Pfizer's greedy play
Pfizer Inc. had its beginnings in a redbrick factory in Brooklyn, N.Y., in 1849. It became a great American success story growing into a pharmaceutical industry giant with global reach. Now, motivated by greed, Pfizer, like too many corporations before it, is effectively renouncing its American heritage to dodge taxes.
This week came the announcement of Pfizer’s $160 billion merger with the Irish-based Allergan, its own success built largely on the sale of Botox. This is another corporate big fish, Pfizer, swallowing a smaller one. However, Pfizer will swim in the smaller fishbowl to avoid U.S. taxes.
Technically, the much smaller Allergan is buying Pfizer. The headquarters of the new merged company will be in Dublin, Ireland. Corporate lawyers, to slash Pfizer’s corporate tax rate to the 17 percent charged in Ireland, carefully orchestrated the details of the merger. The U.S. corporate tax rate is 35 percent, but by using various tax breaks, Pfizer has paid an effective rate of 25 percent.
Called inversions, about 80 corporations have renounced their corporate U.S. citizenship to escape their country’s taxes, costing the nation $33.6 billion over a decade, according to Congress’ Joint Committee on Taxation.
Corporations say the corporate tax rate of 35 percent in the United States is excessive. In truth, few corporations pay that rate. We also note that the U.S. corporate tax rate helps pay for necessary infrastructure, for a system to regulate and protect fair commerce, and for the largest military that the world has ever known, allowing for unfettered global trade.
Republicans call for lowering the corporate tax rate, Democrats for regulations to close loopholes that corporations exploit. A compromise would involve a bit of both, but good luck with that in the current political climate.
Dropping the rate is no magic fix. It could well set off a rate war, with other nations dropping their rates further to placate corporate greed.
One sound step, proposed by Democratic presidential candidate Sen. Bernie Sanders of Vermont, is to make it illegal for corporations to buy smaller foreign businesses for the purpose of moving their tax domicile and dodging U.S. taxes.
President Obama has described inversion as unpatriotic. He’s right. It is.
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