Time to End Roundtripping by Big Pharma(cfr.org)
cfr.org
Time to End Roundtripping by Big Pharma
https://www.cfr.org/blog/time-end-roundtripping-big-pharma
75 comments
You are talking about the "Double Irish", which was scotched (sorry) in 2020 by Ireland.
The link under your quoted line in the TFA seems to be talking about Apple (and others) preparing for the end of the Double Irish by finding other tax havens.
"Elite tax advisers help Apple Inc. and other corporate giants skirt impacts of crackdown on 'Double Irish' maneuvers."
So, I don't see what's invalid about the TFA's point, which is about tax avoidance in general
The link under your quoted line in the TFA seems to be talking about Apple (and others) preparing for the end of the Double Irish by finding other tax havens.
"Elite tax advisers help Apple Inc. and other corporate giants skirt impacts of crackdown on 'Double Irish' maneuvers."
So, I don't see what's invalid about the TFA's point, which is about tax avoidance in general
The article is specifically about how Apple doesn’t use the double Irish loophole any more as they moved to Jersey…
Yup, this article isn't great.
As someone close to pharmaceutical manufacturing, the reason why the manufacturing is done in Ireland is for tax benefits for sales in Europe.
So why not have a US factory for US sales? Because it's much more expensive and complex to have two separate factories making the same drug. It's far easier to just scale the Irish factory to serve all global sales.
Even the same companies with Irish factories have US factories as well. It's not like any tax benefit moved that out of the US as well.
As someone close to pharmaceutical manufacturing, the reason why the manufacturing is done in Ireland is for tax benefits for sales in Europe.
So why not have a US factory for US sales? Because it's much more expensive and complex to have two separate factories making the same drug. It's far easier to just scale the Irish factory to serve all global sales.
Even the same companies with Irish factories have US factories as well. It's not like any tax benefit moved that out of the US as well.
Most of the value is in the patents, not in the manufacturing. Did they also expatriate that “accidentally”?
If Pfizer operates in the US at a loss (or at least they did in 2018-2020) and all the profits are booked elsewhere it was their choice.
https://www.finance.senate.gov/imo/media/doc/wyden_pfizer_in...
If Pfizer operates in the US at a loss (or at least they did in 2018-2020) and all the profits are booked elsewhere it was their choice.
https://www.finance.senate.gov/imo/media/doc/wyden_pfizer_in...
No, that’s entirely intentional.
The IP and manufacturing are linked because you can’t manufacture something from commercial sale if you don’t have patent rights.
But the licensing of patent rights was done for tax advantage in the EU, not the US (generally).
Taxes are important but not the sole determinant of where they manufacture.
The IP and manufacturing are linked because you can’t manufacture something from commercial sale if you don’t have patent rights.
But the licensing of patent rights was done for tax advantage in the EU, not the US (generally).
Taxes are important but not the sole determinant of where they manufacture.
The manufacturing is in one place. The IP in another place. Both places chosen mostly for tax reasons in this case. Paying zero taxes in the US is a lucky side-effect.
It is also kind of an odd article because his assertion "After the 2017 Tax Cuts and Jobs Act (TCJA), imports from Ireland soared." is not at all borne out by graph that immediately follows.
Switzerland is a whole different matter, but such carelessness doesn't improve trust
Switzerland is a whole different matter, but such carelessness doesn't improve trust
Right, the graph shows a continuous increase since 2017, which tracks the growth of the worldwide pharmaceutical industry in general ($800b in 2016 [0] to $1.4t in 2024 [1].) So actually, the proportion of pharmaceutical imports that were from Ireland remained constant until a spike in late 2024.
And then there's this:
> The top seven pharmaceutical companies are paying $10 billion or so in tax on their $70 billion in offshore profit. They are just paying all that tax abroad.
So these companies already pay 14% in corporate tax. In the US, they'd pay 21% headline rate, but with room for deductions (I can't find a good source for what they actually pay, but here's [2] a bad source putting the R&D deduction alone at $15b/year across the top 8 companies). This 21% changed from 35% in the 2017 act the article criticises, though some deductions were also reduced. So corporate tax can't be the main differentiator here.
It's nice, for balance, to see an article that says the problem with Trump is that he just isn't protectionist enough. But the arguments here don't hold up.
[0] https://www.efpia.eu/media/219735/efpia-pharmafigures2017_st...
[1] https://efpia.eu/media/2rxdkn43/the-pharmaceutical-industry-...
[2] https://americansfortaxfairness.org/drug-firms-fight-restore...
And then there's this:
> The top seven pharmaceutical companies are paying $10 billion or so in tax on their $70 billion in offshore profit. They are just paying all that tax abroad.
So these companies already pay 14% in corporate tax. In the US, they'd pay 21% headline rate, but with room for deductions (I can't find a good source for what they actually pay, but here's [2] a bad source putting the R&D deduction alone at $15b/year across the top 8 companies). This 21% changed from 35% in the 2017 act the article criticises, though some deductions were also reduced. So corporate tax can't be the main differentiator here.
It's nice, for balance, to see an article that says the problem with Trump is that he just isn't protectionist enough. But the arguments here don't hold up.
[0] https://www.efpia.eu/media/219735/efpia-pharmafigures2017_st...
[1] https://efpia.eu/media/2rxdkn43/the-pharmaceutical-industry-...
