To Stop Corporate Inversions, Why Not Fix The Problem By Lowering Corporate Taxes?

Treasury Secy: Obama To Take Unilateral Action To Prevent Corporations Leaving U.S.

September 8, 2014 by Sam Rolley 

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Treasury Secretary Jack Lew said Monday that President Barack Obama will soon take executive action to stop tax maneuvers known as inversions, when U.S. corporations relocate their headquarters in low-tax countries outside the U.S.

Lew said that, while the White House would prefer Congress to act on the matter, Obama “is clear-eyed about the possibility that Congress…may not move as quickly as necessary to respond to the growing wave of inversions.”

Lew added that the Treasury Department is currently working out a plan, which could include significant changes to tax rules, to make inversions less economically appealing for corporations.

Republican lawmakers have been vocally skeptical about whether the Treasury has the necessary Constitutional authority to make such rule changes, though Lew argued Monday that any action the administration takes “will have a strong legal and policy basis.”

Lew’s remarks came during a speech at the urban Institute in Washington.

Inversions made big headlines recently as the U.S. fast food restaurant Burger King announced a planned acquisition of the Canadian chain Tim Hortons.

Many Americans on the left decried the decision, calling the fast food restaurant’s pursuit of lower tax burdens economically unpatriotic.

“Burger King’s decision to abandon the United States means consumers should turn to Wendy’s Old Fashioned Hamburgers or White Castle sliders. Burger King has always said ‘Have it Your Way’; well my way is to support two Ohio companies that haven’t abandoned their country or customers,” Ohio Democratic Sen. Sherrod Brown said in a statement last month. “To help business grow in America, taxpayers have funded public infrastructure, workforce training, and incentives to encourage R&D and capital investment. Runaway corporations benefited from those policies but want U.S. companies to pay their share of the tab.”

On the other side of the argument, many in the GOP say that inversions could be avoided by restructuring U.S. corporate tax policies to make the nation’s companies more competitive on a global scale.

“Why are we trying to raise the bar so it will be harder for companies to leave the United States?” General Electric tax planning chief John Samuels said in an interview with Bloomberg. “Why aren’t we trying to do something to make it more attractive for them to stay here?”

Indeed, the nonprofit Tax Foundation noted in January:

In today’s globalized world, U.S. corporations are increasingly at a competitive disadvantage. They currently face the highest statutory corporate income tax rate in the world at 39.1 percent. This overall rate is a combination of our 35 percent federal rate and the average rate levied by U.S. states. Corporations headquartered in the 33 other industrialized countries that make up the Organization for Economic Cooperation and Development (OECD), however, face an average rate of 25 percent. Even corporations in high-tax European countries such as Belgium (34 percent), France (34.4 percent), and Sweden (22 percent) face much lower rates than those in the United States. Our largest trading partners—Canada, Japan, and the United Kingdom—have each cut their corporate tax rates over the past few years to become more competitive.

Still, fundamental differences in tax policy beliefs across party lines make it unlikely that Congress will work out a plan to revamp the tax code any time soon— the lack of momentum will likely be worsened by unilateral actions, according to some tax experts