Walgreen’s, tax inversions, and the big question of the day… “Why does corporate America hate America?”

    Walgreens3Over the last decade, according to a May 27 report on corporate expatriation issued by the Congressional Research Service, 47 American companies have moved their headquarters abroad over the past decade, at least in some nominal sense, in order to avoid paying taxes. And the numbers, according to Ranking Member of the House Ways and Means Committee Sander Levin, are spiking. “Barely a week seems to pass without news that another corporation plans to move its address overseas simply to avoid paying its fair share of U.S. taxes,” said Levin last month, just after introducing legislation to tighten rules concerning these corporate maneuvers, called inversions. “These corporate inversions are costing the U.S. billions of dollars and undermining vital domestic interests. We can and should address this problem immediately through legislation to tighten rules to limit the ability of corporations to simply change their address and ship U.S. tax dollars overseas.”

    Not only have 47 companies fled the U.S. over the past decade, according to Levin, but there are approximately one dozen more that are, at this very moment, exploring the maneuver, which typically requires a merger with an entity headquartered in a low-tax country such as Ireland or Bermuda.

    Fortunately, thanks to the growing public outcry and pressure from Democrats in Washington, it would seem that the tide might be turning. Yesterday, one of these corporations, Walgreen’s, the nation’s largest drugstore chain, announced that they would not be going through with their planned inversion, which would have seen the company’s corporate mailing address moved to Switzerland.

    The net is beginning to tighten, and the companies can feel it. Not only is Ways and Means taking action, but Bernie Sanders is moving forward in the Senate with an amendment to a Department of Defense authorization bill that would prohibit the U.S. government from awarding contracts to tax-dodging corporations. “I have a message for these corporate deserters,” said Sanders. “You can’t be an American company only when you want corporate welfare from American taxpayers or you want lucrative contracts from the federal government. If you want the advantages of being an American company then you can’t run away from America to avoid paying taxes.” (Sanders announced his intentions on the same day that Chicago-based drug company AbbVie announced plans to merge with Shire, its European rival, and reincorporate in Britain, lowering its effective U.S. income tax rate from 22 percent to just 13 percent by 2016.)

    Walgreen’s clearly didn’t want to risk running afoul of the government, seeing as how nearly one quarter of their $72 billion in sales last year came from Medicare and Medicaid. Hopefully we’ll soon see medical device manufacturer Medtronic follow suit, abandoning their plans to reincorporate elsewhere, for the same reason.

    While it’s too early to claim a victory here, it seems like one of those rare instances where Progressives coordinated their efforts, and did everything the right way.

    Just two months after the initial report was issued, we had legislation drafted, and President Obama was on television showing his support for Democrats in the House and Senate who were beginning to crack down. While he didn’t go so far as to call these corporate tax cheats traitors, he did infer that they were less than patriotic. “I am interested in economic patriotism” the President said, as he outlined to reporters how our corporations were “gaming the system” at the expense of the American people.

    Outspoken American billionaire Mark Cuban went even further, stating that corporate tax inversions pose a threat to the nation. “If I own stock in your company and you move offshore for tax reasons, I’m selling your stock,” Cuban tweeted, encouraging others to follow his example.

    Sadly, though, investors don’t seem to give a fuck as long as they’re making money.

    When Walgreen’s announced that they wouldn’t be pursuing an inversion, the value of their shares plummeted by 14%.

    For what it’s worth, it would seem that the decision by Walgreen’s to pursue the acquisition of Alliance Boots, and make the move to Switzerland, didn’t come from within the company itself. No, it looks as though it was hedge fund investors such as Jana Partners and Corvex Management that were pressuring Walgreen’s to pursue the move. In fact, over the past several months, several high ranking Walgreen’s executives have left the company, which would seem to indicate that there may have been some internal disagreement about this course of action.

