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“Drugmakers Add Insult To Injury”: They Know How To Make Government Work For Them

It’s one thing for Pfizer to renounce its U.S. citizenship, moving its official residence to Dublin, Ireland, as a tax dodge — all the while continuing to run the business in the United States. That disgusting tactic happens to be disgustingly legal, thanks to our indolent Congress and its failure to fix the corporate tax laws.

It’s quite another to insult the public with blatant phoniness that avoiding billions in U.S. taxes gives the company “the strength to research, discover and deliver more medicines and therapies to more people around the world.” Those are the words of Pfizer’s chief executive, Ian Read, an accountant by training.

The Pfizer deal involves a merger with a much smaller Allergan, an Ireland-based company that happens to do its business in New Jersey. Wall Street analysts scoffed at the notion that the deal had any purpose other than to let the company avoid billions in U.S. taxes — billions that other American taxpayers will have to replace.

Since Read took the helm in 2010, Pfizer has slashed its research and development budget.

We assume the company will expect the United States to continue subsidizing research through the taxpayer-supported National Institutes of Health. We assume it wants the U.S. government to continue defending its intellectual property rights.

Pfizer made headlines more than a decade ago when it persuaded the city of New London, Connecticut, to use eminent domain to seize a working-class neighborhood around its shiny new headquarters — and replace it with an upscale shopping, hotel and office complex more to the company’s liking. Actually, it was a condition of its move to the city, according to The Day in New London.

The Supreme Court gave the controversial plan a green light in 2005. Four years later, Pfizer abandoned New London.

Yes, the drugmakers know how to make government work for them. Their lobbying group, the Pharmaceutical Research and Manufacturers of America, leads efforts to ensure that Americans pay far more for their products than citizens of other countries.

The drugmakers’ crowning achievement was getting a Republican-controlled Congress to write a Medicare drug benefit law to their specifications. While funneling billions in taxpayer subsidies toward helping the elderly buy drugs, it forbade the U.S. government to negotiate the prices on behalf of said taxpayers.

No other Western country lets drug companies charge whatever they think they can get away with. This is why the government of Norway pays about $460 for an injection of the asthma drug Xolair and our Medicare pays about $860.

(Pfizer also lobbied against proposals to let Americans buy their drugs from other countries at these lower prices.)

These conversations always circle back to the drugmakers’ argument that Americans must pay their price to cover the high expense of developing wonderful life-enhancing products.

We can close that circle by asking: To the extent that high U.S. drug prices support research and development benefiting the world, why are Americans the only ones footing the bills?

The drugmakers don’t talk much about that publicly for a very simple reason. It is not in the interests of their executives and investors to stop Americans from playing the chump. If they can get the job done by writing checks to obedient U.S. politicians and the chumps keep re-electing them, why make trouble for themselves?

In a recent annual report, Read told shareholders of Pfizer’s desire to earn “greater respect from the public,” which entails “acting as a respectable corporate citizen.”

Read may have reason to take the American public for easily deceived children. Basic decency, however, demands that he limit such thoughts to private dinner parties.

 

By: Froma Harrop, The National Memo, December 3, 2015

December 4, 2015 Posted by | Big Pharma, Congress, Corporate Mergers, Pfizer | , , , , , , | Leave a comment

“A Dangerous Direction”: Corporate Tax Break Scheme Is Gaining A Momentum We Must Stop

There is no real argument over whether the nation needs to do more to improve its infrastructure – its transportation, water, power and information networks. But there is an argument over how best to pay for it all – and that argument is increasingly turning in a dangerous direction.

Financially stressed working-class households who are at best treading water, if not actually sinking, in today’s economy aren’t eager to dig deeper into their own pockets to foot the bill. That’s even more true of the plutocrat class, which has an army of lobbyists at the ready to shut down any suggestion that those who arguably would benefit the most from such things as better roads and public transportation should shoulder the larger share of the load.

Politicians of both parties in Washington are therefore increasingly relying on one of the schemes in the voodoo economics toolbox: give corporations hoarding money overseas to avoid taxation a form of tax holiday in exchange for increased corporate funding for infrastructure.

The Bond Buyer financial news site reports that Sen. Rand Paul (R-TX) and Sen. Barbara Boxer (D-CA) are close to agreeing on a plan that would give multinationals a deep tax reduction on money they currently have stashed overseas if they bring the money back into the United States, also known as repatriation. Money collected would be deposited into the Highway Trust Fund, which is dedicated to paying for federal transportation projects.

