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Big Pharma is pushing to bring back a tax break that could have saved them at least $15.4 billion in 2023 alone, according to a new analysis by Americans for Tax Fairness (ATF) and Lower Drug Prices Now (LDPN).
The tax break in question allows companies to deduct research and development (R&D) costs in the year they are incurred. The provision went into effect with the passing of Trump’s 2017 tax law — the Tax Cuts and Jobs Act, much of which is set to expire at the end of this year.
The companies argue that losing the expensing provision reduces their ability to fund research. However, the new analysis points out that between 2021, when they could fully expense R&D costs, and 2023, when they were required to spread out deductions over several years, R&D spending among these eight companies rose by 27%. A large part of this increase was driven by a nearly three-fold jump in Merck’s (MRK+0.25%) research spending. Excluding Merck, however, overall R&D spending was essentially flat — down just 1%.
Looking at 2024's numbers, R&D spending rose 22% in 2024 compared with 2021.
The other companies named in the analysis were Pfizer (PFE+1.06%), AbbVie (ABBV-0.63%), Johnson & Johnson (JNJ+0.25%), Eli Lilly (LLY-2.12%), Bristol Myers Squibb (BMY+0.24%), Gilead (GILD+0.14%), and Amgen (AMGN+0.14%). Quartz has reached out to all these companies for comment and is still waiting for responses.
R&D expensing allows companies to deduct the full cost of research in the year it’s spent, even if the product or project is expected to yield returns over many years. But, starting in 2022 firms had to spread those deductions over five years, treating them like other long-term investments.
While companies can eventually write off the entire cost under the new rules, the upfront benefit of expensing is more valuable. It gives companies immediate access to their tax savings, which they can reinvest in their businesses without having to worry about the money losing value due to inflation.
Eli Lilly, the maker of the blockbuster weight-loss drug Zepbound, announced last week that it plans to invest $27 billion in four new manufacturing sites in the United States. But the company made it clear that those plans hinge on tax cuts.
“The Tax Cuts and Jobs Act legislation passed in 2017 during President Trump’s first term in office has been foundational to Lilly’s domestic manufacturing investments, and it is essential that these policies are extended this year,” Ricks said in the company’s press release.
He went even further in an interview with The Wall Street Journal, saying, “We need to see those [tax cuts] either extended or improved to support this.”