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Tuesday, May 3, 2011

Schizer: Subsidizing the Press Through the Charitable Deduction

Tax Prof David M. Schizer (Dean, Columbia) has published Subsidizing the Press, 3 J. Legal Analysis 1 (2011). Here is the abstract:

Through beat reporting and investigative journalism, reporters monitor the foundational institutions of our society. This reporting has value even to those who never buy a newspaper or read a website. For example, subscribers and nonsubscribers alike benefit when government officials respond to a critical news story by eliminating an abusive practice. Yet unfortunately, the professional press is experiencing a severe economic crisis. Layoffs are pervasive, and news organizations across the nation are on the brink of insolvency. As a result, a number of commentators have proposed government subsidies for the press. Yet if the press becomes financially dependent on the government, would they be deterred from monitoring and criticizing the government? If so, the subsidy would undercut some of the social benefits it is meant to preserve.

In response to this conundrum, this Article proposes a three-part analytical framework for evaluating press subsidies. The first step is to assess how effectively the subsidy safeguards press independence. The second criterion, which this Article calls ‘‘focus,’’ gauges how effectively a subsidy channels resources to externalitygenerating activities, as opposed to other uses. For example, a subsidy that induces press organizations to hire more reporters is superior to one that can be used, instead, to fund pay raises for the advertising staff.The third criterion is political feasibility. How likely is a subsidy to attract political support? And how much political support does it need? One that can be implemented under current law, for example, requires less political support than one that depends on broad new legislation.

Based on this framework, the principal recommendation of this Article is for news organizations to make greater use of the nonprofit form. By providing a subsidy through the charitable deduction, we would not empower the government to choose how much funding to allocate to each news organization. Instead, the charitable deduction allows the government to piggyback on the judgments of private donors about which nonprofits to support. In addition, this subsidy is feasible. This Article also considers four alternative subsidy structures, highlighting their strengths and weaknesses and showing the tradeoffs they present. politically since it already can be used, to a significant extent, under current law.

http://taxprof.typepad.com/taxprof_blog/2011/05/schizer-subsidizing-.html

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Comments

"Yet if the press becomes financially dependent on the government, would they be deterred from monitoring and criticizing the government?"

No, just those politicians who favor funding them. Can you say "NPR?"

Posted by: Woody | May 3, 2011 9:11:31 PM

40 years ago, before my IRS and tax law career, I was business manager of a monthly magazine published by a group of Chicago journalists who tried for years to talk IRS into granting 501(c)(3) status. Finally, one of our supporters arranged for Arnold & Porter to ask IRS about the delayed decision, and we received a favorable ruling within months.

Back then, 501c3's and their employees did not have to pay Social Security taxes. The exemption letter was retroactive, and we survived for several months on the tax refunds. I used to worry about the hole in my Social Security earnings record -- another one was caused by federal government employment -- but as it turns out, my eventual benefits are not affected.

Among other duties, I made the Addressograph plates for subscribers. Some of those names still turn up, in stories about the early political career of Barack Obama.

Posted by: Bob | May 4, 2011 11:47:53 AM