For more than 125 years, Merck, an American company, has been a leader in drug discovery and innovation. While Merck’s impact in improving patient health outcomes is global, Merck has created jobs and grown America’s economy in the process.
We’re optimistic about our future, too, but we’re also acutely aware, as are many in our industry and throughout the American economy, of the urgent need to reform our tax code. The world has evolved, but America’s tax code has remained stagnant.
We need Congress to complete tax reform so that we can compete. Without change, America’s biopharmaceutical industry continues to be at a significant competitive disadvantage compared to our foreign competitors.
Within the current tax landscape, the reach of foreign competitors in our sector has grown steadily. The majority of acquisitions of U.S. biotech companies have been made by foreign competitors since 2006, sending valuable innovation and job creation potential abroad.
This is because nearly all foreign companies benefit from tax systems with much more competitive baseline rates. Unlike the U.S., many other nations also employ modernized territorial taxation of domestic companies’ foreign income and activities.
This practice enables domestic companies to avoid the de facto “double tax” American companies must pay to the United States and foreign host governments. Many foreign governments also provide their companies incentives that the U.S. does not, such as innovation boxes, that encourage the location of intellectual property and ultimately, scientific discovery, abroad.
The reach of foreign companies will only continue to multiply until the U.S. tax code changes. The stakes are especially high in the biopharmaceutical industry, which invests $70 billion a year in R&D, which in turn employs more than 850,000 workers, supports 4.5 million jobs and spurs $1.2 trillion in economic output nationwide.
Merck alone has invested more than $50 billion in R&D since 2010, and we are creating new drug discovery centers on opposite coasts of our country, in Cambridge, Mass. and San Francisco, respectively.
From a policy perspective, Merck supports reforms that would drastically improve American companies’ ability to compete and win against overseas competitors.
To achieve that goal and make American companies globally competitive, we support three main principles: Make the corporate tax rate competitive, move the U.S. to a territorial tax system and create a level playing field with foreign competitors.
Within the biopharmaceutical industry, the benefits of these reforms are obvious: more U.S. high-paying manufacturing jobs, as well as more skilled researchers. This would ensure the United States continues to lead in the development of the next generation of medical breakthroughs.
Tax reform, completed and done correctly, is critical. It will ensure that American companies can compete with any company, anywhere in the world on a level playing field. It will allow our companies to focus on what they do best — to the benefit of patients.
For us at Merck, that means having the investments necessary to discover and develop the next medical inventions for the world. Tax reform is the answer; not only to better health for Americans and to jobs creation, but for continued economic growth for America.
Robert McGovern is the senior vice president for corporate taxes at Merck & Co., an American-based, leading global biopharmaceutical company.