Time to stop corporate defections

In the most blatant display of national disloyalty since Benedict Arnold sold out to the British, at least a dozen American corporations are planning to renounce their corporate “citizenship” in the United States and declare themselves foreign companies.

They won’t physically move their facilities overseas – they’ll just reincorporate on paper in a tax haven where they have few employees or any real business. They will continue to enjoy the substantial benefits of operating here, but they’ll pay the rock bottom tax rates of a tax haven.

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These defections, known as corporate “inversions,” will lose $20 billion in revenue over the next decade, according to the Joint Committee on Taxation. Many observers think that estimate is too low because it does not take account of the recent stampede of companies to invert. But there is no doubt that American taxpayers will be forced to pick up the tab.

The question is whether Congress has the will to act swiftly to stop the defections. Some argue that legislation to restrict inversions should be part of a broader tax-reform package. But it is obvious that no major overhaul will take place before 2015 at the earliest. Senate Finance Committee Chairman Ron Wyden (D-Ore.) is holding a hearing on the issue this week to explore what can be done. He has said he wants a short- and long-term solution to the inversion problem. It is critical that Congress pass a short-term fix to prevent even more companies from defecting.

Members of Congress who haven’t paid attention to this issue may find that it is burning hot back home in August. In a few weeks, Walgreens, the largest pharmacy chain in America with 8,200 stores and locations in all 50 states, will likely announce that it will become a Swiss company. More than 75 companies have undergone inversions since 1983, but none is as highly visible in every state in the nation as Walgreens.

Walgreens will have little to stand on if it claims it is renouncing the United States for valid business reasons because its motivation is pure tax dodging. The inversion would allow it to avoid $4 billion in U.S. taxes over the next five years, my organization recently determined. The company earned almost all of its $72 billion last year in America. One quarter of the total came from U.S. taxpayers – through Medicare and Medicaid. And its chief competitor – CVS – actually paid a higher average tax rate from 2008 to 2012 than did Walgreens.

Corporate inversions don’t just hurt our public pride; they also steal our public services.  Companies that invert continue to take full advantage of our educated workforce, legal system, patent law, financial markets, transportation system, and federally-funded research – without fully paying for that right. They still get lucrative government contracts and make huge profits selling products to millions of American consumers, even after deserting America.

By refusing to pay their fair share of taxes for those benefits corporations cause larger deficits, deeper cuts to government services, or higher taxes on average American families, small businesses and large domestic firms that play by the rules.

If Walgreens declares it is a foreign corporation for taxes purposes, Americans will see it as an abandonment of the United States, a rejection of our values, a betrayal of our trust, and a deeply unpatriotic, un-American or even traitorous act.

Sen. Chuck Grassley (R-Iowa) once saidThese expatriations aren’t illegal. But they’re sure immoral.”

If Walgreens abandons America, Congressional offices should expect to field phone calls from angry constituents who want to know why Congress hasn’t yet done anything to stop it. A simple first step would be to support a legislative proposal from President Obama, which is embodied in the Stop Corporate Inversions Act of 2014, sponsored by Sen. Carl Levin (D-Mich.) and 21 other senators and by Rep. Sander Levin (D-Mich.).

Their legislation would make inversions difficult in two ways. The foreign company that emerges after a U.S. company merges with and effectively becomes a subsidiary of a foreign firm would have to be more than half owned by foreign shareholders. Moreover, its operations would have to be managed and controlled by the foreign firm; currently U.S. companies that invert keep their headquarters and base of operations here.

If Walgreens becomes a Benedict Arnold company by renouncing its American corporate “citizenship,” there will be no avoiding the corporate inversion issue. In this election season, Members of Congress would be wise to get ahead of the curve, to be outspoken and to fight hard for legislation that stops these corporate betrayals. This is one injustice that the public is sure to understand – and remember.

Clemente is executive director of Americans for Tax Fairness, a progressive advocacy organization.

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