This could be the spoiler:
Pharmaceutical Cos. Taxes Studied
By CURT ANDERSON AP Tax Writer
WASHINGTON (AP) - Pharmaceutical companies pay significantly less in taxes than any other U.S. industrial sector despite
charging higher prices for drugs in this country than overseas, according to a new congressional study.
The study comes as Congress prepares to again confront the cost of drugs, responding to complaints that medicine is cheaper
in Canada and Mexico and that seniors do not get most drugs paid for under Medicare.
Drug makers paid an effective U.S. tax rate of 16.2 percent from 1993 to 1996, according to the nonpartisan Congressional
Research Service. That compares to an average tax rate of 27.3 percent paid by all other major industries, including mining,
construction, services, retail and agriculture.
At the same time, American consumers pay more for the same drugs than people in much of the developed world. For
example, prices in the congressional district of Rep. Fortney ''Pete'' Stark, D-Calif., are twice as high for five common
prescription drugs than in Canada and Mexico.
''It is totally unfair for U.S. taxpayers to subsidize drug companies to develop products, and then have those new, life-saving
products sold for a cheaper price in rich foreign nations,'' said Stark, the senior Democrat on the House Ways and Means
health subcommittee, who requested the study.
A White House budget official, Daniel N. Mendelson, said the pharmaceutical industry's higher profits and lower taxes could
lead to price controls, although he said there are no plans to propose such a solution.
But prescription drugs are sure to be in the political crosshairs when Congress reconvenes in January.
Although drugs are an essential tool of medicine, Medicare does not cover them for patients outside a hospital. And drug
companies oppose adding a Medicare drug benefit, arguing it could lead to price controls.
Many Democrats, including Stark and President Clinton, are pushing for a universal prescription drug benefit for Medicare
recipients, while many Republicans are backing a private-sector alternative focused mainly on the poorest elderly.
Stark is also drafting legislation to deny tax credits to companies that charge more in the United States than other countries.
Mendelson said the administration's proposals haven't gone behind the Medicare benefit, but said it's his personal view that
''if we fail to enact it, there will be pressure on the price side. There's a lot of pressure building up. Seniors are a group that is
strong politically.''
Drug companies are a force in campaign fund-raising, contributing $13.1 million in the 1998 election cycle to House and
Senate candidates, according to the Center for Responsive Politics, a campaign finance watchdog group. The top donor was
Pfizer Inc (NYSE:PFE - news). at $1.13 million, followed by Bristol-Myers Squibb at about $820,000 and Eli Lilly & Co. at
$787,000.
The overall health industry, of which drug companies are a part, contributed $58.8 million in unregulated ''soft money'' to both
political parties during the 1998 election. And drug makers spent $71 million to lobby Congress that year.
The Congressional Research Service study shows that the pharmaceutical industry was able to reduce its tax bill through a
variety of legal credits by almost $3.8 billion in 1996. That's 50 percent less than the industry's tax before the credits were
applied to $24.8 billion in taxable income.
Meanwhile, after-tax profits for drug companies as a percentage of sales averaged 17 percent from 1994 to 1998, compared
to 5 percent for all other industries.
Foremost among the tax breaks is the research and development tax credit - just renewed by Congress for five more years
and extended to Puerto Rico - that pays 20 percent of qualified research costs.
Other tax provisions that particularly benefit drug companies, the study found, are a credit intended to offset foreign taxes,
another credit for companies located in Puerto Rico that ends in 2006, a credit for drugs developed for rare diseases and a
research expenses deduction.
For the pharmaceutical industry, these tax breaks are an investment in better, longer lives. In 1999, the industry expects to
spend some $24 billion on R&D and estimates a single drug can cost $500 million to bring to market.
''We've earned those tax savings,'' said Jeff Trewhitt, spokesman for the Pharmaceutical Research and Manufacturers of
America. ''We are one of the most innovative, productive industries in this country. You see millions of patients benefitting
from this research.''
As for the higher U.S. drug costs, Trewhitt said many developed nations have strict price controls and government mandates,
which the industry contends do not help poorer people but can slow down drug availability.
He noted that only one out of every five drugs ultimately wins approval for sale, driving up the cost of those that do.
''The real kicker is that until the end of the process, you don't know whether you're going to have a product or not,'' Trewhitt
said.
dailynews.yahoo.com
Back in '94 the Clinton Health Plan proposal lay waste to Drug stocks for almost a year. So this part spooked me:
"A White House budget official, Daniel N. Mendelson, said the pharmaceutical industry's higher profits and lower taxes could
lead to price controls, although he said there are no plans to propose such a solution.
But prescription drugs are sure to be in the political crosshairs when Congress reconvenes in January."
Tom |
