BAUCUS PROPOSES TO LIMIT DEDUCTION OF ADVERTISING EXPENSES: Business interest groups have taken issue with a proposal put out Nov. 21 by Senate Finance Committee Chairman Max Baucus (D-MT) to cut the deduction for advertising expenses by 50 percent in the tax year they are incurred and spread the remaining 50 percent over the next five years.

Baucus put out the proposal last week as part of a third discussion draft on tax reform focused on cost recovery and accounting rules. The rules for cost recovery and accounting determine when a business can deduct the cost of investments and how they account for their income. Baucus said last week that the rules are outdated, overly complex, and reward certain industries over others.

Advertising is currently treated as a fully tax deductible business expense, and industry trade groups say the change proposed by Baucus would severely impact the economy and lead to significant job loss.

“Changes to the way advertising deductions currently are treated would greatly affect sales and employment across all levels and sectors,” said Bob Liodice, president and CEO of the Association of National Advertisers. “This is essentially a major new tax liability which would increase the cost of advertising and cause a substantial disincentive for companies to spend additional advertising dollars.”

ANA estimates that in 2012, advertising accounted for $5.6 trillion in U.S. output and supported 21.1 million U.S. jobs.

Earlier last week, Baucus released discussion drafts on international tax reform and tax administration. Baucus pushed out the drafts before Congress adjourned for the Thanksgiving holiday despite not having much backing from the business community or fellow senators. Republican senators had lobbied Baucus to hold off on releasing the drafts until after budget conference negotiations have concluded on Dec. 13.

Baucus told reporters last week his discussion drafts are just intended to start a conversation. “I’m just trying to make something happen by taking the initiative,” Baucus told POLITICO last week. “You’ve got to start somewhere.”

Baucus has invited feedback on the cost recovery and tax accounting rules proposals by Jan. 17, 2014. Comments can be sent to [email protected].