| September 19, 2019 01:54 PM
Speaker Nancy Pelosi on Thursday released a much-anticipated plan detailing House Democrats’ ideas to change the way people get prescription drugs. At the heart of the plan is a retroactive, 95% tax on up to 250 of the most common medicines. The only way out of paying this tax is if the drug becomes subject to strict government price controls and price caps. The House is expected to vote on Pelosi’s drug tax this fall.
This “Pelosi Medicine Tax” could apply to the 250 most popular prescription drugs in the country, and must apply to at least 25 of them. The tax is not on profits from the sale of the drug, but on the gross receipts from the sale. For example, if a medicine is sold for $100, a tax of $95 is owed, regardless of the cost of selling the drug.
The tax would apply to anyone who needs a prescription drug, and that’s just about everyone — seniors, veterans, women, you name it. The Pelosi Medicine Tax is not limited to just Medicare, it would apply to all sales of an affected drug, everywhere in the whole healthcare system.
Needless to say, such a tax would cripple access to life-saving prescription medicines, and would very quickly mean government rationing and waiting lists. A tax of this size is next of kin to a Venezuelan-style socialist takeover of the bulk of the prescription drug industry. By having to turn all their money over to the government, the pharmaceutical companies would become captive corporations of the government itself — a kind of post office that dispenses pills instead of parcels.
The 95% Pelosi Medicine Tax would apply anytime a drug manufacturer does not submit to mandatory government price “arbitration” (which is just a polite way of imposing a price control). That isn’t much of a choice. A “negotiation” (to use the prevailing term for such arrangements) with a 95% tax threat hanging over one side of the table is far from a fair and impartial process. It’s more like a protection racket one might see on The Sopranos.
If all that sounds suspiciously like “Medicare for all,” it should. This extreme tax hike on the prescription medicines we all take would fit very nicely into similar socialized medicine plans pushed by presidential front-runners Joe Biden, Elizabeth Warren, and Bernie Sanders. It’s so radical that it doesn’t even try to hide what it’s doing.
There is an alternative to paying this tax, but not much of one. If a drug manufacturer would like to avoid paying the 95% Pelosi Medicine Tax (which, of course, is actually paid by you and me at the pharmacy counter or in our health insurance premiums), they can submit their drug to government arbitration, which is another term for a price control. This price control would have a ceiling of no more than 120% of the cost of the drug in the six biggest non-U.S. industrialized countries. After that, the price control would be set at the initial level plus inflation.
Either way, it’s a government seizure of the private sector drug market. Behind door number one is the 95% Pelosi Medicine Tax. Behind door number two is a government price control calculated by averaging together other government price controls. Either way, the government is in charge of what drugs cost.
A confiscatory tax or a price control will very quickly lead to far fewer prescription medicines available, especially when they are needed the most. After all, if you faced a 95% tax rate on your next hour of work, would you even show up to the office? Alternatively, if you were forced by the government to sell at a loss, would you even bother trying to sell anything? Of course not. Why would you? It’s no different with prescription drugs.
House Republicans will vigorously oppose this 95% Pelosi Medicine Tax. By imposing a 95% tax on the drugs taken by seniors, veterans, and women, Pelosi has put Democrats in a very difficult position. They are going to be forced to explain to their constituents why they support slapping a 95% tax on their cholesterol drugs, their high blood pressure medication, their glaucoma treatments, and their insulin.
It’s also very difficult to imagine President Trump supporting a plan which imposes a 95% tax on prescription drugs. His central policy goal is bringing drug prices down.
The good news is, there is a better way to help people more easily afford prescription medicines. There are lots of good ideas out there, including getting profiteering middlemen out of the system, greater price transparency, expansion of health savings accounts, etc.
But the first rule of medicine and prescription drug reform is to do no harm. Don’t impose the 95% Pelosi Medicine Tax on prescription drugs. It will lead to “Medicare for all” socialized healthcare, and result in people not getting access to the medicines they need when they need it.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.