Counselor Commentary: A Misguided Tax Increase

Senator Max Baucus Encouraging Legislation That Would Limit Ad Tax Deduction

A Misguided Tax IncreaseGovernments often do things that make you scratch your head. Well, Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, floated a proposal recently that has many in the advertising industry scratching their collective heads.

As we reported in Counselor PromoGram on Tuesday, Baucus is encouraging legislation that would limit the advertising tax deduction. The drafted proposal – which is not formally before Congress yet – would only allow companies to deduct 50% of the money they spend on advertising dollars in year one, with the remaining 50% amortized over the next five years. Currently, companies can deduct 100% of advertising expenses in the year they’re incurred, but now both chambers of Congress have floated proposals to limit that deduction. “America today is using a bloated tax code that was built for businesses close to 30 years ago,” said Baucus. “The code is completely outdated and acting as a brake on economic growth.”

No, what really acts as a brake on economic growth is the addition of taxes that would surely limit spending. That’s exactly what this proposal would do in the advertising – and yes, promotional products – industry. If companies weren’t able to immediately write off advertising expenses (as they’ve been accustomed to doing for many years), it seems quite logical that they’d be less motivated to actually spend money on advertising. If more ad expenses means more taxes, well then, we’d expect that there would simply be less advertising expenses all around.

You’d think politicians – who spend millions on promotional items and advertising for their re-election campaigns – would be the first to recognize the importance and effectiveness of advertising. But, in this case, they’re clearly not thinking straight. They’re trying to find any way possible to increase federal revenues and are missing the implications that those increases can cause on many companies and industries. Of course, this proposal is still a long way from becoming law. In fact, it hasn’t even been scheduled yet for debate in either the Senate or House.

So, there is still time to have your voice heard on the issue. If you want to write, call, or e-mail a U.S. Senator click here. And, if you want to contact a member of the U.S. House of Representatives on the issue, click here.