Although I don’t study pharma prices, I could not resist the irony I saw reading the WSJ today while I tried not to choke on my oatmeal. Evidently Pfizer Inc. wants to acquire AstraZeneca at least partly to take advantage of lower corporate tax rates and move much of its operations to the United Kingdom. Of course, business considerations such are more likely to be driving this, but as they walk out the door, why not aim this Cassandra-like warning that other countries are more competitive, and we should lower corporate tax rates?
Not so fast! Two things to keep in mind: If the US regulated drug prices the way that other countries do, including the UK, maybe the US government could also afford to lower its corporate tax rate. According to the OECD, total expenditure on pharmaceuticals and other medical non-durables, (adjusted for cost of living with US$ purchasing power parity) is $995 per person. How about the UK? A paltry $374 per person! The OECD average is $497. Even Switzerland, long known to be more like the US in many ways in healthcare, spends $530 per person, probably because you can’t have US pricing when you are surrounded by countries that don’t. And with this magnitude of difference, I’m guessing this is unlikely to be the mix/intensity or quantity of drugs used. It’s probably mostly price.
Essentially, quite apart from the pharma price effect on health insurance premiums for those of us with private insurance, we probably give back whatever we take in corporate taxes by paying higher prices for drugs via Medicare Part D. The industry strenuously avoided price regulation or studies of cost-effectiveness under the Medicare Modernization Act while expanding their market. The Affordable Care Act did extract some discounts, but nothing like those of other countries. Just one more example of how health care prices are a drag on the economy, and an example of rent-seeking and capture gone rampant.
A second aspect is how much governments actually collect vs. what they charge, in effect, the sticker vs. the real price. Again, tax policy is not my area, but I did study comparative politics and American political development in grad school. In the UK tax rates might be lower, (apart from higher sales tax and income tax than the US), because I’m guessing that the UK tax code offers companies a lot less flexibility for corporate loopholes: the membrane between tax lobbyists and officials in the Westminster system of government is usually a lot less porous. Maybe other countries simply collect a higher proportion of taxes levied.
PS—By the way, I still blog here! Keith wrote to me and said he was sending out a search party sometime ago. I’m on what they would lovingly call at the NYT “book leave” from the blog, to write about another critical health care issue, the Relative Value Update Committee (RUC) and physician fees. So, for now, I’m popping my head in very sporadically.
Don A in Pennsyltucky says
Whether they’re in the UK or here, they’ll still sell drugs here at inflated prices won’t they. So they’ll continue to get their share of that $995 at a lower cost. Hence more dollars for executive pay envelopes.
rm1948 says
Easy fix…let the feds negotiate with PharmA that is offshore but not onshore. That might please the onshore folks as long as they do not have competing products.
byomtov11 says
It is unwise to pay too much attention - which is to say any attention - to WSJ gripes about "punitive" US corporate taxes. The fact is that the effective US corporate tax rate is comparable to those of other advanced economies.
From the Congressional Research Service in February, 2014:
"A particular aspect of the corporate tax system that receives substantial attention is the 35% statutory corporate tax rate. Although the U.S. has the world’s highest statutory corporate tax rate, the U.S. effective corporate tax rate is similar to the Organization for Economic Co-operation and Development (OECD) average. Further, the U.S. collects less in corporate tax revenue relative to Gross Domestic Production (GDP) (2.3% in 2011) than the average of other OECD countries (3.0% in 2011)."
paul says
They don’t actually have to move any operations to take advantage of lower tax rates; they can simply move the ownership of various trademarks and patents to the UK. But my suspicion is that the WSJ is selling (or has been sold) a completely bogus bill of goods. Not only are actually-collected corporate taxes higher in the EU, executive salaries are substantially lower, sometimes by law or strong political pressure.
Meanwhile, the argument that such a merger would increase profits by consolidating monopoly positions and eliminating competition in certain drug classes seems to be favored by Occam.