Monday, April 24, 2023

Should Fox News get to deduct the damages it is paying to Dominion?

There has been a bit of (naive?) outrage out there about the fact that Fox News will presumably get to deduct the $787 million of damages that it has agreed to pay Dominion, thus greatly reducing the after-tax cost (and in effect sharing it with US taxpayers, although it is true that on the other side Dominion will presumably be including and paying tax on its recovery).

From a standard tax policy standpoint, there is actually nothing wrong with this - indeed, it is the correct answer. As I discussed with a Lever News journalist here:

“If your business model is to tell lies so that you’ll get viewers and have lots of advertising revenues, then, odious though this business model may be, the tax system’s job is to tax you on the profits that you actually make from it,” Daniel Shaviro, a professor of tax law at NYU, told The Lever. “And those profits are indeed reduced when you are successfully sued by the victims of your malicious falsehoods.”

But there is another side to it. As suggested by the public outcry when Dominion settled instead of forcing a trial, Fox's malign behavior was and remains grossly under-deterred. Dominion was able to collect for the private harm imposed on its business by Fox's willingness to spew lies into the public realm, but no one gets to collect for the vast public harm that it malignantly inflicted. My own personal view is that the damages for that, if they could be measured and collected, would be many times greater, in billions of dollars, than Fox's entire business is worth.

But there is no law in place allowing such collection for the public harm. And, no such law would be politically feasible (e.g., to deter Fox in the future) even if it were easy to design and clearly constitutional. And, even if such a law were easy to design, it would risk being held unconstitutional, even by an honest Supreme Court. And, holding such a law unconstitutional might even be the best thing, all told, given the possibility that such a provision could be misused to deter free speech that has greater value than Fox's simply poisoning the public realm by lying for profit.

From that standpoint, if one could deny Fox deductions for the damage award - this time, and in the Smartmatic case, and in future instances where it was contemplating defaming private parties while also poisoning the public realm - it would seemingly be a good thing. Only, how could one design such a rule to avoid the political and constitutional problems, and to avoid over-deterring potential torts where there is no negative externality? Maybe it can't be done, but even so there is reason to regret (even if just idly) that Fox must remain under-deterred.