Bill Berkowitz: Pharmaceutical executives fund new 527 attacking Obama

A BUZZFLASH GUEST CONTRIBUTION
by Bill Berkowitz

RightChange.com's 'advertisements that focus on taxes contain mostly half-truths or outright lies,' says a senior economist at the non-partisan Tax Foundation.

They are successful pharmaceutical company executives, and both have schools of pharmacy at prominent universities named after them. Between them, they have given nearly $4 million to a new North Carolina-based 527 group that is sponsoring ads attacking Sen. Barack Obama's tax policies. The ads are being run by RightChange.com, an organization that has been chiefly funded by Fred Eshleman, CEO of PPD (Pharmaceutical Product Development, Inc.), a North Carolina-based pharmaceutical research firm, and Ernest Mario, chairman of PPD and also chairman, founder, and chief executive officer of the Palo Alto, California-based Capnia, Inc.

RightChange.com, which has already raised at least $4 million, recently spent nearly $600,000 on an ad that CQMOneyline described as "a thinly-veiled issue ad attacking Barack Obama for his tax policies, which the organization claims would contribute to the economic crisis." And more is in the pipeline. According to The Associated Press, RightChange.com will air "ads on national cable television criticizing Obama's tax policies and praising McCain's efforts to increase regulation over Fannie Mae and Freddie Mac, the two giant mortgage financing companies at the center of the financial crisis."

Gerald Prante, a senior economist at the Tax Foundation and a Ph.D. student (ABD) in economics at George Mason University, writing at The Tax Policy Blog, the official Weblog of the Tax Foundation -- a non-partisan, non-profit research organization that has monitored tax policy at the federal, state, and local levels since 1937 -- thoroughly examined four of RightChange.com ad's criticizing Obama's tax plan.  

Prante told me that one ad, being aired on cable television, claims that Obama wants a 35 percent tax rate for Wall Street but wants small businesses to pay a tax rate of 62 percent, "contain mostly half-truths or outright lies."  (The ads discussed here -- and more -- can be viewed here.)

Prante noted that the ad was filled with factual errors and outright lies:

First, the 'keep only 38 cents of every dollar they earn' statement is an outright lie. The 62 cent figure comes from the highest possible marginal tax rate that a small business could face under Obama, and even that makes the incorrect assumption that Obama would raise payroll taxes on those beyond the cap by 12.4 points instead of 4 points. Marginal is not the same as average, and using the phrase "every dollar they earn" makes it factually incorrect. The people behind this ad are either downright deceitful or too stupid to understand the difference; and given what else they are putting out (see below), I don't know which it is. But the reality is that no small business would pay 62 percent of its total income to the IRS under Obama's tax plan.

Now on the small business versus Wall Street claim, there are more errors. Reality is that the tax rate on non-corporate capital investment is typically much lower than the rate on corporate investment because of the double taxation on corporate investment. So a "Wall Street" corporation that pays a 35 percent tax rate distributes the after-tax profit to shareholders through either retained earnings or dividends, and the shareholders then must pay tax on that income in the individual tax code. So a corporate income tax is paid by people, just like a tax on "small business." It's just that the small business income is only taxed once under the income tax, while corporate income tax is taxed at two levels.

In mid-October, RightChange.com unveiled three new relatively folksy 30-second ads attacking Obama as a tax and spend liberal. One ad claims that Obama's tax plan will "punish small businesses," another deals with so-called "retirement taxes," and a third talks about Obama's plan for "$3.5 trillion in new spending." The Tax Foundation's Gerald Prante watched and critiqued all three ads:

First off, the first ad says one thing on the screen (54.8) yet verbally says another (62). Both are wrong. The comparisons to Wal-Mart are ridiculous too given that income derived from corporations is taxed both at the individual and corporate level. Conservatives have for years made this valid point, but now they are using populist rhetoric against Obama. What's even worse though is that the rhetoric is once again incorrect. They continue to say "keep 38 cents of every dollar you earn," but they either don't understand the difference between a marginal tax rate (tax on next dollar of income) and an average tax rate (average tax taken out on every dollar you earn) or they are intentionally deceiving the viewer.

On the second ad, the 33 percent increase in dividends/cap gains taxes is not exactly true, but not as bad as the first ad. Obama seeks to raise the long-term cap gains rate and the tax rate on qualified dividends from 15 percent to 20 percent (a 33 percent increase). But that rate hike would only apply to tax returns above $250,000, which albeit do earn a large fraction of the cap gains and dividends.

