While the industry was celebrating Advertising Week in New York, 250 miles south in the nation's capitol, Congress was mulling its perennial plot to remove the standard tax deduction for advertising expenses.
It's the industry's worst nightmare. A repeal of the ad tax deduction is back in play, and could add hundreds of millions of dollars to marketers' tax bills, crimp ad expenditures on media and reduce revenue for ad-supported media.
The dreaded measure, being talked about in the House Ways and Means Committee, could show up as part of either the continuing resolution to fund the government or in the bill to raise the debt limit. Rep. Dave Camp (R-Mich.), chairman of the committee, has made tax reform a priority and proposed to link tax reform to the debt ceiling, or in legislation this fall.
"We're starting to see the strongest signal we've seen in years," said Dan Jaffe, evp of the Association of National Advertisers. "We've been told by House staff that they are seriously looking at some limitation on the deduction, but they haven't told us all the details."
Reading the tea leaves of the budget fights and having fought the issue for 20 years, the advertising lobby has been working the halls of Congress all year. To bolster its case, the lobby group recently updated the district-by-district data showing just how much advertising contributes trillions of dollars to the nation's economy in jobs, sales and revenue.
The study shows advertising expenditures account for $5.8 trillion in economic output in the U.S. or 20 percent of the $29.6 trillion in total economic output in the nation. Every dollar spent on advertising generates just under $20 of economic output, and every million dollars of ad spending supports 69 American jobs.
"There is simply no economic or practical justification for enacting a limit on the deduction of advertising costs," said the American Advertising Federation in an alert to its members to contact their Congressional representatives. "The Tax Code has rightly permitted this deduction for the 100-year life of the corporate income tax. It is not a special preference or deduction, it is a normal and necessary expense that a business must pay to communicate with customers and generate sales."
Though it's hard to game the U.S. Congress, the advertising lobby isn't playing games. "Our assumption is that as long as we hear it's on the table, we have to take it seriously and try to nip it in the bud early," said Clark Rector, vp of government relations for the AAF.
"When you have billions in play, the only rational thing is to take this seriously," Jaffe added. "But we continue to hear we're likely to be in the package and once it's in the package, for years afterward, it becomes one of the first things looked at."