Government Alert: November 21, 2013


Senate Bill Limits Ad Deductibility

Senator Max Baucus, D-Mont., Chairman of the Senate Finance Committee released draft tax reform legislation today that takes direct aim at advertising (section 23, page 104).  The bill would only allow 50% of advertising expenses to be deducted in the current year, with the remaining 50% amortized over 5 years.

It is critically important that the advertising industry speak loudly and clearly to Senators and oppose any limitation on the full tax deductibility of advertising.  Please contact your Senators today and ask them to oppose any change to the tax treatment of advertising.

The full current year deduction for advertising expenses should be preserved because:

  • Advertising – local, regional and national – generates $5.6 trillion in total economic activity for our country and helps support 22.1 million, or 15% of all jobs in the U.S. economy. The stimulus generated by advertising brings jobs and sales to every state and to every community. Even a modest reduction that limits the amount a business may deduct of its total advertising spending could have a devastating impact on jobs and economic activity.
  • For 100 years the Tax Code has rightly permitted businesses to deduct the full cost of their advertising, just as it permits the deduction of other business costs like salaries, rent, utilities and office supplies.  It is not a special preference or deduction, it is a normal and necessary expense that a business must pay to communicate with customers and generate sales.
  • Nobel prize-winning economists who have looked at the advertising deduction have concluded that nothing in the economic literature justifies a change in tax policy. They have argued it makes no economic or common sense to make businesses pay more for advertising.
  • Making advertising more expensive would only cause a decline in ad spending and cost jobs, since every $1 spent on advertising leads to $20 in economic activity.
  • The proposal also does not consider that companies buy new advertising each year and would feel the brunt of this tax annually. Not only would they have less money to spend on advertising year after year, but media companies would also be impacted as advertisers would be forced to reduce their ad buys.

Senators can be easily contacted though the U.S. Senate website.  Just look for “Find Your Senators” in the upper right hand corner of the page. 
Please circulate this alert to other members of your company and/or ad club and report back to me any response you may receive.  Do not hesitate to let me know if you have any comments or questions.  Thank you for your assistance with this vital matter.

Clark Rector
Executive Vice President-Government Affairs
American Advertising Federation
crector@aaf.org
Follow me on Twitter @ClarkRector1
202-898-0089
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