Eliminating tax deductibility of advertising for corporations: An old idea whose time has come?

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As the debate on the Republican plan for tax reform that promises big reductions in taxes for the wealthy and corporations heats up, public health professionals may have the opportunity to expand the national discussion on taxes and health.  One way that Congress could balance the cuts in taxes for the well-off is to reduce the tax deductions that corporations now use.  Since the federal tax code was created in 1913, businesses have been able to immediately deduct their full advertising costs. But over the years, proposals to limit the deduction have been floated as a way to raise revenue. In May, The Hill reported that industry groups and more than 100 lawmakers want to prevent tax reform legislation from curbing the deduction for businesses’ advertising expenses. Opponents of dropping this deduction include both Democrats and Republicans and Senate Minority leader Chuck Shumer.  “If you make advertising more expensive, there will be less information available to the public,” Jim Davidson, executive director of the Advertising Coalition told The Hill.

For more than 35 years, however, public health advocates and researchers have examined the public health consequences of Internal Revenue Service rules that allow corporations to deduct advertising expenses from their income for tax purposes. The conclusions of that research suggest that advertising by the tobacco, pharmaceutical, ultraprocessed food, alcohol, firearms, automobile and other industries does much more than provide information to the public. It encourages and promotes use of products that are associated with major causes of premature death and preventable illness in the United States.  And after getting a tax deduction for this health damaging marketing, corporations then send another bill to their consumers and the public: for the costs of health care and lost productivity generated by the illnesses their aggressively promoted products induce.

Corporations and Health Watch readers who want to become familiar with the evidence on the health impact of the tax deductibility of advertising costs can consult the following sources:

  1. In 1981, James Mosher and Lawrence Wallack urged the Bureau of Alcohol, Tobacco and Firearms to reconsider the tax deductibility of the billion a year the industry then spent on advertising, given the costs this advertising imposed on the nation.
  2. In 1992, the American Public Health Association passed a resolution urging Congress to eliminate the tax deductibility of expenses for promoting and advertising of alcohol and tobacco products.
  3. According to a 2008 study in the Journal of Law and Economics, eliminating the deductibility of costs associated with unhealthy food marketing could reduce rates of obesity by five to seven percent, which would mean 700,000 to 1 million fewer obese children.
  4. By revoking the tax deductions for Direct to Consumer Advertising, argued a 2012 report in the Santa Clara Law Review, Congress could minimize the harms associated with that practice by using a “sin tax” to force pharmaceutical companies to consider more fully the consequences of such marketing.
  5. In the 1990s, the automobile industry spent 9 billion tax deductible dollars advertising sports utility vehicles, their most profitable product but also one associated with higher rates of accidents, fatalities and pollution.  Once again, tax payers were asked first to subsidize the promotion of these vehicles, the pay again for the higher costs these vehicles incurred.

By introducing this evidence into the current public debate on taxes, public health advocates can set the stage for revisiting an end to the tax deductibility of advertising products that contribute substantially to our nation’s most serious public health problems.

Nicholas Freudenberg