New Trump Executive Action Could Make It Easier for Profitable Corporations to Avoid U.S. Taxes

During his presidential campaign, Donald Trump railed against corporate “inversions,” through which U.S.-based firms move their headquarters overseas to avoid paying U.S. taxes — while continuing to benefit from American customers, employees, and infrastructure. Referring to one high-profile inversion, President Trump said, "Frankly, I'm disgusted with it and I'm tired of seeing it and there's no reason for it. It's just gross incompetence at the highest level. We should not allow it to happen…" But today, the President signed an executive order that could ultimately make it easier for profitable U.S. corporations to avoid U.S. taxes, such as by inverting.

The order directs the Treasury Secretary to “review significant tax regulations issued in 2016” to see if they “impose an undue financial burden on American taxpayers, add undue complexity, or exceed statutory authority.”

Among the Obama Administration’s highest-profile and most significant tax regulations of last year were sound rules that make it harder for U.S. multinational corporations to escape paying U.S. taxes by inverting. (The 2016 Treasury regulations included new anti-inversions rules, as well as temporary regulations implementing 2014 and 2015 Treasury anti-inversion proposals).

The Obama Administration’s anti-inversion rules both make it harder for multinationals to invert and reduce the lucrative tax avoidance savings that inverted companies can reap, saving the federal government about $460 to $600 million each year, the Treasury Department estimated. These regulations came after Republican lawmakers refused to enact more comprehensive legislation to prevent inversions.

Treasury Secretary Steven Mnuchin has said that cutting corporate tax rates would be the best way to stop inversions. But many U.S. multinationals already face very low U.S. tax rates because they can claim to earn their profits in zero- or low-tax havens — and inversion can ensure that they never pay U.S. taxes on those lowly taxed past profits. Slashing U.S. corporate taxes won’t solve an inversions problem created by profits that already aren’t taxed.

During his campaign, President Trump also said that inverting companies “have no loyalty to this country…. And we have to do something...” If the new executive order ultimately leads to rolling back the Obama Administration’s anti-inversion regulations, President Trump will effectively be cutting taxes for profitable multinational tax avoiders and also creating a bigger incentive and opportunity for the inversions that he has so strongly criticized.