One issue that unites the three leading vote-getters for president — Donald TrumpDonald TrumpOvernight Regulation: Dem asks SEC to probe health pick | Interior nominee questioned on public lands, climate Congress must ensure charities remain safety net for patients Biden to receive ‘welcome home’ rally in Wilmington MORE (R), Hillary ClintonHillary Rodham ClintonMichael Moore: Trump will ‘absolutely’ ban Muslims John Lewis betrays his own legacy with Trump comments 'Shattered' to tell story of Clinton's failed presidential bid MORE (D) and Sen. Bernie SandersBernie SandersTrump's Interior pick: Climate change ‘not a hoax’ Sanders to roll out bill letting Medicare negotiate drug prices Sanders warns HHS pick could move healthcare in 'wrong direction' MORE (I-Vt.) — is pledging to do something about the high cost of prescription drugs. They are each responding to the complaints they hear on the campaign trail from families forced to pay more out of their pockets for prescriptions that are vital for their health. Now Pfizer wants to compound the damage done by its soaring drug prices by pretending to desert the United States in order to avoid paying taxes on the huge profits those high prices reap.
First, the price gouging. Pfizer hiked the price of seven of its top-selling drugs an average of 39 percent over two years (2013 to 2015) under the Medicare Part D prescription drug program. That's 23 times the inflation rate. To take one example, Pfizer jacked up the price of its popular anti-cholesterol med Lipitor 35 percent in that period. The Wall Street Journal reported that at the beginning of this year, Pfizer hiked the prices of more than 60 of its best selling brands an average of 10.6 percent.
Why those big price hikes? Because it can. Unlike every other developed country in the world, the United States allows drug companies to charge whatever they want. Other countries set drug prices because they understand that market forces don't work to control drug prices. The laws of supply and demand can't work when it's not actually the consumer who sets the demand; it's the doctor. Drugs to treat specific conditions aren't easily substituted for other products, another condition for market forces to work.
We could instead use the purchasing power of government to control drug prices, which is what the Department of Veterans Affairs does to get the lowest drug prices in the country. But lobbying and campaign cash from the drug industry got Congress to prohibit Medicare from doing that when Medicare Part D was enacted. Industry clout also blocked the Obama administration and Congress from considering drug price controls in the Affordable Care Act.
That's why Pfizer can get away with selling those same top-selling seven drugs for 12 times as much to Medicare as they do in Ireland. The average U.S. price for Lipitor in June of 2015 was $8.10. In Ireland, it's 29 cents.
Why is Ireland the example here? Because that's where Pfizer is pretending to move in order to avoid paying $35 billion in U.S. taxes. Under Pfizer's proposed merger with Ireland-based Allergan, Pfizer would own 56 percent of the new company, which would claim that it is based in Ireland. That's a magic number, because it's under the 60 percent rule that the U.S. Treasury Department issued in 2014. It's a nonsensical number, because it's above 50 percent, the ownership share that would really put the foreign company in control. But the Treasury let companies have their cake and eat it too: desert the U.S. on paper, avoiding billions in taxes but still keeping majority control.
Pfizer is accomplished at shirking responsibility to pay taxes to the United States. While 48 percent of its assets and 38 percent of its sales are in the U.S., Pfizer still reported losing $16.3 billion in the U.S. from 2010 to 1014. During the same period, it claimed earnings of $78.1 billion offshore. The company pulled that off by shifting U.S. profits to its network of 151 subsidiaries in 10 overseas tax havens. No wonder it was the 20th most-profitable corporation in the world in 2015.
There's still time for the Treasury to stop the Allergan deal and, with it, Pfizer's abdication of tax responsibility on the profits it earned largely on the sky-high prices it gets for drugs in the U.S. The Treasury should quickly revise its ruling on foreign acquisitions of U.S.-owned companies by lowering the 60 percent rule to 50 percent.
Congress can act, too, as the AFT report recommends, by "denying inverted status to any U.S. company that is not at least 50% foreign-owned or that continues to be managed and controlled from the United States." The report recommends other measures, such as "closing the earnings stripping loophole that lets corporations shift taxable profits from the U.S. to low-tax countries, and imposing an exit tax on offshore profits to ensure corporations pay what they owe before they desert America for a tax haven."
There's legislation to do much of that: the Stop Corporate Inversions Act, sponsored by Sens. Dick DurbinDick DurbinDems want Sessions to recuse himself from Trump-Russia probe Cubs celebrate World Series win at White House HUD finalizes rule to protect children from lead MORE (D-Ill.) and Jack ReedJack ReedSenate panel easily approves waiver for Mattis Live coverage: Mattis confirmation hearing for Pentagon Democrats are playing with fire on Russia MORE (D-R.I.), S. 198, and by Reps. Sander Levin (D-Mich.) and Lloyd Doggett (D-Texas), H.R. 415.
Stopping the Pfizer tax desertion should be a no-brainer for the President and Congress. Drug companies are incredibly unpopular, because Americans understand that the companies profit hugely by taking advantage of people when they are the most vulnerable. And corporate tax-dodging by deserting the U.S. isn't exactly a highly regarded behavior. The failure by government to act reinforces every deserved suspicion among the public that powerful corporations have taken over our democracy. "Enough is enough" is the message Americans are sending loud and clear with every vote this presidential primary season.
Kirsch is a senior fellow at The Roosevelt Institute and a senior adviser to USAction. Follow him @_RichardKirsch.