There are other inequities related to the Trib that have never even been mentioned by the legislative and political community. While CEO Smith and his staff of about 30 journalists and an army of interns are scouring the capitol for all the news that doesn’t offend, they are getting a huge tax break as a non-profit. Tax considerations are also an inducement for corporate giving to the Tribune. Unfortunately, tax laws are screwing the small, for-profit businesses engaging in reporting at the Texas capitol and competing against the Tribune.
Harvey Kronberg, who publishes the insightful “Quorum Report” on Texas politics and legislation, has only a couple of people on his staff to compete with the leviathan Tribune, but his daily newsletter has remained viable and popular. Kronberg, however, has to pay salaries along with operational costs, and then taxes on any profits. The owner and publisher of “Capitol Inside,” Mike Hailey, is also competing with Kronberg and the Tribune, and functions as an independent business attempting to build revenue and profit margins. In effect, when Kronberg and Hailey send their checks to the IRS, they are also underwriting the operations of the Texas Tribune, a competitor who threatens the very existence of their political newsletters.
The Business Coalition for Fair Competition (BCFC), a national lobby organization, describes the situation above as “unfair government sponsored competition with private business.” John Palatiello, who is president of the BCFC, testified before the House Committee on Ways and Means in February 2013 and asked Congress to address the “unfair advantages of non-profits” in the commercial marketplace.
“The effect of these special privileges,” Palatiello said, “is that government policy not only reduces the costs of non-profit organizations, but it also raises the costs of doing business for their for-profit competitors. Profit seeking firms must pay higher taxes and postal rates to offset the subsidies accorded non-profits. Thus, because of this preferential treatment, competition between non-profits and for-profits is inherently unfair.”
In an historic report by Ways and Means more than a half century ago, Congress laid the predicate for non-profit tax benefits, and by any reading, the Texas Tribune is a business, and does not deserve to be exempt from the same taxes paid by Kronberg and Hailey.
“The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds and by the benefits resulting from promotion of the general welfare,” the committee wrote.
The unmistakable interpretation of those words is that unless the non-profit is providing a service not available through commercial businesses, it ought not to be tax exempt. John Thornton and his CEO Evan Smith might argue that there was not sufficient government and political news at the capitol but adequacy is not the IRS’ metric. News is being provided by commercial, for-profit businesses, and if the Texas Tribune wants to do a better job at that endeavor they ought to compete fairly and pay their taxes. There is no basis in logic for the Trib to receive a tax exemption that disadvantages small business people like Kronberg and Hailey, and all the legacy mainstream media facing shrinking margins and making budget cuts that affect their ability to compete with the untaxed Smith Squad.
The IRS needs to conduct a full audit of the Texas Tribune. If it is shown the publication is operating as a business and generating revenue by selling ads and sponsorships, the exemption ought to be removed and the Trib made to compete with the rest of the capitol media on the basis of fairness. Tax exemption rules need to be more strictly interpreted. Current estimates are that they cost the U.S. Treasury about $40 billion annually. The Texas Tribune needs to contribute its share, and stop being provided a competitive advantage against other media companies.
No one has written about the Tribune’s hypocrisies and contradictions with any detail simply because they feared sounding petty or self-serving. Texas newspapers, some of which use the Tribune’s stories, can hardly be expected to criticize an editorial service they use or to publicly whine about unfair competition. The Quorum Report and Capitol Inside could expect its lobby and legislative information sources to go quiet because they, too, must function in a culture of cooperation that is implicit in the way business is conducted by the Texas Tribune.
Politics is a cruel game. Journalism is not supposed to play it, though. Reporters are expected to cast little lights into dark corners and illuminate the way government works and who has influenced its decisions. The Texas Tribune rarely lives up to that mandate and, instead, takes big cash from the people and institutions it is supposed to hold accountable. Money is coming in the door as fast as integrity and credibility are running out.
In less than five years, the Texas Tribune has gone from being an exciting startup to a hypocritical, money-grubbing promotional operation wearing a coat of many colors that it wants desperately to convince everyone is actual journalism. But it is not. There is no reason to any longer take the Tribune seriously as a news organization. They simply cannot be trusted.
The big brains of the Texas Tribune were supposed to save journalism. Instead, they are busily speeding up its extinction.
And they ought to be ashamed.