Don’t demonize Walgreens for taking action to legally lower its U.S. federal income taxes. The Des Moines Register and President Obama are wrong when they say that taking advantage of this legal tax break is unpatriotic. As the Register reported, Walgreens can save $4 billion in federal taxes over the next 5 years by changing its corporate headquarters to Switzerland. (See Register article: “Walgreens turns back on taxpayers” 8/3/2014)
The Register asked: “How much profit does a company need?” “How much is enough?” They went on to list all of the benefits that Walgreens receives by operating in the U.S. They tried to shame Walgreens for their proposed action, and effectively called for a boycott of Walgreens in protest.
The Register gave lip service to the fact that the U.S. has very high corporate tax rates compared to most other modern countries, and that tax reform is needed to close loopholes and bring down rates. That should have been the primary message of the editorial, that we need to close loopholes and lower rates, not that Walgreens might take advantage of one.
Many companies and other taxpayers pay substantially lower their taxes by taking advantage of loopholes: Oil and other natural resource extraction industries have their depletion allowance; hedge fund managers have their “carried interest” bonuses payments. There are many many types of tax credits and deductions that benefit only politically favored businesses. Many unfair loopholes go to very wealthy and profitable companies and individuals. How does Warren Buffet pay less than 20% in federal income taxes? Loopholes. Why do some of the largest, wealthiest, most profitable research based companies in Iowa pay no income tax? Loopholes. Are all of these people and companies unpatriotic because they don’t pay more taxes than required by law?
In this case, the problem is not Walgreens or the specific loophole. It is the high corporate income tax rates in the U.S. The U.S. needs to significantly lower its corporate income tax rates. Otherwise, over time, companies will actually move their headquarters to lower tax countries. Given the inherent unfairness of special interest loopholes, and given the unconscionably high U.S. federal debt, it seems obvious that we should close as many of these loopholes as possible, and lower tax rates at the same time in a revenue neutral way.
Full disclosure: I am a Walgreens stockholder.
Link to Register editorial: http://www.desmoinesregister.com/story/opinion/editorials/2014/08/03/editorial-walgreens-turns-back-taxpayers/13531911/