Wisconsin businesses should be on the lookout. A proposed change to the U.S. Tax Code will severely impact their bottom lines.
Recently, Congressman Dave Camp (R-MI), the chairman of the U.S. House of Representatives Ways and Means Committee, released his draft tax reform legislation that would change the way advertising expenses are currently treated. Businesses only looking at the proposed overall corporate tax rate must be aware that this proposal related to advertising will have severe consequences.
Advertising is a major driver of the Wisconsin economy. According to a recent study commissioned by The Advertising Coalition and the Association of National Advertisers and conducted by IHS Global Insight, Inc., advertising expenditures account for $105.8 billion in economic output in Wisconsin – that is 17.6 percent of the $600 billion in total economic output in the state. Additionally, advertising-driven sales of products and services help support 458,033 Wisconsin jobs, or 16.2 percent of the 2.8 million jobs in the state.
But these impressive figures are in serious jeopardy. Since 1913, when the federal corporate income tax was first instituted, businesses have been able to deduct 100 percent of their advertising expenditures in the year expended. This same treatment is accorded to all other ordinary and necessary business expenses, like salaries, rent, utilities and office supplies.
The deduction helps provide an opportunity for every company in every industry throughout the U.S. to communicate efficiently and effectively with consumers about their products and services.
Nonetheless, Representative Camp’s tax proposal would drastically cut the deduction. Under his plan, companies would be allowed to write off 50 percent of their ad expenditures immediately, but the remaining 50 percent would have to be written off over 10 years. Camp provides an exemption from the amortization requirement for companies advertising less than $1 million annually, but the exemption is phased out and eliminated completely once a company advertises more than $2 million in a year.
It has been estimated that this change in the ad tax deduction would cost the United States a loss of more than $450 billion in additional economic output and the elimination of over 1.7 million American jobs. This means that Wisconsin alone could see a loss of billions of dollars in economic output and put hundreds if not thousands of jobs at risk.
True tax reform in this country should not focus on penalizing companies that advertise; rather, tax reform should focus on closing loopholes and special interest write-offs that limit the competitiveness of all businesses, whether in Wisconsin or nationwide. Advertising is a necessary business expense that stimulates the economy and creates job. Wisconsin businesses should take action now and contact their Members of Congress before it’s too late. It is critical that Congress reject the ad deduction amortization proposal and stop its potential to seriously impact Wisconsin’s business’ bottom lines and jeopardize the state’s economy, jobs and sales.
It’s difficult to predict when Congress might act on tax reform, but what we do know is that serious discussions are underway now and these discussions will influence the final legislation. Businesses need to speak up quickly before it’s too late or risk the consequences.
Bob Liodice is chief executive officer of the Association of National Advertisers (ANA), which provides leadership that advances marketing excellence and shapes the future of the advertising industry.