Will President Biden Scrap GILTI?

Congratulations to Brad Setser for being selected to be the Agency Review Team for the Office of the United States Trade Representative. I’m curious, however, as to his views on certain aspects of President Elect’s proposals with respect to corporate taxation. There were lots to criticize as to the 2017 Tax Cuts and Jobs Act. Conservative economists were correct to note that it made corporation taxation more complicated. Progressives objected to the dramatic reduction in corporate tax rates. Biden wants the statutory rate raised to 28%.

He also is not happy with certain aspects of the Global Intangible Low-Tax Income (GILTI) provisions. Brad Setser ties trade policy and international taxation in a post that brings up

Congratulations to Brad Setser for being selected to be the Agency Review Team for the Office of the United States Trade Representative. I’m curious, however, as to his views on certain aspects of President Elect’s proposals with respect to corporation taxation. There was lots to criticize as to the 2017 Tax Cuts and Jobs Act. Conservative economists were correct to note that it made corporation taxation more complicated. Progressives objected to the dramatic reduction in corporate tax rates. Biden wants the statutory rate raised to 28%. He also is not happy with certain aspects of the Global Intangible Low-Tax Income (GILTI) provisions. Brad Setser ties trade policy and international taxation in a post that brings up transfer pricing abuse. The Cliff Notes version of his insights is that

(Dan here…this post has been lightly edited in format for readability)
Trump’s Law & Order = Ronnie Thompson’s Shoot First and Ask Questions Later

Summer Concepcion reports on something I find very alarming: President Trump leaned into his self-proclamation of being the President of “law and order” further as he appeared to approve of the “retribution” of federal law enforcement officers fatally shooting a man suspected of killing a pro-Trump supporter amid protests in Portland, during an interview on Fox News that aired Saturday night. After mocking Portland mayor Ted Wheeler for refusing Trump’s offer to send in federal troops to the city to quell protests, the President then turned his focus to the fatal shooting earlier this month of Michael Forest

Summer Concepcion reports on something I find very alarming:

President Trump leaned into his self-proclamation of being the President of “law
and order” further as he appeared to approve of the “retribution” of federal law
enforcement officers fatally shooting a man suspected of killing a pro-Trump
supporter amid protests in Portland, during an interview on Fox News that aired
Saturday night. After mocking Portland mayor Ted Wheeler for refusing Trump’s
offer to send in federal troops to the city to quell protests, the President
then turned his focus to the fatal shooting earlier this month of Michael Forest
Reinoehl — a man suspected of killing a member of the Patriot Prayer group
during violent clashes in Portland — by U.S. Marshals. “We sent in the U.S.
Marshals for the killer, the

Team Trump on Susan Rice as Biden’s Running Mate

Next to Joe Biden, Susan Rice may be the most qualified person to lead our nation back from the utter disaster created by allowing Donald Trump to pretend to be our President. So what is this from the camp of the Liar-in-Chief? Trump’s aides and allies accuse Rice — without delving too deeply into the evidence — of helping cover up crimes for two of the president’s favorite foils, Barack Obama and Hillary Clinton, making her just the kind of “deep state” villain who could fire up his MAGA base. “She is absolutely our No. 1 draft pick,” a Trump campaign official said. I suspect Team Trump fears who Rice would be in a national campaign so they doing a classic head fake.

Don’t fall for it. Dr. Rice has

Next to Joe Biden, Susan Rice may be the most qualified person to lead our nation back from the utter disaster created by our allowing Donald Trump to pretend to be our President. So what is this from the camp of the Liar-in-Chief?

Trump’s aides and allies accuse Rice — without delving too deeply into the
evidence — of helping cover up crimes for two of the president’s favorite foils,
Barack Obama and Hillary Clinton, making her just the kind of "deep state"
villain who could fire up his MAGA base. “She is absolutely our No. 1 draft
pick,” a Trump campaign official said.

