[Congressional Record Volume 148, Number 57 (Wednesday, May 8, 2002)]
[Senate]
[Pages S4077-S4078]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. STABENOW (for herself, Mr. Daschle, Mr. Miller, Mr. 
        Durbin, Mrs. Carnahan, and Mr. Wellstone):
  S. 2486. A bill to amend the Internal Revenue Code of 1986 to limit 
the deduction for advertising of FDA approved prescription drugs by the 
manufacturer of such drugs to the level of such manufacturer's research 
and development expenditures, and for other purposes; to the Committee 
on Finance.
  Ms. STABENOW. Mr. President, I rise to introduce the Fair Advertising 
and Increased Research Act, the FAIR Act. The FAIR Act is designed to 
lower prescription drug prices by limiting taxpayer subsidies to 
pharmaceutical companies for advertising to those for research and 
development. I am pleased to be joined by my colleagues, Senators 
Daschle, Miller, Durbin, Carnahan, and Wellstone.
  American taxpayers contribute about $16 billion a year to drug 
research through the National Institutes of Health. But what do they 
get for their investment? They get the highest drug prices in the 
world.
  At the same time, drug companies spend nearly $16 billion a year on 
advertising, marketing and promotion of prescription drugs. What does 
this mean for Americans? It means life-saving drugs become 
unaffordable. And unaffordable means unavailable or it means making 
cruel choices. For seniors it can mean choosing between food and 
medicine.
  We need to do something to address excessive advertising that leads 
to higher and higher prescription drug prices. The FAIR Act will help 
do so. Simply, it will limit pharmaceutical companies' deduction of 
annual expenditures for advertising, promoting or marketing--in any 
medium--of any Food and Drug Administration approved prescription drug 
to the amount of research and development expenditures in any taxable 
year. For example, if a company spends $110 million on advertising, 
promoting or marketing FDA approved prescription drugs and but spends 
only $100 million on research and development in one year, the company 
would not be able to deduct $10 million of advertising expenses in that 
year. Any savings resulting from this legislation will be credited to 
the Medicare Trust Fund.
  This is necessary because recent evidence shows that advertising, 
marketing and promotion of prescription drugs is out of control. 
According to an analysis of company earnings reports, the top 11 
pharmaceutical spend 30 percent of their revenues on advertising, 
marketing, promotion, and administration and only 12 percent on 
research and development. Furthermore, pharmaceutical companies have 
dramatically increased their direct-to-consumer advertising by 300 
percent from 1996 to 2000. Direct to consumer advertising includes all 
of those television, radio and print ads you see and hear daily.
  I would like to provide one example of excessive advertising to 
demonstrate the need of this legislation. In the year 2000, Merck spent 
$160 million advertising Vioxx, a drug to treat arthritis. This is more 
than PepsiCo spent on promoting Pepsi--$125 million--and more than 
Anheuser-Busch allocated to get the American people to buy Budweiser--
$136 million.
  This bill does not prevent the pharmaceutical companies from 
advertising as much as they want. Under our Constitution, they are free 
to do so. All we are seeking to do is limit how much the taxpayers 
should subsidize this advertising. We think the logical limit should be 
the amount that companies spend on research in a given year.
  While there is much compelling evidence that pharmaceutical companies 
spend more on advertising, marketing, and promotion than research and 
development, the trade association representing these businesses, 
PhRMA, claims that they spend more on research than on advertising. If 
this is true, then the pharmaceutical lobbyists should support this 
measure because it will not affect them and would only set a reasonable 
parameter for advertising in the future.
  We have to do something about spiraling prescription drug prices. 
This bill is a step in that direction. It will seek to stop taxpayer 
subsidies for excessive advertising and lower the price we pay for 
prescription drugs at our local pharmacy.
  I ask unanimous consent that a copy of this bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2486

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fair Advertising and 
     Increased Research (FAIR) Act''.

     SEC. 2. LIMITATION ON TAX DEDUCTIONS FOR ADVERTISING BY FDA 
                   PRESCRIPTION DRUG MANUFACTURERS.

       (a) In General.--Part IX of subchapter B of chapter 1 of 
     subtitle A of the Internal Revenue Code of 1986 (relating to 
     items not deductible) is amended by adding at the end the 
     following:

     ``SEC. 280I. LIMITATION ON TAX DEDUCTIONS FOR ADVERTISING BY 
                   FDA PRESCRIPTION DRUG MANUFACTURERS.

       ``(a) In General.--No deduction shall be allowed under this 
     chapter for any taxable year for any expenditure relating to 
     the advertising, promoting, or marketing (in any medium) of 
     any FDA prescription drug manufactured by the taxpayer to the 
     extent the aggregate amount of such expenditures exceeds the 
     taxpayer's aggregate research and development expenditures 
     for such taxable year.
       ``(b) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) FDA prescription drugs.--The term `FDA prescription 
     drug' means any drug or biological approved by the Federal 
     Drug Administration which requires a prescription of a 
     physician for its use by an individual.

[[Page S4078]]

       ``(2) Research and development expenditures.--The term 
     `research and development expenditures' means any 
     expenditures which may be treated as expenses under section 
     174.
       ``(3) Aggregation rules.--All members of the same 
     controlled group of corporations (within the meaning of 
     section 52(a)) and all persons under common control (within 
     the meaning of section 52(b)) shall be treated as 1 
     person.''.
       (b) Conforming Amendment.--The table of sections for such 
     part IX is amended by adding after the item relating to 
     section 280H the following:

  ``Sec. 280I. Limitation on tax deductions for advertising by fda 
              prescription drug manufacturers.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.
       (d) Transfer to the Federal Hospital Insurance Trust Fund 
     of Resulting Budgetary Savings.--There is appropriated to the 
     Federal Hospital Insurance Trust Fund established under 
     section 1817 of the Social Security Act amounts equal to the 
     increase in Federal revenues resulting from the amendment 
     made by subsection (a). Such appropriated amounts shall be 
     transferred from the general fund of the Treasury on the 
     basis of estimates of such revenues made by the Secretary of 
     the Treasury.

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