No sale on an ad­ver­tis­ing tax

Tax­ing a busi­ness prac­tice that boosts the econ­omy would be cer­tain dis­as­ter

The Washington Times Daily - - OPINION - By Peter Weyrich Peter Weyrich is a con­ser­va­tive ac­tivist who has worked for a va­ri­ety of pro-free mar­ket or­ga­ni­za­tions in­clud­ing the Free Congress Foun­da­tion and Coali­tions for Amer­ica.

Rep. Kevin Brady of Texas, House Speaker Paul Ryan and the rest of the “Big Six” are cur­rently de­lib­er­at­ing over which de­duc­tions to keep and elim­i­nate for the 2017 Repub­li­can tax re­form pro­posal. Since rev­enue-gen­er­at­ing pro­vi­sions like the Bor­der Ad­just­ment Tax are fall­ing by the way­side, Mr. Brady is con­sid­er­ing chang­ing the ex­pens­ing of ad­ver­tis­ing to make up for the rev­enue short­fall. He should open some his­tory books be­fore do­ing so, be­cause al­ter­ing such a pro­vi­sion would clearly be un­con­sti­tu­tional, dis­as­trous for the econ­omy, and po­lit­i­cal sui­cide for Repub­li­cans.

Aside from a brief pe­riod dur­ing the costly Civil War, ad­ver­tise­ment spend­ing has al­ways been a 100 per­cent de­ductible busi­ness ex­pense. This makes sense given that the Supreme Court has his­tor­i­cally found com­mer­cial speech to be pro­tected by the First Amend­ment. It would be un­con­sti­tu­tional for the gov­ern­ment to reg­u­late such speech by mak­ing it a dol­lars-and-cents game.

Yet, in 2014, for­mer Rep. Dave Camp of Michi­gan tried to do just that by propos­ing it only be 50 per­cent de­ductible, with the rest be­ing amor­tized over a decade. His plan went nowhere, and for good rea­son. Un­for­tu­nately, when re­cently pressed on this is­sue by re­porters, Mr. Brady re­fused to rule out the pos­si­bil­ity of res­ur­rect­ing this failed ad­ver­tis­ing tax in the weeks ahead.

Such a pro­vi­sion would un­doubt­edly be dis­as­trous. If you don’t be­lieve me, just ask for­mer Florida Repub­li­can Gov. Bob Martinez. Shortly af­ter tak­ing the po­si­tion in 1987, Mr. Martinez signed off on one, and it led to the im­me­di­ate loss of 50,000 jobs and $2.5 bil­lion in per­sonal in­come. The tax was wildly un­pop­u­lar — so much so that at the time, The New York Times re­ported the gover­nor “suf­fered po­lit­i­cal em­bar­rass­ment in his first year in of­fice by hav­ing to shift from ar­dent sup­port of the tax to ad­vo­cat­ing its repeal.” It lasted just six months be­fore the leg­is­la­ture squashed it once and for all.

While the case of Florida is bad enough, em­pir­i­cal ev­i­dence shows that such a tax will wreak even more dam­age on the fed­eral level. In 2014, HIS Global con­ducted a study on the im­pact ad­ver­tis­ing has on the U.S. econ­omy. The re­sults were baf­fling. The group found that an­nu­ally, ad spend­ing gen­er­ates ap­prox­i­mately 16 per­cent of our coun­try’s to­tal eco­nomic ac­tiv­ity and 14 per­cent of to­tal U.S. em­ploy­ment. And so, amor­tiz­ing ad spend­ing will not fill Wash­ing­ton’s cof­fers as in­tended — rather, it will re­duce it by cur­tail­ing nat­u­ral eco­nomic growth.

Thank­fully, many mem­bers of the House of Rep­re­sen­ta­tives are al­ready fight­ing lead­er­ship on their talks of this pro­vi­sion. Led by Reps. Kevin Yoder, Kansas Repub­li­can, and Eliot En­gel, New York Demo­crat, 124 mem­bers of the House signed a pe­ti­tion let­ter to con­gres­sional lead­ers, stat­ing: “The po­ten­tial for strength­en­ing our econ­omy through tax re­form would be jeop­ar­dized by any pro­posal that im­poses an ad­ver­tis­ing tax on our na­tion’s man­u­fac­tur­ing, retail and ser­vice in­dus­tries.”

The U.S. in­come tax is sup­posed to be a net in­come tax, not a gross in­come tax. Net in­come taxes en­sure that all busi­nesses are treated equally, de­duct­ing costs of all ma­te­ri­als and equip­ment that pro­duce in­come — be it ad­ver­tis­ing, wages, re­search, equip­ment or raw ma­te­ri­als. Not in­clud­ing such de­duc­tions dis­crim­i­nates against high-vol­ume, low­mar­gin busi­nesses.

We’ve seen the neg­a­tive eco­nomic im­pact of what has hap­pened when cap­i­tal in­vest­ment spend­ing is amor­tized un­der ar­bi­trary de­pre­ci­a­tion sched­ules. Let us not add fuel to the reg­u­la­tory, anti-growth bon­fire by do­ing the same to ad­ver­tis­ing on the fed­eral level. With la­bor force par­tic­i­pa­tion still sit­ting at its low­est level since the 1970s, the econ­omy is al­ready scream­ing for help. The time is now for Congress to make the sit­u­a­tion bet­ter by chang­ing the sta­tus quo, not res­ur­rect­ing more of the same de­crepit poli­cies of the past.

ILLUSTRATION BY GREG GROESCH

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