Draft legislation has advertisers on edge

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Peter Kosmala
Peter Kosmala

Congress is on the hunt for money, and a clause in a draft proposal that has not made it into the Senate Finance Committee for a vote nevertheless has advertisers on edge.

The reason: were the draft to become law, businesses would no longer be able to immediately write off advertising expenses as a cost of doing business. Instead, companies would be able to write off 50% in the first year and then amortize the remaining cost over a span of five years.

There have been similar efforts in the past and, although the move to tax advertising has not gained enough traction to go through, opponents are not taking comfort in previous failures.

“We're not standing down in our efforts. We're very concerned,” Peter Kosmala, SVP of government relations for the lobbying group the American Association of Advertising Agencies, told MM&M.

Kosmala's group, known as the 4As, and the lobbying organization Coalition for Healthcare Communication (CHC), are using a variety of tactics and working together to spread the word that the proposal is a bad idea. Both groups have sent letters to the Senate Finance Committee explaining why they want lawmakers to stop this proposal's progression.

MM&M's parent company, Haymarket Media, along with Publicis Healthcare Communications Group, LLNS, UBM Connect, Wolters Kluwer Medical Research, Crossix Solutions and others, has signed the coalition's anti-tax letter.

The big number tossed around in letters from both the CHC and the 4As is the $5.6-trillion economic contribution advertising makes to the US economy, a figure calculated by IHS Global Insight, an industry research firm. Both groups say this number will spiral downwards if clients can no longer write off advertising as a business expense.

“It really is a function of how publicly traded companies will deal with this hit to their P&L, which will affect earnings per share,” Matt Giegerich, chair and CEO of Ogilvy Commonhealth Worldwide and the CHC's executive committee chair, told MM&M. He explained that the concern is companies will “most likely cut their spending,” to offset this new financial weight.

Kosmala agreed, and said that this proposal, as well as a similar one he said sources indicate is being kicked around in a House subcommittee, has a reach that goes beyond the client-agency financial relationship because it could put not just ad account money at risk, but that of other players in what he called the advertising ecosystem, such as publishers, broadcasters and broadcast production houses, which will have less advertising to run or work on because companies have scaled back their ad spend as a way to balance competing interest like profits, R&D and staffing.

To convey this, Kosmala said the 4As has held meetings with local association members in legislators' district offices in Nashville, TN, as well as Dallas, Chicago and other locations, to “let them hear in very personal and direct terms...what this will do [locally].” Kosmala said this tactic makes this less of a Washington issue and “lets the local members have their say,” while also showing “what kind of pain this will cause.”

What constitutes advertising in the draft language is currently broad enough to be interpreted as anything promotional. Giegerich said past taxing proposals included outreach such as samples and sales force detailing as taxable advertising and marketing. Kosmala said that the current draft does not appear to include sales reps as advertising expenses, but the language is still in the vague stage.

Kosmala said the 4As has additional informational pushes scheduled, which are part of two years of efforts to keep this tax at bay, and nothing is certain. In addition to the current proposal being a draft, the Senate Finance Committee's head, Sen. Max Baucus of Montana, has just been put up for an ambassadorship to China, which could cause an additional shift in committee strategy, depending on who's in charge.

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