Tuesday, June 23, 2009

More on Tax Deductions for Drug Ad Costs

When I previously blogged about this topic (http://brodyhooked.blogspot.com/2009/06/drug-industry-deducts-advertising-costs.html), I admitted to being fuzzy on a couple of key points. Thanks to our friends at Healthy Skepticism, I now have before me an article by Rich Thomaselli at Advertising Age that offers a little more background (emphasis on "a little"):


One question was: Given that drug firms in the US spend around $4B annually on direct-to-consumer ads, where does Rep. Rangel get the idea that he can come up with $37B in tax savings, to help finance health reform, by ending this deduction? My own guess was that these are 10 year projections, the usual coin of the realm in discussing health reform, and that assumes that the industry gets to deduct nearly the entire cost of ads. Thomaselli's take:

"There seems to be some issue as to where the $37 billion tax figure comes from, considering the pharmaceutical industry spent $4.7 billion on DTC advertising last year. It is likely Mr. Rangel is referring to total sales costs, costs for sales representatives, free samples and more."

The next question--exactly where did this tax deduction come from in the first place? Us pharmaskeptics were prepared to learn that somehow Congress had been lobbied into passing a special tax exemption for the drug industry only--though I had to admit being ignorant, myself, of any such action. Thomaselli fills us in:

"Dick O'Brien, exec-VP-director of government regulations for the 4A's, said advertising for any product is fully tax deductible as a necessary business expense. Mr. Rangel's proposal would eliminate the tax deduction for one product category, prescription medications, in effect making it more difficult and more expensive to advertise than another category."

So if that account is true, then it appears that Rep. Rangel is not proposing to repeal a special tax deduction enjoyed by the drug industry alone, but rather to exclude the drug industry from a general business deduction now enjoyed by all manufacturers. If so then the road toward enacting this plan would seem to be much steeper, especially given the fact that the media, who enjoy the advertising fees paid by the drug companies for those ads, are now squawking loudly about this proposed taxation.

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