The Progressive Ensign

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Category: Tax Bill

Drug Companies Want a $4 Billion Break: No Way!

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)


Major drug companies are lobbying Congress to reduce the $4 billion increase in costs due to raising the discount for seniors purchasing drugs at the ‘donut hole’ level in Medicare Part D to 70 % from 50 %. The provisions for an increase in the discount was included in a spending bill passed by Congress last February.

Pharma companies and major corporations with billions of dollars stashed overseas said that if tax rates were cut on dollars transferred to the U.S they would raise wages, increase R & D spending and reduce prices.  Most companies did not deliver on their promises or benefits to patients either. Instead, they increased the size of their stock buybacks by 4 to 5 times in the case of the largest stock buyback company, Amgen.

Sources: SEC, The Wall Street Journal – 12/6/18

Only two of the top ten companies actually reduced share buy backs since January of this year.  Corporations overall are expected to complete over $1 trillion of stock buy backs by December 31st Goldman Sachs estimates.

Over a dozen Democratic members of the House ofRepresentatives sent letters to five top pharma companies with data showing new increases in drug prices while increasing share buy backs.  The drug industry responded that they were reducing prices, increasing R & D spending and raising employee wages.  Merck, CEO, Kenneth Frazier said in a reply, “We view the legislation (tax cut) as providing us with more flexibility to deploy capital in support of our strategy to invent new medicines that address key unmet medical needs, ultimately benefiting patients.”  The reality is that prices for the most popular drugs are still going up.

AbbVie raised the price of Humira by 9.7 % in January the Democrats pointed out in their letter to the firm.   Inflation for this past year is 2.4 % that drug increase is nearly 4 times the rate of overall consumer price increases in the U.S. economy. AbbVie sent a reply to the Congressmen outlining many programs using their tax cut funds including: a $1000 salary increase to non-executive employees, plans to invest $2.5 billion in capital projects in the U.S. over the next five years, $100 million healthcare and housing for people in Puerto Rico, an $100 million to the Ronald McDonald House to fund lodging for pediatric cancer patients and their families.

Next Steps:

Drug costs hit seniors particularly hard because they need the medication, and they are on fixed incomes.  Drug companies have to do better by ending what the SEC called, “stock price manipulation”,  before the Safe Harbor policy in 1982 allowed stock buybacks. Billions of dollars are wasted to goose the price of stocks to benefit executives and big investors.  Investors are misled by earnings reports using fewer stock shares to compute earnings per share, often used to assess company performance. Patients are hurt by price increases, Humira costs patients $50,000 per year for the standard treatment if they have no insurance coverage.  Stock buybacks by pharma companies must stop, the price gouging of patients and insurers needs to end.

Another economy that drug companies should adopt is to end direct-to-consumer advertising of prescription drugs.  Over 150 countries do not allow prescription drug advertising, only the U.S. and New Zealand allow advertising directly to patients to create “pull” sales from patients requesting a drug from their doctor.  According to Kantar media, drug manufacturers spent $6 billion on direct to consumer television advertising in 2017, a 64 % jump from 2012. The billions being spent on DTC advertising are better spent on reducing drug prices. We applaud the moves by AbbVie in raising employee salaries, donations to Puerto Rico and Ronald McDonald house, these are excellent steps.  Many drug firms have foundations that offer patients with low incomes a way to obtain their medicines for free or little cost.  The difficult aspect of most of these drug-for-free programs is they require large volumes of paper work, with major time delays when the patient needs to the drug immediately. Drug company executives need to see the light on what is happening, the price gravy train and waste of stock buyback funds gleaned from patients needs to end.   Why wait for legislation? We appeal to CEOs – make the right moves now. See that taking responsibility for solving the cost crisis you have created will be far better for your firm, patients and insurers. You may get a solution you don’t want if you wait for Congress to pass legislation.

IRS Takes Care of Wealthy in Pass-Through Tax Policy

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)


The IRS was tasked after passage of the Tax Bill last winter with defining which businesses and owners would qualify for a special 20 % deduction on pass through income.  Interpretations of the pass through 20 % deductions where announced yesterday.  As maybe expected the law favors the rich, and even gives the Trump Organization new benefits which the president can take advantage of as he still holds title to his businesses and properties while in office.

Half of all U.S. businesses use pass-through income structures with 70 % of the income flowing through to the top 1 % in wealth.

Sources: Joint Committee on Taxation, Center on Budget and Policy Priorities – 5/10/18

The tax bill provision for pass through deductions builds on a tax law that is already biased toward the wealthy who own businesses structured to maximize tax benefits. The Center on Budget and Policy Priorities (CBPC) notes due to a byzantine design opportunities for gaming are rampant, “ it could wind up being even more expensive and delivering larger tax cuts to high-income filers than current estimates show because it creates a significant gaming opportunity:  high-income individuals may now be able to secure very large tax savings by converting their labor income into pass-through income to take advantage of the new deduction.”

The CBPC estimates that over $50 billion will be lost in tax revenue each year for the nine years the law is in effect for a total of $450 billion of the $1.5 trillion deficit from the bill. When the law was written arbitrary winners and losers were chosen for example excluding architects and engineers.  New York University law professor David Kamin observed in recent congressional testimony, “This pass-through deduction represents the very worst kind of tax policy, picking winners and losers haphazardly in a complex tax provision, and then generating significant incentives for people to rearrange their businesses to try to get on the right side of the line.”

