“Don’t blame me, blame the system.”
This is a typical refrain from corporate CEOs when they are the subject of public outcry for unsavory business practices. So it came as no surprise on Thursday when Mylan CEO Heather Bresch, under fire for exponentially increasing the price of a life-saving drug, blamed Congress and the insurance and health care industries for her company’s price gouging.
“No one is more frustrated than me,” she said.
It is easy enough to pick apart that flimsy defense by highlighting how Bresch’s compensation has soared to $18 million while ordinary working families who require access to the life-saving allergy medication in the EpiPen have faced huge price increases. But, in truth, Mylan’s price gouging and brazen corporate greed is part and parcel of a larger, systemic problem that we cannot count on corporations to self-police.
Sen. Charles Grassley noted in an Aug. 22 letter to Mylan that in many cases, “taxpayers are picking up the tab” for the company’s skyrocketing profit margins because children using Epipens are often covered by Medicaid. But this isn’t the only way consumers and U.S. taxpayers are subsidizing Mylan’s profits.
In 2015, the Pittsburgh-based company completed a corporate inversion, a scheme in which a U.S. company buys a smaller, foreign multinational and subsequently claims the merged company’s headquarters are housed abroad. Such maneuvers are widely derided as a transparent effort to avoid U.S. taxes by claiming legal tax domicile in another country. In the case of Mylan, it now claims to be based in the Netherlands although, practically speaking, corporate executives manage the company from its U.S. base.
As a long-time U.S.-based multinational, Mylan routinely earned more than half its worldwide sales in the United States. Now, a year after abandoning its U.S. citizenship, the company’s latest annual financial reports reveal that Mylan continues to earn a majority of its revenue in the United States, and is earning huge profits domestically as well, with $466 million in U.S. income in 2015. The company, therefore, still benefits handsomely from the public infrastructure that U.S. tax revenue make possible. Further, the pharma company also benefits from U.S. tax breaks. For example, thanks in part to production tax credits, Mylan paid a measly 2.9 percent federal income tax rate on its U.S. profits last year.
When corporations invert and claim foreign residency for tax purposes, it is sensible to ask whether these companies should be allowed to continue to enjoy all the advantages of U.S. citizenship. Mylan’s shameless effort to use U.S. taxpayers as a profit center, both by avoiding federal income taxes and by jacking up prices of medical supplies, should prompt policymakers to closely examine all benefits lavished directly and indirectly on Mylan and its fellow corporate inverters and, if possible, revoke them.
The Obama administration has worked hard over the past two years to prevent corporations from engaging in tax-motivated corporate inversions. These efforts are built on the sensible principle that when companies remain American in practice, they should not be able to engage in the legal fiction that they are “foreign” for tax purposes. Yet, administrative action can only go so far. Congress can stop shady inversions once and for all by passing measures such as the Stop Corporation Inversions Act, which would shut down domestic companies’ ability to pretend that they are foreign for tax purposes.
Mylan’s recent corporate inversion and EpiPen price gouging are fairly damning evidence that the company is maximizing its profits at the expense of the American taxpayer. During her CNBC interview, Bresch said, “facts are inconvenient to headlines.” It’s a sentiment that, in context, made little sense in part because it’s a monumental challenge to defend the indefensible.
But we agree, Ms. Bresch. Facts are important. And no matter what the headlines say or don’t say, if a company heavily relies on the largesse of the federal government, as Mylan in fact does, it should be treated as a U.S. citizen for tax purposes – and it warrants intense public scrutiny over the pricing of its products.