Paul’s promoting of this idea is not new; he had a bill last year that would have permanently cut the tax rate on profits corporations hold overseas, with the funds going into an emergency fund for what it considered high-priority highway projects. But his collaboration with Boxer is likely to give the idea more political momentum.

Meanwhile, the chairman of the House Transportation and Infrastructure Committee, Rep. Bill Shuster (R-PA), told the U.S. Conference of Mayors last week that raising the gasoline tax to pay for transportation improvements – the most logical near-term solution since that tax hasn’t been raised in almost 22 years – is off the table in his committee. Instead, “the number one source that’s being talked about is this repatriation of funds,” he said, according to The Hill newspaper.

Rep. John Delaney (D-MD) is a leading proponent of a repatriation-for-transportation-funding scheme. In December he filed a bill expected to be reintroduced this year that would allow multinational corporations to bring back overseas profits at a tax rate of 8.75 percent instead of the current statutory tax rate of 35 percent. The revenue collected would be placed in the Highway Trust Fund and in a $50 billion America Infrastructure Fund, which would be used to leverage up to $750 billion worth of state, local and private funding for infrastructure projects around the country.

With the White House giving its tacit blessing to such schemes while refusing to support proposals to raise funding in other ways, tapping profits now held overseas at a deeply discounted tax rate is becoming the default position for how to begin covering a more-than-$1 trillion infrastructure investment deficit.

But is rewarding tax avoidance really the way to fund our public infrastructure needs?

The biggest problem with the Delaney proposal, and the similar proposal from Paul, is that “it would allow companies such as Apple and Microsoft, which have parked hundreds of billions of dollars of US profits in offshore tax havens, to pay a US tax rate of no more than of 8.75 percent, instead of the more than 30 percent tax they should pay on these profits,” says an analysis by Citizens for Tax Justice.

These profits – more than $2 trillion – are usually laundered through foreign subsidiaries in low-tax or no-tax countries in ways designed to avoid US taxes. That can be done as simply as having that online purchase you think you are making through an American-based company actually handled by a Swiss or Irish subsidiary, or by transferring a patent to an overseas subsidiary so that revenues on licensing that patent flow through the subsidiary. Sometimes, the money isn’t even actually overseas, but is deposited in US banks and is being used for domestic purposes. In any event, regardless of where the money ends up being deposited, it is not “trapped overseas,” as corporate lobbyists and their supporters in Congress often say; it’s just that they don’t want to pay a higher tax on that money.

The last time corporations got a repatriation tax holiday in exchange for the promise to use the profits in job-creating investments, in 2004, corporations instead ended up using the money brought back into the country to boost shareholder dividends and buy back stock (which drives up stock prices and, often, the compensation of CEOs). There is little reason to believe that the same thing wouldn’t happen again in 2015.

Setting a bargain-basement tax rate for profits booked through foreign subsidiaries serves as nothing more than an incentive for corporations to escalate the schemes – or a wedge to convince lawmakers that if an ultra-low corporate tax rate is good for profits repatriated from overseas, perhaps all corporate profits should be taxed at that rate.

In any event, it is the rest of us who end up being the losers. When multinational corporations don’t pay their fair share in taxes, the rest of us have to make up the difference – or suffer the inability to pay for the things that we need, like good roads and public transportation. That includes businesses who don’t have the capacity to set up the fancy tax dodges that their competitors use.

What we need is honest tax reform that makes corporations and the wealthy pay their fair share, closing the door for good on the loopholes and schemes they use to avoid paying taxes. We also need an honest and equitable way to pay for the infrastructure improvements we need. Both are possible, but not without considerable heat from an aroused public. Congress will have to decide this year how it will pay for a multiyear transportation bill. We can’t let the default option be coins from the table of corporate tax avoidance.

 

By: Isaiah J. Poole, Campaign For America’s Future, January 26, 2015

January 28, 2015 Posted by | Corporate Welfare, Multinational Corporations, Tax Loopholes | , , , , , , , , | Leave a comment

“Chief Tax-Dodging Officers”: It’s Gotten Pretty Easy For Large Corporations To Avoid The Taxman

Republican and Democratic leaders don’t often see eye to eye on taxes.

But surprisingly, corporate tax reform looks like one area where there might actually be some potential for bipartisan action in Washington. This should be good news, since our corporate tax system is clearly hopelessly broken.

Here’s a stark indicator of just how broken: Last year, 29 of the 100 highest-paid CEOs made more in personal compensation than their companies paid in federal income taxes. That’s according to a new report by the Institute for Policy Studies and the Center for Effective Government.

