A couple of weeks ago, the largest pharmaceutical company in the country, Pfizer, did a corporate inversion with Irish company Allergan to save on taxes. Inversions happen when a conglomerate like Pfizer deals with a smaller foreign company in order to create a foreign headquarters, thereby allowing it to pay lower total tax rates.
The rhetoric surrounding this inversion by Democrats makes me nervous of their skill to lead the country, however supportive I am of the current Democratic social issue platform. Bernie Sanders, for example, stated that,
"The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs. It also would allow another major American corporation to hide its profits overseas. The Obama administration has the authority to stop this merger, and it should exercise that authority. Congress also must pass real tax reform that demands that profitable corporations pay their fair share of taxes.”
While it may be true that banks and corporations like Exxon-Mobil make huge profits by exploiting demand, and their CEO's are making more money than they actually are worth by illegally avoiding taxes, the same case is not applicable to the pharmaceutical industry. In the drug creation process, the average drug costs in the vicinity of $2-3 billion dollars to create from start to finish. With the premiums that companies are pushing, however, this does not seem like a large amount of money until it is acknowledged that only one out of every twenty drugs that development is started on ever reaches the market. Drug companies actually make very limited profit margins on their products, and most profits are used to fund drugs that the doctors developing them care about. Indeed, many drugs for specific illnesses are never able to ever reach clinical trials because not enough people are afflicted with the illnesses to allow the companies to make money off the drugs.
It is for these reasons that I oppose the increase in <i> corporate </i> tax rate by Bernie Sanders. And not just him either; Hillary Clinton said about the deal, "The maneuvers powerful corporations are using to game the system and leave everyday taxpayers holding the bag are just offensive.” Why is it offensive that Pfizer wants to expand its business, and the best possible way to do this is by leaving the country? Why would a corporation not move to a country that better facilitates the growth of business? There is no moral contract that companies have to sign with the United States. The sheer difference in tax rates between Ireland and the United States should make this obvious: 39.2% in the United States versus 12.5% in Ireland. At that rate, Pfizer is able to exert higher risks in developing drugs that would not be profitable had the headquarters stayed in the United States, and Pfizer is not forced to sell its product at such high premiums.
In order to foster "fair" trade in the United States, high corporate tax rates are placed, but these tax rates are only driving away America's biggest businesses. Should they go higher, who will be the next to leave? In my eyes, this should be a much more pressing matter to Americans than the quagmire in the Middle East because it is happening right under out feet.
http://www.sanders.senate.gov/newsroom/press-releases/sanders-condemns-pfizer-allergan-merger
http://www.irishtimes.com/business/economy/clinton-condemns-pfizer-merger-with-allergan-as-just-offensive-1.2460709
http://www.newsweek.com/how-pfizer-should-be-punished-deserting-america-401895
2 comments:
I agree with you, Justin. Inversions are just symptoms of the ridiculously high corporate tax rates. In the United States, accountants and chairmen discuss ways to exploit the OVERWHELMINGLY complicated tax code. Because of this, companies like GE, Walmart, and Exxon pay a fraction of the corporate tax rate. Even still, operating costs in the United States are way too high to make corporations believe it is lucrative to base business here. So now we're receiving less revenue than expected from big corporations, and many of those same corporations are still deciding to outsource. We need reform and we need it fast, or else our markets will become considerably weaker and we'll lose thousands of jobs.
http://www.forbes.com/2011/04/13/ge-exxon-walmart-apple-business-washington-corporate-taxes.html
I agree with both Justin and 2CHAINZ, the corporate tax rate is pretty absurd, but I feel that the current political climate mandates that presidential candidates speak this way about corporations. BIG _____ (OIL, PHARMA, whatever you want) is always a viable punching bad. No one likes "the man," and corporations are mostly faceless bad guys to voters, especially in the wake of the recession. Many politicians might be missing the point, or they don't want to be the guy/lady that asks for corporate tax breaks, a stance the voters would likely find unsympathetic when small businesses and many Americans are still struggling (even though corporate tax breaks COULD have great benefits for the economy as a whole). Senator Sanders is particularly myopic in this regard, and would sooner imprison the whole of Wall Street and jack up corporate tax rates before any sort of reform.
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