Broadcasters, Advertisers Urge House to Reject Effort to Eliminate Tax Deduction for Prescription Drug Ads

Ad industry source says provision striking deduction will likely pass in committee
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Broadcasters and advertisers were mustering their forces Friday to try to head off an effort in the House that could create a big disincentive to billions in advertising expenditures at a time when the ad dollars in TV are already getting fewer and farther between.

They also say it would be an unconstitutional restriction on speech.

The House Ways & Means Committee is considering eliminating the business deduction for the cost of advertising prescription drugs as a way to bring in billions more to help finance the Obama Administration's proposed reform of the health care system.

"It isn't looking good," said one ad industry source Friday, suggesting the provision striking the deduction was likely to make it through the committee.

On Wednesday, NBC and CBS joined with the American Association of Advertising Agencies, NCTA and others in a letter to the president warning against targeting one form of advertising.

"We urge you to reject any proposal to tax advertising. The potential for short term revenues would be far outweighed by the adverse precedent it would establish and the repercussions for the treatment of all forms of advertising, particularly during these challenging economic times," they said, according to a letter supplied to B&C.

In a separate letter Thursday (July 9) to Ways & Means Chairman Charles Rangel (D-NY), the Big Four networks warned that the government should not start using the tax code to "favor or disfavor one form of advertising over another."

The letter, whose language was similar to other letters sent in the past few days from the ad industry to members of Congress, urged Rangel not to tax advertising, saying it helps generate $6 trillion in economic activity in the U.S., as well as 21 million jobs.

"As broadcast networks, advertising is our exclusive source of revenue," they said. "Elimination of pharmaceutical advertising as a business expense would make it more expensive and inevitably would reduce the amount of this advertising."

NCTA, NBC and CBS had signed on to a similar letter to Rangel from The Ad Council a couple of weeks ago hoping to head off the provision.

Currently the tax code allows for the deduction of the cost of advertising as an ordinary business expense.

Rangel's version of the bill was to be unveiled Friday, though there may have been some pushback from conservative Democrats, according to a source who was hoping that was the case.

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