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Obama says tax law must change to stop ‘corporate deserters’

President Barack Obama pauses as he speaks about the economy at the Los Angeles Trade-Technical College in Los Angeles, Thursday, July 24, 2014, on the final day of his three-day West Coast trip. Striking a populist stand ahead of the midterm elections, Obama is demanding "economic patriotism" from American corporations that seek overseas mergers to avoid U.S. taxes. Obama and congressional Democrats are pushing to severely limit such deals, a move resisted by Republicans who argue the entire corporate tax code needs an overhaul. (AP Photo)

Lisa Lerer and Richard Rubin

BLOOMBERG

LOS ANGELES - President Barack Obama attacked companies that use cross-border mergers to escape U.S. taxes, accusing them of being “corporate deserters who renounce their citizenship to shield profits.”

In remarks at a technical college in Los Angeles Thursday, the president called for a new “economic patriotism” from companies and decried those that use corporate inversions to benefit economically by being in the United States while adding to the tax burden of middle-income families.

“You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers,” he told an audience gathered between palm trees on the campus green.

While dealing with multiple foreign policy crises and a slow economic recovery, Obama is turning to a populist economic message to help Democrats in the November congressional elections, blaming Republicans for obstructing progress.

There’s little chance Obama will get Congress to act quickly. Republicans, who favor addressing the issue as part of a revamp of the U.S. tax code, can block Senate legislation and stop the Republican-led House from doing anything to limit inversions.

Senate Democrats, including Charles Schumer of New York, said Thursday that they don’t expect to act on the issue before Congress leaves next week for a month-long recess. Some Senate Finance Democrats, including Mark Warner of Virginia and Michael Bennet of Colorado, have declined to endorse Obama’s approach. Instead, they say they prefer a broader revamp of the tax code.

Republicans blame Obama for the stalemate on taxes, saying he hasn’t done enough to negotiate with them.

“Until the White House endorses our tax reform plan or convinces Senate Democrats to act, every pink slip from companies moving overseas may as well be signed, ‘President Barack H. Obama,’” House Speaker John Boehner’s spokesman, Michael Steel, said in an email.

Boehner hasn’t endorsed his party’s tax plan beyond generalities, and the draft from Ways and Means Chairman Dave Camp has languished since it was released earlier this year.

About 41 U.S. companies have switched their addresses to low-tax nations such as Ireland since 1982, often through a takeover of a smaller company, reducing their tax bills while typically keeping their executives and listings in the U.S.

Eight more are pending, including Minneapolis-based Medtronic Inc. and Canonsburg, Pennsylvania-based Mylan Inc. Pfizer Inc., based in New York, attempted to move its tax address to Britain by purchasing London-based AstraZeneca.

Giants including Walgreen and Monsanto have flirted with the idea and more may do so amid no sign that Congress will act quickly on legislation to stop them.

“I don’t care if it’s legal, it’s wrong,” Obama said. “It sticks you for the tab to make up for what they’re stashing offshore.”

The quickening pace of inversions prompted the White House to intensify its calls for action, the administration officials said. Last week, Treasury Secretary Jack Lew called for a “new sense of economic patriotism,” asking Congress to pass tax changes. The Treasury has said that blocking inversions would prevent $17 billion from escaping the U.S. tax system over the next decade.

The administration’s plan, which was included in its budget released earlier this year, would effectively prevent U.S. companies from taking advantage of inversions through purchasing smaller foreign businesses. The curbs would be retroactive to May of this year, a proposal the administration says will encourage companies to reevaluate pending mergers.

Legislation to curb inversions hasn’t advanced out of committee and some disagreement persists among Democratic lawmakers about what elements should be included in a bill.

“This Democratic push on inversions is entirely about midterm election politics,” Guggenheim Securities said in a market commentary to clients Thursday. “There is likely to be a lot of noise as Democrats believe this issue will resonate with voters in the midterm elections.”

According to a Gallup poll conducted in April, 66 percent of Americans say corporations are paying too little in taxes, compared with 20 percent who say they are paying their fair share and 8 percent who say they are paying too much.

Republicans control the House, giving them the power to stop Congress from acting on inversions. They say they’d prefer to address the issue through a broader reworking of the tax code that would lower the corporate tax rate, and have shown little interest in the Democrats’ approach.

Camp’s plan, the most extensive offered by Republicans, hasn’t advanced in Congress. That’s in part because of Republican concerns about politically unpopular votes and in part, party members say, because Obama hasn’t engaged deeply enough in the issue.

“He’s not been a willing participant,” Rep. Charles Boustany, a Louisiana Republican, told reporters Wednesday. “There’s no easy fix for this. Tax reform is the answer.”

The Senate Wednesday advanced a Democratic bill that would deny companies federal tax deductions for the physical cost of moving operations abroad and provide them with a tax credit for moving operations into the U.S. The legislation, backed by the administration, doesn’t address inversions. Rather, it would deny companies deductions for what are typically ordinary business expenses.

— With assistance from Roger Runningen and Kathleen Hunter in Washington.

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