The third ad, I'm not sure about the $3.5 trillion in new spending. I would check with the Committee for a Responsible Federal Budget to fact check this. Regarding giving people tax cuts who don't pay taxes, technically, Obama gives tax cuts to those who don't pay income taxes. Almost everybody pays payroll taxes, corporate income taxes (indirectly), excise taxes, etc.  Whether it's welfare or not, I guess you could call it that. But the relevant metric on redistribution comes down to fiscal incidence (taxes and spending together). Tax rates as high as 54 percent is true ... that's the highest effective marginal tax rate under Obama's tax plan. Regarding the $3.5 trillion tax increase, I don't understand that. He actually cuts taxes relative to a current law baseline over 10 years. I guess if you assume his spending increase amount is $3.5 trillion, one could say that the fact that he deficit finances much of it is equivalent to a tax hike. But you would have say the same about McCain's plan and the past eight years.

Pharmaceutical money in play  

Most of the nearly $4 million that RightChange.com has raised has come from Fred Eshleman, CEO of PPD, a North Carolina-based pharmaceutical research firm, who has given $2.7 million, and from the company's chairman, Ernest Mario, who has chipped in another $1 million.

Although Eshleman has given money to both Democrats and Republicans in North Carolina, he has contributed more than $200,000 to Republican Party candidates and party organizations since 2002, according to Federal Election Commission records. In May, the University of North Carolina's School of Pharmacy was renamed for Eshelman after he donated more than $30 million to the university.

Ernest Mario, who has been chairman and chief executive officer of Capnia, Inc., a Palo Alto, Calif.-based company developing a system to treat migraines using medical gas, since 2007, has a long history within the pharmaceutical industry. According to a bio at Forbes.com, before Capnia, he was Chairman and Chief Executive Officer of Reliant Pharmaceuticals, Inc., a privately held company that developed and marketed cardiovascular pharmaceutical products; he served as Chairman and Chief Executive Officer of IntraBiotics Pharmaceuticals, Inc. from 2002 to 2003; Prior to 2002, he led ALZA Corporation as its Chairman and Chief Executive Officer and before joining ALZA in 1993, he was Chief Executive of Glaxo Holdings plc from 1989 to 1993. Mario is also a director of Boston Scientific Corporation, Celgene Corporation, and Maxygen, Inc.

Eshelman is President of the Board of RightChane.com. NPR's "Election 2008 Secret Money Project" has reported that other directors also "have connections to the health industry": Jeff Barnhart, the CEO of Cabarrus Community Health Centers, is a board member and Fletcher Hartsell, who helped found Cabarrus, is RightChange.com's Corporate Secretary. Both Barnhart and Hartsell are Republican members of North Carolina's General Assembly.   

RightChange.com's executive director is Tim Pittman, former communications director for Governor Jim Martin in his two terms as Governor from 1984-1992. According to the blog The Progressive Pulse, Pittman worked for the North Carolina Medical Society after Martin left office and now works in public relations for KB Home (formerly Kaufman & Broad Home), a national homebuilding company. (Several e-mails to Pittman were not answered.)

According to its Web site, "PPD is a leading global contract research organization (CRO) providing discovery, development and post-approval services as well as compound partnering programs." PPD's clients and partners include pharmaceutical, biotechnology, medical device, academic and government organizations. "With offices in 31 countries and more than 10,400 professionals worldwide, PPD applies innovative technologies, therapeutic expertise and a commitment to quality to help its clients and partners maximize returns on their R&D investments and accelerate the delivery of safe and effective therapeutics to patients."

Eshelman testifies before Congress about PPD's involvement in deceptive drug study  

PPD's work has not been without controversy.

DrugResearcher.com reported in February 2007, that Ann Marie Cisneros, a former member of staff of PPD, speaking as a witness at a hearing on the adequacy of the FDA to assure the safety of the drug supply, before the House Committee on Energy and Commerce members "said that both her former employer PPD and Sanofi-Aventis knew that there were discrepancies in the clinical trial data included in the study 3014 of Ketek (telithromycin) and there were also problems at the site but said neither of the companies took any action."

According to the Ketek Law Suit, a Web site sponsored by Legal View:

Because the first round raised significant safety concerns including hepatitis, blurred vision and other adverse side effects, a federal advisory committee requested that Sanofi-Aventis -- the manufacturer of Ketek -- obtain additional safety data by conducting a study involving patients who were likely to receive Ketek if the drug were approved. Sanofi-Aventis hired a contract research firm called Pharmaceutical Product Development (PPD) to manage a new clinical trial called Study 3014.