[2] https://americansfortaxfairness.org/drug-firms-fight-restore...
And there we go, people actually using “trade imbalance” as a valid economical concept. If you let clown dictate your vocabulary, you’ll be spitting confettis in no time. Please be smarter than this.
There is no such thing as trade imbalance, it’s called trade, if you have more money, you buy more.
There is no such thing as trade imbalance, it’s called trade, if you have more money, you buy more.
It's not only funny as f but also scary and sad to see people who could be smarter than this falling for orange man and his words and actually dare to repeat them internationally, not only confusing everyone that doesn't know about Americas misleaded ideas but also enforcing the idea that any of this makes any sense anywhere else than in orange mans head.
Well, more money flows in one direction in such cases, which might or might not be intended. As long as there's enough influx of money from other places, this can even be long-term sustainable (e.g. a triangle of trade).
It seems that China is currently a "sink" in the global flow of money, which will obviously change the landscape in the long run. How? Hard to tell, probably not in such a bad as many people fear. I think it will eventually drive up prices of Chinese export goods, which will force importers to look for alternatives, which is likely better in many regards than having one country manufacturing everything for everyone in the world. But don't trust me, I'm just a random poster on the internet.
It seems that China is currently a "sink" in the global flow of money, which will obviously change the landscape in the long run. How? Hard to tell, probably not in such a bad as many people fear. I think it will eventually drive up prices of Chinese export goods, which will force importers to look for alternatives, which is likely better in many regards than having one country manufacturing everything for everyone in the world. But don't trust me, I'm just a random poster on the internet.
The issue is the framing itself, calling it an imbalance or deficit, when it’s way more complicated than this. It’s a really good strategy to frame the issue in your advantage. Doesn’t make it useful or meaningful
> There is no such thing as trade imbalance
Well, hope i can educate you with some marx here ;)
https://en.m.wikipedia.org/wiki/Unequal_exchange
Marx theory of equivalence of exchange is the foundation with which he defines exploitation. With a universal comparison unit (value of labor), you can define unbalanced trades.
Dont ask me though, how a balanced trade would look like. Maybe we can only approximate it via outcome.
Well, hope i can educate you with some marx here ;)
https://en.m.wikipedia.org/wiki/Unequal_exchange
Marx theory of equivalence of exchange is the foundation with which he defines exploitation. With a universal comparison unit (value of labor), you can define unbalanced trades.
Dont ask me though, how a balanced trade would look like. Maybe we can only approximate it via outcome.
Simple ideas work to get simpletons onboard, and one needs their vote and support to do anything. You are criticizing the greatest political communicator that has existed in history and will be studied and tried to be replicated for a long time to come.
Sounds a little hyperbole, I would argue it’s more a political strategy based on very smart use of technology, some brilliant strategists that know their base (I hate Banon but the man knows his stuff) and a mummified Democratic Party. Hitler, to cite one, was so much better communicator than trump, without the brain farts
I firmly believe we need revenue apportionment of profits. By this I mean that if you have $100 billion in revenue and $80 billion in costs then you have $20 billion in profits. If half that revenue ($50 billion) comes from sales in the US then half that profit ($10 billion) is taxable US income.
You might be tempted to argue they'll use subsidiaries to shift profits but we already have ways of dealing with that. We also have earnings that get reported to financial markets so you can always use the baseline revenue and earnings numbers from that.
We have ways too of dealing with transfer pricing and profit-shifting.
How far do companies get if they can't report earnings to the markets? Or if they try and tank earnings to reduce their tax liability?
You might be tempted to ask "what about private companies?" Subject them to the same reporting standards and auditing requirements of any US-listed company or they don't get access to the US market.
This idea that companies can't be taxed because they're too clever needs to die. So does the idea that they shouldn't be taxed. Governments, particularly the US government and the EU, wield extraordinary power. You can bring companies to heel by withholding access to a market pretty quickly.
It's why I always laugh when companies threaten to abandon a market. As long as there is profit to be made, a company will never leave. Non-IP assets can't generally be picked and moved so you always hold sway over a significant portion of their assets. And the US has the additional power to withhold access essentially to the global financial system.
And of course governments always have the option of nationalizing industries.
Governments should serve the interests of their citizens and corporations should serve the interests of those governments. Governments should not be subservient to corporate interests. Unfortunately, the US government at this point is basically just six companies in a trenchcoat.
You might be tempted to argue they'll use subsidiaries to shift profits but we already have ways of dealing with that. We also have earnings that get reported to financial markets so you can always use the baseline revenue and earnings numbers from that.
We have ways too of dealing with transfer pricing and profit-shifting.
How far do companies get if they can't report earnings to the markets? Or if they try and tank earnings to reduce their tax liability?
You might be tempted to ask "what about private companies?" Subject them to the same reporting standards and auditing requirements of any US-listed company or they don't get access to the US market.
This idea that companies can't be taxed because they're too clever needs to die. So does the idea that they shouldn't be taxed. Governments, particularly the US government and the EU, wield extraordinary power. You can bring companies to heel by withholding access to a market pretty quickly.
It's why I always laugh when companies threaten to abandon a market. As long as there is profit to be made, a company will never leave. Non-IP assets can't generally be picked and moved so you always hold sway over a significant portion of their assets. And the US has the additional power to withhold access essentially to the global financial system.
