Why the New Ad Tax Law Is Doomed

Businesses have to spend money on advertising—it’s one of the most basic expenses. Thus, when determining profit for tax purposes, advertising has always been one of the big write-offs for businesses. In fact, businesses in the US spend over $140 billion per year. That’s a lot of money that isn’t being taxed. Now, a new tax law is being proposed that would give Uncle Sam a big piece of that pie.

The idea is to only let businesses write off half of their advertising expenses during the year. The other half would have to be amortized over the course of 5-10 years, depending on which proposal you look at. It’s a quick way for the government to put around $70 billion taxable dollars back on the table for a year.

Ultimately, big corporations would barely flinch. If your company spends tens of millions per year on advertising, then you really only take a temporary hit. Within 5-10 years, the company will catch back up with amortized expenses and barely notice the difference. Small businesses, on the other hand, that get by from month to month and need to increase advertising to expand, may not be able to afford the tax bills and may thus reduce spending on advertising since it’s no longer as much of a write-off.

The good news is that it’s highly unlikely that this new legislation is going to go anywhere. Max Baucus, the Democratic Senator who proposed the plan with a five-year amortization, is on the cusp of becoming the US ambassador to China. And Dave Camp, the Republican from the House who offered up the even more drastic ten-year proposal, won’t be the Ways and Means Committee chairman much longer. Thus, it looks like this particular tax reform may be doomed from the start. And honestly, small business owners are probably breathing a sigh of relief over that.