Pharma’s Tax Breaks Didn’t Add Jobs
2 CommentsBy Ed Silverman // July 24th, 2007 // 6:54 am
Two years ago, when companies received a big tax break to bring home their offshore profits, the president and Congress justified it as a one-time tax amnesty that would create American jobs. Drugmakers were the biggest beneficiaries of the program, repatriating about $100 billion in foreign profits and paying only minimal taxes, The New York Times reports.
But pharma didn’t create many jobs in return. Instead, since 2005 the US industry has laid off tens of thousands of workers in this country. And now, the Times writes, drugmakers are once again using complex strategies, many of them demonstrably legal, to shelter billions of dollars in profits in international tax havens, according to their financial statements and independent tax experts.
In one popular accounting move, companies declare their foreign markets as far more profitable than their American businesses - even though drug prices are typically higher in the US than elsewhere. The Brookings Institution estimates that multinational companies are using overseas tax shelters to lower their payments to the Treasury by about $50 billion a year.
But pharma accounts for one of the biggest portions of that shortfall, according to the IRS and independent tax experts. Check out the graphic. And the nature of their business gives drugmakers techniques…
…like sheltering patents in tax-friendly havens like Ireland, that many other industries can’t use. Both Democrats and Republicans supported the legislation, which passed with big majorities in 2004.
“Congress can swear on two stacks of Bibles that it’ll never do it again,†H. David Rosenbloom, who directs the international tax program at New York University, tells the paper, “but they’ve lost their virginity.â€
Lew
Ed,
Sometimes Alex Berensen lets his bias get inthe way of a good story. In general, his story provides an interesting insight intot he result of a policy decision. I would argue that its hard to tell if the repatriated funds led to increased jobs or not. Undoubtedly, the industry lost jobs about the same time. However, this may have been due to some fundamental changes in the industry. The job loss might have been worse without the repatriated monies.
The part of the article that frustrates me is his line that reads, “…drugmakers are once again using complex strategies, many of them legal, to shelter billions of dollars in profits in international tax havens, according to their financial statements and independent tax experts.” If many of them are legal, that means that some are not legal. However, he does not lay out a case that any of them are illegal. If all are legal, does his thesis essential boil down to the position that these companies are too good at following the law?
Lew
Ed Silverman
Hi Lew,
You raise some interesting points. Perhaps, job losses would have been greater without the tax break. Unfortunately, we’ll probably never know. That’s up to drugmakers to prove, if they want or feel the need to do so. Now, though, the question is out there for them to answer.
As to your second point, I can’t get inside someone else’s head, but perhaps the fact that Merck was tagged and had to pay the IRS suggests some of other maneuvers aren’t, in fact, kosher. And since the IRS appears to be saying scrutiny is under way also suggests there’s reason to think something else may be coming down the pike. In other words, this may fall under the ‘remains to be seen’ category.
In any event, thanks again for stopping by.
ed