Editorials

An outrageous tax-skipping scam

Alex Molinaroli is CEO of Johnson Controls, which is merging with Tyco International and moving its headquarters to Ireland to lower its taxes.
Alex Molinaroli is CEO of Johnson Controls, which is merging with Tyco International and moving its headquarters to Ireland to lower its taxes. Bloomberg file

Burger King’s tax avoidance scheme was stomach turning. Pfizer’s gambit gave us a big headache.

But this latest tax-skipping scam by Johnson Controls is enough to drive anyone bonkers, not just Bernie Sanders.

The auto parts manufacturer announced in late January that it is merging with Tyco and moving its headquarters from Wisconsin to Ireland. That’s where Tyco is based, but it also has a much lower corporate tax rate than the U.S. That sneaky maneuver, called an inversion, will save the combined company at least $150 million a year in taxes.

Other big corporations have used inversions recently to cut their tax bills. But Johnson Controls isn’t just any company.

On life support during the Great Recession, it was saved by the taxpayer-funded bailout of the auto industry in 2008. Also, as part of the Obama administration’s economic recovery act, it received some $300 million from the U.S. Energy Department to produce batteries for hybrid vehicles.

So Johnson Controls almost certainly wouldn’t be in business except for taxpayers’ aid. But now it’s stiffing taxpayers. That takes some chutzpah – and an utter lack of loyalty.

To show she’s as angry at rapacious corporations as Sanders, Hillary Clinton highlights this outrage, calling it not an “inversion” but a “perversion.”

She’s right. Johnson Controls richly deserves all the criticism being lobbed its way. Maybe it will be the final straw to stop these companies that President Barack Obama famously called “corporate deserters.”

Last November, Pfizer Inc. announced it would buy Allergan in a deal worth $160 billion that would also put the new headquarters in lower-tax Ireland. The two pharmaceutical giants get millions of dollars a year in taxpayer-financed reimbursements. Medi-Cal paid out $223 million to Pfizer just for its three most prescribed drugs between 2012 and 2015, according to figures requested by The Sacramento Bee’s editorial board.

In 2014, Burger King bought Tim Hortons, the Canadian coffee-and-doughnut chain, and moved the combined headquarters north of the border.

Other corporations, including Apple Inc., use other strategies to lower their tax bills, such as sending profits through shell subsidiaries abroad. While the official corporate tax rate is 35 percent, many companies pay a far lower rate, or even find a way to pay nothing. And they’re apparently not breaking any laws.

Many companies, especially smaller ones, would prefer a simpler tax code with fewer loopholes. It’s the big multinational corporations, which can afford legions of sharp tax lawyers, that profit in the current system. Most Americans can’t take advantage of tax loopholes, either, but we can choose to spend our money at companies that don’t dodge their taxes. The federal government can reconsider contracts with “inversion” companies.

Corporate tax reform should be a priority for the next president. Outlawing inversions, or at least making them unprofitable, would be a fine start.

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