Stat correctly points out that tax reform is unlikely to induce pharmaceutical companies to perform more research:
Drug makers are promising to create tens of thousands of American jobs if President Donald Trump follows through on his promise to give them a big tax break if they “repatriate†cash they’ve stashed overseas.
But that’s not what happened last time pharma got a tax holiday.
Instead, drug makers used the tens of billions they brought back to the US to enrich their CEOs and drive up their stock prices. Rather than adding jobs, they laid off thousands of workers.
In the end, the 2004 tax holiday cost the US government $3.3 billion in lost revenue and did nothing to increase employment or investment in research, according to a Senate report.
“This is one of the very few cases where we have a very clear experiment: Congress enacted a policy, and we have data and analyses showing that it was a failure on the promises that were made,†said Chye-Ching Huang, deputy director of the progressive Center on Budget and Policy Priorities.
More than fifteen years ago here at The Glittering Eye I produced evidence that pharmaceutical companies view R&D as overhead, not production. R&D at pharmaceutical companies varies with inflation, like paying the phone or electricity bills, not with revenues. Lobbying and marketing vary with revenues.
Pharmaceutical companies won’t change that behavior through alterations in the tax code. It will require more basic reforms.
Such as what?
Reforms in intellectual property law, changes in the way that the FDA operates, changes in the way new drugs are approved by the FDA, other changes in tax law, commonsense restrictions on lobbying.
Big Pharma receives a lot of abuse. My response is “If they’re ripping us off so bad why don’t you buy their stock? They are publicly traded companies and you can buy as much of them as you want for a $7 fee”.
They also receive a lot of subsidies. I’d have no gripes if they weren’t such blatant rent-seekers.
Basically, I think the producer surplus is too high.
I thought the theory was that in a capitalistic economy, the costs of products should work their way down to fairly close to the price of production. Just hasn’t happened with Big Pharma for the most part. When you can extend your patent for another 7 years just by changing the dose of a medication and then giving it a new name, why do actual research?
Steve
There are no competitive pressures when you hold a monopoly. That’s why I wrote that intellectual property reform was needed.