Let’s get one thing straight, right off the bat: any company making billions in profit year after year is not unduly suffering from paying too much in taxes.
This is especially true for companies with a business model that requires large payments from the U.S. government for the products it sells. Or that benefit from government-funded programs such as scientific research or defense spending.
Yet more and more we’re hearing about companies—including local firms such as retailer Walgreens and pharmaceutical maker AbbVie—looking to move their headquarters offshore simply for the benefits of lower taxes.
Known as “tax inversion,” the strategy involves moving a company’s formal headquarters address to another country via a corporate merger, particularly somewhere that has a lower corporate tax rate than the U.S. For a company like Walgreens or AbbVie, such a move can mean millions in savings from the lower tax rate, which is currently 35 percent in America.
Walgreens is considering moving its headquarters to Switzerland, while AbbVie is buying a company based in Ireland.
Illinois Senator Dick Durbin recently penned an op-ed in the Chicago Tribune that called out companies like Walgreens and AbbVie for what he calls “a decision to desert America while still expecting the same benefits as truly American companies.”
Walgreens has built a strong presence across America, where its tax-paying customers drive on taxpayer-supported highways to have their prescriptions filled by pharmacists who often rely on taxpayer-supported government loans for their educations. An estimated 23 percent of Walgreens' revenues in its last fiscal year were from, you guessed it, taxpayer-supported Medicare and Medicaid programs.
But now, it turns out "the Corner of Happy and Healthy" may end up somewhere in the Swiss Alps.
Broken down to its basics, the debate over tax inversions has two sides. On the one hand, there’s those who believe companies that for years have enjoyed the benefits of operating in the U.S and making billions in profits have a responsibility to pay their fair share in taxes that help keep the country strong.
On the other hand are those that argue that paying taxes is simply too much of a burden for successful corporation to bear, and any opportunity to reduce the amount paid must be taken.
For an example of this argument, just listen to the CEO of another local drug maker, Abbott Laboratories. In a July 17th editorial in the Wall Street Journal, Miles D. White wrote:
In terms of global competitiveness, the U.S. and U.S. companies are at a substantial disadvantage to foreign companies. Taxes are a business cost. Our disproportionately higher tax rate puts foreign companies at a huge advantage competitively, and their lower tax burden amounts to a subsidy that encourages them to acquire American businesses.
Businesses like Walgreens and CEOs like White like to argue that the real problem driving businesses out of the country is a “flawed corporate tax code.” If only corporate taxes were easier and, quite frankly, lower, there wouldn't be a problem and companies could happily remain inside our borders.
Yet, as Durbin points out, tax inversion isn’t really about the tax code. It’s a monetary calculation, pure and simple. “It's a decision to desert America while still expecting the same benefits as truly American companies,” he writes.
In 2013, Walgreens made $2.5 billion in net profits. Moving to Switzerland would mean the company would save an estimated $797 million in taxes in the first year, and $4 billion over five years.
Last year, AbbVie reported fourth quarter profits of $1.3 billion on $5.11 billion in sales.
In 2011, U.S. defense contractor Ingersoll-Rand moved to Bermuda for tax purposes. In 2009, it moved to Ireland. In the fourth quarter of 2013 alone, it made $47.6 million.
Since 1983, 76 U.S. corporations have shifted their tax domiciles out of the United States to other countries to avoid U.S. taxes, according to research by the U.S. Congress.
Forgive me if I find it a little bit difficult to shed a tear for these companies simply because they can’t make enough in profits after paying the legally-required amount in taxes.