ICYMI: At Senate Finance Committee Hearing, Treasury Nominee Agrees with Senator Warren on the Need to End Tax Incentives for Big Pharma Offshoring
Warren: “Our job is to put American workers, American small businesses, American consumers first; and we need to reward investments here in America instead of everywhere else in the world.”
“We just have to recognize that corporate lobbyists have rigged our tax code for Big Pharma, and that it is incentivizing offshoring when we need to be investing in good jobs and secure supply chains here at home.”
Washington, D.C. – At a hearing of the Senate Finance Committee today, U.S. Senator Elizabeth Warren (D-Mass.) questioned Jay Shambaugh, nominee for Treasury Under Secretary for International Affairs, on the need for international tax reform to reward investments in America, instead of offshoring. The Senator pointed to the large biopharmaceutical company AbbVie, and its history of price gouging and exploiting tax breaks for offshoring, booking 99% of its income overseas and slashing its tax rate in half. In response to Senator Warren’s questions, Shambaugh said that the United States does better when companies choose their location “based off the skills of the workers and productivity of the economy and not gaming tax rates” and agreed with Senator Warren that the tax code should “encourage investment in production in the United States.”
Transcript: Senate Finance Hearing to examine the nominations of Jay
Curtis Shambaugh, of Maryland, to be an Under Secretary of the Treasury, and
Rebecca Lee Haffajee, of Massachusetts, to be an Assistant Secretary of Health
and Human Services.
U.S. Senate Finance Committee
Tuesday, July 12, 2022
Senator Elizabeth Warren: Thank you, Mr. Chairman. American families are getting hammered by soaring prices while giant corporations are raking in huge profits.
And one big reason is that corporate lobbyists have rigged our tax code to reward offshoring. Now, offshoring means fewer good jobs for American workers. It also means overseas supply chains that keep breaking on American consumers.
Professor Shambaugh, if confirmed, you would be Treasury’s top international official leading work on investment issues. So today I wanted to talk with you about how our tax code disincentivizes investments in U.S. manufacturing.
And I’d like to talk about AbbVie, the company that the Chairman just raised, a Big Pharma company known for jacking up drug prices and exploiting tax breaks for offshoring. Now, AbbVie has manufacturing in Ireland, where it pays just 12.5% of its profits in taxes. Now the U.S. has international minimum tax rules that are supposed to prevent the abuse of tax havens, topping up AbbVie’s tax bill if it pays too little overseas. But giant loopholes in this minimum tax means that AbbVie still gets a huge tax break for investing in Ireland instead of the US.
Professor Shambaugh, do you agree that our tax code should level the playing field for U.S. manufacturing and incentivize investments in the U.S. rather than in tax havens?
Jay Shambaugh, nominee for Treasury Under Secretary for International Affairs: I would agree that we would want our tax code to encourage investment in production in the United States.
Senator Warren: Ok, so let’s dive into that a bit more. I agree with you, but tax loopholes are rewarding AbbVie’s offshoring of drug manufacturing to tax havens. But here’s the part I want to focus on: it gets worse by including tax incentives to offshore to high-tax countries, as well.
So, take Germany, where AbbVie also has a manufacturing facility and the corporate tax rate is about 30%, much higher than the U.S. rate of 21%. You would think that would mean investing in the U.S. is more attractive than investing in Germany. But because our international minimum tax rules look at all foreign taxes in totality, paid together, AbbVie can use high taxes in Germany to shield its low tax Irish income. AbbVie would not get the same benefit for paying U.S. taxes. So it’s actually incentivized to invest in high-tax Germany, rather than investing here in the United States.
So, Professor Shambaugh, when you think about our international investment policy, does it make sense to invest in rewarding investing in Germany over investing in the United States?
Professor Shambaugh: I think we as a country do better when companies are choosing their location based off the skills of the workers and productivity of the economy and not gaming tax rates.
Senator Warren: Alright. So, look, I agree with you on this. Our international tax rules are broken, and incentivizing companies like AbbVie to invest everywhere outside the United States – low tax, high tax – makes no sense at all.
So, would it surprise you, then, that AbbVie has used these broken rules to slash its effective tax rate in half, and that it books 99% of its income overseas?
Professor Shambaugh: I guess in some sense it wouldn’t surprise me based off some of the things I’ve heard the Chairman say so far today, but it does not sound like the way we want our tax system to function.
Senator Warren: So, would you like to see changes in this system?
Professor Shambaugh: I think having a global tax system that would not encourage booking tax – profits in tax havens would definitely be better for the country.
Senator Warren: You know, I appreciate – I know you’ve done work on this, and I appreciate the work you’ve done. I also want to say how much I appreciate the work that Chairman Wyden has done on this, long and consistently.
We just have to recognize that corporate lobbyists have rigged our tax code for Big Pharma, and that it is incentivizing offshoring when we need to be investing in good jobs and secure supply chains here at home. This is why Secretary Yellen has negotiated an historic minimum tax agreement, and why Congressional Democrats are working to end Big Pharma’s overseas tax breaks – and to lower prescription drug prices.
I know that corporate lobbyists are kicking and screaming because they like a situation where their companies don’t have to pay taxes, and they like to be able to continue to raise their prices. But our job is to put American workers, American small businesses, American consumers first. And we need to reward investments here in America instead of everywhere else in the world.
So, thank you very much both of you for your work.
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