I suspect Team Trump fears who Rice would be in a national campaign so they doing a classic head fake. Don’t fall for it. Dr. Rice has committed no crimes and everyone (except for those MAGA hat wearers whose brains

A Republican Idea for Onshoring Pharmaceutical Intangible Assets

Alex Parker reports on a proposal from Representative Darin LaHood:
As part of the next round of pandemic relief, House Republicans are pushing new incentives for companies to bring home offshore intellectual property — something that they contend could boost job growth but that critics see as another corporate giveaway … While the 2017 Tax Cuts and Jobs Act overhauled the federal tax code and eliminated many of the incentives for offshore income-shifting, it left the structures themselves intact, and companies have been reluctant to undo them as the law remains young.
I think we admitted these 2017 tax cuts for the rich were complex so permit me to slightly disagree with Mr. Parker’s

Alex Parker reports on a proposal from Representative Darin LaHood:

As part of the next round of pandemic relief, House Republicans are pushing new incentives for companies to bring home offshore intellectual property — something that they contend could boost job growth but that critics see as another corporate giveaway … While the 2017 Tax Cuts and Jobs Act overhauled the federal tax code and eliminated many of the incentives for offshore income-shifting, it left the structures themselves intact, and companies have been reluctant to undo them as the law remains young.

I think we admitted this 2017 tax cuts for the rich was complex so permit me to slightly disagree with Mr. Parker’s excellent reporting. If the intellectual property (IP) were left offshore, the GILTI income would face a

The 2017 Tax Cuts and Irish Jobs Act

Brad Setser has more to say about how the lack of enforcement with respect to transfer pricing in the Big Pharma sector has not only cost us Federal tax revenues but perhaps in American jobs in his “The Irish Shock to U.S. Manufacturing?” (May 25, 2020):
America’s production of pharmaceuticals and medicines peaked in 2006, back before the global financial crisis. Output now is about 20 percent below its 2006 level. Pharmaceuticals tend to be capital not labor intensive. High quality pharmaceuticals aren’t made in sweat shops. Pharmaceuticals certainly weren’t the kind of industry that most economists expected to be on the losing end of trade liberalization twenty years ago. Yet America’s consumption of pharmaceuticals

Brad Setser on Offshoring Life Science Production and Transfer Pricing

I just posted a discussion of an interesting proposal from Biden written by Alex Parker who mentioned some February 5, 2020 testimony from Brad Setser. The gist of this testimony was noted back in a March 26, 2019 blog post entitled When Tax Drives the Trade Data:
I often hear that pharmaceuticals are one of America’s biggest exports. But that isn’t what is in the actual trade data (see exhibits 7 & 8). American firms (or formerly American firms, if there has been an inversion) may own the intellectual property behind many successful drugs, but the active ingredients themselves are often manufactured abroad. In fact, the (goods) trade deficit in pharmaceuticals now exceeds the surplus

Brad Setser has more to say about how the lack of enforcement with respect to transfer pricing in the Big Pharma sector has not only cost us Federal tax revenues but perhaps in American jobs in his “The Irish Shock to U.S. Manufacturing?” (May 25, 2020):

America’s production of pharmaceuticals and medicines peaked in 2006, back before the global financial crisis. Output now is about 20 percent below its 2006 level. Pharmaceuticals tend to be capital not labor intensive. High quality pharmaceuticals aren’t made in sweat shops. Pharmaceuticals certainly weren’t the kind of industry that most economists expected to be on the losing end of trade liberalization twenty years ago. Yet America’s consumption of pharmaceuticals didn’t peak in 2006. Only U.S. output. Imports have increased

Biden Proposes Ending the GILTI Loophole

Alex Parker covers an interesting and important tax policy issue:
Former Vice President Joe Biden’s recent proposal to secure medical supply chains in the wake of the COVID-19 pandemic includes tweaks to the 2017 federal tax overhaul, reigniting the debate about whether its international provisions are pushing manufacturing facilities offshore …Former Vice President Joe Biden’s recent proposal to secure medical supply chains in the wake of the COVID-19 pandemic includes tweaks to the 2017 federal tax overhaul, reigniting the debate about whether its international provisions are pushing manufacturing facilities offshore … the TCJA exempted most foreign income from taxation as part of a shift toward a more

