Lawmakers are mounting yet another attempt to change the rules on taxing drug ads. Claiming that Big Pharma is exploiting a loophole, Democrats and independents in the Senate and House have introduced bills that would stop companies from deducting direct-to-consumer ad spending from their tax calculations.
Currently, the U.S. tax code treats spending on DTC pharmaceutical ads like most other expenditures. Manufacturers include spending on advertising alongside other outlays in their finances and subtract the costs from revenues to calculate their profits. The profit determines the income tax a company pays.
Spending on DTC advertising therefore reduces a company’s tax bill. The reduction is the consequence of standard profit calculations, unlike subsidies such as the R&D tax credit that incentivize certain types of spending, but the situation has still incensed some lawmakers.
“It seems hard to believe, but the drug companies get generous tax breaks for those horrible ads that they run on TV to promote their own products to the tune of billions of dollars. It's time for those tax breaks to stop,” Rep. Elissa Slotkin said in a statement.
Changing drug ad taxes would have financial implications. Drugmakers spent $2.87 billion to promote the 10 most heavily advertised medicines last year. In 2022, the total pharma ad spend topped $8 billion. Companies would no longer be able to deduct those costs when calculating taxable profits if the law is passed.
Slotkin introduced the bill in the House. Sen. Jeanne Shaheen introduced a Senate companion. Shaheen and Slotkin proposed similar bills in 2021 and 2022, respectively, and are continuing a legacy of attempts that goes back to at least 2009. Hillary Clinton floated the idea when seeking the Democratic presidential nomination in 2015. Other senators introduced bills in 2016 and 2018.
Shaheen framed the latest attempt, which has the backing of big names such as Sens. Bernie Sanders, and Elizabeth Warren, in the context of the push to lower drug prices. Many lawmakers, up to President Joe Biden, have attacked the prices of medicines in recent months and years.
Even so, there are reasons to doubt whether Slotkin, Shaheen and their cosponsors can get the bill over the line. Lawmakers are yet to make the equivalent change to the taxing of tobacco ads, despite starting to try as early as 1979 and resuming their efforts in response to the rise of e-cigarettes.