The pharmaceutical giant Pfizer said on Monday that it had struck a $160 billion deal, including debt, to merge with Allergan, the maker of Botox, in one of the biggest takeovers in the health care industry.
The agreement would also be the biggest deal in what has been a banner year for mergers, driven in part by consolidation in the health care and pharmaceutical sectors. Merger and acquisition activity worldwide surpassed $4 trillion as of Thursday, for only the second time since Thomson Reuters began keeping records in 1980.
The deal is the latest — and the largest — to be aimed at helping an American company lower its taxes by reincorporating overseas, a practice known as a corporate inversion.
President Obama has called inversions “unpatriotic.” His administration has tried to crack down on the strategy this year, with the Treasury Department and the Internal Revenue Service announcing additional rules last week meant to further restrict the practice. The United States government has already lost billions of dollars in tax revenue from inversions, particularly in recent years.
Of course, corporations don’t care about patriotism unless they can wring profit from it. Their only loyalty is to cash. Democrats have introduced bills to stop corporate inversions, but of course they have gone nowhere in a Republican Congress ready to serve as the lapdog of industry. This Economist piece is flawed but gets at the two major issues. First, we have a relatively high corporate tax rate that nobody pays because of the endless loopholes. Those loopholes should be closed and perhaps a lower overall rate is a reasonable compromise if they are in fact closed. Second, the U.S. attempts to tax all corporate profit regardless of what country it was generated in. Other nations don’t do that, incentivizing American companies to limit their ties with the U.S. The problem here isn’t a mean American taxation system, it’s a matter of enforcement, as well as other nations not taxing corporations enough, which admittedly we can do nothing about.
Perhaps this Pfizer deal will move the needle on this issue a bit, but I doubt it.