Here’s the latest development with the ANA and the Ad Tax proposal: Advertising is a driving force in the U.S. economy and the amortization proposal in the Senate Finance Committee Chairman’s draft would be bad for marketers, consumers and the media which is supported by advertising.
ANA (the Association of National Advertisers) just filed comments on a draft tax reform proposal which was released last November by Senator Max Baucus (D-MT), the Chairman of the U.S. Senate Finance Committee. That draft would allow advertisers to deduct only 50 percent of all advertising expenditures in the first year and require that the remaining 50 percent be amortized over the next five years.
“The current tax deduction for advertising costs is a very healthy and productive part of the tax code and should not be sacrificed to pay for corporate tax reform,” said Bob Liodice, President and CEO of ANA. “The amortization proposal in the Chairman’s draft is not based on any accepted economic or tax policy – just on the need for more revenue to pay for reducing the corporate tax rates.”
Earlier this week, ANA and The Advertising Coalition (TAC) released an important study demonstrating the total economic impact of advertising expenditures across the country. The IHS Global Insights report found that: in 2012, advertising drove $5.8 trillion in U.S. economic output and supported 21.1 million jobs; that each dollar spent on advertising generates nearly $22 of economic output; that every $1 million spent annually on advertising supports 81 American jobs. That study is available here.
“IHS Global Insight found that the amortization proposal in the Chairman’s draft would place at risk 1.7 million jobs and $456 billion sales. This change would seriously jeopardize the nation’s economy,” Liodice stated. “Two Nobel prize winning economists have looked at the advertising deduction and concluded that nothing in the economic literature justifies a change in tax policy to amortize advertising.”
“The deduction for advertising costs is not a tax preference or special loophole that benefits a specific industry or part of the country,” Liodice noted. “The ad deduction provides an opportunity for any company in any category to communicate with consumers about their products and services.”
ANA’s letter concluded: “It would be counterproductive for Congress to impose an increased tax burden on advertising, particularly during a period in which the nation is still struggling to recover from the great recession. Because of the immense value it brings to both consumers and the marketplace throughout the country, advertising should remain a fully deductible business expense.”
RBR-TVBR observation: As we’ve said before, with a down economy such as ours most know the first thing that gets cut in a corporate budget is advertising. If the cost of advertising increases, it will be cut even more. That would affect the entire media and advertising industries that sell, schedule and create those ads. If you think direct email campaigns (some call it spam) are too widespread today, they would increase geometrically. We’d be seeing so many “newsletters” direct from advertisers (via companies like Constant Contact) that typically use media for their promotional efforts that our in-boxes would crash. That sort of email could also be produced internally with the right list and would not be subject to taxation. It’s also possible that a campaign from an outside company like Constant Contact might not be taxable, based on what legislation gets signed.