Pharmaceutical Companies Are Jacking Up Prices And Dodging Taxes
The pharmaceutical industry is back in the spotlight: Martin Shkreli, otherwise known as “Pharma Bro,” made a huge splash in the news recently when his company, Turing Pharmaceuticals, increased the price of Daraprim—an anti-parasitic drug used to treat babies, the elderly, and AIDS patients—a whopping 5000 percent.
However, Shkreli’s move is far from unique in the pharmaceutical industry. Pharmaceutical companies routinely raise prices on their products, even while using elaborate tax tricks that allow them to avoid paying taxes.
Pharmaceutical companies’ aggressive pursuit of profit places a huge burden on families struggling with skyrocketing healthcare costs. This year, Pfizer—the nation’s largest pharmaceutical company, which in 2013 had a whopping 42 percent profit margin—raised prices on 133 drugs this year alone. Between 2012 and 2015, profits from price increases allowed Pfizer to rake in an additional $1.07 billion. Pfizer’s competitor, Merck & Co, raised prices on 38 drugs this year.
The prices of pharmaceutical drugs have a huge impact on Americans. In any given month, about half of all Americans—and 90 percent of seniors—take a prescription drug, to treat anything ranging from common to life-threatening illnesses. Americans pay exorbitant costs for these medications: in fact, as detailed in a recent Center for American Progress report, Americans pay out of pocket for a much greater share of prescription drug costs than hospital costs. And the costs of prescription drugs only keep increasing: between 2014 and 2015, the cost of prescription drugs grew by 13.6 percent for a family of four, compared with average growth over the previous five years of 6.8 percent.
But while doing everything they can to ensure American families are paying more, pharmaceutical companies are also doing their best to make sure they are paying less. To begin with, Pfizer, which is already stashing $148 billion offshore, is engaging in “accounting fiction” by using these profits to claim that its U.S. tax bill is too high. But, according to a new report by Americans for Tax Fairness which analyzed Pfizer’s SEC filings, Pfizer’s effective tax rate in 2014 was closer to 7.5 percent.
Pfizer clearly has no intention of ever paying tax on the money it has stashed abroad. In fact, the company is planning to use a tax maneuver known as a “corporate inversion” to move its corporate address to low-tax Ireland. An inversion allows a big, multinational company to buy a smaller company in a country with lower taxes and changes its legal residence to the lower-tax country. This company can still use American infrastructure and benefit from American law and labor, but without paying U.S. tax on income that its investments generate outside the U.S—meaning they aren’t contributing their full share to support our programs, infrastructure, and workers. This move will allow Pfizer to get out of paying tax on the $148 billion it has offshore, even if Pfizer returns that income to the U.S., and will lower Pfizer’s projected tax liability going forward by two-thirds.
Pfizer is not the only one in the profitable pharmaceutical industry trying to avoid taxes. Since 2010, ten pharmaceutical companies have used inversions to shirk their tax responsibilities. As a whole, the pharmaceutical industry accounted for more than one third of the corporate inversions in the past five years. While pharmaceutical companies grow larger and continue to move overseas, working Americans feel the burden of rising prescription drug costs.
And even though pharmaceutical companies actively avoid taxes, they continue to rake in funding from the federal government. Over the next 10 years, manufacturers of brand-name prescription drugs will receive more than $1.1 trillion in revenues from the sale of outpatient drugs to federal health care programs, including Medicare and Medicaid. Drug companies also receive billions of additional dollars in federal funding through the R&D tax credit. Between 2010 and 2014, Pfizer made $5.3 billion from federal contracts.
BOTTOM LINE: Stagnating middle class incomes are already squeezed by rising costs for everyday necessities—rising costs caused in no small part by the pharmaceutical industry’s push to make middle class families pay more for prescription drugs. Meanwhile, pharmaceutical companies are among the biggest users of tricks to get out of paying their fair share of taxes, even as they benefit from huge amounts of government spending. Pharma’s push for higher profits shouldn’t come at taxpayer expense—and shouldn’t make it even harder for middle class families to get ahead.
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