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Dick Durbin bullies Walgreen's

Dick Durbin threatens Walgreen's
Dick Durbin threatens Walgreen's
Photo by T.J. Kirkpatrick/Getty Images

Tax inversion is currently being demonized, on the national stage, as a “clever tax dodge” and an “unpatriotic” move by corporations that don’t care about this country. The charge being made in Washington is that these companies just want more profits, a word they say in the most condescending manner possible. It is the focus of some current legislators in Washington that seek to demonize corporations and garner more favor from those that want their legislators to take the “They didn’t build that!” approach to dealing with corporations.

Walgreen Overseas MoveTax inversion is a maneuver that corporations make to try and evade the highest corporate tax rate in the world, that of the United States of America, that is currently listed at 35%. This "clever tax dodge" has been successfully accomplished by forty-seven different U.S. companies in the past decade, according to the Congressional Research Service.

The most recent attempt by a corporation seeking to relieve itself of our nation's onerous corporate tax burden was made by Walgreen’s. Their goal was to cut their effective tax rate from 40% to the high 20% range, a move that would’ve translated into 4 billion of savings for their shareholders over the next five years. Walgreen’s goal was to purchase the Switzerland-based company Alliance Boots GmbH and begin moving most of its base operations out of the onerous taxation policies in the Chicago area to the more business friendly tax climate in Switzerland. Is such a move illegal? Not yet, but there is a move in Washington to make it so. Is it unpatriotic? Some, including Dick Durbin (D-Ill), John Kerry (D-MA), and President Barack Obama, would have you believe so.

Conservatives, like George Will, would argue that privately owned, and publicly held, companies do not have a responsibility to “patriotically” pay taxes, and that their primary, fiduciary responsibility –in an entrepreneurial, and capitalist system— is to its shareholders, and to do everything possible to maximize their investments.

If businesses supposedly have other responsibilities, who decides what they are? Presumably politicians such as Sen. Dick Durbin, the Illinois Democrat, who must have learned economics from the nursery story Rumpelstiltskin.”

Two other dirty, little secrets that George Will shares in his August 15, 2014 column for the Washington Post, on the subject of inversion, is that:

The U.S. system, unlike those of most major nations, taxes the profits that domestic corporations earn overseas, even though these profits are also taxed overseas. This double taxation is one reason that approximately $2 trillion in U.S. corporate earnings is being kept abroad rather than brought home for domestic investment.

“Inversions strengthen the U.S. economy by increasing the after-tax profits that U.S. corporations have for investment, by increasing the pool of profits available for the wages of U.S. workers and by making the companies’ U.S. shareholders wealthier. Which is why the sensible corporate tax rate would be zero. This is so because corporations do not pay taxes, they collect them, necessarily passing on the burden as a cost of doing business. And studies suggest that corporations’ workers bear a significant portion of the burden.”{1}

As detailed in a previous blog, corporations do not pay taxes, they collect them, in what has been labeled an incidence tax by economists. This gist of the incidence tax is that when a Walgreen’s is taxed as a corporation, they embed those taxes in every item that you purchase at Walgreen’s. This act of embedding taxes is Washington-approved for it allows politicians to continue to tax corporations at this rate, under the guise of “Sticking it to the man” to the highest levels in the world, while protecting you "the little guy" from paying taxes that you might otherwise have to pay if Walgreen's didn't ... Except you do, in this little shell game economists call the incidence tax.

No one calls those politicians, like Durbin, out for fighting to keep the corporate tax rate where it is, because no one –other than a rich, corporate, fat cat Republican— would fight on the side of a corporation, "Unless they were getting sweetheart deals under the table to do so." Except for the dirty, little secret that politicians, like Durbin, have found a politically pleasing way to tax you more without you knowing, because most people don't understand the complicated book work involved in the incidence tax, and they never will, not on the level they do income taxes, property taxes, and to some degree payroll taxes. It's a win win for all involved, except for the consumer that is unknowingly contributing to the record breaking revenues the federal government is now seeing in tax receipts.

