By Cary Hatch
As the Chairman of the MidAtlantic Board of Governors for the American Association of Advertising Agencies and the CEO of MDB Communications headquartered in Washington, DC, I have seen my share of economic recessions, but none quite as challenging and perplexing as this. Top that with the newly minted Advertising Tax proposal by DC Council to institute a 3% sales tax on the sale of advertising services, and you have devised a deadly economic cocktail.
Understandably, the District is grappling to fill the enormous gaps in the city budget, as a result of the abrupt and devastating economic downturn. Conventional tax revenue sources have all but run dry.
A new tax of the sale of advertising services would severely harm the very economic driver needed to help the businesses we serve to survive and remain viable in order for them to continue to serve their clients and customers. The advertising industry is a vital part of getting to “the new normal” following the pandemic.
A few facts: Advertising is a powerful engine that helps drive the economy of the District of Columbia. Advertising expenditures account for $30.4 billion of economic output or sales in the District of Columbia – that is 12.5% of the $244.2 billion in total economic output in the District. Sales of products and services that are driven by advertising help support 149,579 jobs, representing 19.9% of the 751,369 jobs in the District of Columbia.
Many publishers, broadcasters and agencies are already struggling to recover from the dual blows of a pandemic and a record economic downturn, this additional tax would hamper what is already expected to be a slow return to normal economic activity.
In addition to the economic-dampening effects, these new taxes will produce a quagmire of complexity in reporting and enforcement. Due to the intricacy, scope, and diversity of advertising activities within the region and the substantial levels of advertising generated outside the city limits but received in DC, regulatory enforcement will be extremely difficult.
If DC imposes a new 3% tax, and Maryland and Virginia do not – many media and marketing organizations would be at a competitive disadvantage in the region. DC would essentially be pushing firms to consider a move to Rosslyn, VA or Bethesda, MD to remain competitive.
My firm, MDB, has been operating in Washington, DC for 33 years. We work with many businesses in DC, including all the major media networks, publishers, and production companies. We have fueled our clients’ growth over the years by creating and delivering advertising campaigns that help them expand their businesses and advance their causes. My business, and every advertising services firm in this region, is a key part of any economic recovery blueprint. Making recovery harder by instituting a punitive advertising tax on the people and businesses of Washington is counterproductive to reigniting the very economy that replenishes the Districts coffers.
In the past five decades more than 100 tax proposals have been put forward by municipalities to create new taxes on advertising – each one has ultimately been uniformly rejected or abandoned as economically unsound and counterproductive. What was true five decades ago remains true today – good advertising helps grow business, ultimately generating more tax revenue for municipalities.
I and thousands of District-based media, production and marketing firms and employees remain hopeful this last-minute advertising and personal information tax proposal for FY21 will not be implemented.
The remainder of 2020 will continue to be a very tough year for businesses as the country begins its slow climb towards economic recovery. New taxes that discourage economic growth in these precarious early stages of recovery are not a sound way to go about restoring economic vitality to Washington, DC.
Cary Hatch, CEO, MDB Communications and Chairman, Mid-Atlantic 4As (American Association of Advertising Agencies). This post originally appeared in Washington Business Journal.