EDITORIAL: Companies will keep leaving until Washington reforms the U.S. tax code

July 05--Walgreen Co. Chief Executive Greg Wasson has confirmed that his company might move its headquarters outside the U.S. from its current location in north suburban Deerfield. He's one of many American corporate leaders under pressure to cut their companies' tax bills by relocating to Switzerland, Ireland or some other country with lower corporate rates.

Nearly 30 years after the last significant reform, the U.S. tax code is a mess. Corporate rates are among the highest in the world. Wasteful, complicated loopholes abound. The obvious solution is to reform U.S. corporate taxes and cut rates to competitive levels. Both political parties have declared that reform is urgently needed.

Yet Washington ... doesn't ... act. The most recent reform proposal worthy of the name arrived in February. House Ways and Means Chairman Dave Camp unveiled a comprehensive, thoughtful bill that struck us as an excellent starting point. Among other meaningful changes, the Michigan Republican would have cut corporate rates as well as loopholes.

Camp's proposal has gone nowhere (and Camp has announced plans to retire from the House). Members of both parties recoiled from the tough but sensible decisions his plan would have forced them to make.

Instead, Beltway insiders -- including U.S. Sen. Dick Durbin -- have busied themselves with partisan stunts. Faced with the possible departure of Walgreen, pharmaceutical-maker AbbVie and potentially other key corporate citizens of his state, the Illinois Democrat has brought forth a poor excuse for tax reform.

His proposed Patriot Employer Tax Credit Act is a new version of the same bill that Durbin has introduced in three previous Congresses dating back to 2006. It aims to give companies a financial incentive to create jobs that meet a politically correct standard: good-paying posts, with health insurance benefits that comply with the Affordable Care Act. It would punish firms like Walgreen if they move overseas for tax reasons (the term of art is "inversion").

Durbin's proposal is one more example of government setting out to pick winners and losers in the marketplace, while making a hopelessly complicated tax code all the more so. Mercifully, Durbin's proposal stands practically no chance of advancing. Trouble is, more comprehensive proposals stand no chance of advancing, either, at least according to the senator. At a recent news conference announcing his revived tax legislation, Durbin said, "There's not going to be a tax reform bill this year."

Just wait until next year, after the November election, he said: "There's been a bipartisan determination to reform the whole tax code. That's why I think, come the first of next year, that we're going to get busy doing it. We almost have to do it then, because it gets closer to a presidential election. But I think we have a chance."

Durbin served as a member of the National Commission on Fiscal Responsibility and Reform. At the end of 2010, he voted in favor of its so-called Simpson-Bowles proposal, which put (almost) everything on the table for tax reform. We gave Durbin kudos at the time for taking a stance opposed by many members of his party who recoil at reducing federal spending or entitlement benefits.

Companies such as Walgreen have no reason to wait for Congress and the president to deliver tax reform -- now, next year, or sometime after the presidential election in 2016. Other of America's leading companies are exploring one-way trips abroad.

In ways obvious and insidious, then, an uncompetitive U.S. tax code damages the nation's long-term prospects: When corporate headquarters leave, America loses more than prestige. These moves chip away at U.S. tax receipts, reducing the nation's ability to pay its bills and service its $17 trillion national debt. Also, corporate jobs and other investments overseas are jobs and investments this country squanders.

As is, members of Congress and the chief occupant of the White House look hopelessly out of touch with these damaging realities even as more corporations evaluate why they should locate in one country or another.

Promises from politicians that maybe they'll do something about this sometime in the future -- but only after the pols check their precious election calendars -- is one more reason for a company such as Walgreen to leave America. Other governments plainly are more interested in keeping their tax codes globally competitive.

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