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Walgreens May Face Consumer, Political Backlash if It Elects to Become a 'Corporate Deserter'

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Within the next several weeks Illinois-based Walgreens drug store chain is set to decide if it will become what President Obama referred to last week as a "corporate deserter" by - in essence - tearing up its U.S. Citizenship in order to cut its corporate taxes.

Walgreens recently bought a 45 percent stake in the Swiss drug chain, Alliance-Boots. It is now considering whether to complete a merger with the Swiss firm, so it can move its official corporate headquarters to lower-tax Switzerland, while maintaining most of its operations in the United States.

Forty-seven American corporations have used this this tax trick - known as an "inversion" -- over the last decade and the maneuver is increasingly favored by corporations that apparently have no loyalty to the United States - and instead have pledged allegiance entirely to their own bottom lines.

In Walgreens' case, projections are that the company could save over $4 billion over the next five years in taxes that would otherwise go to finance many of the functions of government that have allowed it to prosper. U.S. taxpaying citizens make up the vast majority of its customer base and a quarter of its revenue comes from taxpayer-financed Medicare, Medicaid and Affordable Care Act. The company benefits every day from the infrastructure, educated work force and stable business climate provided by the U.S. Government - not to mention the U.S. courts, the criminal justice system and the U.S. military that protects those freedoms.

The major reason that the firm could buy a huge stake in a foreign drug chain was its profitability -- $2.5 billion last year alone - most of which resulted from its U.S. operations.

Now, after benefiting from its status as an American corporation for decades, a status that has enabled it to begin expanding its operations around the world, the firm is basically saying to America and American taxpayers - "see you around, chumps."

Senator Dick Durbin parodied the Walgreens slogan last week by asking if the "intersection of happy and healthy" turns out to be in the Swiss Alps.

Another Illinois-based corporation - Abbvie - is in the process of executing the same maneuver. Durbin pointed out that Abbvie had become profitable using basic research funded by the taxpayer-funded National Institutes of Health, and afforded legal protection by the U.S. Patent system and what he called the "gold standard" of drug approval agencies provided by the taxpayer-financed Food and Drug Administration.

The "inversion" scheme generally involves profitable U.S. corporations buying smaller overseas firms in lower tax countries and then declaring that their headquarters for tax purposes is in the low tax country - even though most of its operations remain in the United States.

This trick is exactly the kind of move that is intended to drive down the fraction of overall taxes that are paid from big corporations and other owners of capital and raise the share paid by working people from income earned through their labor.

The "inversion' loophole is one of scores that dot the tax code - like rates on "capital gains" for investors that top out at 20 percent while the top rate on so-called "ordinary income" - income earned on your labor - top out almost twice that. There is, of course, zero reason why someone who makes money by working for a living should pay a higher tax rate than those who earn their money by owning something - but the one percent thinks differently.

Or there is the fact that hedge fund managers pay this capital gains rate on the fees they earn, from their management of the hedge funds - with the result that multi-billion dollar incomes of hedge fund managers often pay a lower effective tax rate for their work than their secretaries.

All of this is just wrong. It flies in the face of any common definition of fairness or justice. And it is about to cause a major political - and potentially consumer --backlash.

The "corporate deserter" issue is likely to become a major issue in the fall political campaign. And consumer-facing companies like Walgreens will face a fortune in bad publicity if they tear up their citizenship to lower their taxes.

Democratic Majority Leader Harry Reid has already brought anti-outsourcing legislation to the Senate floor and the Senate Finance Committee has held hearings on the issue at which the Treasury Department warned of more "inversion" deals to come.

And to those who excuse the actions of these companies by saying that these companies are just making a "smart" use of the American tax code there are two answers:

• Change the tax code to eliminate this outrageous loophole;

• Punish the "corporate deserters" who have built their companies with the benefit of American support and know-how and now want to abandon America so they can avoid paying their fair share of our tax burden.

How do you punish "corporate deserters"? Government can do it by cutting off access to federal subsidies and contracts. Consumers can do it - especially with companies like Walgreens - by voting with their dollars and refusing to shop there.

Walgreens might be a good place to start, since the company is still contemplating whether the value of its status as an American corporation is worth the money it would forgo by paying its fair share of taxes in the United States.

Send Walgreens a message. Tweet your views -- #WalgreensCorporateDeserter.

Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com. He is a partner in Democracy Partners and a Senior Strategist for Americans United for Change. Follow him on Twitter @rbcreamer.