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AFL-CIO Now

Low-Wage Villain of the Week: Drug Manufacturers Mylan and AbbVie

Photo via ParentingPatch/Wikimedia

In our new regular feature, we'll be taking a look at the villains who are doing their best to prevent the United States from raising wages for all or some Americans. In this series, we're going to look past the usual suspects—for example, while it is true that too often elected officials get in the way of a fair economy, we want to dig deeper.

This week, we're calling out the shameful behavior of companies like Mylan and AbbVie. While the two drug manufacturers are far from unique in their bad behavior, Walgreens is considering joining them, they are the most recent examples of companies engaging in the un-American and anti-working families' tactic called "inversion," a key tool in the efforts to keep the wages of Americans low. United Steelworkers President Leo W. Gerard describes the process of inversion:

A large American corporation seeking to evade its tax responsibilities hooks up with company in a low tax country. It makes sure the foreign firm ends up with at least 20% of the combined company’s stock, so the American corporation can legally change its address. It’s called inversion because the big buyer takes the smaller subsumed entity’s address instead of the other way around. Dozens of corporations have done it in the past couple of years.

According to the Obama administration, which is seeking to curb the practice, inversion will cost the United States $17 billion over the next decade. Imagine the infrastructure investments that money could go to. Imagine the jobs it could create. Imagine the education and job training programs it could fund. Imagine the children it could feed. It's hard to see how $17 billion in unpaid taxes, simply so these companies can pad their profits, isn't a direct assault on working families.

While the extremists who support this type of activity argue that corporate tax rates are too high at 35%, the companies using inversion aren't paying anywhere near that. AbbVie, for instance, paid a 22.6% tax rate last year and, through inversion, hopes to get its rate down to 13% by 2016. Medtronic, another recent adopter of inversion, is already at 18% and is seeking to go lower. 

Last week, AFL-CIO President Richard Trumka condemned the practice:

Let’s call ‘corporate inversion’ for what it is: a gaping, unpatriotic tax loophole. It’s time for Congress to close it and end this outrageous practice.
In recent months, corporations have exploited this tax dodging loophole at unprecedented levels. The wave of ‘corporate inversions’ threatens to hollow out the U.S. corporate income tax base, seriously damaging the economy. One striking example is Walgreens, the nation’s largest drugstore chain, which may use an upcoming acquisition to become a foreign company in order to dodge more than $4 billion in taxes over five years. Walgreens is talking about abandoning America despite its reliance on the U.S. government—and U.S. taxpayers—for a quarter of its revenue paid for by the Medicare and Medicaid programs.
We need to start demanding a little more patriotism from these so-called American corporations. If they want to keep benefiting from everything our great country has to offer, they need to start showing a little more loyalty to the people who live and work in America. And they need to stop threatening to desert the United States and stop paying their taxes altogether unless we give in to their demands.

The administration and Democrats in Congress (with some Republican help) are attempting to slow down or eliminate the use of inversion and have had some success. Sens. Carl Levin (D-Mich.) and Ron Wyden (D-Ore.) and Rep. Sandy Levin (D-Mich.) proposed a two-year moratorium on inversions. Rep. Rosa DeLauro (D-Conn.) successfully heralded legislation that limited the use of inversion in Bermuda and the Cayman Islands, but that's only a small first step in the process of stopping this widespread and growing low-wage villainy.

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