Drug Makers Taxed Less Than Other Industries, Study Finds
Pharmaceutical companies pay significantly less in taxes than any other U.S. industrial sector, while charging higher prices for drugs in this country than overseas, according to a new congressional study.
The study was released as Congress prepares again to confront the cost of drugs, responding to complaints that medicine is cheaper in Canada and Mexico and that seniors do not get reimbursed for most drugs under Medicare.
Drug makers paid an effective U.S. tax rate of 16.2% from 1993 to 1996, according to the nonpartisan Congressional Research Service. That compares with an average tax rate of 27.3% paid by all other major industries.
At the same time, U.S. consumers pay more for the same drugs than people in much of the developed world. For example, prices in the congressional district of Rep. Pete Stark (D-Hayward) are twice as high for five common prescription drugs as in Canada and Mexico.
“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,” said Stark, the senior Democrat on the House Ways and Means health subcommittee, who requested the study.
A White House budget official, Daniel N. Mendelson, said the pharmaceutical industry’s higher profits and lower taxes could lead to price controls, although he said there are no plans to propose such a solution.
The Congressional Research Service study shows that the pharmaceutical industry was able to reduce its tax bill through a variety of credits by almost $3.8 billion in 1996. That’s 50% less than the industry’s tax before the credits were applied to $24.8 billion in taxable income.
“We’ve earned those tax savings,” said Jeff Trewhitt, spokesman for the Pharmaceutical Research and Manufacturers of America. “We are one of the most innovative, productive industries in this country.”
As for the higher U.S. costs, Trewhitt said many developed nations have strict price controls and government mandates.