Source: Fleecing Uncle Sam,  an Institute for Policy Studies and Center for Effective Government report

Source: Fleecing Uncle Sam, an Institute for Policy Studies and Center for Effective Government report

Yes, it’s gotten that easy for large corporations to avoid the taxman.

This is true even for the country’s wealthiest companies. Citigroup, Halliburton, Boeing, Ford, Chesapeake Energy, Chevron, Verizon, and General Motors all made more than $1 billion in U.S. profits last year, but still paid their CEOs more than they paid Uncle Sam. In fact, most of them got massive tax refunds.

How is this possible?

While big businesses moan about the U.S. corporate tax rate of 35 percent, most of them pay nowhere near that. Between 2008 and 2012, the average large corporation paid an effective rate of less than 20 percent.

Hiding profits in tax havens is one of the most common ways large corporations avoid paying their fair share to the IRS. And indeed, the 31 firms who paid their CEOs more than Uncle Sam operate 237 subsidiaries in low- or no-tax zones like the Cayman Islands and Bermuda.

But that’s just one tax-dodging trick. Corporations have lobbied successfully for a plethora of other tax loopholes and subsidies.

Boeing, for example, has figured out how to double dip in the Treasury’s pool.

The aerospace giant hauled in more than $20 billion in federal contracts in 2013. According to Citizens for Tax Justice, taxpayers also picked up the tab for $300 million of Boeing’s research expenses last year through a tax break that Congress is now considering making permanent.

When tax time came, Boeing got $82 million back from the IRS, despite reporting nearly $6 billion in U.S. pre-tax profits. Meanwhile, Boeing chief executive Jim McNerney made $23.3 million.

Corporate tax dodging is bad for ordinary Americans — and our nation’s long-term economic health.

For example, if Boeing had paid the statutory corporate tax rate of 35 percent on its $6 billion in profits, it would’ve added an extra $2 billion to the funds available for public services. That sum would’ve covered the cost of hiring 2,775 teachers for a year.

Shirking taxes may boost the bottom line in the short term, but in the long run it erodes the economic infrastructure businesses need to be competitive.

Unfortunately, the current political rhetoric has little to do with cracking down on corporate tax avoidance.

Republicans are hooked on corporate tax giveaways. And President Barack Obama has suggested that he’s ready to reward corporations for stashing money overseas by giving them deeply discounted tax rates on their profits if they’ll just agree to bring them home.

Both of these positions are based on the unfounded claim that smaller corporate tax burdens translate into more good jobs.

In a Hart Research poll of voters on election night, only 22 percent favored taxing corporations less. In the same poll, less than 30 percent wanted Congress to make tax cuts a higher priority than investments in education, health care, and job creation.

The American people have their priorities straight. They deserve leaders who do too.

 

By: Sarah Anderson and Scott Klinger are the co-authors of “Fleecing Uncle Sam”; The National Memo, November 19, 2014

November 24, 2014 Posted by | CEO'S, Corporations, Tax Loopholes | , , , , , , , | Leave a comment

“Corporate Artful Dodgers”: We’re Heading Toward A World In Which Only The Human People Pay Taxes

In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. They are entitled to free speech, which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to their workers. Up next, the right to bear arms?

There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.

We’re not quite there yet: The federal government still gets a tenth of its revenue from corporate profits taxation. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s, a quarter or more well into the 1960s. Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.

Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.

The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” Consider the case of Walgreen, the giant drugstore chain that, according to multiple reports, is on the verge of making itself legally Swiss. If the plan goes through, nothing about the business will change; your local pharmacy won’t close and reopen in Zurich. It will be a purely paper transaction — but it will deprive the U.S. government of several billion dollars in revenue that you, the taxpayer, will have to make up one way or another.

Does this mean President Obama is wrong to describe companies engaging in inversion as “corporate deserters”? Not really — they’re shirking their civic duty, and it doesn’t matter whether they literally move abroad or not. But apologists for inversion, who tend to claim that high taxes are driving businesses out of America, are indeed talking nonsense. These businesses aren’t moving production or jobs overseas — and they’re still earning their profits right here in the U.S.A. All they’re doing is dodging taxes on those profits.

And Congress could crack down on this tax dodge — it’s already illegal for a company to claim that its legal domicile is someplace where it has little real business, and tightening the criteria for declaring a company non-American could block many of the inversions now taking place. So is there any reason not to stop this gratuitous loss of revenue? No.

