President Biden and Congressional Democrats have been bent on including a controversial drug price negotiation scheme as a part of their massive $3.5 trillion spending package, a move that could jeopardize long term public health even as the country is still struggling to emerge from the fallout from COVID 19.
By targeting the research resources of U.S. drug companies, Democrats are ignoring the lessons learned from the pandemic – during which these companies developed safe and effective coronavirus vaccines in record time. The prices controls in the Democrat plan will reduce money for research and development and destroy innovation. When combined with Democrats’ broader push for higher taxes, the result would be devastating to the discovery and advancement of life-saving medicines.
In order to pay for their spending package, Democrats are working to enact the following harmful provisions:
Prescription Drug Price Controls: One of Democrats’ key priorities to pay for their agenda is to allow Medicare to effectively set prices for high-priced drugs by setting a ceiling on what Medicare would pay for those medications. Companies that refuse to voluntarily “negotiate” with the federal government on drug prices – which in itself could cost pharmaceutical companies $450 billion according to a CBO estimate – would be punished with an excise tax.
This policy would devastate pharmaceutical research and development by starving them of revenue that could be reinvested and by driving away pharmaceutical investors that balk at government price controls. The consequence would be a drop-off in bringing new medicines to market: the CBO estimated that 8 fewer drugs would be introduced over the first decade and 30 fewer drugs would be introduced over the following decade. Another study estimated that there would be 61 fewer drugs introduced over the first decade. (Sec. 139001 and Sec. 139002)
Tax Rate Increase: In addition to revenue losses through government price controls, pharmaceutical companies also face higher taxes through Democrats’ drive to raise money to pay for their agenda. Central to this push is an increase in the corporate tax rate, which would change from the current flat 21% set by the Tax Cuts and Jobs Act (TCJA) to a graduated structure with a 26.5% rate on income over $5,000,000. (Sec. 138101)
Modifications to Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI): The Section 250 FDII deduction would be reduced to 21.875%. The Section 250 GILTI tax deduction would be reduced to 37.5% from its current 50% and allow for a country-by-country application, the net effect of which would be to increase taxes as well as the complexity of compliance for companies that operate in multiple markets. (Sec. 138121 and Sec. 138126)