Eliminating or amortizing all or a portion of the business tax deduction for advertising has been suggested as a possible source of federal income.
Reducing the deductibility of advertising expenses artificially increases the cost of advertising. Advertisers will compensate for the increased cost by reducing the amount of advertising they buy. This will have a negative impact on the advertising industry and economy. Advertising is a normal and necessary business expense and as such the full deduction should continue.
One argument used in favor of these proposals is that advertising is a long-term capital investment and should be expensed as such. Others contend that the advertising tax deduction is a form of “corporate welfare” that should be reduced or eliminated.
The new Democratic party controlled Congress has adopted a “paygo” policy, where increased spending proposals must be offset by reductions in other spending or new sources of revenue. Advertising deductibility, which is often discussed as a possible source of new revenue, is at increased risk.
UPDATE (November 2017)
Clark Rector, Jr., Executive Vice President of Government Affairs
AAF Alert - Tax Reform Update
House Republicans have released their comprehensive tax reform plan, the Tax Cuts and Jobs Act. The bill as introduced did not include any limitations on the deduction for advertising expenses. While this is very good news for consumers and the advertising industry, the threat is not over.
The House Ways and Means Committee will mark up the bill during the week of November 6. During that process any member of the committee could introduce an amendment to limit the advertising deduction in order to raise money for other purposes. We have no indication at this time that any member is planning on doing so.
The Senate Finance Committee is writing its own version of tax reform and scheduled to release it soon. Because this committee is writing its own bill, the advertising deduction is at risk here also.
A bi-partisan letter defending the advertising deduction has been sent to the Republican and Democratic leaders of the Senate and the Finance Committee. The letter was authored by Senators John Boozman, R-Ark. and Tammy Baldwin, D-Wisc. and signed by thirteen of their colleagues. The letter is similar to the Engel-Yoder letter sent last spring to House and Ways and Means Committee leaders signed by 241 members of the House of Representatives.
AAF’s grassroots efforts are working. Many members of the House and Ways and Means Committee cited the strong response from the advertising industry in their home districts as part of the reason advertising maintained its full deduction in the reform proposal.
The advertising industry must stay vigilant. I urge all AAF members to contact their Senators and urge them to oppose any effort to limit the full deduction for advertising expenses. If your Senator or Representative signed either the Boozman-Baldwin or Engel-Yoder letters I encourage you to contact their offices and thank them for supporting the advertising industry. These elected officials took a stand on our industry’s behalf and their support should be acknowledged.