FIGHTING TAX AVOIDANCE BY THE WEALTHY

A recent Op Ed in the Boston Globe caught my attention and I couldn’t resist sharing it. If you want to understand how wealthy individuals and corporations use off-shore tax havens to avoid paying their fair share of taxes and what we can do about it, this article provides answers. [1]

The best estimate is that 11.5% of personal wealth (i.e., $8.7 trillion), globally, is stashed in off-shore tax havens.
This costs the U.S. government an estimated $32 billion a year in lost tax revenue from individuals. (Other countries’ governments probably lose $140 billion a year in tax revenue.)
In addition, corporations dodge about $70 billion a year in U.S. taxes by using off-shore tax havens. This represents about 20% (one-fifth) of what the U.S. does collect in corporate income taxes each year. (Other countries’ governments probably lose $60 billion a year in tax revenue.)
The roughly $100 billion per year the U.S. is losing to off-shore tax dodging is what the federal government spends on Food Stamps, other nutrition programs (such as school lunches), the Children’s Health Insurance Program (CHIP), Head Start, child care subsidies, and welfare COMBINED.
Taxing corporate income based on what is called formulary apportionment would stop this tax avoidance. Under this approach, a corporation would pay U.S. taxes based on the portion of its sales that are in the U.S., regardless of any accounting gimmicks or other strategies that made it look like the income from those sales was in another country. This tax approach is in wide use today; many states use it to calculate state corporate income taxes. It is a tax approach that has been used since the days of multi-state railroad construction in the 1800s.
Stopping individuals from using offshore accounts to avoid paying taxes would require international cooperation. Today, the IRS has a comprehensive system for tracking earned income. Even if you move from state to state or out of the country, the income you earn is reported to the IRS and you pay income taxes based on your total income. States with income taxes track income that you earn out-of-state and require you to pay state income tax on it. A similar approach should be applied to tracking other kinds of income and ownership of financial securities or assets that produce income. The U.S. passed the Foreign Account Tax Compliance Act in 2010 that requires foreign banks, including the notoriously secretive Swiss and Cayman Island banks, to share information with the IRS on accounts held by American clients. This is a starting point for the international cooperation needed to reduce tax dodging by the wealthy that hurts the U.S. and many other countries.

Tax avoidance by the wealthy contributes to the astronomical and growing inequality of wealth and income. It also means that everyone else must pay more in taxes to make up for the lost taxes when wealthy individuals and corporations don’t pay their fair share.

[1] Scharfenberg, D., 1/21/18, “A world without tax havens,” The Boston Globe

FIGHTING THE OPIOID EPIDEMIC

A recent Op Ed in the Boston Globe caught my attention and I couldn’t resist sharing. If you want to know what we can and should do to truly fight the opioid epidemic, it provides the answers.

Here’s a summary of its recommendations for fighting the opioid epidemic: [1]

To seriously tackle the opioid epidemic, the federal government needs to spend $4 – $5 billion a year on the effort for the next 10 years.
Laws and regulations at the state and federal levels must ensure that health insurance covers addiction treatment, mental health services, and other services that will reduce opioid addiction and successfully treat those who experience addiction.
Medicaid, the Affordable Care Act (aka Obama Care), and perhaps other initiatives need to ensure that as many Americans as possible have health insurance to pay for treatment.
Through oversight and research, addiction treatment must be as effective as possible.
Pharmaceutical corporations must be held accountable, financially and otherwise, for their significant role in creating the opioid addiction crisis. They should be required to make substantial contributions to treatment costs, including making addiction-related medications available and affordable.
Federal laws and regulations should prohibit direct-to-consumer marketing of prescription drugs. Only one other country in the world allows this and it is a relatively recent phenomenon in the U.S. The big pharmaceutical corporations spend over $5 billion a year advertising drugs, increasing sales but leading to inappropriate use and overuse of drugs.
Everyone, in the public sector and in private life, should address addiction as a health and public health problem, not a criminal justice issue, and should work to de-stigmatize it.
The federal government needs to increase the effectiveness of efforts to reduce the smuggling of opioids into the country, including diplomatic efforts with Mexico and China, particularly focused on stopping the flow of Fentanyl into the U.S.

[1] Tamasi, R.V., 1/22/18, “How to fight the opioid epidemic,” The Boston Globe

THE GREED OF THE PHARMACEUTICAL INDUSTRY Part 2

The pharmaceutical industry can engage in the unethical and sometimes illegal practices that I’ve highlighted in previous posts [1] because they have:

Monopolistic power in the market place due to limited competition,
An absence of government regulation, and
Political power to block or weaken regulation and oversight due to campaign spending, lobbying, and the revolving door of personnel moving between these corporations and government regulatory positions.

The result is that the greed of the executives of these corporations is unconstrained by market place competition, government regulations, their ethics, or, in some cases, even legality. The examples presented in my previous posts have not been isolated incidents or past bad behavior that has been rectified. This behavior by the pharmaceutical corporations is an on-going pattern.

