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“The Limits Of Corporate Citizenship”: Why Walgreen Shouldn’t Be Allowed To Influence U.S. Politics If It Becomes Swiss

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 U.S. taxes on the profits they make.

Okay. 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.

Last year, the Government Accountability Office, examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.

One tax dodge often used by multi-national companies is to squirrel their earnings abroad in foreign subsidiaries located in countries where taxes are lower. The subsidiary merely charges the U.S. parent inflated costs, and gets repaid in extra-fat profits.

Becoming a foreign company is the extreme form of this dodge. It’s a bigger accounting gimmick. The American company merges with a foreign competitor headquartered in another nation where taxes are lower, and reincorporates there.

This “expatriate” tax dodge (its official name is a “tax inversion”) is now at the early stages but is likely to spread rapidly because it pushes every American competitor to make the same move or suffer a competitive disadvantage.

For example, Walgreen, the largest drugstore chain in the United States with more than 8,700 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.

Even if it becomes a Swiss corporation, Walgreen will remain your Main Street druggist. It just won’t pay nearly as much in U.S. taxes.

Which means the rest of us will have to make up the difference. 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.

The tax dodge likewise means more money for Walgreen’s investors and top executives. Which is why its large investors – including Goldman Sachs — have been pushing for it.

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 played. Anything to boost the bottom line.

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 shedding their U.S. identities and 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 as good if not better deals 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 about how the U.S. government does anything.

In 2010 it lobbied for and got a special provision in the Dodd-Frank Act, limiting the fees banks are allowed to charge merchants for credit-card transactions — resulting in a huge saving for Walgreen. If it becomes a Swiss citizen, the days of special provisions should be over.

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.

The Court didn’t turn foreign corporations into American citizens, entitled to seek to influence U.S. law and regulations.

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

Walgreen is free to become Swiss but it should no longer be free to influence U.S. politics.

It may still be the Main Street druggist, but if it’s no longer American it shouldn’t be considered a citizen on Main Street.

 

By: Robert Reich, The Robert Reich Blog, July 6, 2014

July 7, 2014 Posted by | Corporate Welfare, Corporations, Walgreen's | , , , , , | 1 Comment

“The Winds Are Shifting”: How Corporate America Is Losing The Debate On Taxes

If there is one clear loser in President Obama’s budget this year, it’s U.S. multinationals.

With six new ideas designed to plug some major leaks in the tax code, the 2015 budget proposes a total of more than $276 billion in higher taxes on overseas earnings for U.S. multinationals over the next decade, about $120 billion more than last year’s budget. (A sample of the policy just to give you an idea of how deep in the guts the administration is going: “Create a new category of Subpart F income for transactions involving digital goods or services.”)

So much for the White House’s attempts to strike common ground with big company chief executives, who have been howling for years about paying too much in taxes with the federal corporate tax rate at 35 percent. The companies have also poured money into an endless parade of coalitions with names like ACT, RATE, WIN, TIE AND LIFT.

The trouble with the executives’ complaints is that many companies don’t pay nearly the 35 percent rate. GE, for instance, in its most recent annual filing said it paid an effective tax rate of 4.2 percent. (See this graphic we ran last year showing taxes paid by companies in the Dow 30.) These firms insist that the high rate is merely forcing them to find complex ways to lower their tax bills.  But with this budget, it’s clear the administration isn’t buying it.

“The problem is not an international tax system that unacceptably handicaps U.S. businesses,” said Ed Kleinbard, a professor at the University of Southern California’s Gould School of Law who has done extensive research on the way companies shuffle their income overseas to lower their tax bills. “Instead the problem is an international tax system both in the United States and other countries that U.S. multinational firms have demonstrated they are highly skilled at gaming.”

The president’s budget is the latest sign for corporate tax lobbyists that the winds are perhaps shifting against them. Last month’s tax reform plan from House Ways and Means Chairman Dave Camp (R-Mich.) also included a number of ideas unpopular with business, including a bank tax. His section on international tax reform was somewhat more generous to big firms, giving them a lower rate on overseas earnings with anti-abuse measures that Kleinbard says don’t go far enough.

