The U.S. Chamber of Commerce lobbied for the Senate Appropriations Committee to weaken a ban on government contracts with "inverted corporations," reports The Hill on Wednesday. Inverted corporations are domestic companies that set up nominal overseas headquarters to dodge U.S. taxes.
On Tuesday, the U.S. Public Interest Research Group raised hell about "a big corporate loophole" that found its way into the Senate version of an appropriations bill. The offending language says that the ban on contracts for inverted corporations "shall not apply to the extent that it is inconsistent with the United States obligations under an international agreement."
U.S. PIRG points out that many known tax havens, such as the Cayman Islands, are parties to international agreements that could exempt companies "based" there from the ban. The Chamber of Commerce says, "We don't want to be violating trade agreements."
Sen. Susan Collins (R-Maine) had no problem with the new language in the bill. Back in 2002, she had some very strong words about inverted corporations. From The Hill:
"These companies create phony foreign headquarters in a file folder or a mailbox to escape taxes and then use other people's taxes to turn a profit," Sen. Susan Collins (R-Maine) said at the time.
Collins, the ranking Republican on the Senate Appropriations subcommittee that considered the spending bill with the proposed limit on the ban, said Tuesday that she didn't think the new language would make it easy for companies to circumvent the law and escape taxation.
"That's not how I interpret it," she told The Hill when asked about concerns over the new language. "I do support the ban."
Seven of Collins's top 20 campaign contributors had a combined 437 subsidiaries in countries listed as tax havens or "financial privacy jurisdictions" in 2007, according to a December report by the Government Accountability Office.
Morgan Stanley boasted a whopping 273, Pfizer had 80, Cisco Systems had 38, Goldman Sachs had 29, Aetna had eight, General Dynamics had five, and Time Warner had four. The companies, which have billions in federal contract obligations, have given over $178,000 to Collins' 2010 reelection campaign, according to the Center for Responsive Politics.
Sen. Dick Durbin (D-Ill.), chairman of the subcommittee, did not respond to a request for comment from the Huffington Post. Durbin's top 20 donors for the current election cycle include Citigroup, Motorola, and Comcast, which have contributed nearly $100,000 to his reelection campaign. The GAO reported that Citigroup had 427 subsidiaries in tax havens in 2007, Motorola had four, and Comcast had three.
Ed Mierzwinski of U.S. PIRG, for one, doesn't buy the Chamber's argument that this is about the sanctity of foreign trade agreements.
"In Washington, the Big Lie works," wrote Mierzwinski in a blog post. "You make a claim that is so outrageous, no one will think you are making it up. In this case, the U.S. Chamber is claiming that unless we encourage offshore tax cheats by widening a loophole that encourages companies to set up a chair on the beach of a tax haven country and call it your headquarters, we will be in violation of our treaties and other trade agreements."
UPDATE: Good catch by The Hill: the Obama administration, in its 2010 budget proposal, called for exactly the same "international agreement" exemption that popped up in the Senate bill.
The Hill also reports that Susan Collins has reversed herself and would support the House version of the legislation, which does not include the exemption.
If it's even half the loophole U.S. PIRG says it is, it's surprising the White House would want it, considering previous tough talk on tax dodgers.