New Study Underscores Advertising’s Role as a Critical Driver of the U.S. Economy
Warns of Downward Economic Spiral if Proposed New Ad Tax Provisions Pass Congress
NEW YORK – January 14, 2014 – Advertising is a driving force in the U.S. economy, serving as a generator of job creation and sales, according to a new study commissioned by the Association of National Advertisers (ANA) and The Advertising Coalition, which represents advertisers, advertising agencies, and media companies.
The study, conducted by IHS Global Insight, Inc., provides a comprehensive assessment of the total economic impact of advertising expenditures across 16 industries, and the government, in all 50 states and Washington, D.C., as well as in each of the nation’s 435 congressional districts. The study utilized an econometric model of the U.S. economy derived from a model originally created by Nobel Laureate in Economics, the late Dr. Lawrence R. Klein.
Among the findings, researchers determined that each dollar spent on advertising expenses generates nearly $22 of economic output that would not have otherwise existed (economic output is two- to three-times GDP). In addition, every $1 million spent on annual advertising expenses supports 81 American jobs. By 2017, advertising will directly and indirectly foster $6.5 trillion in U.S. economic activity (sales) and help support 22.1 million U.S. jobs, according to the study.
“This new data affirms that advertising is a central driver of economic growth,” said Bob Liodice, President and CEO of the ANA. “By building brand awareness and helping companies communicate the benefits of their products and services, advertising triggers economic activity and serves as a major catalyst for job creation.”
Advertising provides consumers with information about producers of goods and services and the prices, quality and characteristics of the products they sell. The late Dr. George Stigler, a Nobel Laureate in Economic Sciences, noted that advertising provides this information highly efficiently and inexpensively so consumers do not have to search on their own.
According to IHS Global Insight, a division of research and analytics firm IHS, the $257 billion US firms purchased in advertising during 2012 drove $5.8 trillion in sales for their products and services. The economic benefits continue to accrue as sales are stimulated at every point throughout businesses’ supply chains. Fulfilling these sales requires employing significant numbers of workers, who then spend portions of their incomes in the economy, inducing even more sales activity. IHS Global Insight estimates that, in addition to unleashing $5.8 trillion in sales advertising supported 21.7 million jobs in the US during 2012.
“Advertising’s ripple effect can be felt across every sector of the U.S. economy, in every state, Congressional district, and on the federal level, demonstrating advertising’s importance to the nation’s economy” said Doug Handler, chief U.S. economist of IHS Global Insight.
The study warns that the positive benefits advertising brings to the economy could be severely jeopardized if Congress adopts significant limits on the ability of businesses to deduct the cost of advertising as part of tax reform proposals pending in the U.S. Congress. Under discussion in the Senate Finance Committee is a provision that would allow advertisers to deduct only 50 percent of all advertising expenses and require the balance to be amortized over five years. Currently, advertising is treated as an ordinary and necessary business expense, fully deductible in the year in which they are made. A separate subsequent analysis projects this change would place at risk 1.7 million jobs and $456 billion in sales.
“This is the most wide-ranging and destructive threat the advertising industry has ever seen,” continued Liodice. “Advertising’s direct and indirect influence is about one-sixth of the entire economic input today and fosters the employment of tens of millions of people. To change the Tax Code in such a drastic fashion would provide a serious reduction in advertising and would have profound repercussions across the U.S. economy.”
The full report, an executive summary and other related materials can be found HERE.
About the ANA
The ANA (Association of National Advertisers) provides leadership that advances marketing excellence and shapes the future of the industry. Founded in 1910, ANA's membership includes more than 565 companies with 10,000 brands that collectively spend over $250 billion in marketing and advertising. The ANA pursues “collaborative mastery” that advances the interests of marketers and promotes and protects the well-being of the marketing community. For more information, visit www.ana.net, follow us on Twitter, or join us on Facebook.