As the GOP leadership in Congress begins the process of writing tax reform legislation, many ideas are reportedly under consideration, including one that would tax the First Amendment.
The consideration of “new revenue” is driven by the desire to make tax reform revenue neutral. One idea under review is taxing advertising to make it only 50 percent deductible, with the other 50 percent amortized over ten years.
Since the founding of the federal income tax, companies have always been able to deduct 100 percent of their advertising costs as a business expense, just as they do for expenses like research and salaries. Today, some politicians perceive tampering with this set-up to be a large source of potential tax revenue. Doing so would be a terrible, costly idea.
Remember that all these members of Congress took an oath to uphold the Constitution of the United States when they took office. The Supreme Court has already said Congress may not tax advertising. Constitutional lawyer Bruce Fein, writing for the Huffington Post, pointed out that, “Commercial speech is protected by the First Amendment. In overturning a prohibition on legal advertising in Bates v. State Bar of Arizona (1977), the Supreme Court reaffirmed that free speech includes paid advertisements or solicitations to pay or to contribute money.”
Our representatives should consider how important advertising is to our economy before taxing it to death. According to a 2014 study, advertising accounts for more than $5 trillion in annual sales, or about 16 percent of the U.S. economy. Ad spending stimulated 20 million jobs, approximately 14 percent of total U.S. employment. Given these stats, it should not be surprising that a short-lived advertisement tax in Florida destroyed about 50,000 jobs in six months, and its cost of implementation far exceeded the additional revenue it brought in. There is no doubt as to the economic destruction that might result from taxing advertising on the federal level.
What effect would come from such a tax? Amortizing half the deduction for ten years works for large corporations that have more revenue and can plan their marketing campaigns far in advance, but small business owners will certainly spend less on advertising if they lose that deduction. This will be just another instance in which public policy favors bigger companies at the expense of the less well-to-do.
Local newspapers would be the next casualty. Declining already, many of them rely on advertising for about 70 percent of their revenue and would thus be forced to close their doors. On top of that, local businesses support and depend upon these newspapers for promotion, so their longevity would be endangered by this tax as well.
The political considerations that would be opened by this proposal are beyond reasonable. Rep. Rosa DeLauro, for instance, already has a bill filed in Congress that would remove the advertising deduction for “junk food.” What other deductions could be removed for the satisfaction of other agendas? Government bureaucrats have long been on a campaign to stop conservative “political bias” through legislation and bureaucratic fiat. Once this precedent is established, how long will it be until progressives remove deductibility for advertising in the Washington Times, National Review and other publications seen as overly-Republican? Where would this end before it would lead to no deductions at all?
Many members of Congress are seeing the wisdom in opposing the removal of advertising deductions. Reps. Kevin Yoder (R-KS) and Eliot Engel (D-NY) have circulated a letter, signed by 124 members of Congress, urging Congressional leaders to not include the advertising tax in the 2017 tax reform.
Bruce Fein also quoted the majority decision of the court in Bates v. State Bar of Arizona in 1977, which adequately underscores the importance that advertising plays in Americans’ everyday life:
“The listener’s interest is substantial: the consumer’s concern for the free flow of commercial speech often may be far keener than his concern for urgent political dialogue. Moreover, significant societal interests are served by such speech. Advertising, though entirely commercial, may often carry information of import to significant issues of the day. And commercial speech serves to inform the public of the availability, nature, and prices of products and services, and thus performs an indispensable role in the allocation of resources in a free-enterprise system. In short, such speech serves individual and societal interests in assuring informed and reliable decision-making.”
Implementing the Camp ad tax provision would no doubt have adverse effects on our struggling economy, as well as jeopardize the enforceability of the Constitution and Bill of Rights. Those are both key issues members of Congress, especially Ways and Means Committee Kevin Brady (R-Tex.), should remember when considering this issue in the larger debate of tax reform.