    I don’t know how apt the analogy is, but I’m reminded of plot lines in the Soprano’s where the mob, once they got their hooks into a business, would bleed them dry, doing everything they could possibly think of to extract value, with no consideration of the consequences. It seems to me that hedge funds operate in much the same fashion. If there’s an opportunity to increase profitability, they don’t give a fuck who gets hurt in the process… Tax inversion is economic treason, pure and simple, and we need to stop it. And, while we’re at it, we need to acknowledge that hedge funds are doing more damage to America than terrorists ever could, and rein them the fuck in.

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      38 Comments

      1. PrincessTinyMeat
        Posted August 7, 2014 at 3:03 am | Permalink

        Eat the rich.

      2. John Galt
        Posted August 7, 2014 at 6:21 am | Permalink

        This is patriotism in its highest form. There’s nothing more American than putting money before country.

      3. Demetrius
        Posted August 7, 2014 at 6:40 am | Permalink

        I don’t know what’s worse — that corporations have no problem doing this, or that our government let’s them get away with it.

        In the case of Walgreen’s, I think their biggest mistake was that they didn’t preface their move to Switzerland with a glossy TV ad campaign featuring happy, smiling families, and vague promises about how the decision would create “jobs” and “strong communities.”

        After all, as we saw on Tuesday, that’s all it took to convince nearly 2/3 of Michigan voters to go along with the latest massive corporate tax giveaway …

      4. Meta
        Posted August 7, 2014 at 8:06 am | Permalink

        Barry Rosenstein’s founded Jana Partners, a value-oriented, event-driven investment firm, in 2001. The firm’s tagline is, “Ignore the crowd.”

        Read more:
        http://www.insidermonkey.com/hedge-fund/jana+partners/69/#IFD8o0EgJDCedcEM.99

      5. Meta
        Posted August 7, 2014 at 8:09 am | Permalink

        Here’s what you need to know about Barry Rosenstein.

        Despite working in finance for 30 years and amassing a princely fortune, Barry Rosenstein has always been an outsider on Wall Street. After graduating from Lehigh University and Wharton in the early 1980s, he had a hard time getting a job, ending up as an associate in the investment-banking unit at Merrill Lynch, which at the time didn’t have the same cachet as Salomon Brothers, Morgan Stanley, or Goldman Sachs. Even at Merrill, the Bruce Springsteen fan from West Orange, N.J., didn’t feel like he belonged: A supervisor told him he’d have to stop wearing ventless suits, because that “was not Merrill Lynch’s style” — which was more Brooks Brothers.

        It wasn’t just a matter of fashion. Rosenstein was drawn to the aggressive, high stakes world of corporate raiders then making headlines. He got a job interview with Asher Edelman — whose firm was becoming famous for launching hostile takeover bids — by phoning Edelman after his secretary had left for the day. Edelman soon hired him.

        At the time, mergers and acquisitions worked something like this: A corporate raider took a stake in a firm, lined up financing, launched a tender offer for shares, and then waited to see what would happen. “And if a raider got lucky, a white knight would show up and pay a big premium over the initial offer,” says Rosenstein. At other times, the target company would pay the investor to go away.

        “I definitely caught the bug [from Edelman] of being a shareholder advocate and making change” at companies, recalls Rosenstein. The Gordon Gekko character in the 1987 film Wall Street was based in part on Edelman.

        Read more:
        http://online.barrons.com/news/articles/SB50001424053111903843804579532013530604646

      6. Eel
        Posted August 7, 2014 at 10:38 am | Permalink

        What you’ve failed to realize is our new ruling class is not American. The 1% float across the world on champaign bubbles. The don’t give a shit that Detroit is failing. They see it as an opportunity to invest in for-profit prisons and charter schools. As soon as you acknowledge that, it all starts making sense.

      7. rik
        Posted August 7, 2014 at 11:14 am | Permalink

        WHY WON’T THE CAPITALISTS JUST BE NICER?!??

      8. anonymous
        Posted August 7, 2014 at 3:43 pm | Permalink

        Eating the rich is the easiest way to get gout.

      9. Dan
        Posted August 7, 2014 at 4:12 pm | Permalink

        They see it as an opportunity to invest in for-profit prisons and charter schools.

        what do you see it as?

