Sunday, July 19, 2015

Tax policy, drug companies and the public's health

Tax policy is complicated. You have to figure out who to tax and how much, and how much revenue it will bring in and what you (the government) needs to spend the money on and figure out how to match it up. People of different political stripes differ with regard to how much money to spend on what, and also who to tax. For example, is it better to have more graduated income tax (a “progressive” tax, where the more you make the higher percent you pay on the incremental amount), or more “regressive” tax where everyone, regardless of income pays the same amount, like a sales tax, or a “proportional tax” where everyone pays the same percent but not the same amount, like some variations of “flat tax”?

In Kansas, for example, our Governor and Legislature have made that decision. Faced with enormous budget deficits as a result of 2012 massive tax cuts on corporations and wealthy individuals, and unable to make it all up with one-time fixes such as raiding the state highway fund (hope those corporations don’t need to transport goods on our roads), they have gone for big sales tax increases. This is because, to them, the 2012 tax cuts are sacrosanct, because they believe that this will stimulate the economy and create jobs. They believe this even though such a strategy has not worked so far in Kansas and has in fact not worked anywhere. They even brought in Arthur Laffer, the trickle-down guru economist, to address the legislature. Nonetheless, owners of “S” corporations (usually small businesses, like lawyer’s offices, or the few remaining private practice doctors’ offices) do not pay state tax on the income they make from being the owners. Their employees -- nurses and secretaries and legal assistants – do, along with the new higher sales taxes. The Governor and Legistlature have other plans as well; faced by a State Supreme Court decision to increase public school funding by a half-billion dollars or so that they don’t have (vide supra), they are thinking about not funding the State Supreme Court. Could be a solution, if they can get around the constitutional issue.

The Federal Government also has to deal with such issues. In the last 50 years our income tax policy has become less progressive, with a top rate of 35% rather than 90% when I was taking civics in junior high school. (Please note that this is not a flat tax of 90% on all of top-earners’ income, but on the marginal amount above the next lower tax rate; everyone paid the same percent on earnings up to each next bracket.) Also in that civics class, we saw that corporate income tax made up more income for the feds than personal tax. Not any more. Corporations are getting away with paying very low taxes, and with the new “global economy” taking more and more of their profits abroad, where they can avoid paying tax until they are re-patriated. To encourage them to do so, the Congress is considering legislation to create a “tax holiday”; this is where corporations are rewarded for bringing their profits home by paying a lower tax rate on them. This has been done before, and been amazingly unsuccessful. So let’s try it again. Like Kansas, why learn from experience? Why not, for example, tax those international earnings? After all, if they are creating jobs, it is not in the US.

Also like Kansas, the US has a problem with roads and other infrastructure, and the Federal Government funds much of the cost of repairs, which are unfortunately not being done. A study by the Center for Effective Government, “Burning our Bridges” notes that “To modernize our infrastructure, the American Society of Civil Engineers estimated it would cost $3.6 trillion by 2020. They warned that if we fail to make these investments, American citizens and businesses will face costs of $1.8 trillion a year in travel delays, water leaks, and power failures.” How has Congress responded? It's slashed infrastructure spending to the lowest levels since the post-WWII era.
 But where could we get the money? Is the amount of money not being paid by US corporations on international earnings that big? Well, there is $2.1 trillion in untaxed international income, so that could be a chunk of change. About half of it is held by 26 corporations. Apple has the most, and GE is #2. The enormously profitable pharmaceutical industry (I have previously noted that it is, each year, either #1 or, well, #1 in profit among US industries) has about $82 billion among its 7 largest companies. Given that the report is called “Burning our Bridges”, it is of interest to note that this is enough money to pay for all US bridge repair and maintenance needs.

I guess this is where the public health and medical part of this post comes in. Let’s just think about that. We have drug companies charging “whatever the market will bear” for their products; for some of the recent recombinant DNA treatments for autoimmune diseases, Hepatitis C, and cancer this can range into 5 digits (before the decimal point) a month. They try every trick in the book to keep their prices high and patents in place to prevent generic competition. Some I have addressed before include changing the formulation of the drug -- the FDA mandated elimination of fluorocarbons as propellants in inhalers was a bonanza because changing to non-fluorocarbon propellants was a “new formulation” allowing them to extend their patents. Or taking drugs used by, but not previously tested and approved for use by, children and testing them (when already, via practice, shown to be safe) in children, also extending their patents. Or in some the most offensive practices, testing drugs that have been used for generations and patenting them, thus jacking up their prices. The prime example is the gout treatment colchicine, formerly available for about 10 cents a pill and now available for $355 for 60 (about $5.20 a pill!).

In Canada, there are price controls on drugs, so they cost less. Thus pharmaceutical manufacturers try to block import (and Internet sale) of drugs from Canada. The Medicare drug benefit, (Part D) passed in the GW Bush administration, forbid Medicare from using its purchasing clout to negotiate lower prices. The new Trans-Pacific Partnership (TPP) pushed through by the Obama administration will offer more protections; corporations will be able to sue governments to ensure their profits, not in real courts but in specialized TPP pro-business “courts”. I wonder how long the price restrictions on drugs in Canada and elsewhere, not to mention the manufacture of affordable generic equivalents of high-priced HIV drugs in Brazil, India, and Thailand, will continue?

I personally am rooting for the success of the Brownback tax cuts to create jobs in Kansas. Not because I think they were good or even close to moral, or even because I think that they have a prayer of being successful, but as long as they are in place it would be nice to see some new jobs. It’s not going to happen with this state government. TPP passed, and there is no meaningful effort to either tax the international profits of pharmaceutical and other corporations, or to force drug manufacturers to make their products affordable in the US.

In their recent paper “Fantasy paradigms of health inequalities: Utopian thinking?”, Alex Scott-Samuel and Kathleen Smith note that "In a capitalist society, where liberal macroeconomic policies position virtually all economic activity – including unhealthy activity – as beneficial, there is an inbuilt incentive to ‘blame the victim’ rather than to tackle the corporate and economic causes of the problem."[1] We prefer not to regulate unhealthy activity (when we have done so, such as with making cars safer and limiting smoking, it took intensive, long-term campaigns by public health advocates), and we allow corporations such as drug companies to profiteer from our trying to repair the damage to our health. And we also let them not pay taxes, which we really need.

It's time to get serious, and hold them responsible and make them responsive.

[1] Scott-Samuel, A. & Smith, K. E. (2015).Fantasy paradigms of health inequalities: Utopian thinking? Social Theory & Health, advance online publication, 1 July 2015; doi: 10.1057/sth.2015.12

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