I just posted a discussion of an interesting proposal from Biden written by Alex Parker who mentioned some February 5, 2020 testimony from Brad Setser. The gist of this testimony was noted back in a March 26, 2019 blog post entitled When Tax Drives the Trade Data:

I often hear that pharmaceuticals are one of America’s biggest exports. But that isn’t what is in the actual trade data (see exhibits 7 & 8). American firms (or formerly American firms, if there has been an inversion) may own the intellectual property behind many successful drugs, but the active ingredients themselves are often manufactured abroad. In fact, the (goods) trade deficit in pharmaceuticals now exceeds the surplus in civil aircraft. This trade isn’t obviously driven by differences in labor costs. The biggest sources

Alex Parker covers an interesting and important tax policy issue:

Former Vice President Joe Biden’s recent proposal to secure medical supply chains in the wake of the COVID-19 pandemic includes tweaks to the 2017 federal tax overhaul, reigniting the debate about whether its international provisions are pushing manufacturing facilities offshore …Former Vice President Joe Biden’s recent proposal to secure medical supply chains in the wake of the COVID-19 pandemic includes tweaks to the 2017 federal tax overhaul, reigniting the debate about whether its international provisions are pushing manufacturing facilities offshore … the TCJA exempted most foreign income from taxation as part of a shift toward a more territorial tax system, similar to those used in Europe and much of the world. But

Favoring Hi-Tech Tax Cheats Over Consumers of French Wine

Hoping to buy a nice bottle of French wine? Doug Palmer of Poltico has some bad news for you:
The Trump administration announced Friday a 25 percent tariff on $1.3 billion worth of French handbags, cosmetics and soaps in retaliation for a digital services tax on U.S. internet giants, but said it would suspend imposing them for up to six months. The United States believes the way the French tax is structured unfairly targets large U.S. internet companies like Facebook, Google and Amazon. However, other countries are increasingly determined to find a way to collect revenue from firms that earn billions of dollars in their markets.
Let’s note that Amazon, Facebook, and Google made yuuuuge profits and

Hoping to buy a nice bottle of French wine? Doug Palmer of Poltico has some bad news for you:

The Trump administration announced Friday a 25 percent tariff on $1.3 billion worth of French handbags, cosmetics and soaps in retaliation for a digital services tax on U.S. internet giants, but said it would suspend imposing them for up to six months. The United States believes the way the French tax is structured unfairly targets large U.S. internet companies like Facebook, Google and Amazon. However, other countries are increasingly determined to find a way to collect revenue from firms that earn billions of dollars in their markets.

Let’s note that Amazon, Facebook, and Amazon made yuuuuge profits and evade U.S. corporate profits taxes. So paying a modest excise tax on European sales is not

How Large is the Income Shifting Problem?

I took up this invitation from Dan Shaviro:
tomorrow morning I’ll be participating in a very interesting international tax policy conference with a number of outstanding participants. It’s on Zoom … I’m actually the second speaker on Panel II (although we’re listed above alphabetically), so I will be speaking from roughly 11:08 to 11:15. I’m planning to discuss the OECD’s Pillar 1 and Pillar 2 initiatives, although what exactly I’ll say remains somewhat flexible pending the keynote address, which may offer updates (at least to me) that are of interest
He gives the entire agenda, which can also be found here. This blog post focuses on Panel I, which noted the difficulties of measuring the extent of income shifting

I took up this invitation from Dan Shaviro:

tomorrow morning I’ll be participating in a very interesting international tax policy conference with a number of outstanding participants. It’s on Zoom … I’m actually the second speaker on Panel II (although we’re listed above alphabetically), so I will be speaking from roughly 11:08 to 11:15. I’m planning to discuss the OECD’s Pillar 1 and Pillar 2 initiatives, although what exactly I’ll say remains somewhat flexible pending the keynote address, which may offer updates (at least to me) that are of interest

