Giving Advertisers a Tax Break Could Give Economy a Lift

Unleash the Power of Persuasion to Keep Consumers Spending

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When I interviewed Jim Datri, the new head of the American Advertising Federation, I asked him if the AAF would back a stimulus plan for advertising.

Jim didn't think that was such a hot idea; he's more concerned about the opposite: the government's clamping down on advertising tax deductions.

"Let's face it," he told me, "a lot of folks are asking for things right now, asking for government to come in and help them out. ... But I think when they do turn to the tax code, they're obviously going to look for ways to close loopholes and bring in revenue."

To put a slightly different spin on the old football adage, I say the best defense is a good offense. If we really believe that the great engine of advertising is the most effective stimulus to our economy -- where consumer spending accounts for 70% of all economic activity -- then we need to find ways to keep the power of persuasion going strong.

What good does it do to give billions of dollars to the auto industry to keep U.S. car companies in business when they're cutting back drastically on ad budgets to move all that metal? Our sibling publication Automotive News editorialized that "Washington must stimulate consumer demand." Auto News wasn't talking about advertising (it favors tax credits and/or higher gasoline taxes), but it nevertheless said, "It's up to Congress and the White House to help get the vehicles to market."

We carried a story the other week about three car guys, with the blessing of Lee Iacocca, who are trying to raise $50 million to fund a campaign to push Detroit cars. The car companies say they don't have any extra money for a generic campaign, and they favor using the money they do have to promote their new brands.

If the government is serious about wanting American consumers to buy more fuel-efficient automobiles, as well as keeping Detroit alive and breathing, it should expand its idea of stimulus to include extra tax breaks for ad expenditures. That would give the auto industry the financial incentive to promote its crop of green cars about to come to market, as well as fund a more general "Buy Detroit" campaign. But even with government incentives, ad money would have to go where it would be most effective.

As economist Amar Bhide told Maria Bartiromo in BusinessWeek, people "just think of consumption as one big lump of stuff. In fact, it's a whole bunch of things, some of which are good for the economy in the long run and some of which are less good. So I think we'll see a cutback in the kind of things people consider dispensable. They may eat out less. They might not trade up to a larger home. But history suggests there will be no cutbacks in the consumption of the kinds of new technologies and products that ultimately make the economy grow."

What that means is that consumers aren't pulling back on things that can save them money -- not only trading down to generic brands but trading up to better-built products that conserve energy and don't waste product. Single-serving coffee makers are one example.

Over the holidays, I talked to a guy who runs a big telecommunications company, and he said his company was cutting back pretty drastically on advertising because he didn't believe consumers were in the mood to buy anything.

But if marketers can show that their products can save money, cut down on stress and help people conduct their lives more efficiently, consumers will invest their money.

The big question, as The Wall Street Journal put it the other day, is whether personal savings -- now on the uptick as consumers cut back on expenditures -- will grow to such an extent that it will dampen consumption and growth.

That's where the right mix of products and promotion comes in, and encouragement from Uncle Sam can keep ad expenditures flowing when we need them most.

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