My paper route had about 45 customers along a rural lane in upstate New York. Among the things I learned first hand: the drudgery and cost of getting a bundle of newsprint on the stoops of private homes every afternoon. Today newspapers still have that problem, but in this digital age it pales in comparison to a broken business model that has many urging newspapers to become non-profit charities.
The idea of non-profit news may be new to some, but among us old press hands it is old news. The 163-year-old Associated Press and The St. Petersburg Times (Florida) are non-profits.
The Christian Science Monitor has been a non-profit since 1908. The Delaware State News, The Day (a New London, Conn., newspaper), the BBC, NPR, PBS and my employer, C-SPAN, also are all non-profits. But being a non-profit news outlet does not necessarily insulate you from the seismic shift of advertising to the Internet, as the AP and the Monitor can attest. So, why is non-profit status for newspapers regarded as a solution to the collapse of their business model?
Non-profit charity status is regarded as a solution because, with the stroke of a pen, a newspaper would have two additions to its bottom line: no taxes and cash from donors who could deduct their contributions from their personal income tax. But I don't think it is the solution, for both practical and policy reasons.
Given the horrible (in my opinion) trend for newspapers, a changed tax status won't change the reality of the market. Even if some of these organizations survive as charities, they probably won't be distributors of the daily paper-based product we have come to know and love--that would be too expensive. Everything will be online. And consider what a newspaper would look like if it were produced by a charity. Would the tax system subsidize the production of popular and highly profitable "news" such as sports, celebrities, lifestyle and business? Probably not, which means a charity newspaper would have to focus on straight news reporting, which easily falls within the ambit of an "educational" purpose deserving of a tax exemption. It so happens that straight reporting, including investigative reporting, is exactly the thing we must preserve lest we drown in the sea of the often-uninformed opinion found on the Internet. That is a good thing to preserve, but the result will not be newspapers as we know them.
As a First Amendment fan, I am most troubled by the prospect of the IRS having authority over the content of news. The issue cannot be pooh-poohed away because the entire basis of a newspaper's tax exemption would be its news reporting. That means the paper's very existence is beholden to the government. It would be very easy for an IRS examiner to conclude that a crusading series on municipal corruption went beyond an "educational" purpose, or in some other way did not serve the community. More likely, a paper could be said to have participated in an election if its coverage of the candidates seemed to an examiner (i.e., not a journalist) so one-sided as to constitute an endorsement. That would violate Section 501(c)3 of the Tax Code.
Of course, at this early point in the discussion, everyone is on their good behavior and saying they would never use a tax audit to intimidate editors and publishers. We want to save newspapers, not turn them into propaganda sheets (or Web sites).
A new Senate bill that would allow charity papers to avoid tax on advertising income presents a difficult policy problem that could undermine the whole effort. Everybody else in the non-profit sector must pay tax on most advertising. How do you justify an exception for newspapers that effectively swallows the rule? I can hear the complaints now.
Charity news might be a solution, but not the solution. Better we should let this new market work rather than distort it by tinkering with the tax law.