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You are here: Home / A new kind of tax break

A new kind of tax break

by DougJ|  March 24, 20105:36 pm| 27 Comments

This post is in: Good News For Conservatives

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This is very interesting, though think tanks already provide a tax exempt way to catapult the propaganda, IMHO:

Meanwhile, the Texas Tribune reports that it found a corporate-funded ad in a couple of small east Texas papers—the first corporate ad in Texas. There’s no attempt to hide the funding source—the ad takes the form of a letter signed, “Sincerely, KDR Development, inc.” But interestingly, the buy in this case seems to have been a personal affair. The president of KDR Development, which bought the ad, had previously run against the incumbent state representative and lost. Also, he thinks the incumbent (a recent D-to-R switcheroo) isn’t conservative enough for small business. So why pay for the ad through his company rather than through himself, the Trib asked? “You take the money out of the pocket that’s got some money in there,” he said.


Matt Yglesias
expands:

If nothing else, this suggests that Citizens United is going to be a significant tax break for politically active smallish business owners. If you used to be a guy who shelled out $10,000 a year on political contributions, then you used to need to pay yourself substantially more than that in nominal salary, then pay taxes on the money, and then hand out the ten grand. Now if you own the business, you can have the company pay and then instead of it being income on which you pay tax, it becomes an expense for the business.

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Reader Interactions

27Comments

  1. 1.

    WereBear

    March 24, 2010 at 5:39 pm

    I do wonder if they knew that beforehand. But probably not. Their record shows little evidence of that.

  2. 2.

    General Egali Tarian Stuck

    March 24, 2010 at 5:40 pm

    Just bidness, as Molly would say. RIP

  3. 3.

    Short Bus Bully

    March 24, 2010 at 5:58 pm

    Wingers = small business owners?

    A lot of times, yes, but not always. But you know, I FOR ONE WELCOME OUR NEW CORPORATE OVERLORDS.

  4. 4.

    wmd

    March 24, 2010 at 6:01 pm

    Opposing this is where I see FDL coming in from the cold.

    They’ve probably got at least a month of wailing about how impure their fellow progressives are before they get there.

  5. 5.

    Bill E Pilgrim

    March 24, 2010 at 6:04 pm

    Catapulting propaganda, indeed.

    Everyone should read this Digby post, wherein Wolfe Blizter shamelessly admits the whole clueless charade we call news:

    “we just assumed that the people who said they didn’t like it didn’t like it because it was too much interference, or too much taxes or whatever. But if you take a closer look…”

  6. 6.

    Nate

    March 24, 2010 at 6:07 pm

    You can’t deduct “political contributions” from your income taxes. They’re an “add back” on your tax provision from book income to tax income. I’m sure they could surreptitiously include that in their advertising account since it isn’t technically a contribution.

  7. 7.

    liberty60

    March 24, 2010 at 6:16 pm

    Yet another example of the hidden subsidies that act to the benefit of the wealthy.

    Poor people don’t have the ability to set up corporations, even single proprietorships; so their contributions will always be in after-tax income.

    The only sort of satisfaction I can see out of this, is the fact that the business world has embraced green technology, and sees environmental engineering as a lucrative expanding new field; meaning the power of corporate cash is going to move towards the nanny-state tree hugging stuff that wingers hate- subsidies for hybrid cars, special lanes and parking stalls for them, tax breaks for solar panels or mandates to buy them, etc.

  8. 8.

    Mark S.

    March 24, 2010 at 6:17 pm

    @Nate:

    I don’t think Matt was very clear in his post. I don’t think he meant to say the political contribution was tax deductible but rather it was tax advantageous for the business owner to have the corp pay it because the corp probably pays a lower rate than the business owner. I don’t think the IRS would look kindly on calling that an advertising expense, but that’s if they could catch it.

    @Bill E Pilgrim:

    You would think the best political team in the universe would realize that there are more viewpoints than just the Democratic one and the Republican one.

