March 16, 2006

Legislative Activity

The following legislative alert was sent to club and district officers in states with senators on the Senate Banking Committee:

Senator David Vitter, R-La., has introduced a Sense of the Senate Resolution that would eliminate a significant portion of a company's business expense deduction for the advertising of prescription medicines. In addition to being poor policy, this resolution would set a horrible precedent for other disfavored products. It is very important that your senator hears from the advertising industry as soon as possible that the resolution should be defeated. Please contact your senator and ask for a no vote. A position paper giving reasons for opposition is pasted below.

Please send us any response you may get from the senator's office. Do not hesitate to call Jeff Perlman, executive vice president – government affairs, or Clark Rector, senior vice president – government affairs, at (800) 999-2231 if you have any questions or comments. Thank you for your prompt attention to this important matter.

Oppose the Vitter Amendment That Would Eliminate Half the Deduction for Advertising Prescription Medicines

Senator Vitter has filed amendment No. 3065 to S. Con Res. 83, the Senate Budget Resolution. The amendment title is deceiving: "Sense of the Senate on the Safety of Imported Prescription Drugs."

The amendment says that "Congress should consider legislative changes to encourage the development of safer, more secure prescription drug packaging that would ensure the safety of imported prescription drugs and alleviate concerns, such as tampering, that relate to the importation of lower-priced prescription drugs."

Then, the Sense of the Senate Amendment recommends a remedy that would:

  1. Limit tax deductions related to the costs of prescription drug direct-to-consumer advertising to 1/2 of a pharmaceutical company's budget for the previous year for research and development expenses; and
  2. Create a new tax incentive, with the same revenue estimate as paragraph (1) but redirected to encourage pharmaceutical companies to devote more resources to developing and deploying improved prescription drug packaging and other safety technologies.

The Vitter amendment is flawed in several respects:

  1. First, it attempts to manipulate the Tax Code's ordinary and necessary business expense deduction by compelling new business activity—spending on development of new packaging and safety technologies.
  2. The resolution proposes to take away the deduction for all advertising expenses by an amount that somehow equals half off what the company spent the previous year on research and development. There is no explanation why a company should be penalized by losing a deduction only for its advertising that every other company in the United States is entitled to. For example, a company paying taxes at the top corporate rate and that spends $100 million on advertising, could lose $35 million.
  3. A company would lose twice for example if it already had spent money on safety technologies and packaging and there was no more need for further research in that area. It would lose the deduction for half its ad costs and gain nothing since it already had previously spent money researching package safety, which many companies already have done.
  4. There is no finding that there is any link whatsoever between the Vitter amendment and the safety of imported drugs. There has been no hearing in any committee on Congress on this matter, nor to our knowledge any evidence submitted that the resolution would produce anything close to the intended result.
  5. Finance Committee Chairman Grassley in the 108th Congress introduced a bill designed to encourage the import of prescription drugs by penalizing companies that resisted importation with the loss of the deduction for all their advertising costs. Senator Grassley did not reintroduced that measure in the current Congress.
  6. The amendment could result in a reduction in the amount of important health related information that Americans receive. Advertising for prescription medicines helped 30 million Americans learn about a medical condition they never had discussed before and encouraged them to talk about that condition for the first time to their doctors. Harvard Medical School research shows that 35 percent of those Americans suffered from serious health conditions such as diabetes, heart disease and depression. We should not support a provision that would directly or inadvertently keep Americans from getting information that keeps them healthy.
  7. Advertising for prescription medicines reaches out to the six million Americans who suffer from diabetes but have not been diagnosed. As many as 56 million Americans have high blood pressure, and yet it appears that 18 million are unaware they have this silent killer. Another eight million Americans know they have high blood pressure but are not taking medication. Advertising can help the U.S. Public Health Service achieve its goal of increasing dramatically the treatment rate for the 19 million Americans who suffer from depression.