About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

49 IRET Congressional Advisory 1 (1995)

handle is hein.taxfoundation/iretcgadv0047 and id is 1 raw text is: IRETK
August 24, 1995 No. 49
SHOULD THE TAX CODE PUNISH
CIGARETTE ADVERTISERS?
President Clinton was asked during an Oval
Office interview on MTV whether he favored
ending the tax deductibility of
cigarette  advertising  costs.
The suggestion delighted the  Cigarette adve
President  and  he  replied   remain   tax
enthusiastically, I'll look into  they  are
it. It's an interesting idea.  expenses incu
Nobody ever even raised it to  income.
me before. Maybe you [the
MTV interviewer] should be
here making public policy.
That's great. The idea the President endorsed is a
back-handed way of preempting cigarette companies
from marketing their products.
Leaving aside the question of whether MTV
interviewers would be an improvement over current
White House policymakers, nondeductibility is a
terrible idea because it would
violate a fundamental income
tax  principle:  it  would    [Mlany believt
deliberately  mismeasure      devil's device,
income. Income is not gross   contravene ba
receipts; income  is  gross   or;de to penal
receipts  minus  the  costs
incurred  in  generating  the
receipts.  Unless business-
related   expenses     are
deductible, the tax base will exceed actual income,
perhaps substantially.

Among the costs that businesses incur in
generating income are the costs of the services they
purchase in marketing their products. One of those
services is advertising. As such, the tax deduction
that businesses can now claim for the marketing
services they purchase, which includes advertising,
is entirely proper.
Although  the President was asked    about
cigarette advertising, the issue is much bigger than
cigarettes. Many proposals have been made over
the years to limit or disallow the write off of
advertising costs.  If cigarette advertisements
become nondeductible, those seeking to restrict the
advertising deduction would likely move on to other

products, citing
Washington, one

rtising costs should
deductible because
egitimate  business
rred in generating

that
but t~
sic ta.
ize th~

cigarettes as a precedent.  In
prohibition or disallowance often
leads to another. Ultimately,
the deductibility of all business
marketing expenses could be at
risk.
More   basically,  many
believe that smoking is the
devil's device, but they should
not  contravene  basic  tax
principles in order to penalize

those with whom they disagree. It is a threat to
fairness, liberty, and economic growth if those in
power decide that the operative rule of tax policy
ought to be that the end justifies the means.
Depriving businesses of the ability to deduct
advertising costs would be a large, hidden income
tax increase.  Suppose, for
example, that   a  cigarette
smoking is the    producer buys a $10,000 ad.
riey should not    Because of that expense, it has
x principles in    $10,000 less income. Under
)se with whom      current law, it can claim a tax
deduction accurately reflecting
that reduction in income. If,
however,   the  government
refused to allow the deduction
because it involves cigarette advertising, the
business's tax bill would rise by $3,500 (35 percent

Institute for
Research on the
Economics of
Taxation

IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the
public about policies that will promote economic growth and efficient operation of the free market economy.
1730 K Street, N., Suite 910, Washington, D.C. 20006
Voice 202-463-1400 * Fax 202-463-6199 0 Internet www. ret.org

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most