Tax Issues Impacting Advertising in 2016

January 14, 2016

The President in the State of the Union message failed to place any emphasis on tax reform. Without a major push from the White House and the Executive Branch, which is now unlikely, there is little chance for major tax reform legislation in 2016. Nevertheless, tax issues will continue to be given significant focus this year. House Speaker Paul Ryan (the former Ways and Means Committee Chairman) has stated that he wants to move reform of the treatment of international corporate taxes in this session of the Congress, and that message was delivered this week by the new Chairman of the House Ways and Means Committee, Kevin Brady (R-TX). Brady also said that in preparation for action in 2017 he is working with the tax staff to develop a proposal to lower corporate tax rates below 20%. To reach this goal would require elimination of many existing deductions in the present code. There are fewer provisions in the Code that can be changed to generate revenue – last year, for example, Congress made the research and development deduction permanent rather than requiring Congress to reauthorize it every two years. In this regard, when the Senate Finance Committee Business Income Tax Working Group listed options to pay for tax reform, the R&D tax credit was number two and advertising was number three on the list.

We will continue to work with the Senate and House tax leadership to strengthen congressional support for the maintenance of the 103-year-old provision that allows businesses to deduct the cost of their advertising in the year it is incurred. In the past, Congressman Brady has supported our views, and hopefully he will continue this position in his new Chairmanship.

As part of our national campaign to retain the deduction for advertising costs, ANA took the lead in launching in November a new IHS Economics & Country Risk study on the impact of advertising on the U.S. economy. The study found that:

  • Advertising expenditures in 2014 generated $5.8 trillion in overall consumer sales including direct, indirect and induced expenditures.
  • Those expenditures represent 16 percent of all sales activity in the U.S.
  • Advertising spending will increase at an average annual rate of 3.3 percent through 2019
  • By 2019, advertising will directly and indirectly foster $7.4 trillion in U.S. economic activity.
  • By 2019, advertising will help support more than 23 million U.S. jobs.
  • Advertising contributed $3.4 trillion to U.S. GDP in 2014, comprising 19 percent of the nation’s total economic output, which is roughly equivalent to the total GDP of Germany.

Another important factor that will keep a spotlight on tax reform is the fact that virtually every Presidential candidate has come forward with detailed tax proposals.  On the Republican side, these proposals have ranged from flat taxes, to value added taxes, to major alterations of the existing tax code primarily focused on lowering tax rates.  On the Democrat side, on the other hand, the proposals primarily have focused on increasing the tax impact on upper bracket tax payers to pay for various new programmatic initiatives.

Finally, it is worth noting that in 2015, we defeated significant ad tax proposals in Illinois, California, North Carolina, and Pennsylvania, and we expect continuing pressure from the states in this area this year.

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