Drug Marketers Fight Proposal to Ax Tax Break for Ads

Drug manufacturers are up in arms over a congressional proposal that would do away with tax deductions for direct-to-consumer (DTC) advertising of prescription drugs.

The proposal first surfaced on June 16, with a statement from Representative Charles Rangel (D-N.Y.), who chairs the influential House Ways and Means Committee. Rangel said House tax drafters are weighing the idea as a way to help fund the Democrats' proposed health-care-reform bill.

"One thing that's not off the table is that you can pick up $37 billion knocking out the deduction for advertising," Rangel told reporters. It is unclear exactly what he was factoring into the $37 billion tax figure, since drug marketers spent $4.7 billion last year on DTC advertising. Representative Rangel may have been including total sales costs, sales rep costs, free samples, and other expenses.

Industry officials argue that a differential tax on companies is a violation of the First Amendment. Advertising for any product is typically fully tax-deductible as a necessary business expense. By getting rid of the tax deduction for prescription drugs, the proposal would make it more expensive and burdensome to market this product category as compared to other product categories, the industry contends.

Why it matters: Although there is a First Amendment argument that the elimination of tax deductions for DTC ads is unconstitutional, that will not necessarily prevent Congress from passing such a law.  Pharmaceutical marketers are understandably concerned.