O.T....like this is anything new........Study finds
pharmaceutical
industry taxed less
than any other
Copyright © 1999 Nando Media
Copyright © 1999 Associated Press
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By CURT ANDERSON
WASHINGTON (December 25, 1999 3:01 p.m. EST
nandotimes.com) - Pharmaceutical companies pay significantly
less in taxes than any other U.S. industrial sector, 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, though 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.
Though 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. 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 benefiting 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.
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