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Clinton Proposes Tax to Fight Increasing Pharmaceutical Drug Prices

January 5, 2016

Hillary Clinton speaks in Washington

Reinvesting Funds from Advertising to Research

In response to the steep increase in drug prices, Presidential hopeful Hillary Clinton is proposing new rules for pharmaceutical drug companies requiring them to set aside a budget specifically on research and development, rather than marketing and advertising. Because marketing and advertising subsidies are corporate write-offs, companies are able to count those large sums as a tax-deductible business expense. Direct-to-consumer advertising increases prescription drug costs, exactly what Clinton is trying to avoid with her proposed plan.

(Martin Shkreli’s Turing Pharmaceuticals recently raised the price of Daraprim, a 60 year old drug, from $13.50 to $750/pill, over 4000% higher than the original cost. Turing Pharmaceuticals being the only FDA-approved manufacturer of Daraprim, Shkreli was able to control the price without legal opposition.)

“One of out every four people facing higher drug costs were also unable to afford medical bills or medications; one in five said they missed a payment on a major bill,” a Consumer Reports surveyed earlier this year.

The current corporate write-offs would be used instead to invest in paying for the R&D tax credit so that research on future drugs is emphasized. Successful marketing influences the consumer to spend money on the product. By increasing marketing funds, the pharmaceutical companies increase their drug prices in order to reach higher profits. If the budget on marketing was focused elsewhere, Clinton believes that drug companies would not be influenced by the market, thus ending the cycle of increased advertising and skyrocketing drug prices.

“Exit” Tax Strategy

This comes out weeks after Pfizer’s announcement that it would merge with Allergan, moving Pfizer’s New York headquarters to Allergan’s headquarters in Dublin, Ireland. Ireland’s lower corporate tax rate will cut Pfizer’s taxes from 25% to 18% – if applied in 2014, Pfizer would have saved nearly $1 billion of the $3.1 billion in US taxes.

 

“They’re doing it to save money on taxes. I want the Treasury Department to do everything it can to stop that kind of behavior and call it for what it is: gaming the tax system,” Clinton said about the $160 billion merger.

 

Overseas profits are not taxed until they are brought back into the US, but these taxes can be avoided by holding cash and investing abroad. Experts estimate that about 2 trillion dollars are hoarded abroad to reduce taxes. Corporate inversions allow for the overseas merger, an overall practice that lowers the US drug companies’ tax bills.

 

Currently, US companies can merge overseas if they transfer more than 20% of their shares to the foreign company they have acquired. Supporting the Obama administration’s proposal of raising the shares to more than 50% in order to discourage similar inversion deals, Clinton supports the change.

Rolling Out Proposals

Clinton’s campaign has been releasing her economic agenda, including increasing infrastructure spending by $275 billion and a higher focus on research and clean energy investments. The revenue gained by reinvesting drug funds into R&D and by employing the “exit” tax strategy is proposed to be spent on an increase in manufacturing jobs in the US.

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