Possible Ad Tax Has Broadcasters, Media Companies Jittery.

The Trump administration says it hopes work on a tax overhaul will begin in Congress after Labor Day with the groundwork continuing to be laid on the reform effort this summer. The White House has released a broad outline of its plan and efforts to ensure that an ad tax isn’t part of the final bill are already stepping up in Washington.

The Advertising Coalition, a group of associations and media companies which includes the National Association of Broadcasters, has fired off a seven-page outline of what it says would be the negative consequences of such a move to the House Ways and Means Committee. “A tax on advertising is neither supported by sound economic policy nor informed tax policy,” the Coalition tells lawmakers, pointing to the analysis of two economists which suggested the move would result in a “decisive decline” in advertising dollars which are the lifeblood of media outlets, particularly in rural and smaller communities. “One of the unintended consequences of the proposed tax on advertising is that it would result in less information being available to consumers through internet publishers, newspapers, magazines, radio and television stations and networks, and cable networks and operators,” the group warns. “Reducing the advertising revenue received by these media outlets would reduce their ability to make information available and would weaken a core underpinning of our democracy—an informed electorate.”

Recent tax reform proposals in Congress would end the immediate write-off of all advertising expenses and force marketers to amortize 50% of these expenses over five or ten years. But the Coalition says the current tax law allowing companies to take the deduction in the same year as it’s spent ought to be preserved. “Decades of legal and policy justifications support the current tax treatment of advertising as an ordinary and necessary business expense, rather than an asset to be capitalized over time,” it says.

What has the ad community particularly on edge is the fact that the long-threatened change to how advertising is treated became more tangible in 2014 when former Ways and Means chairman Dave Camp (R-MI) included a $169 billion tax on advertising in his 2014 comprehensive reform proposal. While that never reached the legislative finish line the Coalition fears the idea remains a potential in the final law. “A tax on advertising such as what was proposed in the Camp legislation would not only damage the advertising and media industries, but also would negatively affect the jobs and sales generated by advertising’s ripple effect throughout the economy,” it tells lawmakers. The group points to a 2015 IHS Economics study commissioned by the Association of National Advertisers, which found advertising accounted for $5.8 trillion in U.S. economic activity and supported more than 20 million jobs, which represents 14% of all U.S. employment.

“The nation’s businesses that advertise would annually feel the brunt of a Camp-like proposal, leaving them with fewer resources to commit to advertising spending year after year,” the Coalition says. “The resulting decrease in advertising purchases would cause a chain reaction throughout the economy and sharply affect media companies that depend on advertising as a critical source of revenue for daily operations.”

The ANA estimates changes to how marketers can deduct their advertising expenses could also have the potential to increase the tax burden on businesses by $169 billion-$200 billion each year.

Dan Jaffe, the ANA’s top executive in Washington, says at this point there is no clear consensus on how Congress will proceed in the coming months. One issue is whether a border adjustability tax, something akin to a tariff, will be included in the Republican’s plan. If it’s not, Jaffe says it could create a $1 trillion hole in the budget and make proposals such as an ad tax appear more attractive. “There has been no discussion in the hearings so far on how to pay for corporate tax reform, but we are not waiting around,” he says in a blog post. The Advertising Coalition is organizing meetings with key members of Congress to explain the potential consequences of an ad tax.

Several groups have also joined the fight. Grover Norquist’s influential Americans for Tax Reform has written a letter to every member of the House and Senate urging them not to create a so-called ad tax. And two other coalitions—one made up of a dozen conservative-leaning groups and another representing minority and LGBT-owned businesses—have separately called on Congress to leave the current law in place.

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