Interesting article in the New York Times: Tax Break Used by Drug Makers Failed to Add Jobs, by Alex Berenson:
Two years ago, when companies received a big tax break to bring home their offshore profits, the president and Congress justified it as a one-time tax amnesty that would create American jobs. Drug makers were the biggest beneficiaries of the amnesty program, repatriating about $100 billion in foreign profits and paying only minimal taxes. But the companies did not create many jobs in return. Instead, since 2005 the American drug industry has laid off tens of thousands of workers in this country. And now drug companies are once again using complex strategies, many of them demonstrably legal, to shelter billions of dollars in profits in international tax havens, according to their financial statements and independent tax experts. In one popular accounting move, companies declare their foreign markets as far more profitable than their American businesses — even though drug prices are typically higher in the United States than anywhere else in the world. …
Tax experts like Michael J. McIntyre, a law professor at Wayne State University in Detroit, say the drug makers are taking advantage of antiquated rules that work better for manufactured products like steel and automobiles. Under this system, when companies transfer products between divisions in different countries, they must account for the sales internally through “transfer pricing.” But they have significant discretion in how they set prices for these transactions.
Update: New York Times: Taxes in the Global Economy (editorial):
As Americans grapple with the impact of trade and globalization, the government should be trying to ensure that America’s multinational corporations — and by extension, their shareholders — pay a fair share in taxes on the profits from globalization. Unfortunately, policy makers have moved in the opposite direction, dishing out excessive corporate tax breaks that have done little for workers and have served mainly to concentrate wealth among the few. The corrosive effects of that trend were detailed in The Times yesterday by Alex Berenson, who examined the fallout of the Orwellian-named American Jobs Creation Act of 2004. Pitched by tax-axing lawmakers as a way to generate cash for new hiring, it allowed American companies to bring foreign-held profits back to the United States in 2005 at a discount of up to 85 percent off the normal tax rate. Some 100 companies repatriated about $300 billion, avoiding about $90 billion in taxes. But instead of hiring more workers, many of the participating multinationals had mass layoffs, especially drug companies. … Where is the politician who will take an over-my-dead-body approach to future tax holidays and who will broach the need for new corporate taxes?
