Lawmakers: Leave advertising tax break alone

Lawmakers: Leave advertising tax break alone
© Greg Nash

Industry groups and more than 100 lawmakers want to prevent tax reform legislation from curbing the deduction for businesses’ advertising expenses.

Since the federal tax code was created in 1913, businesses have been able to immediately deduct their full advertising costs. But over the years, proposals to limit the deduction have been floated as a way to raise revenue.


President Trump and Republicans have made passing tax reform legislation one of their top goals for 2017, viewing it as the path to stronger economic growth and job creation.

But the tax reform push has set off a lobbying scramble, with business groups and lobbyists seeking to protect certain tax breaks — and the ad deduction is among those with defenders.

Officials in the advertising and media industries and a bipartisan group of lawmakers argue that the tax treatment of ad expenses is consistent with the GOP’s goals for tax reform.

“The potential for strengthening our economy through tax reform would be jeopardized by any proposal that imposes an advertising tax on our nation’s manufacturing, retail and service industries,” 124 members of the House said in a recent letter to congressional leaders. The leaders of the letter were Reps. Kevin YoderKevin Wayne YoderBottom line Amanda Adkins wins GOP primary to challenge Rep. Sharice Davids Sharice Davids to vote for Trump impeachment articles: 'The facts are uncontested' MORE (R-Kan.) and Eliot Engel (D-N.Y.).

The intensity of the backlash highlights how hard it will be to overhaul the tax code; many of the breaks that lawmakers will need to close to raise revenue to lower rates have big business backers. 

The IRS generally allows businesses to write off the full amount of their advertising costs in the year they were incurred because it treats advertising expenses as an “ordinary and necessary” expense. Advertising costs are treated similarly to expenses such as employee wages and office supplies.

Advertising is “one of the most essential parts of doing business that there is,” said Clark Rector, executive vice president of government affairs for the American Advertising Federation.

Senate Minority Leader Charles SchumerChuck SchumerPelosi orders Capitol flags at half-staff to honor Ginsburg Ginsburg in statement before her death said she wished not to be replaced until next president is sworn in Democrats call for NRA Foundation to be prohibited from receiving donations from federal employees MORE (D-N.Y.) said in a statement to The Hill that “it is unfair, illogical and counter-productive to treat business advertising costs any different from other ordinary and necessary business expenses.”

While the ad industry is often viewed as being focused in large cities such as New York, Chicago and Los Angeles, lobbyists said that advertising activity helps to support jobs across the country.

“Advertising is a local business as well as a national business,” Rector said.

Supporters of the advertising deduction say it’s important to businesses, such as those in the newspaper and television industries, that rely on ads as a source of revenue.

“If you make advertising more expensive, there will be less information available to the public,” said Jim Davidson, executive director of the Advertising Coalition.

Advertising and media groups have been meeting with congressional offices to talk to them about the importance of the deduction. They are optimistic that the deduction will be preserved, in light of the House lawmakers’ letter on the subject.

Additionally, stakeholders are buoyed by the fact that the tax blueprint House Republicans released last year puts an emphasis on expanding immediate expensing of business costs. The blueprint proposes allowing businesses to be able to immediately deduct the full costs of investments such as equipment and intellectual property.

“We hope our arguments will win the day,” said Dennis Wharton, executive vice president for communications at the National Association of Broadcasters.

But industry groups aren’t assuming that the current tax treatment of advertising costs will be maintained, particularly since lawmakers will need to find ways to raise revenue if they want to minimize the effects of tax cuts on the deficit.

“We’re hopeful, but we’re not complacent,” said Dan Jaffe, who runs the Washington office for the Association of National Advertisers.

White House spokeswoman Natalie Strom said she could not comment specifically on the advertising deduction but noted the White House wants to simplify the tax code and reduce the compliance burden.

“That’s why we have to take a hard look at all deductions — while protecting home ownership, charitable giving, and retirement — in order to create a tax code that actually makes sense for everyone,” she said.

Under a 2013 proposal from former Senate Finance Committee Chairman Max BaucusMax Sieben BaucusBottom line Bottom line The Hill's Morning Report - Presented by Facebook - George Floyd's death sparks protests, National Guard activation MORE (D-Mont.) and a 2014 proposal from former House Ways and Means Committee Chairman Dave Camp (R-Mich.), businesses would only be able to deduct 50 percent of their ad expenses in the year they incurred, and they would have to amortize the rest over the course of several years.

The Joint Committee on Taxation estimated that Camp’s proposal on advertising would have raised $169 billion from fiscal years 2014 to 2023.

“[A]dvertising has a useful life beyond the tax year in which the expenses are incurred because a portion of advertising creates long-lived intangible assets such as brand awareness and customer loyalty,” read a summary from the Camp plan.

Rep. Kevin BradyKevin Patrick BradyBusinesses, states pass on Trump payroll tax deferral Trump order on drug prices faces long road to finish line On The Money: US deficit hits trillion amid pandemic | McConnell: Chance for relief deal 'doesn't look that good' | House employees won't have payroll taxes deferred MORE (R-Texas), the current Ways and Means chair, noted the blueprint House Republicans are now working off doesn’t make changes to the ad deduction. He told reporters Tuesday there “may be a need” to look at the revenue raisers in Camp’s plan, but is hopeful those won’t have to be considered.

“I’m confident that if we stay focused on the bigger issues that those won’t have to be part of those discussions,” he said.

Industry groups argue that it doesn’t make sense to require ad expenses to be written off over the course of several years and that doing so would further complicate the tax code.

“We feel there’s no justification for it,” Jaffe said. He added that many economists have argued that the benefits of advertisements tend to be short-lived.

In addition to the support from industry groups, the advertising deduction also has the backing of some prominent fiscal conservatives. A coalition of free-market groups sent a letter to lawmakers in February urging the leaders of the congressional tax-writing committees to keep the current tax treatment of ad costs.

One of the groups that signed the letter was Americans for Tax Reform, led by Grover Norquist, an anti-tax crusader who often has the ear of GOP leaders.

“Pro-growth tax reform should allow businesses to immediately expense purchases and investments,” Norquist said. “The right policy is in place for advertising costs — they can be deducted immediately. Congress should expand this to other business purchases rather than forcing current purchases to be depreciated.”