U.S. Rep. Dave Camp (R-Mich.), the chairman of the U.S. House of Representatives’ Committee on Ways and Means, released the Tax Reform Act of 2014, the latest draft aimed to update and simplify America’s tax code, Wednesday. While he recommended lowering tax rates for many individuals and businesses, he also advised cutting the deduction for advertising expenses in half with the other portion amortized over 10 years.
Currently advertising is 100 percent deductible. However, advertising expenditures actually are not addressed in the current U.S. Code, but the IRS allows taxpayers to treat those expenditures as an ordinary and necessary business expense, which is deductible, according to the Tax Reform Act of 2014’s executive summary.
Camp’s proposal would alter that allowance in section 3110 of the bill that indicates the deduction reduction. The policy, if approved, would be phased in, beginning in tax year 2015, with an 80 percent deduction and 20 percent amortization until 2018 when the 50/50 percent sets in, according to the bill. An exception would apply to the first $1 million spent on advertising, which could be expensed entirely. That number would lower if more than $1.5 million were disbursed and be completely phased out for payments more than $2 million.
The Joint Committee on Taxation estimates this measure would increase the government’s revenues by $169 billion from 2014 to 2023, according to the act’s executive summary.
The advertising industry has been fighting this measure since it first came up as a possibility (then as 50 percent amortized over five years) in U.S. Senate Committee on Finance Chairman Max Baucus’ tax code overhaul draft in November.
“It’s crazy that they kept this in there,” Clark Rector, executive vice president of government affairs for the American Advertising Federation, said to Adweek. “What boggles my mind is that extending the amortization over 10 years is called a ‘simplification.’ Beyond that, it’s a sledge hammer to business, a disincentive to advertise and counterproductive to stimulating the economy.”
The Association of National Advertisers indicates it supports tax reform, but not one that would cost advertisers billions of dollars.
“To pretend advertising has a 10-year life is not how anyone acts in the marketplace,” Dan Jaffe, executive vice president of government affairs of the Association of National Advertisers, said in AdWeek.
Camp also proposed to gradually reduce the corporate tax rate, which currently is 35 percent. The bill aims to reduce it by 2 percent each year until it reaches 25 percent in 2018. That cutback is believed to add 581,000 jobs annually and increase GDP growth by up to 2 percent, according to the act’s executive summary, which also cited the Joint Committee on Taxation’s estimation that this, however, would lower government revenues by $680.3 billion from 2014-2023.
But many politicians, including Speaker of the House John Boehner, are pointing out that the legislation is not likely to be voted on much less debated this year, as elections for 36 Senate seats in 34 states will occur in November. Boehner would not comment on specific tax reforms, but said he agreed with the broad goals of Camp’s plan, according to The Hill.
“The idea of tax reform is to get our economy going again, provide better economic growth, more jobs and higher wages,” Boehner said. “The way you do that is to bring down rates, and to bring down rates, you clean out a lot of the garbage that’s in there and the special interest issues that are in there.”
Camp’s legislation features input from 30 congressional hearings, 11 bipartisan tax reform working groups, three discussion drafts and more than 14,000 public comments on www.taxreform.gov.
“I am hopeful that lawmakers on both sides of the aisle—and partners at both ends of Pennsylvania Avenue—take a close look at this plan and share their thoughts and ideas, and those of their constituents,” Camp said in a statement. “The bottom line: Just saying ‘no’ is not a solution. Washington must make real progress on the critical issues of the day, the most important of which is strengthening the economy. We can, and need, to work together to craft a plan that fixes our broken code and strengthens the economy so there are more jobs and bigger paychecks for hardworking taxpayers.”
