoStar shelled out $700 million to the feds “for orbital slots to park our satellites,” said Michael McDonnell, its CFO. Cable systems pay 53 cents per subscriber per year in federal regulatory fees, while satellite companies pay 4.7 cents, said Jeffrey Sinsheimer, VP for law and public policy at the California cable organization.

EchoStar will cough up $7 million in California sales, property and payroll taxes this year, McDonnell said. Yeah, but the cable industry gets hit with $300 million in state franchise and utility fees, and satellite pays nothing, Sinsheimer countered.

To give the commission members credit, they wore serious expressions while absorbing this crossfire, as though they were devoting profound consideration to the facts and figures. But as representatives of the august state of California, they don’t have the luxury, as I do, of declaring these arguments to be thoroughly bogus.

Every industry has costs that are rightly considered the price of doing business. In the case of satellite TV, this includes the fee paid to the government for orbital spectrum (those “parking spaces” McDonnell alluded to). For cable, it’s the cost of excavating streets and laying fiber-optic lines.

Both industries pay regulatory fees to the government, just as both pay property taxes for their real estate, social security taxes for their employees and sales taxes when they purchase equipment.

Arguing whether these fees tip the competitive balance one way or another is pointless. It’s also irrelevant to the question of whether the providers -- or more properly, their customers -- should also be burdened with a tax on their monthly bills.

After all, such taxes don’t have anything to do with how much strain these services place on public infrastructure or convenience. Instead, they’re simply based on the taxing jurisdictions’ need for more revenue and the potential for squeezing consumers of one category or another of goods and services until they spit coins.

When my city fathers send me a notice about raising the utility tax, they never even bother to argue that the tax is based on the wear and tear the utility’s trucks exact on my city streets; they simply cite the need to close the city’s budget deficit.

This reality may be too simple and too subtle to be candidly aired by the California Commission on Tax Policy in the New Economy, which seems to be one of those exercises in futility that Sacramento throws up now and then to promote the notion that it’s doing something serious about a politically divisive issue.

The British have an evocative term for these bodies. They call them quangos, which stands for quasi-autonomous non-governmental organizations. According to the old TV show “Yes, Minister,” from which I get most of my understanding of Whitehall, quangos perform the important role of keeping idle hands busy producing things such as make-work study reports that no one will ever read.

Adding to the futility, the California tax commission, composed as it is of executives, government bureaucrats, Republicans, Democrats and good-government advocates, is so diverse that its chances of coming up with a conclusive slate of solid tax recommendations for the legislature to vote on are woefully slim.

That’s a pity, because there’s an obvious solution to the question of how to tax television services evenhandedly. (This is assuming that we want to tax them at all. In a perfect world, of course, there would be no need for taxes. Destitute mothers would feed their children without the help of public relief, children would teach themselves at home without the aid of publicly paid teachers, and streets would get paved by “The Cat in the Hat’s” Thing 1 and Thing 2.)

My solution is to subject both forms of pay TV to a single statewide excise tax, like those levied on cigarettes and gasoline, while simultaneously eliminating the anachronistic local franchise fees now charged to cable customers.

To avoid busting local budgets, a portion of the statewide collection would be rebated to municipalities, based on the subscriber billings within their borders; they might end up with a smaller percentage of their local cable billings than they get now, but on the plus side they wouldn’t lose any money if cable customers continue to migrate to satellite TV.

When I put this notion to the satellite and cable reps at Rosendahl’s hearing, they nodded their heads in agreement that this is the only rational way out of what otherwise looms as a never-ending debate. But their reactions lacked a certain enthusiasm. I almost suspected that they knew in their hearts that, in this state, nothing so reasonable would ever come to pass.

Michael Hiltzik can be reached at golden.state @latimes.com.