By Bernie Becker - 05/08/14 06:16 PM EDT
Top congressional Democrats said Thursday that they wanted to move quickly to combat a practice that allows corporations to slash their taxes by shifting their legal address abroad.
Finance Chairman Ron Wyden (D-Ore) said he wants to “take some short-term steps” to battle the practice known as inversion, while also dealing with in the broader context of rewriting the tax code.
Wyden had previously said that the practice, known as inversion, illustrated how badly Congress needs to overhaul the tax code.
“If you don’t take some steps in the short-term, you can have all these deals go forward and sort of hollow out the American tax structure, and then you’re faced with trying to reform something that doesn’t exist to a great extent,” Wyden told reporters in the Capitol.
The inversion issue came back to the forefront recently after the pharmaceutical giant Pfizer said it wanted to take over AstraZeneca, the British drug maker, in a move that would greatly reduce Pfizer’s tax bill. But a slew of other companies have also considered similar moves.
Sen. Carl Levin (D-Mich.), a longtime critic of offshore tax practices from his perch as chairman of a Senate permanent subcommittee on investigations, also said Thursday that he was talking with his colleagues to drum up support for legislation he intends to introduce on inversions.
Rep. Sandy Levin (D-Mich.), the senator’s brother, told reporters on Thursday that he plans to introduce identical legislation in the House, and expects the measure to be released in the “next few days.”
A Democratic aide said the plan would be modeled after a proposal in President Obama’s latest budget, which essentially seeks to stop bigger companies from taking over smaller foreign ones for tax purposes.
Under current law, a company that merged with an offshore counterpart couldn’t take advantage of a lower foreign tax rate if their shareholders still owned 80 percent of the business after the merger. Obama’s budget proposes slashing that cut-off to 50 percent, a proposal which would raise some $17 billion over a decade.
Rep. Levin said the idea would be to ensure that there were economic reasons, and not just tax planning ones, for offshore mergers. “What you have to do is to very much restrict it so it doesn’t lead to basic tax evasion,” said Levin, the top Democrat on the House Ways and Means Committee.
Lawmakers passed legislation targeting inversions in 2004, and the White House has suggested that it’s still interested in limiting those sorts of deals. John Koskinen, the IRS commissioner, said recently that his agency is doing all that it can on the matter.
But even with the renewed interest on the Democratic side, congressional Republicans showed little appetite for a targeted inversion measure on Thursday.
GOP tax writers have generally said that they’d prefer to deal with the matter in tax reform, even though Republicans and Democrats remain deeply divided on the issue, with a breakthrough nowhere in sight.
House Ways and Means Chairman Dave Camp (R-Mich.) said Thursday that he didn’t believe an inversion proposal could be successful outside of a comprehensive rewrite of the tax code.
The U.S.’s top corporate tax rate stands at 35 percent, the highest in the industrialized world, and Camp suggested that companies would continue to find ways to use offshore tax rules to lower their tax bill until that rate came down.
“I don’t think this is something you can kind of one-off,” Camp told reporters. “I think you really want to have this be part of a proposal that actually gets us some economic growth and jobs and higher wages.”
Sen. Orrin Hatch (Utah), the top Republican on the Finance Committee, said inversions were a problem, but simply told reporters that he and Wyden weren’t on the same page when it came to how to solve the issue.
“So far I have not agreed with him,” Hatch said.
The Utah Republican later took to the Senate floor to say that Congress should avoid “arbitrary inversion restrictions,” and said that lawmakers should concentrate more on improving the tax code to make the U.S. a more desirable business location.
And Sen. Chuck Grassley (R-Iowa), who has worked on inversion legislation in the past, didn’t sound so sure this time around, saying it would just make tax reform that much more difficult.
“If you do it now and you take that revenue, you lose that revenue to offset when you have tax reform,” Grassley said.
But both Wyden and Rep. Levin said the inversion issue had become far too dire of a problem to wait for a tax overhaul that could be years away.
“I don’t think everything can wait for tax reform,” Rep. Levin said. “In this case, I think we need to pay attention to it.”
This story was posted at 1:08 p.m. and updated at 6:16 p.m.