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Nieman Journalism Lab
Pushing to the future of journalism — A project of the Nieman Foundation at Harvard

Government-free* nonprofit journalism, asterisk included

Here’s a test for nonprofit journalism and its stakeholders.

The following sentence comes from the “Contribute” page of a nonprofit journalism organization. What’s wrong with it?

The [organization] neither accepts nor receives any government or taxpayer-financed grants and relies solely on the generous support of our donors.

The answer is…nothing is wrong.

Ha! It was a trick question. The website belongs to a news organization that says it helps produce independent journalism and doesn’t like the idea of government supporting its work. No problem.

But in the same breath, the organization informs its potential donors: “Your donation…is tax deductible to the fullest extent of the law under Internal Revenue Service Code Section 501(c)(3).”

Now we have a problem.

The organization I am zinging here, the Franklin Center for Government and Public Integrity, believes that tax deductions for donors aren’t the same thing as government support. “Our generous contributors are not funding government support of journalism when they donate to the Franklin Center,” Jason Stverak, the group’s president wrote in an email. (Complete response below.)

Economists disagree. Charitable deductions are known within the realm of economics as “tax expenditures,” and according to Stanley Surrey, the former assistant Treasury secretary who coined the term, they’re no different than direct government spending.

“Whatever their form, these departures from the normative tax structure represent government spending for favored activities or groups, effected through the tax system rather than through direct grants, loans, or other forms of government assistance,” Surrey wrote with coauthor Paul McDaniel (emphasis mine).

The Heritage Foundation offers a similar definition. It says in part: “The word ‘expenditure’ is used to highlight the similarity between the use of the tax code to provide advantages to a select group and the more traditional method of giving the group a slice of the federal budget.”

Last month, I took WikiLeaks to task for promoting itself as a cutting-edge proponent of transparency in government while failing to disclose much of anything about its own funding and expenditures. My gripe, in a nutshell, was that WikiLeaks’ adherence to a double standard undercuts not only its own credibility, but also that of the entire nonprofit sector in journalism.

Like WikiLeaks, the Franklin Center seeks to “advance the cause of transparency in government” while it also withholds information about its own finances. But it slides further down the slippery slope when it condemns the idea of government support for journalism and then makes that condemnation a central selling point in its case for philanthropy — tax-deductible philanthropy, no less.

The Franklin Center isn’t alone. In Idaho, the Idaho Freedom Foundation, publisher of the nonprofit Idaho Reporter says this on its “Donate” page:

The Idaho Freedom Foundation relies solely on the generosity of individuals, foundations, and corporations that share its commitment to freedom. IFF does not accept any government funding. IFF is a tax-exempt organization under section 501c3 of the Internal Revenue Code. U.S. citizens will find their contributions to be tax-deductible to the extent allowable by law.

Some of the biggest names in the world of Washington think-tankdom commit the same offense. They include the Progress and Freedom Foundation and the Heritage Foundation, both of which oppose the idea of government policy changes to support journalism.

I’m not here to flog the Franklin Center or any of these other organizations for their ideology. I know from a decade of reporting on Capitol Hill that it’s darned hard to maintain one’s purity when money is involved. But those who count themselves among the nonprofit sector in journalism should walk their own talk: Tax deductions for donors are government support. Any nonprofit organization that says it “relies solely on the generous support of our donors” while also promoting the charitable tax deduction available to its donors is issuing, at best, what the late Ron Ziegler might have called an inoperative statement.

The fact is, government subsidies for journalism are everywhere. In addition to the charitable tax deduction, they include mechanisms such as favorable postal rates and revenue-producing legal-notice requirements. Geoffrey Cowan and David Westphal of USC identified these government subsidies to journalism in a report earlier this year and argued that they were intended by our founding fathers to help support a vigorous press.

If you don’t buy their argument, another proponent of the view that tax deductions constitute government support is view is Sen. Chuck Grassley. The Iowa Republican has been a tireless watchdog over the nonprofit sector, and the charitable tax deduction has been his entry point to investigations of hospitals, athletic booster clubs and other 501(c)(3)s.

So what to do in a world of ambiguity?

One solution would be for journalism nonprofits that oppose government support to refund the value of donors’ tax deductions to the U.S. Treasury. The Franklin Center recently named an advisory council that includes well-known journalists such as Tucker Carlson, and maybe that body could take up the idea at their next meeting. But I’m not holding my breath for that to happen.

Here’s another scenario: What if Grassley slipped in a legislative rider ending the charitable tax deduction for organizations involved in journalism? I bet the nonprofits mentioned above would howl like holy heck.

Perhaps the best thing would be for these organizations to acknowledge the reality of their dependence on government support and focus instead on journalism. They have a lot to contribute from their point of view, and that should be reason enough for readers to support them. Until then, a little more transparency might be in order. If journalism nonprofits want to denounce government support while promoting tax deductions for donors, they should add an asterisk and a disclaimer to their solicitations for support. It’s the transparent thing to do.

