AAF Calls Proposed Changes to Tax Code 'Draconian'

Limitations Could Reduce Ad Sales By as Much as $446 Billion Each Year

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The American Advertising Federation is sounding the ad-tax-deduction alarm again. Clark Rector, exec VP-government affairs for the group, sent out an email this week to organization members saying the House Ways and Means Committee is considering a proposal that would dramatically curb the expensing of advertising costs for tax purposes.

And, he added, "credible sources within the House Ways and Means Committee" have confirmed that the changes "could be even worse than we feared."

According to Mr. Rector's sources, the plan under consideration would require 50% of all advertising costs to be amortized over 10 years, and the remaining 50% deducted in the first year of the amortization schedule.

"That's draconian," he said. "And how does this simplify the tax code?"

Republicans have said they want to simplify the tax code and make it more "fair" by closing loopholes and lowering rates for corporations and high-income earners. Democrats also want an overhaul, but they want to change the tax code to raise more revenues.

David Camp, R-Mich.
David Camp, R-Mich.

Lawmakers have been mired in a partisan split on the issue that has stalled any reform. But Rep. David Camp, R-Mich., the head of the House Ways and Means Committee, and his counterpart, Sen. Max Baucus, D-Mont., the head of the Senate Finance Committee, hope to reach an agreement by the end of the year.

That has struck fear in lobbyists like Mr. Rector who know a change in the tax code can create a huge impact in the health of their industries.

The Ways and Means Committee did not comment on the proposal, and negotiations by the panel have been conducted in such deep secrecy that it would make the CIA proud.

Nevertheless, Mr. Rector urged AAF members to contact their lawmakers to tell them limitations on advertising expenses could reduce ad sales by as much as $446 billion each year and place 1.7 million U.S. jobs at risk.

He told them to remind members of Congress, especially those on the Ways and Means Committee, the federal tax code has for 100 years allowed businesses to deduct the full cost of advertising, just as it permits the deduction salaries, rent, utilities, office supplies and other business expenses.

Meanwhile, Democrats have made up their own list of loopholes they would like to close. But none of them are related to advertising expenses. The Democrats' proposal includes closing loopholes on the depreciation of corporate jets and the deductibility of interest paid on loans to purchase yachts or mortgages for vacation homes.

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