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WASHINGTON — As stocks gyrated and the economy sputtered, the leaders of CVS Caremark Corp. and Walmart called for Congress to restructure the corporate tax code.
CVS Caremark president and chief executive officer Larry Merlo told the Senate Finance Committee that lowering the maximum corporate tax rate would allow the company to accelerate investments in U.S. jobs, technology and infrastructure — all of which could help lower health care costs and strengthen the economy.
At a committee hearing on taxes and jobs, Merlo testified that the tax structure puts companies that heavily reinvest their earnings in core domestic operations, such as CVS Caremark, at a competitive disadvantage. Changes are needed to level the playing field, he said.
“In order to continue to be successful in an increasingly global marketplace, CVS Caremark must control costs, raise capital and efficiently reinvest its earnings,” he said. “Our high effective tax rate not only limits the amount of earnings available to us for reinvestment in our core business, it also makes CVS Caremark less attractive to global investors. We are committed to growing our business in the U.S. Without a consequential rate reduction, tax considerations will have to be an even more significant component of our overall investment analysis.”
Mike Duke, president and CEO of Walmart, said at the same hearing that lower corporate taxes would help multinational companies better compete globally and foster more business growth and job creation at home. He called for the federal corporate tax rate to be lowered from the average of 35% to 39% to the mid-20s. Walmart paid $4.7 billion in corporate taxes last year, a 32.2% effective rate.
“We’re not here to ask for sympathy,” Duke said. “The question is not whether Walmart as a company can get by under the current tax structure. The real question is whether this structure is the best approach for our country. We believe that it is not.”
Merlo said CVS Caremark’s effective federal income tax rate is around 35% and its combined federal and state rate is about 39%. Together with its more than 200,000 employees, the company generates federal payroll and corporate tax revenues of some $3.7 billion annually. When similar state and local payroll and income taxes are considered, the amount exceeds $4.3 billion.
Committee chairman Max Baucus (D., Mont.) said that with unemployment at around 9%, taxes must not restrain businesses from hiring more people. “In today’s global economy, we simply can’t afford for the tax code to hamper business’ ability to compete and create jobs here at home,” he said. “We need corporate tax rules that encourage job creation and widespread economic growth.”
Merlo said CVS Caremark is committed to significant spending on the company’s infrastructure and operations.
“Our company currently reinvests approximately $2 billion back into our business each year, and we are committed to making significant future investments in our service offerings, technology, training, drug adherence programs, retail clinics and other improvements. Our investments are geared towards lowering the overall cost of health care in this country and improving consumer health,” he testified.
He said that while CVS Caremark benefits from the Work Opportunity Tax credit and accelerated/bonus depreciation, it would give up those incentives in exchange for a lower tax rate.
