Advertising is a cost of doing business.
Tax policy is such a multifaceted thing — if it weren’t so dry and yawn-inducing, it would make a fascinating case study for the reach and scope of government. It creates and regulates the flow of revenue into the treasury, of course, but it’s arguable whether this is its most important function.Tax policy is also a cudgel, or a spur. It encourages certain types of behavior, while discouraging others. Very often that’s entirely deliberate. There’s a proposal under discussion right now to levy a 10% tax on the use of tanning beds…not so much because those extra dollars are needed, but rather to prevent, hopefully, some number of new cases of self-inflicted melanoma.
That’s all well and good. But what about the unintended consequences of tax policy? What about tax policy that will discourage behavior that no one can argue is detrimental?
Like buying American.
Separate committees in both the House and Senate are currently discussing overhauls to the U.S. tax code. Both committees, it’s been reported, are considering what we think is a drastic and ill-advised step: reclassifying marketing and advertising costs so that they will no longer be treated as normal, deductible business expenses.
Clearly, we have skin in this game. And clearly, we can argue that designating advertising as anything other than a necessary cost of doing business is simply inaccurate.
Instead, we’ll make this point: Tax policy is indeed a cudgel, and it does indeed alter behaviors. It’s an easily proven fact that when taxes are levied on a particular activity, then fewer people will engage in that activity.
By taxing advertising expenditures, the federal government will ensure that less advertising takes place. That distresses us (no surprise there) but it’s our contention that it should distress you, too. Why? Because the vast majority of advertising dollars are spent locally — local businesses working with local agencies, print shops, and production facilities, to place ads with local newspapers and broadcasters. Even on a national level this principle holds true. When American companies market to American consumers, most if not all of their expenditures stay within our borders.
For more than a century, since the birth of the federal tax code, advertising has been treated precisely like what it is: a wholly legitimate operating expense, necessary for finding and keeping customers. The industry that’s grown up around that need has become an engine of American economic advancement, and a thriving source of American jobs.
The proposed change to the tax code, the alteration of the advertising-expense deduction, will change all that, very much for the worse. We oppose it as strongly as our finite voices and human frailties will allow. We’re saying so to our senators and congressmen, and to anyone who’ll listen, really. We’re making the same case we’ve just made to you. We think it’s a convincing one.
If we’re right about that, then all that’s left is to ask this simple question: Are you with us?
The C4
- The tax code is a mind boggler. No doubt it’s in need of an overhaul. But the sections governing advertising expenses, classifying them as deductible business costs, are right on point, we think.
- It ain’t broke, but the government is trying to fix it. Both the House and Senate are considering changing or even eliminating that deduction. It is our stance that not only would this result in an unfair tax on a legitimate operating cost, it would also cause irreparable harm to an important American economic sector.
- Marketing and advertising creates jobs and spurs growth — locally, regionally, and nationally. “Buy American,” they tell us. Well, when you buy advertising, that’s exactly what you’re doing.
- How on earth can they justify attacking that? Make no mistake, a tax on advertising will mean less advertising, and that means an economic hit, right here at home. It’s wrong, it’s folly, and it needs to be stopped. We’re trying our best to stop it, and we sincerely hope you’ll join us.
