• by Karl Greenberg , January 14, 2014

The Association of National Advertisers (ANA) for months has been fighting a proposal that Senate Finance Committee Chairman Sen. Max Baucus (D-Mont.) floated last November. The changes would allow for 50% initial deduction for advertising costs with payment of the other 50% amortized over five years. Currently, advertisers can deduct 100% of advertising costs for the year in which they are booked. 

The ANA -- which has been arguing that this tax would hurt not only the media business, advertisers, agencies and content producers, but consumers and the economy as a whole -- now has some new numbers from IHS Global Insight, which it commissioned to model the salubrious effect that ad dollars have on the U.S. economy and how that will grow over the next few years. The study covers advertising expenditures across 16 industries and government in each state and Washington, D.C., as well as in each of the 435 Congressional Districts in the United States.

The study found that 21 million of 136.2 million U.S. jobs are driven in some way by advertising, and that ads accounted for $5.6 trillion of the $33.8 trillion in U.S. output in 2012. 

The IHS project also simulated the effect of a change in tax policy where 80% of advertising spend is tax deductible. The study says that less aggressive reduction in deductible spend would mean a $19.4 billion loss in ad spending;  a $419 billion loss in additional economic output; a loss of some 42,000 jobs directly related to advertising; and the elimination of an additional 1.6 million American jobs. 

"This [proposal] would have hundreds of billions of dollars of impact on the advertising community, and it would bring down jobs," said Dan Jaffe, head of the ANA's government relations office in Washington, D.C. "It does not affect just one segment of society or one group, it would affect everyone, and it would cut down on economic activity as we're trying to climb back out of the recession."

For the forecast period 2012-17, the study concluded that every dollar of ad spending will generate almost $22 in sales, and every million dollars of annual ad spending will support 81 American jobs.   

The organization's study says that 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. 

"We support corporate tax reform but reject the Baucus proposal and framework," said Bob Liodice, ANA president and CEO. He argued that advertising and promotions are no different a cost of doing business than other deductible business costs, including office space, salaries equipment, and materials. 

“The proposal is unfair and arbitrary, and singles out a legitimate expense for radical change,” he says. “It will stunt development and stunt innovation. It’s $450 billion lost in economic output for the five years of amortization.” He notes that the current 100% deduction doesn't benefit one industry or one area -- it cuts across all sectors every state and congressional district. “Anyone who advertises will be harmed from, from local businesses in community newspapers up to the Super Bowl."