  9. 9.

    Bnut

    March 24, 2010 at 6:22 pm

    KDR Development congratulates the West Canaan Coyotes on their magical year! F’ing Texas.

  10. 10.

    Violet

    March 24, 2010 at 6:32 pm

    @Mark S.:

    You would think the best political team in the universe would realize that there are more viewpoints than just the Democratic one and the Republican one.

    But that would require work! They’d much rather talk at each other and play with their magic display boards and hologram machines.

  11. 11.

    RSR

    March 24, 2010 at 6:41 pm

    ding, ding, ding…not just a small business tax break, BTW.

    Corporate rights and personal privacy are overriding issues that are the crux of many issues. We fight so many battles, but the war lies in those issues.

  12. 12.

    burnspbesq

    March 24, 2010 at 6:44 pm

    Raises an bunch of interesting questions, on which I wouldn’t mind hearing from someone who prepares a lot of 1040s for self-employed people (I don’t even do my own return, much less anybody else’s).

    If the business is unincorporated, or is a single-member LLC, so that the income and deductions of the business are on Schedule C, does the individual limitation on deductions apply? Does the taxpayer have to show a nexus between the political activity and the needs of the business, so that it’s an “ordinary and necessary business expense” deductible under Section 162? And if the “business” is subject to the passive activity loss rules under Section 469, does the deduction for political contributions also get deferred?

    I could see some really fun audits coming out of this.

  13. 13.

    Citizen Alan

    March 24, 2010 at 6:44 pm

    @Mark S.:

    I don’t think Matt was very clear in his post. I don’t think he meant to say the political contribution was tax deductible but rather it was tax advantageous for the business owner to have the corp pay it because the corp probably pays a lower rate than the business owner. I don’t think the IRS would look kindly on calling that an advertising expense, but that’s if they could catch it.

    But this isn’t deductible as a political contribution; it’s deductible as a business expense. Advertising in general is deductible as a business expense, and post-Citizen’s United I don’t see that the tax laws distinguish between buying an ad to tell people that you’re having a clearance sale and buying an ad to tell people to vote for Candidate X who favors policies that will help your business. Either way, you claim it as a business expense and it reduces your taxable income, whereas before it wasn’t a business expense you could take — you’d have to pay yourself that money and let it be taxed as personal income and then spend it for political advertising which would be neither an expense nor a deduction.

    Or am I totally misreading this. Because if this reading is correct, then Citizen’s United is even worse than I thought. A CEO can basically spend up to his net profits in a given year on political advertising, and all it does is reduce the company’s taxable income. He gets to screw the country twice. Hey, thanks Justice Roberts! Asshole.

  14. 14.

    DougJ

    March 24, 2010 at 6:47 pm

    @Citizen Alan:

    But this isn’t deductible as a political contribution; it’s deductible as a business expense.

    Yes, exactly. I think…

  15. 15.

    Calouste

    March 24, 2010 at 7:02 pm

    @Citizen Alan:

    A CEO can basically spend up to his net profits in a given year on political advertising,

    Well, if he is interested in a class action law suit from the shareholders for pissing away their dividends, yes.

  16. 16.

    Mark S.

    March 24, 2010 at 7:09 pm

    @Citizen Alan:

    But this isn’t deductible as a political contribution; it’s deductible as a business expense.

    I don’t think that’s right, but if it is, holy cow! That’s a hell of a good deal! Why even try bothering to be a 527 or nonprofit?

  17. 17.

    Mark S.

    March 24, 2010 at 7:11 pm

    @Calouste:

    A corporation can be just one guy.

  18. 18.

    Martin

    March 24, 2010 at 7:15 pm

    Um, didn’t this guy just admit to embezzlement? He as much as admitted that he’s using the corporations money as if it were his own.

  19. 19.

