“How is that we hear the loudest yelps about liberty from the drivers of negroes?” British pamphleteer Samuel Johnson wondered acidly in 1775 about the American colonists who complained about the heavy yoke of taxation. (The pamphlet was entitled Taxation No Tyranny.)
Today, we might ask how it is that we hear the loudest yelps about the danger of high federal taxes from companies whose business relies in part on… federal tax payments.
It would seem like a self-defeating move for a government contractor to become a tax exile. But, in effect, that’s what the drug giant Pfizer is aiming to do.
Pfizer is undertaking an audacious $100 billion bid for rival AstraZeneca. The rationale for the deal? Pfizer, like many giant pharmaceutical companies, has been struggling in recent years. Patents on key drugs like Lipitor have expired, and it is increasingly difficult (and expensive) to create or buy new blockbusters. Pfizer’s revenue fell 6 percent last year.
Merging with another giant would boost revenue for Pfizer, and set the stage for another epic round of cost-cutting. And it would provide an opportunity for the New York-based company to save a ton of money on taxes. Why? AstraZeneca is based in the U.K., which has a substantially lower corporate tax rate than the U.S. By executing an “inversion,” Pfizer would effectively renounce its American citizenship and thus slash its annual tax bill significantly. As Jesse Drucker and Zachary Mider of Bloomberg noted, “the U.K. corporate tax rate is 21 percent—next year dropping to 20 percent—compared with 35 percent in the U.S.” Last year, (see page 77 of this report) Pfizer had to set aside about $2.26 billion for federal U.S. income taxes.
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