Alert: Another Threat to Advertising Deductibility

To: All AAF Members
From: Clark Rector, Executive Vice President-Government Affairs
Re: Another Threat to Advertising Deductibility


Senators Al Franken, D-Minn., Sherrod Brown, D-Ohio, and Sheldon Whitehouse, D-R.I., have introduced legislation (S. 1763) to disallow the federal tax deduction for all advertising and marketing expenses for prescription drugs. The Senators have indicated they would like to have the proposal added to the health reform legislation and may offer it as an amendment when the measure is considered by the full Senate.

Please contact both of your Senators as soon as possible and express your strong opposition to any effort to deny the deductibility of advertising expenses. Talking points and contact information are both included.

The federal Tax Code treats all advertising as an ordinary and necessary business expense. It is deductible in the year the expense is made along with all other business expenses such as rent, utilities, salaries and office supplies. To disallow this expense is to directly increase the cost of advertising and marketing by up to 35 percent for affected companies.

Advertising is critical to the economic recovery of our nation. Advertising provides $6 trillion in sales and 21 million jobs in America. In these challenging economic times we cannot afford to make any form of advertising more expensive by taxing it. Basic economics demonstrates that if you make advertising more expensive, businesses will have to reduce their advertising budgets, and if there is less advertising there will be far fewer sales generated of goods and services.

Advertising expenses must fit the budget like all other business costs. If advertising becomes too expensive, a business must cut back costs or reduce its work force or find other savings. All advertising, including advertising for prescription medications, helps pay for the cost of news and entertainment in print and television media. The proposed tax on advertising and marketing would cost advertisers billions of dollars a year, resulting in cutbacks in advertising – a bad policy any time – but particularly harmful to media and advertising businesses in this economy.

It would violate the First Amendment to tax one type of advertising with the intent to discourage commercial speech about the advertised product. While Congress has broad discretion to grant or withhold many tax deductions or credits, The United States Supreme Court has said that even a tax can be unconstitutional if used the way this legislation has proposed – to tax speech about a product in order to make it more difficult and more costly to advertise that product. Because the tax makes this form of speech more expensive, it would violate the First Amendment because the suppression of this speech means consumers will receive less information.

Advertising is protected because it is important to the daily lives of Americans. A 2004 Prevention magazine survey found 65 million patients talked with a physician as a result of seeing an ad for a prescription medication. Almost 30 million spoke to a physician for the first time about a specific medical condition. Advertising of prescription medications has helped millions of Americans receive medical care for diseases that might otherwise have gone untreated or undiagnosed.

"Where does one draw the line?" One United States Senator has asked. Would we also tax advertising for vehicles that do not meet emissions or fuel economy standards, advertising for gaming, or foods that do not meet some nutrition standard?

 

I have attached a list of Senator’s chiefs of staff that includes contact information. Senators can be contacted through the Senate webpage at http://www.senate.gov/ or by calling the Senate switchboard at 202-224-3121. 

Please do not hesitate to contact me if you have any comments, questions or feedback from your contacts.

Thank you.