If you’ve been hearing a bit about “inversions,” but aren’t sure what it’s all about, now is the time to get up to speed because things are about to get more interesting.
A trio of liberal Senate Democrats want President Barack Obama to make use of his “pen and phone” to cut down on corporate “inversions.”In a new letter, Sens. Richard J. Durbin of Illinois, Jack Reed of Rhode Island and Elizabeth Warren of Massachusetts seek executive action to reduce or eliminate tax preferences that come along with the business practice, in which a U.S. company will acquire an overseas company and then be based in the foreign country, at least on paper.
I can appreciate why inversions seem like a dull topic, but I figure if both “The Daily Show” and “Colbert Report” can tackle the issue, there’s no reason to shy away from it as overly wonky.
As Matt Yglesias explained a couple of weeks ago, “Tax inversions have languished for years as an arcane sub-element of the already arcane world of corporate income taxation. But over the past couple of months, they’ve surged toward the top of the public agenda in the United States. President Obama dedicated his July 26 radio address to the need to stop them, Treasury Secretary Jack Lew did an op-ed, and Democrats across the board are stepping up their rhetoric against ‘corporate deserters‘ and calling for ‘economic patriotism.’”
The basic idea is that a company based in the U.S. will purchase a small company abroad. To lower its tax bill, the American company will say the new, larger company actually exists in the foreign country, which just so happens to have a lower corporate tax rate.
As a rule, we’re not talking about companies picking up and physically relocating; it’s all just paperwork to reduce tax bills.
Democratic lawmakers, led by Durbin, Reed, and Warren are pushing legislation like the “Stop Corporate Inversions Act” to curtail the practice, which is currently legal, but since Congress doesn’t really work on legislation anymore, and since Republicans don’t like the idea of forcing corporations (which are people, my friend) to pay more taxes, the bill isn’t going anywhere.
And that’s where the White House comes in.
Obama’s GOP critics tend to go berserk when the president issues executive orders or takes executive action, but by all appearances, the West Wing just doesn’t care. Two weeks ago, Obama signed an executive order prohibiting anti-gay discrimination among federal contractors, and last week he signed another one, this time to make it tougher for companies to secure federal contracts if they have a history of labor-law violations.
And as of yesterday, it appeared another order, this time on inversions, may be on the way.
The Obama administration is weighing plans to circumvent Congress and act on its own to curtail tax benefits for United States companies that relocate overseas to lower their tax bills, seeking to stanch a recent wave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said on Tuesday.Treasury Department officials are rushing to assemble a broad array of options that would “change the economics of inversions,” Mr. Lew said. Options are still being developed although no final decision has been made about whether to go forward with administrative action to strip away tax incentives for the deals.
“Time is of the essence,” Lew told the New York Times. “We are looking at a very long list of possible ways to address the issue.” He added, “My goal is actually to change what’s happening out there. Putting companies on notice is, I think, part of it.”
There’s reason to believe this is more than just hollow rhetoric; the administration is serious. Keep an eye on this one.