And of course governments always have the option of nationalizing industries.
Governments should serve the interests of their citizens and corporations should serve the interests of those governments. Governments should not be subservient to corporate interests. Unfortunately, the US government at this point is basically just six companies in a trenchcoat.
This would heavily encourage exports and disalign the company's incentives with the nation's.
I do, however, this could be a good idea. But I think the true issue is that we need a globally unified tax framework (and serious retaliation if a nation decides not to adopt it).
I do, however, this could be a good idea. But I think the true issue is that we need a globally unified tax framework (and serious retaliation if a nation decides not to adopt it).
100%. All of these schemes depend on the existence of a jurisdiction with low (or non-existent) corporate taxes that they can shift profits to in order to avoid paying taxes in the actual jurisdictions in which they manufacture and sell. Doesn't matter whether at its core it's a transfer pricing scheme, an IP royalty scheme, or a thin capitalization scheme. You need a man (country) in the middle with low/no taxes where you will recognize the profit you don't want taxed.
It was interesting to read how much of the US drugs market relies on imports. The article deals with the high value stuff. However, by volume, 90% of drugs used in the US are cheaper generics often with no US manufacturers. The US is heavily reliant on India and ultimately China for both active pharmaceutical ingredients and key starting materials. With 80% of Indian production using starting materials from China.[0]
The US had no domestic production of penicillin between 2004[3] when its last plant shuttered until 2021 when a factory reopened.[1] (source 1 and 3 appear to contradict, the 2019 testimony states there was no manufacturer after 2004 whereas it sounds like the plant closed in 2020, regardless the domestic capability is extremely weak)
As usual for American sources this is painted as some nefarious scheme by the evil red Chinese to destroy America by making cheaper drugs available. To add my own editorialising I think US companies are easily capable of ruining US manufacturing and focusing on screwing US patients over.[2] The average citizen should probably be glad of low cost Chinese supply, but nurturing domestic capability as per Biden is sensible.
[0]: https://prosperousamerica.org/skyrocketing-pharmaceutical-im...
[1]: https://www.fiercepharma.com/manufacturing/reopening-penicil...
[2]: https://www.rand.org/news/press/2024/02/01/index1.html
[3]: https://www.uscc.gov/sites/default/files/RosemaryGibsonTesti...
[4]: sources per https://youtu.be/hS0-ugYA-ko?si=xCNzctCGr9f2M7ct
The US had no domestic production of penicillin between 2004[3] when its last plant shuttered until 2021 when a factory reopened.[1] (source 1 and 3 appear to contradict, the 2019 testimony states there was no manufacturer after 2004 whereas it sounds like the plant closed in 2020, regardless the domestic capability is extremely weak)
As usual for American sources this is painted as some nefarious scheme by the evil red Chinese to destroy America by making cheaper drugs available. To add my own editorialising I think US companies are easily capable of ruining US manufacturing and focusing on screwing US patients over.[2] The average citizen should probably be glad of low cost Chinese supply, but nurturing domestic capability as per Biden is sensible.
[0]: https://prosperousamerica.org/skyrocketing-pharmaceutical-im...
[1]: https://www.fiercepharma.com/manufacturing/reopening-penicil...
[2]: https://www.rand.org/news/press/2024/02/01/index1.html
[3]: https://www.uscc.gov/sites/default/files/RosemaryGibsonTesti...
[4]: sources per https://youtu.be/hS0-ugYA-ko?si=xCNzctCGr9f2M7ct
It’s so ironic. Just a couple weeks ago he was touting how he’s getting drug prices down. Except the tariffs kicked in, and now we’re going to be paying 50% more for those generics. If this were a chess move, we just lost our rooks.
To continue the analogy, if the US lost a rook, everyone would take notice "damn that was a big blow".
I think it's more like losing a pawn. Except now others have taken 3 unanswered pawns and everyone said "eh we've still got our queen" but now the queens are looking shaky and you're staring down a 3 pawn short endgame and no one believes you can turn it around.
I think it's more like losing a pawn. Except now others have taken 3 unanswered pawns and everyone said "eh we've still got our queen" but now the queens are looking shaky and you're staring down a 3 pawn short endgame and no one believes you can turn it around.
Praying your opponent makes a mistake great analogy.
Actually iPhone, Pharma and RING BELLS Processed Petroleum Products exported by India are currently exempt from US import tariffs.
US wants to punish India for importing Russian oil - except when US themselves are consumers of that processed Russian oil.
US wants to punish India for importing Russian oil - except when US themselves are consumers of that processed Russian oil.
He claimed to bring prices down while (not after or before) increasing prices for meds from Switzerland for his people. With very little consequences on the Swiss market.
He lied, obviously.
He lied, obviously.
Wait the evil Chinese made drugs cheaper? That's evil!!!
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Can someone explain why the Netherlands are included in the graph of low tax juristictions? As far as I know their corporate tax rate is 25.8% which is larger than the 21% us rate.
I think it has to do with the fact that you can export tge profit to friendlier jurisdictions afterwards.
For this reason a lot of tech companies have subsidiaries in the Nerherlands. Uber is the first example that comes to mind. All card charges when you take an Uber in Europe are to Uber N.V - which is a Dutch Entity.
