Last month, Ways and Means Committee Chairman Kevin Brady announced that now is the time to “go bold” on tax reform. Unfortunately, some of his Republican colleagues are diluting his vision by considering the adoption of unconstitutional, growth-killing provisions.
The New Stamp Act
Recently, both Brady and Speaker Paul Ryan acknowledged that Republicans are divided on the final 20 percent of their upcoming 2017 tax reform proposal. Of large concern is which, if any, of the revenue raisers from Dave Camp’s 2014 plan will be re-adopted – something that Brady said “may be a need.”
Some are debating whether Camp’s failed 2014 advertising tax provision – an $150 billion “pay-for” – should be bulldozed through. This tax would change advertising from being a 100% deductible business expense to one that is only 50% deductible, with the rest being amortized over a decade.
The Supreme Court made clear that free speech includes goods like advertisements.
For the so-called liberty-loving majority in Congress, the prospect of resurrecting this provision shouldn’t even be a question – the advertising tax should remain nothing more than an embarrassing idea of the past.
Let’s not forget that the American Revolution was fought in large part over the Stamp Act, an advertising tax that imposed a fee of two shillings for every ad. The tax was hated to such a high degree that the then-British colonists coalesced together to intimidate stamp collectors into resigning. For that reason, the tax only managed to last for about a year. When the colonists finally had the chance to form their own country, they ensured that the Constitution, through the First Amendment, prohibited the government from regulating the freedom of speech and the press.
To this day, taxing or regulating advertising remains unconstitutional. That’s why in Thomas v. Collins (1945), the Supreme Court made clear that free speech includes goods like advertisements, saying: “The idea is not sound…that the First Amendment’s safeguards are wholly inapplicable to business or economic activity.” In Bates v. State Bar of Arizona (1977), the Court echoed this sentiment by declaring:
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.”
Costly and Unconstitutional
In an op-ed for Huffington Post, First Amendment scholar Bruce Fein recently came out against the Camp advertising tax. He said:
Singling out advertising expenses from other ordinary and necessary business expenses for adverse treatment under the Internal Revenue Code would amount to an unconstitutional tax or condition imposed on the exercise of free speech.”
He’s exactly right. Camp’s “50/50 proposal” would treat advertising as an asset instead of as a normal business expense like research, wages, and other fixed costs. This means that free speech would be treated more harshly than other business outlays, making it an especially egregious violation of the First Amendment.
Congress should be focusing on fostering a pro-growth tax agenda, not trampling our founding principles.
Even if it wasn’t unconstitutional, resurrecting the Camp ad proposal would still be a costly mistake. As per a study from IHS Global, advertising generates over $5.5 trillion annually in sales, or 16% of the nation’s total economic activity. It is also responsible for creating 20 million jobs, or 14% of US employment. Republicans in Congress should only be imposing taxes on what is not wanted in this country – not on things that bring in major return-on-investment.
In the United States’ 240-year history, advertising has been taxed once and only once. That was during the Civil War – a time of unprecedented revenue need – and even then, the tax was promptly repealed at the conflict’s conclusion.
Today, we are not facing a dramatic revenue shortage, nor are we in a brother-on-brother military conflict. Congress should be focusing on fostering a pro-growth tax agenda, not slaughtering economic growth and trampling on our core founding principles.