Federal tax reform plan protects advertising

posted on 7.12.2016

A proposal more than two years ago to dramatically diminish the federal tax deduction on advertising costs was met with a chorus of derision from the general business community and spurred a frenzied lobbying effort by local broadcasters and other advertising supported industries.  Those protests appear to have paid off as seen in the latest proposal to revamp the federal tax code.

Texas Congressman Kevin Brady, R-The Woodlands, who took the helm of the tax-writing House Ways and Means Committee when his predecessor retired in 2014, has proposed a far different tax reform plan that in part preserves the existing deduction for advertising costs. The deduction has been in place since the income tax was first adopted in the early 20^th Century.

While Brady was a member of the committee when the initial reform legislation was unveiled by then-Chairman Dave Camp, R-Michigan, he acknowledged concerns expressed by his broadcasters and others.

Broadcasters underscored the economic impact advertising has on the entire economy thanks to NAB-funded research by IHS Global Insight demonstrating that:

• Every dollar of ad spending generates, on average, almost $22 of economic output (sales)
• Every million dollars of annual ad spending supports 81 American jobs
• By 2017, advertising will account for $6.5 trillion of $42.3 trillion in U.S. output and support 22.1 million of 146.7 million U.S. jobs.

The research found that an even less aggressive reduction in the deductibility of ad costs than Camp proposed would have triggered:

• A 19.4 billion loss in ad spending
• A loss of $419 billion in additional economic output
• A loss of approximately 42,000 jobs directly related to advertising, and
• The elimination of an additional 1.6 million American jobs.

While Rep. Brady’s new tax reform plan hasn’t received much media play in the midst of reporting on the presidential election and national concerns about racial tensions, Forbes magazine published this overview on July 10. This New York Times piece published the same day provides further analysis.

Brady has noted that it’s possible other lawmakers may attempt to revisit Camp’s plan to tinker with the advertising deduction, an important caution to broadcasters and others that we must continue to engage with lawmakers as the effort to adopt the new rewrite begins taking shape in the coming year.

Questions? Contact TAB's Oscar Rodriguez or call (512) 322-9944.

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