For this reason a lot of tech companies have subsidiaries in the Nerherlands. Uber is the first example that comes to mind. All card charges when you take an Uber in Europe are to Uber N.V - which is a Dutch Entity.
Those corporate taxes are only paid by small companies.
The Netherland has a decades old strategy of being "business friendly" - if you're a huge corporate.
This culminates in two things. One, The Netherlands has the most tax treaties of any country. This creates many loopholes.
Two, The Netherlands Tax Authority will happily help you take advantage of those. You just have to call them up and say "I plan to sell and lease back some IP through Swasiland, is that OK?" and they will tell you up front whether the loophole you found is OK to use - it's called a "ruling" and it's binding to them. This takes away any concern your tax lawyers might have about being thrown in jail for being too creative.
The basic idea is that The Netherlands would rather help a big corporate avoid paying 10% tax in another country, if it means they pay 1% in The Netherlands. Or even 0% corporate taxes and only some payroll tax for the people working at the Dutch office (job creation for tax lawyers who, as established earlier, lead a stress-free life).
A while back, some executives from the Shell oil company appeared on Dutch television proudly saying "of course we don't pay taxes! Why else would our HQ be here?". This was a bit too rich even for the Dutch viewers, and Shell ended up moving to the UK, presumably after some of their tax rulings got a second look due to political pressure. Unilever similarly left to the UK (who were also giving out tax deals like candy after Brexit ruined their economy).
Note that the author is conflating The Netherlands being a tax haven (which it is) with the location pharmaceuticals are produced.
To take advantage of Dutch tax avoidance strategies, most companies focus on intellectual property; this is why your IKEA pitches has "copyright InterIKEA systems B.V." printed on it. Made in some low wage country, but the license fees for its design are paid to a Dutch for-profit company owned by a non-profit(?) foundation.
In other words, it's easier to produce pharmaceuticals in, say, the Phillipines, and then do some shady (well, pre-approved) accounting to make taxable income disappear into thin air. There's also going to be some importing and re-exporting going on (guess which EU country is home to its biggest port, despite being a tiny country).
Nevertheless, pharma production - or rather "life sciences" - in The Netherlands is one of the governments 9 focus industries. This policy is focused mostly on high-value add activities like R&D rather than production. This will also skew the numbers.
The Netherland has a decades old strategy of being "business friendly" - if you're a huge corporate.
This culminates in two things. One, The Netherlands has the most tax treaties of any country. This creates many loopholes.
Two, The Netherlands Tax Authority will happily help you take advantage of those. You just have to call them up and say "I plan to sell and lease back some IP through Swasiland, is that OK?" and they will tell you up front whether the loophole you found is OK to use - it's called a "ruling" and it's binding to them. This takes away any concern your tax lawyers might have about being thrown in jail for being too creative.
The basic idea is that The Netherlands would rather help a big corporate avoid paying 10% tax in another country, if it means they pay 1% in The Netherlands. Or even 0% corporate taxes and only some payroll tax for the people working at the Dutch office (job creation for tax lawyers who, as established earlier, lead a stress-free life).
A while back, some executives from the Shell oil company appeared on Dutch television proudly saying "of course we don't pay taxes! Why else would our HQ be here?". This was a bit too rich even for the Dutch viewers, and Shell ended up moving to the UK, presumably after some of their tax rulings got a second look due to political pressure. Unilever similarly left to the UK (who were also giving out tax deals like candy after Brexit ruined their economy).
Note that the author is conflating The Netherlands being a tax haven (which it is) with the location pharmaceuticals are produced.
To take advantage of Dutch tax avoidance strategies, most companies focus on intellectual property; this is why your IKEA pitches has "copyright InterIKEA systems B.V." printed on it. Made in some low wage country, but the license fees for its design are paid to a Dutch for-profit company owned by a non-profit(?) foundation.
In other words, it's easier to produce pharmaceuticals in, say, the Phillipines, and then do some shady (well, pre-approved) accounting to make taxable income disappear into thin air. There's also going to be some importing and re-exporting going on (guess which EU country is home to its biggest port, despite being a tiny country).
Nevertheless, pharma production - or rather "life sciences" - in The Netherlands is one of the governments 9 focus industries. This policy is focused mostly on high-value add activities like R&D rather than production. This will also skew the numbers.
> The basic idea is that The Netherlands would rather help a big corporate avoid paying 10% tax in another country, if it means they pay 1% in The Netherlands. Or even 0% corporate taxes and only some payroll tax for the people working at the Dutch office (job creation for tax lawyers who, as established earlier, lead a stress-free life).
This is actually pretty smart on their part.
What most countries don't want to accept is that when the cost of business is too high, companies will either pack up and leave or pay tax advisors on how to move every cent of profit to another country that is business friendly and their dreams of collecting billions in tax remain just that, dreams.
This is actually pretty smart on their part.
What most countries don't want to accept is that when the cost of business is too high, companies will either pack up and leave or pay tax advisors on how to move every cent of profit to another country that is business friendly and their dreams of collecting billions in tax remain just that, dreams.
Sure but then when every country competes in a race to the bottom for corporate taxes, what do you think will happen to government funds and government funded social projects?
They'd have to massively cut government spending while somehow not affecting the people.
They'd have to massively cut government spending while somehow not affecting the people.
The taxes in the Netherlands for personal income are incredibly high (the highest bracket is 55%). I think it is better for the government to have as many people as possible employed to collect lots of taxes, instead of trying to tax companies.
