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Taxes Do Matter

Taxes Do Matter

Romania, one of Europe’s growing countries, is cutting taxes to spur more growth.  They are planning on eliminating the business profits tax on profits reinvested into the country, lower the social security tax, and lower the value-added tax (VAT) on some foods.  Eventually it hopes to reduce the income tax on lower income earners.  The government will either freeze or cut expenditures at the same time in order to reduce their deficit and compensate for the lack of tax revenue.  Romania seems to have the political will to put together what should be a winning formula to attract more business and encourage growth. 

Walgreen Co, the giant drugstore chain operator, was asked by some stockholders to move corporate headquarters to Europe because of the more favorable tax rates.  Goldman Sachs Investment Partners and three hedge funds met with Walgreen senior executives in Paris to present their case for the move.  Walgreen has said they are not interested, but the 5% ownership group brings up an interesting point.  The high US taxes are irksome, and alternatives exist in other countries.

The two tax cases above show that taxes are one of many important economic determinants when businesses decide where to operate or place their corporate HQ.  The federal government, states, counties, and localities should note that taxes do matter, though they are not likely to be the single determining factor.  Competition works, and tax rates are a factor in the competition for businesses and workers.  High tax states, and the federal government, should take notice.

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