Deja vu? Pharma ad tax deduction faces threats—again—in Congress, on the trail

Pharma's advertising tax deduction is back on the chopping block, both in Congress and on the 2020 campaign trail. 

Last week, as a Senate drug-pricing reform bill made its way through the Finance Committee, rumors swirled that a DTC amendment was in the offing. That didn’t happen before the committees 19-9 approval vote, but the idea's not dead yet.

Meanwhile, Democratic presidential hopefuls, including leading contenders Joe Biden and Kamala Harris, have said they'd abolish the advertising tax deduction for the pharma industry.

Two other front-runners, Sens. Elizabeth Warren and Bernie Sanders, haven't specified that change in their health agendas. But both joined a bipartisan group of senators in January to support "legislation that would prohibit pharmaceutical drug manufacturers from claiming tax deductions for consumer advertising expenses."

Legal experts are still pooh-poohing the idea, though. Eliminating the tax deduction would violate the First Amendment, they say, just as they have each time it's threatened. The Supreme Court has protected commercial speech, they point out, and putting limits on one category of that free speech—in this case, removing the tax deduction only for pharma advertising—would contradict established rulings.

James Davidson, a lawyer at Polsinelli specializing in media and advertising law, said eliminating the deduction would make pharma advertising 20% more expensive for those marketers.

"As important as that is, the paramount issue is, it is a direct assault on a First Amendment protected form of speech," Davidson said. "Advertising has been recognized for decades as protected speech. And if you start to put a tax on protected speech, I am absolutely confident that the U.S. Supreme Court would strike it down."

Dan Jaffe, legislative lead at the Association of National Advertisers (ANA), said the renewed interest in an ad tax deduction for pharma is a byproduct of politicians trying to prove to consumers that they're serious about prescription drug price reform.

"Whether it’s the Trump administration or important people within the Democratic Party, both are in agreement on [their concern about prescription drug prices]," Jaffe said, "and they’re looking for whatever lever they can find to show that they are being serious about that issue to the electorate."

However, he added, any proposal legislators come up with to lower drug prices still has to be legal and comply with the First Amendment.

Earlier this month, a federal judge blocked the Trump and Department of Health and Human Services rule that would have forced pharma marketers to include list prices in their TV ads, just one day before it was to go into effect. The judge ruled in favor of Merck & Co., Eli Lilly and Amgen—who had filed suit along with the ANA—finding that the administration didn’t have the legal authority it claimed under the Social Security Act to enact the rule.