Sen. Baucus Goes After Advertising in Tax Reform Draft

For the first time, proposals to limit the ad tax deduction are being pushed by the two chairmen of the tax writing comittees in both the House and the Senate.

Advertising lobbyists were already sounding the alarm over a House proposal. But Thursday, the situation turned to code red when Senate finance committee chairman Max Baucus (D-Mont.) released a tax reform draft that included precisely what the ad community feared: a proposal that would reduce the advertising tax deduction by half. 

In a slight deviation from a similar proposal floated by House ways and committee chairman Dave Camp (R-Mich.), Baucus' proposal would allow advertisers to only deduct 50 percent of advertising expenses in the first year and amortize the rest of the 50 percent over five years, not 10 as proposed by Camp.

Even though the amortization period in Baucus' bill is shorter, advertisers are still appalled that any threat to what has been considered a normal cost of doing business is being considered in both chambers.

This isn't the first time the ad tax deduction has come up as part of a tax reform or budget proposal, but this time is different, ad lobbyists claim.

"This is the most serious assault on the economics of the advertising industry in decades," said Dick O'Brien, evp of the 4As. "It's time to employ every weapon in our arsenal to extinguish this very bad idea."

If proposal gets through, opponents say, advertisers would surely cut ad expenditures across all media, impacting both jobs and the economy. Data touted by the advertising media community shows that almost $6 trillion of the U.S. economy is generated by advertising, as well as almost 15 percent of jobs.

"What is worrisome is that Baucus and Camp claim their goal is to create jobs and stimulate the economy," said Dan Jaffe, evp of the Association of National Advertisers.

Some believe that in the end, the numbers will win out.

"The ad tax deduction always comes up but it's always been discarded because the economy needs job creation," said Gordon Smith, president and CEO of the National Association of Broadcasters and a former Republican Senator from Oregon. "It's dumb public policy. I don't see it surviving in this Congress."

That doesn't mean that it won't be debated or that the advertising and media community should sit idly by. Both Camp and Baucus are determined to lower the tax rate to 25 percent, they're looking for revenue, and advertising is a big pot of money.

As Dan Jaffe, evp of the Association of National Advertisers puts it, it's in until it's out. And right now it's in.