WASHINGTON — The Obama administration is weighing plans to circumvent Congress and act on its own to curtail tax benefits for U.S. companies that relocate overseas to lower their tax bills, seeking to stanch a recent wave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said Tuesday.
Treasury Department officials are rushing to assemble a broad array of options that would “change the economics of inversions,” Mr. Lew said. Options are still being developed, although no final decision has been made about whether to go forward with administrative action to strip away tax incentives for the deals.
The action comes in the face of a recent increase in U.S. companies reaching deals to reorganize overseas, creating an explosive political issue that Mr. Obama has seized upon to talk about a lack of “economic patriotism.” Investment banks have been counseling companies to pursue such transactions because of the potential tax benefits.
Two large U.S. pharmaceutical companies — the Pittsburgh-based generic manufacturer Mylan and the drug giant AbbVie, based in Illinois — agreed to such deals last month, and Walgreen, the drugstore chain owner, is considering one.
“Time is of the essence,” Mr. Lew said in an interview. “We are looking at a very long list of possible ways to address the issue.”
It would be the latest move by the Obama administration to sidestep congressional gridlock and move on a top domestic priority. The president included a provision in his budget proposal this year that would have effectively banned inversions, and Democratic lawmakers have introduced legislation to halt or suspend them. Still, while some Republicans say they want to address the issue, there has been little bipartisan agreement about how to do so.
While Mr. Lew said he believed that legislation was the “best solution” for addressing the issue, the recent flood of inversions has persuaded Mr. Obama’s team that quicker action may be necessary. “If we have to wait for what is the likely period of time before business tax reform can be enacted,” he said, “I think we’re all going to regret the number of inversions that have occurred in the interim.”
Merely by signaling the possible action, Mr. Lew seemed to be working to influence companies that might be considering an inversion to reconsider. “My goal is actually to change what’s happening out there,” he said. “Putting companies on notice is, I think, part of it.”
On Tuesday morning, a group of Democratic Senate leaders called upon Mr. Obama to go around Congress and act on his own to curtail tax benefits for U.S. companies that relocate overseas, warning that billions of dollars in tax revenue can be lost if he fails to act. “The coming flood of corporate inversions justifies immediate executive action,” says the letter, spearheaded by Illinois Sen. Richard Durbin, the chamber’s No. 2 Democrat, and signed by Sens. Elizabeth Warren of Massachusetts and Jack Reed of Rhode Island.
If Mr. Obama decided to act, there could be at least some retroactive effect because he could place new limits on the transactions of inverted companies. Inversions could still go through, but depending on when new rules were issued, the tax strategies that made the mergers seem lucrative might be severely limited.
Mr. Lew said at a conference in New York last month that he did not believe that he had the power to act alone on the issue. But Mr. Obama recently delivered a speech decrying inversions, and administration officials had been evaluating the legality of unilaterally limiting them.
Mr. Lew wrote to lawmakers last month urging them to take action on the issue, and soon after, the president made “economic patriotism” a centerpiece of a Los Angeles speech. “I don’t care if it’s legal. It’s wrong,” the president said of inversions at the time. “You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayers.”
Just days after the president raised the issue publicly, Stephen Shay, a former Obama administration Treasury Department official who now teaches at Harvard Law School, suggested in a much-discussed article in the trade journal Tax Notes that it was within Mr. Obama’s power to act alone on the matter. “I’m really concerned that we are losing a significant portion of our corporate tax base that you’re not going to get back,” Mr. Shay said in an interview.United States - North America - United States government - United States Congress - U.S. Department of the Treasury - United States Senate - Elizabeth Warren - Jacob Lew - Charles Schumer - Jack Reed