Clearly, the major problem with the US economy is insufficient business demand. Something is needed to really give it a jolt.
To stimulate the dormant US business demand, my proposal here is to give a refundable tax credit on Marketing, Selling and Advertising costs of US businesses of all sizes incurred from now until Dec 31, 2012. I would make the percentage credit a bit higher for the rest of 2011 than for 2012.
So where's the Big Corp Tax Loophole closing, and related funding?
Well, it’s potentially substantial.
I would give say a 5% tax credit for the Marketing, Selling and Advertising costs in the remainder of the current year, and say a 2.5% tax credit in 2012, but then more than pay for it many times over, for the next ten-year CBO scoring period, by extending the life that all future Marketing/Selling/Advertising costs of Big US Corps are to be deducted over to say one year, 18 months or even two years.
I wouldn't start extending the life until after the country is completely out of this horrible structural recession...thus start scaling it in after say three years.
The positive CBO scoring on this should be off the charts.
And all businesses would get a very nice bump up of their reported GAAP earnings from just this, since the tax credit increases reported GAAP earnings, but the life extension is treated as a temporary tax difference.
And from a fairness standpoint, many Marketing, Selling and Advertising costs incurred are in essence Investments, benefiting businesses for many, many years.
The really cool part about the tax credit on Marketing, Selling and Advertising costs is that there are an infinite number of ways to very easily fine tune them to get the desired result.
For instance, if you wanted to reduce its CBO cost, you could just allow a tax credit on Marketing, Selling and Advertising Costs over and above some base period amounts, like the way the R&D tax credit works, and then you would also have the flexibility to significantly increase the percentage tax credit.
Also, if you wanted to increase the CBO favorable scoring, choosing a two-year life for amortizing these costs for federal income tax purposes would give you a monumentally more favorable CBO scoring than choosing a one-year life.
Another way to reduce the CBO cost here is to allow, or perhaps even require, US Multinational Corps to use their foreign earnings repatriation tax, with a related somewhat incentivized favorable dividend received deduction percentage, to 100% fund the same amount of tax credit for their Marketing, Selling and Advertising costs incurred.
And in a wise highly-incentivized twist, I would also consider allowing Big US Multinational Corps to fund the tax owed from extending their tax lifes for their Advertising, Marketing and Selling Costs with a like amount of tax owed from repatriating some of their foreign earnings at a somewhat discounted US federal income tax rate.
This Marketing, Selling, and Advertising Tax Credit would work especially well when it is combined with something like a 100% expensing of equipment, and even also with a Jobs Tax Credit and Investment Tax Credit combination. This Marketing, Selling, and Advertising Tax Credit would make those other tax incentives explosively effective.