A 2010 study found that the U.S. prices of prescription drugs were, on average, double what those same drugs cost in Canada, Australia, and the United Kingdom. And things have only gotten worse since then. As a result, one out of five Americans was unable to afford medicines prescribed by their doctors, while the five largest drug corporations had profits of a combined $50 billion in 2015. As Bernie Sanders wrote, “people go to the doctor because they are sick, they get a diagnosis from their doctor, but they can’t afford the treatment. Then they get sicker. Does this make any sense to anyone?” [2]

As part of their price gouging strategies, drug companies will go to great lengths to block competition. For example, Allergan corporation has transferred six drug patents to the St. Regis Mohawk Indian tribe. Because the tribe is a sovereign entity, it is immune from a type of challenge to drug patents that low-cost generic drug makers sometimes use to get the right to produce a generic version of a drug. It is expected that this will become a popular strategy to delay the availability of cheaper, generic versions of drugs, unless Congress intervenes and changes the law. Allergan will pay the tribe only $15 million a year under the deal for the right to continue to sell the drugs, which had $1.4 billion in sales last year.

For a different drug, Allergan tried to avoid competition from a generic version by pulling the drug from the market and forcing patients to buy a new, more expensive version. This move was blocked by a federal appeals court. By the way, Allergan has also moved its headquarters to Ireland to avoid U.S. taxes. [3]

There is no reason to believe that the behavior of pharmaceutical corporations is going to change on its own. Clearly, the free market and competition are not going to stop it. Public outrage, negative publicity, and criticism from elected officials may blunt the worst of the behavior, but it will not stop it.

The behavior of the pharmaceutical industry (which is evident in other industries like the financial industry as well) is not the way the economy should work in a democracy. This behavior is that of a corporatocracy, where large corporations are in control of both our (supposedly free) market place and our (supposedly democratic) government.

Only strong legislation from Congress and strong leadership from regulatory agencies in the executive branch of government will stop these harmful and greedy business practices of the pharmaceutical corporations (and other large corporations). The opioid crisis and the fueling of it by illegal and irresponsible marketing of narcotic prescription drugs has made this absolutely clear.

I urge you to contact your U.S. Representative and Senators and ask them to:

Support strong legislation to regulate the pharmaceutical industry,
Only confirm executive branch appointees (include the Secretary of Health and Human Services) who have a clear track record of supporting strong regulation of the drug corporations, including their drug pricing and marketing of narcotics, and
Pass legislation that not only allows, but requires, Medicare and insurance companies participating in the Affordable Care Act to negotiate drug prices with suppliers to receive the best price based on what other countries pay. A good place to start would be to ask them if they support the Medicare Drug Price Negotiation Act of 2017, which would allow the government to negotiate directly with drug companies to lower drug prices for Medicare beneficiaries, much like the Veterans Health Administration and Medicaid do today.

As we approach the Congressional and state level elections of 2018, I encourage you to scrutinize and ask about candidates’ positions on these issues. Then we can elect candidates who support strong regulation of drug corporations, who will take meaningful steps to control drug prices, and who will seriously tackle the opioid crisis and the pharmaceutical industry practices that have led to it.

[1] You can go to any of the blog posts on my site and click on the categories in the right hand column to find other posts on corporate behavior or corporate power and influence to read more about unethical and illegal practices by large corporations.

[2] Sanders, B., 2016, “Our revolution: A future to believe in,” St. Martin’s Press, NY, NY. Page 327.

[3] Silverman, E., 9/19/17, “This CEO’s latest move is raiding eyebrows,” The Boston Globe

THE GREED OF THE PHARMACEUTICAL INDUSTRY Part 1

The unconstrained greed of pharmaceutical corporations is abundantly clear on multiple fronts:

Huge price increases on existing drugs with no reasonable justification (See my previous posts on this here and here.)
Inhibiting competition however possible (See my previous posts that include this topic here and here.)
Blocking regulation and oversight (See my previous post here.)
Selling and distributing narcotics that are clearly being diverted to the black market (See my previous posts on this here, here, and here.)

Despite Trump’s campaign rhetoric about bringing down the cost of drugs, his administration has not taken any significant steps to make drugs more affordable. Roughly 45 million Americans don’t buy drugs that are prescribed for them because they can’t afford them.

President Trump has nominated Alex Azar to be Secretary of Health and Human Services. Azar was the CEO of the drug corporation Eli Lilly when it increased the price of an insulin product from $74 to $269. In Sweden, the same medicine is sold for the (still profitable) price of $18.38. Insulin is the life-saving drug needed by the 30 million Americans with diabetes. [1]

The production of insulin is effectively controlled by a cartel of three drug corporations, Eli Lilly, Novo Nordisk, and Sanofi, that produce more than 90% of the insulin products in the world. Because of the inflated prices in the U.S., the typical American with Type 1 diabetes spends about $571 each month on insulin. Many can’t afford the full amount they need, so they risk serious health consequences by stretching their supply and under-medicating their diabetes. Some die as a result. Worldwide, the leading cause of death for a child with Type 1 diabetes is lack of insulin.

