Joe Biden fails to change the tax code to keep pharmaceutical companies’ production in the U.S.

To advance a campaign promise, President Joe Biden proposed several tax changes that could have influenced pharmaceutical companies' manufacturing decisions. Biden in 2020 promised to change the law so that more companies make drugs in the U.S.  

One proposal would have changed the taxation of global intangible low-taxed income, or GILTI — the income earned by foreign affiliates of U.S. companies that exceeds a 10% return on their tangible assets. Currently, a multinational corporation might be able to avoid this taxation by "blending" income earned in low tax-rate countries with income earned in high-tax rate countries, effectively sidestepping much of the tax bite.

A second provision that could have affected pharmaceutical manufacturing involves foreign-derived intangible income, or FDII. This refers to U.S. income from the sale of goods and services abroad that exceeds a 10% return on domestic tangible assets. 

Currently, U.S. corporations can take a 37.5% deduction from the 21% corporate tax for foreign-derived intangible income, resulting in an effective 13.125% tax rate.

The initial version of Biden's Build Back Better legislation, which passed the House in November 2021, would have changed how GILTI and FDII operated, in ways that could have made offshoring less appealing. 

But Senate Democrats narrowed the bill's scope. The bill that both chambers approved, which became known as the Inflation Reduction Act, included other provisions on corporate taxation, but not ones that directly targeted offshoring. 

It's not clear that changing either law would have had a dramatic impact on pharmaceutical manufacturing choices. Regardless, neither one passed.

We rate this a Promise Broken.