The trend continues. Common Cause studied just four newspapers for

energy ads, i.e., The Washington Post, The Washington Star, The Wall Street

Journal and The New York Times. They found that during a five-month

period between January

May, 1977 industry and trade groups placed energy

advocacy ads costing $1,131,588. More significantly, this expenditure was larger than the total spending for lobbying reported by the oil and gas industries during this same period.4

An extensive analysis of a large number of corporate institutional advertising campaigns during 1975-77 led this author to conclude that between 30-40 percent of corporate institutional advertising was devoted to controversial social issues dealing with one or more aspects of then current national public policy debate. 5 A 1975 survey by the Association of National Advertisers of 114 large companies found 30 to 35 percent of corporate advertising to be on environmentalism, energy-related issues, or explanations of the capitalistic system.6

In response to an inquiry by Senator Philip A. Hart, Chairman of the Subcommittee on Environment of the Senate Commerce Committee, seven major oil companies and their trade associations indicated that in 1973 they jointly spent approximately $59.8 million on institutional/goodwill advertising. This figure represented 47.1 percent of all advertising expenditures for these companies in 1973. Only Mobil reported having spent $829,000 in political--and therefore non-deductible-- advertising. Fifteen utility and utility-related companies and their trade association reported 1973 goodwill/institutional advertising expenditures of $3.54 million, represent55.5 percent of their total reported advertising expenditures. 7

Another indication of the magnitude and scope of advocacy advertising can be guaged through a data collection and reporting service on corporate advertising by Benson & Benson of Princeton, New Jersey. Named the TRACC RECORD, the service provides detailed data for corporate institutional advertising by company, industry, media used, and ad content. The latest TRACC RECORD figures which relate to the first and second quarters of 1976 show the following:

Source: Table derived from data furnished by Benson & Benson, Inc., N.J.

Table 1 shows that during the 1st and 2nd quarters of 1976, energy related companies accounted for 37 percent and 30 percent respectively of the total insertions placed in the print media in the three subject categories of energy, ecology, and economic and government regulation. On the issue of energy they

accounted for 49 percent and 50 percent respectively of the total insertions. They did not place any advertisements dealing with ecology during this period.

Your Subcommittee's own inquiries earlier this year revealed that either because of lack of clear-cut IRS guidelines or through ignorance and carelessa very large part of expenditures that should have been treated as grassroots lobbying under Section 162 (e) (2) was treated as tax-deductible expenditures by the responding corporations.

ness,

Please note that these figures pertain to corporate communications in the mass media only. They do not even begin to include the multitude of other sources that corporations use to communicate their views or influence public opinion, through such avenues as employee newsletters; special reports to stockholders, customers and suppliers; and, annual reports distributed to stockholders, potential investors and general public.

Based on all this information, I conservatively estimate business expenditures on grassroots lobbying to be at a level of $1.0 billion per year.

IRS AND THE ENFORCEMENT OF SECTION 162(e) (2)

It would not serve any useful purpose to dwell at length on the lack of past IRS auditing of corporate tax returns with a view to an effective enforcement of the provisions of Section 162(e)(2). This has been amply documented in 8 the GAO study, your Committee's own inquiries and the Common Cause study.

The Common Cause Study provides some good illustrations on the inadequacy of reporting requirements. For example, under California's stricter lobby disclosure laws, the three California utilities, San Diego Gas and Electric,

company.

Seven of its

Pacific Gas and Electric, and Southern California Gas Company, reported spending $930,968 on 1976 California lobbying, one and a half times as much as the $507,047 the entire gas industry reported spending during the first nine months of 1977 on their federal lobby disclosure reports. To cite another example, Mobil Oil is not registered as a lobbying organization. loyybists have registered as individuals receiving money to lobby for the Together, they report being paid about $24,975 to lobby during the first nine months of 1977 and having spent $796 during this same period.9 Yet, according to Donald Stroetzel, Mobil Manager of Communications Programs, Mobil spend about $4 million in 1977 on what the corporation calls "public issue" ads. The difference in the figures is a difference in what constitutes a lobbying effort vs. an education activity. Of greater significancs is the amounts of money being spent on advocacy advertising that are not being dis10 closed under present laws.

This finding of inadequacy of disclosure is supported by a study conducted by the General Accounting Office and reported on July 16, 1976.11 That study concluded with a finding that utilities subject to the regulatory authority of the Federal Power Commission spent $73.6 million in 1973 on advertising. GAO further concluded that:

"Although advertising costs are small compared to
the total operating expenses of public utilities,
they are nevertheless, highly visible to the gen-
eral public and should be properly accounted for.
We believe that some of FPC's current auditing pro-
cedures for advertising expenditures could be im-
proved."12

I understand that a recent survey of this committee of 470 companies revealed that 70 percent of those firms responding to the questionnaire engage

27-912 O - 78 - 27

in grassroots lobbying. When asked, however, how such expenditures were treated on the corporate tax form, only a few dozen admitted that the expenditure has received improper tax treatment. Close to 100 denied that they en

gaged in any grassroots lobbying as statutorily defined. Yet examination of advertising by these firms suggests that approximately 97 percent of the exhibits furnished to the committee would qualify as grassroots lobbying.

The issue of inadequate and poor IRS enforcement of Section 162 (e) (2) has far more serious implications than the mere loss of revenue dollars. It has to do with the questions of equity and fairness. To the extent that corporations can deduct lobbying expenses from their taxes, they get an unfair advantage over those corporations who deduct their expenses properly, and over individuals who are not eligible to deduct these expenses. It also tantamounts to giving businesses extra dollars with which to propagate their views; dollars that would otherwise be spent through appropriations by Congress, and therefore would be subject to greater public accountability. Nor is the question of loss of revenue dollars irrelevant. Passage of Prop. 13 in California clearly demonstrates the public concern about higher taxes, a concern that is likely to be exacerbated with the awareness of unevenhanded treatment of various classes of taxpayers by the IRS.

Recommendations for Improvement in the
Enforcement of Section 162(e)(2)

The Revenue Act of 1962 brought about a significant change in the tax treatment of expenditures for idea/issue advertising. Image/goodwill advertising costs would continue to be treated as ordinary and necessary business expenses.