        Everyone should see it as an opportunity. someone’s vision is a giant christmas tree farm. someone else’s vision is commuter rail and a entertainment destination.

        what’s your vision? why don’t you capitalize on the cheap property?

      10. Taco Farts
        Posted August 7, 2014 at 5:30 pm | Permalink

        The point I took from Eel’s comment wasn’t that it’s wrong to see a sterile vacuum as an opportunity to fill a space, but that it’s wrong to assume that the people with the most power care in any way about culture, humanity, or community. It’s wrong to think they would stop someone from raping your child if someone offered them $1.50 not to. Us normos go through life thinking all the human-shaped fleshy things around us are human, and if we could quiet that belief we would understand much better the voracious plundering that surrounds us.

      11. EOS
        Posted August 8, 2014 at 5:34 am | Permalink

        Nobody hates America more than Progressives. Investment stops where the levels of taxation become oppressive. Capital will flow towards opportunities to maximize profits. When the tax rates decrease, tax revenues increase due to increased productivity. The United States used to attract hard working, talented individuals who realized opportunites for economic prosperity. Today, we are a magnet for unskilled persons desiring to profit from the sweat of anothers labor. In a world of “Free Trade Agreements” corporations will gravitate towards lower tax rates and cheap labor. Wait and see the result of the employer mandates of Obamacare. Wonder how many of us will still have a full time job…

      12. Frosted Flakes
        Posted August 8, 2014 at 8:26 am | Permalink

        Eel and Taco Farts,

        Regarding: non human fleshy things that float around on champaign bubbles allowing children to get raped for $1.50.

        My guess is that 30 thousand a year easily puts a person in the top 5% worldwide, in terms of income. Think about that the next time you spend a $1.50 on something stupid.

        There are reasons why people demonize and dehumanize others–not good reasons–but reasons.

      13. Lynne
        Posted August 8, 2014 at 9:54 am | Permalink

        EOS, high taxes are why Europe is such a horrible place to live and why they have no businesses, right? No businesses ever want to locate in places with high taxes. *rolls eyes*. You are making stuff up with no basis in fact.

      14. EOS
        Posted August 8, 2014 at 10:24 am | Permalink

        Lynne,

        The facts are what Mark stated in the original post: “47 American companies have moved their headquarters abroad over the past decade, at least in some nominal sense, in order to avoid paying taxes.”

        The facts are that the EU has significant employment problems. Greece has an unemployment rate of 27%, while Spain is at 26.2% and Portugal is at 17.6%. Italy is experiencing its highest level of unemployment in 21 years, and youth unemployment rose rapidly over the past 12 months to nearly 39%.

        http://money.cnn.com/2013/03/01/news/economy/europe-unemployment/index.html

        Thirteen million Europeans fall below the EU’s poverty line despite having fulltime jobs:
        http://www.euractiv.com/sections/social-europe-jobs/millions-europeans-are-poor-despite-having-full-time-job-302189

        I would not prefer to live in Europe. Instead of rolling your eyes, maybe you should research the topic.

      15. Eel
        Posted August 8, 2014 at 1:05 pm | Permalink

        So money trumps patriotism, EOS?

      16. Elviscostello
        Posted August 8, 2014 at 1:58 pm | Permalink

        EOS, Having traveled in Europe, I’d damn sure love to see some of the practices of other countries in place here. Germany’s health care has not destroyed it’s economy. Japan’s limits on CEO pay has not destroyed it’s economy. Austerity did. Have you traveled there to see what they think? My trip to Spain I stayed in hostels, with the likes of authors from Spain, doctors from Russia, economists from Germany. None of them, NONE OF THEM would trade our system for theirs. The only person I met who would liked to have been building a business in the US was a computer designer from Copenhagen. American exceptionalism doesnt mean American arrogance. Where do we get off thinking that we have ALL the right answers, and that we are the only “shining city on a hill”?
        That being said, I’d love to see a model where corporate taxes are 0%. If so, what does the personal rate rise to? Would business be willing to then be treated as a “person”? Jail time for the CEO if there is malfeasance, life sentances for defective products that kill, forfiture of all personal and corporate assets for environmental damage?

