3/25/09

ANALYSIS OF THE NEWSPAPER REVITALIZATION ACT

The Newspaper Revitalization Act introduced by Sen. Benjamin Cardin, D-Md., would permit newspapers to operate as not-for-profit entities under the tax code and is being heralded by some observers as a means of saving newspapers, much as was the Newspaper Preservation Act of 1970. Good purposes aside, it is useful to study the act to determine whether it will actually accomplish the goals that are stated as its rationale.

The bill is a small bill, about 435 words, that would amend the IRS Code of 1986 to permit newspapers to be given 501(c)(3) status, thus obtaining tax exempt status and the ability to accept charitable contributions. Currently tax laws do not permit newspapers to be operated tax exempt, but they do have mechanisms that permit foundations to own them or support them financially.

Paragraph (b)(1) of the bill would allow general circulation newspapers “publishing on a regular basis” to establish themselves as tax exempt organizations. The language does not limit periodicity so daily, bi-weekly, weekly, monthly, and other combinations would be possible. It would thus permit a range of neighborhood and community non-dailies, as well as dailies to use the mechanism.

Paragraph (b)(2) stipulates that the newspaper contain “local, national, and international news stories.” This section is somewhat problematic because non-dailies, particularly neighborhood and community papers, do not typically carry national and international news and nationally oriented dailies do not typically carry local news. The bill contains no provisions that require local creation of content, thus allowing publishers to fill a paper only with syndicated material or other content produced elsewhere.

Paragraph (c) permits advertising, but limits it “to the extent that the space allotted to all such advertisements….does not exceed the space allotted to fulfilling the educational purpose of such qualified newspaper corporation.” This provision is apparently intended to ensure advertising does not dominate the content and effectively limits advertising to 50 percent of the content. This provision, however, is problematic because daily newspapers and most non-dailies currently contain two-thirds to three-quarters advertising. Indeed the regulations governing Post Office (USPS) distribution limit advertising to 75 percent.

The bill does not require that newspapers have paid subscriptions or even requests to receive the paper, as do USPS regulations, so it would apply free circulation papers.

By giving not-for-profit status to newspapers, the bill would also make the paper eligible for USPS not-for-profit rates, which would permit lower postal delivery rates for such papers than those afforded for-profit papers. This might raise issues regarding the fairness of competition if commercial publishers exist in the market

It should also be noted that the bill makes no provision to limit payments to publishers and editors. This creates the potential for some abuse. A small commercial publisher could use the mechanism to become “non profit” to avoid company taxes by not taking compensation from profits but taking a higher salary instead—effectively letting tax payers subsidize his/her income.

One drawback of using 501(c)(3) status is that entities are not permitted to engage in direct political activities, such as endorsing candidates for local, state, or national office or possibly even taking positions on governmental proposals. This would somewhat limit the scope of content and could lead to IRS investigations if complaints were made to the IRS that a paper was taking sides, was too conservative or liberal, or evidenced some other kind of agenda that was deemed political activity.

It appears that the overall effect of the bill would be limited. It will be appealing to very few dailies and most neighborhood and community papers will have difficulties complying with its content and advertising requirements. Even with tax exempt status, the costs of creation, publishing, distribution of a newspaper probably can not be covered by many publishers with a 50 percent ad limit, unless they are especially effective at raising charitable contributions over time.

The bill appears to be well intentioned, however, it can not solve the problem it purports to address in its current form and creates potential for some abuse.

5 comments:

Sipper said...

Very interesting analysis. Do you think this is an issue that politicians in greater numbers would rally for? Newspapers are fairly populist, inherently, so it might be politically savvy to campaign to save newspapers.

Robert G. Picard said...

In the past politicians have been fairly supportive of the newspaper industry and have provided exemptions from some taxes, child labor laws (for carriers), and antitrust laws. There is no reasons to believe they would have a different inclinitiation when it comes to backing a campaign for not-for-profit status.

If it happens, we can hope that the process improves the suggestions made by Sen. Cardin.

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caught said...

The Bill is S673. In the final sentence of the analysis, Mr. Picard says that the bill seems well-intentioned. How many times have we heard that? It is not well-intentioned at all. This is another ploy by this administration to increase taxes, as well as to tax the use of cyberspace, and increase taxes on purchases. The concept is to use a seemingly innocuous piece of legislation, and then increase the taxes by regulation
http://www.rasmussenreports.com/public_content/business/general_business/june_2010/74_oppose_taxing_internet_news_sites_to_help_newspapers

Anonymous said...

I support it. I hope this bill can garner support. Newapapers have been hit hard since the computer age, and in my opinion all major cities cannot afford, democratically, to be without at least one independent paper. Hopefully, if the bill passes, politically charged content, as long as it gives a voice to at least two sides of the story, will be allowed as part of the free press in a 501(c)(3) (or other tax-exempt) environment.