Guardian Liberty Voice obtained an interview with Daniel Jaffe of the Association of National Advertisers (ANA) to discuss a letter sent to Senator Harry Reid and other legislators about proposed changes to the Federal tax code which he feels could threaten significantly the Nevada economy. According to Jaffe, these proposed changes will have a nationwide impact, but for a marketing and advertising driven economy like Las Vegas and other Nevada cities, the results could be devastating. According to the figures quoted in the letter from the ANA, advertising expenditures account for $39 billion of economic output in Nevada, and these proposed changes could jeopardize that. If companies were unable to maintain their current level of spending on advertising for tax considerations, the 187,566 jobs in advertising-driven sales could also be at risk. That number represents 16.1 percent of all jobs in the state.
The changes proposed would make it so that companies were no longer able to claim 100 percent of advertising expenses when filing taxes if they spend more than $1 million on it during the year. Instead, companies would only be able to deduct 50 percent of their expenses, and be required to amortize the rest over five or ten years (five years in the Senate version and 10 in the House). The claim is that advertising should be treated as an asset, providing returns over years, and should be taxed as such. Jaffe contends that this is seldom the case with advertising, particularly in an economy like Las Vegas where the advertising is primarily around events and entertainment which is constantly changing, giving those marketing campaigns a very limited shelf life. To amortize over 10 years money spent to promote a show lasting six months, or a fight lasting one night, or even constantly changing Nevada hotel and vacation packages is difficult to justify. Even more conventional businesses would find it hard to put the same campaign in front of their audience for five years without changes to keep current in the market. Advertising, by its nature, changes to keep current with consumers and trends, and the claim that it could be treated in the same manner as a computer or office equipment which sees the same use and provides the same function year after year points to a lack of understanding of the industry.
The ANA numbers say that every dollar spent on advertising generates a return of around 22 dollars for a company, and Jaffe claims that these proposed changes would result in billions of dollars lost in economic output in Nevada alone if companies were forced to cut advertising in response. Either spending would have to be cut, or jobs, to maintain profitability for most companies in the face of the hits which would be taken in taxes. Jaffe suggests that if lawmakers are serious about reforming the tax code, efforts should be made to close loopholes and end write-offs for special interests rather than making a move which could potentially devastate many state economies.
These proposed measures are not being offered in response to any alleged abuse or wrongdoing on the part of companies with respect to their advertising. This is not a response to a crisis or scandal in the advertising industry. As Congress attempts reform, and revenue neutral reform at that, of the tax codes, this has simply arisen as suggested means of raising money. The ANA research presented by Jaffe, however, points to a short-sighted perspective on the part of the legislators proposing these particular reforms. Targeting companies able to spend $1 million or more on advertising may be appealing to those of the “tax the rich” persuasion on the face of it, but ignoring the effect of these proposed Federal tax code changes on those whose livelihoods depend on the fruits of that spending and threatening state economies like that of Nevada indicates a significant lack of foresight. Jaffe and the ANA have launched this awareness campaign, including the letters sent to legislators, to make sure that this particular threat does not slip by without voters, particularly in states like Nevada, being well aware of what is being attempted.
Interview By Jim Malone
Interview with Daniel Jaffe of the ANA, January 16, 2015
Letter to Senator Harry Reid from January 5, 2015 (print)
Image courtesy of Darryl Kenyon- Flickr License