Opinion | Bob Dylans genius was rewarded by the system and the tax code

Publish date: 2024-08-10

It has been 60 years since a harmonica-blowing kid from Hibbing, Minn., landed his first gig at a Greenwich Village cafe. Scruffy and impecunious, the raspy-voiced folk singer was, in the immortal lyric of his ex, Joan Baez, “the original vagabond.”

Ah, but Bob Dylan was so much younger then; he’s older, and richer, than that now. A lot richer: He just sold the rights to “Blowin’ in the Wind” and 600 other songs to Universal Music Publishing Group for a reported $300 million. Added to his previously reported net worth of $200 million, the transaction implies that Dylan will reach his 80th birthday on May 24 as a half-billionaire.

This is a tribute to his genius and, on the whole, to a political and economic system that rewards artists whether they merely entertain multitudes — or inspire them to march against that same system.

Nevertheless, some socially conscious musician could write a song protesting the Dylan deal, because of what it reveals about that engine of irrationality and inequality known as the U.S. tax system.

A cardinal defect of the system is highly favorable treatment of capital gains relative to ordinary income. The top rate on the former stands at 20 percent; on the latter, it is 37 percent.

Follow this authorCharles Lane's opinions

This is no simple twist of fate, but the result of long-term retreat from a 1986 tax reform bill that had equalized the rates at 28 percent. The 1986 bill did so on the sensible grounds that workers and capitalists both contribute to prosperity.

A Republican president, Ronald Reagan, signed it, but the ink was barely dry before GOP ideologues, committed to the notion that capital gains uniquely drive economic growth, began urging reinstatement of the differential.

Over the years, Congress (with some Democratic acquiescence) obliged. In fiscal 2021, favorable treatment of capital gains cost at least $211 billion, according to the Joint Committee on Taxation (JCT). The vast majority of the benefits accrue to upper-income people.

Special pleaders lobby Washington to define their income as lightly taxed capital gains, regardless of how arbitrary that might be in real-world economic terms, or how much complexity the code accumulates.

Hence we have the notorious “carried interest” rule, which taxes compensation of private equity general partners at the capital gains rate.

And we have the obscure 2006 law known as the Songwriters Capital Gains Tax Equity Act, which permits songwriters — but not painters, video game makers or novelists — to treat the proceeds from selling their copyrights as capital gains, too.

The original impetus for this came from country music writers who argued it was unfair to make them pay a higher tax rate for selling their copyrights than the publishers who bought and sold such intellectual property commercially did.

The law passed with the backing of mostly GOP legislators from Kentucky and Tennessee, who might or might not have realized the favor they were doing for the Los Angeles-based music industry. The pro-Nashville coalition protected the provision when Congress briefly considered repealing it during the 2017 tax-code rewrite, according to the Wall Street Journal.

Congress justified dancing to the lobby’s tune in 2006 in part because of modest expected revenue losses. JCT’s annual reports on the cost of tax breaks have consistently assumed that this one is too small to estimate.

That old order is rapidly fadin’. The foregone revenue from Dylan’s deal — or Stevie Nicks’s sale of an 80-percent interest in her work, valued at $100 million — may no longer be so trivial. Taxing $300 million at 20 percent raises $51million less than taxing it at 37 percent.

And more such deals are likely on the way. The copyrights to hit songs are an increasingly valuable asset, partly because they get played so often on streaming services, producing a reliable royalty stream for the intellectual property holder.

Meanwhile, artists cannot make money playing concerts, due to the pandemic — and yes, the septuagenarian Dylan was planning to tour until covid-19 hit — so they need new sources of cash.

Given all that, selling his copyrights might have been a smart move for Dylan regardless of the tax rate. The capital gains break, for him and for others similarly situated, is basically a windfall.

It’s certainly not stimulating new activity, much less economic growth: He already wrote the songs, under the supposedly unfair pre-2006 rules.

President-elect Joe Biden supports equalizing capital gains and ordinary income rates, at least for households earning more than $1 million. If kept, Biden’s promise would restore a measure of equity and efficiency to the tax system.

However, as one Los Angeles entertainment lawyer admitted to the Journal, it caused “a lot of fear in the bowels of Hollywood.”

Hugh Hewitt: Some Americans thought this kind of test was behind them

George F. Will: The prize that Bob Dylan really deserves

Elizabeth Thomson: Five myths about Bob Dylan

Letters to the Editor: Homer was no Bob Dylan

Letters to the Editor: Bob Dylan’s talents are worth commemorating

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Opinion | Bob Dylans genius was rewarded by the system and the tax code