Benjamin Franklin famously said that nothing in life is certain except for death and taxes – and the advertising industry might soon agree.
A proposal in the House of Representatives would significantly limit the advertising tax deduction to just 50 percent of advertising expenses in the first year, with the remaining 50 percent amortized over the next 10 years. Currently, businesses may deduct 100 percent of their advertising.
Rep. Dave Camp (R-Mich.), Chairman of the House Ways and Means Committee, added the clause to a working draft of a tax reform bill and set off a firestorm of concern from the advertising industry.
"We take this more seriously than any other threat we've seen in many years," Dan Jaffe of the Association of National Advertisers told AdWeek. "It's a sweeping proposal." He added that "no economic or tax policy justification" exists for the proposed changes, particularly the amortization plan. He cites Nobel prize-winning economic experts like George Stigler and Ken Arrow for support.
Clark Rector, the executive vice president of government affairs for the American Advertising Federation, characterized the proposal as "draconian." For 100 years the federal tax code has allowed businesses to deduct the full cost of advertising and the proposed change could reduce ad sales by an estimated $446 billion per year, he told Ad Age. "It's a crazy proposal; it's unhinged from any economic reality."
One industry particularly worried about the impact: newspapers and related media. "This would come at the wrong time when we're beginning to get our sea legs in the digital world. Media companies are going to get hit twice," Paul Boyle, senior vice president of public policy for the Newspaper Association of America, said to AdWeek. "Potentially, it could mean staggering job losses," he added, estimating that 1.6 million jobs would be at risk.
Rep. Camp has yet to formally introduce the legislation or release it for public review.
Why it matters: Lobbyists and members of the advertising industry are doing their best to combat the proposal before it goes any further. The proposal could have a significant impact not just on advertising but on the economy at large. According to the ANA, advertising sales help support 20 million jobs, or 15 percent of all jobs in the country, and every $1 spent on advertising leads to $20 in economic activity.
This article first appeared in lexology.com.