Clinton Says Pfizer-Allergan Leaves Taxpayers 'Holding the Bag'

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Is Hillary Clinton's Strategy Paying Off?
  • Democratic front-runner promises plan to curb inversions
  • $160 billion deal moves Pfizer's tax headquarters to Ireland

Democratic presidential front-runner Hillary Clinton attacked Pfizer Inc.’s plan to move its tax address to Ireland through a merger with Allergan Plc, saying it would hurt U.S. taxpayers and urging a crackdown on such deals.

“This proposed merger, and so-called inversions by other companies, will leave U.S. taxpayers holding the bag,” she said in a statement released Monday by her campaign. “As president, I will fight to reform our tax system to reward growth, innovation, and job creation here in the United States. We cannot delay in cracking down on inversions that erode our tax base.”

She vowed to release a proposal in the coming weeks to curb similar transactions. Her two main Democratic competitors, Senator Bernie Sanders and former Maryland governor Martin O’Malley, and lawmakers from their party also denounced the merger as an example of how the system favors corporations more than middle-income individuals. Republican front-runner Donald Trump also criticized the merger.

Such deals -- where U.S. companies take foreign addresses and cut their tax rates -- became a hot topic in Washington over the last year. While it plays into the campaign themes of the Democratic candidates, some of the Republican contenders, including Trump, have backed tax law changes to lower U.S. corporate tax rates to get rid of the incentive for those moves.

Treasury Moves

Pfizer is following other U.S. companies in seeking to cut tax obligations by choosing to merge with Dublin-based Allergan in a record $160 billion deal order to take advantage of Ireland’s 12.5 percent company tax rate. The U.S. rate is 35 percent, and Pfizer executives have not been shy in acknowledging that taxes are at the core of the deal.

The deal was announced Monday less than a week after the U.S. Treasury Department took steps to discourage tax-avoiding inversions by making the deals more difficult and limiting the benefits of the transactions, in the second round of curbs by the agency in 14 months. Pfizer and Allergan’s deal appears structured to avoid the tax inversion rules. It also isn’t expected to encounter significant anti-trust hurdles.

Read Pitch

Pfizer Chief Executive Officer Ian Read has already reached out to lawmakers in both houses of Congress, including Senate Majority Leader Mitch McConnell, and was planning to call the White House on Monday, according to a person with knowledge of the matter.

Read has said his New York-based company is at a competitive disadvantage by having its tax domicile in the U.S., and his pitch is that that the deal will help the companies invest in more innovative drugs.

White House press secretary Josh Earnest said he wouldn’t comment directly on the Pfizer deal or any other private transaction, but he offered up a repeat of administration criticism of corporate inversions.

He cited President Barack Obama’s “longstanding concern and outright criticism of companies to pursue this strategy” which amounts to companies renouncing their citizenship “while continuing to benefit from all America has to offer.”

‘Apolitical Solutions’

Earnest used the opportunity to take a shot at congressional Republicans, who he said continue to protect corporations by failing to deal with tax inversions through legislation.

The Republican chairmen of House and Senate committees that handle tax policy used the moment Monday to call for broader changes to the U.S. tax code. Representative Kevin Brady, chairman of the House Ways and Means Committee, stopped short of criticizing the deal and instead urged lawmakers to move forward with an overhaul.

“Let’s stop the political hand-wringing and get to work creating a U.S. tax code that’s built for growth,” Brady, a Texas Republican, said in a statement. “That means lower, globally competitive business rates that allow overseas profits to easily flow back into America to be invested in new jobs, research and facilities.”

Senator Orrin Hatch, a Utah Republican who heads the Finance Committee, said the transaction “only further underscores the arcane, anti-competitive nature of the U.S. tax code.” He said that, short of a tax system overhaul, policy makers should “explore viable policy-driven, apolitical solutions that will effectively combat inversions.”

‘Disturbing Trend’

Senator Charles Schumer of New York, who’s poised to take over as the chamber’s Democratic leader in 2017, expressed his disappointment, saying that Pfizer, which is based in his state, “had made tens of billions of dollars of profit thanks to American education, roads and NIH research.”

The transaction “takes this disturbing trend of inversions to unprecedented heights, and must serve as the impetus for Congress to act,” Schumer said in a statement.

The Treasury said in an e-mailed statement Monday that it doesn’t comment on specific transactions.

As part of its moves last week, the department said it reduced the tax benefits of such transactions by limiting the ability of an inverted company to transfer its foreign operations to the new foreign parent without paying U.S. taxes. Even so, it’s not clear whether the latest action will make a big difference, including on the Pfizer deal.

‘Specific Steps’

The steps were “limited in scope and should have a fairly modest impact,” Goldman Sachs Group Inc. analyst Alec Phillips said in a note to clients when the Treasury announced its measures.

Clinton said Monday she will lay out “specific steps” to stop companies from taking “advantage of loopholes that litter our tax code, distort incentives for investment, and disadvantage small businesses and domestic firms that cannot game the international tax system.”

She also called on Congress to move immediately to ensure that large corporations are paying their “fair share” and regulators to “look hard at stronger actions they can take to stop companies from shifting earnings overseas.”

Sanders Criticism

Trump, the billionaire real estate mogul who’s leading Republican polls, said in a statement that “our politicians should be ashamed” of the transaction. 

Sanders, Clinton’s chief rival for the Democratic presidential nomination, said in a statement released by his congressional office that the deal would be “a disaster for American consumers” and went further than Clinton, suggesting that the Obama administration “has the authority to stop this merger, and it should exercise that authority.”

Congress, he added, must pass tax reform legislation that “demands that profitable corporations pay their fair share of taxes.”

O’Malley called the deal “fundamentally unfair, and a prime example of how our capitalist economy is not supposed to work.”

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