June 18, 2009

To: AAF Members
From: Clark Rector, Executive Vice President-Government Affairs
Re: Deductibility Threat Moves to House

When it rains, it pours. As you know, disallowing the federal tax deduction for prescription drug advertising is being discussed in the Senate Finance Committee as a source of revenue for healthcare reform. House Ways and Means Committee Chairman Charles Rangel (D-NY) has recently been quoted as saying his committee is considering the option also.

It is very important that members of the Ways and Means Committee hear from the advertising industry that this option must be rejected. I urge you to call or email members of the committee and tell them you oppose any limitation on the deduction of advertising expenses – for prescription drugs or any other product. Please circulate this alert to other members of your advertising club and/or company, and continue contacting Senators as well.

A list of Ways and Means members, with advertising clubs in, or close to their districts is below. Contact information for the appropriate staff can be found here.

Thank you for your continued work on this important issue.

Limiting advertising deductibility of pharmaceuticals should be opposed because:

  • The Tax Code and its deductions should be applied equally to all ordinary and necessary business expenses. Even at the height of public criticism of the tobacco industry, Congress did not discriminate between the treatment of the cost of advertising tobacco products, which is fully deductible, and the cost of advertising other products. Some may recall that Congress "affirmed" a ban on television and radio advertising of tobacco products. But it did so after the industry elected to withdraw this advertising rather than face government sponsored antismoking ads. This also took place before the Supreme Court had enunciated the doctrine that protects commercial speech under the First Amendment.

  • The underlying goal of eliminating the deduction for advertising prescription medications is very straightforward – it is to make speech about the product more expensive. That will assure there is less advertising, and less advertising will result in fewer sales of the advertised prescription medications, particularly to Medicare Part D eligible patients. In other words, Congress would be taxing speech to save money on a federal program of spending.

  • The denial of the deduction would make this advertising 35 percent more expensive (assuming the top federal corporate tax rate). Assuming that the affected companies do not have wealthy uncles or unlimited supplies of spare cash, they likely will reduce their advertising by a similar amount, resulting in a loss of speech to consumers. Thus, the loss of the deduction is no more than a tax on advertising.

  • In Grosjean v. American Press Co., Inc., 297 U. S. 233 (1936), the U.S. Supreme Court struck down a 2 percent Louisiana tax on newspapers with more than 20,000 circulation per week. The 13 affected newspapers were critics of Governor Huey Long and sued to challenge the tax as an unconstitutional tax on speech. The U.S. Supreme Court agreed.

  • Section 162 of the Tax Code provides for the current deduction of all ordinary and necessary business expenses. This section applies to all such expenses – rent, utilities, salaries, and every form of daily business operation. Virtually all advertising costs are ordinary business expenses. Imagine the world of business however, if Congress were to pick and choose favorite products – products that would get the deduction and products that would be denied the deduction. What else might be on the hit list? For example, would generic drugs be entitled to the deduction, but not brand drugs? What about vehicles that cannot achieve the efficiency of 20 miles on a gallon of gas? What about a bank that fails its stress test?

House Ways and Means Committee
Democrats

Charles Rangel (NY) Advertising Club of New York, Advertising Women of New York
Pete Stark (CA) Greater San Francisco Ad Club, SF BIG (San Francisco Bay Area Interactive Group, Ad 2 San Francisco
Sander Levin (MI) Adcraft Club of Detroit
Jim McDermott (WA) Ad Club Seattle, Ad 2 Seattle
John Lewis (GA) Atlanta Ad Club
Richard Neal (MA) The Ad Club of Western Massachusetts
John Tanner (TN) West Tennessee Advertising Federation (Jackson), Memphis Advertising Federation
Xavier Becerra (CA) Advertising Professionals of North Los Angeles County
Lloyd Doggett (TX) Austin Advertising Federation
Earl Pomeroy (ND) Advertising Federation of Bismarck-Mandan, Advertising Federation of Fargo-Moorhead
Mike Thompson (CA) Sacramento Advertising Club (borders)
John Larson (CT)
Earl Blumenauer (OR) Ad 2 Portland
Ron Kind (WI)
William Pascrell (NJ)
Shelley Berkley (NV) AAF – Las Vegas
Joseph Crowley (NY) Advertising Club of New York, Advertising Women of New York
Chris Van Hollen (MD) Advertising Club of Metro Washington
Kendrick Meek (FL) Advertising Federation of Greater Miami, Ad 2 Miami
Allyson Schwartz (PA) Philadelphia Advertising Club
Artur Davis (AL) Birmingham Advertising Federation, Tuscaloosa Advertising Federation
Danny Davis (IL) Chicago Advertising Federation
Bob Etherdige (NC) AAF – Raleigh-Durham
Linda Sanchez (CA)
Brian Higgins (NY) Advertising Club of Buffalo
John Yarmuth (KY) Advertising Federation of Louiville

Republicans

Dave Camp (MI)
Wally Herger (CA)
Sam Johnson (TX) Dallas Advertising League
Kevin Brady (TX)
Paul Ryan (WI)
Eric Cantor (VA)
John Linder (GA)
Devin Nunes (CA) Fresno Advertising Federation
Pat Tiberi (OH) Advertising Federation of Columbus
Ginny Brown-Waite (FL)
Geoff Davis (KY)
Dave Reichert (WA)
Charles Boustany, Jr. (LA) AAF – Lake Charles, Acadians Advertising Federation
Dean Heller (NV) Advertising Association of Northern Nevada, Ad 2 Reno
Peter Roskam (IL) Chicago Advertising Federation