Last week on this page we wrote about a shareholder push at Walgreens to transform that business into a Swiss corporation. The move would allow Walgreens to stop paying U.S. corporate taxes, which the Financial Times reports are "among the highest corporate tax rates in the world."
Tuesday word hit the newswires that another American icon, drug company Pfizer, plans to use a similar "inversion" technique to become a British company if it succeeds in taking over its UK rival AstraZeneca Plc.
The irony here is thick. People fleeing persecution in Europe founded America. Now Walgreens and Pfizer, two of America's greatest companies, are poised to join what Reuters describes as "a wave" of U.S. companies "reflagging" their operations in Europe to escape persecution under the U.S. tax code.
Pfizer is a company that developed perhaps the most important drug ever for extending Americans' lives - the cholesterol-reducing drug Lipitor. It also has top-selling Viagra in its portfolio. It is an American success story that we are literally chasing from our shores.
Reuters reports that another major U.S. company, advertising giant Omnicom, has also joined this mix. It is looking to become a Dutch company through a merger with European ad agency Publicis. Reuters says the move would save Omnicom $80 million a year in taxes, because as a European company it would pay taxes in Europe rather than the U.S., and at significantly lower rates.
The Financial Times reported last week that tax savings from the proposed Walgreens deal would increase that company's earnings per share by 75 percent for tha amre reason. The tax savings from the proposed Pfizer deal is estimated at $ 1 billion or more.
There's a lot more at play with this trend than just a bruised national ego. Definitely, there will be a jobs impact, with some U.S. headquarters jobs being absorbed abroad. But it also stands to reason that if American companies are leaving to escape taxes, people and companies with money to invest in new start-ups (translation: new jobs) also are taking a pass on the U.S. And for U.S. companies in direct competition with European companies, it means the European companies can sell their products at lower prices than U.S. firms can and make the same profit due to the smaller tax bill. That too costs American jobs.
This is the folly of the fomenting of antipathy for businesses by President Obama and his Democratic allies in Congress for political gain. By elevating populism over pragmatism the administration not only kills existing jobs and stifles new ones; it also ends up sending billions in what once were U.S. tax receipts to foreign governments. It's madness.
No one is arguing that U.S. companies should not pay taxes; just that the U.S. ought to lower corporate rates from the current 35 percent to the 20 percent range that would be competitive with most European economies. All other things being equal, that would end the wave of inversions and would make the U.S. attractive again for foreign investors.
Unfortunately, the Obama administration shows no signs of seeing the light. Rather than proposing a competitive tax rate, the administration this week asked the IRS to rewrite its rules to try to essentially hold U.S. companies prisoner by making inversions more difficult. That won't work in the end. U.S. companies can always sell themselves to a European firm, and the IRS can't stop that.
The administration's move simply heaps destruction on destruction via bad policy. It's another reason the U.S. jobs picture will continue to remain grim until there is leadership change in Washington.