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Editorial: Attention Walgreens shoppers

Last modified: 7/22/2014 12:20:02 AM
America’s two biggest drugstore chains – Walgreens with 8,221 stores and CVS with 7,660 – face off at the intersection of Loudon Road and East Side Drive, where each claim a corner.

CVS is the relative newcomer. It was founded in Lowell, Mass., in 1963; Walgreens in Chicago in 1901. Both are American corporations, but within weeks, Walgreens could merge with a foreign drugstore chain and move its base, for tax purposes, to Switzerland.

In a process called an inversion, the chain is considering a union with Alliance Boots, a Swiss-based company with about 3,150 drugstores globally and 2,500 in Great Britain. Walgreens will maintain its U.S. presence. The lion’s share of its $72 billion in annual revenue, one-quarter of it from payments by Medicare and Medicaid, will still come from the chain’s U.S. sales. But Walgreens will, critics say, avoid taxes by becoming a foreign company in name only.

The inversion, if Walgreens goes through with it, will matter to hedge funds and other Walgreens investors seeking higher returns. The move is expected to lower the company’s corporate tax rate by 10 to 20 percent. The change in status will matter, or should, to America’s taxpayers, who will have to make up the $2 billion to $4 billion in taxes Walgreens would otherwise pay each year. The question is, will a Walgreens move abroad matter to consumers, most of whom are also taxpayers?

“Buy American” campaigns have never been particularly effective. Consumers, though they may prefer doing business with a company that’s a good, taxpaying, corporate citizen, shop where they believe they get the best value. That raises a scary possibility.

Will CVS, Rite Aid and other rivals be able to compete if Walgreens gains a huge tax advantage? If not, will they and other retailers join the many pharmaceutical companies that expatriated themselves by moving to foreign tax havens?

It’s a possibility that should have members of Congress crossing aisles to stop a corporate flight that could rob the Treasury of billions of dollars in tax revenue. The missing money will have to be made up by individual taxpayers, working stiffs who can’t use complicated tax dodges to avoid paying Uncle Sam a fair share of what it costs to run a civilized country.

Some members of Congress, among them New Hampshire’s senior Sen. Jeanne Shaheen, have sponsored legislation that would slow the offshore rush by making it more difficult to carry out corporate inversions. President Obama is seeking congressional support for measures to severely narrow the inversion loophole. In the short run, either measure is better than doing nothing, which is what Congress of late has been good at.

Republicans and Democrats alike agree that the real problem lies with America’s unfair, labyrinthian, loophole-riddled tax code, and a corporate tax rate that at 39.1 percent counting state taxes, is perhaps the highest of all developed nations. (The effective corporate tax rate is actually much lower and some companies pay no taxes at all.) The corporate tax rate should be lowered and the code’s loopholes pulled tight. But few expect this famously fractious Congress to make much progress.

To prevent a rush to the border, we dearly hope Walgreens does the right thing and remains an American corporation. And if it doesn’t, we expect regulators to strictly enforce laws that prevent foreign companies from spending to influence political decisions that should be made by Americans. Expatriates, as Walgreens could learn, may gain some revenue but they lose their right to vote.


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