Walgreens
is the pharmacy that, at least according to its website, can be found
“at the corner of Happy & Healthy.” If its executives have their
way, however, it may soon be found near the intersection of
Ziegelackerstrasse and Untermattweg in Bern, Switzerland. By acquiring
the much smaller Swiss company that is located near that corner, the
American company can dodge millions in American taxes.
What would that
mean for the 4,200 employees who work at Walgreens headquarters in
Deerfield, Illinois? Probably nothing, as Deerfield’s local newspaper (a
branch of the Chicago Sun-Times) explains.
“Inversion,” as these maneuvers are called, doesn’t actually mean a
company moves anything. Like the Panamanian flag fluttering on a
second-class freighter, all it tells you is that a vessel for hire has
found a new and more compliant registry.
Call it the
“Inversion Evasion.” Walgreens would become a “Swiss company” for tax
avoidance purposes only. The combined corporation would do a small
percentage of its business there. In all other respects, however, the
corporation would remain fully American – headquartered here, making
most of its profits here, and continuing to use its lobbying dollars and
campaign money to distort the American political process. (Michael Hiltzik of the Los Angeles Times has more detail on the process.)
All of which
raises the question: How does it feel to be the CEO of a “defector
corporation”? Do such executives face the opprobrium of society as they
continue to frequent fine dining establishments and enjoy the fruits of
this land that has given them so much?
So far,
apparently not. But that may be changing. The inversion trick hasn’t
received much public attention, but it’s quickly moving into the
spotlight. Illinois Sen. Richard Durbin
has already written a letter suggesting that Walgreens could become the
subject of a boycott it if decides (“pretends” might be a better word)
to become a Swiss corporation.
Durbin couldn’t
resist a jab at that “corner of Happy & Healthy” slogan either.
That’s just the latest of many Walgreens tag lines, including “Be well”
and “The pharmacy America trusts.” (Write your own joke, as Ed McMahon
used to say.)
So far these
moves have taken place under the public’s radar. But “defector CEOs” may
be beginning to feel the heat. That’s usually when they call on
cooperative (if not downright obsequious) journalists like Andrew Ross
Sorkin of the New York Times. Sorkin’s phone must have rung recently,
because he has dutifully inflated and set aloft a puff piece on behalf
of Heather Bresch, the CEO of a pharmaceutical company called Mylan and
the daughter of United States Sen. Joe Manchin of West Virginia.
The headline given to Sorkin’s piece
reads “Reluctantly, Patriot Flees Homeland for Greener Tax Pastures.”
That’s a droll and inventive formulation that can be applied to many
situations, as in: “Reluctantly, Loving Husband Flees Wife for Younger
Woman.”
Sorkin
credulously reports that Bresch loves her country and “left” it (there’s
no evidence she’ll physically relocate) with great regret, a rhetorical
inversion that was received with mordant amusement in knowledgeable
quarters. Bresch is unable to mount a coherent defense for her actions,
despite Sorkin’s tender ministrations. The usual “taxes are too high”
trope is dug up, but when pressed by Sorkin she’s unable to name a tax
rate that would persuade her to keep the company in the U.S.
Maybe that’s
because she doesn’t have a real complaint. Statutory corporate tax rates
– that is, the “official” rate – are high in the United States, but the
actual rate paid by corporations is quite low. It’s just that there
will always be a country out there willing to charge a little less, no
matter how low our rates, in return for the chance to channel some funds
out of the U.S. economy.
The policy
choice is simple: Either end “inversions” or be condemned to an endless
race to the bottom on tax rates. That’s a race the American people are
doomed to lose.
Mylan and Bresch
defected for an initial gain of 4 percent on Mylan’s tax rate,
according to Bresch herself, with the expectation that this advantage
will roughly double in future years. (Bresch told Sorkin that Mylan’s
rate would drop from 25 percent to 21 percent and then to the “high
teens.”)
For that, Bresch
and her colleagues are prepared to renounce their corporation’s
American “citizenship.” (If corporations are “persons,” as is the
current legal fiction, they’re certainly not very loyal ones.)
Now Walgreens
seems poised to join that list. Walgreens CEO Greg Wasson unashamedly
told analysts on a recent investor call that the company is actively
exploring use of the inversion tactic. Like virtually all CEOs, Wasson
is highly compensated. And, like most of them, he collects that
compensation even when he has a very bad year. From the looks of things, he also shares with his peers a certain lack of patriotism.
What do
Americans, especially older Americans, picture when they think of
Walgreens? A 1950’s-style corner drugstore, perhaps. A luncheonette
counter, some stools, maybe a gleaming blender for whipping up
milkshakes …
But today’s
Walgreens is a $72 billion enterprise, and a quarter of that income
comes directly from the American taxpayer through Medicare and Medicaid
programs. (See Americans for Tax Fairness/Change to Win for more on Walgreens.)
And when
Americans think of Swiss corporations, they may think of multinational
banks, or watches, or fine chocolate. They probably aren’t picturing the
pharmacy that sells them aspirin, shampoo, and prescriptions. They’re
certainly not likely to imagine a corporation that earns its wealth from
American customers, profits from American government programs, and
delivers its products over American roads – all while scheming to evade
American taxes.
n some ways the
Walgreens case is even more objectionable than Mylan’s. Walgreens would
immediately have a tax advantage over its competitors. At least Heather
Bresch can claim that “We were one of the last ones in our sector to do
this … If you put on your business hat, you can’t maintain
competitiveness by staying at a competitive disadvantage.”
Greg Wasson can’t even say that.
That’s not to
defend Mylan. Pharmaceutical companies benefit from government research,
government rules, and government reimbursement. But the first Walgreens
was opened in 1901 at the corner of Bowen Avenue and Cottage Grove in
Chicago, Illinois. If that’s not an American company, what is?
If Mylan is a story of greed, Walgreens – provided it goes through with its Swiss plans – is a story of betrayal.
Bresch is right
about one thing: CEOs who put on what Bresch calls their “business hats”
– which is, after all, their fiduciary responsibility – will continue
to find this form of “silent defection” extremely attractive. The end
result? Executives whose companies were born of American ingenuity and
which make their profits from American customers (including the
government) will nonetheless be obliged to troll international waters
for opportunities in low-cost tax havens.
And then they’ll defect.
“Inversion,” a
loophole born of backroom dealing in lobbyist-infested Washington, can
be fixed. It was legislated into existence and it can be legislated
away. There are proposals to do exactly that from Sen. Durbin and Sen. Carl Levin, among others. In a rambling phone interview with Ron Fournier of the National Journal, Sen. Joe Manchin
argued for outlawing defections like the one his daughter led for
Mylan, and also suggested it should be illegal for non-American
companies to sell pharmaceuticals to Medicare and Medicaid.
It’s time for
Congress to call our nation’s errant businesses back home. In the
meantime, we need to call out their CEOs for behavior that amounts to
disloyalty and moral turpitude. “When I run into their executives,” said
Durbin of defecting companies, “I chide them.”
Everybody should. And if that doesn’t work, let the boycotts begin.
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