      17. Stupid Hick
        Posted August 8, 2014 at 2:03 pm | Permalink

        EOS: “Today, we are a magnet for unskilled persons desiring to profit from the sweat of anothers labor”

        Exactly! Since 1980 the financial services industry has doubled as a percent of GDP.

        http://www.people.hbs.edu/dscharfstein/growth_of_modern_finance.pdf

      18. Stupid Hick
        Posted August 8, 2014 at 2:10 pm | Permalink

        EOS: maybe time to bet big on Uzbekistan. 9% corporate tax rate, public debt is 8.8% of GDP. Typical pension for a retiree is $60 per month. A future capitalist paradise?

      19. Posted August 8, 2014 at 2:42 pm | Permalink

        Interesting discussion.

      20. Posted August 8, 2014 at 3:01 pm | Permalink

        To me the issue of whether to tax high or tax low is unproductive. The truth is that there is no standard for taxation anywhere. It has been shown that even countries with very high levels of taxation and public spending relative to GDP can still show impressive levels of economic growth and stability. It has also been shown that low levels of taxation are no guarantee of growth in many contexts around the world.

        The problem is not whether and how much a country or locality should tax, but rather what is done with public revenues. Is the revenue being invested in growth producing areas like education, health care and research and development? Or is it being squandered on special interests, on unproductive sectors or, worse, unfunded bloated and poorly planned pension schemes for public employees which fail to produce growth?

        Sweden, though I hate to keep going back to them, spends their money wisely. Through high consumption taxes, they spend on education, which prepares the young for productive careers as adults, on health care, which allows employees to determine whatever economic trajectory suits them, and pensions, which relieve people from having to save money that could be spent today to keep the economy afloat. Better yet, Sweden, seeing the writing on the wall of insolvency, privatized and liberalized parts of their public sector and economy before they went the way of Greece. They saw a problem and dealt with it.

        American can’t be Sweden however.

      21. EOS
        Posted August 8, 2014 at 4:16 pm | Permalink

        I don’t define a patriot as someone who hands over an ever increasing percentage of their income for government to redistribute it as they see fit. I don’t like a system where the government takes a huge cut of personal income and then dictates the level of benefits that an individual might qualify to receive. I prefer a system where the individual determines how much effort they want to expend on working and then gets to determine how to best spend their earnings to achieve the highest levels of personal satisfaction. I favor a system that gives the individual maximal freedom.

      22. Demetrius
        Posted August 8, 2014 at 7:00 pm | Permalink

        https://www.youtube.com/watch?v=7QDv4sYwjO0

      23. EOS
        Posted August 9, 2014 at 12:52 am | Permalink

        Demetrius,
        In reply to your earlier comment, the recent ballot issue was not about eliminating the business property tax. That issue was already voted on by the state legislature and it had already passed. The ballot issue enabled the formation of an additional tax authority to distribute the revenue from the use tax to local municipalities. The ballot issue ignored the loss of funding to the state, while ensuring local governments that the loss of revenue from the former property tax will be replaced. While they were correct in stating that this ballot issue did not add any new taxes, it will necessitate either cuts on the state level or future tax increases. It’s just a shell game.

      24. Posted August 9, 2014 at 8:54 am | Permalink

        EOS,

        I response to this post about corporate taxes, you wrote the following.

        “I don’t define a patriot as someone who hands over an ever increasing percentage of their income for government to redistribute it as they see fit.”

        I get that you don’t like how the government is spending money. I take issue, however, with your comment about how they’re taking an “increasing” amount. Here’s the effective corporate tax rate in the United States over the past 70 or so years.

        US_Effective_Corporate_Tax_Rate_1947-2011_v2

      25. Posted August 9, 2014 at 9:00 am | Permalink

        One more quick thought, EOS. When you say to Demetrius, “That issue was already voted on,” implying that we should no longer debate the wisdom of the recent elimination of the Michigan Personal Property Tax (PPT), you do realize that goes both ways, right? All of the government spending that you’re always complaining about has also already been voted on and passed into law.

