A tax-saving proposition


Brett Miller of MCH Enterprises has some thoughts on the both the history and future of tax certificates, which he shared with us after reading “Coming To A Senate Near You.”

Here is Miller’s take.

Regarding Congressional efforts to increase minority ownership of broadcast stations

The key here is the re-definition of “socially disadvantaged businesses.”  Racially-oriented tax certificates ceased in 1995 when Congress repealed section 1071 of the Internal Revenue Code, which allowed the FCC to issue a certificate to sellers of communications-related properties to defer the capital gain taxes realized upon a sale if that sale met certain public policy goals [emphasis added], not only minority ownership. The repeal of the so-called "tax certificate" was linked to a proposed sale by Viacom of a multimillion dollar cable television system to a minority buyer.  Thus, it was widely reported that legislative action was directed against the "minority tax certificate."  Reporting at the time focused on the tax certificate as just another government affirmative action program for rich media barons. After little debate, the minority tax certificate was repealed.

In addition to the mischaracterization of the tax certificate as a minority preference policy, concern was expressed during the 1995 Senate hearings concerning lost tax revenues. Tax certificates were perceived by some members of Congress as what today is called “corporate welfare.”  While one Senator testified that even though he sympathized with the goals of the tax certificate, Congress should take a careful look at the practice and ensure that corporate entities were not allowed to walk away with millions of dollars that might otherwise have gone to the federal coffers.  That Senator missed the point of the cost to the public interest, in terms of reduced competition and reduced diversity of expression (that’s what we call unintended consequences…at least we will assume they were unintended).   So today, all of the FCC’s current efforts to increase “diversity” have to be worded and geared to socially and/or economically “disadvantaged businesses.”  These are the so-called “SDBs.”  The Small Business Administration refers to “qualified entities” or “eligible entities” as does the FCC in its diversity reports.

The problem stemming from these initiatives is too many people see them as a means of giving a boost to minorities without also giving a leg up to non-minorities.  That should not be the intention.  You can’t do it.  The motto has to be “when you lift one of us you lift us all.”  This is not about how many Senators or Representatives you can get on-board.  These “incentives” will have to apply across the board in order to pass muster.  But that’s OK, depending on how it’s done.  The fact of the matter is that this is not a racially-dependent situation.  This is not a case of some sort of racial discrimination or Jim Crow laws whereby there is a market-place bias against minorities.  It’s a financial thing and that cuts across racial lines.  For every minority that can’t find or fund an acquisition there are just as many non-minorities in the same boat.  Collectively, there are minorities, male & female alike; there are moms ‘n’ pops (some of whom are minorities); there are first-timers (some of whom are minorities), and there’s still the public interest to be fostered.

The issue to two-fold:  access to inventory and access to capital.  Unfortunately, Congress and the FCC have screwed up the access to inventory equation through their ownership rules, and the laws of supply and demand have taken care of the rest.

Somehow Congress and all the federal bureaucracy (sort of like “all the King’s horses and all the King’s men”) seem to subscribe to the notion that you can legislatively change the laws of supply and demand.  That’s like saying you can legislatively change the path of the sun.  Oh, and don’t get me started on “global warming.”  This applies to broadcast stations just as well as if we were talking about a barrel of oil.  Not only do we have to contend with the laws of supply and demand, we have to live with the laws of unintended consequences.  The parallels between broadcasting stations and the cost of a barrel of oil are plain to see.  If oil production in the U.S. is artificially diminished by legislative fiat (not to mention Mother Nature), and the demand remains high or grows, the prices are going to go up and up and the unintended consequences will be higher prices for food, clothing, and everything else to include corn that gets fed to cattle (so much for the ethanol solution). 

If the number of broadcast stations available on the open market is diminished by multiple ownership rules and the demand remains high and/or grows, the prices are going to go up and remain high and the unintended consequences will include the disenfranchisement of minorities, moms ‘n’ pops, and entrepreneurs.  Who else loses?  The public interest, that’s who (or is that a “what”?).  Yes, we may see a dip in oil prices as demand is either naturally or artificially driven down (remember when tobacco taxes were going to stop smoking?) and the same applies to broadcast facilities; but in the overall, if supply is down and demand is high, prices will remain high.  Tie this to the fact that one cannot collateralize a broadcast license and you have an absolute slam-dunk scenario for no capital.  Equity and debt are better off put elsewhere.  No capital, no inventory: no minority or “disadvantaged business” participation in the American dream.

So now Congress seems to think that the solution to diversity, at least as it pertains to minority ownership, is to create “incentives”, tax certificates among them.  Good.  I agree.  Make it happen, but don’t expect to see any significant changes in minority ownership until you (a) re-instate a natural relationship between supply and demand by rolling back the ownership rules and (b) make capital available on REASONABLE terms with full security to lenders and investors.

Brett Miller

MCH Enterprises, Inc.