‘Beyond Outrageous’: Big Pharma Using Loophole to Get Taxpayers to Fund Billions in Fines for Fueling Opioid Crisis

jerri-Lynn here. Yves linked yesterday to a Wall Street Journal story about this aspect of the opioids settlement.

By Kenny Stancil, staff writer at Common Dreams. Originally published at Common Dreams

“The tax code is so rigged for the rich that even when they kill people they get a tax break.”

Four pharmaceutical corporations that agreed to pay a combined $26 billion to settle lawsuits resulting from a deadly opioid crisis they helped create reportedly plan to recoup a portion of those costs by deducting roughly $4.6 billion of the payouts from their taxes—sparking intense condemnation.

Big Pharma is attempting to make the public cover some of the fines related to lawsuits filed by dozens of state and local governments highlighting the culpability of opioid manufacturers and distributors in the deaths of an estimated 70,000 people per year.

As Public Citizen president Robert Weissman put it in a statement released Friday, “The drug companies are settling with taxpayers (local government entities) and then demanding that taxpayers pay part of the cost (via a federal tax subsidy).”

The Washington Post, which analyzed regulatory filings, reported Friday that “as details of the blockbuster settlement were still being worked out, pharmaceutical giant Johnson & Johnson and the ‘big three’ drug distributors—McKesson, AmerisourceBergen, and Cardinal Health—all updated their financial projections to include large tax benefits stemming from the expected deal.”

Weissman called it “beyond outrageous for the drug makers and distributors to take a tax deduction for their settlement of city and county claims relating to the drug companies’ alleged role in creating and worsening the opioid addiction epidemic.”

“Making this scheme even more infuriating,” he added, “is that the opioid manufacturer and distributor companies are preparing to claim billions in tax subsidies via a Covid-19 relief provision.”

According to the Post, “U.S. tax laws generally restrict companies from deducting the cost of legal settlements from their taxes, with one major exception: Damages paid to victims as restitution for the misdeeds can usually be deducted.”

The newspaper noted that “Congress has placed stricter limits on such deductions in recent years, and some tax experts say the Internal Revenue Service could challenge the companies’ attempts to deduct opioid settlement costs.”

But the ploy might work, as The Week noted, thanks to the CARES Act, which “opened up billions of dollars in tax breaks to companies regardless of pandemic suffering.”

The Post provided an example of how one of the companies may exploit the loophole: “Dublin, Ohio-based drug distributor Cardinal Health said earlier this month it planned to collect a $974 million cash refund because it claimed its opioid-related legal costs as a ‘net operating loss carryback’—a tax provision Congress included in last year’s coronavirus bailout package as a way of helping companies struggling during the pandemic.”

“Whether the payments will be deductible may hinge on specific word choices in the final terms of the settlement,” the newspaper reported. “Though recent changes to the tax code have attempted to close loopholes that permit companies to deduct taxes when they have committed wrongdoing, many companies now push to make sure their settlements include a ‘restitution’ payment for victims—the ‘magic word’ that often qualifies them for deductions.”

“Greg McNeil, whose son became addicted to opioids and died from an overdose… said $26 billion is only a small fraction of the epidemic’s financial toll and argue[d] the proposal doesn’t include what many family members of opioid victims want the most: an admission of guilt,” the Post added.

Not only do “all four firms disavow any wrongdoing or legal responsibility,” the Post noted, but there is now a chance that Big Pharma could make the public foot part of the bill for its corporate malpractice—in the midst of the devastating coronavirus pandemic.

“While tens of millions of Americans are experiencing extreme economic hardship and dealing with intermittent and often inadequate governmental support for unemployment, food, housing, and small business continuity,” Weissman said, “Johnson & Johnson, McKesson, Cardinal Health, and Amerisource-Bergen are laughing all the way to bank.”

