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Will plan for tax-exempt newspapers sink or swim?

By Douglas Lee
Special to the First Amendment Center Online
04.01.09

Being serious is hardly a guarantee of being taken seriously.

Almost every grand idea, it seems, is met first with doubts, if not derision. In some cases (airplanes and heart transplants come to mind), ingenuity and persistence prevail, and the innovators are revered. In others (think New Coke and former Vice President Dan Quayle), the ideas fail miserably, and the people behind them are ridiculed forever.

While it’s too soon to know whether history will revere or ridicule Sen. Benjamin Cardin, D-Md., the early indications suggest that his proposal to save newspapers will share the same fate as Geraldo Rivera’s plan to open Al Capone’s vault.

On March 24, Cardin introduced S. 673, which he calls the “Newspaper Revitalization Act.” Cardin believes the bill will revitalize newspapers — especially smaller newspapers — by allowing them to elect to be treated as tax-exempt nonprofit organizations, like National Public Radio and public television stations.

“We are losing our newspaper industry,” Cardin said in a statement released with the bill. “The economy has caused an immediate problem, but the business model for newspapers, based on circulation and advertising revenue, is broken, and that is a real tragedy for communities across the nation and for our democracy.

“While we have lots of news sources, we rely on newspapers for in-depth reporting that follows important issues, records events and exposes misdeeds,” Cardin added. “In fact, most if not all sources of journalistic information — from radio to television to the Internet — gathers their news from newspaper reporters who cover the news on a daily basis and know their communities. It is in the interest of our nation and good governance that we ensure they survive.”

Later, speaking on the Senate floor, Cardin further explained his concern. “As local papers are closing,” he said, “we’re losing a valuable tradition in America — critically important to our communities, critically important to our democracy.”

The economic problems in the newspaper industry cannot be disputed. Facing significant declines in revenues, newspapers across the country have closed, ceased publishing daily editions, slashed staffs and filed for bankruptcy protection. Those hanging on are scrambling to find a way to survive in an online world that expects free content and minimal advertising.

The Newspaper Revitalization Act, Cardin claims, will ease these problems by allowing newspapers to avoid taxes. By becoming a tax-exempt nonprofit organization, a newspaper no longer would pay taxes on advertising and circulation income. Moreover, contributions to the newspaper to support coverage or operations would be tax-deductible.

To become a tax-exempt nonprofit organization, however, a newspaper would have to surrender much. A 501(c)(3) organization may not attempt to influence legislation as a substantial part of its activities or participate in any campaign activity for or against political candidates. A tax-exempt newspaper thus clearly could not endorse candidates for political office or propositions in state or local referenda. While not clearly prohibited, traditional newspaper features like opinion columns, news analyses and investigative political reporting also would seem to be at risk. Overseeing all of these rules, of course, would be the government, a threat that leads most commentators to agree that the bill is too unworkable to be taken seriously.

Pundits from every point on the political spectrum have taken to the airwaves and editorial pages to speak against the measure. For liberals, the bill is a sinister intrusion on sacred First Amendment rights that, no matter how poor the newspaper economy, must be resisted. For conservatives, the legislation is a not-so-subtle bailout of liberal publishers that wreaks havoc on the free market and discourages innovation in the industry.

In almost every case, however, the attacks on the Newspaper Revitalization Act are tempered by a head-shaking, should-shrugging, eye-rolling confidence that the bill is too “out there” to ever become law. After all, the measure has only one co-sponsor, Barbara Mikulski, Cardin’s fellow Democratic senator from Maryland. It was referred to the Senate Finance Committee, where it will compete for attention with issues like AIG bonuses, auto industry restructuring, budget deficits and stimulus packages. To many, the Act is just another goofy idea that, no matter how well-intentioned, is destined for the ash heap of history.

Except …

Except that not everyone thinks Cardin’s idea is goofy. John Sturm, the president and chief executive officer of the Newspaper Association of America, told the Associated Press the bill was a positive step and praised it for recognizing that “changes in the law might be necessary to provide a boost to newspapers trying to weather this difficult economic period.”

Others, like Mitchell Stevens, professor of media history at NYU Journalism School, think the NPR model has merit. Stevens told Fox News he thought Cardin’s bill was worth considering, noting that “it works pretty well for NPR, which is one of the top journalistic organizations in the country.”

And others, like Robert Lang, chief executive officer of the Mary Elizabeth & Gordon B. Mannweiler Foundation, have for some time been studying ways that government could financially support newspapers without violating the First Amendment. Lang told Fox News he thought the Newspaper Revitalization Act “could work” and suggested its primary importance was introducing the issue into the public debate.

Whether the bill is like William Seward’s purchase of Alaska or Gary Hart’s defiant challenge to reporters thus remains to be seen. The debate concerning it, however, is significant for the futures of both the newspaper industry and the First Amendment.

It used to be, of course, that those futures were inextricably intertwined. Now — for at least some newspapers — that might no longer be the case.


Related

Senator proposes nonprofit status for newspapers

Maryland Democrat Benjamin Cardin introduces bill that would allow newspapers to choose to become tax exempt; they would no longer be able to make political endorsements. 03.25.09

Obama administration: No new antitrust relief for newspapers

Industry representatives tell House subcommittee they need more legal flexibility; lawmakers question whether crisis isn't self-inflicted. 04.23.09

Wash. Legislature OKs tax cut for newspapers

If bill becomes law, business and occupation tax on newspapers will be cut by 40% through 2015. 04.28.09

Senate hears dim forecast for newspapers' future
Layoffs, closings and cutbacks have turned nation's newspapers into 'endangered species' as readers and advertisers rush to Web sites, says John Kerry, subcommittee chairman. 05.07.09

Wash. governor OKs tax break for newspapers
New law gives newspaper printers and publishers 40% cut in state's main business tax. 05.13.09

Weekly newspaper gets loan from N.C. town board
'Industry ethics expert says move could present problems: 'It throws a monkey wrench into the whole watchdog role. 05.22.09

Newspaper industry appeals to Congress for tax break
'Newspapers need cash now to preserve jobs next year,' says John Sturm, president and chief executive of the Newspaper Association of America. 09.25.09

Report urges action to preserve journalism
Report, co-authored by Len Downie, formerly of Washington Post, argues government, universities, foundations should step in as newspapers suffer financially. 10.21.09

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