“Economic patriotism” is falling out of the Democrats’ pre-election agenda.
Although lawmakers on both sides of the aisle have concerns about corporations leaving the U.S. for tax purposes, it appears that Democrats are not likely to call attention to so-called “tax inversions” in the few legislative days before Congress breaks for the November elections.
Asked by Roll Call Tuesday if there would be a vote in the Democratic-controlled Senate on inversions legislation in September, Majority Leader Harry Reid responded, “I kind of doubt it.”
Instead, it appears the Senate Democrats plan to vote only on poll-tested “messaging” measures before breaking for the elections. On Tuesday, the upper chamber debated an amendment to the Constitution to roll back Supreme Court decisions on campaign spending.
That means that it will be next year before Congress moves on legislation to slow the pace of inversions. Inversions are tax-savings maneuvers in which corporations buy companies in low-tax foreign countries and move their headquarters overseas. Inversions have gained attention following the pending merger between Burger King and the Canadian coffee and doughnut chain Tim Hortons, a move that prompted outrage from Democrats.
Sen. Chuck Schumer is preparing a bill to penalize companies that went through inversions as far back as 1994. The New York Democrat had previously said he hoped to introduce the bill this week. Although the legislation would have no chance of passing the Republican-led House, it would allow a vote that would highlight Democrats’ efforts to battle corporations over tax tricks.
The author of another Democratic bill to tighten the rules against inversions, Sen. Carl Levin of Michigan, told the Washington Examiner that he had hoped legislation would be passed before the break. “I’m going to do all I can” to stop inversions, Levin said.
In lieu of legislation, Levin said, the Treasury Department should “act if they can.”
On Monday Treasury Secretary Jack Lew said he was looking into changing tax rules “in the very near future” to make inversions less “economically appealing.” But he warned that executive action would not be a “substitute for meaningful legislation.”
The likeliest path for legislation to clear Congress would be for a bipartisan Senate bill, given that House Republicans responsible for writing tax bills have stated their opposition to short-term measures favored by Democrats and their preference for a larger overhaul of the U.S. corporate tax code.
Senate Finance Chairman Ron Wyden of Oregon said Tuesday that his staff is working with his Republican counterpart, Orrin Hatch of Utah, to address inversions by limiting some of the tax advantages of the maneuver. “As we press ahead, we continue to believe that any legislation addressing inversions must bridge to comprehensive tax reform,” he said.
But finding a way to bridge the gap between Republicans and Democrats will be tricky.
Hatch “strongly believes that the only real solution to this challenge is comprehensive tax reform that lowers the corporate tax rate to 25 percent and moves the U.S. to a territorial tax system with tax base erosion protections,” an aide to the Utahan said.
Hatch also has stipulated that any anti-inversions measure must not be punitive or retroactive. On Monday, Lew said that it was a “critical point” that “to prevent a rush of corporate inversions to get in under the wire before a change in the law, legislation should work retroactively, applying to any deal after early May of this year.”
Working out the differences between the two sides will take time. In a discussion of anti-inversions legislation following Lew’s speech at the Urban Institute Monday, tax experts agreed that the timeline for a bipartisan measure would extend to at least a year. That would match the length it took Congress to pass a law limiting inversions in 2004 after beginning debate in 2002.
The urgency of preventing further inversions, said Harvard professor and former Treasury official Stephen Shay, makes it a “no brainer” to act on inversions now. Waiting for Congress “carries no weight with me at all.”
Asked if Congress could act before the end of the year, if not this month, Levin responded. “God, I hope so. Hard to believe you could go to the end of the year without taking action.”
Levin added that he hoped that by merely talking about legislation, lawmakers could dissuade CEOs from pursuing inversions and move public opinion on the issue.
He noted that customers’ complaints helped convince the pharmacy chain Walgreen’s to drop consideration of an inversion earlier in the summer. “I would hope Burger King would get some of the same heat,” he said.
