Ignoring that, do you really want guys like Al Gore (want to censor Prince), Hillary Clinton (wants to censor GTA) or John McCain (wants to censor the Sopranos) having the ability to stop payments to artists they don't like?
My argument for why nothing should be excluded or censored, is that it isn't presently censored, and since fans of every type of music and media pay taxes, it should all be covered. And I'm certainly not suggesting politicians have any influence over that; I'm suggesting putting that in the hands of judges or arbitrators.
But, the whole idea is really to figure out a rough idea of what the artist would have earned under the "old" (present) market. That might be doable simply by tracking radio play, pop culture references, BitTorrent shares, downloads, how many remixes get made, sales numbers from concerts, Youtube views, etc. That would not be very invasive at all.
By the way, government courts are already frequently called in to assess how much one company owes another for something, or the market value of a service, etc. So the government already does this- however good it already does it, is probably the baseline on how good it would be implemented without any unusual data.
And I understand you promote doing this in a content neutral way. Perhaps it will be content neutral at first. Then Bill O'Reilly (a popular Fox pundit) or Oprah play "objectionable" songs, and point out (correctly) to their viewers that their taxes are paying for it.
(Some examples, selected from one of my favorite artists.)
http://youtube.com/watch?v=8hPvtuu9CbM
http://youtube.com/watch?v=R37H38bMVec
http://youtube.com/watch?v=lk06_ll_vgo
Remember, it's for the children. If we don't do it, little johnny will grow up to be a gay cannibalistic terrorist! Censorship is another thing McCain and Hillary can agree on.
Anyway, it wouldn't really be "their" tax dollars paying for the music you like, any more than it would be your tax dollars paying for their Christian music (remember, there's no discrimination in what's purchased). Faced with also having their free Christian music taken away, I'm pretty sure they'll ease up in their opposition. It's better to think of it as your tax dollars paying for the music you like, their tax dollars paying for the stuff they like.
I hope that if ever a law like this were to be passed, you would continue to be concerned. But, I gotta say I always find it annoying when people criticize what might otherwise be a wonderful idea, by arguing that some people might be stupid about it, so we shouldn't do it. It's time to stop being so afraid of stupid people.
Government pays for and administers roads, the military, the justice system, and a host of other things that are much more abusable than our entertainment. They don't completely mess up all those other things, and I don't think it's likely to go badly when it comes to music. Given that the worst thing the government could do would be to not pay for certain things, meaning the artists would have to sell the music just like before, that's not exactly devastating.
AT&T has assisted the government in illegally spying on you. Barack Obama did what George Bush asked him to do: he voted to give them immunity for their crimes. Is that "Change we can believe in"?
To address your comment somehow- the law you cite is probably unconstitutional. It was struck down by the Supreme Court once before, before being modified and passed again. I doubt the present form is constitutional, since it obviously does restrict speech.
Ironically, you, me, and the far right are the ones who most agree the law is bad :). Conservatives hate that law much more than do liberals. The conservatives' argument is "money is speech".
And in a sense there would be no "censorship of the wallet"- when anyone can read science papers, books, etc., there's a lot more intellectual freedom.
Hopefully I've allayed your concerns, at least in theory. The government has a hand in almost every walk of life, and not all of it takes a fascistic turn. The Founding Fathers even used government to make patents and copyrights possible :).