The Association of National Advertisers is calling on its members to call on Congress in an effort to head off one of the greatest threats to the federal tax deductibility of advertising since it was written into the tax code in 1913. In a notice to members, the ANA described the threat as a “strong likelihood” that would significantly restrict what advertisers can deduct, and would make the amortization of ad costs much more complicated to administer, especially for small businesses.
The effect, ANA Group Executive Vice President-Government Relations Dan Jaffe says, could be chilling for the media industry, ad agencies and the national economy.
“Right now, advertisers can deduct 100% of advertising,” he says, explaining that the legislation expected to be introduced by House Ways and Means Committee Chairman Dave Camp (R-MI) would require advertising costs to be amortized over three years.
“Think about what that does for the media that is dependent on advertising, especially media like newspapers and magazines that are already struggling, if advertisers could only write off a third of the dollars the they spend each year.”
Jaffe says the amortization scheme is one of two scenarios likely to be proposed by the committee. The other would be a limitation on the percentage of advertising that would be deductible. In either case, he says, the economics of ad spending would shift for marketers and their advertising and media supply chain.
The ANA’s call comes amid some extraordinarily histrionic behavior among legislators in an attempt to derail or rewrite the Affordable Care Act, which could lead to a government shutdown, so the effects of ad deductibility may not exactly be top of mind with some legislators and their constituencies.
For those legislators who are focused on it, it may be seen as an easy way to generate substantial tax revenues without regard for its broader economic effects.
In its appeal to members, the ANA cites what it calls a “widely accepted model” developed by Larry Klein, a Nobel Laureate in economics, which concludes that ad expenditures account for 20% of total economic output and 15% of the jobs in the U.S.
“Every dollar of ad spending generates just under $20 of economic output and every million dollars of ad spending supports 69 American jobs,” according to the ANA’s assessment of the study.