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Is Advertising Free Speech?

We are led to believe that standing up for the Constitution and limiting the tax burden on citizens were Republican tenets. Unfortunately, members of the Republican Party are the ones now considering to stomp on both the First Amendment and the American entrepreneur by changing the way we expense advertising costs.

Ways and Means Committee Chairman Kevin Brady (R-TX) is reportedly contemplating [1] the adoption of former Republican Rep. Dave Camp’s 2014 ad tax proposal [2], in which commercial advertising would no longer be 100 percent deductible as a business expense—as it has been since the creation of the federal income tax. Instead, it would be 50 percent deductible, leaving the remaining to be amortized over a decade. By holding corporations’ money for an entire decade, this new tax would treat ads as an asset like machinery instead of as a business expense like research and wages.

I know accounting can be boring, but these are fighting words!

In singling out free, commercial speech from other business expenses, this 50/50 proposal is in clear violation of the First Amendment. After all, the reason commercial advertising has been fully deductible since the income tax’s founding in 1913 is because Congress has always known that it cannot constitutionally regulate free, commercial speech by making it a dollars and cents game.

The American Revolution was largely fought over this very issue. Remember the Stamp Act of 1765? The relationship between England and the Colonies was strained already when this tax pushed it to a boiling point. The Stamp Act [3] imposed an across-the-board flat tax on advertising. It levied a tax of two shillings per ad no matter what it was or where it was being printed. Mob violence was triggered. Stamp collectors quit in fear and the British government repealed it a year later to quell the violence, but the goose was cooked. War was on the horizon and the Stamp Act was a rallying cry for the colonists.

After the British were defeated, our Founder’s set up a form of government with a Constitution in which the First Amendment prevented the government from ever taxing advertising again. Freedom to advertise: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press…”

For centuries, the First Amendment has protected corporate advertising, which goes hand in hand with our formidable entrepreneurial spirit. Businesses must advertise to succeed—in fact, advertising spending generates [4] approximately 16 percent of the nation’s economic activity. Do the Republicans really want to be the party to tax that?

From Constitutional scholar Bruce Fein: [5]

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. The Court elaborated on the consumer benefits of commercial advertising:

“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. [citation omitted]. 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. [citation omitted]. In short, such speech serves individual and societal interests in assuring informed and reliable decisionmaking.”

A Republican-controlled Congress would go down in history as the party to regulate our First Amendment right in such a way as to extort more from the already burdened American businessmen and women.

Recently, a coalition of 124 House members, led by Reps. Kevin Yoder (R-Kan.) and Eliot Engel (D-N.Y.) sent a letter [1] to congress urging them not to mess with the current tax treatment of advertising.

Will Congress heed the warning? Only time will tell.

Steve Sherman is an author, radio commentator, and former Iowa House candidate. His articles have appeared nationally in both print and online. His most recent novel, titled Mercy Shot, can be found on Amazon or at www.scsherman.com

17 Comments (Open | Close)

17 Comments To "Is Advertising Free Speech?"

#1 Comment By Peter from Oz On July 13, 2017 @ 2:07 am

Is there any legal justification for treating advertising as being half on revenue account and half on capital account? I wouldn’t have thought so. It follows that the proposed tax flows in the face of the whole idea of an income tax.
As to the Constitutional argument, I’d have to say you are drawing a long bow. Disallowing a deduction is not a law abridging free speech, but merely increasing its price. And surely the problem with eh 1765 Stamp Act was that it imposed a tax without consent of those being taxed. If there was an issue with the idea that taxing speech was limiting that speech, that was because the Stamp Dutywas a direct imposition. The withdrawal of a deduction is not a direct imposition of a tax on speech at all, it is just a denial that a certain expense can be set off against gross income in calculating taxable income.

#2 Comment By Nathan Groenevelt On July 13, 2017 @ 3:06 am

advertising isnt a freedom of speech issue, sorry. It’s amazing that people like you are worried about this.

#3 Comment By Centralist On July 13, 2017 @ 7:15 am

So companies have the same rights as people? Should we give them the vote too?

#4 Comment By Kevin On July 13, 2017 @ 8:54 am

“After the British were defeated, our Founder’s set up a form of government with a Constitution in which the First Amendment prevented the government from ever taxing advertising again. Freedom to advertise: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press…””

This creative interpretation of the First Amendment would ban taxing newspapers, publishers, writers..

#5 Comment By polistra On July 13, 2017 @ 9:16 am

False argument. Taxing an activity is NOT the same as censoring it. Newspapers aren’t tax-exempt.

In fact an activity is LESS controllable when it’s taxed the same as everything else. An exemption gives bureaucrats the choice of DENYING the exemption to unfashionable speech or churches or organizations.

Bureaucrats love exemptions. When there’s no exemption, there’s no handle for bureaucrats to grab.

#6 Comment By Cassandra On July 13, 2017 @ 10:15 am

Only people with limited education may conflate simple business expenses such as advertising and free speech. Founders of our Republic were men of Age of Reason first and utmost. Since Steve Sherman is definitely well educated I conclude that he is driven by less lofty motifs than keeping American Republic afloat.

#7 Comment By Elsie Gilmore On July 13, 2017 @ 10:24 am

I don’t understand what the underlying purpose of this change would be.

