Will plan for tax-exempt newspapers sink or swim?

Wednesday, April 1, 2009

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

“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

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

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

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.

Tags: ,