Donald Trump has joined forces with Hillary Clinton and other presidential candidates to condemn the recent announcement that Pfizer, known for its erectile dysfunction drugs, is inverting in a merger with Allergan PLC to become an Irish company.
Well, technically, they are “reverse inverting” as Ars Technica notes:
Clinton and Trump seem to be mad about the deal for differing reasons. Here’s Clinton:
Here’s Trump:
Pfizer claims it has no plans to move jobs overseas, and will keep an “operational headquarters” in New York. Just as when Burger King inverted to become a Canadian corporation, you didn’t see franchisees physically moving their restaurants to Mississauga to reap the benefits.
Clinton, however, is correct: Pfizer is trying to reduce its tax bill, and yes, it will save the company money.
While Trump’s criticism seems to fit in line with his populist views, Clinton’s is a shadowy defense of keeping America’s “worldwide” tax system. A system that the Tax Foundation observes is “very rare.”
The overly simple description of a worldwide tax system is that the U.S. expects its corporations to pay income taxes on its foreign earnings. But in practice, that only applies if and when they bring that money back to the United States. (Few do.)
That’s because, as the Tax Foundation notes:
The number of OECD countries with a worldwide tax system? Six. That’s down from 33 in 1891. The rest of the world uses a type of territorial tax system, which typically only taxes its domestic companies on their in-country earnings, rather than their earnings around the world (where they also pay taxes).
As Pfizer proclaims in its ads, this is the age of knowing what you’re made of, and how to get things done. So why let a worldwide tax system get in your way?
Pfizer will save big on tax and regulatory compliance costs by completing a reverse-inversion. How much? A lot: “Pfizer said that the deal will deliver $2 billion in cost savings per year for the first three years.”
Republicans, more so than Democrats, have been pushing for reform of the U.S. tax system in recent years. It remains elusive in large part due to the intransigence of Democrats who seem wedded to an archaic tax system that nearly all of the world has thrown on to the ash heap of history. Because, you know, fairness.
Democratic also-ran Martin O’Malley joined in the populist whine fest, saying the merger is “a prime example of how our capitalist economy is not supposed to work.”
No, this is exactly how a capitalist economy is supposed to work. Businesses have a responsibility to provide value and profit, and if the options are bad, they’ll seek better ones.
Bernie Sanders, a beacon of intellectual honesty, said “Congress also must pass real tax reform that demands that profitable corporations pay their fair share of taxes.”
Nobody expects both political parties to have a kumbayah moment and come together to replicate the 1986 tax reform, but if you want to take away a big incentive for companies to invert, scrapping the worldwide tax system would be a painless way to do it.
After all, the trillion dollars or so that U.S.-based companies have sitting abroad? It’s not coming back so long as our worldwide tax system is in place. Clinton and others say that “will leave U.S. taxpayers holding the bag.”
Yes, an empty bag with imaginary dollars that never had plans to return. Perhaps with this change, those dollars just might return.
