House to Consider Tax on New Flu Vaccines [Update: Bill Passed House and Senate]

    The House of Representatives is scheduled Tuesday to consider a bipartisan bill to add new seasonal flu vaccines to the IRS definition of taxable vaccines.  The Senate has already reached an agreement to vote on its version of the bill without further debate if the House passes an identical version.  If passed into law, all new seasonal flu vaccines would become subject to the 75¢ per dose vaccine tax, and also become eligible to be included in the Vaccine Injury Compensation Program (VICP).  A summary of the bill provided by the House Republican Conference explains:

The VICP is a federal program designed as a no-fault alternative to traditional tort law for resolving vaccine injury claims arising from covered vaccines.  The program is funded through a 75¢ excise tax on each dose of specified vaccines.  However, current law only covers “trivalent” (three-strain) vaccines against influenza.  Recently, many manufacturers have begun producing more effective “quadrivalent” (four-strain) vaccines, but have held off on bringing the vaccines to market until the statute is updated.  H.R. 475 amends the statute to cover all seasonal influenza vaccines under the VICP, ensuring that new, more effective vaccines are made available to the greater public.

    The balance in the VICP fund as of November 2012 was more than $3.5 billion. The fund has paid out only $2.5 billion since it was established in 1988 for cases involving all vaccines. At that rate, the balance in the fund could last another 25 years with no new revenue.  However, in response to initial reports on the legislation in April, Julia Lawless, the press secretary of U.S. Senate Finance Committee issued the following statement:

First off, the Joint Committee on Taxation is clear this bill is not a tax increase.  Secondly, the legislation is about ensuring vaccine manufacturers produce vaccines for the next flu season – not past flu seasons.  Thirdly, the threat of litigation has been so severe against these manufacturers that this compensation fund had to be created or they would not have produced these vaccines.  That threat of litigation still exists and so does the need for vaccines.  We need to be careful how that fund is financed, because having it run a deficit could be dangerous when our goal is to ensure the production of safe vaccines.

     A representative of the Biotech Industry Organization emailed The Weekly Standard to weigh in as well, and largely echoed the response of Ms. Lawless, concluding with:

This is an extremely important public health matter. 

The issue before Congress is whether the newest seasonal influenza vaccine will be covered by the VICP in time for the 2013-14 flu season. 

The other issue raised by the article about the balance in the fund is an entirely separate matter that would require in-depth analysis by experts in the field[.]

     The documentation accompanying the proposed legislation does not indicate whether or not any such analysis of the fund has been conducted.  The tax on flu vaccines raises about $100 million each year.  The "trust fund" is invested in Treasury Bills, helping to finance the national debt.



UPDATE: The bill passes the House, the Hill reports:

The House on Tuesday afternoon approved legislation meant to ensure an ample supply of the latest flu vaccine is available by the next flu season.
By voice vote, members approved H.R. 475, which would include a flu vaccine that attacks a new strain of flu on a list of taxable vaccines.

UPDATE 2: The Senate has also passed the bill, the Hill also reports.  The legislation now heads to the White House for the president's signature.



Note: This article first appeared at The Weekly Standard.

Congress Prepares Flu Vaccine Tax [Clarification added]

    Congress is preparing to take action on a bipartisan proposal to raise taxes on flu vaccines. This is not a tax on the wealthy, but rather on a broad swath of Americans, or at least those who choose to be immunized against the flu.
    In February, identical bills were introduced in the House and Senate to add seasonal flu vaccines to the IRS code as taxable.  The legislation would exact a 75¢ per dose tax on any "vaccine against seasonal influenza."  Given that the Centers for Disease Control projects that 135 million doses of flu vaccine will be used this year, the government's take on flu vaccines alone is over $100,000,000 per year.
    Along with taxes on other vaccines, this tax would fund the Vaccine Injury Compensation Trust Fund.  The fund is a "no-fault alternative to the traditional tort system for resolving vaccine injury claims that provides compensation to people found to be injured by certain vaccines."  However, the fund is by no means in the same kind of trouble that other government "trust funds" are.
    The balance in the fund (as of November 2012) was more than $3.5 billion.  Since the program's inception in 1988, the fund has paid out only $2.5 billion in 25 years for cases involving all vaccines, not just the flu vaccine.  This means the balance in the fund could conceivably last another 25 years with no further tax revenue.
     The House bill (H.R. 475) was submitted on February 4th by Republican Jim Gerlach with Democrat Richard Neal co-sponsoring, and the Senate version (S. 391) was submitted by Democrat Max Baucus and co-sponsor Republican Orrin Hatch.  The same legislation had been introduced in the 112th Congress just months ago.  The House version died in committee, but the Senate version actually passed by unanimous consent the day it was introduced.
    Now, a posting on the Senate website reports that the Senate has reached an agreement on the current legislation. Although this flu season is winding down now, the tax could easily be in place by next winter if the House follows suit and the president signs it:

