Congressional Democrats said Tuesday they would seek any and all avenues to curb offshore tax deals, kicking off a new effort to punish what they call “corporate deserters.”
{mosads}Senior Democrats on both sides of the Capitol brought back legislation to make it more difficult for corporations to merge with a foreign competitor and shift their legal address abroad.
“We believe we need fairness in the tax code,” Senate Minority Whip Dick Durbin (D-Ill.) said at a news conference announcing the legislation.
Democrats introduced the legislation last year as well, at the same time President Obama and other senior officials in the party questioned the patriotism of companies like Pfizer Inc. and Walgreen Co. that looked into so-called corporate inversions.
After Congress deadlocked over the tax deals in 2014, the Treasury Department put in place new rules targeting the economic benefits for companies that reincorporate offshore. But both lawmakers and the Obama administration said tougher measures would require action from Congress.
Durbin, Sen. Jack Reed (D-R.I.), Rep. Sandy Levin (D-Mich.) and Rep. Lloyd Doggett (D-Texas) introduced legislation Tuesday that would raise almost $34 billion over a decade.
Under the bill, a merged company would still be counted as American for tax purposes unless at least 50 percent of the shareholders in the new corporation came from the foreign business. Currently, that threshold stands at 20 percent.
The Democrats introducing the measure said they were willing to discuss the measure as part of broader negotiations over tax reform. But Levin, the top Democrat on the tax-writing House Ways and Means Committee, added that he didn’t think lawmakers should wait any longer to act.
“There’s a lot of talk these days, appropriately, about middle-class squeeze,” Levin said. “I think what the middle-class wants us to do, when they pay their fair share, is to close loopholes.”
Levin’s comments underscored the economic populist message that Democrats are employing in the run-up to Obama’s State of the Union address on Tuesday. The White House has already said that the president will pitch a plan to raise capital gains taxes on the wealthy to help pay for priorities for the middle-class.
Those proposals have already fallen flat with Republicans, who say Democrats are dabbling once more in class warfare and income redistribution. Top GOP lawmakers said last year that they would discuss inversions as part of tax reform negotiations, while also insisting that only a friendlier tax climate would keep businesses from trying to flee.
With that in mind, Durbin said Tuesday that Democrats would discuss trying to force floor votes on the anti-inversion legislation. Senate Majority Leader Mitch McConnell (R-Ky.) has promised a more open floor procedure in the chamber under Republican rule.
Levin also noted that Treasury is continuing to work on regulations on the matter, targeting a process known as earnings stripping. Under that maneuver, U.S. subsidiaries of foreign companies can take a tax deduction on interest payments from loans they receive from foreign parent companies.
The current Treasury rules have already had an impact, with the pharmaceutical company AbbVie ultimately deciding against a $55 billion merger.
Even so, Democrats insisted that Washington hadn’t yet stemmed the tide against inversions, and that their push for legislation would give them a chance to wrong-foot Republicans.
“Very few, if any, Republicans came to the defense of these inverted corporations,” Durbin said about the 2014 debate. “This is hard to explain, and also impossible to defend.”