After Pfizer announced its $160 billion merger with Allergan on Monday, Alan Murray, the editor of Fortune, wrote that Americans are getting “raped” by pharmaceutical companies. The White House said Pfizer had essentially renounced its U.S. citizenship after 166 years. Donald Trump called the so-called tax-inversion deal, the largest ever, “disgusting,” while Hillary Clinton said U.S. taxpayers would be left “holding the bag.”
And yet Congress, the only body that can really prevent the pursuit of tax inversions—a form of financial gymnastics whereby an American company seeks shelter in another country—is unlikely to act anytime soon.
"Some say maybe this will be the straw that breaks the camel’s back,” says a former top GOP tax aide. "My view is the camel’s back is pretty strong."
The deal would move Pfizer’s legal address from New York to Dublin and could cut its effective tax rate from 23.4 percent to between 17 and 18 percent in its first year, saving the company billions, according to reports. It follows similar moves by huge companies like Burger King and Medtronic—over the objections of the Treasury Department, which has issued rulings to crack down on the practice.
While many of the presidential candidates agree that such financial maneuvers should be stopped, it’ll be harder in the 2016 political climate for a compromise to be brokered. And the GOP-led Congress, which by now is wholly frustrated in working with the president on anything, has splintered in the past over the issue. Earlier this year, then-House Ways and Means Chairman Paul Ryan, now the speaker, wanted to address the problem through international tax reform and use it to help pay for a highway spending bill. Senate Majority Leader Mitch McConnell countered that he preferred to approach tax inversions through a larger tax-reform package.
"He supports comprehensive tax reform,” says McConnell’s spokesman, Don Stewart. "He’s also said it will be difficult to pass comprehensive tax reform when the president is demanding nearly a trillion dollars in revenue as the cost of passing something.”
The former GOP aide adds that using tax reform to pay for something else is inherently a “net tax hike ... which is not something you’d conventionally associate with a Republican Congress.”
The Wall Street Journal notes that even the broad strokes that unite the White House and Republicans—lowered corporate tax rates, a one-time tax on foreign earnings, closed loopholes—is “fraying” as new Ways and Means Chairman Kevin Brady demands even lower corporate rates, from 35 percent to 20 percent, than previous GOP proposals. It’ll be hard work for the committees to clear the decks, even for 2017, when some experts predict the tax debate to come back in full force under a new president, whoever he or she might be.
"Next year, the most I think people can hope for is the House might pass something that is the Republican version of tax reform,” says the former aide. “So not something the president would agree to or sign or maybe could even get 60 votes in the Senate, but would be sort of a marker to put down going into 2017.”