Worried about our persistently high rate of unemployment (and his bid for re-election), President Obama is urging Congress to pass portions of his jobs bill. In addition to aiding the economy, creating jobs could help reduce the number of people who are forgoing medications, which would be a boon for the pharmaceutical industry. Perhaps with this in mind, the Association of Clinical Research Organizations (ACRO) has thrown its weight behind a bill it says would create American jobs.
The Senate’s Foreign Earnings Reinvestment Act, like a related bill in the House of Representatives, would reduce tax rates for CROs and biopharmaceutical firms that repatriated money earned overseas. With the money they saved, companies could hire staff and invest in research, ACRO argues.
WinAmerica, an interest group supported by various firms, says that the bill would repeat the success of a 2004 repatriation tax break. Citing information from the Bureau of Labor Statistics, the group observes that average annual private-sector employment increased by 4,385,000 jobs from 2000 through 2007, and that 98% of the increase occurred during the years when the tax break was in effect (2004 through 2006).
The tax break did not benefit the entire private sector, however. It primarily helped pharmaceutical and technology companies, according to a report by Senator Carl Levin (D-MI). Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, and Pfizer were among the top 15 repatriators that time around. After bringing $155 billion in overseas earnings back into the country, these 15 firms reduced their overall US workforce by about 21,000 jobs and spent slightly less on R&D. Instead of creating jobs, the companies used the extra money to repurchase stock and raise their top executives’ pay by about 28%—despite express prohibitions against using the money for these purposes.
The increase in employment that WinAmerica cites seems to have occurred in industries other than those that benefited from the tax break—and for other reasons. The law that granted the previous tax break did not include a means of monitoring compliance. Unless the Foreign Earnings Reinvestment Act can do this, and can impose penalties for noncompliance, it will not create jobs for those who need them. I hope Congress takes heed of Senator Levin’s report as it considers the new bills.