News Releases/Announcements

LEGISLATIVE ALERT — Question Federal Pharmaceutical Advertising Tax-Deduction

June 22, 2009

As part of your membership to American Advertising Federation, the group lobbies on behalf of the advertising and communication industries to promote growth, fair trade and treatment of advertisers. This update is part of their lobbying efforts. Please take a few moments to read and contact your legislator.

ACTION NEEDED: Contact your Senators and Congressional Representatives and ask them to question their colleagues on the Senate Finance and House Ways and Means committees about the advertising tax deductibility for pharmaceutical advertising to help pay for healthcare reform.

It is absolutely imperative that all of us keep contacting our leaders and express strong opposition to any limitation on the ability to fully deduct all advertising costs as a necessary and ordinary business expense.  Please contact the following people and let them know your opinion.

Senator Grassley must hear from more Iowans as he is the ranking member of the Finance committee and is included in the small group discussing this advertising tax.

Below are some talking points to use during your conversation or e-mails.

As you know, disallowing the federal tax deduction for prescription drug advertising is being discussed in the Senate Finance Committee as a source of revenue for healthcare reform. House Ways and Means Committee Chairman Charles Rangel (D-NY) has recently been quoted as saying his committee is considering the option also. 

Consider the following e-mail or letter:

Dear Iowa Lawmaker,

I am writing you to address an issue that members of the Senate Finance and House Ways and Means committees are considering disallowing federal tax deduction for prescription drug advertising. As my elected official, I urge you to oppose any ratification of the current tax-code to limit deductibility of pharmaceutical advertising. I work in the field and find this consideration prejudicial and treats different business unequally.

Further, Limiting advertising deductibility of pharmaceuticals should be opposed because:

· The Tax Code and its deductions should be applied equally to all ordinary and necessary business expenses. Even at the height of public criticism of the tobacco industry, Congress did not discriminate between the treatment of the cost of advertising tobacco products, which is fully deductible, and the cost of advertising other products. Some may recall that Congress "affirmed" a ban on television and radio advertising of tobacco products. But it did so after the industry elected to withdraw this advertising rather than face government sponsored antismoking ads. This also took place before the Supreme Court had enunciated the doctrine that protects commercial speech under the First Amendment.

· The underlying goal of eliminating the deduction for advertising prescription medications is very straightforward - it is to make speech about the product more expensive. That will assure there is less advertising, and less advertising will result in fewer sales of the advertised prescription medications, particularly to Medicare Part D eligible patients. In other words, Congress would be taxing speech to save money on a federal program of spending.

· The denial of the deduction would make this advertising 35 percent more expensive (assuming the top federal corporate tax rate). Assuming that the affected companies do not have wealthy uncles or unlimited supplies of spare cash, they likely will reduce their advertising by a similar amount, resulting in a loss of speech to consumers. Thus, the loss of the deduction is no more than a tax on advertising.

· In Grosjean v. American Press Co., Inc., 297 U. S. 233 (1936), the U.S. Supreme Court struck down a 2 percent Louisiana tax on newspapers with more than 20,000 circulation per week. The 13 affected newspapers were critics of Governor Huey Long and sued to challenge the tax as an unconstitutional tax on speech. The U.S. Supreme Court agreed.

· Section 162 of the Tax Code provides for the current deduction of all ordinary and necessary business expenses. This section applies to all such expenses - rent, utilities, salaries, and every form of daily business operation. Virtually all advertising costs are ordinary business expenses. Imagine the world of business however, if Congress were to pick and choose favorite products - products that would get the deduction and products that would be denied the deduction. What else might be on the hit list? For example, would generic drugs be entitled to the deduction, but not brand drugs? What about vehicles that cannot achieve the efficiency of 20 miles on a gallon of gas? What about a bank that fails its stress test?

Thank you for your consideration. Again, I urge you to oppose this unfair treatment of pharmaceutical companies.


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Thank you for your continued support in protecting the rights of all advertisers and the industry as a whole.

Please send comments regarding AAF National Lobbying to: Clark Rector, Senior VP of Government Affairs - AAF Nationals at: [email protected]

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