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In his long-awaited plan to overhaul the federal tax code, House Ways and Means Committee Chairman David Camp offered advertisers and the advertising industry a $1 million loophole to his proposal to limit the expensing of advertising costs.
But Mr. Camp's tax plan was greeted with dismay by those who buy and sell ads.
"This is a dreadful idea," said Dick O'Brien, a top lobbyist for the American Association of Advertising Agencies. "What he's doing will make advertising more expensive."
Mr. Camp's plan would limit the expensing of advertising costs to 50% the first year with the amortization of the rest over 10 years. But the Michigan Republican said he'd be willing to exempt the first $1 million in ad expenses.
"That's almost meaningless," Mr. O'Brien said. "It's a token. Most big businesses spend tens of millions or hundreds of millions of dollars in advertising each year."
Other industry groups also weighed in.
"Chairman Camp's proposal is a major new tax liability for businesses that would increase the cost of advertising and cause a substantial disincentive for companies to spend additional advertising dollars," said the Association of National Advertisers in a statement.
Randall Rothenberg, president-CEO of the Interactive Advertising Bureau, said in a statement: "In a U.S. economy still struggling to grow, the last thing to consider is a change in the tax deductibility of advertising expenditures. Advertising is the engine of consumer demand; it brings people into showrooms and stores, and generates the economic activity that creates new jobs. . . . Moreover, advertising is not a special interest; it is in everyone's interest."
Mr. Camp called the advertising proposal a "tradeoff" that's needed to be able to cap the corporate tax rate as 25%. The corporate tax rate is now 35%. According to the proposal itself the Joint Committee on Taxation found changing the provision related to the expensing of advertising would increase revenue by $169 billion between 2014 and 2023. (The relevant section can be found on page 56 of the proposal.)
The draft tax plan also proposes an end to depreciation benefits for corporate jets. Hedge-fund managers and private-equity firms would be required to treat "carried interest," or the fees paid by their clients, as ordinary income rather than capital gains. The mortgage-interest deduction would be limited to loans that are no larger than $500,000. The ability to deduct the amount paid in state and local taxes would be gone.
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Mr. Camp conceded that Congress isn't likely to take up his tax plan this year. A similar proposal by former Senate Finance Committee Chairman Max Baucus, now the U.S. ambassador to China, is in limbo.
But the Ways and Means Committee chairman said it's critical for Congress to begin what's likely to be a highly contentious debate about the reform of the federal tax code to close "loopholes" and cut the corporate tax rate.
"If we don't, we will fall behind the rest of the world," Mr. Camp said. "We need to have this debate, we need to move this country forward."
To Mr. O'Brien, the congressman has "opened a Pandora's box" that endangers the financial health of the advertising industry.
"The problem is he's setting a precedent," Mr. O'Brien said. "Every time the government needs money, they will say, 'Why don't we look at advertising?'"
The ANA also said the tax proposal would raise the cost of advertising and hurt the U.S. economy.