Editorial: Pfizer’s offer to buy AstraZeneca shows that the U.S. needs corporate tax reform

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Pfizer's bitter bill

THE HOT read among policy wonks these days is “Capital in the Twenty-First Century,” by French economist Thomas Piketty. He warns of a long-term trend toward ever-concentrated wealth and urges a global wealth tax to prevent it. While that might be a bad idea even if it were politically feasible, there is merit to the broader notion that industrialized countries could better coordinate taxing wealth, corporate and otherwise, that flits around the world in search of the lowest rates. Case in point: U.S. drug maker Pfizer’s $106 billion offer for Britain’s AstraZeneca, which could enable Pfizer to flag itself as a British company and pay taxes at Britain’s 20 percent rate rather than this country’s 35 percent.

For conservatives, Pfizer’s possible “inversion” proves the need to cut the U.S. corporate tax rate to keep it in line with rates abroad; for liberals, it demonstrates the futility of such a “race to the bottom,” given the faithlessness of large companies that are perfectly happy to pocket billions based on patents enforced by the U.S. government and then decamp across the ocean. Both sides have a point. What’s needed is a system for a world in which other countries have slashed their rates below U.S. levels and in which firms increasingly hold capital in forms that can easily be assigned to overseas subsidiaries, such as intellectual property. It’s an urgent issue, because U.S. firms hold $2 trillion in cash abroad rather than in the United States, where it could be invested — and taxed at higher U.S. rates.

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President Obama’s proposed solution, offered during the 2012 campaign, was to reduce the corporate tax rate from 35 percent to 28 percent while imposing a minimum tax on foreign profits to discourage cash-parking abroad. On the Republican side, Rep. Dave Camp, the retiring chairman of the House Ways and Means Committee, offered a plan this year that would have cut the corporate tax rate to 25 percent, the developed-nation average, and subject foreign profits to a one-shot tax and exempt them from U.S. taxes thereafter, in line with the practice of most other industrial countries.

While neither plan matches the other or Mr. Piketty’s idea, they at least share common elements: an effort to close loopholes so that the government raises the same revenue even at a lower tax rate, an attempt to harmonize U.S. and foreign tax rules to discourage international rate-shopping and a sense that tax policy should support job-creating investment, not the rent-seeking against which Mr. Piketty appropriately warns.

In short, there is more common ground on corporate tax reform than many people realize. Partisan politics and anti-reform special-interest lobbying have kept the status quo in place. Perhaps Pfizer’s proposed deal will be the wake-up call Washington needs to push for bipartisan tax reform, if not before the November election, then after it — and certainly, one hopes, before the end of the 21st century.



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