Mega drugstore chain, Walgreen’s, is considering a merger with European competitor, Alliance Boots. As part of the deal, Walgreen’s would move its corporate headquarters to Switzerland and in the process lower its effective corporate tax rate from 31 percent to 20 percent.
Walgreen’s is just one of many American firms that are contemplating using the tax reducing strategy called inversion – merging with foreign competitors in countries with lower tax burdens and then reincorporating in those countries while maintaining business interests in the United States.
Naturally, the economically illiterate are having a hissy fit. They are concerned about the revenue lost by government when firms relocate abroad. Walgreen’s actions are being called everything from “unfair” to “unpatriotic”. Senator Dick Durbin, from Walgreen’s home state of Illinois, told The Chicago Tribune, that he is “troubled by American corporations that are willing to give up on this country and move their headquarters for a tax break. It really speaks to your commitment.”
What’s amazing is that Senator Durbin and other statists do not understand how the market works. Business exists to turn a profit, not to fill the treasuries of government. And businesses make a profit by providing a better good or service at a lower price than its competitors. This in turn, benefits consumers, especially lower income ones. Thus, it should surprise no one that Walgreen’s and other companies would consider moving abroad to lower costs. After all, since the latter part of the last century, America has become accustomed to its businesses offshoring jobs to other countries.
But, try telling Durbin and his ilk that it’s their beloved government’s fault that U.S. companies and the jobs they provide have gone overseas. Back in October, this commenter predicted medical device companies would jump ship due to Obamacare’s new excise tax making their products more expensive to produce. Sure enough, last month medical device giant Medtronic announced a proposed $42.9 billion offer to buy Irish company Covidien and make lower tax haven Ireland its corporate home.
At the end of the day, the ability of business to move offshore is the check against government raising taxes forever higher. Otherwise, consumers of government services will continue to demand more and more and taxes on business will be raised higher and higher. As Chief Justice John Marshall believed, “the power to tax involves the power to destroy”.
If America is going to retain its business and reacquire businesses that have already left, we need to compete with the rest of the world. Americans need to understand that there are consequences to the profligate spending of government and the over regulation and taxation of business. The sooner Senator Durbin and his ilk understand this, the better.