Syndicated Columnists

July 15, 2014

Robert Reich: Walgreen, if it goes Swiss, plays the tax-dodge game

We’ve been hearing for years from CEOs that American corporations are suffering under a larger tax burden than their foreign competitors. This is mostly rubbish.

Dozens of big U.S. corporations are considering leaving the United States in order to reduce their tax bills.

But they’ll be leaving the country only on paper. They’ll still do as much business in the U.S. as they were doing before.

The only difference is they’ll no longer be “American” and won’t have to pay nearly as much in taxes to the U.S. government.

OK. But if they’re no longer American citizens, they should no longer be able to spend a penny influencing American politics.

Some background: We’ve been hearing for years from CEOs that American corporations are suffering under a larger tax burden than their foreign competitors. This is mostly rubbish.

It’s true that the official corporate tax rate of 39.1 percent, including state and local taxes, is the highest among members of the Organization for Economic Cooperation and Development.

But the effective rate — what corporations actually pay after all deductions, tax credits, and other maneuvers — is far lower. And some pay no taxes at all.

One tax dodge often used by multinational companies is to squirrel away their earnings abroad in foreign subsidiaries located in countries where taxes are lower.

But some companies want to reduce their U.S. taxes even further by becoming foreign companies. They’ll merge with foreign competitors headquartered in another nation where taxes are lower, and reincorporate there.

For example, Walgreen, the largest drugstore chain in the United States with more than 8,200 drugstores spread across the nation, is on the verge of moving its corporate headquarters to Switzerland as part of a merger with Alliance Boots, the European drugstore chain.

Founded in Chicago in 1901, with current headquarters in the nearby suburb of Deerfield, Walgreen is about as American as apple pie — or your Main Street druggist.

Walgreen’s morph into a Swiss corporation will cost you and me and every other American taxpayer about $4 billion over five years, according to an analysis by Americans for Tax Fairness.

Some Walgreen customers have complained. A few activists have rallied outside the firm’s Chicago headquarters.

But hey, this is the way the global capitalist game is played.

Yet it doesn’t have to be the way American democracy is played. Even if there’s no way to stop U.S. corporations from becoming foreign corporations, there’s no reason they should retain the privileges of U.S. citizenship.

By treaty, the U.S. government can’t (and shouldn’t) discriminate against foreign corporations offering deals as good as, if not better than, American companies offer. So if Walgreen, as a Swiss company, continues to fill Medicaid and Medicare payments as well as, say, CVS, it’s likely that Walgreen will continue to earn almost a quarter of its $72 billion annual revenues directly from the U.S. government.

But as a foreign corporation, Walgreen should no longer have any say over the size of those payments, what drugs they cover, or how they’re administered.

In fact, Walgreen should no longer have any say over how the U.S. government does anything.

The Supreme Court’s Citizens United decision may have opened the floodgates to American corporate money in U.S. politics, but not to foreign corporate money in U.S. politics.

Since the 2010 election cycle, Walgreen’s political action committee has spent $991,030 on federal elections. If Walgreen becomes a Swiss corporation, it shouldn’t be able to spend one penny more.

Robert Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley.

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