Congress will soon begin working on a major revision of the federal tax code. We applaud those efforts, but only if they are done in a thoughtful manner that encourages economic growth.
After all, shouldn't that be the goal of any tax code rewrite?
Apparently not. Especially in today's environment of get it done now vs. get it done thoughtfully and carefully.
You would think the Republican majority would recognize the error of rushing a major bill through Congress onto the president's desk. After all, it is the Republicans, rightly so, who remind us of what Rep. Nancy Pelosi (D-Calif.), who was the then Speaker of the House, quipped, let's pass this (Obamacare) bill so we can read it and find out what's in it after it passes!
Is that what the new Republican majority is attempting to do with a rewrite of the tax code?
Congressional leaders and the Trump administration want to reduce the top corporate income tax from 35 percent to 20 percent. They are also after simplification. Both are worthy goals, that we can support. But to do so without exploding the already-dangerous federal deficit will require other ways of collecting revenue.
One tax code change aimed at raising revenue under consideration is an economic disaster. It is known as the "ad tax," and it's one very bad idea.
Advertising has always been one of many costs of doing business. For more than 100 years, companies in the U.S. have been properly allowed to deduct those expenses, like any other business expenses, to produce a finished product or service, which then is taxed.
But some in Congress are considering ending the long-held practice of allowing businesses to deduct this expense every year.
Thus, an "ad tax."
Why would Congress want to differentiate advertising costs from other "cost of doing business" expenses? Changing current tax laws to single out advertising could possibly encourage businesses to make poor decisions based on tax reasons. And will all know there is too much of that behavior underway today with our terribly inefficient and out-of-control tax laws.
The prospect of treating advertising expenses, a component of selling a finished product or service, differently from other expenses simply makes no economic sense.
According to statistics from the National Newspaper Association, advertising generates 22 million U.S. jobs and produces more that $37 trillion in economic activity. Most of that finished activity is included in the tax code.
Economic analyst IHS Economics and Country Risk Solutions estimates that every dollar spent on advertising leads to $19 in sales activity, so any tax on advertising would have a negative effect on businesses AND a negative effect on the tax revenue generated on those finished products and services.
IHS also says every $1 million spent on advertising supports 67 jobs. And each advertising job supports 34 other jobs across other economic sectors.
The change also would impact local newspapers, radio and TV stations that depend on advertising. It's those advertising dollars that support news coverage of local politics, area schools, youth sports, churches and civic activities. South Dakota newspapers recently marked Newspaper Week by asking readers to "Imagine a day without news." A government-spawned reduction in advertising income would go a long way toward making that a possibility.
U.S. Rep. Kristi Noem is on the powerful House Ways and Means Committee, which will be charged with crafting the new tax code. She gave up her spot on the Agriculture Committee because, she said, she could do so many more good things on Ways and Means.
We hope she realizes the folly of the tax on advertising, but just in case, join us in giving her a call, or send her a note, telling her what a bad idea the ad tax would be.
The Public Opinion, Watertown, South Dakota, Oct. 18.