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Home / Budget / Taxes / Franken prescription-drug ad-tax bill draws fire from marketing coalition
Franken and several Democratic Senate colleagues have introduced a bill that would eliminate the federal tax deduction for spending on prescription drug advertising and marketing expenses.

Franken prescription-drug ad-tax bill draws fire from marketing coalition

To the advertising and marketing industry, recently introduced legislation by humorist and U.S. Sen. Al Franken is no laughing matter.

Franken and several Democratic Senate colleagues have introduced a bill that would eliminate the federal tax deduction for spending on prescription drug advertising and marketing expenses.

The proposal, S. 1763, is designed to help pay for national health care reform, which is expected to cost $829 billion over 10 years. If passed, Franken’s measure would raise a projected $3.5 billion annually, or 4.2 percent of the overhaul’s $82.9 billion yearly tab.

Advertising trade groups such as the American Association of Advertising Agencies (4As) and the American Advertising Federation (AAF) are opposing the measure, claiming it would raise the cost of ad spending by 35 percent and reduce information imparted to prospective customers in advertising.

The 4As, AAF and other marketing groups are acting under the rubric of The Advertising Coalition.

“The proposal would overturn nearly 100 years of tax policy that is central to our net income system of taxation,” according to a draft letter on the 4As website for members to send to senators representing them.

“The deduction of the cost of advertising and marketing is no different from the deduction of any other ordinary and necessary business expense, including utilities, salaries and rent.

“If you take away a deduction you increase the tax on the advertiser and the cost of advertising. Where would this stop? What other forms of advertising will be taxed?” the two-page letter states in part.

It is part of a “very aggressive” industry effort against the bill, according to a notice on the 4As’ website. It noted that the industry had expected an effort to tax advertising and make it a funding source for heath care reform.

Four Senate Democrats joined Franken as co-authors of S. 1763, which is intended to be blended into the final health care bill. They are Mark Begich, Alaska; Sherrod Brown, Ohio; Tom Udall, New Mexico; and Sheldon Whitehouse, Rhode Island.

Ad industry lobbying against the ad-related Franken bill comes at a time when Franken and Minnesota’s senior U.S. senator, Democrat Amy Klobuchar, oppose a provision in the Senate Finance Committee’s version of the health care bill that would require medical device manufacturers to pay part of their sales to the federal government.

Revenues from those sales, which could impact Minnesota-based medical device manufacturers Medtronic Inc. and St. Jude Medical Inc., would total an estimated $4 billion a year.

Jess McIntosh, a spokeswoman for Franken, characterized Franken’s ad marketing expense deduction as a “common-sense way” to help pay for the massive health care overhaul desired by President Barack Obama.

Franken responded to expected criticism in a news release: “Health care spending is out of control. And this bill represents a small but significant step towards reining in unnecessary health care costs. There’s no reason for drug companies to be getting a boost from taxpayers while Minnesota families are struggling to pay the costs of health care,” he said.

Nationwide, annual spending on prescription drugs rose 500 percent between 2000 and 2005, from $40 billion to $200.7 billion, said Franken. Pharmaceutical companies spend $30 billion to market prescription drugs.

That’s 21.9 percent of the $136.8 billion in total 2008 U.S. ad spending reported by Nielsen Co.

Removing the federal advertising and marketing tax deduction is similar to periodic efforts by state lawmakers to tax advertising services. Minnesota’s ad industry has successfully fought those attempts, arguing that it would increase the cost products by taxing ad agency services and media placement.

A hallmark of meetings at the state Capitol were threats by local ad officials to move their operations to Hudson, Wis., if legislators taxed marketing services.

The economic recession is mentioned in the ad industry’s letter, which included an assertion that the proposed tax violates First Amendment rights by taxing specific forms of commercial speech.


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