Decades ago, a proposed move by a company would’ve embarrassed those legislators that set —and could subsequently affect— the tax rates imposed on corporations. Decades ago, those legislators would’ve scrambled, in behind-the-scenes negotiations with the corporation, to keep the base operations of that company in their locale. Decades ago, the legislators that represent the people of their locale (be it city, state, or federal), would’ve been embarrassed by the business climate of their locale, and the fact that it is obviously no longer competitive in the arena of attracting new business, or relocating businesses. Decades ago, legislators would’ve done everything possible to keep the taxable revenue the corporation generated in their locale. They would’ve worried about the loss of jobs, and the overall reputation of their locale as a “business friendly” locale. And if they didn’t, they would’ve been verbally pilloried in the town square, until they fixed whatever caused the corporation to seek another locale for its operations, and if those legislators remained steadfast, for whatever reason, they would’ve been voted out of office by those citizens that followed every step of the process.

In the present tense, the corporations are the bad guys. In the present tense, it's the profit motive of these corporations that fall under suspicion, as their corporate boards attempt to do whatever is necessary to secure greater profits for their company, the shareholders, and any prospective shareholders. In the present tense, it's the corporations that are being pilloried in the town square, and the one in charge of the pillorying is the legislator, or in the case of Walgreen’s: Dick Durbin.

In the Walgreen’s saga, Dick Durbin engaged in what Stephen Moore, of the National Review Online, characterized as an:

Intimidation campaign against Walgreen’s (that) was so heavy-handed that it would make Richard Nixon blush. Walgreen’s was set to move in order to reduce its tax liability and avoid the 40 percent income tax rate it pays as an Illinois-based corporation. This would have saved the company and its mostly American shareholders an estimated $4 billion over five years.”

“In a letter, Senator Durbin wrote to Walgreen’s CEO Gregory Wasson, Durbin characterized the planned move as a “clever tax dodge” and threatened that “deeply patriotic” customers would not “support Walgreen’s decision to turn its back on the United States.” He added, subtly, that “nearly all of your $2.5 billion in profits earned last year were from sales to U.S. taxpaying customers.”

“That was followed by other threats of political retaliation. “Much of Walgreen’s financial success was built on programs and infrastructure provided by the U.S. government” and “the future success of Walgreen’s will continue to depend on U.S. taxpayers and government-funded programs.” Just in case Mr. Wasson didn’t get the point, Durbin reminded him that “nearly 25% of Walgreen’s profits were from U.S-funded Medicare and Medicaid programs.”{2}

It would've been one thing if Senator Durbin had simply organized a grass roots campaign against Walgreen’s proposed move. It would have been considered different to the manner in which business was normally done between politicians and corporations decades ago, but he probably would’ve escaped too much flak among the voters. He may have even received applause for gathering enough public sentiment against the move to affect Walgreen's decision in a purely political fashion. He probably also would’ve escaped too much negative scrutiny with the characterizations of the move as a “clever tax dodge” and the implicit statements about Walgreen’s “unpatriotic” gesture. Some may have declared this unsuitable actions for a sitting Senator, but most would’ve seen it as Durbin following his ideological world view, and they would've made a final decision on this move in the election without thinking any more, or any less of him as a man. The public intimidation from a man implicitly using his power in the Senate to intimidate, with the “reminder” sent to Walgreen’s CEO that much of their profit came from those U.S. funded programs that Durbin has tremendous influence on, would’ve surely received great scorn decades ago. Especially when there are other companies, Teva pharmaceuticals, Novartis’ Sandoz, and Mylan, that are all headquartered overseas and participating in the Medicare and Medicaid programs.