Opponents of a crackdown on inversion typically argue that instead of closing loopholes we should reform the whole system by which we tax profits, and maybe stop taxing profits altogether. They also tend to argue that taxing corporate profits hurts investment and job creation. But these are very bad arguments against ending the practice of inversion.

First of all, there are some good reasons to tax profits. In general, U.S. taxes favor unearned income from capital over earned income from wages; the corporate tax helps redress this imbalance. We could, in principle, maintain taxes on unearned income if we offset cuts in corporate taxes with substantially higher tax rates on income from capital gains and dividends — but this would be an imperfect fix, and in any case, given the state of our politics, this just isn’t going to happen.

Furthermore, ending profits taxation would greatly increase the power of corporate executives. Is this really something we want to do?

As for reforming the system: Yes, that would be a good idea. But the case for eventual reform basically has nothing to do with the case for closing the inversion loophole right now. After all, there are big debates about the shape of reform, debates that would take years to resolve even if we didn’t have a Republican Party that reliably opposes anything the president proposes, even if it was something Republicans were for just a few years ago. Why let corporations avoid paying their fair share for years, while we wait for the logjam to break?

Finally, none of this has anything to do with investment and job creation. If and when Walgreen changes its “citizenship,” it will get to keep more of its profits — but it will have no incentive to invest those extra profits in its U.S. operations.

So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, July 27, 2014

July 29, 2014 Posted by | Corporations, Tax Evasion, Tax Loopholes | , , , , , , , | 1 Comment

“The Romneys Get Theirs”: How MItt Romney Used His Church’s Charity Status To Lower His Tax Bill

We already know that Mormon Mitt Romney has been tremendously generous to his church, giving over $5 million in the past two years alone, but now we learn that his charitable activity with LDS may not have been entirely altruistic. Bloomberg’s Jesse Drucker reports that Romney exploited the church’s tax-exempt status to lower his tax bill.

Romney reportedly took advantage of a loophole, called a charitable remainder unitrust or CRUT, which allows someone to park money or securities in a tax-deferred trust marked for his or her favorite charity, but which often doesn’t pay out much to the nonprofit. The donor pays taxes on the fixed yearly income from the trust, but the principal remains untaxed. Congress outlawed the practice in 1997, but Romney slid in under the wire when his trust, created in June 1996, was grandfathered in.

The trust essentially lets someone “rent” the charity’s tax-exemption while not actually giving the charity much money. If done for this purpose, the trust pays out more every year to the donor than it makes in returns on its holdings, depleting the principal over time, so that when the donor dies and the trust is transferred to the charity, there’s often little left. The actual contribution “is just a throwaway,” Jonathan Blattmachr, a lawyer who set up hundreds of CRUTs in the 1990s, told Bloomberg. “I used to structure them so the value dedicated to charity was as close to zero as possible without being zero.”

Indeed, this appears to be the case for Romney’s trust as well. Bloomberg obtained the trust’s tax returns through a Freedom of Information Request and found that Romney’s CRUT started at $750,000 in 2001 but ended 2011 with only $421,203 — over a period when the stock market grew. Romney’s trust was projected to leave less than 8 percent of the original contribution to the church (or another charity that he can designate). This, along with the trust’s poor returns — it made just $48 in 2011 — suggest the trust is not designed to grow for the LDS church but just serve as a tax-free holding pool from which annual payments can be disbursed to the Romneys.

This is hardly the first tax-avoidance strategy Romney has employed. It’s well known that he holds offshore bank accounts in Switzerland and the Cayman Islands, but he has used more obscure vehicles as well. There’s the “total return equity swap,” where a taxpayer calls a stock he owns by another name and doesn’t pay taxes on it. There’s the way he’s been avoiding gift and estate taxes through a trust that he set up for his children and grandchildren. And there’s the neat trick whereby private equity firms claim that management fees are capital gains and thus qualify for a lower tax rate than straight income. Bain Capital was known for pursuing an aggressive tax-mitigation strategy (they’re now under investigation for it), and so was Marriott Hotels when Romney was an influential board member.

And it’s not just taxpayers who lose out. “The Romneys get theirs off the top and the charity gets what’s left,” said Michael Arlein, a trusts and estates lawyer at Patterson Belknap Webb & Tyler LLP. “So by definition, if it’s not performing as well, the charity gets harmed more.”

 

By: Alex Seitz-Wald, Salon, October 31, 2012

November 2, 2012 Posted by | Election 2012 | , , , , , , , , | 1 Comment

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