Changing the Advertising Tax Deduction is Doubly Damaging for Promotional Products

Congressional proposals to reduce the amount of advertising that counts as tax-deductible would damage businesses, the U.S. economy and particularly the promotional products industry, representatives of software maker Essent Corporation said.

Plans to cut the advertising tax deduction in half have been drafted in both the Senate and House of Representatives. Under the proposals, only 50 percent -- instead of all -- of advertising costs would be tax deductible in the first year, with the rest amortized over the following five or ten years.

Advertising has been recognized for more than 100 years as a legitimate, tax-deductible business cost.

"Sales, marketing, and, in particular, advertising, are core and legitimate costs of doing business,” said Ron Cahill, vice president of Essent Corporation, which makes software for the promotional products industry. "The concept that only 50 percent of the true cost of doing business can be deducted is contrary to more than a century of practice.”

All companies would face increased costs to advertise their brand. But promotional products companies would face an additional burden. The increased cost of advertising would deter business from using promotional products because promotional products would become more costly.

"For a promotional products company, these proposals are amplified and compounded. Promotional products immediately become significantly more expensive. And companies will be disincentivized to use promotional products. Taxing advertising is placing an additional tax on the a vibrant, $20 billion-per-year promotional products industry,” said Bryan Shaeaffer, vice president of sales for Essent.

The proposals also threaten to decrease U.S. government tax revenue, the opposite of their intended effect. Advertising accounts for an estimated $6 trillion and 15 percent of jobs in the U.S. economy, and the proposals would create a chilling effect on that production.

"The consequence of taxing advertising will be reduced advertising, reduced sales and reduced tax revenue,” said Eric Alessi, president of Essent. "The magnitude of the consequences for a particular segment are unknown. There is no crystal ball. But the ramifications to behavior are crystal clear. Taxes disincentivize purchasing, and making these proposals bad for businesses, the economy and, particularly, the promotional products industry.”

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