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U.S. Takes Half-Step Forward On Corporate Tax Inversion


Some corporations have been looking to play all the angles when it comes to lowering their tax bills, going so far as to relocate their parent corporate offices outside the U.S. to do it. It is greed run amok and is wrong, but Congress has yet to stop it. However, yesterday the Obama administration got involved and said enough is enough.

Make no mistake, the steps taken by Treasury Secretary Jack Lew don’t fully solve the problem. But at a time when Capitol Hill has become dysfunctional, they’re at least a start. They diminish the ability of companies who engage in the practice known as corporate inversion to gain tax benefits from moving overseas and thus will make many in big business think twice before doing so.

“While there is no substitute for congressional action, my administration will act whenever we can to protect the progress the American people have worked so hard to bring about,” President Obama said in a statement. “We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill, and I’m glad that Secretary Lew is exploring additional actions to help reverse this trend.”

Secretary Lew’s action ends certain efforts inverted companies currently use to gain tax-free access to the deferred earnings of a foreign subsidiary, significantly diminishing the ability of inverted companies to escape U.S. taxation.  It also makes it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. company own less than 80 percent of the new combined entity.

Already, there are signs the action is having an effect on companies that have been eyed by U.S. conglomerates as possible targets for inversion. However, that does not in any way lessen the need of Congress to step in and do its job for the good of workers and fair corporate players.

As it stands, there have been more than 76 U.S. companies that have bought a smaller business in other nations with lower tax rates and moved their headquarters there. Despite all the benefits they gleaned from America, taking advantage of its infrastructure, law enforcement and social safety net, they skipped out on their share of the tab.

Luckily, some on Capitol Hill are interested in ending that practice. Reps. Sander Levin (D-Mich.) and Chris Van Hollen (D-Md.) introduced legislation earlier this year that would end corporate expatriations and bring back some $19.5 billion to U.S. coffers over 10 years.

But as hardworking Americans know, even good ideas can come to a screeching halt on Capitol Hill. So for now, people will have to accept that a half-step forward is better than none.