WASHINGTON: Reports are emerging that members of Congress would like to yank the tax deduction for drug ads. The sector spent around $4.4 billion on advertising in 2008; nearly $1.7 billion of it on network television, according to figures from TNS Media Intelligence. Spot TV took $136.1 million. Though a similar bill went nowhere in 2007, the ad industry has mobilized, saying such a move would be unconstitutional.

“Denying the tax deduction for advertising in one industry is unprecedented and would raise very serious First Amendment concerns,” wrote Bob Liodice, president and CEO of the Association of National Advertisers in Ad Age. “The Supreme Court has made clear that differential taxes on the basis of the content of an ad are unconstitutional.”

All companies can now take an ordinary and necessary business tax deduction for advertising. Product-specific prohibitions set a “dangerous” precedent, Liodice said.

“Only companies that are presently popular with the government will feel confident about retaining their ad deduction, while businesses in ‘controversial’ categories will be highly jeopardized and in constant fear that their ad deductions will be revoked,” he wrote.

Drugs companies may not be alone, however. Medical Marketing & Media noted that Rahm Emmanuel, now the president’s chief of staff, suggested last fall when he was House Majority Leader that business might have to choose between tax deductions for advertising or research and development. More recently, Rep. Charles Rangel (D-N.Y.) chairman of the House Ways and Means Committee, said axing the deduction was “not off the table,” and pegged the potential revenue of doing so at $37 billion.

The tax deduction came up in discussions between lawmakers and drug lobbies in which the drug industry agreed to create $80 billion in cost savings on drugs sold in the United States, including coverage the Medicare gap. The issue is expected to be hashed out in health care reform over the next month.
-- Deborah D. McAdams