End to Tax Credit for Some Drug Makers Urged

WASHINGTON — Sen. David Pryor (D-Ark.), an outspoken critic of prescription drug costs, said Monday he will seek to repeal a major tax break for drug companies and other industries with manufacturing operations in Puerto Rico.

Pryor said Section 936 of the tax code has become “nothing but a gigantic tax windfall for the pharmaceutical industry,” costing the Treasury $3 billion a year.

He proposed replacing it with a far less generous credit based on the actual wages the manufacturers pay workers on the island rather than their profits.

The drug industry defended the tax credit, claiming its incentives account for one-third of the 900,000 jobs in Puerto Rico.

Other industries, including electronics and apparel manufacturers, also use the credit.

The Puerto Rico USA Foundation, a business coalition, denounced Pryor’s proposal.

Carl A. Nordberg Jr., the foundation’s executive director, said it “would undermine U.S. corporate competitiveness and cause Puerto Rico, with a per capita income less than half that of the poorest state, to make an unfair and grossly disproportionate sacrifice.”

A General Accounting Office study last May calculated that the drug companies on average reaped a tax break of $70,788 per job paying $26,471.

Pryor suggested using the money saved to give the self-employed a 100% tax deduction on health insurance premiums.

President Clinton has denounced the drug industry for what he called “shocking” price increases over the past decade.

His domestic policy adviser, Carol Rasco, met Monday with Gerald J. Mossinghoff, president of the Pharmaceutical Manufacturers Assn., and executives from Connaught Laboratories Inc., Merck & Co., Lederle Laboratories and SmithKline Beecham.

The industry executives issued a statement afterward saying they sought “to correct misinformation” about vaccine prices, which Clinton said rose from $23 to more than $200 during the 1980s.

They said 80% of those price increases were for added protections, including a federal excise tax to compensate injured children, two additional vaccines for meningitis and hepatitis B, and added doses to boost immunity levels.