      26. EOS
        Posted August 9, 2014 at 4:19 pm | Permalink

        Mark,
        The corporate tax rate in the U.S. is over 39%. Let’s work on getting it dropped to a reasonable level and eliminating all loopholes. http://www.heritage.org/federalbudget/corporate-tax-rate

        You missed the point I made in response to Demetrius. The recent ballot proposal that was approved did not drop the Personal Property Tax PPT. If the proposal failed to pass, Michigan businesses would still have not had to pay that tax. They needed voter approval to set up an additional tax authority. They did not need voter approval to eliminate the PPT, as it was already done. I agree with Demetrius in that he identified the slick media campaign that avoided accurate description of the ballot proposal. (“…with a glossy TV ad campaign featuring happy, smiling families, and vague promises about how the decision would create “jobs” and “strong communities.”)

      27. Posted August 9, 2014 at 5:41 pm | Permalink

        “a reasonable level ”

        I don’t think anyone knows what a reasonable level of taxation is. Again, there are countries which heavily tax and do well, and countries which tax hardly at all and do poorly, and, of course, countries which heavily tax and do poorly and countries which hardly tax and all and do well.

        You guys all miss the point and, as usual, are having entirely the wrong discussion In the end, you are having an ideological discussion rather than a pragmatic one but this is to be expected here. (EOS thinks she is speaking pragmatically, but of course, is speaking from pure ideology and uninterested in the facts, or they are too difficult for her, not sure which.)

        The amount of tax is mostly irrelevant, a fact lost on both liberals and conservatives. It’s what’s done with the tax that is important..

      28. EOS
        Posted August 9, 2014 at 8:04 pm | Permalink

        Peter,

        You’re an idiot. Keeping the money you earn and spending it in the manner of your own choosing is what is important. Otherwise, you can give me all your money and I’ll spend it based on whatever the majority deems is important.

      29. Demetrius
        Posted August 10, 2014 at 8:50 am | Permalink

        EOS: “Keeping the money you earn and spending it in the manner of your own choosing is what is important.”

        Got it.

      30. alan2102
        Posted August 10, 2014 at 8:23 pm | Permalink

        EOS,

        You’re an idiot to call Peter an idiot, based on what he wrote. And you seem to be a confused idiot, generally. Peter is right that it depends on what you spend the money on. Self-styled right-wing “anti-Keynesians” can never grasp this essential point, I’ve noticed.

        However, I’ll defend you to this extent: you were saying that the .gov extracts a larger piece of the pie than ever, and you’re right. Mark tried to narrow the gaze down to corporate taxes, but that is not the right measure. Percent of GDP is better. Your point was that the government is bigger than ever, consuming more resources than ever, and you’re right, it is. WAY bigger. The money goes mostly to the military/industrial/security complex. (You knew that, didn’t you, EOS? That Big Military IS Big Government, for the most part. Right? And that, ergo, if you’re opposed to Big Government, then you HAVE to be opposed to the Big Military. Right?) Quite a bit also goes to the healthcare/industrial complex, which spends fully THRICE as much as the other OECD countries to achieve the same health outcomes. Too bad that no one anywhere, left or right, is making any serious noises about the real spending problems that are bankrupting the nation.

        But in any case, EOS is correct that the .gov consumes far more of the nation’s economic output than ever before, and this is a pattern across many decades. And it is not just the fed gov, either; state and local govs are much bigger than ever, over the decades.

