Rather than lower corporate tax rates, an easier fix would be to take away the benefits of citizenship
By Robert Reich / RobertReich.org December 7, 2015
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Just like that, Pfizer has decided it’s no longer American. It plans to link up with Ireland’s Allergan and move its corporate headquarters from New York to Ireland. That way it will pay less tax. Ireland’s tax rate is less than half that of United States. Ian Read, Pfizer’s chief executive, told the Wall Street Journal the higher tax rate in the United States caused Pfizer to compete “with one hand tied behind our back.” Read said he’d tried to lobby Congress to reduce the corporate tax rate (now 35 percent) but failed, so Pfizer is leaving.
Such corporate desertions from the United States (technically called “tax inversions”) will cost the rest of us taxpayers some $19.5 billion over the next decade, estimates Congress’s joint committee on taxation. Which is fueling demands from Republicans to lower the corporate tax rate. Donald Trump wants it to be 15 percent. Mike Huckabee and Ted Cruz want to eliminate the corporate tax altogether. (Why this would save the Treasury more money than further corporate tax inversions is unclear.)
Rather than lower corporate tax rates, an easier fix would be to take away the benefits of corporate citizenship from any company that deserts America.
One big benefit is the U.S. patent system that grants companies like Pfizer longer patent protection and easier ways to extend it than most other advanced economies. In 2013, Pfizer raked in nearly $4 billion on sales of the Prevnar 13 vaccine, which prevents diseases caused by pneumococcal bacteria, from ear infections to pneumonia – for which Pfizer is the only manufacturer.
Other countries wouldn’t allow their patent systems to justify such huge charges. Neither should we – especially when Pfizer stops being an American company. The U.S. government also protects the assets of American corporations all over the world. In the early 2000s, after a Chinese company replicated Pfizer’s formula for Viagra, the U.S. Trade Representative put China on a “priority watch list” and charged China with “inadequate enforcement” against such piracy. Soon thereafter the Chinese backed down. Now China is one of Pfizer’s major sources of revenue.
But when Pfizer is no longer American, the United States should stop protecting its foreign assets. Nor should Pfizer reap the benefits when the United States goes to bat for American corporations in trade deals. In the Pacific Partnership and the upcoming deal with the European Union, the interests of American pharmaceutical companies like Pfizer – gaining more patent protection abroad, limiting foreign release of drug data, and preventing other governments controlling drug prices – have been central points of contention.
And Pfizer has been one of the biggest beneficiaries. From now on, it shouldn’t be. U.S. pharmaceutical companies rake in about $12 billion a year because Medicare isn’t allowed to use its huge bargaining power to get lower drug prices. But a non-American company like Pfizer shouldn’t get any of this windfall. From now on, Medicare should squeeze every penny it can out of Pfizer.
American drug companies also get a free ride off of basic research done by the National Institutes of Health. Last year the NIH began a collaboration with Pfizer’s Centers for Therapeutic Innovation – subsidizing Pfizer’s appropriation of early scientific discoveries for new medications. In the future, Pfizer shouldn’t qualify for this subsidy, either.
Finally, non-American corporations face restrictions on what they can donate to U.S. candidates for public office, and how they can lobby the U.S. government. Yet Pfizer has been among America’s biggest campaign donors and lobbyists. In 2014, it ponied up $2,217,066 to candidates (by contrast, its major competitor Johnson & Johnson spent $755,000). And Pfizer spent $9,493,000 on lobbyists. So far in the 2016 election cycle, it’s been one of the top ten corporate donors.
Pfizer’s political generosity has paid off – preventing Congress from attaching a prescription drug benefit to Medicare, or from making it easier for generics to enter the market, or from using Medicare’s bargaining power to reduce drug prices. And the company has donated hundreds of thousands of dollars to the candidacies of state attorneys general in order to get favorable settlements in cases brought against it. But by deserting America, Pfizer relinquishes its right to influence American politics.
If Pfizer or any other American corporation wants to leave America to avoid U.S. taxes, that’s their business. But they should no longer get any of the benefits of American citizenship – because they’ve stopped paying for them.