- - Wednesday, July 26, 2017

ANALYSIS/OPINION:

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, low-margin 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.

• 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.

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