Media Firms Enter Fight Against House Plan To Tax Drug Ads

Television networks and other media companies are rushing to try to quash a plan to tax advertisements for prescription drugs as House lawmakers finalize health-care overhaul legislation.

The four major broadcast networks - Walt Disney Co.'s (DIS) ABC, CBS Corp. (CBS), News Corp.'s (NWSA) Fox and General Electric Co.'s (GE) NBC Universal -- told House Ways and Means Chairman Charles Rangel, D-N.Y., in a Thursday letter that the plan would cost New York jobs and urged him to abandon it.

"Across the U.S., advertising supports more than 21 million jobs. The current economic recession requires that we do everything we can to generate more sales and more jobs - not adopt policies that would reduce them," the networks wrote. News Corp. also owns Dow Jones & Co., publisher of this newswire.

The Advertising Coalition - a group that includes major trade associations for broadcasters, newspapers and magazines, plus advertisers like the Grocery Manufacturers of America - urged President Barack Obama in a separate letter Thursday to oppose the House proposal.

The advertising deduction for drugs is on a short list of new taxes that House Ways and Means Committee members want to use to pay for a $1 trillion overhaul of the health-care system. Rangel said earlier this year that denying the deduction to pharmaceutical firms would raise $37 billion over 10 years.

Advertising costs are deductible to any firm as a business expense. The plan being considered by Rangel's Ways and Means committee would change that only with respect to prescription drug advertising. It is a more expansive version of legislation long backed by Rep. Fortney "Pete" Stark, D-Calif., that sought to punish drug companies that used misleading ads.

Now, media companies are jumping into the fray, arguing that the plan would depress sales, restrict free speech and create a slippery slope where no industry's deductions would be safe.

Media industry officials cast doubt on Rangel's claim that the change would raise $37 billion. They noted that total ad spending by the pharmaceutical industry in 2008 was ranged from $3.8 billion to $4.4 billion. Taxed at a theoretical 35% rate over a 10-year period, that level of spending would yield closer to $15 billion.

They also say singling out drug companies for a tax on advertising could be an unconstitutional restriction on free speech.

Also, a tax on advertising would hurt revenues at a time when ad sales have plummeted as a result of the recession and the rise of the Internet.

"Advertising is the lifeblood of newspapers," said Paul Boyle, senior vice president for public policy at the Newspaper Association of America. "This will make ads more expensive and cause companies to reduce their advertising budgets."

In closed-door meetings of Ways and Means Committee members this week, the proposal on drug advertising received positive reviews, say people with knowledge of discussions. Critics of the pharmaceutical industry see the tax change as a curb on what they see as excessive marketing by the industry.

The committee could unveil its plan to finance the health-care bill as soon as Friday. Rangel is aiming to have the Ways and Means Committee formally consider a bill next week, with a full House vote expected by the first week of August.

Also increasingly likely to be included in the House bill is a tax on sugary beverages.

But lawmakers and House aides say there is a desire to keep the taxes that affect businesses few and targeted, so as not to provoke business lobbyists to come flocking to oppose the health-care bill.

The main source of revenue in the plan will be a surtax on the incomes of wealthy Americans, of somewhere between 2% and 4%, according to aides and lawmakers. That will likely affect individuals with income above $200,000 and couples with income of more than $250,000, and will raise several hundred billion over 10 years.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; [e-mail]