Taxes, Just For The Little People

Release of the Panama Papers and Pfizer’s thwarted tax inversion scheme arrived just in time for tax season. While we gather our W-2’s and organize our itemized deductions, we might ask ourselves why we play by the rules.

The rich don’t. Tax evasion goes down as smoothly for them as champagne and caviar. David Cameron, the now embattled U.K. Prime Minister at the center of the Panama Paper scandal, received inherited funds from his late father. His father used an investment vehicle which avoided paying tax in the U.K. by having board directors hold board meetings in Switzerland and the Bahamas. It’s nice work if you can get it.

Corporations are also highly adept at tax avoidance. The latest U.S. corporation to bemoan the U.S.’ corporate tax rate as uncompetitive is Pfizer. A proposed merger with Allergan (designed to move the corporate HQ to Ireland which has a more favorable tax rate) was squashed by a new rule on tax inversion schemes by the Treasury Department.

Pfizer has become the poster child for bad tax behavior (It’s next Corporate Responsibility report could be named, “Tax Dodging and Sustainable Development: A Win-Win For Growth”) Because for all of Pfizer’s kvetching, the bottom line is that it owes part of its success to U.S. taxpayer-funded-life sciences research through the National Institutes of Health. A not inconsiderable amount of money, $958 billion in 2015, has been spent on financial aid to Pfizer from the American public through measures like the Orphan Drug Act of 1983 which helped create drugs like Lipitor and Enbrel.

Pfizer is not the only company pursuing tax inversion. According to Dealogic, at least 40 companies have completed inversions over the past five years. President Obama is committed to ending these loopholes through new Treasury rules, but that is a band-aid for a problem so widespread. Nothing short of a complete overhaul of the corporate tax code is in order.

One lawyer quoted in a NYT article on tax inversion likened the current situation to tax avoidance as a game of Whac-a-Mole until comprehensive tax reform is passed by Congress. And indeed Pfizer’s recent transgressions have called heightened attention to the issue. Presidential candidates now deride it and use it as campaign fodder.  Hopefully they might actually do something about it.

Everybody hates paying taxes. But we do it. Because kids need to go to school, roads need to be repaired, police and fire departments need to respond to emergency calls, and research needs to be conducted for advances in medicine to happen.

Last I checked everybody needs these things. Shouldn’t we all pay for it?