Get Ready for the Tax Reform Roller Coaster

November 16, 2016

Now that we have had a little more time to analyze the implications of a Donald Trump presidency on the advertising realm, it is becoming increasingly clear that fundamental tax issues impacting advertising will immediately be high on the agenda in 2017. President-elect Trump has repeatedly voiced his strong support for making fundamental changes to the tax code. Many other Republican Party leaders are calling for tax reform legislation to move quickly as well. House Speaker Paul Ryan has stated publicly and privately that his number one legislative priority is pursuing a major tax reform package. Rep. Kevin Brady, the Chair of the House tax writing committee, already has emphasized that his Committee is hard at work developing a major proposal to be put forward in the first 100 days of the new Congress. Soon to be Senate Minority Leader Chuck Schumer also has voiced his commitment to passing broad international tax reform.

Despite this seeming growing consensus in favor of comprehensive tax reform, there is almost certainly going to be a steep and twisting political roller coaster ride ahead before such a significant and monumental change in policy can be completed and passed. It now will be more than thirty years since the last major tax rewrite.

In addition, President-elect Trump and the House tax committee have offered two very different approaches to tax reform. The president-elect’s proposal would dramatically lower corporate tax rates, but it would continue to operate within the framework of the current income tax system. The House tax committee plan would introduce a new tax scheme altogether.

A key tenet of this new tax blueprint is a proposal to replace our current business tax system with a type of consumption tax. Republicans have argued that consumption taxes, unlike income taxes, encourage savings and investment. Clearly, these divergent approaches will need to be reconciled. Also, it is not completely clear yet how either of these proposals will be paid for.

In this increasingly heated environment, the ad community needs to be highly alert to the fact that in the recent past multiple proposals have been put forward to significantly limit or eliminate advertising deductions. The most sweeping proposal would have ended the ability to deduct immediately all advertising expenses. Instead, it would have required that 50% of these expenses must be written off over 10 years – an at least $169 billion dollar increased tax hit for businesses. The American Medical Association (AMA) also has targeted prescription drug ads, and some members in the House and Senate have targeted the deductions for what they describe as food and beverage ads of “low nutritional value.” ANA continues to lobby strongly against all of these proposals. Advertising remains one of the most important engines of the U.S. economy and must not be hobbled or undermined by inappropriate further tax burdens. We will keep our members up to date as this political roller coaster picks up speed.

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