Guest Editorial: Dodging taxes in Ireland
America’s pharmaceutical companies, as they are quick to point out, deserve big profits and robust patent protection because they invent drugs that save lives and enrich the quality of life.
Consider Pfizer Inc. In its glory days, which weren’t so long ago, it contributed Lipitor, the blockbuster cholesterol drug, and Viagra, the best-known erectile dysfunction pill. Its Lyrica drug for muscle and nerve pain is currently its most profitable medication, but Lipitor has lost patent protection and Viagra soon will. It’s been a long time since Pfizer had a hit.
So it’s been buying market share instead, buying Warner-Lambert, Pharmacia and Wyeth and last year taking a run at AstraZeneca of London. The AstraZeneca deal would have been structured as a corporate inversion, giving Pfizer a foreign headquarters and enabling it to reduce its U.S. tax burden by millions of dollars a year. Neither the U.S. Congress, the Obama administration nor the British government was enamored of the deal, and it fell through.
Now Pfizer is back, announcing plans to merge with Allergan, makers of Botox, which does business from New Jersey but technically is headquartered in Ireland. Pfizer is pretending that Allergan is the lead dog in this $160 billion deal, so Pfizer can pretend that it, too, is an Irish-based company and pay taxes at Ireland’s 12.5 percent rate instead of being subject to the nominal U.S. rate of 35 percent. It would be the largest of the 20 or so inversions that have occurred since 2012.
In fact, few U.S. companies pay anywhere near 35 percent in federal taxes. The average, according to the Government Accountability Office, is 12.6 percent. Corporate pleaders have been very successful over the past five decades in arguing that their tax burden is too high. As a percentage of gross domestic product, corporate taxes have dropped from 7.2 percent to 1.3 percent since the mid-1970s.
This is part of what makes corporate inversions so despicable. These companies were built with the help of the same U.S. taxpayers whom companies like Pfizer now propose to stiff. The National Institutes of Health underwrite a lot of drug company research. University researchers, paid or subsidized by tax dollars, contribute to the cause. Patent laws protect their corporate intellectual property, and the civil side of the federal court system does little but arbitrate corporate disputes. And then there’s subsidized public and private education, transportation and other infrastructure and countless other forms of citizen obligations that taxes pay for.
And now Pfizer wants to pretend to be Irish?
There has been a lot of blowback in Washington, D.C., against inversions. Last year the Obama administration issued new rules designed to make them harder. The Pfizer-Allergan deal may be able to evade those rules.
House Speaker Paul Ryan, R-Wis., as budget committee chairman, called inversions a “dangerous trend.” As speaker, he’ll have a chance to do something about them. But Big Pharma is a powerful lobby, and drug companies are major contributors to politicians on both sides of the aisle. Ryan wants inversion legislation to be part of a larger tax reform effort, something that seems far beyond this Congress’ ability to tackle.
However, The New York Times reports that the Pfizer-Allergan scheme is making even pharmaceutical industry lobbyists nervous. It’s harder for drug companies to argue that they are doing God’s work inventing life-saving drugs when they’re also seen as escaping their citizenship obligations.
“This Pfizer thing is humongous, and I think it could change the course of history for the entire industry,” one drug lobbyist told the Times. “Pfizer shot us all in the collective foot.”
Another industry lobbyist said, “There’s just too much obvious greed.”
Drug prices, as we noted recently, continue to rise at exorbitant rates. There’s the poster-child example of Turing Pharmaceuticals’ decision in August to raise the price of a key cancer drug invented 62 years ago from $13.50 a dose to $750. After a firestorm erupted, Turing’s CEO Martin Shkreli promised to lower the price. He’s now reneged on that decision.
The Pfizer-Allergan deal is now the Martin Shkreli of corporate mergers.
Putting a halt to this kind of piratical profiteering would be easy enough if Congress were still a functioning branch of government. No one would want to run for election as a friend of drug profiteers, regardless of how much money his campaign received from the industry.
Ian C. Read, Pfizer’s CEO, and Sally Susman, its top lobbyist, know no shame. They are arguing that the tax advantages offered by the inversion would give the company more money to invest in research in the United States.
Right. More research. That’s where the money would go. Not to prop up the share price and pay higher salaries to executives. Read’s total compensation for 2014 was $23.2 million.
As for Susman, she has a fine Democratic Party pedigree, having worked in the Clinton White House and raised money for both President Barack Obama and former Sen. Hillary Clinton. Her father, investment banker Louis B. Susman, was U.S. ambassador to the Court of St. James’s, a plum he got for raising millions for Obama.
Susman was hired by Pfizer in 2008 and charged with improving the company’s image. This would be a lot easier if its chemists were as successful as its tax lawyers.