    Calouste

    March 24, 2010 at 7:17 pm

    @Mark S.:

    Yes, my statement of course assumes that there are shareholders other than the CEO, and that they actually disagree with him.

  20. 20.

    Calouste

    March 24, 2010 at 7:24 pm

    @Mark S.:

    It seems to me that the IRS would limit the deductions as valid business expeneses to only include causes that actually benefit the business. Setting up a company just to buy tax deductable ads against gay marriage might run into some trouble with the IRS. (Although it would be fun to see the case that say a florist buy ads supporting gay marriage with the logic that gay marriage means more weddings means more flower sales.)

  21. 21.

    Gwangung

    March 24, 2010 at 7:25 pm

    @Calouste: LLCs LLOs and S corps not so much

  22. 22.

    Citizen Alan

    March 24, 2010 at 7:26 pm

    IIRC, the vast majority of corporations and related entities are closely held, which means that they are owned completely by just a few people or even one person. Only large, publicly traded corporations ever have to worry about shareholder suits, and even then, the odds are stacked heavily against the shareholders since the majority shareholders are probably either wealthy individuals or other corporations which share the CEO’s agenda. I got a 3.5 in Corporations, but the only thing I clearly remember is this — the minority shareholder always loses.

  23. 23.

    Citizen Alan

    March 24, 2010 at 7:29 pm

    @Calouste:

    It seems to me that the IRS would limit the deductions as valid business expeneses to only include causes that actually benefit the business. Setting up a company just to buy tax deductable ads against gay marriage might run into some trouble with the IRS. (Although it would be fun to see the case that say a florist buy ads supporting gay marriage with the logic that gay marriage means more weddings means more flower sales.)

    All the IRS will care about is (1) did you spend money on advertising and (2) do you have receipts for it. The IRS is not going to get into the business of critiquing a business’s advertising expenses to determine whether it was advertising to push the company’s goods or services or advertising to push the CEO’s political agenda. If anything, I think Citizen’s United probably forbids such an analysis completely.

  24. 24.

    Mark S.

    March 24, 2010 at 7:47 pm

    @Citizen Alan:

    I think the IRS would care, because that’s a huge fucking loophole. I’m also pretty sure political contributions and advertising are not tax deductible (towards the end of the page in a box):

    There are a few types of expenses that might be seen as promoting the business, but are specifically made nondeductible by the tax laws. These include items such as lobbying expenses and political contributions

    I doubt Citizen’s United overruled all of that.

  25. 25.

    Wilson Heath

    March 24, 2010 at 8:26 pm

    Political advertising and lobbying is not deductible. The tax angle if you have a closely held corporation is that it’s highly likely that the political expenditure is properly considered for the benefit of the shareholder(s), and not the corporation. If the corp. had to pay out a dividend to then be used by the individual to pay for the expenditure, it would be subject to tax at the shareholder level. It’s arguably that the ad buy is in fact a dividend and tax should be imputed to the shareholder.

    That’d be a good default rule for starting to roll back Citizens United — consider all corporate ad buys to be dividends to the shareholders and taxable. It wouldn’t stop the Koch family, but it’s a start. And no pay-go problem for Congress to pass it.

  26. 26.

    CalD

    March 24, 2010 at 9:42 pm

    This is interesting. So political campaign contributions are taxable for individuals but tax write-offs for businesses? That suggests a potentially productive line of attack.

  27. 27.

    Wilson Heath

    March 25, 2010 at 12:26 am

    @CalD:
    Never deductible. For anyone.

    For most corporations, there are two levels of tax — one on corporate earnings, and one at the shareholder level when profits are distributed as a dividend (or a capital gain when the stock in the corporation is sold). If the shareholder controls the corporation, he can have it expend money for his own benefit. This is often done to try to avoid the shareholder-level tax. If the auditor sees this, the shareholder still gets taxed despite disguising the dividend in this way. The tax dispute will not be over deductibility but over whether it is a dividend or a payment the corporation would make on its own behalf.

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