Walgreen's folded under these bullying tactics, of course, and they decided to keep the base of their operations in the state Durbin represents: Illinois. Hooray! A big victory for the Chicago area right? Jobs and taxable revenue stay in Illinois. Walgreen’s may lose the taxable revenue they would have seen with the move, to the tune of 4 billion dollars. The shareholders of Walgreen’s –including retirees that have Walgreen’s’ stock as their primary holding— may have lost at least 6 billion dollars as a result of Walgreen’s being intimidated by the Senator. As Stephen Moore states: “That’s a lot of financial wreckage from one single senator.” But who cares about Walgreen’s, and their shareholders right? All politics is local right? And Durbin gets to bathe in the glory of these bullying tactics, in front of Walgreen’s, praising them for “their decision”, and he gets to coast to a fourth reelection to the Senate.

Even decades ago, Durbin may have been applauded for these strong arm, hard-ball, and shakedown politics. For those people that applauded him could have countered any naysayers with a statement like: “Bottom line Walgreen’s is staying, and Durbin spearheaded that movement, and that means those jobs stay in the Chicago-area, and he didn't even have to adjust tax rates for them in some kind of backroom, sweetheart deal, and taxes have even risen in Illinois by nine percent … a move Durbin encouraged,” and Durbin probably would’ve left that stage with applause, and probably tears, resounding in his background, even decades ago.

Decades ago, a competitor seeking to unseat Dick Durbin, like a sitting state senator, from west suburban Sugar Grove, Jim Oberweis (Republican) would’ve probably had more than a fighting chance to unseat the four-term Senator with the charge he made, as reported in the Chicago Tribune:

The Walgreen’s saga symbolizes Dick Durbin’s 32-year career in Washington. His bullying of Walgreen’s was a political stunt designed to help only one person: Dick Durbin. It didn’t create any jobs. It didn’t reform our job-killing tax code. … Instead of praise, Dick Durbin deserves our scorn.”

Decades ago, an Oberweis could’ve stepped to the mike to make the suggestion that Illinois voters should consider whether or not Durbin’s intimidation of a privately-owned corporation was a good, long-term move for Illinois, or if it was simply a short game to get Dick Durbin reelected. Oberweis could’ve added something along the lines of, “Walgreen’s is staying, but who is coming? Even future companies that find our governor’s proposed package pleasing for a new plant, are going to have to factor Dick Durbin, and the Walgreen’s saga, into their decision. They’re going to know that anytime they make a business move, it will require Durbin’s seal of approval, lest they face his wrath. What new, or relocating company, is going to want to deal with all that? What company is going to want to continue to pay the 35% federal corporate rate that Durbin has worked hard to maintain, combined with the 9% Illinois state tax rate he supported? What new, or relocating company, is going to want do business in a state that has now been called the most expensive area to do business in the world? What we’re celebrating today amounts to cheering on the fact that Durbin bullied a company into preventing one of the worst unemployment rates in the nation, 6.8%, from getting higher, but when you close that curtain behind you, in November, and make that final decision on what we’re celebrating today, you’ll need to ask yourself if Dick Durbin did anything to attract future, or relocating corporations to Illinois, and thus making life for Illinois residents any better?

In the current climate, we read writers, like Natasha Korecki, of the Chicago Tribune characterizing anyone that would see Durbin’s actions as anything but an absolute victory as so confusing, they can only write:

Okay,” Ms. Korecki writes specifically addressing Oberweis’ comments, “That’s different.” She then basically characterizes Oberweis words as those of some kind of party pooper that is unwilling to join in on the celebration, because he is “painting this as an empty victory.”{3}

To those of us that remember a day when politicians saw themselves as representatives of the people, and the people that ran those corporations, and if they didn’t look out for their state in a manner that stretched beyond the next election, they were punished for it in elections, we can only say, “It is different, a lot different.”

{1} http://www.washingtonpost.com/opinions/george-f-will-in-a-stew-over-inversions/2014/08/15/9c2cf564-23d3-11e4-958c-268a320a60ce_story.html

{2}http://www.nationalreview.com/article/384897/senator-dick-durbin-political-thug-stephen-moore

{3}http://www.chicagotribune.com/news/local/politics/clout/chi-oberweis-accuses-durbin-of-bullying-walgreen-20140806-story.html