Never say die: Senators take another stab at repealing pharma's DTC tax write-off

Sen. Claire McCaskill, D-Mo., is taking another pass at the pharma ad tax deduction. After failing to get rid of pharma’s ability to deduct DTC advertising expenses via the larger tax cut bill in December, McCaskill has launched a separate bill.

Senate Bill 2478, introduced on Thursday, seeks to amend the IRS code “to deny the deduction for advertising and promotional expenses for prescription drugs.” The bill is co-sponsored by New Hampshire Democratic Sen. Jeanne Shaheen.

McCaskill said in a statement that ending the tax break could push down drug costs. “I’m determined to fight these high drug prices, and a good first step would be to stop subsidizing their ads for drugs that must be prescribed by a doctor," she said. "Too many drug companies are spending more on sales and marketing than on research and development. And Missourians are tired of paying for it.”

It's not the first time legislators have tried to stop pharma companies from deducting ad spending as a business expense, just as companies in other industries do with their own ad costs. In fact, almost exactly one year ago, a group of four Democratic senators introduced the bill “Protecting Americans from Drug Marketing” to end the advertising and marketing tax deduction for pharma companies. Former Sen. Al Franken led that group, which also included Sheldon Whitehouse, D-R.I., Sherrod Brown, D-Ohio, and Tom Udall, D-N.M. The bill was sent to the Committee on Finance but no other action was taken. Franken, along with Brown and Whitehouse, had introduced a similar bill in 2009.

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McCaskill’s bill, like previous exclusions, is likely to face significant pushback from the advertising industry, which has argued in the past that barring one industry’s ad deduction is discriminatory, and also the media industry, which gets significant revenue from prescription drug advertising. The pharma industry itself is likely to fight it, too, but perhaps in a quieter fashion.

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“We have always strongly opposed efforts to take away the tax deduction for advertising because we believe it would violate the First Amendment first of all, and second, it’s bad policy. A great deal of drug advertising is very valuable to consumers, as many are not aware of health issues they should be concerned about or how to handle health issues they have,” said Dan Jaffe, who heads the Association of National Advertisers’ (ANA) government relations office.

Disallowing a single industry’s business ad tax deduction would censor pharma companies on the grounds only that policymakers don’t like the content. The Supreme Court has been clear that freedom of speech means that companies cannot be penalized for truthful advertising, Jaffe said. However, it’s likely bills targeting drug advertising will continue as long as the spotlight on prescription drug costs continues to shine. In December, the ANA filed testimony against a similar proposal by the National Academies of Sciences, Engineering and Medicine to bar DTC advertising as tax-deductible expenses.

“We have to just keep fighting and pointing out to people that this is a simplistic so-called solution that will not solve the problems they’re concerned about and will create new ones,” Jaffe said.