Advertising as a Tax Expenditure: The Tax Deduction for Advertising and America’s Hidden Public Media System

Abstract

This article explores a series of media policy and political-economic issues created by the United States Federal tax deduction for advertising. Because American companies are allowed to deduct the entire cost of an advertisement for the year in which they purchase it, this tax deduction serves as a kind of government subsidy for advertising and the media more generally. By channeling tax money to commercial media outlets, this deduction creates a hidden public media system that distorts and inverts the presumed policy goals of government media funding. I begin by offering a brief history of this tax deduction, which was first implemented in the early 20th century, before moving on to discuss tax expenditures—a tax policy concept used to call attention to the hidden impact of tax deductions and other preferential tax treatments. Finally, I quantify the economic impact of the United States Federal tax deduction for advertising and demonstrate the upside-down nature of the hidden media system it supports. Treating this deduction as a tax expenditure would force greater transparency regarding the funding it provides and open up the hidden media system to greater analysis and critique.