Anyone who’s filled out a tax form knows it’s all about the fine print, but with few details in hand about where tax reform efforts stand, the prospects of a so-called ad tax remain in play. So much so that the Association of National Advertising says there remains a “serious risk” that Congress will adopt a tax code that alters how marketers can write off their advertising investment.
What’s most worrisome to ad tax opponents is Treasury secretary Steven Mnuchin, National Economic Council director Gary Cohn and congressional leaders released a one-page joint statement last week that offered few details of where things stand other than to say the goal is to reduce tax rates “as much as possible,” including lowering tax rates for small business. The so-called “big six”—which includes House Speaker Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY) as well as Senate Finance Committee chair Orrin Hatch (R-UT) and House Ways and Means Committee chair Kevin Brady (R-TX)—also said they’ve “set aside” a proposed border adjustment tax as a way to pay for the tax breaks. Vice President Mike Pence also reiterated that the Trump administration plans to propose lowering the business tax rate to 15%, which would be the largest cut in the corporate tax rate in U.S. history. “We are going to pass the largest tax cut since the days of Ronald Reagan,” Pence told the NRF’s Retail Advocates Summit last month.
Dan Jaffe, the ANA’s top executive in Washington, says the direction tax reform is currently heading could leave a hole in the federal budget of a trillion dollars or more, which would create “enormous pressure” for Congress to find ways to offset the cuts to keep the deficit from ballooning. “The current tax deduction for advertising costs therefore is at serious risk,” Jaffe said in a blog post. In fact, insiders say the way in which companies write off their advertising expenses continues to be part of the discussion in the halls of Congress.
Under current federal tax code, advertising is treated as an ordinary and necessary expense that’s no different than other company expenses such as employee salaries, rent and utilities. What has worried broadcasters, advertisers and ad agencies is that some recent tax reform proposals have suggested ending the immediate write-off of all advertising expenses, which would force marketers to amortize 50% of these expenses over five or 10 years.
“These changes could cost the marketing community over $200 billion in new taxes over the next ten years,” Jaffe said. The ANA predicts such a move would result in businesses pulling back in the amount of money they spend on advertising with devastating effects on the American economy. An IHS Economics study commissioned by the trade group has shown that every dollar of ad spending generates $19 of economic activity in the U.S. “If policymakers hope to see economic growth continue into the future, hampering advertising—a substantial driver of economic activity and jobs—is clearly the wrong approach for our country,” Jaffe said.
Health Care Fight Impacts Tax Debate
Congress is looking to turn the page from its months-long and ultimately unsuccessful effort to repeal and replace the Affordable Care Act, and tax reform appears to be the way in which Republican leaders hope to do achieve that. Jaffe said that the release of a statement by the “big six” indicates they plan to substantially accelerate the tax reform process after Congress returns from its August recess. “The recent derailment of the health reform proposals in Congress will only create stronger pressure to focus on tax reform efforts,” he said. But the implosion of the drive to repeal and replace Obamacare also exposes how difficult it is to pass sweeping legislation, particularly with what one lobbyist tells Inside Radio are the “substantial fissures” in thoughts on policy among congressional Republicans.
Nevertheless the “big six” say they hope to move legislation through the committee hearing process this fall, followed by consideration on the House and Senate floors. “American families are counting on us to deliver historic tax reform. And we will,” they said in their joint statement. But the legislation will advance under regular order where Democrats will have an opportunity to slow down the process.
Asked which moves the Trump administration most supports, press secretary Sarah Huckabee Sanders said last week it remains a work in progress. “The big pieces are simplification and relief for the middle class. Those are big places that we’re really focused on,” she said.
The National Association of Broadcasters has joined with the ANA and other media and advertising organizations to form The Advertising Coalition to fight any ad tax proposals that may emerge. In June the Coalition submitted a seven-page outline to the House Ways and Means Committee of why it opposes an ad tax, including its potential to hurt media outlets in rural communities. “One of the unintended consequences of the proposed tax on advertising is that it would result in less information being available to consumers through internet publishers, newspapers, magazines, radio and television stations and networks, and cable networks and operators,” the Coalition warned.
Several groups have also joined the fight. Grover Norquist’s influential Americans for Tax Reform has written a letter to every member of the House and Senate urging them not to embrace an ad tax. And two other coalitions—one made up of a dozen conservative-leaning groups and another representing minority and LGBT-owned businesses—have separately called on Congress to leave the current law in place.