What should the government do to help journalism?

Last week’s Federal Trade Commission hearings on the journalism industry beg raise the question: Just what should the U.S. federal government be doing, if anything, to help the journalism industry?

Plenty.

Now, before the libertarians within online news community fire up their torches for my march to the stake, hear me out.

OJR’s David Westphal last week detailed the many ways that government has, uh, helped the news business in the past. Perhaps subsidies of that sort can continue in the future. But I see two, much larger, steps that the government can take that would help ensure a more stable and diverse journalism industry, one that would have the financial ability to fund more in-depth reporting over a longer period of time that today’s newspapers and emerging website can support.

Ready? Here goes.

#1: Raise taxes on the rich. A lot

I’ve insisted for some time now that the problem facing the news industry isn’t the Internet, and the competition that this new medium has unleashed upon newspapers and broadcasters. Plenty of businesses have found ways to profit online, even ones that provide news and community information.

Nor did the Internet catch newsrooms by surprise. News organizations a decade ago saw a more competitive future approaching, and they have employed over the years many visionaries who tried to show them the way to build websites and services that would have allowed them to retain both their audience [the people who read or watch] and their customers [the people who pay, e.g. advertisers].

So why didn’t they? That tragic phrase: “We have a fiduciary responsibility to our shareholders.” In English: “We can’t spend any money on anything that might pay off tomorrow. We have to maximize our income today. Even if that means putting the company’s future at risk.”

Why are investors so myopic? Take a look at this table, which lists the highest marginal federal income tax rates over the years, and the income level at which they applied. There’s a nice graphical representation of this data at fivethirtyeight.com, as well.

(Don’t forget the effect of inflation on those threshold numbers. That $400,000 in 1960 is the same as an income of $2,921,311 in 2009, according to the U.S. Bureau of Labor Statistics. The $200,000 threshold from 1976 would be the same as one of $759,849 today.)

Punitive tax rates change the calculus of investing and income management. Why maximize short-term gains if the government’s just gonna take it all in taxes?

So people don’t. Instead, they start looking for investments that will provide stable (though lower) income over a longer term. Throw in a transaction tax on every stock trade, as well as restoring a punitive tax bracket for earners netting more than a million a year, and the government could sharply reduce the pump-‘n-dump speculation that cripples managers’ attempts to build anything for the long haul.

Take another look at those tax rates. The so-called glory days of U.S. journalism, with Watergate and full-funded newsrooms, correlates with the higher tax rates of the 60s and 70s. When the government did away with top tax rates in the 1980s, that’s when we began to see short-term attitudes reach a tipping point in the industry, leading to frequent layoffs and cutbacks (which predated the Web, by the way, for those of us with longer memories.)

On the broadcast side, couple the change in income tax rates with FCC decisions not to hold stations’ feet to the fire on public service programming, and network newsrooms became profit centers, expected to add to the corporate bottom line, not detract from it.

Even today, I’ve spoken privately with many would-be news entrepreneurs who fear soliciting outside investment in their projects, for fear that they would lose control to short-term investors who would gut their efforts for an immediate payday, instead of having the patience to grow a community over time. (I’ll fess up that I share this attitude toward my projects, as well.)

Jack up the tax rates and watch attitudes change. (Bear in mind that I am not advocating a tax increase on lower- and middle-class incomes, anything under $250,000 a year for a married couple filing jointly. In fact, I’d prefer to see payroll taxes folded into the income tax, with a cap on payroll taxes permanently lifted, which could effectively reduce tax rates for many self-employed middle-income individuals.)

Even with a more long-term focus, there will remain plenty of investors and managers who above the punitive tax rate threshold. They will be looking for places to take a loss, to ensure that their money goes where they want it to go, rather than to the U.S. Treasury.

Let’s put it this way: In which environment would you rather be trying to enlist supporters who would fund a new local online newsroom, one that would employ a handful of potentially expensive investigative reporters, with tight local advertising margins making it difficult for the project to stay in the black?

One where investors, enjoying no increase in marginal tax rates as their incomes reache seven figures, were looking for projects that returned immediate large profits off their investment? Or one where investors, trying to avoid crippling marginal tax rates on high income, were looking for places to dump profits from their other investments – the bigger the loss the better?

I thought so.

#2: End employer-provided health insurance

Again, in speaking privately with the many potential news entrepreneurs I’ve met with over the past several years, I’ve heard one reason cited more than any other why they don’t make the jump into starting their own news business.

They don’t want to lose their employer-provided health insurance. Trust me, I feel this pain. Buying health insurance as an individual, you have none of the protection that subscribers to group plans enjoy, including protection against being dropped for undisclosed or even undiscovered pre-existing conditions. I haven’t seen a doctor in two years, in part due to fear that if a physician finds something wrong with me, even if trifling, it might lead our insurer to drop my family’s plan, leaving my kids without coverage.

Most companies selling individual policies also enjoy near monopolies in their local markets [PDF], allowing them to increase rates at will. My provider increased our premiums 36 percent this year, even before it had paid a penny in benefits to us.

Health insurance are the “golden handcuffs” that bind journalists to corporate newsrooms, depriving the industry of a richer diversity of journalist-led publications. Worse, the need to hold on to those health benefits makes journalists risk-averse, afraid of doing anything innovative that might make them a target in the next, inevitable round of lay-offs, should their initiative fail.

From a corporate perspective, paying for health benefits becomes an effective tax on each job created or maintained. Health insurance premiums tip the scales away from hiring (or retaining) full-time employees in the United States to do the work the business needs done. Not having to pay for health benefits makes it that much easier for a business to justify outsourcing or automating work, even if it doesn’t rise to the same level of quality as that done by local employees.

Change the system and take employer benefits off the table, and, again, the calculus of employment changes. Someone would still need to pay for health care – whether it be the government, through a single-payer system paid for by general taxes, or individuals, through privately purchased insurance. But it wouldn’t be employers paying for each job they created or maintained, potentially encouraging them to create (or at least, maintain) additional positions. More reporters = more coverage of their communities.

Benefits would be decoupled from employment, as well, allowing employees to leave or change jobs without having to think about health insurance. That would enable many more frustrated newsroom employees to make the jump into entrepreneurship, increasing the number of new, innovative approaches to the journalism business being tried in the field.

By now, you’ve likely figured out that neither of my suggestions has anything to do, specifically, with journalism. They’re general suggestions to improve the quality of long-term business investment, and hiring, throughout the economy.

That there lies my point. The government should quit worrying about saving specific industries and, especially, companies – whether they be Goldman Sachs, Bank of America, Gannett or News Corp.

Instead, the government should devote its attention to saving the economy, creating a more healthy environment in which forward-thinking companies can grow and would-be entrepreneurs can have a chance to succeed without having to resort to pump-‘n-dump tactics.

Do those things, and journalism will find its own way.