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Business Advertising Deductibility

Limiting the tax deduction for advertising expenses is bad tax policy and it is an attack on commercial free speech protected under the First Amendment of the U.S. Constitution.

Consider the following:

  • Advertising is a touchstone of competitiveness and the lifeblood of American businesses. It produces jobs, brings new companies into the marketplace, and bolsters consumer confidence.
  • Advertising is the most economical means of marketing a product to a large and diverse society. By providing information in a cost-effective manner, it helps the economy function smoothly and helps promote competition and lower prices. A tax on all advertising would reduce the amount of advertising and increase costs to consumers, and productivity would decline because of added time spent searching for goods and services.
  • Recent studies have concluded that advertising eases the introduction of new products and new enterprises into the marketplace. If new entrants cannot compete by advertising effectively and efficiently, they will have a lower probability of success.
  • Allowing a company to deduct the cost of advertising for products is not a stamp of approval or endorsement of that product by the government. But allowing the government to deny tax deductions for certain businesses invites future retaliation against any product or cause. Which product is next?
  • The Supreme Court consistently has held that any government attempt to suppress protected expression because of its content is "so plainly illegitimate" as to render any law designed to achieve it automatically invalid. (City of Los Angeles v. Taxpayer for Vincent, 104 U.S. 2118, 2128 (1084)).
  • Advertising is an ordinary and necessary cost of doing business, similar to rent, office supplies and employee training, which are permitted to be fully deducted in the current tax period. It is not a tax subsidy.
  • More than advertising is at stake. With more restrictions on advertising, America's brewers and others will be forced to look for alternative ways to market their products. Without their advertising support, there will be a reduction in the amount of broadcast programming, newspapers, magazines, and Yellow Pages directories available to the public at little or no cost. Public service announcements will also suffer, along with the Americans who benefit from these messages.
  • Advertising provides a major contribution to the country's economic and social well-being. Alcohol beverage advertising does not increase consumption and does not cause abuse. Unfair tax treatment of all or certain types of business advertising hinders the competitive process, creates bad policy and jeopardizes commercial free speech under a right guaranteed by our Constitution, and an essential component of our free market society.

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