Looking at All the Wrong Places for Pay-Fors | Citizens Against Government Waste

Looking at All the Wrong Places for Pay-Fors

The WasteWatcher

House and Senate committees responsible for marking up the Democrats’ partisan $3.5 trillion budget reconciliation package are busy looking for ways to pay for the prolific legislation.  Along with President Biden, they are targeting only “the rich” and corporations, excluding anyone making less than $400,000 annually.  Like many promises that come out of the mouths of politicians in the nation’s capital, that is a false claim.

Committees in the House of Representatives are taking the first shot at implementing the policies for the mammoth spending package, which include “clean” energy mandates and subsidies; expansion of Medicare, which will likely speed up the date (2026) when it will run out of money; enlargement of government subsidies for social welfare programs like “free” college, paid leave mandates, child and elder care, federally controlled pre-kindergarten education; and, compelling states that did not expand Medicaid under the Patient Protection and Affordable Care Act (Obamacare) to do so.  If this bill should become law, all taxpayers will pay for this monstrosity in some fashion, through higher inflation (which is already occurring) higher energy costs (which are regressive and harm low-income families more than others), and higher costs for all goods (a result of passing through some of the higher taxes paid by corporations).

As a reminder, budget reconciliation is a specialized and complicated process where existing spending, revenue, and debt limit laws are brought into compliance with current fiscal priorities and goals established in a budget resolution.  Reconciliation only requires a simple majority to pass the legislation in the Senate, not the 60 votes required to break a filibuster.  Although Democrats voted to pass the budget resolution, the “Inside the Beltway” debate revolves around whether “moderate” Democrats, like Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) or House Democrats that are in swing districts, will support the reconciliation package since no Republicans are expected to support the bill.  Sen. Manchin is already under fire from the Democratic leadership after his September 2, 2021 op-ed in the Wall Street Journal suggested that “Congress should hit a strategic pause on the budget-reconciliation legislation.”  But Sen. Manchin has previously pushed back against what he considers to be overspending, only to agree once there is a final vote and he gets a few concessions in the legislation. 

One of the perennial targets for new revenue is “lowering the cost of drugs.”  Citizens Against Government Waste (CAGW) believes Democrats may try to add policies found in H.R. 3, “the Elijah E. Cummings Lower Drug Costs Now Act,” to the reconciliation package.  CAGW has opposed this legislation since it was first proposed by Speaker Nancy Pelosi (D-Calif.) in 2019, including publishing a blog detailing the problems with this plan entitled, “Lenin, Stalin, and Capone Would be Proud of Pelosi's Drug Pricing Plan.”  Loaded with price controls, H.R. 3 adopts policies like the government “negotiating” drug prices in Medicare, which simply adopts the artificially low drug prices found in other countries that utilize socialized medicine and price controls to keep costs down.  As a result, their pharmaceutical research and development has been severely harmed.

An August 2021 Congressional Budget Office (CBO) working paper by Christopher Adams entitled, “CBO’s Simulation Model of New Drug Development,” analyzed legislative proposals that may substantially affect new drug development and found that the price controls contained in H.R. 3 would lead to fewer innovative drugs over the next decade.  One possible scenario that CBO looked at reduced expected revenues by 15 percent to 25 percent and available cash to the industry by $900 billion.  CBO calculated the result would be 9 percent fewer new drugs would enter the market in the third decade under H.R. 3’s policies.

CAGW believes the CBO is underestimating the result of price controls on drug research, as laid out in a May 7, 2021 Charles River Associates paper, "Government Scorekeepers Likely Underestimate the Impact of Lower Drug Costs Now Act (H.R. 3) on Investment in Innovative Medicines."  The CBO analysts admit there is great uncertainty in how their modeling of H.R. 3 would affect the development process.  For example, small biotech companies would likely be seriously hurt.  They are involved in the risky, early-stage research and depend on their research partners and private capital investors for funding.  If price controls were imposed, these investors would choose to invest their funds in other popular or important innovative products where there is less regulatory oversight, government interference, and certainly without price controls.

Drug manufacturers could relocate their operations overseas where labor is less expensive and there are fewer regulations.  They could move away from researching and developing treatments and cures for complex diseases, like Alzheimer's, and rare diseases, which affect fewer than 200,000 people, and focus more on diseases that are not as research intense.  Or they could move to veterinary products, which is a growing industry, or to more consumer-based products like over-the-counter medications.

H.R. 3 also includes a 95 percent excise tax on the products of pharmaceutical manufacturers if they do not comply with price control provisions in the legislation.  This is nothing more than the theft of intellectual property that would destroy pharmaceutical innovation in the United States.  Currently, other countries that have utilized price controls ride on research funded by American consumers and taxpayers, which still leads the world in biopharmaceutical research and development.  If H.R. 3 or provisions like those found in the bill should be adopted are part of the reconciliation package, that lead will disappear.

On September 9 and 10, the House Ways and Means Committee began holding a markup session on the legislation, starting with opening statements and amendments being offered, and this markup session is expected to continue into early next week.  The House Energy and Commerce Committee, which also has jurisdiction over healthcare programs, will begin its markup of the bill next week.  Congress must not go down the wrong path and enact policies that will undermine America’s vibrant biopharmaceutical industry, which brings hope to millions of patients and saves millions of lives across the globe.

 

What is a trillion dollars?  Suppose you could spend money at the speed of light – 182,282 miles per second – it would take you 5.36 seconds to blow through a million dollars.  It would take 62 days to spend a trillion dollars.

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