DRUG COMPANIES: Study Finds Low Taxation Rate
Drug companies were taxed at a rate of 16.2% from 1993 to 1996, compared with other major industries, which were taxed at an average rate of 27.3% according to a study conducted by the nonpartisan Congressional Research Service, the AP/Washington Post reports. The study also found that drug companies' after-tax profits as a percentage of sales averaged 17%, compared with 5% for all other major industries from 1994-1998. This information comes at a time when Congress is preparing to tackle the high cost of medications, especially for seniors on Medicare, which currently has no drug benefit. Rep. Pete Stark (D-CA) of the House Ways and Means health subcommittee said, "It is totally unfair for U.S. taxpayers to subsidize drug companies to develop products, and then have those new, lifesaving products sold for a cheaper price in rich foreign nations." Stark and President Clinton are proposing a universal prescription drug benefit for Medicare patients, and Stark is drafting legislation that would deny tax credits to companies that charge more for drugs in the U.S. than in other countries.
Drug Companies Chime In
Jeff Trewhitt, spokesperson for the Pharmaceutical Research and Manufacturers of America (PhRMA) responded to the criticism, saying, "We've earned those tax savings. We are one of the most innovative, productive industries in this country. You see millions of patients benefiting from this research." The industry estimates that it spent $24 billion in 1999 on research and development, and that a single medication requires $500 million to bring it to market. The pharmaceutical industry opposes the proposal of a universal Medicare drug benefit, saying that it could impose price controls. Price controls exist in other countries, which Trewhitt says explains the higher drug costs in the United States. He adds, however, that the controls do not help poor people, but rather hinder drug availability (Anderson, 12/26). Still, Stark contends that the companies, with their high prices and low tax rate, are guilty of "hypocrisy" when they say they cannot afford a Medicare drug benefit. But the industry responds by saying that the study compares worldwide income to domestic U.S. taxes -- an "apples-and-oranges fallacy," according to Alan Holmer, president and CEO of PhRMA. He added that if taxes for the industry rise, less money will be spent on development, a finding supported by the CRS study. Bob Helms, director of health policy studies for the American Enterprise Institute, said, "Compared to other industries, pharmaceutical industry (profits) are not really out of line." Stark maintains that the industry has the money to spend on a Medicare benefit, citing the nearly $8.8 million spent in the last three years on soft money donations to both political parties (Godfrey, Washington Times, 12/30).