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Tuesday, September 14, 2021

Tax Reform - Did You Think It Would Include a Tax Subsidy for Local Newspapers?

Newspaper with headline tax break for newspapers

This week the House Ways and Means Committee began marking up a tax reform bill to improve equity in our tax system, make modifications to have the system better comport with societal and environmental goals, and generate revenue to cover new spending particularly for infrastructure.

The list of changes under review includes several tax measures that were not included in President Biden's Build Back Better Greenbook. These differences include:

The markup (so far) also removed a significant equity proposal from the Greenbook. This missing item (at least at 9/14/21) is the repeal of the step-up in basis at date of death. A longstanding and significant exclusion for the wealthy that is hard to justify other than for some issues with small businesses which the Biden plan has a solution for. Will it get into a final bill? 

But this post is about tthe proposal at Sec. 138517 of the markup - "payroll credit for compensation of local news journalists." This is a refundable credit for the newspaper employer on up to $12,500 of wages per eligible employee per quarter at 50% of wages. It lasts for five years. A local newspaper is "any print or digital publication if the primary content of such publication is original content derived from primary sources and relating to news and current events" serving the needs of the local community, with at least one local news journalist residing in that community and the publisher has 750 or fewer employees during the quarter.  And there are a lot more rules and the wage deduction has to be reduced by the credit claimed. And like the employee retention credit (ERC) of the CARES Act and ARPA, the related party rule of §51(i)(1) applies.

I was surprised to see this proposal for a few reasons including:

1. Where did this come from? Well, I found H.R. 3940 and S. 2434, Local Journalism Sustainability Act (117th Congress) which also proposed such a credit. These bills also propose up to a $250 annual credit for subscribing to a local newspaper. As of 9/14/21, these two bills have 60 sponsors from both parties. So, some individual tax proposals out of hundreds offered each year made it into the markup.

2. This is an old issue! Back in June 2010 I came across a discussion draft by the Federal Trade Commission entitled: "Potential Policy Recommendations to Support the Reinvention of Journalism." I always intended to write a paper about it and similar enterprises and industries that were adversely impacted by the Internet, e-commerce and digitilization. The 2010 FTC report of 47 pages (which I printed in 2010 but would not do so today as a digital file would work fine) mentions "tax" 100 times (both about proposals and existing tax breaks for newspapers). I did not yet write the article (but I did write over 150 other articles since June 2010), but I still have the report (and readily found it!). An article on my Tax Notes State list of topics is to write about responsible and taxation where I would include an analysis of whether the tax law should give breaks to help struggling industries, among other tax design considerations.

That is an interesting question perhaps.  Should the government help industries that do not keep up with changes in how the world works? Many businesses watch the trends and change.  I recently listened to a wonderful book by Ursula Burns, the first female, Black CEO of a Fortune 500 company (Where You Are Is Not Who You Are: A Memoir, 2021)). Among many fasinating stories in her autobiography is how Xerox had to reinvent itself due to changes in technology. 

I think governments should review laws when major changes in how we live and do business occur to be sure the laws are up to date and not holding up progress. Are tax breaks or other subsidies needed? Maybe. It would be good if there were some criteria to help in these situations. We can all think of businesses affected by change including local bookstores, music CDs, 8-track players, local radio stations, and makers of computer diskettes.

Note: The 2010 FTC discussion draft does include the idea of a tax credit for newspapers for every journalist they employ (page 18).

Is this currently proposed tax credit for some local newspapers needed? A few considerations:

1. Equity - Does it treat similarly situated taxpayers similarly? No. Not all newspapers will qualify due to the definitions and the related party limit on wages. Also, looking more broadly, not all forms of local news distribution are eligible. For example, it doesn't apply to a local news radio station. And it doesn't help other struggling businesses.

2. Simplicity - No. Lots of definitions and special rules.

3. Neutrality - No. Local newspapers will likely make some decisions to maximize the credit they can get from the paper.

4. Economic growth and efficiency - Yes and no. I think there are benefits of a strong local newspaper for an informed populace. Is this federal tax credit (subsidy) the way to get there? Could the funds be used to help more types of local news distribution?  Compared to other proposals in the markup, the cost is low. The Joint Committee on Taxation says the cost is $1.3 billion over 10 years (but in effect for only 5 years) (JCX-42-21 (9/13/21)).  Query: Is it low because we didn't enact this proposal 10 years ago with the FTC noted it?  Is this low cost worth the experiment to see if it helps local newspapers?

5. Purpose - I don't see any rationale provided for the proposal. Without any purpose or goal stated, how do we know if it worked? It would be good to identify what help is really needed? Do subscribers need assistance to buy the local paper? Is a different distribution system needed?  A different funding model? I think that is the big issue hurting newspapers - advertisers found wider reach for their ads on social media and help wanted ads and for sale ads have other online outlets. Newspapers need advertising revenue to survive and that dropped.

Will this end up in the final tax reform bill? Should it?

What do you think?

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