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    You may not like certain companies receiving tax breaks but:

    1. Federal taxpayers do not pay for tax breaks. In fact, there is no relationship between federal taxes and federal spending. Federal taxes are destroyed upon receipt by the Treasury

    (This is different from state/local taxes, which are used for state/local government spending. It’s the difference between Monetary Sovereignty and monetary non-sovereignty.)

    Even if all federal tax collections totaled $0, the federal government could continue spending, forever. The government pays all its bills by creating new dollars, ad hoc, not by spending tax dollars.

    2. Tax breaks allow more dollars to be left in the private sector, which benefits the entire economy.

    While the government pumps trillions of “stimulus” dollars into the economy, it also pulls tax dollars out of the economy.

    The whole process is senseless.

    1. BlakeFelix

      While you are on good ground with the MMT, the government couldn’t just print money to pay its bills and collect no fines/taxes without causing inflation. While most taxes are misguided and foolish in my opinion, fines for wrongdoing and harmful behaviors act like Pigovian taxes, which are the best kind in my opinion. While I would much rather see Carbon or something taxed rather than income, it’s still offensive that companies that faked evidence in order to distribute tons of addictive drugs are able to get a tax benefit from it.

    2. Fraibert

      While the MMT framing is accurate as far as it goes, tax deductions nevertheless permit a taxpayer to retain money that it otherwise would be paying/returning/transferring (however you want to frame it) to the government. Accordingly, tax deductions are a subsidy to the _specific taxpayer_ and not to the economy at large. Government can and should be deciding whether such subsidies are warranted because such subsidies do create economic distortions–society gets more of what it subsidizes, whether that’s a good idea or not.

      Moreover, tax deductions are only beneficial to the larger economy based on that taxpayer’s marginal propensity to consume (i.e., if the tax savings are not actually spent, not much economic activity results) or otherwise deploy the tax savings in a useful manner (e.g., not on unproductive stock buybacks).

    3. liz

      Agreed that the money is destroyed but it is not good to leave it in the hands of companies who knowingly do wrong. Leaving it in their hands does not necessarily benefit the economy at large but will certainly benefit the company that surely is not the intent.

    4. Edward

      This is probably why the wars and bailouts are politically possible; the taxpayer is not immediately and directly soaked for the costs. And yet the politicians are so worried about the deficit that they are reluctant to issue stimulus checks, write off college debt, or offer medicare for all. Many countries cannot just create money like this. How long can it continue?

      If the companies are not fined, then an alternative such as jail should be followed.

  2. SteveD

    The ‘taxpayer’s footing the bill’ framing is really unfortunate (that’s a very generous characterization btw). Much better: “Big Pharma escaping their court-ordered punishment by using tax code loopholes”


    Agreed, SteveD

    If it’s any consolation, they “escape” to the degree that taxes are only a percentage of income, so they do receive some punishment.

    And the other bit of consolation is that more dollars are being left in the private sector.

    But again, I agree with the expressed sentiment, if not the facts.

    1. Thomas P

      Another way of expressing that is that more money is left in the hands of crooks who poisoned the US public. I’m not sure that’s really in the public interest.

      1. Michael McK

        Agreed, to me, the worst part of Capitalism is that the Capitalist decides where to reinvest profits. Most of the earnings that have accrued to the Capitalist class lately have funded fracking, Uber, Amazon and other investments with long term damage to people and the economy. The people, if their government works for them, will make much better investments than those who are merely seeking to increase their own personal pile of lucre. We need a wealth tax big time!


      Rumi is correct. Federal taxes do not provide the federal government with spending money. Bernanke and Greenspan said the same thing.

      The purpose of federal taxes is to control the economy by taxing what the government doesn’t like and giving tax breaks to what the government does like. That is why the bottom 95% pays FICA and income taxes, while the upper 5% gets tax loopholes.

      By contrast, state/local government taxes do provide state/local governments with spending money. It’s the difference between Monetary Sovereignty and monetary non-sovereignty.

  4. Bob

    From here It appears that the opioid epidemic is state policy.

