DTC Advertising Tax Deductibility

Believing the cost of pharmaceuticals to be too high, some groups have proposed reducing or eliminating the business tax deduction for direct-to-consumer advertising of prescription drugs.

AAF Position
The AAF opposes any efforts to limit the advertising tax deducibility of pharmaceuticals. Reducing the deductibility of advertising expenses artificially increases the cost of advertising. This is an unfair attack on the pharmaceutical industry. We contend that advertisers have a First Amendment right to provide information on their products and, in the case of the pharmaceutical industry, a responsibility to inform the public about the availability of helpful products.

Supporters of bills aimed at ending the advertising tax deductibility say that the cost of advertising raises the cost of drugs without any benefit to consumers. Some use the tax deductibility issue as a way to try to curb all direct-to-consumer advertising of pharmaceuticals, because they believe advertising results in overmedication, despite several studies to the contrary.

The Fair Balance Prescription Drug Act, introduced by Rep. Pete Stark, D-Calif., would deny the tax deductibility of advertising for new drugs. The bill would create specific guidelines concerning direct-to-consumer advertising, including how risks and benefits are presented, and would prohibit any DTC advertising for new products. Similar proposals have been introduced in the past but were not enacted.

In the last Congress, Sen. David Vitter, R-La., offered an amendment to the Senate budget resolution aimed at limiting the advertising tax deductibility of pharmaceuticals. The amendment would have called for the elimination of a significant portion of a pharmaceutical company’s advertising costs. The amendment was blocked for consideration through parliamentary procedures, and the resolution was voted on favorably, without the Vitter amendment.

Last updated: August 2007

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