Months of face-to-face lobbying from broadcasters explaining the potential devastating impacts of a so-called ad tax appear to have paid off. Just days ago there were indications that a change in how companies write off their marketing expenses was one of the ways congressional Republicans were still looking at to pay for a package of tax cuts. But in what House Ways and Means Committee chair Kevin Brady (R-TX) called a “complete redesign of the tax code” released Thursday, there was no mention of advertising in the $1.51 trillion proposed overhaul.
“We’re going to be very vigilant because this is going to be a rollercoaster ride,” said Dan Jaffe, who heads lobbying efforts for the Association of National Advertisers. He predicts any industry that’s been targeted will now push back and that may open the door for changes in the legislation. “The only way you can feel secure about this whole process is when it is done,” he said.
The ad tax wouldn’t be a tax on advertising per se. Instead, recent tax reform proposals in Congress would end the immediate write-off of all advertising expenses and force marketers to recoup those expenses over five or 10 years. Faced with that prospect the media and ad community have joined forces to form the Advertising Coalition, which argues such a change would give companies a big reason to cut back their ad budgets. They point to an ad tax that was adopted in Florida in 1987; it lasted a mere six months, during which time ad sales plunged 12% across the state’s media with estimates that $100 million in revenue was lost.
Today, the impact would be even larger. A 2015 IHS Economics study commissioned by the ANA 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. Market-by-market efforts by broadcasters and other local media are credited for getting that message through to local members of Congress. A bipartisan group of 124 House members and 30 Senators have so far gone on record opposing an ad tax.
“We felt we were making progress on the sale, but the problem is Congress has a very difficult job too—which is finding the money to pay for a very sizable cut in corporate taxes,” said Jaffe. “We’re all for a cut in corporate taxes, we just don’t think it should be paid for by things that are a growth engine.”
The National Association of Broadcasters has been among the groups rallying members to help fight the ad tax proposal. “Study after study has shown that advertising is a driving engine for economic growth, sustaining and supporting millions of high-paying American jobs, and today’s legislative framework recognizes those important benefits,” NAB president Gordon Smith said in a statement.
With the fight far from over, Jaffe encouraged broadcasters not to take any preliminary victory for granted and to stay in close contact with local elected officials in Washington. “Keep talking to people about the importance that advertising has on your business,” he said.
Other Tax Changes Could Hit Broadcasters
The massive 429-page tax reform bill is still being digested in Washington but there’s one piece that may leave a bad taste in the mouths of sales reps that take a client to lunch or dinner. Under the current tax code, 80% of that expense can be written off. But the GOP plan would cut business meal deductions by more than one-third, only allowing 50% of the expense to be written off.
The programming office could also take a hit. Air personalities have often relied on frequent job changes and relocations from market-to-market to score advancement. But the tax proposal would eliminate the deduction for moving expenses.
The biggest radio groups would also lose the ability to deduct executive compensation above $1 million under the bill. However, the loophole that allows for “performance-based” compensation to be written off would still be allowed.
But broadcasters looking to pass their companies onto the next generation would also benefit from changes in the estate tax. The GOP plan calls for initially doubling the estate tax exemption to as much as $11.2 million for a married couple. If adopted as drafted the so-called “death tax” would then be repealed altogether in six years.
Republican leadership hopes to approve legislation and have it on President Trump’s desk by the end of the year. That breakneck pace is in part to keep outside groups from putting pressure on lawmakers, but outside groups have already announced they plan several million dollars to sway voters. That could bring some stations in swing districts an unexpected boost of political spending in the final weeks of the year.
“We believe we are in a very strong position because we have data that shows advertising’s impact on every congressional district in every state in this country,” Jaffe said. “Advertising is one of the primary drivers of economic growth and jobs and that’s supposedly what the tax reform is all about. We hope that will insulate us.”