According to The Huffington Post, President Obama is looking for ways in which he can act alone to stop U.S. corporations from sending their headquarters overseas in order to avoid most of our corporate taxes.
The practice, called “inversions,” enables a U.S.-based company to move its corporate headquarters to another country after buying that company. U.S. companies have been looking for companies in countries with low tax rates to buy, specifically for that purpose.
Basically, what these companies want is all the benefits of doing business in the U.S. with as little responsibility for it as possible. The taxes that pay for the roads and rails that ship their goods, for the educations of the people they employ, are taxes that they should be willing to pay, here and elsewhere. Many of them, sadly, look for the countries with the lowest imaginable tax rates to avoid paying their fair share of that. Again, that applies to any country in which they benefit from tax dollars.
HuffPo reports that Secretary of Treasury Jack Lew had looked at the tax code, and decided stopping these inversions from happening can only come through new laws that reform or rewrite the tax code. Such laws require Congress. However, the Department of the Treasury issued a statement that said:
“Treasury is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place.”
Inversions are exactly what Republicans love to warn us about: If the U.S. keeps taxing corporations to death, they’ll simply pick up and leave. The only problem is that while our corporate tax rate is high, the actual amount of taxes that corporations pay here is very low. But they don’t use that extra money to hire more workers, or to innovate, or to raise wages. That extra money generally goes into investors’ pockets.
Take the case of Walgreens, whose decision to move their corporate headquarters to Switzerland sparked huge public outcry. When they announced that they had decided to keep their corporate headquarters here in the U.S., their share price fell because investors were upset. They saw all those saved tax dollars as more money in their pockets, and damn the rest of the U.S., the laid off workers, and anybody who didn’t add to their wallets. Fortunately, the CEO was able to see beyond simply pleasing the investors. Many companies can’t, or won’t.
Thus far, about a dozen companies have engaged in these inversions over the past year. The Washington Post reports that both parties agree inversions are a problem, and that they also agree that our tax system is broken and needs fixing. But Congressional Republicans don’t want to punish companies that are simply executing their fiduciary duties to their investors.
The HuffPo article notes that Stephen Shay, a professor at Harvard Law School, says in a paper the Treasury can weaken the incentives companies have to relocate. Companies often transfer big amounts of debt to their U.S. subsidiary from the foreign company they acquired, and they can then use that debt as a deduction on their taxes. Shay’s paper indicates that it would be legal for the Treasury to use regulations to treat that debt as equity, rather than debt, meaning companies can no longer deduct it from their taxes.
Republicans blame Obama for tax reform not going anywhere. The Washington Post piece mentions that they’re upset with Obama for not doing enough to lower the corporate tax rate to 28%. He can’t do that, though, if Congress refuses to act. So he’s reduced to what little he can do, which may, ultimately, not be enough. It’s up to Congress to stop acting like little children and start doing their jobs. If they want to fix the tax code, they ought to fix the damn tax code instead of bickering over who did, or didn’t do, what.