Anew survey of U.S. companies from analysts at Morgan Stanley estimates that 43 percent of the savings from the Republican tax cut bill will be paid to investors in the form of higher dividends and stock buybacks. Leading the way are large pharmaceutical companies, which Axios.com reported last week are spending a combined $50 billion on stock-buyback programs.
Only 13 percent of corporate America’s tax-cut savings will be passed on to employees, the Morgan Stanley analysts reported. Much of that will go to executives, whose compensation is often tied to stock prices, and they’ll benefit as well when share buybacks cause stock prices to jump.
The buybacks at Big Pharma are particularly galling. This is the industry that defends high drug prices by citing the high research and development costs of creating new drugs. Did they use that $50 billion in tax savings for R&D? No, they pocketed it.
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President Donald Trump pledged during his 2016 campaign to bring down high drug costs. He did nothing in his first year in office, but as recently as his Jan. 30 State of the Union speech, he was still promising.
“One of my greatest priorities is to reduce the price of prescription drugs. In many other countries, these drugs cost far less than what we pay in the United States,” Trump stated. “That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.”
Instead the tax-bill that Trump championed provided an additional windfall for Big Pharma beyond cutting the corporate tax rate from 35 percent to 21 percent. The bill included a repatriation deal for companies holding cash overseas, including the $200 billion held by pharmaceutical companies.
Instead of paying the old corporate tax rate of 35 percent on profits held overseas, companies will get a one-time deal that taxes them only 15.5 percent on repatriated cash.
Moody’s Investor Services predicted last month that Big Pharma won’t spend that money on R&D, either. Instead the firms will bring the money home and go shopping for smaller U.S. companies that have promising drugs already in the pipeline.
Take Pfizer, for example, one of the firms Moody’s predicts is most likely to go shopping with savings created by the tax bill. The company’s patent on Lyrica, a profitable drug for nerve pain, will expire next year. So Pfizer needs something new.
Pfizer could have taken its tax savings and invested in more research. Instead, in December it spent $10 billion buying back shares and raising dividends. In January, it laid off 300 employees in New England who were working on Alzheimer’s and Parkinson’s disease drugs.
So much for the trickle-down benefits of corporate tax cuts.
