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January 17, 2014

Chairman Max Baucus Ranking Member Orrin G. Hatch

Senate Committee on Finance Senate Committee on Finance511 Hart Senate Office Building 104 Hart Senate Office BuildingWashington D.C. 20510 Washington D.C. 20510

Re: Preserving the Current Deductibility of Advertising as a Business Expense

Free Community Paper Industry Comments on theCost Recovery and Accounting StaffDiscussion Draft

Dear Chairman Baucus and Ranking Member Hatch:

e united Free Community Paper Industry submits these comments in response to the Sen-ate Finance Committees request for feedback on the StaffDiscussion Drafts on proposed

changes to the Tax Code. Our focus is limited to the Cost Recovery and Accounting Draft,as released November 21, 2013, specifically the subchapter Cost Recovery for Certain Tax-payer-Created Intangible Assets as it relates to Advertising.

Our hometown publishers strenuously oppose the proposed elimination of Advertising as anordinary and necessary business expense. Such a radical departure from 100 years of prudentprecedent, shifting from full deductibility to multi-year protracted amortization, would causedisproportionate damage to small businesses and startups. But while the Mom and Pops onMain Street would feel outsized impacts of this monumental shift in tax policy, the proposedreclassification would ultimately savage the golden macroeconomic goose.

We are hard pressed to decipher why any Tax Reform measure would implicate Advertising.Its economic multiplier effect is well-established, and any tampering would be self-evidentlycounterproductive. Advertising is not scored as a tax expenditure, and is therefore not aso-called loophole ripe for closing. Furthermore, a departure from the simple treatment ofan ordinary and necessary business expense, to a dramatically more complex amortizationscheme, is fundamentally at odds with the stated consensus goals of actually simplifying theTax Code.

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Having read through volumes of stakeholder comments on Tax Reform, we have not foundcalls from the job-creating business community to tamper with Advertising. Even the JointCommittee on Taxation Report on Present Law and Suggestions for Reform1mentionsAdvertising only 3 times in 569 pages, and only as it relates to current treatment, offering no

suggestions for undermining 100 years of tax certainty.e singular reference to origins ofsuch a radical departure come in the second footnote of the Summary of StaffDiscussion Draft:Cost Recovery and Accounting2.

As far as we can tell, the sole rationale for severely limiting and complicating Advertisingdeductibility tiptoes back to an obscure staffworking paper delivered at a Federal ReserveBoard symposium back in 2006. After reviewing this discussion series draft through the lensof practicing small businesses actively engaged in promoting local commerce, not as economictheorists, we critically submit that the tentative and abstract findings of these preliminary ma-terials cannot serve as an economic fig leaf to justify uprooting 100 years of tax policy relating

to Advertising.

e unsettled issue raised byIntangible Capital and Economic Growthis this: Since someAdvertising can have a lasting impact on Brand Equity, for instance the case of multinationalconglomerate Coca Cola and their happy polar bears, why not treat all Advertising by allbusinesses as a long-term investment and force it to be amortized? e reasons why not arefound in the body and footnotes of the same paper, with these alarm bells for starters: eliterature is not settled on these issues. Some find that all of advertising expenditures...shouldbe expensed.3Furthermore, critical attention must be given to the fact that not all Advertis-ing is equal in terms of purpose and enduring effects, and the authors recognize distinctions

between brand awareness compared with ads for, say, this weeks sale

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-- which is preciselythe overwhelming majority of all ads placed in every free community paper across the UnitedStates of America.

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1REPORT TO THE HOUSE COMMITTEE ON WAYS AND MEANS ON PRESENT LAW AND SUG-GESTIONS FOR REFORM SUBMITTED TO THE TAX REFORM WORKING GROUPS,Prepared bythe Staffof the JOINT COMMITTEE ON TAXATION, May 6, 2013, at 19, 276 and 299.

