Last month, I stood outside one of Eli Lilly and Co.’s diabetes device manufacturing plants in Indianapolis and announced $850 million in U.S. capital investments. So we clearly believe Indiana and the United States are great places to do business.
But Lilly would be investing even more here if the U.S. House Republican blueprint for tax reform were already in place. So would the nearly 8,600 Indiana companies that sell products in foreign markets.
House leaders want to cut corporate tax rates from 35 percent to 20 percent. Their plan would also stop taxing the income U.S. companies make in other countries.
The Indiana congressional delegation should move swiftly to approve this plan. Because Hoosier companies and Hoosier workers desperately need these changes.
Not just for the chance to bring back Indiana’s share of the estimated $2.6 trillion in cash and earnings stranded overseas due to high U.S. tax rates. But also to put Hoosier companies and workers on a level playing field with their foreign peers.
Indiana’s economy depends heavily on making goods here and selling them in foreign countries, according to the U.S. Department of Commerce. Annual export sales from Indiana of nearly $35 billion support more than 190,000 Hoosier jobs. Eighty-four percent of those jobs are linked to manufacturing.
That’s 1-1/2 times as many jobs as the entire auto industry in Indiana.
Exports are a growth industry for Indiana, expanding by 34,000 jobs since the Great Recession.
Foreign countries are significant markets for some of Indiana’s biggest companies, including Lilly, Allison, Cummins, Dow AgroSciences, Hillenbrand and Zimmer. But 85 percent of Indiana exporters are small and medium-size enterprises.
The problem is, the outdated U.S. tax system is handicapping the home team.
When a U.S. company makes a profit in the United States, it pays the highest corporate tax rate in the industrialized world. And when a U.S. company makes a profit in another country, it must pay the foreign country’s corporate income tax AND—if it brings that money back to the United States for investment—pay the high U.S. corporate tax rate as well.
Here’s an example:
One of Lilly’s biggest competitors is Novartis, based in Switzerland. Both Lilly and Novartis have long, proud histories as innovators of breakthrough medicines that make life better for patients. And we compete vigorously with each other around the world.
The big difference is, Novartis pays a much smaller chunk of its profits in income taxes. That’s because Switzerland has lower corporate tax rates and doesn’t tax the international earnings of Swiss companies. And the United States doesn’t tax the foreign profits of foreign companies—only those of American companies, if they decide to bring those earnings home for additional investment.
If Lilly had enjoyed Novartis’ tax rates and territorial taxation of foreign earnings last year, we would now have an extra $150 million to invest.
That $150 million could employ about 1,000 additional advanced manufacturing workers.
Or it could pay for an additional late-stage medicine to be developed each year.
Or, over two years, that extra money could pay for a new U.S. manufacturing plant.
Instead, workers in Indiana and around the country—especially manufacturing workers—are missing out. The stock market is at historic highs and unemployment is low, but many workers feel the U.S. economic engine is still sputtering.
That’s because we’re trying to drive a modern economy on an antiquated corporate tax system. The combination of U.S. tax burdens—unique among developed nations—has given our country slow growth and stagnant middle-class wages and encouraged American companies to grow jobs overseas.
If we want more of this, let’s keep our outdated tax system. But if we want to grow jobs and incomes here in Indiana, let’s adopt the House blueprint.
That plan uses a concept known as border adjustability. It’s a viable mechanism to deliver lower corporate tax rates and a territorial system like the rest of the world, without busting the federal budget.
It would also give Hoosiers a healthy raise. An analysis by the Tax Foundation estimated the House blueprint would add more than 36,000 jobs in Indiana, and raise the median Hoosier family income $4,500.
If we want more U.S. investment, more American jobs and higher family incomes, the House blueprint is the right plan.•
Ricks is CEO of Eli Lilly and Co.