President Barack Obama on Tuesday urged Congress to pass legislation that would prevent U.S.-based firms from moving their headquarters overseas to avoid federal taxes.
His comments came a day after the Treasury Department took steps to curb the practice, known as a “corporate inversion.” When used, an American corporation typically will acquire a smaller company in another country. Its on-paper U.S. headquarters is then moved overseas — though most of its operations remain here — to shrink its tax bill.
During his presidency, Obama said he has tried to address “injustices in our tax system,” but acknowledged lawmakers must act to clamp down on the full slate of tactics that large corporations have at their disposal — which average Americans do not.
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“Only Congress can close it for good,” Obama said, adding Congress should “give tax breaks to working families” rather than corporations.
Corporate inversions result in “net outflows of money” that could be spent on domestic projects, Obama said. The federal government could be missing out on “hundreds of billions of dollars” each year, he noted.
Obama also chided lawmakers, due to the increasingly volatile appropriations process, for hindering the Internal Revenue Service’s’ ability to monitor things like corporate tax avoidance.
The White House was forced to deal with speculation that the Treasury Department acted on Monday in an effort to sink what would have been the largest inversion transaction in history: Pfizer’s proposed purchase of Dublin-based Allergan. The stock price of the Irish company, which makes Botox dropped after Treasury announced its new rule.
Press Secretary Josh Earnest sidestepped questions after Obama departed the White House briefing room about whether the timing was meant to torpedo the $160 billion Pfizer-Allergan deal. Rather than address the issue directly, Earnest said the Obama administration has long sought to stop “all” corporate inversion deals.
But Earnest did acknowledge that the matter is just the latest issue on which Obama opted to act, in his words, “because Congress has failed to act.”
On Monday, House Ways and Means Chairman Kevin Brady, R-Texas, called the Treasury action more “punitive regulations” aimed at “penalizing American companies.”
What Treasury officials rolled out “will make it even harder for American companies to compete and will further discourage businesses from locating and investing in the United States,” Brady said. “This approach continues to be a misguided, missed opportunity that will hurt American workers and their families.”
The White House hit back at accusations that the new rule would harm American firms, saying it was crafted in a way to avoid dissuading companies from investing abroad.
Still, Brady said he is “pleased” the White House is focused on tax code changes, saying his panel is looking beyond what he dubbed the administration’s “minor updates” and to a “bold, pro-growth tax agenda.”
His statement did not say whether any overhaul bill the committee might produce would address inversions.
But House Minority Leader Nancy Pelosi on Tuesday said Brady and his fellow Republicans should “stop enabling corporate inversions and stop preserving special interest tax handouts that do nothing but increase the deficit.”
“The Treasury Department’s measures are no substitute for long-overdue Congressional action,” the California Democrat said in a statement. “It is long past time for tax reform that would lower the corporate rate, close special interest loopholes, end costly tax expenditures, and ensure all Americans are paying their fair share.”
Obama seemed vexed that Monday’s Treasury announcement got the most attention from business-focused media outlets, and Earnest acknowledged the idea Tuesday was to use the president’s bully pulpit to get wider coverage.
At least one presidential candidate noticed. Not surprisingly, it was the one who has built his campaign, in large part, on targeting large corporations.
Sen. Bernie Sanders, I-Vt., who continues to be a thorn in Democratic front-runner Hillary Clinton’s side, applauded the rule in a statement and estimated it could “eliminate the $35 billion in tax breaks that the pharmaceutical giant Pfizer would have received from its planned offshore merger.”
“Multinational corporations cannot have it both ways. You can’t be a domestic company only when you want to enjoy the legal protections afforded to American businesses,” Sanders said. “You have also got to be an American company when it is time to pay your fair share of taxes. The Treasury’s new rules have put profitable corporations on notice that their greed will not be allowed to continue.”
Sanders, who sits on several committees that oversee domestic programs the White House says could benefit from gathering the lost corporate tax dollars, called on Congress to “take the next step and pass comprehensive legislation to close these corporate tax loopholes once and for all, so that we can create the millions of jobs this country needs.”
Notably, Obama’s theme on Tuesday — that the Treasury rule does a bit to create some greater equilibrium between wealthy corporations and middle-class Americans — dovetails with Sanders’ top campaign themes.
Obama called such tax-avoidance moves “a big problem” and even “insidious,” saying the American people “deserve to know that big corporations are playing by the rules.”
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