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.
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.
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.