It is much easier for a company to set up shop somewhere else than for an employee to just pack up and uproot his/her whole life to relocate for a job.
It is much easier for a company to set up shop somewhere else than for an employee to just pack up and uproot his/her whole life to relocate for a job.
Isn't that just increasing the wealth inequality?
My point was that instead of driving companies away like most countries do with excessive taxation, the Netherlands does almost everything it can if it means those companies create local jobs.
I am really not interested in any of the left "oh, but what about $red_herring_of_the_day?" type of discussion.
I am really not interested in any of the left "oh, but what about $red_herring_of_the_day?" type of discussion.
I'm not sure this is a red haring. What Netherlands is doing is detrimental to smaller EU companies who don't benefits from this tax avoidance scheme that only benefits the big corps in the Netherlands at the expense of the other EU members.
And this isn't a race worth competing in since it only benefits the super wealthy elite corpos at the expense of society.
Ideally we should regulate what the Netherlands is doing as an EU member, and not enter in a race to the bottom with it.
And this isn't a race worth competing in since it only benefits the super wealthy elite corpos at the expense of society.
Ideally we should regulate what the Netherlands is doing as an EU member, and not enter in a race to the bottom with it.
It is.
> This is actually pretty smart on their part.
It's the literal concept of a tax haven.
It's the literal concept of a tax haven.
How did Brexit ruin the UK economy?
25.8% of what? Tax loopholes operate on calculating that, not lowering the percentage.
Way under personal tax rates though, and it’s taxed on profit not revenue
I've said repeatedly, that medications and medical equipment should have a requirement of at least 50% domestic production (end to end) and dual sourcing in the US. Just from a security standpoint. That should have been the lesson of the COVID pandemic.
I feel similarly for infrastructure and communications as well.
I feel similarly for infrastructure and communications as well.
Is this 'round-tripping' thing just a fancy term for why my parents' medication costs more than a car payment? Just trying to connect the dots from their balance sheet to my wallet.
Not at all. It only explains why a pharmaceutical company has an overseas office.
Your parents medication cost more than a car payment because there's no motivation in the US system to reduce prices for most drugs. Quite the opposite for insurers who provide ACA--they're actually incentivized to increase the cost of care so that the 20% they are allowed to spend on marketing, executive compensation, etc can grow as well.
Your parents medication cost more than a car payment because there's no motivation in the US system to reduce prices for most drugs. Quite the opposite for insurers who provide ACA--they're actually incentivized to increase the cost of care so that the 20% they are allowed to spend on marketing, executive compensation, etc can grow as well.
I can't tell if this is trying to say the ACA should have set it to 0% so there is no incentive, if there is supposed to be something special about 20% which makes executives greedy but at 100% they'd have no interest in trying to make a bigger bonus, or if I'm missing something else completely. I feel like it has to be the latter, I just can't figure out what.
My read is: it's saying that if your executive compensation (etc.) is capped to a portion of the cost of care, and if your execs want to be paid more (etc.), then the required change is for the cost of care to increase.
Nothing special about the 20% proportion, just that it's proportional to a number which results in perverse incentives.
Nothing special about the 20% proportion, just that it's proportional to a number which results in perverse incentives.
Actually, thinking through it again fresh, I think it does all hinge on what the percentage is - but some other variables come into play (it's not a single percentage fits all) and then it quickly turns to madness because of the complexity of the system.
If the percentage is higher than the unconstrained optimal margin then the cap has no effect. There's no new pressure introduced yet.
If the percentage is lower than the unconstrained optimal margin then the only incentive is to increase the cost to raise the cap until right at the point demand decreases enough that any more cost would actually result in less total revenue. Because medical care is often very inelastic, that'd could quickly be a lot of cost inflation even for just a few percentage point constraint off the optimal margin. This is the part you're highlighting, and that makes sense.
The main counteracting force to this would be that a single insurer does not (theoretically, at least) set the cost of care directly on their own, they (theoretically, at least) compete with each other to negotiate the best care rates to have the most consumers go through them. There are several things which practically get in the way of that though, like how often you can actually change insurance plans or how competitive the open insurance market is (if you even have multiple options, some states only have a single marketplace option) vs just sticking with whatever your work offers.
Between all of that it is where comes back to the common refrains of "and that's why we need to go to a single payer system without profit as the main goal" and "and that's why we need to get rid of the ACA and let the market handle optimal profit naturally". Everybody can't seem to agree which way to go, just that they don't like the current way. Ironically, these approaches effectively map to the 0% cap (single payer, no profit focus) or the 100% (no ACA cap, free insurance market) interpretation options I originally listed.
I'm sure there about a billion other nuances not covered or thought about in this... but at least the comment parses now!
If the percentage is higher than the unconstrained optimal margin then the cap has no effect. There's no new pressure introduced yet.
If the percentage is lower than the unconstrained optimal margin then the only incentive is to increase the cost to raise the cap until right at the point demand decreases enough that any more cost would actually result in less total revenue. Because medical care is often very inelastic, that'd could quickly be a lot of cost inflation even for just a few percentage point constraint off the optimal margin. This is the part you're highlighting, and that makes sense.