#8 Comment By Adam On July 13, 2017 @ 1:19 pm

Oh, please.

If I don’t get to deduct every cost related to my speech, why should a business?

Why is corporate speech more valuable than that of free men?

Special interests always want advantages denied the average citizen, this is a perfect example of that.

#9 Comment By Feldman On July 13, 2017 @ 1:59 pm

Advertising is a commodity like software. Full deduction? Sure. First
Amendment??

The 1975 Court desisions that extended free speech to ads was as ludicrous as Roe, decider by the same busybody Burger Court. And in 1913 no one contemplated the current hideous complex tax monster.

#10 Comment By bt On July 13, 2017 @ 3:45 pm

This notion the businesses have constitutional rights is rubbish. And to then extend those rights to Corporation is even more rubbish.

Steve Sherman may be one of those politicians who carries the little copy of the Constitution in his pocket. Maybe he could show me where any constitutional rights or privileges are granted to corporations. He can’t – they are all granted to the people, as in human beings, who are given the power to elect their representatives and enact laws among other things.

Any clear reading of the constitution would say that corporations are not people. They are legal entities in their entirety. They can and should be subject to any law or regulation that is imposed on them by our lawfully elected government, which is of the people, by the people, for the people.

When a car company gets the death penalty for making exploding cars, or gets sent to jail for stealing or for bribing elected officials, then maybe we can talk about this. Or when it attends Church or takes confession – I’m looking at you Hobby Lobby.

#11 Comment By Dave Skerry On July 13, 2017 @ 4:30 pm

unfortunately, advertising is speech. U cannot protect fools from their own folly and lf people bite for it that’s their problem.Are we to restrict the principles of free speech to protect fools? That would be foolish in itself.We go down a dangerous road when we put restrictions on particularized
forms of speech. As an attorney, I know it’s a dangerous road we build when first we begin to “fine tune” the 1st. Ammendment.

#12 Comment By Hermel On July 13, 2017 @ 5:33 pm

Advertising may be speech, and there is little prohibition against standing on a street corner and talking all day about how great your product is. Paying for ads over the commercial airwaves, a purportedly public asset, is another issue entirely. I guess that the first amendment in that regard only protects rich people, huh? Someone like me, who can’t afford airtime, is just out of luck. As the old saying goes, you are just as free as you got the jack to pay for it. But that is another issue entirely. Me, no sympathy for corporate America losing a tax deduction. Boo hoo.

#13 Comment By Robert Levine On July 13, 2017 @ 11:37 pm

Steve Sherman is an author, radio commentator, and former Iowa House candidate.

But pretty clearly not a lawyer. While commercial speech is protected to some extent under 1A, it’s settled law that government can regulate such speech to a far greater extent than other speech.

#14 Comment By Clyde Schechter On July 14, 2017 @ 2:17 am

“Advertising, though entirely commercial, may often carry information of import to significant issues of the day. [citation omitted]. 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.”

I don’t know when that was written, but it does not describe commercial advertising as we know it today, or only a small fraction of contemporary advertising. Certainly modern advertising touts the availability of products. But the thrust of advertising today is usually to obfuscate both the price and the nature of those products, if it mentions them at all.

#15 Comment By JWJ On July 14, 2017 @ 1:01 pm

Let me make sure I understand what you are writing.

Currently, if XYZ company spends $100K on advertising in a fiscal year, XYZ can deduct the entire $100K as business expense in that same fiscal year. Thereby lowering XYZ’s taxable income (f they have taxable income).

What is being proposed is that if XYZ spends the same $100K on advertising in a fiscal year, the following would happen:
1) In that same fiscal year, XYZ would be able to deduct $50K as a business expense.
2) Over the next 10 fiscal years, XYZ would be able to deduct the remaining $50K at $5K per year ($50K divided by 10 years).

So at the end of 10 years, the entire $100K would still be a deductible expense. We are talking about timing differences, right?
Not trying to minimize timing differences, cause $5K in deductions 10 years from now is worth FAR LESS than $5K in deductions in the current year due to the time value of money.

Don’t advertisers say that advertising creates brand equity? Isn’t brand equity an intangible asset? Aren’t the purchasing of all capital assets depreciated over their GAAP useful lives?
How exactly is this a first amendment issue?

I do think this is not a good idea. But I think the corporate tax rate should be zero (taxation should only occur from corporations via taxes on dividends and capital gains)

#16 Comment By Cjones1 On July 17, 2017 @ 10:28 am

Can the average person write off their speech or comments on their taxes? No. This write off has become a subsidy that funds the million dollar salaries of news figures, opinion makers, sports figures, and actors. Let them eat cake…but that is currently subsidized too!
The hordes of the richest welfare queens (and kings) cost the taxpayers over $200 billion a year because of this write off.
Capping the write off is a start and we are tired of the six or so media moguls brainwashing us with fictional news anyway…society has gone down the tubes as this industry has grown.

#17 Comment By Ray Woodcock On July 21, 2017 @ 9:51 pm

Hmm. A tax on spam emails. … OK — you’ve talked me into it.

But, even better, an outright ban. Along with healthy controls on other forms of advertising, not to mention corporate political speech. Less manipulation of public opinion. Less of big business and Madison Avenue drowning out the voices of small business and entrepreneurs.