In Whose Interest?

You don't have to look very far to see whose interests are being served by the Bush administration. Two articles are in the May 8, 2005 New York Times. The first is in the main section and is titled Under New Medicare Prescription Drug Plan, Food Stamps May Be Reduced. The second is in the Business section, and is titled Drug Makers Reap Benefits of Tax Break. These two issues are not unrelated - even though most papers will never put them together.

The Bush administration did not create the "tax loopholes" that have allowed U.S. pharmaceutical companies to legally hide their earnings, that is part of a longer and bi-partisan effort which has shifted the tax burden from corporations to individual tax payers. According to the NY Times Business Section article, if four of the six U.S. pharmaceutical companies had paid legitimate taxes on their income, they would have paid $26 billion. With the loopholes, they paid far less. However, the "American Jobs Creation Act" has a tax break for companies to bring those profits back into the U.S. system at a 5.25% tax rate. Under that rule, the four companies in the article would have a tax bill of $4 billion over the next three years. That is $4 billion off of estimated (undeclared) profits of over $75 billion.

The fuzzy accounting used by the pharmas has been questioned:

"But the I.R.S. lacks the resources to challenge the companies effectively, the analysts and lawyers say. As a result, the six major companies - Pfizer, Johnson & Johnson, Merck, Bristol-Myers Squibb, Wyeth and Lilly - collectively pay a federal tax rate of less than 15 percent on their worldwide profits, with some companies paying much less."

So why would any of them even consider repatriating their funds? I guess to make their bookkeeping easier.

The legislation is part of a "jobs creation" measure, but as the article points out:

Although the act is intended to create jobs, Pfizer said last month that it would cut its annual costs by $4 billion over the next three years. Pfizer, which will repatriate at least $28 billion under the act, did not say how many jobs it planned to eliminate, but analysts expect the company to shrink its work force by thousands of people. Mr. Senyek said the law would create an insignificant number of jobs because companies can easily work around provisions in the law meant to stop them from using the money for dividends to shareholders rather than new hiring.

So, the measure is unlikely to create living wage jobs in the U.S. pharmaceutical industry. Further, the planned job cuts by one company alone (Pfizer) will equal the total amount of taxes paid by four of the companies over three years ($4 billion). I'm no accountant, but it sounds like a big revenue gain to me. It also seems to me that the measure actually increases transfer of profits, but perhaps that was the intent.

Meanwhile, Big Pharma has made out like bandits on the Medicare Prescription Drug Plan. They got a guarantee of profits, and no drug importation from Canada to compete with pricing. Of course, the price of the same drugs in Canada and in the U.S. give lie to the whole premise of "international profits" that has allowed the companies to hide their money from U.S. taxation - but never mind. So while the pharmas are given guaranteed prices and no competition, many of the "beneficiaries" of the plan will actually see a reduction or loss of benefits - for example food stamps. According to the Times article, the estimated reduction in prescription drug costs will count as additional income for beneficiaries. For low income folks on this will likely reduce their eligibility for food stamps (and I imagine other areas such as subsidized housing or any other income-tested benefits they may be eligible for).

Reading the explanation of the impacts draws on one's ability to engage in multiple levels of double-think. Try this on for size (emphases mine):

The document, addressed to elderly and disabled people who receive food stamps, says, "You may qualify for extra help paying for your Medicare prescription drug costs." But it adds, "If you qualify for extra help, your food stamp benefits may decline."

Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services, defended the policy. "Medicare beneficiaries will get comprehensive help with their drug costs and will have significantly more resources for all their other basic necessities, including food," he said. The savings on prescription drugs will more than offset any loss of food stamps, so "low-income seniors will be better off," he said.

...

The document, prepared by the Health and Human Services Department, tells Medicare beneficiaries: "With the Medicare prescription drug coverage, you may see your food stamp benefits go down as you spend less on drugs. Using the new Medicare benefit means you will have more cash to spend on food that you used to spend on prescription drugs. If you get the $10 minimum food stamp benefit, your benefits may end. However, the extra cash you will have to spend on food makes up for not getting as much in food stamps."

First, what is "significant" savings? The examples given in the article, and by the government, all show increased income of less than $30 a MONTH. If you are receiving the minimum $10 a MONTH food stamp benefit ... How much does it cost to administer a program that sends out $10 in food stamps, and how much assistance is that for those who are poor? This is disgraceful, but to lose $10 a month in food stamps to get a $20 increase in cash (assuming the prescription drug plan doesn't actually cost you more) is - I guess - "significant." After all, it is a projected 100% increase in funds availability.

So what is "significant?" If you are dealing with poor people, "significant" means $10 a month. If you are dealing with the pharmaceutical companies that are guaranteed profits by the same legislation, it is billions of dollars. If you are dealing with "significant" under the tax legislation for "creating jobs" then significant is in excess of $26 Billion in additional profits.

Two worlds - fractured views. One has to wonder at the mentality that can design and defend such a system.

Posted by rowan at May 8, 2005 8:18 AM | TrackBack | [eMail this article!] |