Media Firms Enter Fight Against House Plan To Tax Drug Ads
July 09 2009 - 6:37PM
Dow Jones News
Television networks and other media companies are rushing to try
to quash a plan to tax advertisements for prescription drugs as
House lawmakers finalize health-care overhaul legislation.
The four major broadcast networks - Walt Disney Co.'s (DIS) ABC,
CBS Corp. (CBS), News Corp.'s (NWSA) Fox and General Electric Co.'s
(GE) NBC Universal -- told House Ways and Means Chairman Charles
Rangel, D-N.Y., in a Thursday letter that the plan would cost New
York jobs and urged him to abandon it.
"Across the U.S., advertising supports more than 21 million
jobs. The current economic recession requires that we do everything
we can to generate more sales and more jobs - not adopt policies
that would reduce them," the networks wrote. News Corp. also owns
Dow Jones & Co., publisher of this newswire.
The Advertising Coalition - a group that includes major trade
associations for broadcasters, newspapers and magazines, plus
advertisers like the Grocery Manufacturers of America - urged
President Barack Obama in a separate letter Thursday to oppose the
House proposal.
The advertising deduction for drugs is on a short list of new
taxes that House Ways and Means Committee members want to use to
pay for a $1 trillion overhaul of the health-care system. Rangel
said earlier this year that denying the deduction to pharmaceutical
firms would raise $37 billion over 10 years.
Advertising costs are deductible to any firm as a business
expense. The plan being considered by Rangel's Ways and Means
committee would change that only with respect to prescription drug
advertising. It is a more expansive version of legislation long
backed by Rep. Fortney "Pete" Stark, D-Calif., that sought to
punish drug companies that used misleading ads.
Now, media companies are jumping into the fray, arguing that the
plan would depress sales, restrict free speech and create a
slippery slope where no industry's deductions would be safe.
Media industry officials cast doubt on Rangel's claim that the
change would raise $37 billion. They noted that total ad spending
by the pharmaceutical industry in 2008 was ranged from $3.8 billion
to $4.4 billion. Taxed at a theoretical 35% rate over a 10-year
period, that level of spending would yield closer to $15
billion.
They also say singling out drug companies for a tax on
advertising could be an unconstitutional restriction on free
speech.
Also, a tax on advertising would hurt revenues at a time when ad
sales have plummeted as a result of the recession and the rise of
the Internet.
"Advertising is the lifeblood of newspapers," said Paul Boyle,
senior vice president for public policy at the Newspaper
Association of America. "This will make ads more expensive and
cause companies to reduce their advertising budgets."
In closed-door meetings of Ways and Means Committee members this
week, the proposal on drug advertising received positive reviews,
say people with knowledge of discussions. Critics of the
pharmaceutical industry see the tax change as a curb on what they
see as excessive marketing by the industry.
The committee could unveil its plan to finance the health-care
bill as soon as Friday. Rangel is aiming to have the Ways and Means
Committee formally consider a bill next week, with a full House
vote expected by the first week of August.
Also increasingly likely to be included in the House bill is a
tax on sugary beverages.
But lawmakers and House aides say there is a desire to keep the
taxes that affect businesses few and targeted, so as not to provoke
business lobbyists to come flocking to oppose the health-care
bill.
The main source of revenue in the plan will be a surtax on the
incomes of wealthy Americans, of somewhere between 2% and 4%,
according to aides and lawmakers. That will likely affect
individuals with income above $200,000 and couples with income of
more than $250,000, and will raise several hundred billion over 10
years.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244;
martin.vaughan@dowjones.com