Not On Our Watch: Guarding the Pharma Ad Tax Deduction

April 5, 2018

Senator Claire McCaskill (D-MO) has introduced a new bill – S. 2478, the End Taxpayer Subsidies for Drug Ads Act – to change the tax code for prescription drugs, effectively eliminating the advertising costs deduction for direct-to-consumer (DTC) advertising produced by pharmaceutical companies. After a threatened attempt to remove these deductions as part of the Tax Cuts and Jobs Act, McCaskill is reviving the effort she started last year. Senator McCaskill and bill co-sponsors Senator Jeanne Shaheen (D-NH) and Senator Sherrod Brown (D-OH) mistakenly assume that eliminating the tax deduction for DTC ads will somehow help lower drug prices, without any clear evidence supporting that position.

Under the FDA’s jurisdiction, prescription drug advertising is already one of the most heavily-regulated advertising categories. The Food and Drug Administration (FDA) has the responsibility to assure that these ads are truthful and non-deceptive and contain a fair balance of benefit and risk information.  These ads often inform consumers of potentially serious health concerns of which they otherwise might not have been aware. DTC advertising can be lifesaving or significantly life-enhancing, and the ability to provide this information should not be undermined as Sen. McCaskill proposes.

Unfortunately, this is not the first time that policymakers have threatened the current advertising deduction for prescription drugs. Just last December, ANA actively spoke out against a report by the National Academies of Sciences, Engineering and Medicine and proposals by the American Medical Association (AMA) which advocated for disallowing the deductibility of DTC advertising for prescription drugs as a business expense. We filed comments with the Senate Health, Education, Labor and Pensions (HELP) Committee in advance of its hearing to evaluate this report and its recommendations. Also in 2009, former Senator Al Franken (D-MN), Senator Sherrod Brown (D-OH) and Senator Sheldon Whitehouse (D-RI) introduced similar legislation to limit DTC advertising as a necessary business expense. While the Affordable Care Act was being debated on the floor, ANA also previously successfully stopped a House Ways and Means Committee proposal restricting the full deductibility of DTC ads in its tracks.  

In reality, this drastic proposed change to the IRS code is a clear violation of the First Amendment. According to the Supreme Court, singling out truthful and non-deceptive speech and penalizing it through taxes or other means due to its content is almost certain to be found unconstitutional.

The bottom line is that lawmakers should not and cannot discriminate against tax-deductible ad expenditures that comply with existing law merely because the products associated with the advertising are perceived as costing too much. Advertising costs associated with every single product or service offered in the U.S. must follow the same tax treatment. If lawmakers single out one industry, they risk setting a dangerous precedent for other advertising categories that become controversial.

ANA will continue to monitor S. 2478 and will continue to oppose these or any similar efforts.

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