Learn from Stamp Tax Example

In 1765, the British Parliament fueled the American Revolution by enacting the Stamp Tax. Among other things, it imposed a duty of two shillings “[f]or every advertisement to be contained in any gazette, newspaper, or other paper, or any pamphlet which shall be so printed.”

Republican Chairman of the House Ways and Means Committee, Kevin Brady, should learn from that example. He should roundly repudiate an unconstitutional tax burden on protected commercial speech championed by some addled Republican tax reformers. They are flirting with a 2014 proposal by Congressman Dave Camp to prohibit advertising costs as fully deductible business expenses. Instead, advertising deductions would be limited to 50 cents on each dollar of expenditure, with the remainder of the expense to be amortized over a decade, a second edition of the Stamp Tax.

But 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.

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.”

Prohibiting full business deductions for advertising expenses would be indistinguishable from a government fee on the exercise of the First Amendment right to speak in a public park. Such government conditions placed on the enjoyment of constitutional rights would be presumptively unconstitutional.

In Thomas v. Collins (1945), the Court invalidated a statutory requirement that labor organizers register with and procure an organizer’s card before speaking to encourage unionization. Justice Wiley Rutledge noted, “As a matter of principle, a requirement of registration in order to make a public speech would seem generally incompatible with an exercise of the rights of free speech and free assembly.” The Justice added: “The idea is not sound…that the First Amendment’s safeguards are wholly inapplicable to business or economic activity.”

The mass media would be financially crippled by a second edition of the Stamp Tax. Advertising revenues would diminish because the after-tax costs to a businessman’s bottom would jump. And if commercial advertising became less profitable, the volume of advertising would fall.

In Minneapolis Star & Tribune Co. v. Minnesota Commissioner of Revenue (1983), the Court voided a “use tax” uniquely imposed on the cost of paper and ink products consumed in the production of a publication, with an exemption for the first $100,000 of expense in any calendar year. Writing for the majority, Justice Sandra Day O’Conner explained that the First Amendment frowns on singling out protected activity like newspaper publication for discriminatory tax treatment.

The distinction between commercial and political speech is razor thin. It is commonplace today for businesses to advertise political messages to attract patrons, for example, about immigration, a minimum wage, same-sex marriage, LGBTI use of public restrooms according to sexual identity, race relations, global warming, ad infinitum. A second edition of the Stamp Tax would place a financial burden on speech that is the heart and lungs of public debate.

Chairman Brady, let it not be said of you what was said of the French Bourbon kings: they forgot nothing, but learned nothing. Keep the Stamp Tax buried in its grave.


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