He gives the entire agenda, which can also be found here. This blog post focuses on Panel I, which noted the difficulties of measuring the extent of income shifting to tax havens as we have the papers that formed the basis of the

Potential Pricing for Remdesivir

The FDA has approved Remdesivir for emergency use and Gilead Science will denote its current 1.5 million vials, which could potentially treat 300 thousand patients as it takes 5 to 10 treatments per patient. The WHO wants more Remdesivir:
The World Health Organization said Monday that it will speak with the U.S. government and Gilead Sciences on how antiviral drug remdesivir could be made more widely available to treat Covid-19 as data of its effectiveness emerges.
At some point we will need to consider pricing. This report considers two approaches with the first being to price at the economic cost of production:
For remdesivir, we used evidence on the cost of producing the next course of therapy from an article by Hill

The FDA has approved Remdesivir for emergency use and Gilead Science will denote its current 1.5 million vials, which could potentially treat 300 thousand patients as it takes 5 to 10 treatments per patient. The WHO wants more Remdesivir:

The World Health Organization said Monday that it will speak with the U.S. government and Gilead Sciences on how antiviral drug remdesivir could be made more widely available to treat Covid-19 as data of its effectiveness emerges.

At some point we will need to consider pricing. This report considers two approaches with the first being to price at the economic cost of production:

For remdesivir, we used evidence on the cost of producing the next course of therapy from an article by Hill et all in the Journal of Virus Eradication (2020). Their methods

Corporate Bond Spreads and the Pandemic

The St. Louis FED has an economics blog:
The ongoing COVID-19 pandemic has caused significant disruption in economic activity across the globe. Financial markets, in particular, have experienced surges in volatility that had not been seen since the 2007-09 financial crisis … The figure below plots the median value for our measure of credit spreads (the difference between a corporate bond’s yield and a benchmark interest rate on U.S. government securities) at the daily frequency, since the beginning of the year … The figure highlights two important dates. The first one is Feb. 28, when stock markets experienced the largest single week declines since the 2008 financial crisis. While the median spread had been stable

The St. Louis FED has an economics blog:

The ongoing COVID-19 pandemic has caused significant disruption in economic activity across the globe. Financial markets, in particular, have experienced surges in volatility that had not been seen since the 2007-09 financial crisis … The figure below plots the median value for our measure of credit spreads (the difference between a corporate bond’s yield and a benchmark interest rate on U.S. government securities) at the daily frequency, since the beginning of the year … The figure highlights two important dates. The first one is Feb. 28, when stock markets experienced the largest single week declines since the 2008 financial crisis. While the median spread had been stable at around 100 basis points since the beginning of the year, it started

Why was the PREDICT Program Suspended Last Fall?

A discussion from October 29, 2019:
A crucial federal program tracking dangerous diseases is shutting down. Predict, a pandemic preparedness program, thrived under Bush and Obama. Now it’s canceled … Ever since the 2005 H5N1 bird flu scare, the US Agency for International Development (USAID) has run a project to track and research these diseases, called Predict. At a cost of $207 million during its existence, the program has collected more than 100,000 samples and found nearly 1,000 novel viruses, including a new Ebola virus … But on Friday, the New York Times reported that the US government is shutting down the program. According to its former director Dennis Carroll, the program enjoyed enthusiastic

A discussion from October 29, 2019:

A crucial federal program tracking dangerous diseases is shutting down. Predict, a pandemic preparedness program, thrived under Bush and Obama. Now it’s canceled … Ever since the 2005 H5N1 bird flu scare, the US Agency for International Development (USAID) has run a project to track and research these diseases, called Predict. At a cost of $207 million during its existence, the program has collected more than 100,000 samples and found nearly 1,000 novel viruses, including a new Ebola virus … But on Friday, the New York Times reported that the US government is shutting down the program. According to its former director Dennis Carroll, the program enjoyed enthusiastic support under Bush and Obama, but “things got complicated” in the last few years

