If We Love U.S. Jobs, We Must Love Tax Competition

It's not every day that a world leader asks you for something, let alone the Prime Minister of Great Britain. So in 2009, when Gordon Brown asked me what it would take to get Eli Lilly and Company to expand our research and manufacturing operations in the U.K., it left an impression: the British government valued the biopharmaceutical industry and was willing to compete for the jobs and research funding we bring.

That same week, the Prime Minister (or Taoiseach) of the Republic of Ireland assured me that Ireland also strongly valued the biopharmaceutical industry as a bedrock of the Irish economy, and wanted to ensure that Ireland maintained conditions to compete for our jobs and R&D funding.

If we're going to maintain our position as a global innovation leader -- especially in the life sciences -- the United States must create a more favorable investment climate for R&D-based industries. And there is no better place to start than our corporate tax system, which is ripe for reform.

It's no surprise that Ireland topped Forbes' 2013 list of Best Countries for Business, as the country offers the lowest corporate tax rate in the Organization for Economic Cooperation and Development at 12.5%. Contrast that with the U.S. statutory corporate tax rate of 39.1 percent -- the highest in the world. Then combine it with the fact that Congress has failed to renew the R&D tax credit 16 times since its inception in 1981.

As the World Bank's "2014 Doing Business" report illustrates, the U.S. tax code is itself a tax. The report ranks the U.S. 64th in terms of the ease of compliance, with the typical mid-sized business in the U.S. devoting an average of 175 hours to tax compliance.

For intellectual property-driven industries with high upfront costs, such as medical discovery -- it takes an average of 14 years and more than $2 billion to produce a new drug, according to National Institutes of Health Director Dr. Francis Collins -- wresting every bit of savings from the tax code is a must. Even a fraction of a percentage of tax savings can be the difference that leads to a medical breakthrough.

Speaking for one biopharmaceutical company, we'd much rather devote our time, energy and resources to eradicating juvenile diabetes or finding new treatments for cancer and Alzheimer's than spend another dime growing our tax department.

When Congress first enacted the R&D tax credit in 1981, the U.S. was among the first countries to offer this direct incentive for foreign investment, an advantage buffered by the 1986 tax reform that simplified the tax code for American businesses. That is not the case today as other countries -- like the UK and Ireland -- have successfully courted U.S.-based companies with more generous incentives and predictable tax policies.

In recent years, more than 600 U.S. firms -- led by intellectual property-driven giants like Google, Facebook, Twitter, and Lilly -- have located operations in Ireland. As the U.S. Chamber of Commerce reported, in 2010, approximately 100,000 Irish citizens were employed by American firms, with U.S. companies investing upwards of $16 billion a year into the Irish economy just in the form of payroll expenditures. In 2011, Ireland's Industrial Development Authority found that 75 percent of foreign direct investment projects in Ireland originated in the Americas. Of the $700 million in R&D investments that foreign firms made in Ireland that year, $500 million came from U.S. firms.

Of course, that's small potatoes next to the $5 trillion of value the U.S. Commerce Department reports intellectual property-intensive industries contributed to our economy in 2012. But the fact that U.S. firms invested more in Ireland between 2008 and 2012 than in the previous 58 years combined, should be a wake-up call for policymakers weighing the political risk of tax reform.

Put simply: the U.S. can't afford to take that $5 trillion for granted. Other countries are competing for our jobs.

America has so much to offer as a place to do business, to conduct R&D, and to manufacture products. We have incredible human capital, some of the world's leading academic institutions, cutting-edge technology transfer regimes, strong government support of primary scientific research, bedrock intellectual property protections, and primarily free-market pricing systems. These are some of the reasons Lilly employs more than half of its employees in the U.S. and remains deeply committed to R&D and manufacturing in America. But we can't rest on the laurels of our past successes.

To keep our lead, we need a corporate tax system like the rest of the world -- one that encourages, rather than discourages, investment in the United States. That, in turn, will lead to new discoveries, such as those improved treatments for some of our most devastating diseases. And along with the profound benefits of medical advances in and of themselves, we'll see exciting, new opportunities, a rising standard of living, and a reinvigorated American economy.