The Obama administration indicated it may once again attempt to bypass Congress by using administrative actions to close a tax loophole that allows companies to relocate overseas, reports BNA news
"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," the department said in a statement.
The announcement by Treasury comes as more companies are choosing to move their businesses overseas for tax purposes and even more are expected to follow suit in the coming months.
"There's a huge number coming. We hear there are going to be several big announcements in August," Democratic Sen. Charles Schumer of New York told The Washington Post
Although some businesses have chosen to relocate, others have decided to stay in the U.S., such as Walgreens
which announced this week it would remain stateside.
The possibility of President Barack Obama taking administrative action is not surprising as Democrats and the White House have been using the practice, known as tax inversion, as a political tool against Republicans in recent weeks.
On July 24, President Barack Obama sought to apply public pressure on Congress to act out of "economic patriotism" to reform the loophole.
"Even as corporate profits are higher than ever. There's a small but growing group of big corporations that are fleeing the country to get out of paying taxes," Obama said during a speech
at Los Angeles Trade-Technical College in Los Angeles, California.
"It damages the country's finances. It adds to the deficit. It makes it harder to invest in things like job training that help keep America growing. It sticks you with the tab to make up for what they're stashing offshore through their evasive tax policies," Obama added.
Treasury Secretary Jacob Lew picked up the ball from Obama in a July 27 Washington Post
"While the business-tax-reform process moves steadily forward, the pace of inversions is increasing at breakneck speed. We must confront this problem now, before our tax base is so eroded as to damage the prospects of comprehensive reform," wrote Lew.
According to Lew, the administration's proposal would solve the problem by eliminating the incentives for corporations to relocate overseas by requiring at least 50 percent of the newly merged company to be owned by foreign shareholders. The current legal standard requires only 20 percent. He also called for the fix to be made retroactive.
columnist Robert Samuelson, however, contends the administration's proposal to curb inversions would only save $19.5 billion in taxes from 2015 to 2024, which is less than 1 percent of estimated corporate taxes over the same period.
Before departing on their August vacation, Democratic Sen. Carl Levin
delivered an impassioned speech in support of legislation he was introducing to prevent contracts from being awarded to companies that move overseas to achieve tax savings.
"Over the last few months, there has been a growing rush of U.S. corporations seeking to swear off their U.S. citizenship and move their mailboxes, for tax purposes, to a low-tax jurisdiction. I don't think that's right, and it's time we put a stop to it," declared the Michigan senator.
The goal of the measure, known as the No Federal Contracts for Corporate Deserters Act, would bar contracts from going to companies that are at least 50 percent owned by American shareholders, but have no substantial business in the country where they are incorporated. The practice is known as "tax inversion" and it is an issue which Democrats and the White House are hoping to use to their electoral advantage.
But Republicans counter that the "economic patriotism" issue is more about politics than policy.
In a July 23 floor speech, Senate Finance Committee Ranking Member Orrin Hatch of Utah
said he had received a letter from Lew calling for "a new sense of economic patriotism" and noted the phrase was frequently used by Obama in recent speeches.
"Of course, 'economic patriotism' is not a new catchphrase. It was trotted out by the President during the 2012 election campaign. And, now, it appears to be making a comeback. Not surprisingly, this comeback is taking place in the midst of another election year," Hatch asserted.
Some business leaders argue the proposals to close the loophole would have unintended consequences and would hamper the recovery.
"Legislation to block inversion is not tax reform. It would make the U.S. even less competitive globally. It would not stimulate economic recovery. It's an attempt to trap U.S. companies in an outdated and globally uncompetitive tax code that would benefit from fact-based, thoughtful, comprehensive reform," wrote Miles White, CEO of Abbott Laboratories, in a July 17 Wall Street Journal
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