The main counteracting force to this would be that a single insurer does not (theoretically, at least) set the cost of care directly on their own, they (theoretically, at least) compete with each other to negotiate the best care rates to have the most consumers go through them. There are several things which practically get in the way of that though, like how often you can actually change insurance plans or how competitive the open insurance market is (if you even have multiple options, some states only have a single marketplace option) vs just sticking with whatever your work offers.
Between all of that it is where comes back to the common refrains of "and that's why we need to go to a single payer system without profit as the main goal" and "and that's why we need to get rid of the ACA and let the market handle optimal profit naturally". Everybody can't seem to agree which way to go, just that they don't like the current way. Ironically, these approaches effectively map to the 0% cap (single payer, no profit focus) or the 100% (no ACA cap, free insurance market) interpretation options I originally listed.
I'm sure there about a billion other nuances not covered or thought about in this... but at least the comment parses now!
I think it's implying that it gives an incentive to make things more expensive, because then they can make more money. If that profit cap didn't exist, they could make more money in other ways, such as lowering costs but keeping prices the same (or lowering them less).
Exactly.
I firmly believe that was a poison pill put in the bill to try and eventually push insurance prices so high that Americans would acquiesce to single payer.
The alternatives are the bill’s authors were so stupid they didn’t see the negatives to that action, they thought it would play well to voters and the rest be damned, or the some big medical players got it put in - which would be risky, considering option A.
But yeah, with that in place they have no incentive to pay out less - they simply can’t have it raise higher than their competitors too quickly.
I feel like Republicans would have made a bill just to get rid of that one portion but the voters would hate it so much they can’t because people’s grasp on economics is too simple.
I firmly believe that was a poison pill put in the bill to try and eventually push insurance prices so high that Americans would acquiesce to single payer.
The alternatives are the bill’s authors were so stupid they didn’t see the negatives to that action, they thought it would play well to voters and the rest be damned, or the some big medical players got it put in - which would be risky, considering option A.
But yeah, with that in place they have no incentive to pay out less - they simply can’t have it raise higher than their competitors too quickly.
I feel like Republicans would have made a bill just to get rid of that one portion but the voters would hate it so much they can’t because people’s grasp on economics is too simple.
We should make insurance companies not allowed to negotiate special pricing for drugs and hospital expenses, and make everyone pay the same regardless if it goes through insurance, which insurer, or out-of-pocket.
Then the cost intensive flips. Insurer wants cheap healthcare and drugs so that they won't have to pay as much. This was part of what the original "affordable care act" tried to do, but was ultimately removed from the version that was passed.
It's also how insurance works by default almost everywhere except in the US.
Then the cost intensive flips. Insurer wants cheap healthcare and drugs so that they won't have to pay as much. This was part of what the original "affordable care act" tried to do, but was ultimately removed from the version that was passed.
It's also how insurance works by default almost everywhere except in the US.
Not really, that’s mostly down to how your country does a terrible job a negotiating drug prices compared to other countries with socialised healthcare. On the upside if you’re rich you get the best care in the world.
Your parents medication costs more than a car payment because developing medication is expensive. Developing medication is expensive partly because it's just innately expensive, but mostly because going through the bureaucracy of getting it approved is really expensive. You want cheaper medicine? Then make that faster and cheaper. But there are tradeoffs.
The us spends more money on healthcare per capita than any European nation (including those with tax funded healthcare). Yet the very same drugs are cheap over here. The very same drugs Europe produce, put in airplanes and fly over to the US for the US market.
Are Europe just better at R&D then? Does Europe have more lax medication regulations? That is what your argument would suggest. But i somehow doubt that.
Looking at the share prices of the top medical industry companies in the US, from insurance to medicine production to private hospitals, it would seem there is plenty of margin going elsewhere for some reason.
Are we also ignoring that a lot of medical R&D is funded by grants and government investment? Its odd how the pharmaceutical companies are sooooo strained for money from the (partially already paid for) R&D that they have to take out a 600% margin on the product to cover it for decades after the drug has been on the market.
But it's clearly the famously harsh American bureaucracy that cripples the US market compared to Europe and Asia (the very same bureaucracy that created a self inflicted opioid crisis by being overly swayed by pharmaceutical lobbying)
Are Europe just better at R&D then? Does Europe have more lax medication regulations? That is what your argument would suggest. But i somehow doubt that.
Looking at the share prices of the top medical industry companies in the US, from insurance to medicine production to private hospitals, it would seem there is plenty of margin going elsewhere for some reason.
Are we also ignoring that a lot of medical R&D is funded by grants and government investment? Its odd how the pharmaceutical companies are sooooo strained for money from the (partially already paid for) R&D that they have to take out a 600% margin on the product to cover it for decades after the drug has been on the market.
But it's clearly the famously harsh American bureaucracy that cripples the US market compared to Europe and Asia (the very same bureaucracy that created a self inflicted opioid crisis by being overly swayed by pharmaceutical lobbying)
I think you'll find if you spend a quick second googling, that Pharma is by and large the biggest spenders of money on R&D out of every major industry as a % of revenue.
https://www.strategy-business.com/feature/What-the-Top-Innov...
And what you're failing to account for, is all of the failed research that they do that goes nowhere. Yes, they charge big margins on old drugs, however what do you think happens to all the money that gets spent on drug research that doesnt do anything?
https://www.strategy-business.com/feature/What-the-Top-Innov...
