Senate Finance Committee to investigate Abbott's tax practices
The Senate Finance Committee will investigate Abbott Laboratories’ tax practices and stock buybacks amid an ongoing and exacerbating shortage of baby formula, chairman Sen. Ron Wyden (D-Ore.) announced Wednesday.
Why it matters: Wyden, in a letter to Abbott CEO Robert Ford, accused the company of using the "billions" its saved from the tax reforms passed by Republicans in 2017 for "padding the pockets of corporate executives and wealthy shareholders" and not "investing in critical upgrades to a plant essential to feeding our nation’s infants."
- Wyden also questioned how the company was able to pay "a stunningly low effective tax rate that has averaged just under 12% over the last three years,"
The big picture: The baby formula shortage started in 2021, following production problems and distribution issues stemming from the pandemic.
- But the shortage was significantly exacerbated when Abbott, one of the largest suppliers for baby formula in the U.S., recalled several major brands of its formula after federal officials investigated four babies who suffered bacterial infections from baby formula made at the company's factory in Sturgis, Michigan.
- The plant was forced to close over the recall, though the company this week reached an agreement with the Food and Drug Administration to reopen it, potentially paving the way for increased supply.
- About 3 in 4 babies are given formula within their first six months as a complete or partial substitute for human milk, as many women run into issues and face difficulty breastfeeding.
What they're saying: "I also seek to understand how much was spent by Abbott to prevent the closure of a critical infant formula processing plant, and whether the billions of dollars in tax cuts Abbott received from the 2017 Republican tax law were spent on share repurchases rather than investing in this plant," Wyden said in the letter.
- "Over the last three years, Abbott paid an effective tax rate of 9.6% in 2019, 10% in 2020 and 13.9% in 2021. Though the methods by which Abbott is able to achieve such low tax rates are unclear, it appears the company is the beneficiary of favorable tax treatment in several well-known tax haven jurisdictions," he added.
- "Abbott has also recorded profits in the midst of a global pandemic. Last year Abbott’s net earnings in 2021 soared to $7 billion, a 91% increase from 2019. Since the pandemic began, Abbott’s global sales have climbed from $31.9 billion in 2019 to over $43 billion in 2021."
- Wyden said the company announced in December that it would buy back $5 billion worth of its stock to boost its share price as it was generating these profits.
The other side: “Abbott is a responsible and transparent taxpayer, paying all of its taxes owed in every country in which it operates around the world,” the company said Wednesday in a statement.
“We comply with all local and international tax laws and regulations, including in the U.S. Stock buybacks are not impacting our ability to invest in or re-open our Sturgis manufacturing facility; in fact, our strong balance sheet helps us respond more quickly to the current challenge," the company added in the statement.
House Democrats proposed an emergency funding bill on Tuesday that would give the FDA $28 million to address the shortage.
- Abbott and other major baby formula producers Gerber and Reckitt are set to testify before Congress next week on the shortage.
- Perrigo, another major producer, said last week that it expects the shortage to last for the "balance of the year."
Editor's note: This story has been updated with a statement from Abbott.