Tax Cuts Push Stock Buybacks for Big Pharma

Large pharmaceutical companies have been buying back their stock in significant sums since 2018, which may be evidence showing the Trump administration’s tax cuts are being used to boost earnings instead of deliver more research and development.

In an analysis by Axios, reports from the top 12 pharmaceutical companies’ filings show a massive increase in stock buybacks beginning after the Tax Cuts and Jobs Act of 2017. In January 2017, the total spending on buybacks was just over $25 billion before jumping to almost $70 billion in 2018. Money spent on research and development between all 12 companies remained largely stagnant between those two years, going from $59 billion in 2017 to $66 billion in 2018. In 2019, stock buybacks remained well above 2016 and 2017.

The slow increase in research development and dramatic rise in stock buybacks implies that the large corporate tax cuts – going from a rate of 35 percent to 21 percent at the end of 2017 – have been mostly used to boost company earnings and drive stock prices. Based on money spent and the relative money being saved due to the lower tax law, the top pharmaceutical companies may not be investing proportionate amounts on new treatments or cheaper drug prices.