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Chicago Sun-Times - Obama Takes On "Corporate Deserters' in Push to Close Loophole

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By Lynn Sweet

President Barack Obama called companies that re-incorporate overseas to avoid taxes "corporate deserters" on Thursday, stepping up a drive to close a tax loophole that could affect deals already in the works for Walgreens and AbbVie, two giant firms headquartered in Chicago's suburbs.

At issue are mergers between U.S. corporations and smaller foreign companies that legally allow a U.S. company headquarters to relocate -- mainly on paper -- to a nation with lower tax rates.

It is a perfectly legal tax-avoidance strategy, but one that Obama and many Democrats find indefensible. Taking on "inversion" -- the technical term for the overseas relocations -- is becoming a rallying cry of the progressive wing of the Democratic family and could prove potent in the run-up to the November elections.

Republicans counter that businesses are justified in taking logical steps to enhance profitability in the wake of high U.S. corporate tax rates and say the government should keep out of the way.

"They're technically renouncing their U.S. citizenship. They're declaring they're based someplace else even though most of their operations are here. Some people are calling these companies corporate deserters," Obama said in a speech at the Los Angeles Trade-Technical College.

". . . These companies are cherry-picking the rules. And it damages the country's finances." Obama said. "It adds to the deficit. It makes it harder to invest in things like job training that help keep America growing. It sticks you with the tab to make up for what they're stashing offshore through their evasive tax policies."

Illinois' senators, Dick Durbin, a Democrat, and Mark Kirk, a Republican, are sharply at odds on this issue, coming as Walgreens, headquartered in Deerfield, and AbbVie, the spinoff of Abbott Laboratories based in North Chicago, have merger transactions in play.

On July 18, the boards of drug makers AbbVie and Shire, headquartered on the island of Jersey, a British crown dependency that the U.S. regards as a tax haven, announced the firms would combine. AbbVie would create a new company, called "New AbbVie," incorporated in Jersey, a transaction that AbbVie said could reduce its tax rate to 13 percent by 2016.

Walgreens status is very different from AbbVie. The company has not announced an inversion, though it is clearly a possibility. Walgreens already holds a 45 percent stake in the drug store chain Alliance Boots, headquartered in Switzerland, and the board is poised to vote on the purchase of the outstanding 55 percent of the stock.

Neither Walgreens nor AbbVie commented on Obama's remarks.

I talked to Kirk and Durbin on Thursday about the Walgreens and AbbVie moves.

Kirk disagreed that the tactic is a tax dodge. If companies "make a decision to make sure that they are more profitable, then they are more likely to hire people," Kirk said.

A few days ago, Durbin mocked Walgreen's slogan, asking: "Is the "corner of happy and healthy' somewhere in the Swiss Alps?

On Thursday, he told me that "companies can't have it both ways.

"They can't enjoy all the benefits of America and say, "We are checking out when it comes to taxes,' " Durbin said.

GOP Senate nominee Jim Oberweis, challenging Durbin in November, is staking out this turf. "There is something perverse -- and deeply disturbing -- about career politicians who insult the American people and companies for legally following our tax code," he said in a statement.

Congress leaves at the end of next week and does not return until after Labor Day, so nothing is going to happen soon. But watch for this matter of "economic populism" to be taken up on various campaign trails.


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