The Senate reached an agreement that if the Senate receives H.R.475 from the House of Representatives and the bill is identical to the text of which is at the desk, then the bill be read three times and the Senate proceed to a vote, at a time to be determined by the Majority Leader in consultation with the Minority Leader, with no intervening action or debate. H.R.475, a bill to amend the internal Revenue Code of 1986 to include vaccines against seasonal influenza within the definition of taxable vaccines.

    As is the case with all government "trust funds," there is no cash set aside to pay out claims.  According to the November 2012 report on the vaccine trust, the $3.5 billion balance is invested in "US Treasury Securities."  In other words, financing a portion of the $16.5 trillion national debt.


Note: This article first appeared at The Weekly Standard.



Clarification:
The current IRS code definition of a “taxable vaccine” already includes “Any trivalent vaccine against influenza.”  The new law reads that “Subparagraph (N) of section 4132(a)(1) of the Internal Revenue Code of 1986 is amended by inserting 'or any other vaccine against seasonal influenza' before the period.”  This is to make sure that all future flu vaccines are taxable in addition to the current ones.  Some interpreted my original article to mean that no flu vaccines were previously taxable, and now they would be.  The discovery that previous flu vaccines have ben taxable all along is not likely to assuage the anger many have expressed, especially in light of the $3.5 billion balance in the "trust fund."

Bill to Tax Flu Vaccine Reintroduced in House; Already Passed Senate

    On January 6th, I reported that legislation to add seasonal flu vaccines to the definition of taxable vaccines had been introduced in both houses of Congress.  The House version was introduced in December, so it died in committee when the 112th Congress adjourned.  However, an identical bill was introduced in the Sentate by Max Baucus in early January and passed by unanimous consent with no discussion.  Now the bill has been reintroduced in the House (H.R. 475) by Republican Jim Gerlach, the same representative who sponsored the original bill.

    The purpose of this legislation is to make sure seasonal flu vaccines are subject to a 75¢ per dose tax imposed already on many vaccines by Section 4131 of the IRS code.  The tax funds the National Vaccine Injury Compensation Program.  Here is what I noted about that fund in early January:

    Although the taxes raised by the vaccine tax go into a "trust fund," this trust fund, like most government trust funds, is on paper only.  According to the most recent report on the fund, November 2012, the balance in the fund is nearly $3.5 billion.  (Since the program's inception in 1988, the fund has paid out only $2.5 billion in 25 years for cases involving all vaccines, not just the flu vaccine.  The balance in the fund could conceivably last another 25 years with no further tax revenue.)   The $3.5 billion balance, of course, is "invested" in "US Treasury Securities."  In other words, financing a portion of the $16.5 trillion national debt.

     Also from my January post:

Due to the lack of explanation accompanying the bill, I am only speculating.  But as drug companies struggle to keep up with new and mutating strains of the influenza virus, this bill widens the definition of "taxable vaccine" to make certain that any and all attempts to fight present and future iterations of the flu are subject to the 75¢ per dose tax.  Given that the Centers for Disease Control projects that 135 million doses of flu vaccine will be used this year, Congress is protecting the government's $100,000,000+ take on flu vaccines alone.

     As I mentioned above, this legislation flew through the Senate in a day without any debate.  Its future in the House it uncertain, but the Senate's response gives no reason to suspect there is much controversy about it. I will continue to monitor the bill's progress.

Taxing the Flu [Updated]

    While the nation's attention was focused on the approaching holidays and the (indulge my use of the word one more time) looming fiscal cliff, some in Congress seized upon the distractions to try to make sure when it came to money being spent to battle the growing flu epidemic, Uncle Sam got his fair share.  In the past few weeks, bills were introduced in both houses of Congress to make sure seasonal flu vaccines are subject to a 75¢ per dose tax imposed by Section 4131 of the IRS code. [See update below: the tax funds the National Vaccine Injury Compensation Program.]