In 2003, Sanofi-Aventis put Study 3014 into motion to prove that Ketek was just as safe and effective as other antibiotic treatments such as amoxicillan. PPD recruited over 1,800 physicians to enroll patients in the study. For each patient enrolled, physicians were paid $400 by Sanofi-Aventis. Approximately 24,000 patients were enrolled over a period of 5 months. In the second review, the FDA examined results of this study.

During a routine inspection of physician's practices, the FDA discovered several cases of fraud, and in one case, complete fabrication of patient enrollment. Several cases of potential fraud and misconduct were referred for criminal investigation and one doctor was sentenced to a 5-7 month federal prison stay.

Despite knowledge of the fraud committed by several of the study's physicians, FDA managers still presented Study 3014 to the advisory committee for Ketek approval without reference to any lack of integrity in the data produced by the study. Unaware of any problem, the committee voted 11 to 1 to recommend approval of Ketek in 2004.

In 2007 and into 2008, Study 3014 continues to be a point of controversy for advocacy groups, critics, and Ketek cases. Information has continued to surface regarding fraud and scandal in this clinical trial and some groups are calling for a Ketek recall, claiming irresponsible action on the part of PPD, Sanofi-Aventis, and the FDA.

In February of this year, Eshelman appeared before the House Energy & Commerce Subcommittee on Oversight and Investigations, which was investigating the FDA's approval of Ketek "despite being based on fraudulent clinical research," the blog MyDD recently reported.   

Eshelman disavowed PPD Inc['s] responsibility to directly alert the FDA to fraud in clinical trials for ... Ketek for which PPD was paid $20 million by drug maker Aventis. The FDA found the fraud [in] 2002 in a trial supervised by PPD, the doctor was indicted [in] 2003, convicted [in] 2004 and [in the same year] Ketek was approved ... by the FDA using the faulty data. It wasn't until early 2006 that liver problems in patients using Ketek came to light and ... the ... reliance on the fraudulent data. Congressional hearings were called for ... 2006 [but weren't held until last year] and again [this year where] ... Eshelman testified. (For more, see Ketek Law Suit.)

Greg Flynn, reporting for MYDD, recently wrote that "The FDA and drug maker Aventis were directly faulted.....[while] Eshelman washed his hands. Now," Flynn wrote earlier this month, "he wants to roll up his sleeves and get his hands dirty in swiftboating for an administration that would further curtail FDA oversight of drug approvals." (View Eshleman's testimony.)

On its Web site, RightChange.com claims that "a nonprofit, nonpartisan organization dedicated to helping Americans see through the haze of politicians' spin to understand the facts about crucial policy choices." Its "goal is to make sure that the coming wave of political change in America is the 'right' kind of change, in terms of conforming to the facts and common sense ... [and it] is focusing on the next generation, not the next election, always reminding our fellow citizens that the policy choices we make in the near term will have enormous long-term impacts on the quality of life of the future generations." It claims that it is concerned about "advancing the 'right' kind of ideas, not electing or defeating any political candidate. RightChange promises that it will "communicate with a zingy edge and a sense of humor, without being afraid to pose difficult questions to those in power."   

According to Form 8872 -- Political Organizations Report of Contributions and Expenditures covering the period between July 22, 2008 and September 30, 2008, RightChange.com's money has gone to a number of legal, advertising, voter survey, and assorted media enterprises: The Stowe, Va-based Dirt Road Productions, LLC, has received more than $650,000 for producing RightChange ads; Media Placement Technologies, a media placement advertising agency based in Alexandria, Virginia, has received more than $2 million; The Raleigh, North Carolina-based Kilpatrick Stockton LLP has received more than $125,000 in legal fees; Voter/Consumer Research, based in Washington, D.C. has received at least $150,000 for "survey" work.  

I asked the Tax Foundation's Gerald Prante why he thought there was so much money coming to RightChange.com from individuals connected to the pharmaceutical industry. "Looking at it from an economist's perspective," Prante said, "I would ask the question: what is the gain to the person financing it from a McCain administration compared to an Obama administration? It must exist, unless there are other reasons that the financiers don't like Obama (say his opinion on abortion or the mere principle of say smaller government that the guy believes in or something). I would say it's just an investment that they hope will pay off."

A BUZZFLASH GUEST CONTRIBUTION

Bill Berkowitz is a longtime observer of the conservative movement and a frequent writer for Media Transparency and other online publications. He documents the strategies, players, institutions, victories and defeats of the American Right from a progressive perspective.

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