Over 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.