Proposed tax reform provision could be harmful to businesses and economy

By Business Observer Staff
| 5:00 p.m. December 5, 2013
| 2 Free Articles Remaining!

Opinion

Dear Editor:
With chaos reigning in Washington over the debt ceiling, Obamacare and the healthcare.gov website, it's easy for other issues that may have a major impact on businesses (and thus the average citizen) to fall off the national radar screen. One such issue that is steadily gaining traction is a provision included in draft tax reform legislation that would affect businesses' ability to fully deduct advertising as a business-related expense.

In the House Ways and Means Committee, the chairman, U.S. Rep. Dave Camp, R-Mich., is working on a House bill that would reduce or amortize the advertising deduction over several years, while just recently U.S. Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, released draft legislation that takes direct aim. This version would only allow 50% of advertising expenses to be deducted in the current year, with the remaining 50% amortized over five years.

On both sides, the initiative is actually part of broader legislation to reform the corporate tax code. That is particularly disturbing, for many businesses and people in general are in favor of reform. However, trying to pay for it with advertising dollars is counterintuitive and ironically anti-tax reform. Consider:

Local, regional and national advertising generates $5.6 trillion in total economic activity for our country and helps support 22.1 million, or 15% of all jobs in the U.S. economy.

According to IHS Global Insights, every $1 spent on advertising leads to $20 in sales.

Nobel Prize-winning economists who have looked at the advertising deduction have argued it makes no economic or common sense to make businesses pay more for advertising.

It stands to reason that if businesses are limited in their ability to deduct advertising, they will do less of it. Fewer dollars spent would lead to lost jobs and reduced economic impact, which could mean a reduction in tax collections. What's more, a code change as proposed would not simplify tax returns, but further complicate them.

Lest you think Apple and Publix are the only kinds of companies that would be affected if they couldn't deduct all of their advertising in a given year, think again. This is a measure that could adversely affect every mom-and-pop business that needs to advertise, as well as the countless small businesses that do business with larger ones.

Both the House and the Senate expect to have bills introduced by early next year, so please get involved now and let your local legislators know that changing the deductibility of advertising would be disastrous and cannot be part of tax reform.

— Tracy Knight
Government relations chairwoman, Suncoast Advertising Federation; Owner, Knight Marketing; and publisher, Venice Magazine