As California politicians keep banking opioid donations, taxpayers set to subsidize huge settlements

The Wall Street Journal and Washington Post recently reported that four major opioid makers and distributors are close to finalizing a $26 billion settlement to resolve state lawsuits for the companies’ roles in the opioid epidemic. But there’s a huge catch.

The four companies could be rebated a combined $4.6 billion by the federal government due to a special corporate tax advantage buried in last year’s COVID relief bill. This expansion of the “net operating loss” tax break lets companies write off extra losses experienced during the pandemic, even if unrelated to COVID.


This means when the $26 billion settlement is dispersed to states, the American taxpayer will pay $4.6 billion of it on behalf of four opioid companies who admit no culpability. They are AmerisourceBergen, Cardinal Health, Johnson & Johnson and McKesson – a quartet that has already paid more than $6 billion in combined federal and state government fines since 2000.


Critics of the expanded tax break also note the $4.6 billion rebate is just a small part of possibly $250 billion in unnecessary corporate write-offs that will benefit extremely rich and – in the case of the opioid companies – heavily fined corporations. (The problem of heavily fined corporations financial influence in the the American political system was covered in this exposé last issue.)


It’s an alarming situation that spotlights two large blights on the U.S. political system, both illustrated within California’s 53-member U.S. house delegation.


The first is how the pharmaceutical industry has evaded full responsibility for its flagrant marketing practices that fueled large parts of the opioid epidemic. Over the last two decades, the epidemic claimed about a half million lives and has yet to abate. In California alone, the National Institute of Health reports a record-high 3,244 opioid-related overdose deaths in 2019, the most recent year available. This represents a 48% increase since 2017, with the isolation and unemployment of the Covid pandemic expected to push numbers higher.


But as the opioid epidemic worsened, Congress made the problem worse when in April 2017 it unanimously passed a bill that kneecapped important DEA enforcement powers. Once the bill’s egregious defects were exposed by 60 Minutes and The Washington Post, most lawmakers interviewed admitted they never read the bill, but said the bill needed to be fixed. But in four years since, Congress has yet to do so.


So how did this happen? As usual, most roads lead back to the influence of big corporate donors who underwrite a huge part of the U.S. political system. Over the last decade, the five largest U.S. opioid makers and six largest distributors pumped $60 million into the American political system. These included the four companies reported to be close to the above $26 billion settlement.


In California in just the 2019-20 election cycle, this included more than $400,000 donated to the campaign committees and leadership PACs of 35 House members from California. Here were the largest recipients:

As covered in the Nov. 4 issue of Sacto Politico, Sacramento’s two main representatives – Doris Matsui and Dr. Ami Bera – have been major recipients of donations from the opioids industry. This was the case not just in the last cycle, but also over the last decade.


In addition, most of the California House members who received opioid donations in the last cycle accepted them even as their county health departments sued these same companies in federal district court.

To be sure, opioid companies won’t be the only corporations to benefit from the special net-operating-loss tax break buried in last year’s CARES Act. To their credit two weeks ago, 120 Democratic members of Congress wrote to Congressional leadership calling for President Biden’s proposed $1.9 trillion pandemic relief bill to include a reversal of this tax break. They estimated this would save taxpayers $250 billion.

Among the signers were 19 California House Democrats, but interestingly this included none of the state’s top recipients of opioid donations and only three of 15 California members of the pro-business New Democratic Coalition. In contrast, 14 of California’s 20 members of the Congressional Progressive Caucus signed, and this caucus is the strongest in Congress for curtailing or eliminating corporate financial influence in U.S. elections.

This is not to say a direct link between opioid donations and the tax break. However, it’s no stretch to see a correlation between pro-corporation lawmakers – including those accepting donations from opioid companies – and those who didn’t sign the net-operating-loss letter.


This brings us to the second blight on our political system: the political system’s reliance on donations from heavily fined corporations.


Last cycle alone, the entire California House delegation accepted $14.6 million in donations from heavily fined corporations, or $278,127 per California House member. This represented nearly a third of all PAC donations accepted by California’s House delegation. (“Heavily fined” is defined as corporations penalized by state and federal governments at least a half million dollars since 2000.)


And opioid companies are among the most sued and most heavily fined companies in the nation. The four companies listed above combined for $6 billion in fines and penalties since 2000, and this doesn’t include major recent penalties such as the $465 million verdict against Johnson & Johnson in its opioid case with the state of Oklahoma.


Sadly, massive corporate funding of our political system from such companies underlies much of the problems in our federal government. California lawmakers are not unique, but clearly this flood of bad corporate money leads to costly and damaging lawmaking like the 2017 DEA bill and how the net operating loss tax break was expanded.


Both must be reversed in the current session of Congress. Longer term, the American people must get serious about banning all corporate donations by Constitutional Amendment. See this related story in this issue.


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A last note: On Feb. 4, the global business management consultant McKinsey & Company announced a nearly $600 million settlement with 47 states and the District of Columbia. This was for its role helping opioid-related clients “turbocharge” sales of high-risk opioids including Oxycontin through its aggressive marketing programs.


It’s a rare settlement by a consulting firm for actions by its clients. McKinsey has annual revenues of $10 billion and has paid fines only twice in the last two decades, according to the Violations Tracker database of GoodJobsFirst.org.


One was a small 2014 penalty for $9,255 in relation to a Connecticut tax issue. But in 2019, the firm paid a far more significant $15 million to settle with the U.S. Department of Justice for failing to properly disclose connections to clients involved in Chapter 11 bankruptcy cases.


McKinsey’s opioid settlement with the 47 states won’t be the last of its settlements, as three states did not sign onto this settlement. Plus local governments may also sue. But this one settlement will vault McKinsey from the 974th most penalized corporation in the U.S. to roughly the 125th most penalized, according to data compiled by GoodJobsFirst.org.


As with all these settlements and verdicts, no one goes to jail. This happens even as dozens of doctors continue to be jailed for their roles taking advantage of the “turbocharged” marketing programs that McKinsey consulted on and for which opioid companies like the four above are being widely sued.