Senate Dems urge Obama to act alone on corporate tax inversions

A trio of Senate Democrats is urging President Obama to use his executive powers to crack down on companies that shift operations abroad to avoid a U.S. tax bill.

Sens. Dick Durbin (Ill.), Jack Reed (R.I.) and Elizabeth Warren (Mass.) told Obama in a letter Tuesday that he should do all he can to discourage “inversions,” in which companies that do work in the United States shift their headquarters elsewhere to avoid U.S. tax rates.

While Democrats are prepping legislation to crack down on the growing practice, they called on the president to act now.

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“Corporations that renounce their U.S. corporate citizenship should not be able to reap all the benefits that American tax dollars provide,” they wrote. “We urge you to use your authority to stand up for American companies which are proud to be part of our nation and reduce U.S. incentives for others corporations which would abandon their responsibilities to their country for a nod of approval from Wall Street.”

The senators warned that 47 corporations have inverted operations in the last decade, with over a dozen more announcing plans to do the same. If the government does not act soon, the U.S. could lose billions of dollars in tax revenue from companies that enjoy perks provided here, they cautioned.

“Inverted corporations take advantage of all the things American tax dollars provide—from tax credits for research and development, investments in transportation infrastructure, and strong patent and copyright protections, to profiting from taxpayer-supported programs like Medicare and the Veterans Health Administration. Yet, these companies claim to be foreign corporations when it’s time to pay their tax bill,” they wrote.

The letter is the latest effort opponents of inversions have taken to call attention to the practice. Obama himself as criticized the maneuver, and some Democrats want to bar federal contracts from companies that invert.

While the White House has said it would like to see legislation addressing the matter, getting anything done before November is unlikely.

Some lawmakers, particularly Republicans, argue that the U.S.’s high corporate tax rate pushes these nations to seek relief by setting up shop abroad.

As a result, they contend that the proper prescription against the practice is an overhaul of the corporate code that would scrap various tax breaks and lower the overall rate.

Democrats argued in their letter that more aggressive steps need to be taken. Even if the U.S. lowers its corporate rate, one of the highest in the world, there would be other nations that cut their rates lower to entice foreign investment.

“This is a race to the bottom the United States simply can’t win and should not be lured into entering,” they wrote.

The senators did not detail exactly what steps the administration should take to address the matter independently. However, a former senior Treasury official under Obama said in recent days that the administration has more executive authority than it is using to combat the deals.