Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, and Sen. Orrin Hatch (R-UT), after passing the immigration reform bill are now telling senators it’s time to address tax reform. The two are building their overhaul of the nation’s tax code on the “zero plan,” which is all tax breaks in the corporate and personal income laws are, as of now, out – unless lawmakers make the case for them to be put back in. For broadcasters that’s an issue. New Jersey Broadcasters Association CEO Paul Rotella sent a letter to the two senators, as well as Senator Menendez (D-NJ) about the issue of advertising deductibility.
Here’s the letter:
“I appreciate the invitation to submit my views regarding your efforts on comprehensive tax reform. You have asked specifically about “tax expenditures,” and I would like to share my views on the importance of retaining the current tax treatment for advertising costs.
The Congressional Budget Act defines “tax expenditures” as “a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”
I understand that the ordinary and necessary business expense deduction for the cost of advertising is not, nor has it ever been, classified as a tax expenditure. It is vital to the health of the U.S. economy that advertising costs be retained in the Internal Revenue Code as an ordinary and necessary business expense that businesses deduct pursuant to section 162(a).
The deduction for advertising costs promotes tax fairness because it is central to allowing a business to properly calculate its net income and ultimately the amount of tax it must pay, not unlike the deduction for employee salaries, rent, utilities and the other ongoing costs of a business. In contrast to many tax expenditures, advertising is essential to the growth of our economy. For instance, just in the State of New Jersey, advertising accounts for $187 billion of its $966 billion total economic output and drives sales of products and services that help support 554,407 jobs in the state.
In addition to driving economic growth and promoting tax fairness, advertising helps the economy work more efficiently. According to Nobel Laureates in Economics, Dr. Kenneth Arrow and Dr. George Stigler, advertising provides valuable information to consumers about products and services in an efficient and cost-effective manner. In this way advertising helps the economy to function smoothly – it keeps prices low and facilitates the entry of new products and new firms into the market.
Finally, preserving the deductibility of advertising supports the important public policy goal of ensuring a free, world class, over-the-air broadcasting system that serves as a critical source of local news, weather, and public affairs programming, as well as a unique lifeline in emergency situations.
Thank you for inviting my views. I am hopeful there are no changes to the tax treatment of advertising costs.”
RBR-TVBR observation: We’re sure that other state associations and broadcasters are crafting similar communications to Sens. Hatch and Baucus, as well as to their own state senators. This is an important issue and frankly, when it comes to tax reform, the squeaky wheel gets the grease and (yes, another cliché) the early bird gets the worm. The more they are informed right now on the importance of ad deductibility to our business and economy, the better.