Hillary Clinton’s Pfizer Follies She wants U.S. firms to have less money to invest in America.
http://www.wsj.com/articles/hillary-clintons-pfizer-follies-1448575026
Americans are more cynical than ever about politics, and with ample cause. Witness this week’s denunciations of Pfizer Inc. by politicians for trying to survive competitively under the tax laws these same politicians wrote.
On Monday the New York-based drug giant finally announced its long-mooted merger with Ireland’s Allergan in a roughly $160 billion deal that is the largest tie-up in a record year for corporate deal-making. The merger will, among other things, make it easier for the new Ireland-based Pfizer PLC to bring profits generated overseas back to the U.S. But the same politicians who continue to tilt the playing field against U.S. companies are blasting Pfizer for trying to do right by its shareholders, workers and customers.
“For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes,” thundered Hillary Clinton, that epic collector of corporate cash tribute. “Now Pfizer is trying to reduce its tax bill even further.”
Even further? Its effective tax rate of 25% is among the highest in its industry anywhere in the world, hence the need to move the legal address and endure grief from politicians like Mrs. Clinton. Senate Democratic leaders Harry Reid and Chuck Schumer also denounced Pfizer for abiding by the tax laws they’ve done so much to write and preserve.
***
What a spectacle of phony outrage. Pfizer CEO Ian Read says he’s been traveling to Washington for two years and telling “almost anybody who would listen” that the U.S. tax code is “hugely disadvantageous” for companies like his. He points out that an Irish company, after taxes, can choose to invest in the U.S. nearly 88 cents of a dollar of profits earned in its home country.
But if an Irish subsidiary of a U.S. firm wants to make a similar investment in the U.S., it has to pay both the Irish and U.S. governments. That leaves only 65 cents on the dollar left to invest in America. Mr. Read says that some foreign competitors “can invest $2 to $3 billion more in research than we can and we’re fighting with one hand tied behind our back.”
His solution is the Allergan deal. Pfizer expects the combined company to have an effective tax rate of 17%-18% compared to Pfizer’s anticipated 25% for 2015. And while the company isn’t saying exactly how much it plans to bring back to the U.S., a spokesman says, “we expect significantly increased access to our earnings and cash flow following” the transaction. Sounds like a reasonable work-around to a destructive Washington policy.
If Mrs. Clinton doesn’t like it, she ought to denounce herself. The former secretary of state is promising more red tape to prevent U.S. firms from leaving and rails about the “loopholes that litter our tax code, distort incentives for investment, and disadvantage small businesses and domestic firms that cannot game the international tax system.”
But she knows all about loopholes and gaming the system. She’s been proposing a new tax loophole on the campaign trail roughly every other week. Her proposals include tax credits for businesses with profit sharing-plans and a separate credit for companies that hire apprentices. And don’t forget her plan to expand the New Markets tax credit, which gives businesses tax breaks for investing in “qualified community development entities” that allegedly assist people with low incomes.
This is how Democrats, with some Republican help, built a monstrously complicated tax code. And if not for the loopholes, many companies couldn’t bear to pay the federal corporate income tax rate of 35%, which is the highest in the developed world. This high rate is what drives companies to send checks to outfits like the Clinton Foundation trying to persuade people like Hillary Clinton to cut them a break by tweaking the tax code.
The response from Treasury Secretary Jack Lew to companies fleeing onerous U.S. taxation has been to try to block business escapes without any changes to law or even formal regulation. Last year he put out a “notice” that sought to prevent some types of corporate inversions. When that didn’t work he recently issued another notice, which included corrections to the previous one.
So now Treasury is altering a rule it didn’t write clearly with amendments that also have not been formally adopted. Why not change the nation’s tax laws each morning with a tweet from Mr. Lew? Things could hardly get much worse for companies wishing they could operate in the U.S. with a stable and reasonable tax system. (The Pfizer-Allergan deal is a reverse merger rather than an inversion so it likely won’t be affected by the corrected non-rule issued by the hapless Mr. Lew.)
Democrats will keep wailing about the loopholes they invited and in many cases created with their insistence on having the developed world’s highest tax rate. But voters might want to check out the plans of the Republican candidates, premised on lower rates, a simpler tax code and no punishment for investing in the U.S. They’d raise more tax revenue while helping companies raise wages at home.
Comments are closed.
