Friday, November 27, 2015

Inversion And Its Enemies, DeLauro And Blumenthal

Pfizer – now Pfizer-Allergen, once one of the pillars in Connecticut’s emergent and lucrative bio-science industry -- is moving its headquarters from New York to Ireland. Pfizer is merging with Allergan, which is headquartered in Dublin. The move and merger will save the conjoined company about $2 billion, not chump change in the competitive world of bio-science.

When news of the move to Ireland reached the ears of U.S. House Representative Rosa DeLauro, she affected shock and then fumed, in chorus with Democratic presidential candidate Hillary Clinton, “We cannot continue to allow Pfizer and other corporations to pretend that they are American while reaping the benefits this country has to offer, yet claiming to be another nationality when the tax bill comes. Congress and the administration must do more to prevent these companies from moving their mailboxes abroad to avoid paying taxes in the United States."

No one was quite certain what Mrs. DeLauro had in mind – drawing and quartering the CEO of Pfizer? – but the CEOs of other businesses in high tax Connecticut may be forgiven for assuming  that the DeLauro solution to migrating companies probably would involve higher and more punishing taxes for companies that are overly concerned with stockholder prosperity. No one has yet proposed stationing U.S Senator Dick Blumenthal off-shore on a buoy holding up his hand, with several law suits in his teeth, yelling “Stop!”

Every businessman or businesswoman in the United States knows from painful experience that businesses flow from high to low tax states, always seeking the path of least resistance, one unencumbered with high taxes and burdensome regulations. Every politician knows that a regulation, often crafted into law by someone – Mr. Blumenthal comes to mind – who has little or no direct experience in the real business world, is really a consumption tax, since the cost of regulations is passed along to consumers. Mr. Blumenthal, Connecticut first consumer protection U.S. Senator, does not appreciate the connection between such laws and the cost of products and services.

Ireland has long been fertile ground for businesses. In the land of saints and scholars, the corporate tax rate is 12.5%, compared with the 35% Pfizer currently pays in the US, the conversation in pubs is lively, and its politicians manage to be both grasping and entertaining at the same time; blarney softens the sword’s blow. The country suffered grievously when the mortgage bubble burst, but has since recovered, and the presence of Pfizer will bring joy to the hearts of Irish politicians who, like their American counterparts, rely on the revenue and jobs that flow their way when a company decides to pull up roots in Connecticut and move to Dublin. Connecticut’s loss is Ireland’s gain.

Pfizer did not always have devil’s horns on its head. The company was lured to Connecticut by politicians, early practitioners of the art of crony capitalism, who threw millions of taxpayer dollars in its path. When hard times hit Connecticut and the freebies came to an end, Pfizer moved some of its business to Massachusetts. When Pfizer merged with Wyeth in 2009, Groton, Connecticut lost 1,100 jobs due to layoffs; in addition, hundreds of high-paying research jobs were lost to Cambridge, Massachusetts. Because Connecticut has been losing high-paying jobs to other states – and now other countries – state revenues have decreased, even though the state has reported a net increase in employment figures.

Mr. Blumenthal, who continues to pump out regulations at a furious pace, burst into flame when he was visiting a Health Care center in Norwich. The Allergan-Pfizer merger, Mr. Blumenthal said, was "unprecedented in size and scope." U.S. regulators, said Connecticut’s consumer protection Senator, should examine anti-trust laws with a view to preventing the sale. Nice to know that the regulators, Blumenthal among them, who caused the sale may also prevent the inevitable consequences of their handiwork by preventing the sale. One wonders whether Mr. Blumenthal would have drawn his sword as quickly if Allergan, which bought Pfizer, had decided to move its headquarters from Dublin to Groton.

Connecticut politicians, now publicly beating their breasts over a problem they have themselves caused by piling taxes and regulations on Connecticut businesses and taxpayers to pay for their improvident spending, have labeled the attempt to escape excessive taxes and regulations as “inversion,” the outflow of jobs and taxes to other counties. But the problem is larger and more menacing.

We already know Connecticut is losing its high-paying jobs to other states –and even other countries. In 2014, more than 39,000 young adults fled the state, an increase of more than 20 percent from 2007, a Hartford paper noted ominously the day after Thanksgiving. The millennial’s children naturally will follow, along with their retired grandparents. This demographic out-migration should alarm both Mrs. DeLauro and Mr. Blumenthal, who spends part of his time worrying over salmon -- because demography, never easily reversed, is destiny. When the millennials, their fathers and mothers and grandparents, have voted with their feet, shaking the dust of Connecticut from them, to whom will Mr. Blumenthal and Mrs. DeLauro pander for campaign cash to support the life style both multi-millionaires are used to? 

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