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Pharmaceutical Companies Pay Lowest Tax Rate Of Any Industry Pharmaceutical companies pay less in taxes than any other U.S. industry despite charging higher prices for drugs in this country than overseas. According to a December 1999 report from the Congressional Research Service (CRS), the drug industry pays a tax rate of 16.2%; other industries pay an average tax rate of 23.7%. The report cited five tax credits that the drug industry used to lower their tax bill by more than half from 1990 to 1996. In 1996 the pharmaceutical industry reduced its tax bill by almost $3.8 billion. The report also says that from 1994 to 1998, the drug industry's after-tax profits as a percentage of sales averaged 17%, more than three times the average rate of 5% for all industries. The drug firms' profitable tax breaks call into question the industry practice of “cost shifting.” When drug manufacturers negotiate lower prices with large insurers, state Medicaid programs, and foreign countries, they raise retail consumer prices to make up for lost profits. Consumers hurt worst by cost shifting are U.S. seniors without prescription drug insurance. Not only must they pay the full retail price of the drug out- of-pocket, but they are also more likely to take prescription drugs on a regular basis than younger consumers. Pharmaceutical companies say that profits are reinvested to bring more life-saving drugs to the market. In 1997, for example, the industry spent the equivalent of 20% of domestic sales and exports on research and development. The CRS report however, says that the drug industry benefits more than most industries from research and development tax credits as well as foreign tax credit from sales to other countries. Source: “Federal Taxation Of The Drug Industry From 1990 To 1996,”Gary Guenther, Analyst In Business Taxation And Finance, Congressional Research Service, December 13, 1999. This article first appeared in Volume 5, Issue 5 of "The Social Security and Medicare Advisor" newsletter (April/2000). To receive future editions of "The Advisor" in its special, free e-mail version, please click here. | ||||||||
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