    There is a history of using opioids to control a population. Of course there were the opium wars, and although somewhat forgotten Japanese war (WWII) criminals were charged and convicted for trafficking, the flow of opioids through Laos and Afghanistan is well established, the heroin traffic from south of the border is estimated to provide about a ton of product per week to US consumers and yet large seizures of product are unheard of. We note that even the dullest of students can by fluke make an “A”. Yet US law enforcement particularly Federal Enforcement never make a major opioid seizure within the continental US.

    And now we learn that the Pharma companies are incentivized via the US tax code.

    This is state policy.

  5. Bob

    More info –

    Naoki Hoshino
    From Wikipedia, the free encyclopedia

    Following the Japanese invasion of Manchuria and the establishment of the puppet state of Manchukuo he led a team of bureaucrats from the Ministry of Finance to provide an infrastructure for finances for the new territory in July 1932. From 1937 he served as Vice Minister of Financial Affairs of Manchukuo. To this capacity he oversaw the creation and personally directed the State Opium Monopoly Bureau that spread the mass use of the narcotic firstly in Manchuria and then in China as a way to soften public resistance to the Japanese occupation and expansion while generating huge profits. Under his authority tens of thousands of hectares were taken over by the Japanese underworld and put under poppy production, while dozens of laboratories were built to convert opium tars into various grades of morphine and heroin; thus the economy of Manchuria became inextricably bound to hard drugs.[1] His administrating success there, made Japan by 1935 the biggest narcotics’ producer accounted for approximately three tons or 10% of the world’s total supply of morphine and 37% of total heroin production.[2] According to the testimony of General Ryukichi Tanaka before the International Military Tribunal of the Far East during his post in Manchuria the revenue derived from the opium and other narcotics traffic became the chief source of revenue income for the Manchukuo government.[3] Part of the narcotics was exported to Japan where they were used by a subsidiary tobacco industry of Mitsui of Mitsui zaibatsu in the production of special marketed cigarettes for the Chinese market bearing the then popular in the Far East trademark “Golden Bat”. Including small doses of opium on their mouthpiece, apart from generating millions of addicted victims increasing the breakdown of Chinese society it also generated colossal profits for the Japanese economy that (according to testimony at the Tokyo War Crimes trials of 1948), Japanese military calculated to 300 million prewar dollars annually.[4]

    After the surrender of Japan, he was arrested by the American occupation authorities and tried before the International Military Tribunal of the Far East as a Class A war criminal on counts 1, 27, 29, 31, 32 together with other members of the Manchurian administration responsible for the Japanese policies there. He was found guilty and sentenced to life imprisonment at Sugamo Prison in Tokyo while his close colleague general Kenji Doihara responsible for the smuggling of narcotics in the occupied and non-occupied areas was sentenced to death and hanged. According to the indictment, as tools of successive Japanese governments they “.. pursued a systematic policy of weakening the native inhabitants’ will to resist . . . by directly and indirectly encouraging the increased production and importation of opium and other narcotics and by promoting the sale and consumption of such drugs among such people.”[5]

  6. LowellHighlander

    While I find the discussion of MMT here useful for enlightening the use and nature of taxes and the tax code, I wish to place another issue on the table here for discussion: When can we talk about having the U.S. government set up a national, publicly owned (without any joint stock of any kind) pharmaceutical agency, whose mission would be to research, develop, and produce needed pharmaceuticals at their [marginal] cost? And whose top executives would be on the GS schedule for Federal employees, along the model of the Social Security System?

  7. Dick Swenson

    I find the discussion of MMT completely irrelevant here.

    If I receive a summons for DUI and am found guilty, I cannot agree to a sentence where I admit no guilt and then deduct the fine from my income tax. OR CAN I?

    Corporations are not citizens and Citizens United doesn’t make this claim. They do have many rights from which citizens are excluded. For example, they only pay tax on foreign income when it is repatriated, and not when received. US citizens pay tax on foreign income when it is received even if it is not repatriated.

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