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:
by keeping ownership split somewhat evenly between the two companies. After the deal is complete, current shareholders of Allergan, which has the majority of its operations in the US, will own 44 percent of the mega company. The remaining 56 percent will be owned by current Pfizer shareholders.
Clinton and Trump seem to be mad about the deal for differing reasons. Here's Clinton:
For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes. Now Pfizer is trying to reduce its tax bill even further. This proposed merger, and so-called inversions by other companies, will leave U.S. taxpayers holding the bag.
The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting. Our politicians should be ashamed
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:
Taxing foreign income penalizes expanding both foreign and domestic investment, which are compliments (making foreign consumers rich enough to buy our stuff can only be a good thing).
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.