First it was Pfizer. Now it’s Walgreens. These and a growing list of companies have made headlines as they consider shifting their headquarters overseas — so-called corporate “inversions” — so they can avoid paying taxes on past and future profits. In reality, these companies are not going anywhere. They will still rely on U.S. infrastructure and scientific research and our educated workforce. They just don’t want to help pay for it.
These headlines beg for a swift policy response. Reps. Sander Levin (D-MI), the top Democrat on the House Ways and Means Committee, and Chris Van Hollen (D-MD), the top Democrat on the House Budget Committee, have advanced a House proposal that would make it harder for U.S. companies to expatriate to avoid U.S tax and, consequently, save $19.5 billion over ten years.
There are now fresh signs of momentum as key players hint that they want to try to act quickly. Specifically, Treasury Secretary Jacob Lew, in a letter to Senate Finance Committee Chairman Ron Wyden (D-OR), called for a “new sense of economic patriotism” and said “we should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.” He called on Chairman Wyden to pursue anti-inversion legislation. Chairman Wyden quickly signaled support for near-term action, as did Senate Majority Leader Harry Reid (D-NV).
Secretary Lew’s call for a new patriotism isn’t new. In 2004, Congress took swift bipartisan action in response to a spate of corporate inversions. Then-Finance Committee Chairman Chuck Grassley (R-IA) and his committee issued a press release describing Congress’ legislative action:
‘This will hit the unpatriotic companies that dash and stash their cash,’ Grassley said. . . .
‘I still remember my disgust when I watched a video of an accounting firm partner hawking corporate expatriation as a ‘mega trend hot topic’ because of depressed stock prices [after the events of September 11, 2001],’ Grassley said.
As the current uptick in inversions shows, corporate tax lawyers have found ways around the 2004 anti-inversion provisions. Policymakers should approve legislation that strengthens the bipartisan response from a decade ago — and soon. Waiting for corporate or international tax reform will only invite more tax avoidance-driven corporate exits.