The GOP’s Tax Reform Framework Is a Step in the Right Direction

Today’s guest blog comes from Dave Ricks, Lilly CEO.

Last month, House Republican leaders unveiled a new plan for bold, comprehensive tax reform to spur growth, create jobs and encourage American competitiveness in the global marketplace. 

Several aspects of the plan can put us on that path, including:

  • Lowering the U.S. corporate tax rate to 20%, which is internationally competitive. Our current corporate tax rate of 35% is among the highest in the world
  • Adopting a modern “territorial” tax system. Under a territorial system, the U.S. government would tax a company only on domestic income and not on money earned overseas. The U.S. currently has a worldwide tax system, which puts U.S.-based companies at a disadvantage because their foreign earnings get taxed twice — by the country where the profits were earned and then again by the U.S.

We at Lilly applaud these proposals. The GOP tax reform framework has the components that can stimulate the economy and improve global competitiveness. But the plan’s intended effects could be rendered moot if Congress also moves forward with “round-tripping,” another proposal that’s under consideration. 

Round tripping would essentially add a second tax to most of the overseas earnings of U.S.-based multinational companies — a tax our global peers wouldn’t pay.

America's biopharmaceutical industry is a key driver for economic growth, innovation and high quality jobs. We want that growth and innovation to continue. But as a country, the U.S. is being left behind because our outdated tax code encourages American companies to grow jobs overseas and gives foreign-based companies an advantage when it comes to investing in the U.S.

Our current tax code already allows foreign-based companies to buy U.S. companies at a discount compared to their U.S.-based peers.

Here’s why: When Lilly brings capital back to the U.S. — whether it’s to build a manufacturing plant, run a clinical trial, or buy another company — that money is subject to the statutory tax rate of 35%. Foreign companies can freely bring their overseas cash to the U.S. without paying any corporate income tax here. 

This means every dollar of after-tax foreign profits Lilly brings home buys only about 65 cents of investments. However, our foreign pharma peers can bring a dollar to the U.S. and get nearly a full dollar’s worth of investment.

Adopting a round trip rule would only exacerbate this problem and make the biopharma industry an even more attractive target for foreign acquisition.

If tax reform includes a round trip rule, the net result would be a tremendous loss of value and opportunity for U.S.-based companies and their employees, as well as long-term revenue for the federal government.

I have great hopes for tax reform and its potential to speed innovation and accelerate economic growth. It can achieve that, but only if Congress’ plan truly levels the playing field for American companies competing in a global market.