Of course, expectations are low that either the president or Camp’s policies will ever make the leap to reality. But after spending hundreds of millions of dollars on lobbyists, corporate America is not exactly seeing its worldview reflected in these blue prints.

 

By: Jia Lynn Yang, WonkBlog, The Washington Post, March 5, 2014

March 10, 2014 Posted by | Corporations, Tax Code | , , , , , , , | Leave a comment

“The Real Tax Threat To American Businesses”: Big Corporations Don’t Pay Their Fair Share

American businesses face some serious challenges from taxes. But it’s not due to America’s tax rates, as many big business CEOs would have you believe. Our corporate tax problems stem from a corporate tax code with so many perks, credits and loopholes in it that many U.S. multinational corporations pay little to no taxes. This starves our national budget and imperils public education, innovative research and infrastructure, the sort of public investments that help make our businesses and economy competitive. And, maybe even worse, it’s unfair.

I’m an accountant. I know about taxes. I help my clients take advantage of the deductions and incentives to which they are entitled. But because of accounting tricks my clients cannot use, many giant U.S. corporations pay taxes at effective rates far lower than most small businesses and many middle class families. The average U.S. multinational corporation paid just 12.6 percent of its income in taxes in 2010, according to the Government Accountability Office.

Some of the most unfair corporate tax loopholes for America’s competitive position in the world are the offshore tax loopholes. These loopholes alone cost the U.S. Treasury an estimated $90 billion a year. They also create an unfair playing field between domestic businesses like I serve in my practice, and the large multinational firms, whose high priced tax attorneys and lobbyists have devised ways to shift profits earned in the United States to the world’s tax haven countries where those profits are taxed lightly, if at all.

For instance, some software companies take patents on products developed in the U.S. and register them in a foreign tax haven. When a U.S. customer purchases the product, the company sends a large chunk of the purchase price to the tax haven to pay for the use of the patent. Thus the company reduces its effective corporate tax rate – sometimes even below 10 percent.

My clients don’t have this option. Nor would they want it. They are restaurants and dry cleaners, medical practices, small manufacturers and auto repair shops. They work hard and they expect to pay their fair share of taxes. They are the engines of our local economy, just as similar small companies are the engines of local economies across the country. They provide needed goods and services. They provide needed jobs. And they pay needed taxes.

Their taxes help pay for public investment in schools, roads, courts, public transit, public safety, public health – all of the basic infrastructure that enables all businesses to function and thrive. Since they benefit – as we all do – from those tax investments, it’s only fair that they should pay their share.

But their counterparts at large US multinationals don’t have to. And it’s the tax code that lets them. It’s as if the tax code pretends that they are operating in a third world country with no infrastructure to support. That’s ridiculous, of course. I’m good at accounting and bookkeeping, but I sure wouldn’t want a client trying to operate their entire business in a rural part of a third world country.

Our tax code should be fair and should encourage investment in our shared future. When we invest together we start a virtuous cycle of growth. But when people, whether individuals or business owners, think the tax system is rigged in favor of one group or another – say U.S. multinational companies using overseas tax havens – they rightly feel that they are paying more than their fair share. They lose faith in the system.

And when tax revenues are lower than they would be without such loopholes, policymakers look for ways to cut spending. This starts a vicious cycle of ever-shrinking economic activity and ever reducing tax revenue.

Fixing the tax code is the answer, and a good place to start is with the unfair overseas loopholes that undermine our faith in the tax system and rob our communities and the nation of vital investments in the future.

It makes no sense for our tax code to be hurting domestic job creators and undermining the tax base for our schools, roads, police and other vital services and infrastructure.

The tax reform America needs is one that closes many of the unfair loopholes won by big business lobbyists over the last three decades. We need the extra revenue collected to invest in the 21st century economy that will sustain our families, our communities and our businesses.

 

By: Brian Setzler, U. S. News and World Report, January 17, 201

January 22, 2014 Posted by | Big Business, Tax Loopholes | , , , , , , , | 2 Comments

   

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