Congressman Warns DTC Tax Break May Get Axed
5 CommentsBy Ed Silverman // October 2nd, 2008 // 12:26 pm
Rahm Emanuel, an Illinois Democrat, warned advertising industry leaders that the business-tax deduction for DTC spending could be taken away in 2009 tax legislation, according to DTC Perspectives.
In a recent meeting with the government affairs committee of the American Association of Advertising Agencies, the newsletter writes Emanuel presented two options for pharma in new tax legislation: retain the tax credit for R&D spending, or keep the business expense deduction for DTC ads - but not both.
“He said this without any tinge of satire, so you have to accept him at his word,” one ad industry advocate familiar with the meeting tells DTC Perspectives, which claims an average drugmaker spends roughly 10 times more on R&D each year than on consumer promotion (although we recall that SG&A expense line often doesn’t break out marketing so neatly).
Emanuel’s office was asked to comment, but had not responded to the newsletter as of this morning. Emanuel, by the way, sits on the House’s Ways and Means Committee, which controls and writes all tax legislation, and he also chairs the House’s Democratic caucus.
The newsletter notes pharma would argue changing its tax status is unconstitutional. “The motivation, it can be clearly argued, is not sound tax policy, but the motivation is to suppress speech,” Jim Davidson, an attorney with the Polsinelli law firm, tells DTC Perspectives. “When you use the Tax Code to suppress speech, that is a violation of the First Amendment.”
Hmm… But would speech be suppressed? Or just become a non-deductible item? What do you think?
Which tax break should pharma take?
- R&D deduction? (86%, 74 Votes)
- DTC Advertising deduction? (14%, 12 Votes)
Total Voters: 86
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Scott Cooley
Pardon me, but it’s patently absurd to suggest that there is a constitutional right to tax deductions for DTC spending. If there is no attempt by the federal government to prohibit DTC by use of the tax code, but rather only to remove the deduction, then the argument that this is an infringement on 1st Amendment rights is misplaced. Using this argument, I suspect that Mr Davidson would argue in favor of abolishing the FDA’s right to regulate the content of DTC advertising as well, yes? One might argue that granting the deduction in the first place was contrary to public interest!
D. Schroeder
Yet another example of the “invisible hand” of free markets being subverted by the covert hand of government intervention through the tax code. How about a third choice: eliminate both deductions and completely re-structure our hopelessly complicated tax codes to get government out of the position of rewarding industries that do its bidding and punishiing those that do not.
This action makes one wonder if the Illinois congressman is using this weapon to generate more pharma donations to his re-election funds.
atlex
I think the point Davidson is tries to make is that if the SOLE intent of altering the tax code is to suppress speach, then the effort would be unconstitutional. This effort is exactly that. Emanuel, who has already collaborated (unsuccessfully) with Pete Stark on legislation banning DTC, is simply trying to use the tax code to make DTC advertising significantly more expensive and, subsequently less viable and less frequent. The result is suppression of speach.
By the way, D Schroeder, the pharma industry doesn’t have any special priveleges here. All businesses are allowed to deduct advertising as business expenses. That’s all we’re talking about in this situation.
bob ehrlich
The idea of treating pharma advertisers different from other lawful products’ advertising is likely unconstitutional. The government has the right to regulate drug promotion, but not ban it through the tax code. Do the Democrats plan to take away tax deductions for advertsing any products they find objectionable? High price real estate, luxury cars, diamonds? The idea that one industry is punished over others to suppress speech is dangerous.
Paul Atkinson
Unfortunately, precedent is on Rep Emanuel’s side.
The 1993 Clinton tax bill limited the deduction for client entertainment to 50% of the amount spent. This certainly hurt the restaurant industry, and impacted cost of sales, but was part of the “let’s stop the 3 martini lunch” rhetoric that went back to the Carter years.
Congress can write pretty much anything it wants into the tax code. It is not a consistent document. And the free speech argument holds no water.