Remdesivir and Transfer Pricing III

Robert Waldmann posted his Remdesivir III:
I do not understand the need for “evidence-based medicine” or rather I do not understand how the phrase is used by doctors. There is no evidence that Covid 19 patients (without heart disease) do better without Chloroquine. I learn that “evidence based medicine” does not imply choosing the therapy that a fair balance of evidence suggests is best for the patient. Pharmaceuticals are presumed guilty until proven safe and effective. The evidence is treated as evidence in a criminal trial with the burden of proof on the pharmaceutical.
Back on March 2, he wrote:
I think that aside from the trials, Remdesivir should be given to patients and contacts of patients. It is known to be

Robert Waldmann posted his Remdesivir III:

I do not understand the need for “evidence-based medicine” or rather I do not understand how the phrase is used by doctors. There is no evidence that Covid 19 patients (without heart disease) do better without Chloroquine. I learn that “evidence based medicine” does not imply choosing the therapy that a fair balance of evidence suggests is best for the patient. Pharmaceuticals are presumed guilty until proven safe and effective. The evidence is treated as evidence in a criminal trial with the burden of proof on the pharmaceutical.

Back on March 2, he wrote:

I think that aside from the trials, Remdesivir should be given to patients and contacts of patients. It is known to be safe (from the trial which shows that it doesn’t cure Ebola). Also a

Remdesivir and Transfer Pricing Part II

Now that I sketched out the transfer pricing for Gilead Sciences with respect to their successful HIV and Hep C products (as much as I can say based on publicly available information), it is time to speculate a bit on how Remdesivir may play out. There is a lot we do not know including whether this treatment receives regulatory approval and how it will be priced if it does. Note for example this story:
More than 150 organisations and individuals on Monday urged US biotechnology firm Gilead not to enforce exclusivity over a drug that might be used to treat COVID-19 patients. In an open letter, 145 non-governmental organisations, including Doctors Without Borders (MSF) and Oxfam, and 12 individuals claimed Gilead

Credit Spreads: Comparing COVID-19 to the Collapse of Lehman Brothers

On March 18, Reuters noted something I have been following of late:
Concerns about the impact of the coronavirus on corporate America’s balance sheets has tripled the premium investors are demanding to hold even the highest-rated corporate bonds. The difference between the average yield of investment-grade U.S. bonds over virtually risk-free Treasuries widened to 303 basis points (bps) on Wednesday, according to the ICE/BofA investment grade index. That’s up from 101 bps at the start of the year and the highest since July 2009, For riskier high-yield securities, the average spread over Treasuries on Wednesday was 904 bps, the highest since October 2011, and more than 2-1/2 times the

Remdesivir and Transfer Pricing

Gilead Sciences is conducting phase III trials to explore whether this treatment – which did not turn out to be effective against Ebola – might be effective in treating COVID-19. We all hope it will be and if it does pass phase III trials, national income tax authorities will later have to address the transfer pricing implications of any profits Gilead Sciences generates. This blog post is the first of two with this one setting up some basic transfer pricing principles by noting Gilead’s previous wonder treatments – its recent successes in treating Hepatitis C and its HIV treatments introduced a generation ago. My next blog post will discuss Remdesivir. Gilead was first to market with a treatment they called Sovaldi, which

On March 18, Reuters noted something I have been following of late:

Concerns about the impact of the coronavirus on corporate America’s balance sheets has tripled the premium investors are demanding to hold even the highest-rated corporate bonds. The difference between the average yield of investment-grade U.S. bonds over virtually risk-free Treasuries widened to 303 basis points (bps) on Wednesday, according to the ICE/BofA investment grade index. That’s up from 101 bps at the start of the year and the highest since July 2009, For riskier high-yield securities, the average spread over Treasuries on Wednesday was 904 bps, the highest since October 2011, and more than 2-1/2 times the rate at the start of the year, using the ICE/BofA high-yield index … This hit to earnings has come at a