I asked representatives of several journalism nonprofits whether they thought tax deductions constituted government support. Here is the full response I got from Jason Stverak of the Franklin Center.

Our generous contributors are not funding government support of journalism when they donate to the Franklin Center. In fact, the Franklin Center strongly believes that government intervention in media will create greater problems than the struggling newspaper business is currently enduring. If government intervenes in the news industry, journalists will no longer be able to report credibly on stories that matter to the people, but ultimately only on what matters to officials. Journalists may ignore scandal and corruption for fear of losing government funds. They could become political flacks and write to appease government instead of investigating it.

Drawing the conclusion that every donation to a non-profit 501 c3 is supporting the government in some way is incorrect. Tax deductions for gifts to houses of worship are not funding government support of religion and tax deductable donations to health care associations are not supporting government healthcare.

Photo by Jacob Kearns used under a Creative Commons license.

                                   
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  • Matt

    Yeah, but tax deductions aren’t straight-up government subsidies. NPR receives a government subsidy. Voice of America and Radio Free Europe, too. By allowing contributors to deduct their donation from their taxes you’re creating an incentive to donate. The people donating aren’t forced to do so as a more direct government subsidy would.

    A straight government subsidy – government giving money directly to a media company – complicates things tremendously. Now you’re beholden to government interests to keep your head above water. Tax deductions, not so much. Unless the tax code changes, the donations an organization receives will always be tax deductible.

    And the meme that all journalism is government funded need to die. What happens when the New York Times stops printing, as was predicted last week?

  • http://www.google.com/profiles/tdeburca Tiarnan de Burca

    There is a world of difference between a government that allows a space for journalism to exist and a government that pays journalists or owns the organs of publication.

    One is a tax brake, one is Pravda.

    This comes down to the fact that taxation isn’t optional. Creating a space where news can be funded by people who want to is completely different from creating an organization directly funded (and consequently beholden to, the state.)

    The BBC is a glorious exception, but I’ve no faith in the ability of even a very well meaning government to replicate it’s independence.

  • Bob

    “By allowing contributors to deduct their donation from their taxes you’re creating an incentive to donate.”

    —————–

    Great… For the company; except if the government isn’t supporting them, why is Uncle Sam the one offering an incentive?

    He’s not saying this is unfair because they are allowed to do it (hell you can write off gambling expenses on your income tax), it’s a foul because they -say- they have no government ties, then turn around and expect the government to pay up on those “incentives” for their (lets be honest) customers to donate to them.

    The point is these companies should either own up to the fact that they are utilizing their parent government to run their respective businesses, or stop telling people they can use uncle Sam to pay up for their own [non-]profits.

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  • http://report.globalintegrity.org Jonathan Eyler-Werve

    Full disclosure: I’ve worked at nonprofit journalism institutions since 2001. My current employer’s donors are institutions, and thus do not receive the tax incentives objected to here.

    I think this is a really superficial analysis of how governments influence media. The any-money-is-a-taint frame of analysis usually just serves to muddy the water and thus let real problems hide in the murk when they could be understood and fixed.

    In particular, when you look at all revenue sources for news (and let’s put advertising revenue right back on the table during this conversation) the issue is not whether the revenue flows, but who controls it and what is the relationship between the editor and moneyman. What you’re looking for is responsiveness – how does editorial content that someone doesn’t like impact the flow of money. If there’s a link, there’s a problem.

    Let’s take this tax-break-for-donors thing. First, the tax break is automatic for a 501c3 nonprofit corporation. It’s not discretionary, so there’s no middle level regulator musing over a bunch of nonprofit e-newsletters deciding who gets the best tax breaks. Applying for 501c3 status is predictable, routine and stable.

    Can you point to a single example of a nonprofit news organization having that status challenged? Because that would be the ONLY mechanism by which “the government” (and you don’t trouble to clarify who that actually means) could turn off the money flow. Sitting on a payment wouldn’t work because there is no payment to stall. The only way to apply pressure is killing the 501c status. In practice, that would require a big, transparent show of force that would almost certainly be counterproductive. It would also require some pull with the IRS, a body that is not exactly nimble in response to outside pressure. But these are all hypothetical, because despite a rather rowdy and diverse US nonprofit news sector, this never happens.

    But lets look at advertising for a moment. Advertising budgets are entirely discretionary, and the decision making is entirely opaque. Shifting ad buys from one pub to another is hard to notice, and might be entirely innocent. Which is why governments in Latin America prefer that as a means of putting pressure on opposition newspapers. Source: http://commons.globalintegrity.org/2009/01/government-advertising-as-soft.html

    Instead of suggesting that all nonprofit news is tainted, can we maybe be a little more tactical? I look at BP’s multi-million dollar newspaper ad buys during the oil spill, and I see some serious problems. But you’re on about tax deductions to the entire non-profit sector? You’re kidding, right?