rug makers are promising to create tens of thousands of American jobs if President Donald Trump follows through on his promise to give them a big tax break if they “repatriate” cash they’ve stashed overseas.
But that’s not what happened last time pharma got a tax holiday.
Instead, drug makers used the tens of billions they brought back to the US to enrich their CEOs and drive up their stock prices. Rather than adding jobs, they laid off thousands of workers.
In the end, the 2004 tax holiday cost the US government $3.3 billion in lost revenue and did nothing to increase employment or investment in research, according to a Senate report.
“This is one of the very few cases where we have a very clear experiment: Congress enacted a policy, and we have data and analyses showing that it was a failure on the promises that were made,” said Chye-Ching Huang, deputy director of the progressive Center on Budget and Policy Priorities.
Still, Trump wants to try it all again.
Right now, repatriation taxes can reach up to 35 percent. On the campaign trail, Trump said he’d institute a one-time rate of 10 percent to encourage companies to bring their cash home and invest domestically.
The holiday — in addition to Trump’s promised tax cuts and regulatory reforms — will help the drug industry add up to 350,000 jobs over the next 10 years, according to Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America, the industry lobbying group.
But here’s what happened after an even steeper repatriation tax cut in 2004:
- Pfizer repatriated $35.5 billion — more than any other company — and then proceeded to cut nearly 12,000 jobs over the next three years. Payouts to its executives increased by $13 billion during that period.
- Johnson & Johnson moved $10.7 billion into the US, and then shed more than 4,000 employees while hiking executive pay by $32 billion.
- Merck repatriated $15.9 billion, laid off 1,000 workers, and boosted executive pay by more than $20 billion.
Only two major drug makers added jobs after repatriating: Schering-Plough and Wyeth, which collectively hired more than 7,500 people within three years of the holiday, according to the Senate report, released in 2011.
But those gains were quickly negated. In 2009, Pfizer bought Wyeth for $68 billion and laid off more than 20,000 workers. The same year, Merck acquired Schering-Plough for $41 billion and cut 15,000 people from its payroll.
There’s little reason to assume a second repatriation holiday would fare any differently, economists say.
“The best way to stimulate jobs is something like a tax credit for every new job — that’s the brute-force economist ideal,” said Mark Pauly, a professor at the University of Pennsylvania’s Wharton School. “This seems pretty far removed from that.”
But the holiday was a success by at least one measure: Stock prices soared. Buybacks and buyouts might not help the labor force, but they go over quite well on Wall Street.
And so some of the biggest cheerleaders for Trump’s promised repatriation redux are biopharma investors, convinced that a bolus of once-stranded cash will push drug companies to spend billions on acquisitions that will drive the market higher.
The biggest drug firms have about $175 billion in cash stockpiled overseas, according to Leerink Partners. That includes roughly $35 billion from Amgen, $29 billion from Gilead Sciences, $19 billion from Merck, and $14 billion from Pfizer.
“The prevailing view is they’re going to bring the money back and that could lead to pharma buying biotechs,” said Simos Simeonidis, a securities analyst at RBC Capital Markets.
But pharma acquisitions don’t lead to hiring sprees — quite the opposite, in fact.
“It might create wealth,” said Wharton’s Pauly, “but it will probably reduce jobs.”