Advertising Tax Deductibility

Issue

Eliminating or amortizing all or a portion of the business tax deduction for advertising has been suggested as a possible source of federal income.

AAF Position 

Reducing the deductibility of advertising expenses artificially increases the cost of advertising. Advertisers will compensate for the increased cost by reducing the amount of advertising they buy. This will have a negative impact on the advertising industry and economy. Advertising is a normal and necessary business expense and as such the full deduction should continue.

Opposition

One argument used in favor of these proposals is that advertising is a long-term capital investment and should be expensed as such. Others contend that the advertising tax deduction is a form of “corporate welfare” that should be reduced or eliminated.

Status

The new Democratic party controlled Congress has adopted a “paygo” policy, where increased spending proposals must be offset by reductions in other spending or new sources of revenue. Advertising deductibility, which is often discussed as a possible source of new revenue, is at increased risk.

Last Updated: August 2007