Robert Reich, the leftist former labor secretary, has a very confused--or perhaps deliberately confusing--post up at Salon in which he denounces American corporations that move their headquarters overseas for tax reasons. The news peg is Chicago-based Walgreen Co.'s planned merger with Alliance Boots GmbH, a multinational pharmacy chain. The new company would be headquartered in Switzerland, as Alliance is now.
"Walgreen's morph into a Swiss corporation will cost you and me and every other American taxpayer about $4 billion over five years," Reich complains, citing a report by Americans for Tax Fairness, a nonprofit corporation that advocates for higher taxes on corporations and high-income individuals.
"We've been hearing for years from CEOs that American corporations are suffering under a larger tax burden than their foreign competitors," Reich writes:
This is mostly rubbish.
It's true that the official corporate tax rate of 39.1 percent, including state and local taxes, is the highest among members of the Organization for Economic Cooperation and Development.
But the effective rate--what corporations actually pay after all deductions, tax credits, and other maneuvers--is far lower.
Last year, the Government Accountability Office, examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.
Which raises an obvious question: If it's "mostly rubbish" that the tax burden is higher on U.S.-based companies than on those headquartered elsewhere, how is it that Walgreen stands to save all those billions by moving to Switzerland? Why are companies moving at all? Surely their accountants know the difference between the statutory and effective tax rates.
There's an obvious problem with Reich's argument, which is that he compares the average effective U.S. corporate tax rates only with the statutory rate, not with other countries' effective rates. That's a limitation of the GAO study, but the summary notes that U.S. effective tax rates "are high relative to other countries." The summary also notes--but Reich doesn't--that the U.S.'s average effective rate on is considerably higher, 22.7%, when unprofitable companies are included in the calculation. Reich fails to mention as well that Walgreen's effective rate is considerably higher than average--31% between 2008 and 2012, according to that Americans for Tax Fairness report.