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Archive for March, 2010|Monthly archive page

Ad Tax Could Result in Net Loss to PA

In Ad Tax, Competition, Rules&Regs on March 2, 2010 at 6:44 pm

In my last post on the perils of Taxing Advertising, I touched on the “multiplier effect” of advertising: Each dollar invested yields a compounded return in economic activity. It can be four-fold, it can be ten-fold and more, but most importantly: It can be quantified. And it has, in robust analysis.

It is critical to understand the commerce-driving function of advertising before looking at it as just another piggy bank to raid. Unfortunately, the Governor’s proposed budget treats it like a static line item on the revenue wish list. Blissfully ignored are projections for decreased spending on advertising, the resulting cascade of lost sales across the economic spectrum and the jobs lost due to imploding revenues at already struggling employers.

So far, even the credible Think Tank analysis of the proposed Expansion of Sales and Use Tax (SUT) to 74 NEW Goods and Services — including competing PA-based heavyweights Commonwealth Foundation and The Pennsylvania Budget and Policy Center, as well as D.C. based Tax Foundation — all seem to swallow the zero-sum fallacy of a New Ad Tax. Meanwhile, the revenue gaps between projected and reality were just released by the Pennsylvania Revenue Department. The farthest off the mark? Sales tax receipts: Year-to-date collections slumped to $265.3 million “less than anticipated.”

We can and must to do a better job “anticipating” the very predictable series of unintended fiscal consequences that would be triggered by a New Advertising Tax. Our Commonwealth’s sluggish sales tax receipts have been driven by numerous interrelated forces in this Great Recession. One of which has been the vicious cycle of declining sales leading to reduced advertising, which have further reduced the volume of goods and services sold. And Taxed. Correspondingly, spending on advertising fell across the media landscape for the sixth consecutive quarter, and the total decline for 2009 was 9% nationally.

These mutually reinforcing trends are finally beginning to reverse. But a New Ad Tax would push commerce, jobs and even the hoped-for tax receipts off the cliff. Projections for Lost Sales across sectors run as high as $14.8 billion. The corresponding Job Loss: A staggering 64,040. Which will mean substantially “less than anticipated” Personal Income Tax (PIT) Receipts and a spike in demand for cash-strapped social services. As for the actual SUT Projections: Lost Sales, even at 4%, will blow a $600 million hole in the happy math on that zero-sum spreadsheet. Factoring these unintended consequences, we clearly won’t raise $534 million in “new” revenue. Just the opposite, a New Ad Tax would likely lead to a Net Loss, all things considered.