Corporate flight overseas is a lose-lose-lose

08/11/2014 7:04 AM

08/13/2014 12:34 PM

Maybe the Supreme Court’s creep toward endowing corporations with full personhood makes sense after all. Certainly the U.S. corporations rushing to move their headquarters to more tax-friendly nations reflect some of the less admirable traits of real people.

The negatives on display: reckless short-term thinking (and thus willful indifference to the nation’s long-term economic future), overweening self-interest, unwillingness to sacrifice for things they expect and demand such as freedom and security, and a flexible notion of patriotism.

Last week Walgreen Co. seemed about to join the crush of companies to do “corporate inversions.” So strange and riddled with exemptions is corporate tax law, the move out of the United States would save Walgreen $4 billion in taxes over five years, allow it to shelter billions more offshore forever and could reduce its executives’ tax exposure. And, as the ultimate outrage, the costs of relocating overseas would be deductible as business expense.

In part because of public, customer and shareholder protests, Walgreen backed away. It will remain in Deerfield, Ill., outside Chicago, site of its first drugstore in 1901 (present annual Walgreen sales: $72 billion, close to Florida’s annual state budget). It’s a case study in the intricacies and ethics of the hottest current tax dodge.

Billions in tax savings for corporations means billions less for the U.S. Treasury, billions that either must be replaced by small businesses and individual taxpayers or cut from federal, state and local government programs and thus taken out of the U.S. economy.

This is no problem to those who cling to the myth of trickle-down economics. Though unable to cite a single durable national example, they still insist that minimizing taxes and, thus, government will make everyone prosper.

In the 1950s, corporate taxes supplied one-fourth of federal spending; in the ’60s, one-fifth; in the ’70s, 13 percent; and currently 7 percent. The only trickle-down effect: a dramatic increase in income inequality at the expense of small businesses and individuals and shrinking of the middle class. A rising economic tide may lift all yachts, but it swamps rowboats.

Rescinding the most egregious parts of the tax code, such as the overseas moving exemption, could be straightforward and quick, but some members of Congress insist upon a complete rewriting of the 16,800-page corporate code instead of piecemeal changes. (Surely comprehensive reform couldn’t take very long in today’s political atmosphere.)

So President Obama’s people are very publicly hinting about executive orders to stanch the overseas flow. That’s partly a head fake to raise uncertainty for companies tempted to leave, and partly to lure conservatives into more politically suicidal impeachment talk.

And the political games will go on so long as Congress or the administration fails to act and the overseas leakage accelerates. For instance, drugstore giant CVS, on record as supporting limits on inversions, pulled a head fake of its own last week, talking about leaving because of competitive disadvantage if Walgreen left.

The dangerous downside of inversion is that the fleeing companies grew up here and do most of their business in the United States. The more of them that set up overseas, the faster the growth of income inequality here that shrinks the middle class – the very customers who helped grow the corporations. Long term, it’s a sure lose-lose-lose formula for average people, the national economy and the companies themselves.

Davis Merritt, a Wichita journalist and author, can be reached at dmerritt9@cox.net.

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