2e 5-year recovery periods and the 50% figure for advertising expenses in this section are intended toreflect empirical evidence on the decline in value over time of expenditures for research, advertising, and natural

resource extraction. See Corrado, Hulten and Sichel, Intangible Capital and Economic Growth, Finance andEconomics Discussion Series 2006-24, Federal Reserve Board, Washington DC. e Chairmans staffrequestscomments on whether and how these amounts should be adjusted. Summary of StaffDiscussion Draft: CostRecovery and Accounting, November 21, 2013, at 8.

3 Corrado, Hulten and Sichel,Intangible Capital and Economic Growth,Finance and Economics DiscussionSeries 2006-24, at footnote 23.

4Id. at 18.

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As a practical matter, small business advertising is almost universally an immediate expenseto push products and sell services very near-term. Forcing this ordinary and necessary busi-

ness expense to be fully deducted 5 years after its effects (or worse yet, 10 years as proposedin some House Ways & Means drafts), would disadvantage small firms to large. Moreover,startup firms would be disproportionately impacted over the well-established. Small andupstart companies very often dont have the relative capital and cash flow advantages as larger,established rivals, and many new businesses dont even last to the end of the amortizationschedule proposed under the subchapter Cost Recovery for Certain Taxpayer-Created Intan-gible Assets as it relates to Advertising.

While the elimination of the vital Advertising expense would have an asymmetric impact onsmall businesses, more broadly it would otherwise depress discretionary consumption in a yet

fragile economic recovery.e unintended outcome of such tax policy will result in a net lossof revenues not only for our publishers, but also their small business advertisers, and ultimate-ly to the U.S. Treasury.e reasons for net losses of revenues to Treasury, following any med-dling with the current business tax deduction for Advertising, stem from the multiplier effectof Advertising.

For every dollar invested in this discreet economic stimulator, a compounded return of nearlytwenty times is realized in the broader economy. Conversely, taxing or artificially discourag-ing these economic multiplier expenditures leads to less Advertising. Depressed Advertisingweakens consumption of goods and services, which directly corresponds with diminished col-

lections of sales and use taxes. Further, direct impediments to the economic multiplier effectof Advertising throw a wet blanket over the entire supply chain, where lost sales mean dimin-ished profits and lost jobs.

e united Free Community Paper Industry shares strong opposition to any proposals thatwould eliminate or tamper with the current business tax deduction for Advertising. We em-pathize with the monumental task at hand, and champion the earnest bipartisan efforts toforge a road map for comprehensive Tax Reform. However, we stress again that the multi-yearamortization scheme as proposed would complicate, not simplify, the Tax Code. Failing thatprimary objective, it would create new harms by penalizing the small business communities

we serve. All this, while counterproductively ushering a compounding combination of lostsales taxes from interrelated businesses, lost income and payroll taxes from lost jobs, and lowercorporate tax receipts.

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We urge the Senate Finance Committee to abandon the amortization schedule proposedunder the subchapter Cost Recovery for Certain Taxpayer-Created Intangible Assets as itrelates to Advertising. Please maintain established, 100 year time-tested tax policy that allowsthe full deductibility of Advertising costs.

Sincerely,

Jim HaighGovernment Relations Consultant

Association of Free Community Papers427 Ridge StreetEmmaus, PA 18049(o) 610.965.4032(c) 610.504.2010jimhaigh@fast.net

Submitted on Behalf of the United Free Community Paper Industry Associations:

AFCP - Association of Free Community PapersIFPA - Independent Free Papers of AmericaCPNE - Free Community Papers of New EnglandMACPA - Mid-Atlantic Community Papers AssociationMFCP - Midwest Free Community PapersPNAWAN - Pacific Northwest Association of Want Ad NewspapersSAPA - Southeastern Advertising Publishers AssociationSACP - Southwestern Association of Community PublicationsCPI&I - Community Papers of Indiana and IllinoisCPF - Community Papers of Florida

CPM - Community Papers of MichiganWCP - Wisconsin Community PapersTCNA - Texas Community Newspaper AssociationMFPA -e Minnesota Free Paper AssociationCPOWV - Community Papers of Ohio and West VirginiaFCPNY - Free Community Papers of New York

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