Courtney: Pfizer bid highlights the need for tax reform
Mystic - U.S. Rep. Joe Courtney said Friday that Pfizer Inc.'s proposed acquisition of rival AstraZeneca partly to take advantage of more favorable tax laws overseas has reopened the debate in Congress about federal tax reform.
Courtney, speaking to about 125 people at the Chamber of Commerce of Eastern Connecticut's annual Congressional Update breakfast, said corporate tax rates in the United States are "much higher than in other countries" and reform is needed.
What some pundits don't focus on, he said, is that the top tax rate on individuals in some countries is much higher than in the United States and that lowering corporate levies without raising other funds will leave the federal government with yet more budget shortfalls.
"You can't do that (lower corporate taxes) in isolation," Courtney said at Latitude 41 restaurant. "There has to be some kind of alignment in other parts of the tax code as well."
Pfizer, which employs about 3,000 people locally, announced last month that it wanted to buy drugmaker AstraZeneca. Its offer climbed to $118 billion before the English company rejected a final bid last weekend.
Courtney, responding to a question posed by a Pfizer employee in Groton, said tax policy was a large consideration in the AstraZeneca bid and that the high U.S. corporate tax rate is creating a "tax inversion phenomenon" in which more American companies are talking about moving their headquarters overseas. Pfizer, he said, is only the biggest example of companies willing to go that route.
One proposal in Congress to reduce the number of inversions requires that an American company would have to transfer at least 50 percent of its shares to a foreign firm to avoid paying the U.S. corporate tax rate of 35 percent. Current rules allow companies to transfer as little as 20 percent to a foreign entity to change a domicile, which is what Pfizer had intended to do as a way to save on taxes.
"The Treasury is bleeding red ink, and we can't wait for comprehensive tax reform to stop the bleeding," Sen. Carl Levin, D-Mich. and lead sponsor of the Stop Corporate Inversions Act of 2014, told The New York Times this week.
The 50 percent rule, Courtney said, would effectively end the inversion practice, which some have estimated would save Pfizer $1 billion in U.S. taxes.
Systemic tax changes are not in the offing any time soon. Speaker of the House John Boehner killed a reform bill this session. But Courtney reported that two weeks ago Congress passed a permanent extension of the research-and-development tax credits that had expired last December and are seen as central to the U.S. holding onto high value jobs.
"A whole host of companies are desperate to see that we get these tax credits back in place," Courtney said.
It's unclear, however, whether the tax breaks will take effect this year because President Obama has threatened to veto the legislation.
Courtney's other points
1. Proposed changes to federal rules for recognition of Indian tribes likely won't result in more Connecticut casinos run by Native Americans because they would have to get the consent of the state.
2. Committee passage of the Workforce Investment Act, which institutes new job-training programs to address the gap between what employers need today and the skills of the current U.S. workforce.
3. The signing of a five-year contract for 10 new Virginia-class submarines that will mean significant employment in the region.
4. The state's push for a so-called TIGER grant to help pay for a $10.3 million New England Central Rail Project that will upgrade tracks not up to current standards for hauling freight.
5. Base Realignment and Closure will not go forward this year since the last round of closures that resulted in no net cost savings tainted Congress's view about the necessity of BRAC.
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