High Taxes Chase More Companies from Our Shores

July 22, 2014

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.

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Obamacare is Contributing to Jobs Leaving America

October 16, 2013

One major defect (there are many) of the Affordable Care Act (Obamacare) is the provision of the law which institutes an excise tax on medical device manufacturers.  Totaling a paltry $29 billion (in relation to what Obamacare will cost overall) over the next decade, the purpose of the new tax is to finance some of the subsidies the federal government will pay to expand Medicaid coverage to the uninsured.

Now on the surface, this sounds like an admirable goal, namely, providing health care coverage for those who can’t afford it on their own.  But, upon closer inspection, this is another example of what the famous French political economist Frederic Bastiat wrote about in his 1850 essay, “Ce qu’on voit et ce qu’on ne voit pas” (“What is Seen and What is Unseen”).

You see while the president and other advocates of Obamacare boast that they will expand coverage for more Americans through provisions like the medical-device excise tax, they fail to realize or refuse to acknowledge that other Americans will lose their jobs on account of the same provision.

Consider just two of the bigger players in the medical device industry.  Minneapolis based, Medtronic (NYSE: MDT), the world’s largest spinal device maker, announced it would soon hire 1,500 new workers, but because of Obamacare most of those hires will be overseas.  Then there is Massachusetts based Boston Scientific (NYSE: BSX).  The large cardiovascular device maker announced it would lay-off between 1,200 and 1,400 workers worldwide with a majority being American workers while at the same time announcing a $150 million investment in China that would create 1,000 new jobs there.  So, while Obama claims that more Americans will have health coverage under Obamacare, others will lose their jobs or not be hired because of it.

To be sure, companies do not move their operations overseas without careful consideration.  It is expensive and even risky for them to relocate all or the bulk of their workforce outside the United States.  There are a lot of costs involved with moving facilities and setting up shop abroad.  Corruption, political instability, and unskilled labor forces in most developing countries provide an enormous amount of risk for American companies.  Yet many of them make the move anyway.  And that is the question which has baffled Obama and his ilk for some time now. Why have American companies and the jobs they provide gone overseas these last several decades?  The answer is simple:  because the money saved in taxes, many times in the hundreds of millions of dollars annually, more than compensates them for their relocations abroad.  Medtronic and Boston Scientific are just the latest examples.