Will the ‘beat China’ bill help the US win back pharmaceutical manufacturers?
Tuesday, June 30, 2020
There has been a staggering 75% increase in U.S. imports of pharmaceuticals from China from 2010 to 2018.
To help reverse this trend, some GOP U.S. Senators recently unveiled a bill to incentivize pharmaceutical companies and increase U.S. drug manufacturing. Sens. Kelly Loeffler (R-Ga.), Ted Cruz (R-Texas), and Joni Ernst (R-Iowa) jointly worked to introduce the Bring Entrepreneurial Advancements to Consumers Here in North America (BEAT CHINA) Act. The goal is to reduce the country’s overdependence on China for critical medications and increase U.S. manufacturing of prescription drugs.
Incentivizing pharmaceutical manufacturers, along with medical device and supply manufacturers, would mean significant tax breaks to spur relocation to the United States. The last two decades have witnessed a massive shift in our manufacturing overseas. While this has minimized costs, it has also meant jeopardizing our supply chains, losing American jobs, and dependence on competitors.
The last point is perhaps of utmost importance at the moment. The COVID-19 pandemic has revealed the dangers of relying on other countries like Canada and China for critical, life-saving products. It has exposed China’s monopoly on some drugs and urgent medical supplies and devices, including gowns, masks, and swabs.
At the height of the coronavirus crisis, the U.S. government accused China of hoarding critical medical supplies when U.S. front liners were in dire need. It exposed the vulnerabilities in our supply chain and how China produces 90% of America’s antibiotics.
Now, U.S. lawmakers and the government are determined to reduce reliance on the China-based supply chain. The legislation also states that while China is our trade partner, the Chinese government actively seeking to control the medical supply chain poses a risk to America’s national security.
How else can the “beat China” bill help U.S. manufacturers?
- A tax code amendment will offer incentives to companies and motivate them to relocate the manufacturing of medical devices, and related supplies along with pharmaceuticals back home.
- Companies that plan to relocate and start domestic manufacturing units will benefit from non-residential real estate purchases as 20-year properties instead of the earlier duration of 39 years. This will be a big incentive because the purchase of the property would be fully deducted in the first year and allow companies to be eligible for “bonus depreciation.”
- Qualifying companies will not face unnecessary hits from taxes if they choose to move back home. The government will allow the exclusion of any gain earned from the gross income on the disposition of assets in a foreign country.
- To ensure the domestic production of materials and qualify for these tax incentives, companies must adhere to the same production levels here as they had in the foreign country.
These points mean that the companies would be allowed to expense their relocation of manufacturing assets 100% in the first year instead of depreciating such investments over a 39-year time frame. Long depreciation requirements raise the long-term cost of capital and are a disincentive to investment.
The bill would extend this ideal tax policy to the relocation of medical and pharmaceutical manufacturing. Encouraging domestic pharmaceutical manufacturing and reshoring is a great policy approach to bringing critical manufacturing home and a significant move toward a tax code that domestic manufacturers need.
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