    The bill (H.R. 6687) was introduced in the House of Representatives by Republican Jim Gerlach with Democrat Richard Neal co-sponsoring.  The purpose of the amendment is stated in its rather unwieldy title: "To amend the Internal Revenue Code of 1986 to include vaccines against seasonal influenza within the definition of taxable vaccines." According to govtrack.us, the bill died in committee when the 112th Congress came to a close at the end of the year.

    However, an identical bill (S. 3716) was introduced in the current session of the Senate on January 2, 2013 by Democrat Max Baucus and co-sponsor Republican Orrin Hatch.  The bill was passed immediately by unanimous consent and passed on to the House.  Presumably the dead House bill 6687 will now be resurrected in the 113th Congress for action, though this has not yet occurred.

    The text of the bill is quite short and technical and provides no explanation of the underlying reason for the change [see UPDATE below.] The relevant portion of the proposed legislation simply states:

SECTION 1. ADDITION OF VACCINES AGAINST SEASONAL INFLUENZA TO LIST OF TAXABLE VACCINES. 

(a) In General- Subparagraph (N) of section 4132(a)(1) of the Internal Revenue Code of 1986 is amended by inserting `or any other vaccine against seasonal influenza' before the period. 

    Section (b) of the bill relates only to the effective date of the legislation.  Section 4132(a)(1)(N) as revised would read in full: "(N) Any trivalent vaccine against influenza or any other vaccine against seasonal influenza."  But Section 4132 deals only with the definitions of the vaccines that are subject to the provisions in Section 4131.  This section reads as follows:

§ 4131. Imposition of tax
(a) General rule
There is hereby imposed a tax on any taxable vaccine sold by the manufacturer, producer, or importer thereof.
(b) Amount of tax

(1) In general
The amount of the tax imposed by subsection (a) shall be 75 cents per dose of any taxable vaccine.

    The last two words are the key to the proposed change: "taxable vaccine."  Due to the lack of explanation accompanying the bill, I am only speculating.  But as drug companies struggle to keep up with new and mutating strains of the influenza virus, this bill widens the definition of "taxable vaccine" to make certain that any and all attempts to fight present and future iterations of the flu are subject to the 75¢ per dose tax.  Given that the Centers for Disease Control projects that 135 million doses of flu vaccine will be used this year, Congress is protecting the government's $100,000,000+ take on flu vaccines alone.

    ABC News is reporting that the flu has reached epidemic proportions in 18 states already this year, and the flu season is still young.  The American public may despise the gridlock in Washington, but if this bill is an example of how bipartisanship works, gridlock might gain popularity.  This bill may simply be an attempt to provide uniformity in the IRS code, but the timing of this "flu tax" is certain to provoke charges that Congress is exploiting a national health crisis, charges that an unpopular Congress may find difficult to refute.

UPDATE: Upon further research, I found that that 75¢ tax per dose is intended to fund the Vaccine Injury Compensation Trust Fund.  The fund is explained at the Health Resources and Services Administration website:

On October 1, 1988, the National Childhood Vaccine Injury Act of 1986 (Public Law 99-660) created the National Vaccine Injury Compensation Program (VICP). The VICP was established to ensure an adequate supply of vaccines, stabilize vaccine costs, and establish and maintain an accessible and efficient forum for individuals found to be injured by certain vaccines. The VICP is a no-fault alternative to the traditional tort system for resolving vaccine injury claims that provides compensation to people found to be injured by certain vaccines. The U. S. Court of Federal Claims decides who will be paid. Three Federal government offices have a role in the VICP:
the U.S. Department of Health and Human Services (HHS);
the U.S. Department of Justice (DOJ); and
the U.S. Court of Federal Claims (the Court).
The VICP is located in the HHS, Health Resources and Services Administration, Healthcare Systems Bureau, Division of Vaccine Injury Compensation.

    Although the taxes raised by the vaccine tax go into a "trust fund," this trust fund, like most government trust funds, is on paper only.  According to the most recent report on the fund, November 2012, the balance in the fund is nearly $3.5 billion.  (Since the program's inception in 1988, the fund has paid out only $2.5 billion in 25 years for cases involving all vaccines, not just the flu vaccine.  The balance in the fund could conceivably last another 25 years with no further tax revenue.)   The $3.5 billion balance, of course, is "invested" in "US Treasury Securities."  In other words, financing a portion of the $16.5 trillion national debt.