What’s wrong with taxing marketing expenses of opioid sellers? The article suggesting that tax in the hill.com is posted below (exclusive license has expired).
Here are some possible objections:
- The horse is out of barn – the problem is that this happened in the past. Most of the damage is done.
Response: Still, this works for the future.
- My tax policy friends will almost all insist, in the name of theoretical purity, on taxing all income the same. They will say these are real expenses, and should be deductible.
Response: There is a conflict between tax policy and public health policy. This is public health legislation. Tax policy yields to other policy all the time – for health, retirement, education, and more.
- This is a very small matter. It doesn’t attack the “stock” of existing abuse – just the “flow” of new use.
Reponse: Yes. The opioid problem needs to be attacked with a variety of weapons. This is an arrow in a quiver that needs lots of arrows.
- This could get complicated. A company that manufactures both opioids and other products would have to divide up headquarters expenses and so on.
Response: Companies divide up expenses (between foreign and domestic income, for instance) all the time.
- It’s relatively easy to deny deductions for the manufacturer’s selling expenses across the board, but what about the retailer? Retail pharmacies would be forced to divide up expenses between the 99+% of their business that is non-opioid and the tiny fraction that involves opioids.
Response: Carve out retailers and apply the tax rule only to manufacturers and distributors. Try to hit the cases where the profit motive really is at work. (This is the trickiest point for me – not sure that taxpayers won’t work around this. The “power wall” displaying cigarettes in the most prominent location in convenience stores is a work-around against advertising restrictions the tobacco industry agreed to in the Master Settlement Agreement, but I think manufacturers paid for those. The New York fee, described below, exempts exports, which is standard for excise taxes, and hits only products used in-state – taxing early in the supply chain.)
- Copying the marijuana rule of federal Tax Code section 280E is overbroad. It prevents deductions of not only selling expenses, but of any expense that is not “cost of goods sold” – amounts paid to manufacture or buy the product. So attorney’s fees and charitable contributions are not deductible.
A. Too bad. This rule will direct capital into other activities. Better safe than sorry.
B. Tinker with the rule to allow deductions for noncontroversial expenses. (Charitable contributions can be used to buy influence subtly – I would be careful.)
7. There are other ways to skin this cat. New York just started imposing an opioid “fee”; text of the law is here. That’s the fee or tax part of New York’s Opioid Stewardship Act, part of an omnibus health and mental hygiene Act, which is here.
Response. Yes, but it’s hard to target new users with this kind of fee (which looks like a tax).
Here’s the article:
Instead of taxing opioids, we can put the tax burden directly on opioid selling
By Pat Oglesby
Opioids are killing tens of thousands of Americans each year. Sure, black market heroin and fentanyl are deadly, but prescription opioids are not only gateway drugs to that black market, they kill 40 percent of the total themselves.
New tax rules — federal and state — can push back.
Simple taxes on prescription opioids have been proposed in Congress and in 13 states — but called “immoral and cruel,” because those taxes would burden legitimate users. And even when the tax hits a proper target — prescription opioids used by recreational users or addicts — the price increase would often be borne by government or insurance companies — that is, eventually, by John Q. Public.
We can do better.
Not every opioid prescription leads to harm, so opioids are not exactly the problem. But look at prescription opioid sellers. Enormously wealthy opioid sellers have been castigated as having “earned this fortune at the expense of millions of people who are addicted.” Much of that fortune piled up because “America is an unusually friendly environment for manufacturers to market opioids aggressively.”
And opioid sellers do things we don’t like. “When you’re a doctor in the US, these detailing people (salespeople) come in from the [opioid] industry,” says Professor Keith Humphreys of Stanford. “They are invariably smooth, friendly, attractive, sharply dressed, adorable, they’re giving out gifts to everybody. They host dinners, they sponsor conferences, they sponsor junkets.”
All that activity, designed to increase prescriptions, can be taxed. Instead of taxing opioids, we can put the tax burden directly on opioid selling.
Here’s how: Make expenses of selling opioids non-deductible on income tax returns. That is, sellers could not deduct the costs of those gifts, junkets, dinners, and salespeople’s salaries on their income tax returns. Making drug companies’ marketing efforts non-tax-deductible is a move, even if a small one, in the right direction. And legitimate users shouldn’t bear any of the tax burden. What’s not to like?
How might this change happen? Congress can pass a law that takes away these deductions anytime it wants. Not only that, each and every state with an income tax – the vast majority of states – can take state deductions away. Immediately. States can act independently and proactively. If Washington is dysfunctional — a pitiful, helpless giant — legislatures can show the way. So can citizens in direct democracy states.
Under federal and state law, there’s plenty of precedent for saying problematic expenses can’t be deducted. Thanks to Federal Tax Code section 280E, sellers of federally illegal drugs, like marijuana, can’t deduct the cost of any selling expenses, not even for advertising.
But wait. Isn’t advertising protected commercial free speech? Maybe so, but there’s no right to a tax deduction. Lobbying is constitutionally protected speech, too, but Congress and states have made lobbying expenses non-tax deductible.
Maybe non-tax-deductibility makes sense for other selling expenses — like the expenses of selling alcohol and tobacco — and for direct-to-consumer prescription drug advertising, which is allowed in only two countries, the United States and New Zealand, and which the American Medical Association would like to ban outright.
But we are not so mad at any legal product as we are at opioids. To be sure, the opioid crisis will not be solved with one easy fix. But this kind of new tax law can’t hurt. Maybe it won’t cut back on the marketing budgets of legal opioid sellers much.
But in that case, it should bring in new tax revenue — money that can be spent for drug treatment, or drug education — to fight the harm from opioids. Either way, this tax rule can fight the opioids, and opioid marketing, that are killing our loved ones, and breaking our hearts.
Pat Oglesby is director and founder of the Center for New Revenue. He previously served as chief tax counsel at the U.S. Senate Finance Committee and as international tax counsel at the Joint Congressional Committee on Taxation. Find him on Twitter at @OglesbyPat.