The pharmaceutical corporations’ typical response to criticism of drug price increases is that they need the increases to pay for research and development (R&D). However, this is simply not true. [2] Insulin, for example, was developed at a publicly funded lab at the University of Toronto in 1921. Eli Lilly was a small company when it signed an agreement with the University for the right to sell insulin in 1922. Clearly, greed, not R&D costs, is fueling the insulin price increases.

Today, the U.S. National Institute of Health (NIH) annually spends $34 billion to fund university research. When researchers develop new drugs, corporate drug manufacturers typically purchase the rights to them, tweak them, patent them, and then market them to maximize their profits. The U.S. needs to legislate a new, public health-focused drug licensing system that prioritizes access and affordability, along with innovation, instead of profit.

Another example of price gouging by drug corporations comes from the response to the opioid crisis and the increased demand for the drug naloxone, the antidote for a narcotic overdose. With over 60,000 Americans dying of drug overdoses each year, emergency responders, not-for-profit human service organizations, and family members want to have naloxone readily available to save lives. However, the drug manufacturers have responded by jacking up the prices of naloxone and its various delivery systems. Kaleo corporation has raised the price of its easy-to-use, naloxone auto-injector from $690 in 2014 to $4,500 in 2016. Amphastar Pharmaceuticals has raised its wholesale price for naloxone from $20 to $40. Adapt Pharma’s new Narcan nasal spray came on the market in 2015 at $150. These prices and the opioid crisis have increased the drug corporations’ revenue from sales of naloxone from $12 million in 2011 to $274 million in 2016. Economics, specifically economies of scale, would suggest that the price should be going down with increased demand, not up.

As prices for naloxone have risen, first responders and community-based non-profits who provide services to people with drug problems, who are on the front-lines of the opioid crisis, are finding that their tight budgets do not allow them to have the number of naloxone doses they’d like to have. [3] Naloxone has been available since 1985, although new delivery vehicles, such as a nasal spray, have been developed recently. Public funding through the NIH has contributed to the development of and conducting of clinical trials for some of these products. Only five corporations make naloxone and they have been working to block competitors. One of them is Mylan Pharmaceuticals, infamous for its price gouging with its EpiPen product.

Some drug companies are simply investors, buying the rights to drugs, often life-saving ones, that they believe can deliver big profits, usually through dramatic price increases. A recent example is NextSource, a start-up with no research and development costs. In 2013, it bought the rights to a cancer treatment drug with low demand and therefore a single producer. It was priced at $50 per dose. In three years, NextSource has raised the price to $768 per dose.

Soaring cancer drug costs are driving the cost of treatment well over $100,000 a year in many cases. As a result, some patients delay treatment to figure out how they can get the treatments paid for. A study earlier this year found that 24 cancer drugs had, on average, quadrupled in price over the last 8 years. [4]

In an interesting example of how our corporate media sometimes cover increasing drug prices – putting a positive spin on outrageous corporate behavior – The Boston Globe recently had a big headline on the front page of its Business Section that read “Price hikes on top-selling drugs were a lot smaller this year.” The article began with “Average annual price increases have declined at least four years in a row for 20 of America’s top-selling brand-name prescription drugs.” Nowhere in the article does it mention that the 6.9% increase over the last year is three times the rate of inflation or that over the last 5 years the cost of these drugs is up 66%. On a subsequent page the article does note that “these drugs have increased by an average of 213 percent since their launch, well out-pacing inflation.” It also notes that many of these drugs are very expensive with seven having an average, annual cost per patient of between $59,000 and $92,000. [5]

In my next post, I’ll discuss why the pharmaceutical corporations can get away with this price gouging and what we can do about it.

[1] Zaitchik, A., 11/28/17, “Beyond the planet of the pharma bros,” The American Prospect (http://prospect.org/article/beyond-planet-pharma-bros)

[2] Kesselheim, A.S., Avorn, J., & Sarparwari, A., 8/23/16, “The high cost of prescription drugs in the United States: Origins and prospects for reform,” The Journal of the American Medical Association

[3] Denvir, D., 12/15/17, “These pharmaceutical companies are making a killing off the opioid crisis,” The Nation (https://www.thenation.com/article/these-pharmaceutical-companies-are-making-a-killing-off-the-opioid-crisis/)

[4] Berr, J., 12/26/17, “Price of 40-year-old cancer drug hiked 1,400% by new owners,” CBS News, MoneyWatch (https://www.cbsnews.com/news/cancer-drug-lomustine-price-hiked-1400-percent-by-new-owners/)

[5] Robbins, R., 12/29/17, “Price hikes on top-selling drugs were a lot smaller this year,” The Boston Globe