MN CEO Joins Fight Against Ad Tax Code Proposal

A proposal to limit the amount of expenses advertising agencies can deduct in the tax year is facing unprecedented resistance from some of advertising’s biggest players.

A recent U.S. Senate tax reform proposal is drawing overwhelming disapproval from some of the country’s most prominent advertising leaders, including the CEO of Minneapolis-based Colle + McVoy.
 
Last month, Senate Finance Committee Chairman Max Baucus (D-Montana) set advertisers nationwide on edge when he released a tax reform draft that included a proposal to heavily reduce the advertising tax deduction.
 
Baucus’ proposal would reportedly allow advertisers to only deduct 50 percent of ad expenses in the tax year and spread out the other 50 percent of reductions over the course of five years.
 
The American Association of Advertising Agencies, or the “4A’s,” gathered its board of directors, as well as more than a dozen ad firm CEOs, and sent a letter last week that went on record in opposition of the deduction. The letter urged Baucus and Senate Finance Committee Ranking Member Orrin Hatch (R-Utah) to “reject any measure that would change the current tax treatment of advertising.”

 
“The recent proposal from the Senate Finance Committee would severely undercut the economic power of advertising to generate sales and support jobs,” wrote the ad leaders, which included Colle + McVoy CEO Christine Fruechte.
 
The 4A’s cited research from IHS Global Insight, which found that advertising accounts for $5.6 trillion of the $33.8 trillion in U.S. economic output, that every dollar of advertising generates $22 of economic output or sales, and that every $1 million dollars of annual ad spending supports 81 jobs.
 
According to the letter, the proposal would be the most sweeping change to the advertising costs tax code in the last 100 years.
 
The group referred to the Tax Reform Act of 1986 and the Budget Reconciliation Act of 1993 as evidence of other cases when Congress examined the business deduction for advertising costs; the 4A’s said both times the current advertising law was preserved.
 
While advertising lobbyists have been up in arms since the day this reform was proposed, according to Ad Week, this is the first time ever that the 4A’s board of directors themselves have personally joined in a lobbying argument.
 
“This is truly beyond the ordinary,” 4A’s Executive Vice President Dick O’Brien told the magazine. “We wanted to stand apart and emphasize what a serious threat to the business this is.”
 
Colle + McVoy’s CEO joined chief executives from high profile firms such as Leo Burnett, Starcom Worldwide, GroupM Interaction, BBDO, and a dozen others in signing the letter.