President Barack Obama urged Congress on Thursday to end a controversial practice that allows U.S. companies to relocate abroad to avoid paying billions of dollars in federal taxes.
The practice, called inversion, occurs when large U.S. corporations merge with smaller foreign companies, moving their headquarters to low-tax countries such as Ireland while making only minimal changes to their operations. The U.S. company, though, becomes a subsidiary and saves on taxes.
“They’re technically renouncing their U.S. citizenship. Some people are calling these companies corporate deserters,” Obama said at Los Angeles Trade Technical College, which helps the unemployed pursue health care professions. “I don’t care if it’s legal. It’s wrong.”
The White House estimates inversions could cost the government as much as $17 billion in lost tax revenue over the next decade. Obama wants the money to be spent on job training programs instead.
“You don’t get to pick the tax rate you pay, and neither should these companies,” the president said.
He initially called for closing the loophole in his budget, and he wants to make the fix retroactive to May to avoid incentives for companies to rush to take advantage of the “loophole.” Bills have been introduced in both the Republican-controlled House of Representative and the Democratic-led Senate to address the issue.
But while some Republicans have expressed support for limiting inversions, House Speaker John Boehner, R-Ohio, made it clear Thursday he had little interest in a standalone fix for the problem and favored instead the GOP’s broad revamp of U.S. corporate tax laws. Boehner frowned on the same proposal earlier this year.
“Until the White House endorses our tax reform plan or convinces Senate Democrats to act, every pink slip from companies moving overseas may as well be signed, ‘President Barack H. Obama,’” Boehner spokesman Michael Steel said.
An aide to Senate Minority Leader Mitch McConnell, R-Ky., noted that at least four Democrats on the Senate Finance Committee said they’re not ready to back the change.
In published reports this week, Democratic Sens. Michael Bennet of Colorado, Thomas Carper of Delaware, Bob Casey of Pennsylvania and Mark Warner of Virginia said they would prefer a corporate tax overhaul over a standalone bill to limit inversions. Bennet’s office told McClatchy on Thursday that he had not yet taken a position on the change.
In his speech, Obama repeatedly used the term “economic patriotism” and talked about fairness as he looks to appeal to middle-class voters ahead of the mid-term elections.
“‘Economic patriotism’ is not a new catchphrase,” said Sen. Orrin Hatch, R-Utah. “It was trotted out by the president during the 2012 election campaign. And now it appears to be making a comeback. Not surprisingly, this comeback is taking place in the midst of another election year.”
Treasury Secretary Jack Lew wrote to Senate Finance Committee Chairman Ron Wyden, D-Ore., last week pledging to support efforts to curb inversions.
“We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes,” Lew wrote, noting these firms seek to benefit from their business location in the United States, the rule of law, intellectual property rights, infrastructure and the U.S. investment climate.
White House officials declined to name any specific transactions, acknowledging “sensitivity in singling out specific businesses.”
Corporate inversions appear most popular in the medical and pharmaceutical fields, where companies purchased smaller players in places such as Ireland or the Netherlands, countries known for lower corporate taxes.
Among companies to do so recently are drug makers Mylan Inc. in Pennsylvania and Chicago’s AbbVie. Minnesota-based medical device manufacturer Medtronic Inc. would be the largest U.S. company do so, and it touched off a firestorm recently with its $42.9 billion acquisition of the Irish firm Covidien PLC.
The controversy surrounding inversions forced drug giant Pfizer Inc. to back off of its plans earlier this year to purchase the British firm AstraZeneca PLC.
Obama closed out his three-day swing along the West Coast Thursday with his speech at the college, though the trip was largely to raise money for Democrats.
The visit to Seattle, San Francisco and Los Angeles, which included five fundraisers, comes just after Obama was criticized for not scrapping a trip to Delaware and New York last week in the wake of the downing of a passenger jet over Ukraine.
“I’m not going to give him advice about how to allocate his time,” Sen. McConnell told reporters this week, “but he’s certainly not spending the kind of time with the people he needs to pass legislation and convince people who have a vote, who were sent here to legislate, of the virtues of whatever position he has.”
White House Press Secretary Josh Earnest has repeatedly defended Obama’s trip, saying he travels with an array of advisers and equipment that allows him to do his job from wherever he happens to be.
But Obama did make at least one alteration to his schedule. He canceled an appearance on Jimmy Kimmel’s late night comedy show Wednesday.