The CEO of Pfizer has weighed in on Treasury’s inversion-quashing rules change in an op-ed at the Wall Street Journal. Here’s his peroration:
Companies like Pfizer and Allergan contribute to the communities in which we operate. To be pilloried as “deserters†when we are trying to stay competitive on a global stage so that we can continue to invest in the U.S. is wrongheaded. Government policy should encourage investment certainty and job creation. Combining these two businesses would have had a positive impact on the lives and livelihoods of many people.
While the Treasury’s proposal is a shot at Pfizer and Allergan, this unilateral action will hurt other companies as well. If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete? The new “rules†show that there are no set rules. Political dogma is the only rule.
The editors of the WSJ chime in:
He’s right, as every CEO we know will admit privately. This politicization has spread across most of the economy during the Obama years, as regulators rewrite longstanding interpretations of longstanding laws in order to achieve the policy goals they can’t or won’t negotiate with Congress. Telecoms, consumer finance, for-profit education, carbon energy, auto lending, auto-fuel economy, truck emissions, home mortgages, health care and so much more.
Capital investment in this recovery has been disappointingly low, and one major reason is political intrusion into every corner of business decision-making. To adapt Mr. Read, the only rule is that the rules are whatever the Obama Administration wants them to be. The results have been slow growth, small wage gains, and a growing sense that there is no legal restraint on the political class.
I’m of mixed mind on this subject. While I tend to agree with Mr. Reed’s argument as expressed in the quoted passage, I’m not particularly sympathetic with Big Pharma.
Patents are government-granted monopolies. Big Pharma lives and dies by patents. As such they are creatures of the government. When you take the king’s shilling, you are the king’s man. As such the best advice is kwitcherbellykin.
Let’s not lose sight of the reality that our present tax law is antiquated, in need of reform, and out of step with international norms and standards. If it weren’t out of step with international norms and standards, there wouldn’t be any opportunities for the kind of leveraging that inversions provide.
Treasury’s actions are not motivated by patriotism, zeal for the law, or fiscal reality but by politics. Corporate taxes are inefficient. That’s not really in dispute. If you want to increase revenues, increase the personal income tax. The primary reason we have corporate taxes is not fiscal but political. Corporations not paying their fair share makes for good stump speeches.
What I’d like to see is a little more emphasis on how we’re going to improve economic growth and job creation. Don’t just tell me “infrastructure spending”. That’s no more a magic talisman than “free trade” is. Modern infrastructure projects don’t involve getting together crews of unskilled labor out of the ranks of the unemployed. They’re a process of letting government contracts to one or more of a handful of preferred vendors who’ve already hired their crews and bought their equipment.
“Companies like Pfizer and Allergan contribute to the communities in which we operate.”
Except the whole point of inversion transactions is to reduce the corporation’s contributions to the community. While I agree that the corporate tax code needs reform, that is not the same as reducing total tax revenue and shifting the burden to the lower 99% either through higher taxes or reduced government services (which seems to be the overriding goal of the WSJ).
If you want to reduce the burden on those who aren’t in the top 1% of income earners, you should want to eliminate the corporate income tax and increase the highest marginal rate on the personal income tax. Corporate income taxes account for about 11% of total federal revenue and are passed along to consumers in the form of higher prices.
“If you want to reduce the burden on those who aren’t in the top 1% of income earners, you should want to eliminate the corporate income tax and increase the highest marginal rate on the personal income tax. Corporate income taxes account for about 11% of total federal revenue and are passed along to consumers in the form of higher prices.”
That works for me, but somehow that is never on the table when people talk about tax reform. If you think Reed or the editors of the WSJ would support raising the tax burden on the upper 1% by 11% of current federal revenue (or even at all) in exchange for eliminating the corporate tax, then you are simply delusional. They want corporate taxes reduced as a way of shifting the tax burden downwards.