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Senators Go After Tax Deduction for Advertising

Yet another piece of legislation has been introduced in the Senate to eliminate the federal tax deduction on advertising for prescription-drug medications, but this one could endanger the proposed $829 billion health-care reform bill.

U.S. Senator Al Franken (D-Minn.), along with co-sponsors Sens. Sherrod Brown (D-Ohio) and Sheldon Whitehouse (D-R.I.), have introduced legislation (S. 1763) to disallow the federal tax deduction for all advertising and marketing expenses for prescription drugs. There are rumblings that the senators would like to have the proposal added to the health-care reform legislation, and the possibility exists that they may offer it as an amendment when the proposed bill is considered by the full Senate.

That would seemingly put in jeopardy the handshake deal that pharmaceutical companies struck earlier this year with the Obama administration and Senate Finance Committee leaders, which calls for drug-makers to pick up an estimated $80 billion in health-care costs over 10 years in exchange for no further crackdowns on the industry.

"From our perspective, that would appear to be the case," said Clark Rector, exec VP-government relations for the American Advertising Federation.

The proposed legislation to eliminate the tax deduction for health-care advertising is going under the short title of the "Protecting Americans from Drug Marketing Act." Mssrs. Franken, Brown and Whitehouse are asking to amend the Internal Revenue Code of 1986 "to deny the deduction for advertising and promotional expenses for prescription pharmaceuticals."

Ken Johnson, senior VP for the Pharmaceutical Research and Manufacturers of America (PhRMA), the Washington, D.C.-based lobby group for drug-makers, did not return two messages by press time.

Mr. Franken's chief of staff, Andrew Littman, also did not return a voicemail message by press time.

Former Food and Drug Administration associate commissioner Peter Pitts, now the president of the Center for Medicine in the Public Interest, said the proposed legislation to cut the ad tax deductibility endangers more than just the health-care reform bill.

"What this endangers is the public health, as every survey -- including those done by the FDA -- show that DTC advertising, beyond helping to sell product, actually increases the health literacy of the American health consumer," he said. "Such a move is actually an anti-health reform amendment and is nothing more than grandstanding by a long-time opponent of the pharmaceutical industry [Mr. Brown] and a 'Saturday Night Live' alum [Mr. Franken]. Painting pharmaceutical marketing as an 'enemy' of health reform is like saying automotive advertising is the enemy of emissions control."

The AAF estimates that disallowing the advertising tax deduction would increase the costs of advertising and marketing for affected companies by up to 35%. The ad industry provides $6 trillion in annual sales in the U.S. and 21 million jobs, according to the AAF.

"We absolutely view this as a threat, a very serious threat," Mr. Rector said.

Asked if he thought the proposed legislation by Mssrs. Franken, Brown and Whitehouse was done in a way to slip it through the overall massive health-care reform bill, Mr. Rector said, "It is what it is. They're looking for ways to go after revenue in any way possible."

Dan Jaffe, exec VP-government relations for the Association of National Advertisers, said the ANA and the ad community are aware of the proposed legislation and are "disappointed that this effort to treat prescription-drug advertising differently and more adversely than any other category of advertising continues to surface. ... There is no reason that the right to deduct the costs of these ads should be eliminated. They should be treated as they always have been in the past -- no differently than any other ordinary and necessary business expense."

 

Rich Thomaselli, Advertising Age. October 21, 2009

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