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updated: 8/8/2014 9:38 AM

Walgreen experience emphasizes need for corporate tax reform

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  • Walgreens store at Route 60 and Aspen Drive in Vernon Hills. Shame and force are not the tools to persuade companies to stay in the United States.

       Walgreens store at Route 60 and Aspen Drive in Vernon Hills. Shame and force are not the tools to persuade companies to stay in the United States.
    Steve Lundy | Staff Photographer

 
The Daily Herald Editorial Board

Somehow it doesn't seem enough to merely say Walgreen made the right decision in announcing Thursday that it would forego the option of a merger with a Swiss company that would have allowed it to move its headquarters out of the Chicago suburbs and into a country with more favorable corporate income tax laws.

Instead, CEO Greg Wasson said America's largest drugstore chain will simply buy out what it doesn't already own in Alliance Boot, the company that operates the United Kingdom's largest drugstore chain, and form a new holding company.

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Those whose stake in the success of Walgreen is not directly related to its stock value see its decision as "right" on many levels. Though anticipated cost cutting could affect the numbers, jobs and income, and the taxes that accompany them, stay here in the suburbs. A respected American brand stays American, and keeps producing federal tax revenues. There is no long, contentious fight over the legal complexities of whether a so-called international "inversion" is even allowable for Walgreen. The company's American loyalties don't come into question. There is no unpleasantness about all those Medicare and Medicaid dollars that flow into the company's coffers, courtesy of U.S. taxpayers.

In so many ways, Walgreen's staying put is a good thing, and we hope the company's leaders will also see that it's an equally good thing to keep the newly merged Walgreen's Boots Alliance Inc. in the suburbs as well. But stripped of its political and emotional ingredients, the Walgreen exploration also brought clearly into focus long-simmering problems with the complex U.S. corporate tax code.

For one thing, inversions -- that is corporate restructurings in which global companies acquire smaller foreign businesses in a manner that allows them to keep U.S. operations stable while paying much lower income taxes to the country of their new headquarters -- may be too easy.

For another, they certainly are too attractive.

For all the sighs of relief that followed, Walgreen's decision to pay an estimated $4 billion a year more in taxes than it would have paid with its headquarters in Switzerland did not please stockholders. They rushed to a sell-off that reduced the value of the company stock by 17 percent, even ahead of a buyback plan Walgreen's hopes will halt the decline.

Patriotism and political pressure can go only so far in influencing the decision making of a business whose first duty is to its own fiscal health, Walgreen chose to stay in the United States. But North Chicago-based drugmaker AbbVie. has already announced plans for an inversion of its own, and dozens of American companies are said to be lining up to undertake inversions providing relief from the United States' highest-in-the-world 35 percent corporate income tax rate.

Much of the rhetoric and action in Washington so far has seemed intent on trying to shame or force these companies to stay. No worse strategy could be devised. What we need is tax policy that encourages them to do the right thing.

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