And what you're failing to account for, is all of the failed research that they do that goes nowhere. Yes, they charge big margins on old drugs, however what do you think happens to all the money that gets spent on drug research that doesnt do anything?
Most medical research doesn't go up in smoke if it didn't lead to a production drug. And i don't argue R&D isn't a larger portion of what pharmaceutical companies do.
Although the statistics is old (2017), its interesting to compare the $2.2 billion total spent by all US healthcare companies listed (2017) compared to the $38 billion tax money spent by the NHS on research grants to medical research 2024. (80% of their budget of $48 billion)
Even assuming very generous increase of the medical research budget since 2017, makes N.H.S. research grants a significant portion of medical research that the expensive drugs supposedly cover?
https://www.nih.gov/about-nih/organization/budget
And again, this is somehow only an issue in the US. Why does European and Asian pharmaceutical companies produce cheaper drugs and cutting edge medical research as a competitive rate, if the high cost of the drugs is to needed to keep them afloat?
The statistics you sent also seem to show non-us pharmaceutical companies regularly spent more % of their revenue on R&D. What gives?
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And again, i didn't single-out pharmaceutical companies specifically. I blamed all of US medical industry, from the hospital to the insurance. The pharmaceutical companies seem to charge quite reasonable prices to the insurance companies. Odd how much more it costs to buy it without insurance though (the cost is to cover R&D right?.... right?)
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I'll be even more spicy. If your goal it so save as many people as possible, and R&D truly is single-handedly the reason drugs and drugs and medical care is so expensive (which i think is blatantly incorrect); The US should just stop doing R&D entirely.
You could save vastly more lives with the drugs already in existence, which is prevented because the US healthcare system is so fundamentally broken.
But i don't think it would do squat because there are a lot of other things affecting the price of drugs and healthcare than that. Cutting out R&D not do squat on healthcare costs.
Although the statistics is old (2017), its interesting to compare the $2.2 billion total spent by all US healthcare companies listed (2017) compared to the $38 billion tax money spent by the NHS on research grants to medical research 2024. (80% of their budget of $48 billion)
Even assuming very generous increase of the medical research budget since 2017, makes N.H.S. research grants a significant portion of medical research that the expensive drugs supposedly cover?
https://www.nih.gov/about-nih/organization/budget
And again, this is somehow only an issue in the US. Why does European and Asian pharmaceutical companies produce cheaper drugs and cutting edge medical research as a competitive rate, if the high cost of the drugs is to needed to keep them afloat?
The statistics you sent also seem to show non-us pharmaceutical companies regularly spent more % of their revenue on R&D. What gives?
---
And again, i didn't single-out pharmaceutical companies specifically. I blamed all of US medical industry, from the hospital to the insurance. The pharmaceutical companies seem to charge quite reasonable prices to the insurance companies. Odd how much more it costs to buy it without insurance though (the cost is to cover R&D right?.... right?)
---
I'll be even more spicy. If your goal it so save as many people as possible, and R&D truly is single-handedly the reason drugs and drugs and medical care is so expensive (which i think is blatantly incorrect); The US should just stop doing R&D entirely.
You could save vastly more lives with the drugs already in existence, which is prevented because the US healthcare system is so fundamentally broken.
But i don't think it would do squat because there are a lot of other things affecting the price of drugs and healthcare than that. Cutting out R&D not do squat on healthcare costs.
You may want to look at the financial statements of pharma companies before making claims like that.
The perverse incentives of insurance companies and an equal if not greater factor than regulator burden.
Insurance companies are not incentivized to lower costs, because it allows them to charge more. Pharmacy Benefit Managers eliminate the price bargaining power of even the largest pharmacy chains. Healthcare is complex, expensive, and required for life, which make it inherently susceptible to market distortions.
Insurance companies are not incentivized to lower costs, because it allows them to charge more. Pharmacy Benefit Managers eliminate the price bargaining power of even the largest pharmacy chains. Healthcare is complex, expensive, and required for life, which make it inherently susceptible to market distortions.
Absolute bullshit, drug prices are set according to how much they can squeeze out of it. It’s borderline dishonest to pretend the prices correspond to R&D expenditure
Bullshit.
Seems like the tariffs are having their intended effect.
Brilliant. Make big pharma pay more taxes and watch drug prices soar.Thimk.
If you think that is bad wait and see what big tech companies do in Ireland.
Is that still going on? I was just reading about it in the Sarah Wynn-Williams book and it sounded like the EU was cracking down on it and bunch of execs were making backroom deals at Davos in the late 2010s to try to get extensions and sweetheart deals of various kinds.
EDIT: Sigh, yeah looks like the famous Double Irish loophole closed in 2020, but there's another scheme that's come up since 2021: https://en.wikipedia.org/wiki/Double_Irish_arrangement
EDIT: Sigh, yeah looks like the famous Double Irish loophole closed in 2020, but there's another scheme that's come up since 2021: https://en.wikipedia.org/wiki/Double_Irish_arrangement
Ireland's been party to the GMCT agreement[0] since the end of 2023, so singling us out doesn’t make much sense anymore. Earlier this year the US withdrew from it, which complicates matters.
Run of the mill tax avoidance strategies continue worldwide.
0: https://en.wikipedia.org/wiki/Global_minimum_corporate_tax_r...
Run of the mill tax avoidance strategies continue worldwide.
