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Friday, Nov 21, 2014
Commentary

If Walgreen Co. moves to Europe, blame Washington’s tax failure


Published:

The Walgreen Co. drugstore chain got its start nearly a century ago in downstate Dixon, Ill., before moving its corporate headquarters to Chicago and eventually to north suburban Deerfield, Ill.

Next stop? Could be Bern, Switzerland.

A group of shareholders reportedly is pressuring the giant retail chain for a move to the land of cuckoo clocks. The reason: lower taxes. Much lower taxes.

If Walgreen changes its legal domicile to Switzerland, where it recently acquired a stake in European drugstore chain Alliance Boots, the company could save big bucks on its corporate income-tax bill. The effective U.S. income-tax rate for Walgreen, according to analysts at Swiss Bank UBS: 37 percent. For Alliance Boots: about 20 percent.

How many companies have to turn refugee before Congress and the White House stop their bipartisan talking — but only talking — about the need to reform the federal tax code in general, and the corporate income tax in particular?

Nearly 30 years after the last significant reform, the U.S. tax code is a mess. Both political parties agree that corporate income-tax rates, among the highest in the world, need to be reduced. Practically every other advanced country has taken the step. That has left the U.S. as a conspicuous outlier, with a relatively competitive business-tax burden overall — except for the excessive income-tax rate.

President Obama has said repeatedly that he supports business-tax reform in principle. In his State of the Union address in January, the president said both parties should work together to overhaul a tax regime “riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad.” He urged “lower tax rates for businesses that create jobs here at home.”

In February, House Ways and Means Chairman Dave Camp, R-Mich., proposed a plan for comprehensive tax reform that included slashing the corporate tax rate to 25 percent. Yet House and Senate leaders won’t take up controversial tax reform in an election year. They simply won’t budge. If only the same could be said for corporate America. As more companies relocate their headquarters for tax purposes, shareholder pressure mounts for others to do the same.

The Financial Times, which reported on the meeting in which Walgreen executives and shareholders discussed a headquarters move, noted the retailer is concerned about “political risks.” That’s understandable, and paradoxical.

But if “political risk” truly is what’s keeping an Illinois business icon from relocating, Congress and the president had better not wait until after the November election to plan serious tax reforms. By that time, the new “Corner of Happy & Healthy” could be in downtown Bern.

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