Obama challenges firms’ ‘economic patriotism’

Seeks tax overhaul on overseas mergers

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LOS ANGELES — President Barack Obama attacked companies that use cross-border mergers to escape U.S. taxes, accusing them of being “corporate deserters who renounce their citizenship to shield profits.”

In remarks Thursday at a technical college in Los Angeles, the president called for a new “economic patriotism” from companies and decried those that use corporate inversions to benefit economically by being in the United States while adding to the tax burden of middle-income families.

“You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers,” he told an audience gathered between palm trees on the campus green.

While dealing with multiple foreign policy crises and a slow economic recovery, Mr. Obama is turning to a populist economic message to help Democrats in the November congressional elections, blaming Republicans for obstructing progress. There’s little chance that Mr. Obama will get Congress to act quickly. Republicans, who favor addressing the issue as part of a revamp of the U.S. tax code, can block Senate legislation and stop the GOP-led House from doing anything to limit inversions.

Senate Democrats, including New York’s Charles Schumer, said Thursday that they don’t expect to act on the issue before Congress leaves next week for a month-long recess. Some Senate Finance Committee Democrats, including Virginia’s Mark Warner and Colorado’s Michael Bennet, have declined to endorse Mr. Obama’s approach. Instead, they say they, too, prefer a broader revamp of the tax code.

Republicans blame Mr. Obama for the stalemate on taxes, saying he hasn’t done enough to negotiate with them. “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,‘” said Michael Steel, spokesman for House Speaker John Boehner, R-Ohio.

Mr. Boehner hasn’t endorsed his party’s tax plan beyond generalities, and the draft from Ways and Means Committee chairman Dave Camp, R-Mich., has languished since it was released earlier this year.

About 41 U.S. companies have switched their addresses to low-tax nations such as Ireland since 1982, often through a takeover of a smaller company, reducing their tax bills while typically keeping their executives and listings in the United States. Eight more are pending, including Canonsburg, Pa.-based Mylan Inc. and Minneapolis-based Medtronic Inc. New York-based Pfizer Inc.attempted to move its tax address to Britain by purchasing London-based AstraZeneca.

Giants including Walgreen and Monsanto have flirted with the idea, and more may do so amid no sign that Congress will act quickly on legislation to stop them.

“I don’t care if it’s legal; it’s wrong,” Mr. Obama said. “It sticks you for the tab to make up for what they’re stashing offshore.”

The quickening pace of inversions prompted the White House to intensify its calls for action, the administration officials said. Last week, Treasury Secretary Jack Lew called for a “new sense of economic patriotism,” asking Congress to pass tax changes. The Treasury has said blocking inversions would prevent $17 billion from escaping the U.S. tax system over the next decade.

The administration’s plan, which was included in its budget released earlier this year, would effectively prevent U.S. companies from taking advantage of inversions through purchasing smaller foreign businesses. The curbs would be retroactive to May of this year, a proposal the administration says will encourage companies to reevaluate pending mergers.

Legislation to curb inversions hasn’t advanced out of committee, and some disagreement persists among Democratic lawmakers about what elements should be included in a bill.

“This Democratic push on inversions is entirely about midterm election politics,” Guggenheim Securities said in a market commentary to clients Thursday. “There is likely to be a lot of noise, as Democrats believe this issue will resonate with voters in the midterm elections.”

According to a Gallup poll conducted in April, 66 percent of Americans say corporations are paying too little in taxes, compared with 20 percent who say they are paying their fair share and 8 percent who say they are paying too much.

The Senate on Wednesday advanced a Democratic bill that would deny companies federal tax deductions for the physical cost of moving operations abroad and provide them with a tax credit for moving operations into the United States. The legislation, backed by the administration, doesn’t address inversions. Rather, it would deny companies deductions for what are typically ordinary business expenses.

washington - United States - North America - United States government - Pennsylvania - Barack Obama - United States Congress - John Boehner - U.S. Republican Party - United States Senate - U.S. Democratic Party - Jacob Lew - Charles Schumer - Dave Lee Camp - Michael Bennet - Pfizer Inc - Mark Warner - Charles Boustany - Medtronic Inc - Mylan Inc

First Published July 24, 2014 4:00 PM


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