A glitch in the Republican tax overhaul has created an uncertain future for Newman’s Own Foundation and the food company it operates.
The company was founded by the late actor Paul Newman. 100 percent of its after-tax profits are given away by the Foundation.
This unique arrangement, which has had congressional support for a decade, is now in jeopardy.
The Newman’s Own story began in Westport, Connecticut, in 1982. Paul Newman decided to give away his homemade dressing to some of his neighbors for Christmas, and soon they were knocking on his door for more. Eventually, he started making enough of the dressing to distribute to local supermarkets in Connecticut.
As Newman put it in a 1997 interview with NPR, “Things kept escalating and at the instant that I decided it would be a business, then I realized you would have to give all the money away.”
Over the years, the food company grew, and so did Newman’s charitable giving. To date, the Foundation has given away more than $500 million.
When Newman passed away in 2008, he left the company to his Foundation. And that’s when the tax problem started.
In 1969 – the year Newman starred with Robert Redford in “Butch Cassidy and the Sundance Kid” – Congress passed the Tax Reform Act, which among other things, prohibited foundations from owning more than a small portion of a for-profit enterprise. This was to prevent wealthy people from using foundations as tax shelters.
“At the time, they didn’t say, OK, what if somebody comes along and has no intention of abusing these laws. Is there a way we can keep a door open? That never occurred until Paul Newman came along in 1982,” said Bob Forrester, president and CEO of Newman’s Own Foundation, “So under the ‘69 rule, Newman’s Own Foundation, which Paul set up to carry on his commitment to donating 100 percent of profits to charity, must divest itself of at least 80 percent of its ownership of Newman’s Own, Inc., the food company.”
Under the 1969 tax law, Newman’s Own had five years to divest itself from the business after Newman’s death in 2008, or face a 200 percent tax on its assets.
Newman’s Own was able to get congressional support for a waiver to extend that an additional five years. That waiver expires in November 2018.
And that’s where the Republican tax bill comes in.
A provision to continue the waiver for Newman’s Own was included in both the House and Senate tax bills. It had support from Republicans and Democrats.
At the last minute, the provision was struck from the bill due to a technicality. The Republicans had used a process called reconciliation that allowed them to pass the tax bill with 50 votes, instead of the 60 votes required by Senate rules.
“The Democratic side was not happy with how the Republicans were handling this so they challenged a number of provisions on this basis and the parliamentarian agreed with it,” Forrester said. “Therefore, we were scratched – struck [was] the word they used – from the tax reform bill.”
Forrester is hopeful that lawmakers will find a way to pass the waiver for Newman’s Own in the next couple of months. If that doesn’t happen, the Foundation would be forced to divest itself from the food company.
Forrester said that would mean Newman’s Own would not be able to continue its charitable work at anywhere near its current level.
Disclosure: Newman’s Own Foundation is an underwriter with WSHU, NPR, and other public radio stations.