Since June, there's been a portion of the health care legislation being considered in D.C. that has gone back-and-forth almost as many times as the bill itself. For the advertising industry, this tennis match has certainly been worthy of the U.S. Open, only with much larger consequences. How large?
The AAF estimates that disallowing the advertising tax deduction would increase the costs of advertising and marketing for affected companies by up to 35%. The ad industry provides $6 trillion in annual sales in the U.S. and 21 million jobs, according to the AAF. - Ad Age; October 21, 2009
Fortunately for the advertising industry, they not only have the AAF and its lobbying efforts trying to persuade legislators to drop this idea, but they have also gotten support from broadcasters and newspapers. These "traditional media" outlets would certainly feel the effects from significantly reduced or even eliminated advertising budgets at a time where they are already fighting over those same dollars being dispersed amongst "new media" outlets such as social media, blogging, and the web. Taking into consideration that it is highly likely that there will be a "government provided" health care option for Americans, our elected officials in D.C. need a plan to pay for it.
Representative Charles B. Rangel, Democrat of New York and chairman of the House Ways and Means Committee, said last month that legislators would consider ending the tax break for drug ads as a way to raise money to pay for the health care overhaul. - New York Times, July 26, 2009
Some legislators are not only using this logic to pay for the "government provided" health care option, but also a way to express their disapproval with this form of advertising entirely.
The proposed legislation to eliminate the tax deduction for health-care advertising is going under the short title of the "Protecting Americans from Drug Marketing Act." - Ad Age; October 21, 2009
Most of us may not have pharmaceutical companies as clients, but the fear amongst many is that it won't stop there.
"Where does one draw the line?" One United States Senator has asked. Would we also tax advertising for vehicles that do not meet emissions or fuel economy standards, advertising for gaming, or foods that do not meet some nutrition standard? - AAF; October 20, 2009
What can we do? Please contact both of your Senators as soon as possible and express your strong opposition to any effort to deny the deductibility of advertising expenses. Some of the names associated with this legislation are: Senators Al Franken, D-Minn., Sherrod Brown, D-Ohio, and Sheldon Whitehouse, D-R.I., Bill Nelson, D-FL, Representatives James P. Moran, D-VA, Charles B. Rangel, D-NY.
Senators can be contacted through the Senate webpage at http://www.senate.gov/ or by calling the Senate switchboard at 202-224-3121.
UPDATE:
Congressman Targets Food Advertising Congressman Dennis Kucinich, D-Ohio, has sent a “Dear Colleague” letter to other members of Congress announcing his intention to introduce legislation to “eliminate the tax deductibility of fast food and junk food advertising directed at children.” The Congressman is inviting other members to join him as a cosponsor.
The removal of any advertising tax deductions will certainly open the flood gates and make the entire industry vulnerable.
Helpful links:
AAF, Alert: Another Threat to Advertising Deductibility
Franken and Senate Democrats Go After Tax Deduction for Advertising
Lawmakers Seek to Curb Drug Commercials
House Considering $37 Billion Drug Tax, Rangel Says
Showing posts with label NoAdTax. Show all posts
Showing posts with label NoAdTax. Show all posts
Thursday, October 29, 2009
Friday, June 19, 2009
Legislation Could Harm Advertising Industry
(Information dated June 16, 2009)
The Senate Finance Committee today is discussing revenue options for financing healthcare reform, including whether to tax advertising. The proposal under discussion would deny the business expense deduction for the cost of the advertising of prescription medicines.
Because healthcare reform is moving very fast, and Senators communicate with each other it is vital that ALL Senators hear strong opposition TODAY to this proposal from their constituents. Please circulate this alert to your ad club members and/or employees and urge them to place calls.
The core of your message should be that the proposal must be opposed because it is a tax on advertising and if adopted is unlikely to stop with prescription drugs. Who knows what might be next when the government needs more money? Advertising for all products and services helps generate $6 trillion in economic activity and supports more than 21 million jobs.
More detailed arguments are listed below, as is a link to the contact information for the key member of each Senator's staff. Again, it is vitally important that you circulate this alert and make your calls today. Thank you for your help with this important matter.
Limiting advertising deductibility of pharmaceuticals should be opposed because:
· The Tax Code and its deductions should be applied equally to all ordinary and necessary business expenses. Even at the height of public criticism of the tobacco industry, Congress did not discriminate between the treatment of the cost of advertising tobacco products, which is fully deductible, and the cost of advertising other products. Some may recall that Congress "affirmed" a ban on television and radio advertising of tobacco products. But it did so after the industry elected to withdraw this advertising rather than face government sponsored antismoking ads. This also took place before the Supreme Court had enunciated the doctrine that protects commercial speech under the First Amendment.
