A government is an organization with a monopoly on violence in a given region. It has the power to make people behave as it wants them to act. The tea party movement was motivated to push back against the expansive power of government to squander taxpayer money and to tax citizens into poverty.
For example, are you thinking about not paying taxes this year? Unless your last name is Biden, you can expect IRS agents to pay you a visit and compel you to pay. That is the power of government.
This holds true for corporations as well. Like people, corporations are subject to a visit from the tax man. And if the Biden administration goes ahead with its tax plans, some prescription drug manufacturers may soon be paying higher taxes and passing those costs along to consumers.
Oddly, this is happening so the government can reduce prescription drug prices. Here is what Americans need to understand:
This story begins with the “Inflation Reduction Act,” a bill boasting a title that George Orwell could have written. President Biden rammed it through Congress in 2022 just as markets were starting to adjust to COVID-19 inflation and bring prices under control.
The IRA created a new price control scheme within Medicare for 10 particular prescription medicines. Companies supposedly can choose whether to accept the government’s price. But they really have no choice. If they want to charge more than the administration is willing to pay, the IRS will impose an excise tax equal to 95 percent of the gross revenue of the same medicine. That will double the price while explicitly denying the drug to those on Medicare.
Some choice.
Either accept the price the government is willing to pay or speak to the folks from the IRS. Sounds like a racket worthy of Tony Soprano. Of course, that isn’t how the government chooses to describe the scheme. The IRA “allows Medicare to negotiate directly with participating drug companies to improve access to innovative treatments for people with Medicare and lower costs for the Medicare program,” the government website for CMS claims. Sure. Improve treatment by taking medicines away.
The goal here is to reduce costs for patients. However, the way to do that is by allowing markets to work, not by empowering the government to set prices. We need more competition, not less.
A report in the Journal of the American Medical Association states: “According to the Center of Drug Evaluation and Research estimates, the average generic drug price is 49 percent of the corresponding brand-name drug. When 6 or more generic competitors exist, the reduction is up to 95 percent.” More drugs mean more competition and lower prices for everyone.
Over time, the cost of several prescription drugs has come down, even as more people than ever use them. Essential drugs ranging from statins to birth-control pills are now cheap. Not because Washington set prices but because it encouraged competition. Companies realized they could charge less and still make money from the volume of sales.
A great example of government policies causing higher prices is the plan by the administration to hit Medicare Part D with higher drug premiums. Yahoo Finance reported in December that “the cost of the average premiums will rise between 42% and 57% in 2024 compared to 2023 in five states with the largest populations of individuals over 65 who are on Medicare: California, Florida, New York, Pennsylvania and Texas.” This all comes from a report by Healthview Services, a provider of healthcare data.
If the administration isn’t stopped, it is sure to expand the idea of using massive threatened taxes as a threat far beyond prescription drugs. There are plenty of places it can work to “fix” inflation.
How about a 95 percent tax on internet service providers who don’t agree to wire rural areas (at a loss)? How about a 95 percent tax on mortgage interest collected by banks (which don’t set mortgage rates, anyway)? How about a 95 percent tax on car manufacturers that make gasoline-powered cars (the ones people want) instead of electric vehicles (that people don’t want but bureaucrats are promoting anyway)?
It isn’t too late to change course. The proposed taxes haven’t taken effect yet and do not need to. But lawmakers need to step up and fix this before consumers pay the price.