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Ad Tax Storm Clouds on the Horizon Again

June 28, 2013

As long expected, it appears the Senate Finance Committee is ramping up efforts on tax reform. On Thursday, Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) of the Senate Finance Committee have released a “Dear Colleague” letter, asking for proposals for tax reform. Their letter states that they will start with a “blank slate,” and so-called “special provisions” will be assumed eliminated, unless it is shown that those provisions: “1) help grow the economy, 2) make the tax code fairer, or 3) effectively promote other important policy objectives.”

They ask for legislative language describing expenditures that meet these tests, as well as other provisions that should be added or repealed in an ultimate tax reform bill. The Senators also make clear in their letter that every expenditure added back to their “blank slate” will reduce the amount by which corporate and individual income tax rates could ultimately be lowered. They state that they will give extra attention to any proposals that are bipartisan in nature.

Advertising expenditures, which are fully deductible as a necessary and ordinary business expense in the year they are made, clearly meet these tests and should be kept. A study by IHS Global Insight in 2010, developed by Nobel Laureate in Economics Lawrence Klein, demonstrates that advertising is responsible for $4.1 trillion in economic output and directly supports more than 15 million jobs in the United States annually. In a time of recovery from an economic downturn, advertising clearly provides a powerful engine of economic growth.

The taxation of advertising is counterproductive when trying to generate economic activity and jobs. It would be totally counterproductive to impose extra costs and burdens on advertising. Such a step would only serve to weaken economic growth, and ultimately, tax revenue.

Now begins a period of great challenge. In a time when everyone will be jockeying to be the expenditure or deduction that is not targeted, advertisers must be ready and willing to show why ad deductibility needs to be supported rather than undermined.

 

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