Senate Tax Reform Options Include Denying DTC Deductions

June 3, 2013 – As predicted, tax deductions for the cost of direct-to-consumer (DTC) advertising for prescription drugs are among those being considered for elimination, according to a recent document issued by the Senate Finance Committee. The May 23 option paper on Economic Security – the seventh in a series of papers compiling tax reform options being discussed by the Finance Committee – lists provisions related to excise taxes and other taxes that may be slated for reform.

Specifically, the deductibility of DTC advertising and children’s food advertising are referenced as options for denial in the document’s section on health, citing related bills in the 112th and 113th Congresses.

Although this suggestion may seem alarming, for now, nothing is certain, said Coalition for Healthcare Communication Executive Director John Kamp. “As with previous option papers published by the committee, this document carries the disclosure that no particular policy is endorsed by either the Chairman or Ranking Member at this time,” Kamp explained. “These items are meant to be for discussion only and represent ideas that have been presented during tax reform hearings by policy experts.”

The document states that the Committee’s overall goals are to:

  • Minimize the disruption to business practices and employee expectations inherent in any tax reform;
  • Simplify the taxation of retirement savings and health insurance;
  • Increase the number of people with enough resources for an adequate standard of living in retirement, and expand access to health insurance;
  • Maximize the bang-for-buck of any tax incentives that are retained or reformed; and
  • Develop neutral rules regarding compensation and fringe benefits to ensure that business needs and it tax planning drive compensation decisions, while minimizing costs.

Whether the elimination of DTC advertising tax deductions will help the Committee meet these goals remains to be seen. However, this is a very dangerous time for any tax expenditure, including the deductibility of drug marketing. Currently, all marketing costs are tax-deductible for clients.

“Without this deduction, client costs of marketing communication would increase by the client’s tax rate – which could be as high as 37 percent,” Kamp said. “This demonstrates again that no bad idea disappears quickly in D.C., and that careful listening and speaking is often needed.”

Kamp noted that the Coalition “will continue to monitor news coming from both the House and Senate tax writing committees, and will continue our outreach with individual committees and their staff.”