DTC tax deductions back on the chopping block—and this time, the ax might just fall

Elizabeth Warren
Sen. Elizabeth Warren is one of new high-powered group of Senators who have signed onto a proposal to remove the pharma DTC ad deduction. (Edward Kimmel/CC BY-SA 2.0)

The new Senate is once again sharpening its ax to cut pharma's DTC advertising tax deduction. But this time, the measure is backed by a powerhouse group of well-known Democrats, including several who've said they're interested in becoming the party's 2020 presidential nominee.

The reintroduced three-page bill would amend the IRS tax code to remove the full tax deduction for all direct-to-consumer prescription drug advertising, including traditional TV, print and radio, as well as all digital ads—including social media and mobile and web apps.

Sixteen senators—including Independents Bernie Sanders of Vermont and Angus King of Maine, and a host of Democrats, including Kirsten Gillibrand of New York; Amy Klobuchar of Minnesota; Sherrod Brown of Ohio; Sheldon Whitehouse of Rhode Island; Mazie Hirono of Hawaii; Brian Schatz, also of Hawaii; Dick Durbin of Illinois; Chris Van Hollen of Maryland; Jack Reed of Rhode Island; Tammy Baldwin of Wisconsin; Maggie Hassan of New Hampshire; Tina Smith of Minnesota; and Richard Blumenthal of Connecticut—joined Sen. Jeanne Shaheen of New Hampshire as co-signers of the “End Taxpayer Subsidies for Drug Ads Act” introduced last week.

It is the same bill introduced by Shaheen and then-Sen. Claire McCaskill last March. That bill was proposed after the initiative failed to make the final cut for the larger tax bill approved in December 2017.

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While McCaskill proposed it last year, the ad tax deduction debate has been around for years. In 2016, then-Sen. Al Franken led the charge to eliminate the ad tax deduction for DTC ads, which failed to gain traction—as did his previous proposal in 2009. Other iterations over the years have called for an end to all advertising tax deductions for pharma—but also all other industries—or modified the amount allowable. Some proposed to cut the deduction rate to 50%.

More recently, the Congressional Budget Office’s published “Congressional Wish List” for reducing the budget included an item to require "half of advertising expenses to be amortized over five or 10 years," according to Dan Jaffe, legislative lead at the American National Advertisers, in a blog post.

Will it make a difference that the new bill has high-powered support? Possibly. Economic conditions may also play a role, Jon Bigelow, executive director of the Coalition for Healthcare Communication said. Like Jaffe, he expressed a concern that, as Congress looks to raise money to stem the country's rising debt and pay for other spending, it may look to pay for proposals like this one. Thanks to the 2018 midterms, there are new faces in Congress, and fewer of them support the tax deduction, Bigelow said. Current public pressure and general negative sentiment about drug companies and prices could also add heft to the proposal.

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“It does have support from some likely presidential candidates, so I assume they are likely to make this part of their messaging; obviously it won’t be the primary messaging for anyone, but part of their messaging,” Bigelow said.

"I have no reason to think this is going to go straight to the head of the line in Congress, but it is out there and there will be budget battles to come," he added.

Watchful waiting is the key, he said. This proposal is one that could be quickly tacked onto a larger healthcare or even unrelated spending bill for passage.

If the measure does move forward, the industry will push back, and one likely tactic would be citing First Amendment issues with the removal of deductibility for one targeted industry, Bigelow said. Another likely argument is that the information in DTC marketing educates consumers about health issues that they can raise with their doctors—rather than go out and purchase products alone—and those ads are already formulated within the limits of FDA regulations.