How a Vaccine Tax Keeps Your Kids Healthy: Echoes

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By Joseph J. Thorndike

In 1974, a British researcher suggested that the pertussis vaccine might cause brain damage. A flood of lawsuits followed, and the cost of the shot began to climb. So did anxiety among drugmakers. A suit against one manufacturer resulted in a judgment of $1.1 million, or more than half the total market for the vaccine.

Immunization is scary. Kids are afraid of needles, and parents are worried about autism. The New York Times described a "climate of fear about vaccines in general" that has recently arisen, one in which false alarms can quickly lead to decreased rates of use. Some politicians fear the effect mandatory vaccines have on individual freedom and social morality, as Amity Shlaes discussed in her column this week.

Vaccines are scary for drug companies, too. Every day, they live with the risk of consumer lawsuits. The profitability of many of their products makes the risk worth taking, but vaccines are a different story.

Sure, lots of people get them, usually as kids and often at government insistence. But vaccines are typically a one-shot deal, so to speak. You get them once, maybe twice, and you're done. It's harder to make big bucks selling that sort of product than to do so selling medications that people take every day -- drugs like Lipitor, for instance, the biggest seller on the planet.

Vaccines also cost a lot to develop and take a long time to test. New ones are often delayed by large and expensive trials before ever making it to market.

Even those high safety standards don't eliminate all risk. Side effects -- both real and perceived -- can bring lawsuits. And such litigation can induce pharmaceutical companies to get out of the market.

It's not an abstract worry. Concerned by the prospect of hefty jury awards, manufacturers began to abandon the vaccine market entirely in the 1980s. Three of the four manufacturers of the pertussis vaccine, which protects against whooping cough, stopped selling it in the U.S.

Then Congress came to the rescue. In 1986, lawmakers passed the National Childhood Vaccine Injury Act. It was a bargain, of sorts. Congress agreed to shield vaccine manufacturers from many kinds of lawsuits, limiting their liability. At the same time, the law created a special compensation program to ensure that vaccine victims got the help they needed.

The program, still in operation, was funded by a special federal excise tax on covered vaccines. Originally, that tax was scaled to the estimated liability costs associated with each vaccine. "Controversial" ones, like that for pertussis, were taxed more heavily than other inoculations less prone to litigation.

In 1998, Congress changed the levy to a flat 75 cents on every dose of vaccine. (Combination vaccines were taxed on each component, so a three-disease shot would pay $2.25.) It has been more than sufficient, leaving the trust fund with a balance of more than $3 billion.

The program hasn't been problem-free, of course. What program is? Critics have complained that claims are processed too slowly, and that trust-fund balances grow too quickly.

But on balance, the tax works. It has paid out compensation totaling more than $2 billion to at least 2,500 families and individuals. And it has encouraged stability in the market.

"The vaccine marketplace remains healthy," Katherine M. Cook and Geoffrey Evans concluded in the journal Pediatrics this year. "Liability-related vaccine shortages are a distant memory, new vaccines are being licensed, and many are in various stages of development."

What’s not to like? Well, the tax perhaps. After all, no one likes a tax.

But in this case, they should. The vaccine excise does a simple job and it does it well. By distributing and reducing the cost of vaccine litigation, it makes a dysfunctional market a lot more functional. And it lessens the fear among drug companies -- if not among anxious mothers or certain politicians.

Not bad for 75 cents.

(Joseph J. Thorndike, a contributor to the Echoes blog, is the director of the Tax History Project at Tax Analysts and a visiting scholar in history at the University of Virginia. The opinions expressed are his own.)

To contact the author of this blog post: Joseph J. Thorndike at

To contact the editor responsible for this blog post: Timothy Lavin at

-0- Sep/22/2011 13:40 GMT