0: https://en.wikipedia.org/wiki/Global_minimum_corporate_tax_r...
This would be wonderful to have happen but the current regime does not engender hope in tax reform that serves the country rather than the rich who own it.
> according to U.S. trade data, equivalent to the weight of less than four Tesla Cybertrucks
Americans will truly use anything but the metric system.
Americans will truly use anything but the metric system.
Similes don't exist in Europe?
Is the UK still considered part of Europe?
https://www.theregister.com/Design/page/reg-standards-conver...
https://www.theregister.com/Design/page/reg-standards-conver...
[deleted]
Corporate taxes are blunt instruments. They preferentially hurt workers. The C-suite decides how higher corporate taxes affect the company, and it’s not by lowering the CEO’s salary. It’s by firing people, hiring less, and making less investments in the business all else being equal. Corporate taxes also distort decisions of small business owners, who will pay out profits as salary to themselves rather than reinvesting the money in the company so as to avoid paying taxes on profits twice, first as a corporate tax and the second time as an income tax.
A better solution is to slash corporate taxes and raise income taxes on high earners. This will end the practice of offshoring the story describes, and also spare workers the negative effects of corporate income taxes.
A better solution is to slash corporate taxes and raise income taxes on high earners. This will end the practice of offshoring the story describes, and also spare workers the negative effects of corporate income taxes.
> It’s by firing people, hiring less, and making less investments in the business all else being equal.
This is farcical. The universal response to higher taxes is to create less revenue? Exactly how does this benefit the CEOs salary? Or improve outcomes for shareholders?
> who will pay out profits as salary to themselves rather than reinvesting the money in the company so as to avoid paying taxes on profits twice
The IRS keeps an eye on this. The business owner does not have unlimited runway and the salary selected must be reasonable. It's also not the only tax vehicle available to the owner to reduce or eliminate the "double taxation" that can occur on profit distributions. There's like half a dozen ways to solve this problem from an ownership perspective.
It should also be noted that the personal income tax rate and the capital gains tax rate are likely to offer very different outcomes for the owner. It's hardly as cut and dry as you project.
> A better solution is to slash corporate taxes and raise income taxes on high earners.
So the corporations engage in practices like buybacks and overfund the business and workers wages end up artificially depressed?
A better solution is to examine the problem and respond with appropriately designed policies that are outcome oriented. These "quick fix" and "slash and burn" policies are _precisely_ how we ended up here. Swinging the pendulum all the way to the other extreme creates the same amount of misery just in a different direction.
This is farcical. The universal response to higher taxes is to create less revenue? Exactly how does this benefit the CEOs salary? Or improve outcomes for shareholders?
> who will pay out profits as salary to themselves rather than reinvesting the money in the company so as to avoid paying taxes on profits twice
The IRS keeps an eye on this. The business owner does not have unlimited runway and the salary selected must be reasonable. It's also not the only tax vehicle available to the owner to reduce or eliminate the "double taxation" that can occur on profit distributions. There's like half a dozen ways to solve this problem from an ownership perspective.
It should also be noted that the personal income tax rate and the capital gains tax rate are likely to offer very different outcomes for the owner. It's hardly as cut and dry as you project.
> A better solution is to slash corporate taxes and raise income taxes on high earners.
So the corporations engage in practices like buybacks and overfund the business and workers wages end up artificially depressed?
A better solution is to examine the problem and respond with appropriately designed policies that are outcome oriented. These "quick fix" and "slash and burn" policies are _precisely_ how we ended up here. Swinging the pendulum all the way to the other extreme creates the same amount of misery just in a different direction.
Australia has another (strange?) solution: Australian public companies pay tax and issue dividends to shareholders. these dividend payments have attached tax credits ("franking credits") that can be used by the shareholder to reduce their income tax, so those dividend payments are not subject to double taxation (being subject to company tax and again to the individual shareholder's income tax).
E.g. suppose you are a shareholder and receive a dividend of $1000 from some australian public company. If the australian company is large it will be subject to a 30% corporate tax rate. If the company paid company tax on earnings before issuing the dividend, then that dividend comes with a $(1000 / 0.7) * 0.3 = $428.57 tax credit which the shareholder can use to reduce their income tax bill.
That said, in terms of the global landscape of low tax jurisdictions, Australia's corporate tax rate of 30% and highest marginal individual income tax rate of 47% make things less attractive.
E.g. suppose you are a shareholder and receive a dividend of $1000 from some australian public company. If the australian company is large it will be subject to a 30% corporate tax rate. If the company paid company tax on earnings before issuing the dividend, then that dividend comes with a $(1000 / 0.7) * 0.3 = $428.57 tax credit which the shareholder can use to reduce their income tax bill.
That said, in terms of the global landscape of low tax jurisdictions, Australia's corporate tax rate of 30% and highest marginal individual income tax rate of 47% make things less attractive.
Interesting, thanks. I didn’t know about that. I could see how a version of that might address the double taxation problem small business owners face that I described.
Links to an article from 2017 about a tax loophole that was closed in 2020 [0]. As an Economist that by his Wikipedia article [1] dedicates so much of his time talking about the Irish tax regime, he should be well aware of this fact.
[0] https://budgetmodel.wharton.upenn.edu/issues/2024/10/14/the-... [1] https://en.wikipedia.org/wiki/Brad_W._Setser