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U.S. Can Boost Domestic Production of Essential Medicines and Their Ingredients with Tax Incentives

August 06, 2020

President Trump on Thursday is signing an executive order to advance medical security in part by removing regulatory barriers to support the production of active pharmaceutical ingredients and essential medicines in America. The order directs agencies to prioritize permitting and approvals for domestic manufacturers. This regulatory measure is a welcome first step, and can be made stronger by the right tax incentives—and Ways and Means Republicans have already introduced legislation to accomplish just that.

Here’s how:

Domestic Medical and Drug Manufacturing Tax Credit:

  • Introduced by Rep. Brad Wenstrup (R-OH), this legislation lowers the tax rate on the income from the domestic manufacturing and sales of active pharmaceutical ingredients and medical countermeasures – giving manufacturers more immediate capital to invest in advanced manufacturing.
  • By providing a credit of 10.5 percent of the net income from the sale of these important medical products, this effectively cuts the corporate tax rate of 21 percent in half on these domestically manufactured products.
  • The bill also creates a 30 percent tax credit for new investments in advanced manufacturing equipment or machinery used in the U.S. to manufacture drugs, medical devices, or biological products. The credit phases down to 20 percent in 2028, 10 percent in 2029, and phases out in 2030.
  • Republicans argue that investments in advanced manufacturing will help the United States regain its status as a global leader in manufacturing. Additionally, doing so will help retain and create high paying jobs, support domestic innovation, and enhance national security and public health.

CLICK HERE for a one-pager on both of Rep. Wenstrup’s bills.

The American Innovation and Competitiveness Act (AICA), by Rep. Ron Estes (R-KS).  

  • Ensures that America continues to be the global leader in innovation by repealing the requirement to amortize R&D costs beginning in 2022.
  • Grows our economy by restoring immediate R&D expensing that has long supported jobs and innovation.
  • Incentivizes long-term investments in technological breakthroughs by allowing businesses to deduct R&D costs in the tax year that they occur.

CLICK HERE for a one-pager on Rep. Estes’s bill.

Accelerate Long-Term Investment Growth Now (ALIGN) Act, by Rep. Jodey Arrington (R-TX). 

  • Makes permanent TCJA’s full expensing provisions.
  • Incentivizes long-term investments by providing businesses an opportunity to deduct certain expenses in the tax year in which they occur.

CLICK HERE for a one-pager on Rep. Arrington’s bill.

Pushing Research & Development Into Hyperdrive by Doubling the R&D Tax Credit, by Rep. Jackie Walorski (R-IN).

  • This proposal doubles the current R&D credit.
  • Will help make R&D investments in the United States more competitive in the global marketplace and help keep America a leader in innovation.

CLICK HERE for a one-pager on Rep. Walorski’s bill.

Bringing Back American Jobs Through IP Repatriation, by Rep. Darin LaHood (R-IL). 

  • American companies can bring back their IP developed offshore without any immediate U.S. tax cost.
  • Companies would still have to pay tax if they sold the IP in the future.
  • Could continue to hold and use formerly foreign IP within the United States to support U.S. production and associated research and development.
  • Supports high-paying jobs in production and applied research and, ultimately, a higher standard of living for all Americans.

CLICK HERE for a one-pager on Rep. LaHood’s bill.

Start-ups for Cures Act, by Rep. Devin Nunes (R-CA)

  • Removes the obstacles that prevent innovators from starting new companies and beginning work to cure diseases.
  • It creates a research and development (R&D) incentive for small biotech companies who are engaged in infectious disease drug development.

The More Cures Act, by Rep. Devin Nunes (R-CA) 

  • Creates bonus R&D incentives for companies engaged in infectious disease research.

Infectious Disease Therapies Research and Innovation Act, by Rep. Mike Kelly (R-PA)

  • Creates earlier investment and stronger research in critical therapies and vaccines.
  • To achieve this, it amends the passive loss rules currently in the tax code.
  • This will help these smaller firms raise private funds from more investors at an earlier stage.
  • This bill is also the first legislative item urging medical innovation by someone who contracted and recovered from COVID-19. 

American Innovation Act, by Rep. Vern Buchanan (R-FL)

  • Makes it easier for America’s innovators to start new drug companies that can research and develop new cures and treatments
  • Provides special tax treatment for start-up costs and by preserving valuable tax attributes like R&D credits.

Trade Subcommittee Republican Leader Vern Buchanan highlighted this approach during a July 23rd hearing on Trade, Manufacturing, and Critical Supply Chains: Lessons from COVID-19:

“This is why Committee Republicans have put forward the ‘Faster Cures through Innovation Agenda,’ which seeks to create and expand tax incentives to make the United States more medically independent. I’m proud to have introduced the American Innovation Act, which allows start-up businesses to expense more of their start-up costs and preserves important tax benefits like R&D credits in the hands of America’s innovators to develop new cures and treatments so they can be used when their exciting new products are brought to market.

“This package is just the beginning. Committee Republicans continue to put forward winning pro-growth proposals that will strengthen our manufacturing base and create more investment and production – and jobs – here at home. It’s vital for America to maintain its status as the premier location in the world for innovation and manufacturing. That’s the goal of the Republican pro-growth agenda.

The FDA has also recently stated that advanced medical manufacturing is vital:

“Potential public health value of advanced manufacturing is even greater in the context of the ongoing COVID-19 pandemic, which has highlighted the strain on supply chains and the need for adaptive manufacturing systems to accelerate the production of medical countermeasures.”

To learn more, click here.