By Bernie Becker - 07/24/14 05:17 PM EDT
Lashing out at what he called “corporate deserters,” President Obama on Thursday increased the pressure on Congress to approve legislation targeting companies that change their address to slash their U.S. tax bill.
Obama, speaking at a technical college in Los Angeles, said corporations were taking advantage of a loophole not available to average workers — and in the process, forcing the middle class to take up more of the tab for infrastructure and job-training programs.
Obama pressed Congress to enact a measure making it impossible for a U.S. corporation to swallow up a smaller foreign company in order to avoid paying U.S. taxes.
In the process, Obama echoed his Treasury secretary, Jack LewJack LewCEO group urges Congress to act on proposed tax rules IRS doubted legality of ObamaCare payments, former official says Overnight Finance: GOP makes its case for impeaching IRS chief | Clinton hits Trump over housing crash remarks | Ryan's big Puerto Rico win MORE, who last week called for a “new sense of economic patriotism.”
Obama’s comments put an even larger spotlight on the practice known as inversions, an issue that meshes well with the economic populist tone that Democrats are taking this election year.
The White House is echoing the push from congressional Democrats to enact anti-inversion legislation retroactive to May, and has brushed aside Republicans who say the cross-border deals should be dealt with in tax reform.
Tax reform, Obama said, is “going to take some time,” while the recent rash of inversions illustrates that Congress needs to act to stop those deals now.
“You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers,” Obama said.
Congressional Democrats have been pounding the inversion issue since May, when the pharmaceutical giant Pfizer attempted to merge with AstraZeneca, a British competitor.
Since then, a string of other prominent companies, including the pharmacy chain Walgreen Co., have openly discussed shifting their legal address abroad, on top of the close to 50 companies that have inverted in the last decade or so.
Less than a week ago, the pharmaceutical company AbbVie closed the largest inversion yet — an almost $55 billion deal to merge with an Irish competitor.
But although Democrats clearly see inversions as a political winner, top lawmakers in the party also acknowledge they face an uphill climb in getting legislation passed this year.
Senate Finance Committee Chairman Ron WydenRon WydenPuerto Rico debt relief faces serious challenges in Senate Senate panel delays email privacy vote amid concerns Overnight Finance: Puerto Rico bill clears panel | IRS chief vows to finish term | Bill would require nominees to release tax returns MORE (D-Ore.) said Thursday that he was working with fellow tax writers, including his panel’s top Republican, Sen. Orrin HatchOrrin HatchTen senators ask FCC to delay box plan An affordable housing solution both parties can get behind Puerto Rico debt relief faces serious challenges in Senate MORE (Utah), to try to clinch a bipartisan inversion deal.
But Sen. Charles SchumerCharles SchumerSchumer touts policy victories over Obama administration Puerto Rico debt relief faces serious challenges in Senate Overnight Healthcare: House, Senate on collision course over Zika funding MORE (N.Y.), a member of that committee and of the Democratic leadership, said that sort of legislation was “a little too complicated” to clear the panel before the upcoming recess.
“I would hope right after,” said Schumer, who has also stressed that he doesn’t think the leading Democratic proposals on inversion go far enough.
Congressional Democrats have largely embraced a proposal from Obama’s budget, that the government would continue to consider a merged company American for tax purposes if at least half of the shareholders come from the original U.S. business. Sen. Carl LevinCarl LevinCarl, Sander Levin rebuke Sanders for tax comments on Panama trade deal Supreme Court: Eye on the prize Congress got it wrong on unjustified corporate tax loopholes MORE (D-Mich.) and Rep. Sandy Levin (D-Mich.) have both introduced legislation along those lines.
The current threshold, set by anti-inversion legislation in 2004, is 80 percent. Hatch has said he’s open to a more targeted measure but won’t back retroactive legislation. Even some Democrats have also noted they think the problem would be better dealt with in tax reform.
“I don’t know that there’s going to be anything passed even this year,” Senate Majority Whip Dick DurbinDick DurbinDems to Clinton: Ignore Trump on past scandals How airport security lines got so bad Dem senators call for sanctions on Congo MORE (D-Ill.) told reporters after Lew briefed Democrats at a Thursday lunch. “There’s a need for it.”
Most congressional Republicans have stood firm against any targeted inversion legislation, instead saying the problem illustrates how badly the entire tax code needs to be rewritten. The real issue, they say, is the U.S.’s 35 percent corporate tax rate.
“I don’t think trying to do something that might be patchwork or put together haphazardly is the way to deal with this,” Rep. Charles BoustanyCharles Boustany House Republican pushes bill to 'curb regulatory overreach' Overnight Finance: GOP chairman moves to censure IRS chief | Puerto Rico deal close? | Fed eyes June rate hike | Obama's secret meeting with China's richest man Dozens of House members promote tax bills at hearing MORE (La.), a senior Republican on the House Ways and Means Committee, told reporters this week. “The fact of the matter is that our tax code has made U.S. companies relatively less competitive.”
On Thursday, senior White House officials said Congress enacted retroactive legislation the last time they dealt with inversions a decade ago.
They added that companies that reincorporate abroad for tax reasons often change little about how they do business and remain heavily reliant on other U.S. resources, like education and infrastructure.
A White House official noted that, given that some smaller nations have slashed their tax code for corporations to basically zero, any overhaul of the tax code would need to contain a tough inversion proposal.
With that in mind, the White House official noted, Washington might as well start taking on inversions now — a step, the official said, which would also stop any “bandwagon effect” caused by the recent rush of inversions.
“There’s more safety in numbers,” the official said. “We should be acting as quickly as we can. That will buy us more time and space.”
— This story was first posted at 3:52 p.m. and has been updated.