'Ad Tax' One Step Closer to Reality With Baucus Proposal

Industry Groups Sound the Alarm

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Senator Max Baucus
Senator Max Baucus

The often feared, but rarely seen changes to tax laws that could threaten the ad industry took an actual step closer to reality today. Senate Finance Committee Chairman Max Baucus dealt adland a blow by proposing to allow businesses to expense only 50% of their advertising costs in the tax year they are incurred and spread the expensing of the rest over five years.

Though the chances of actual tax legislation being passed by the current congress are slim, industry trade groups were quick to react.

"It is essential that everybody in the advertising community speak up loudly and quickly that this proposal is misguided and highly damaging," said Dan Jaffe, group exec VP-government relations for the Association of National Advertisers.

In a statement, ANA CEO Bob Liodice called the proposed changes "a major new tax liability which would increase the cost of advertising and cause a substantial disincentive for companies to spend additional advertising dollars."

In a piece written for Ad Age earlier today, 4A's President-CEO Nancy Hill called any such proposal "the equivalent of an advertising tax," adding that "changing or removing the advertising deduction is also contrary to more than 100 years of business history."

Mr. Baucus, a Montana Democrat who is retiring at the end of next year, wants to make tax reform part of his legacy. He's been working for months on a draft proposal and releasing it piece by piece this week.

Thursday's release focused on a proposal that would reform tax accounting and expensing of business costs because the current system "was created in 1986 before cell phones were invented" and are "outdated, overly complex [and] reward certain businesses to the detriment of others."

Mr. Jaffe said there's "further reason to be worried" because the list of targeted expenses isn't very long.

Coming on the heels of reports House Ways and Means Committee Chairman David Camp is also seeking to limit the expensing of advertising costs, the Baucus proposal put advertising industry lobbyists in a panic.

Dire consequences
Mr. Jaffe warned of dire consequences to the U.S. economy if businesses cut their advertising dollars and of the "tremendous impact to the media" of Mr. Baucus' plan.

He said it's the largest threat to the industry since Congress tried to disallow the expensing of 20% of advertising costs in 1986.

"That never got off the ground, though. We were able to kill it," Mr. Jaffe said.

In his statement, Mr. Liodice, citing research from IHS Global Insight, said "In 2012, advertising accounted for $5.6 trillion of U.S. output and supported 21.1 million of the 136.2 million U.S. jobs."

Mr. Camp and Mr. Baucus hope to reach an agreement on a final tax package by the end of the year.

Clark Rector, chief lobbyist for the American Advertising Federation, said House Republicans don't want a high-profile debate about taxes to overshadow media reports of a steady stream of problems with the Affordable Care Act.

"But having this [proposal] released by the chairman of the Senate Finance Committee isn't good news," he said.

Still, a partisan split threatens any tax overhaul.

Senate Majority Leader Harry Reid, D-Nev., insists any tax reform raise $1 trillion to replenish the U.S. Treasury while House Republicans insist any savings go to reduce the corporate tax rate and the top tax rate for individuals.

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