Pharma and biotech companies scored a big win under former President Donald Trump’s tax reform act. Now with Democrats in charge and eying a higher corporate rate, Johnson & Johnson is the first big pharma to speak out against the plan.
A higher tax rate could threaten investment and innovation in the U.S., J&J CEO Alex Gorsky told analysts on the company’s quarterly earnings call Tuesday. He called for more “fact-based dialogue” in Washington as lawmakers explore higher corporate rates to help pay for President Joe Biden’s infrastructure ambitions.
Gorsky argued that J&J actually overdelivered on its promises after the passage of Trump’s tax act in 2017. The company pledged to increase U.S. investments by 15% over four years compared with the previous four years. It’s now on track to reach 25% additional spending, which adds up to about $30 billion, he said.
J&J employs 3,000 more people in the U.S. today than it did when the act passed, the CEO noted.
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As lawmakers discuss potential corporate tax changes, Gorsky told analysts that the U.S. is now in the middle of the pack among countries in the Organization for Economic Co-operation and Development and “maybe even skewing a little bit toward the bottom in terms of competitiveness.”
“If we were to raise rates even to 25% and you include tax from states, we become the highest-rated developed country in the world with respect to tax rates,” Gorsky said.
After the passage of the 2017 tax act, J&J took a $13.6 billion charge to bring billions of dollars in overseas cash back to the U.S. While pharma watchers expected drugmakers to spend repatriated cash on M&A, Gorsky countered at the time, saying that investing in the pipeline was the wiser course of action.
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Gorsky acknowledged concerns among policymakers about dropping tax rates, but the CEO also said he doesn’t understand “why folks are anxious to have a race to the top.” He called on lawmakers to ensure that U.S. tax policies protect investment and innovation.
Gorsky joined several high-level U.S. business leaders speaking out to oppose a potential corporate tax rate increase. However, one influential business leader, Amazon CEO Jeff Bezos, early this month came out in favor of tax reform to fund infrastructure investments.
J&J is the first biopharma company to report quarterly results, so other industry execs may yet follow Gorsky’s lead to weigh in on corporate tax rates over the next few weeks.
