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Reich writes: "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."

Economist, professor, author and political commentator Robert Reich. (photo: Richard Morgenstein)
Economist, professor, author and political commentator Robert Reich. (photo: Richard Morgenstein)


The Limits of Corporate Citizenship

By Robert Reich, Robert Reich's Blog

07 July 14

 

ozens 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.


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+41 # Buddha 2014-07-07 09:46
And yet, (from Wiki) "The United States is the only country in the world which taxes nonresident citizens in the same manner as residents." Corporations are people (we're told) when it comes to "rights", but actual people get taxed just the same if they are permanent residents of another nation whereas loopholes allow corporations to shelter earnings overseas as Reich describes. If SCOTUS is going to cram Corporations Are People down our throat, then as Reich alludes to, we use that principle against them and make corporations as restricted as our citizens are.
 
 
+24 # hwmcadoo 2014-07-07 10:01
Very logical comment but any action will require action by an arrogant Congress who will do exactly what lines their own pockets and nothing more. It's what we get by hiring sleazy, criminal, venal and corrupt leaders; once entrenched almost impossible to get rid of them.
 
 
+20 # reiverpacific 2014-07-07 09:53
It's no use warning US -after all, they'll get their way every time, as the corporate/milit ary world has SCOTUS and Congress firmly in their camp -and in their heavily lined pockets.
The Roberts court will find some way of twisting it's way around any objections from below.
After all, this is just an extension of Citizens United 1 & 11 in the relentless march towards the absolute totalitarian power of the Corporate State, vote buying and all -and you know what that's another name for, innit!?
As a footnote I wonder how Wallgreens will deal with the Swiss Universal healthcare system, which it doesn't have to worry about here.
BTW, my idea of an American "Main Street Druggist" is a fading, fond memory of a few corner drugstores which were also soda fountains and lunch counters, not some huge, ugly, impersonal corporate box-store!
 
 
+27 # hwmcadoo 2014-07-07 09:53
The new American Mafia: corporations. This is what you get when you exchange some form of democracy for fascism.
 
 
+28 # hkatzman 2014-07-07 10:15
An American Citizen ("natural person") must list and pay taxes on all assets they have overseas.

An American Corporation ("artificial person") pays no taxes on overseas profits.

???
 
 
-9 # lnason@umassd.edu 2014-07-07 11:30
American corporations and individuals do not pay American corporate and income taxes on overseas income just as foreign countries do not tax their corporations on American income. The universal rule has been that no one will tax on profits or income that is earned in another country.

The US has no asset tax so that part of your comment makes no sense.

We are currently contemplating breaking this understanding. Should it be broken, international trade will decline (I think precipitously) and we will lose a lot of exports and jobs as well as consumer access to foreign-made goods.

Lee Nason
New Bedford, Massachusetts
 
 
+25 # zepp 2014-07-07 10:52
I would take it a step further, and proclaim that these corporations are no longer "American interests" and thus not protected by American power, either diplomatically or militarily. They want the benefits of America without paying for them. Fuck 'em.
 
 
+10 # angelfish 2014-07-07 11:36
Quoting zepp:
I would take it a step further, and proclaim that these corporations are no longer "American interests" and thus not protected by American power, either diplomatically or militarily. They want the benefits of America without paying for them. Fuck 'em.

YES! and the horse they rode in on, as well!
 
 
0 # HPPSINC 2014-07-10 14:26
Amen.
 
 
-8 # lnason@umassd.edu 2014-07-07 11:24
The problem with this analysis is that the "effective tax rate" is wildly variable. Only corporations that have lobbied and paid for tax breaks (like GE or GM) actually get them. This crony capitalism puts companies that do not lobby and spend gobs of money on politicians at a disadvantage since they do indeed pay the highest corporate taxes in the world.

The end result of this on-going problem is that good companies which refuse to lobby for favors will move elsewhere and we will only be home to crony capitalist enterprises that suck up taxpayer funds to prop themselves up.

Better to reduce the corporate tax rate and eliminate all the loopholes but Democrats refuse to consider that possibility even though many Republicans have been proposing it for a very long time.

I'm not a Republican but they are right on this issue.

Lee Nason
New Bedford, Massachusetts

Lee Nason
 
 
+13 # PaineRad 2014-07-07 14:01
Sorry, Lee, all but a few loopholes are available for abuse by all.

A solution is to tie import licenses to domestic production. You off-shore, you don't get to bring the product back here. You move your HQ off-shore, you don't get to move your profits out of the country. Maybe you don't get to operate here without a domestic partner who/which holds a majority interest.

If what you say is true, perhaps you can explain why Japan and China have not completely collapsed. They do not allow foreign companies in major industries to set up shop on their own in their countries. They require partnerships with domestic companies which maintain majority control.
 
 
+6 # RLF 2014-07-07 14:07
I think the same may be necessary. Also it is time to start taxing capital gains on foreign corps at a higher rate. If we get rid of corp. taxes then they can't bargain state to state and rip off the taxpayers. Time to get more taxes from income taxes. If they want to move their corp to Switzerland then let all of the executives move with their families there and pay high foreign income taxes. This is the end of offshoreing jobs. No taxes on business...well fine...income taxes out the yang for corp. earnings. Time to reenact import duties too.
 
 
0 # bingers 2014-07-11 00:20
As fart as I can see the Republicans do want to reduce taxes, but keep the loopholes. I'd suggest lowering the paper tax rate to 30% and eliminating all loopholes. And if you shift your HQ or factories to other countries you lose the right to do business here.
 
 
+14 # angelfish 2014-07-07 11:34
As an American citizen this offends me to the core! HOW can our Congress allow these mongrels to use and abuse us in such a fashion? They are ALREADY as rich as Croesus and STILL want to feed off the bare bones of the the quickly disappearing Middle Class! WHERE is Justice? I know it's lying whimpering in a corner somewhere after the abuse it's taken over the last forty years or so. Back in "the day", the corporate Tax rate might have been a little high, but today, it is, for all intents and purposes, NONEXISTENT! This is WRONG! When will the Congress do it's JOB and start protecting Americans from these rapacious conglomerates?
 
 
+5 # Quickmatch 2014-07-07 14:35
First, let me suggest that Walgreen is in competition with Osco and CVS in my area. I've used Walgreen for about 40 years. I will switch the day I understand Walgreen "moves" off shore.
Second, the Center on Budget and Policy Priorities shows corporate tax accounted for 10% of federal revenues in 2013. Why not drop the tax rate to zero and increase taxes on income in excess of $500k to compensate. Treating carried interest as ordinary income, and taxing income from dividends in excess of $100k at the personal bracket rate would help even the trade off.
 
 
+5 # PABLO DIABLO 2014-07-07 14:55
Boycott the corporations that are killing us. They won't change. We must.
 
 
+2 # parector1 2014-07-07 17:48
So, what can we do. Contact Walgreens and protest their merger? Is there a Federal agency we should contact? Petition? What?
 
 
+3 # parector1 2014-07-07 17:50
I wish Robert Reich would have given us some suggestions for c
combatting this. If he did, I missed it.
 
 
+1 # Jingze 2014-07-10 11:45
Misleading headline. There are no limits to corporate citizenship, and there never will be in the USA since the corporate citizens own the entire government. The best people can do is pray to their masters to give them a few small bones from the tables of their owners. The suggestion that people should change is a joke. In election after election, ordinary citizens simply elect the same fools the corporate citizens tell them to elect. Americans are simply too stupid to do anything about their plight.
 

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