Progressive Congresswoman Katie Porter (D-Calif.) has released a report arguing for massive new government taxes and regulations on medical innovators.
Rep. Porter calls for passage of the “Elijah E. Cummings Lower Drug Costs Now Act,” legislation that would force pharmaceutical manufacturers to accept government set prices as dictated by President Biden’s chief health official or pay a 95 percent excise tax.
This is a terrible idea. The Coronavirus pandemic has proven we need strong medical innovation now more than ever. Manufacturers successfully developed COVID-19 vaccines at the fastest rate ever and today, millions of doses are being sent to Americans across the country. This accomplishment is remarkable, given that the fastest vaccine previously developed took four years. More broadly, new medicines, including vaccines and prescription drugs, can take over a decade to be developed and go through a stringent approval process.
Rep. Porter makes the puzzling claim that American medical innovation is disappearing. However, the facts do not bear this out – the U.S. is a world leader in medical innovation. According to research by the Galen Institute, 290 new medical substances were launched worldwide between 2011 and 2018. Of these cures, the U.S. had access to 90 percent, a rate far greater than comparable foreign countries. For instance, the United Kingdom had 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.
Medical innovation also supports millions of high-paying manufacturing jobs across the country that would be harmed by Rep. Porter’s approach.
Nationwide, the pharmaceutical industry directly or indirectly accounts for over four million jobs across the U.S, according to research by TEconomy Partners, LLC. This includes 800,000 direct jobs, 1.4 million indirect jobs, and 1.8 million induced jobs, which include retail and service jobs that are supported by spending from pharmaceutical workers and suppliers.
The average annual wage of a pharmaceutical employee in 2017 was $126,587, which is more than double the average private sector wage of $60,000. In Rep. Porter’s home state of California, pharmaceutical manufacturing is directly responsible for 140,000 jobs and supports 750,000 jobs when indirect effects are taken into effect.
Rep. Porter also criticizes the Tax Cuts and Jobs Act (TCJA), arguing that it turbocharged stock buybacks at the expense of new investment. First, this criticism fails to mention the strong economic growth and middle-class tax relief that was seen following passage of the TCJA. In addition, it ignores the fact that buybacks benefit millions of Americans invested in the stock market.
Corporations issue stocks to finance growth. These shares are purchased by investors varying from large institutional funds that have billions of dollars in assets to individuals investing their life savings. Investors make their money back through the price of the stock increasing or through the company paying out dividends.
Stock buybacks are not some nefarious act, but rather the process by which a company reduces the number of shares available to be purchased. Buybacks are akin to a company investing in themselves and can reduce future liabilities like dividend payments.
Money spent on buybacks does not disappear into thin air. Rather, it is simply a reallocation of capital that goes to more productive uses. This benefits millions of Americans across the country. For instance, 53 percent of American households’ own stock, according to the federal reserve.
In addition, 80 to 100 million Americans have a 401(k), 46.4 million households have an individual retirement account, and 21 million Americans participate in public pension plans.
Rep. Porter’s call for new taxes and regulations on American pharmaceutical companies should be rejected. This approach would harm medical innovation at a time that American innovators have succeeded in developing new treatments for COVID-19 at the fastest rate ever. It would threaten high-paying American jobs across the country that rely on pharmaceutical innovation including in her home state of California. Finally, it would harm millions of Americans directly or indirectly invested in the stock market. The fact is, this is the wrong approach to help our healthcare system or the economy.