        Here: [first attempt at inserting an image, hope it works]:

        link, in case the above did not work:
        http://www.ritholtz.com/blog/wp-content/uploads/2011/07/outlays-GDP.png

      31. alan2102
        Posted August 10, 2014 at 8:24 pm | Permalink

        (image insertion did not work. oh well)

      32. alan2102
        Posted August 10, 2014 at 11:45 pm | Permalink

        A couple other views – .gov spending growth, this century only:

        http://images.huffingtonpost.com/2011-04-28-TrajectoryofPublicSpendingRelativetoGDP.png

        http://m2.typepad.com/.a/6a00d8341cb44a53ef01156f68f7a1970c-500wi

      33. Robert Reich by proxy
        Posted August 26, 2014 at 9:08 am | Permalink

        It’s one thing when a company the Pfizer flirts with corporation desertion (technically, a tax “inversion”) to become a foreign company and lower its tax bill. But Burger King, like Walgreen, is highly visible to consumers. Walgreen dropped its plan to desert the United States after a customer backlash and bad publicity. So a boycott of Burger King, accompanied by letters to the local press, picketing for the broadcast media, and a general ruckus, should be helpful. Corporate greed can’t be stopped, but even greedy corporations depend on the goodwill of their consumers.

      34. Meta
        Posted August 26, 2014 at 11:39 am | Permalink

        The Burger King backlash is starting.

        Burger King’s plan to buy Canadian coffee chain Tim Horton’s and relocate over the border to reduce its U.S. tax liability isn’t going over well with some of the fast food store’s customers. Instead of the usual chatter on Burger King Facebook posts, recent updates on the company’s social media page have drawn dozens and dozens of angry comments relating to the merger and promising to boycott the company over its tax practices.

        “If you become a tax cheat you can count my family of seven as former customers,” reads one post with 97 likes. “If BURGER KING moves to Canada then US will boycott its restaurants,” says another that’s been liked over 700 times. The top comment on the store’s most recent post includes a promise to “NEVER step foot in another Burger King again.” It has 1,251 likes as of this writing.

        The prospective merger of Burger King and Tim Horton’s, which executives confirmed this morning and awaits only the approval of Canadian authorities, could go a long way to close the size gap between McDonald’s and the rest of the fast food industry. The merged company would be worth something north of $20 billion and could expect profits of over half a billion dollars annually — still a far cry from McDonald’s $5.6 billion profit and more than $90 billion in net worth, but closer than any other chain.

        Read more:
        http://thinkprogress.org/economy/2014/08/26/3475637/burger-king-backlash-canada/#

      35. Jcp2
        Posted August 26, 2014 at 5:15 pm | Permalink

        Perhaps if the US tax code was more territorial and not all encompassing, as is the case for most other developed nations, this sort of gamesmanship would be decreased. This especially so with companies with significant income sources from abroad.

      36. EOS
        Posted September 14, 2014 at 10:15 pm | Permalink

        http://online.wsj.com/articles/were-number-32-1410729349

      37. Posted September 15, 2014 at 4:24 am | Permalink

        Exactly and liberal America has no real solutions for how to deal with it except to raise taxes.

        This is one of our great failings. Instead of pursuing efficiency, we pull out the pitchforks and obsessively focus on raising taxes on rich people without asking what happens when the taxes actually go up. While it will make for a lot of satisfied people knowing that rich people finally got theirs, we fail to consider how rich people might use their resources to make the tax code even more complicated by creating new loopholes for themselves.

        Are we focused on improving people’s lives or in merely getting revenge for real or fabricated injustices?

        I’m all for raising taxes on anybody provided that monies are used for more than just controlling the deficit. We need:

        1. A guaranteed standard of living for all working Americans. We can do this by expanding the current EITC. It is telling that liberals aren’t calling for it. Perhaps they realize that conservatives might work with them rather than against them on the issue making it politically unsatisfying.

        2. A system which guarantees basic health care to all Americans. It’s telling that conservatives fought this tooth and nail, despite calling for it before they were against it. Another sad state of putting politics before good policy.

        3. For low and middle class America to get a tax divorce from upper class America. Stop depending on those assholes. They won’t help you. If Sweden, with only a few million people can provide public services while insuring a vibrant free market, then we, with a population far in excess of any country in Europe, Africa, North (outside the US, of course) or South America, can certainly do it.

      38. Lynne
        Posted September 15, 2014 at 1:13 pm | Permalink

        Why just working Americans? Shouldn’t we also have a minimum standard of living for those who can’t work too?

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