Washington - Raising taxes on the rich is a class-war battle-cry for campaigning politicians trolling for votes. Unfortunately, this “tax the rich” mentality has created a giant economic bubble in the U.S. that is poised to burst.
While politicians use tax-the-rich schemes to get elected, “the rich,” pay most of the taxes while providing jobs for the vast majority of Americans. Increasing taxes on corporations has been an easy sell for politicians, but the nation's largest companies are building more offshore factories and increasingly they are relocating their headquarters in Europe to save billions of dollars in taxes and labor.
Walgreen, the behemoth drugstore chain, is the latest mega-corporation debating whether to move its headquarters to Europe because of excessive U.S. corporate tax burdens; the move would save the company billions.
The average corporate tax rate levied on businesses by the federal government was 39.13% in 2013 compared to 28.2% levied by nations in the Organization for Economic Cooperation and Development (OECD).
Walgreen recently acquired European-headquartered Alliance Boot. The US tax rate is 37.5% compared to Alliance Boots’ European rate of 20%. Since acquiring Alliance Boots, Walgreen management is discussing whether to move Walgreen’s headquarters to Europe or continue to pay billions more in taxes to stay in the U.S.
The process, called inversion, would allow Walgreen to keep it's stores in the U.S. while banking its profits in Europe where corporate taxes are more than 10 percent lower than the U.S.
While politicians often taunt corporations for being greedy, they seldom mention that U.S. corporate tax rates are by far the highest in the entire world.
The total tax liability for American companies headquartered in the US is far higher than the corporate tax rate. According to a recent OECD study, the "integrated tax rate" — taxes on capital and income — for U.S. companies is a whopping 67.8% vs. 43.7% for the OECD.
Unlike government, corporations cannot print money and U.S. corporate tax rates versus Europe’s rates could easily make the difference between solvency and bankruptcy.
Walgreen is not alone. About 547 companies — including Apple, GE, Microsoft and Pfizer — have greatly expanded the amount of foreign indefinitely reinvested earnings overseas in order to avoid what they consider exorbitant, tax rates levied by local, state and federal governments in the U.S.
Add to the highest corporate tax burden in the world a seemingly endless stream of bureaucratic regulations attached to mass entitlement programs like Obamacare and Dodd-Frank plus thousands of pages of new tax laws, and one begins to understand the magnitude of problems faced by corporations to stay headquartered in the U.S.
Last week, Senate Finance Committee chief Ron Wyden, an Oregon Democrat, reported U.S. corporations now hold $2.1 trillion in earnings in overseas accounts — a massive amount, roughly equal to 12% of U.S. gross domestic product.
Wyden should not be surprised that corporations are bugging out and stashing their earnings in overseas accounts. After all, politicians like Wyden orchestrated the exodus.