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Contrary to myth, Americans pay significantly more taxes. For example, in 2022, employees pay an average tax rate of 24.8%, or 0.2% more than comparable countries. US federal taxes on personal income can be as high as 37%.
However, this is not true for corporations. They all pay a flat federal tax rate of 21% regardless of their profits – a change introduced in 2017 as part of former US President Donald Trump’s corporate tax cuts. Earlier they also had brackets, which were up to 35%.
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Yet companies often get away with paying very little. For example, eight big pharma players—AbbVie, Amgen, Bristol Myers Squibb, Eli Lilly, Gilead, Johnson & Johnson, Merck and Pfizer—have proposed more than 2% US taxes on a combined $110 billion in profits for 2022. paid off.
Incentives for offshore production and profits
In a hearing before the US Senate Committee on Finance on May 11, Brad Setter, a fellow at the Council on Foreign Relations, broke down the earnings and tax payments (PDF) of eight big pharma companies, showing how Trump’s tax The combination of offshore profit cuts and incentives has deprived America’s coffers of billions.
The 2017 reform also introduced a tax on global profits at half the federal rate, or 10.5%, to capture some overseas profits in low-tax countries. Tangible property located abroad – for example, machinery subject to depreciation – was exempt from that taxation, however. This encouraged corporations to produce outside the US, declaring profits where they were taxed very little.
As Setters’ analysis shows (PDF, page 4), declared profits in countries with low tax rates (such as Ireland, Luxembourg, and Singapore) far exceed those in major economies with high tax rates (such as Germany and France).
And the profits declared internationally are much higher than their domestic counterparts. In 2022—a particularly profitable year for pharma—the eight largest US pharmaceuticals companies will report $10 billion in profit domestically on $214 billion in revenue and pay taxes only on that portion. Outside the US, they reported $90 billion in profits on $171 billion in revenue, paying $11 billion in taxes abroad.
Pfizer paid negative US taxes on $42.5 billion in domestic revenue
The tax system is designed in a way that makes it easy to take advantage of, and pharmaceutical companies don’t miss their opportunities. For example, in 2022, Setter noted in his testimony, AbbVie could announce losses of nearly $5 billion in the US—and $20 billion in profits internationally. The company has reported losses in the US every year since 2013, despite the fact that it makes most of its profits there thanks to its blockbuster arthritis drug Humira.
While not so brash in its offshoring, Pfizer announced last year it made only $5 billion of its $35 billion profit on total domestic sales of $42.5 billion in the US. The company reported operating losses of $2.9 billion in 2020, $4 billion in 2018, and $6.9 billion in 2017—all this despite deriving most of its revenue domestically. For 2022, Pfizer will receive half a billion dollars in US tax credits, as it did in 2021, and pay $4.2 billion in foreign tax.
Of the eight companies analyzed, Gilead was the only one that declared most of its profits domestically ($4 billion out of a total of $5 billion). It paid $1.5 billion in US taxes last year—more than Pfizer and AbbVie combined.
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