Lilly CEO Lechleiter Criticizes Obama's Plans to Close Corporate Tax Loopholes

Did anyone miss President Obama's recent announcement that he plans to put an end to corporate tax loopholes (a mainstay for every major pharma and biotech company in the world....)More from Bloomberg and the President himself. 

Obama argues that this move will force companies in the U.S. to jump start more home-grown innovation and stimulate the creation of jobs here.  Corporate America begs to disagree.  Yesterday, a Los Angeles Times  op ed accused the President of caving into populism rather than responding to economic reality.

Of course, it does seems protectionistic and very old-fashioned.

Among those in the pharma industry speaking out against the move was Eli Lilly CEO John Lechleiter, who was interviewed by CNBC yesterday (hat tip to Beaker.com).  The interview video (click here to watch) is well worth watching. 

Among other things, Lechleiter argues that markets abroad mean expanded business for U.S. companies, and improve the U.S. economy, so penalizing companies by double taxing foreign subsidiaries will hamper economic growth.  (Consider the potential of China, even the pent up demand in a much smaller market like Japan.)

(But first, a reality check:  Is access to local markets what prompted the first wave of offshoring to tax havens?  Wasn't saving labor costs the first goal, with proximity to local markets a long, long way off? )

While a rising tide does lift all boats, some might argue that costs of gradually moving so many operations overseas have already been extremely high, but hidden, in the U.S. The total impact may not be known for decades.

There hasn't been a great deal of investment in the U.S. workforce, and in making it more attractive for people to go into science and engineering. Plus a lot of very smart people are scrambling for work right now.  Long term, there's a risk of the U.S. becoming second rate in innovation.  Some argue that this has already begun to happen.

OK, if these loopholes are closed up, how about some deep tax breaks for companies that invest more in new U.S.-based facilities, local workforce development, education---a Sputnik-style effort?  (My son is reading "Rocket Boys" right now ----a book that was later made into the movie, "October Sky"----what a different atmosphere there was in the U.S. back then.  Even in a little high school in a coal mining town in West Virginia, kids were forced to think globally and competitively, and given something of a 'world view' and some reality,as in 'Russian kids are studying harder and know more than we do'...gee maybe we should step up our game')

Perhaps we'll see Sputnik II in the U.S. But then we also read that billions are being cut from the budget....will Sputnik-style programs stand a chance, when all is said and done?  U.S. public school budgets certainly aren't getting any fatter.

AMS

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