April 6, 2022

Let’s not discuss the Local Journalism Sustainability Act. Sure, it’s important. It’s a plan for federal and possibly state governments to subsidize local journalism, something that’s vital to democracy but endangered in recent years by shrinking revenue and greedy Wall Street investors. But that’s boring. Let’s instead ponder mozzarella cheese. It’s yummy.

That’s right: We’re going to contemplate mozzarella cheese in a publication, Poynter.org, devoted to important journalism issues. Relax, it’ll make sense.

So: cheese. We’ve all seen the old-fashioned, mom-and-pop pizza joints pushed aside by large national chains. The big guys are interested only in the bottom line. If they can improve profits by, say, putting one ounce less cheese on each large pie, they will. Customers won’t notice. Or, if they do, any lost sales will be covered by the cost savings. So, less cheese it is. (You get that mozzarella cheese stands in for journalists in this analogy, right? We’ll get there.)

Cheeselovers cry foul. But there’s little they can do. So the government steps in. It’ll fund the foregone cheese. But government can’t actually buy mozzarella cheese and toss it onto your medium Sicilian with mushrooms. That’s not practical. Instead, the government can send money to cover the cost of the cheese to the pizza-store owners, who will in turn restore their pizza to its cheese-engorged glory.

Or not.

They could just leave the pizza alone and pocket the taxpayers’ money. Their recipe has already proven to be a successful business model — not a successful gastronomical experience, but a successful business model — so there’s no reason to improve it.

This is the problem with the Local Journalism Sustainability Act. It calls for the government to send money to exactly the greedmongers who are destroying newspapers in the first place, with no real requirement that they use it to sustain local journalism. They’ll get richer, while those who value local journalism will have wasted time hoping for something that isn’t going to happen.

Support for the act among journalists and those who appreciate journalism’s vital role is widespread. Google it to see for yourself. The arguments are often erudite and passionate about why journalism matters. But it’s the wrong argument. That journalism matters is inarguable. The problem is that the Local Journalism Sustainability Act won’t help.

Depending on its final form, the act would give a tax break to publishers to subsidize each journalist’s salary. Less consequential, the act might also include a tax credit to local advertisers and a credit to subscribers. Floated as far back as 2020, the act has gained wide support in Congress and is part of President Joe Biden’s “Build Back Better” initiative. At the moment it is stalled, but some state legislatures have taken up the cause with proposals of their own.

A tax-code primer (Ugh)

To understand the flaw in the journalism sustainability act you have to understand how the tax code works. (Caution: The following contains math.)

It’s not unusual for a government to use its tax code to encourage specific social goals. The federal tax code encourages homeownership, for example, by allowing a deduction for mortgage interest. It likewise encourages higher education. And retirement savings. And now, perhaps, local journalism.

But there are two kinds of credits you can get on your federal tax return:

  • A nonrefundable credit means you get money from the government for participating in certain activities, but only up to the amount of tax you owe. Let’s say you owe $300 in taxes and get a $500 credit for contributing to a retirement account. The credit wipes away the $300 you owe, but the government doesn’t give you the extra $200. That would be crazy. Well …
  • Some tax breaks are refundable, which means, in the above example, the $500 credit would wipe away the $300 you owe and you’d get a $200 check from Uncle Sam. Nice.

The credit proposed in the Local Journalism Sustainability Act is — you guessed it — refundable. But it’s not going to be a $200 check, as in the example above. It’ll be millions. And remember how our greedy pizza chains don’t have to resume the recipes they changed to make an extra buck? Publishers won’t have to enhance journalism, either.

More math: As it is currently proposed, all but the largest publishers in the local news industry would get a tax credit up to $25,000 for each journalist they employ. If the company pays less than $25,000 in employment taxes for a worker — which will surely be the case — it gets a government check for the difference, because this is a refundable credit.

Ideally, a publisher could use the taxpayers’ subsidy to hire more reporters, enhance journalism and serve its community. Let’s say, for example, reporters make $50,000 per year. The publisher would get $25,000 from the government to subsidize its first reporter, and another $25,000 to subsidize its second. Put the two subsidies together and (do the math) the publisher has enough to hire an additional reporter. But nothing compels a publisher to do that. It can keep the staff it has and pocket the money.

Refundable tax credits typically require specific actions. You want a tax break for employing former felons? You have to actually hire former felons. A credit for deploying electric vehicles in your business? Ditto. As proposed, though, the refundable tax credit for hiring journalists requires little.

How long do you think it’ll take the big publishers to figure that out? Surely the successful Wall Street hedge fund that owns the nation’s second-largest newspaper chain already has. Its founder didn’t get to own a dozen Palm Beach mansions without a little financial acuity.

The CEO of the nation’s largest newspaper chain said on a company earnings call in November that passage of the journalism sustainability act would be worth $30 million to $35 million to the company. Great news for shareholders. How it would make journalism better he didn’t say.

It’s true that for journalism to thrive, publishers must be financially viable. In the long term, that’s going to be an issue. In the short term, most newspaper owners won’t disappear. Yet the journalism sustainability act only shovels money to them in the short term, when it’s not needed for survival and therefore a short hop to the bottom line. Depending on its final language, the proposal would reduce and then eliminate the tax breaks after a few years, when it might be vital.

This proposal doesn’t ensure viability. It improves profitability.

If we think large newspaper companies will use the tax break to fortify their journalism, shouldn’t we wonder where that civic-mindedness is now? Profit margins are healthy enough; a margin that’s one or two percentage points lower isn’t going to hurt.

They won’t because they don’t have to. They’re producing a product at the lowest possible cost without losing enough customers to make a difference. Businesses always do this. Perhaps we just got spoiled in an era in which news organizations understood their noblesse oblige. Perhaps even the large chains could invest in journalism when they were rolling in record profits a few decades ago.

Now, though, it’s just the bottom line. Less cheese on the pizza. Less journalism in the community. More mansions in the portfolio.

If that’s business, so be it. But taxpayers don’t have to subsidize it. And journalists shouldn’t put their faith in it.

Help for the little guys

The Local Journalism Sustainability Act could be the necessary lifeline for the great small newspapers that are still around. It could help the startups and nonprofit news organizations filling the void left by decimated news organizations. There are many wonderful ones. Presumably, they’ll use a tax credit for its intended purpose. That would be satisfying. But does it justify a windfall to Wall Street?

Worse, for every news website that would use a subsidy for good, there is surely one spewing conspiratorial nonsense that would use a government subsidy for bad.

Worse still: The subsidy could encourage a proliferation of harmful sites. You know your racist uncle whose Facebook page offers the most ridiculous and ugly blather? Move his content from a social media site to a cheap web host, and bring on the government cash. There’s a low bar to get it: The journalism sustainability act, depending on its final form, might require that a publication employ at least one local journalist (Racist Uncle, check); that a publication be print or digital (check); that it be aimed at a local audience (check); and that it contain original content (a big check mark here: Racist Uncle is nothing if not original).

There are better ways. There are philanthropic efforts that target resources to specific journalism activities. There are methods of public funding that don’t throw money at profitable businesses. There are efforts to get government and private donations for trustworthy, independent news providers. There are startups relying on old-fashioned advertising and reader revenue.

It’s not enough. None of these offer the generous, quick and far-reaching impact that a Local Journalism Sustainability Act promises. But that’s just it. It’s a promise. An empty one. It won’t work.

Unless you own the company and want another mansion.

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Howard Saltz is on the journalism faculty at Florida International University in Miami. A Pulitzer Prize-winning editor, he is the former publisher and editor-in-chief of…
Howard Saltz

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