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Advertising deductibility threat in tax reform discussion draft
As Senate Finance Chairman Max Baucus (D-MT) and House Ways and Means Chairman Dave Camp (R-MI) developed tax reform plans, rumors circulated all fall that both chairmen would include a provision that would change the current tax treatment of advertising as an ordinary and necessary business expense. The rumor became reality when Chairman Baucus released his “Cost Recovery and Accounting Tax Reform Discussion Draft” which proposed to limit the business deduction for advertising to 50 percent in the year the expense is incurred and to amortize the remaining 50 percent over a five-year period.
On January 17, 2014, NAA and other members of the Advertising Coalition submitted comments to Chairman Baucus and other Finance Committee members opposing the proposal. The coalition stressed that decades of legal and policy justifications support the current tax treatment of advertising just like other ordinary and necessary business expenses,
In the comments, the coalition highlighted the results of an IHS Global Insight study on the benefits of advertising to the economy. The study concluded that:
- 16 percent of all U.S. employment was related to advertising and supports 21.1 million jobs.
- Advertising currently accounts for $5.8 trillion of the $33.8 trillion in U.S. economic output.
- For every $1 spent on advertising nearly $22 in economic activity is generated.
The coalition urged the committee to reject this proposal as it would result in less advertising which is a critical engine for economic activity in the U.S. economy.
In addition to the coalition weighing in on the proposal, 47 press associations across the United States expressed their strong opposition to the discussion draft’s advertising proposal in a letter to Chairman Baucus and Senate Finance Committee members. The press associations informed the committee that the proposed tax would have an immediate and devastating impact on newspapers and other media, where advertisers underwrite much of the cost of bringing news, information and entertainment to all Americans.
See the press release regarding this state press association effort.
First Published: January 30, 2014