Broad tax reform is back in Congress and the advertising community is taking steps so lawmakers don’t decide to limit the existing advertising tax deduction as they tried to do last year.
Tax reform has been a heavy lift in Congress, but Senate finance committee chairman Orrin Hatch restarted the process early this year. He’s already held three hearings, set up working groups, and solicited comments from all groups and companies, ironically due on tax day, April 15. The committee’s goal is to complete recommendations by the end of May.
Advertisers spent the better part of last year trying to swat back two proposals, one in the House ways and means committee and the other in Senate finance that would have placed limits on the amount of advertising dollars that could be deducted in the year it was spent. If the proposals went forward, it would have reversed the long-established practice of treating advertising as a straight forward cost of doing business.
Although a change in leadership on both committees effectively killed those proposals, that doesn’t mean they won’t come back.
“The fact they they did a revenue run on us [before], puts a bulls eye on our back,” said Dan Jaffe, executive vice president of the Association of National Advertisers, who was on the Hill last Friday. “We’re trying to show them this is fool’s gold.”
For advertisers, marketers and media, there may be no more important issue than making sure lawmakers protect the ad tax deduction. Removing or limiting the tax deduction could shrink ad expenditures on media and add hundreds of millions of dollars to company tax bills, advertisers argue.
But for lawmakers, it’s a cash cow hard to ignore. Taking away the ad tax deduction could bring billions to the U.S. Treasury, which is why over the past two decades, lawmakers have frequently looked at the advertising industry as a source of revenue.
If the goal is the same as last years, to lower the tax rate from 35 to 25 percent while remaining revenue neutral, somebody’s deductions have got to go.
“Every group says they are tremendously important, but we drive the economy,” said Dan Jaffe, executive vice president of the Association of National Advertisers.