{
  "id": "RL31511",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL31511",
  "active": false,
  "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department",
  "versions": [
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      "source": "EveryCRSReport.com",
      "id": 346170,
      "date": "2009-03-18",
      "retrieved": "2016-04-07T02:39:11.435859",
      "title": "Federal Taxation of the Drug Industry and Its Effects on New Drug Development",
      "summary": "A key issue in congressional debates over expanding consumer access to prescription drugs is the impact of proposed initiatives on the development of new medicines. Some of the initiatives entail significant changes in one or more of the federal policies affecting new drug development. One such policy is federal taxation of firms that invest in this development.\nThis report examines the impact of federal taxation on the incentive to invest in new drug development. More specifically, it looks at the provisions in current tax law that affect the performance of the drug industry, compares the industry\u2019s federal tax burden with that of other major industries, and assesses the effect of federal taxation on the incentive to invest in new drug development. This information may be useful to the 111th Congress as it considers the pros and cons of proposed changes in the U.S. health care system. The report will be updated as necessary.\nAn industry\u2019s federal tax burden refers to the effects of federal taxation on its return on investment through statutory provisions that define taxable income, make adjustments to this income, and establish tax rates and credits against tax liability. Economists generally measure an industry\u2019s federal tax burden as its average effective tax rate, which is the ratio of its federal tax liability after all credits (except the foreign tax credit) to its taxable income, expressed as a percentage. This measure has some limitations, such as the inability of average effective rates to capture the effects of tax provisions that accelerate the timing of deductions or delay the recognition of income.\nA comparison of average effective federal tax rates for the drug industry and major U.S. industries indicates that the share of the drug industry\u2019s worldwide net income paid as federal taxes was similar to the average share for all industries from 2000 through 2006. This has not always been the case. For much of the 1990s, the drug industry\u2019s tax burden was significantly lower than the average tax burden for all industries. But starting in the late 1990s, the drug industry\u2019s federal tax burden began to rise as the U.S. possessions tax credit was phased out. Drug firms were major beneficiaries of this credit. They also appear to benefit substantially, if not disproportionately, from three tax preferences whose combined effect is not fully reflected in average tax rates: (1) the deferral of federal income tax on the retained earnings of foreign subsidiaries of U.S.-based corporations, (2) the expensing of research outlays, and (3) the expensing of advertising outlays.\nAvailable evidence suggests that current federal tax law bolsters the incentive to invest in new drug development for some firms but not for others. The most powerful drivers of this investment seem to be the quest by certain drug firms for sustained competitive advantage and profit growth and the available technological opportunities for developing new, safe, and effective medicines. Still, all other things being equal, a substantial increase in the industry\u2019s tax burden might slow growth in this investment by raising the industry\u2019s cost of capital and reducing its cash flow.",
      "type": "CRS Report",
      "typeId": "REPORTS",
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      "topics": []
    },
    {
      "source": "University of North Texas Libraries Government Documents Department",
      "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc820588/",
      "id": "RL31511_2005Jun01",
      "date": "2005-06-01",
      "retrieved": "2016-03-19T13:57:26",
      "title": "Federal Taxation of the Pharmaceutical Industry: Effects on New Drug Development and Legislative Initiatives in the 109th Congress",
      "summary": null,
      "type": "CRS Report",
      "typeId": "REPORT",
      "active": false,
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        }
      ],
      "topics": []
    },
    {
      "source": "University of North Texas Libraries Government Documents Department",
      "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc815401/",
      "id": "RL31511_2002Jul22",
      "date": "2002-07-22",
      "retrieved": "2016-03-19T13:57:26",
      "title": "Federal Taxation of the Drug Industry: 1990 to 1999",
      "summary": null,
      "type": "CRS Report",
      "typeId": "REPORT",
      "active": false,
      "formats": [
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      "topics": []
    }
  ],
  "topics": [
    "Economic Policy"
  ]
}