Three cheers for Hillary Clinton and other politicians who are decrying Pfizer’s tax “inversion” deal that would allow it to take over an Irish pharma company and relocate there, thus saving $21 billion in American taxes. Tax inversion deals—mergers done pretty much for the sole purpose of saving tax money by moving to a foreign tax jurisdiction—have been on the rise for a while now. One of the many reasons they are so egregious is that the very firms that are most able to do them—including pharmaceutical and tech companies that have most of their value in intellectual property that can be easily relocated elsewhere—have also been the biggest beneficiaries of government help.
Pfizer and other such firms will argue that they need to pay lower taxes to fund the research that results in miracle drugs. But that is a myth. We credit the private sector for the innovation and growth in our economy. But a number of academics and policy thinkers, including University of Sussex economist Mariana Mazzucato, author of The Entrepreneurial State: Debunking Public vs. Private Sector Myths, argue powerfully that it is the government (and thus taxpayers) rather than the private sector that deserves the credit for such innovation. “Every major technological change in recent years traces most of its funding back to the state,” says Mazzucato, who backs the claim up with powerful statistics and anecdotes in her book. Most parts of the smartphone that make it smart–GPS, touchscreens, the Internet–were advanced by the Defense Department. Tesla’s batteries came out of a Department of Energy grant. Google’s search algorithm was boosted by a National Science Foundation innovation.