The drama and the excitement of the 2010 elections are past; now it’s time to consider what the outcome may mean to the business of advertising.
Dick O’Brien, head of the 4A’s Washington office, calls the elections “a real game changer."
“Obviously, there will be huge changes in Washington and in state houses across the country,” he said. “While most Washington insiders will argue that Republicans generally are more supportive of the business community, we do see several issues and concerns that could present problems for our business in the next few years.”
Most Washington analysts suggest that the divided government produced by the election will force policymakers to look for proposals that could have bipartisan appeal. “Unfortunately, we have several issues that could just produce that sort of bipartisan agreement,” said O’Brien, “and they may not be good for our businesses.”
A Threat to Deductibility?
O’Brien and other representatives of marketing and advertising groups are especially concerned about the oft-cited need for the new Congress to reduce the deficit and locate new sources of revenue. “While these newly elected members of Congress have promised no new taxes, they also have pledged to reduce the budget deficit and change the way spending decisions are made. Changing the tax formula that provides for 100% deductibility of advertising as a ‘necessary business expense’ would not only provide a lot of revenue, it could be a perfect bipartisan proposal,” he said.
“The last time we had a real threat to the 100% deductibility of advertising was in 1994, following a similar election with similar promises,” he pointed out. “This was a direct proposal from the new Republican majority. We fought it off but many of us are concerned that we could see something similar in the months ahead.”
A similar consensus issue could be regulation of online marketing, focusing on the collection and use of consumer data. “This is another area when Democrats and Republicans could agree,” O’Brien noted. “There is strong consumer concern about behavioral targeting and use of online information. I can see this issue coming forward quickly.”
State Tax Issues
Linda Dove, the 4A’s state lobbyist, also has concerns about new revenue efforts in the states. “I’m less concerned about new tax proposals,” she said. “Rather it is likely that states will increase their enforcement of existing taxes, including broadening the rules that cover sales tax and income tax liability. And we expect see a huge increase in fees paid for state services,” she suggested.
A number of state Departments of Revenue are reinterpreting their tax codes to establish “economic nexus” within their state, requiring businesses to pay income tax at the location where services are delivered rather than where they are “manufactured.”
“States are facing dire budget decisions,” Dove said, “and they are going to have to find many new ways of collecting revenue. We may not see new taxes as often as changes in the way a Department of Revenue interprets and applies tax law.”
For a more complete discussion of the possible effects of the 2010 elections on the advertising business, see the November 3 from Advertising Age, "Another Round of Political Change: What Does It Mean for You?"
An outline of the changes in state tax policy and economic nexus is available as a 4A's member bulletin.
Dick O’Brien and Linda Dove may be contacted at the 4A’s Washington office.