Next Steps

We have consistently noted that the Tax Bill of 2017 favoring the rich with 80 % of the tax benefits will torch taxpayers to the tune of $1.5 trillion deficit to be financed by bonds. This abusive blatant giveaway to the rich is a disaster both in terms of income equality and economics.  Our generation and many generations to come will be paying off bond interest instead of investing funds in education, infrastructure projects, job training, Heartland initiatives, medical care and apprenticeship programs.  The bill needs to be repealed, applying taxes to corporations and the wealthy to invest in programs that benefit the 80 % not the top 1 % in income.

Do We Need A $100 billion Tax Cut for the 1 % ? No.


That’s right, the GOP Administration is working on jamming through before the next Congress is seated in January a capital gains tax cut of which almost 90 % of the benefits would go to the top 1 % in income.  Remember it is this same 1 % who received 80 % of the benefits in the Tax Cut bill Congress passed last winter.  We now have a deficit over the next 10 years added by that Tax Cut bill of $1.5 trillion. The federal government faces the largest deficit since the 2008 Great Recession and will be issuing nearly $800 billion in bond financing to make up the difference in the 2nd half of this year.

The following analysis by the Wharton School of Business shows that indexing capital gains to inflation would provide a windfall to the top 1 %:

Sources: Wharton School of Business, The Washington Post – 7/31/18

The Administration knows that it will be difficult to pass another tax cut for the rich through the Senate where 60 votes are needed.  So, Treasury Secretary Mnuchin noted at a Latin American conference last week,  “we are studying that (inflation indexing capital gains) internally, and we are also studying the economic costs and the impact on growth.” Many experts on tax law find going around Congress to be illegal.  The Bush administration in 1992 reviewed the legality of the Treasury department unilaterally making the inflation indexing change and found the department was not authorized to make such a major change in tax law.

Next Steps

We have the lowest level of corporate tax receipts in 75 years, and the tax level on the top 1 % is the lowest in history.  We don’t need to be giving the wealthy another tax cut, we know that trickle-down economics never worked.

Sources: World Inequality Database, The Washington Post – 7/31/18

What has really happened since the Reagan years is that tax policy, deductions, asset inflation, executive stock compensation deductions and other financial gimmicks has amounted to a ‘tsunami up’ phenomenon. Actually, our country has the highest level of concentration of wealth in the top 1 % since 1929. Remember from your history books, what happened after 1929 and the Smoot – Hawley trade wars? The Great Depression.

The real priority for our federal government is to Make America a Democracy Again (our post on the political power of the 1%), focusing on how to create basic economic opportunities for all; access to high quality healthcare, reducing student debt, investing in higher education and apprenticeship programs, welcoming immigrants to build our labor force, and investing in our Heartland to bring rural regions of the country into the economic mainstream.

Corporate Executives, Congress Misled Citizens On Tax Bill Benefits


The latest reports show that Corporate Executives, and Congressional GOP Leaders misrepresented to us the benefits of the Tax Cut Bill – capital spending has gone down, wages have stagnated and stock buybacks have hit $1 trillion.  So much for stimulating the economy, raising wages and making capital improvements.

The latest report from the Richmond Federal Reserve shows capital expenditures falling:

Sources: Federal Reserve – Richmond, The Wall Street Journal, The Daily Shot – 5/23/18

Other regions in the US show similar falloffs. While some jobs and regions are showing increases in wages in our Heartland they were lagging and still lag at 2 % wage growth vs 8% nationally:

Sources: US Bureau of Economic Analysis, The Wall Street Journal, The Daily Shot – 5/22/18

Today, corporate executives are doing a good job of juicing the price of their company stock with stock buyback funds that could be invested in increasing productivity, raising worker wages, reducing the price of their products and services or increasing job and career training.  Corporate stock buybacks have hit a new all-time high with repatriated funds from overseas at steep tax discounts and tax bill operating income reductions to $1 trillion!

Sources: Standard and Poors, The Wall Street Journal, The Daily Shot – 5/22/18

Donors told our elected representatives ‘not to call’ unless they got a tax bill done – which of course 80 % of the benefits went to them not the people. The top 1 % wealthy class has control of the key levers of government – our elected representatives by providing hundreds of millions of dollars in campaign contributions which corrupt their representation of us.

Next Steps:

We need to win back control of Congress to set the right priorities for taxes that are fair for all not just a gift to the rich.

In congressional primaries across the country many women and progressives are winning in districts where Democrats did not run or corporate controlled Democrats held seats for years.  In Pennsylvania, seven women won primaries from the suburbs of Philadelphia to the rural conservative regions of the southwest.  Democrats are focusing on small donor funding to bring representative power back to the people.

Sources: The Wall Street Journal, The Daily Shot – 5/23/18

Plus, Democrats are beating the GOP in the funding race by appealing to the people again, some are renouncing PACs as Sen. Kamala Harris of California has done, others will follow. The mid-term election is crucial to win back the House and maybe the Senate and put an end to the oligarchy running our government.

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