· The underlying goal of eliminating the deduction for advertising prescription medications is very straightforward – it is to make speech about the product more expensive. That will assure there is less advertising, and less advertising will result in fewer sales of the advertised prescription medications, particularly to Medicare Part D eligible patients. In other words, Congress would be taxing speech to save money on a federal program of spending.
· The denial of the deduction would make this advertising 35 percent more expensive (assuming the top federal corporate tax rate). Assuming that the affected companies do not have wealthy uncles or unlimited supplies of spare cash, they likely will reduce their advertising by a similar amount, resulting in a loss of speech to consumers. Thus, the loss of the deduction is no more than a tax on advertising.
· In Grosjean v. American Press Co., Inc., 297 U. S. 233 (1936), the U.S. Supreme Court struck down a 2 percent Louisiana tax on newspapers with more than 20,000 circulation per week. The 13 affected newspapers were critics of Governor Huey Long and sued to challenge the tax as an unconstitutional tax on speech. The U.S. Supreme Court agreed.
· Section 162 of the Tax Code provides for the current deduction of all ordinary and necessary business expenses. This section applies to all such expenses – rent, utilities, salaries, and every form of daily business operation. Virtually all advertising costs are ordinary business expenses. Imagine the world of business however, if Congress were to pick and choose favorite products – products that would get the deduction and products that would be denied the deduction. What else might be on the hit list? For example, would generic drugs be entitled to the deduction, but not brand drugs? What about vehicles that cannot achieve the efficiency of 20 miles on a gallon of gas? What about a bank that fails its stress test?
The Senate Finance Committee today is discussing revenue options for financing healthcare reform, including whether to tax advertising. The proposal under discussion would deny the business expense deduction for the cost of the advertising of prescription medicines.
Because healthcare reform is moving very fast, and Senators communicate with each other it is vital that ALL Senators hear strong opposition TODAY to this proposal from their constituents. Please circulate this alert to your ad club members and/or employees and urge them to place calls.
The core of your message should be that the proposal must be opposed because it is a tax on advertising and if adopted is unlikely to stop with prescription drugs. Who knows what might be next when the government needs more money? Advertising for all products and services helps generate $6 trillion in economic activity and supports more than 21 million jobs.
More detailed arguments are listed below, as is a link to the contact information for the key member of each Senator's staff. Again, it is vitally important that you circulate this alert and make your calls today. Thank you for your help with this important matter.
Limiting advertising deductibility of pharmaceuticals should be opposed because:
· The Tax Code and its deductions should be applied equally to all ordinary and necessary business expenses. Even at the height of public criticism of the tobacco industry, Congress did not discriminate between the treatment of the cost of advertising tobacco products, which is fully deductible, and the cost of advertising other products. Some may recall that Congress "affirmed" a ban on television and radio advertising of tobacco products. But it did so after the industry elected to withdraw this advertising rather than face government sponsored antismoking ads. This also took place before the Supreme Court had enunciated the doctrine that protects commercial speech under the First Amendment.
· The underlying goal of eliminating the deduction for advertising prescription medications is very straightforward – it is to make speech about the product more expensive. That will assure there is less advertising, and less advertising will result in fewer sales of the advertised prescription medications, particularly to Medicare Part D eligible patients. In other words, Congress would be taxing speech to save money on a federal program of spending.
· The denial of the deduction would make this advertising 35 percent more expensive (assuming the top federal corporate tax rate). Assuming that the affected companies do not have wealthy uncles or unlimited supplies of spare cash, they likely will reduce their advertising by a similar amount, resulting in a loss of speech to consumers. Thus, the loss of the deduction is no more than a tax on advertising.
· In Grosjean v. American Press Co., Inc., 297 U. S. 233 (1936), the U.S. Supreme Court struck down a 2 percent Louisiana tax on newspapers with more than 20,000 circulation per week. The 13 affected newspapers were critics of Governor Huey Long and sued to challenge the tax as an unconstitutional tax on speech. The U.S. Supreme Court agreed.
· Section 162 of the Tax Code provides for the current deduction of all ordinary and necessary business expenses. This section applies to all such expenses – rent, utilities, salaries, and every form of daily business operation. Virtually all advertising costs are ordinary business expenses. Imagine the world of business however, if Congress were to pick and choose favorite products – products that would get the deduction and products that would be denied the deduction. What else might be on the hit list? For example, would generic drugs be entitled to the deduction, but not brand drugs? What about vehicles that cannot achieve the efficiency of 20 miles on a gallon of gas? What about a bank that fails its stress test?
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