TV Networks Balk at Ban on Drug Ad Tax Deductions

The TV networks have been on a letter-writing campaign lately in an effort to dissuade Congress from ending the expensing of ads by pharmaceutical companies.

The House Ways and Means Committee is considering the move as one way to help pay the expensive tab for health care reform. Drug companies have normally been able to deduct the cost of advertising for prescription drugs as a business expense, and the TV networks have long counted on the drug company revenue to help them stay afloat. In fact, prescription drug ads seem to be the main thing keeping the networks’ 6:30 evening newscasts on the air these days.

The idea that committee chairman Charles Rangel, D-N.Y., might see ending the deduction as a viable way to help pay for health care reform has the networks up in arms, and it's especially galling when a hometown rep seems to support the idea. No wonder. The four major broadcast networks are all based in New York, as are many of the ad agencies, even if they aren’t still clustered on Madison Avenue as in the days of “Mad Men.”

Newspapers, magazines and other media outlets are also worried, especially these days when the newspaper business seems to be in such a precarious state.

ABC, CBS, Fox and NBC have been writing a series of letters to Rangel and President Obama, in some cases with organizations like the Ad Council, the American Association of Advertising Agencies and the National Cable & Telecommunications Association also affixing their signatures.

“Across the U.S., advertising supports more than 21 million jobs,” they pointed out in one missive quoted by Dow Jones. “The current economic recession requires that we do everything we can to generate more sales and more jobs — not adopt policies that would reduce them.”

The Advertising Coalition, which includes trade associations for broadcasters, newspapers, magazines and grocery manufacturers, has written a letter of its own to President Obama.

However, Congress and the Obama administration are facing a tough challenge in coming up with ways to pay for health care reform. The bill is likely to cost at least $1 trillion over 10 years, and alternative approaches are proving to be treacherous with constituents.

Rangel has proposed a surtax on individuals who earn over $280,000 a year and couples who earn more than $350,0000 annually, which is expected to haul in about $540 billion over 10 years (see Rangel Proposes Surtax on Wealthy for Health Care). While that does comport with Obama's pledge not to raise taxes on people who earn less than $250,000 a year, there are already rumblings about the notion of raising taxes on anybody in the midst of a recession that seems to have no end in sight. Meanwhile, the Senate Finance Committee has been mulling a plan to tax generous employer-provided health care benefits, which could raise $320 billion over 10 years, but Obama has come out firmly against that idea.

Both of the alternative revenue sources would affect far more people than TV execs and struggling newspaper publishers, even if it would mean a lot fewer arthritis ads interrupting Katie Couric, Brian Williams and Charlie Gibson. Politicians who vote for such a plan may not be eager to incur the wrath of the networks, however, especially when they hope to continue making regular appearances on the Sunday morning gabfests.