The Fourth of July holiday last week was definitely a time for amped-up patriotism and sharing in American activities: picnics, ballgames, and fireworks. But, our pro-USA cheerleading should not be confined to Independence Day (or for international sporting events.) Our patriotism should exist all year and should extend to making sure American companies are pulling their weight when it comes to supporting the government services that make our country great.
Unfortunately, there's a growing trend of corporate "inversion" -- which is the opposite of patriotism. Inversions occur when U.S. companies buy out usually smaller, foreign corporations and reincorporate in another country to avoid U.S. corporate taxes. For example, Walgreens, the uber-American drugstore with deep roots in Illinois, has begun the process of merging with a Swiss company, Alliance Boots, and may reincorporate in Switzerland, a well-known tax haven.
Inversions are basically a tax avoidance maneuver since domestic corporations use them to gain the appearance of becoming a foreign company, while still having most ownership and business activities in the U.S. The current law allows as little as 20 percent of an inverted company's stock to be held by foreigners in order to be able to opt-out of paying U.S. corporate tax.
If Walgreens was to complete an inversion and reincorporate in Switzerland, it's estimated that it would drain the U.S. of $4 billion in tax revenue over five years, leaving you and I to cover that loss. What's worse is that Walgreens gets a significant portion (about one-quarter) of its business from taxpayer funded programs like Medicaid and Medicare.
And, Walgreens is not the only multinational corporation to contemplate renouncing their status as an American company. It's time to stop companies from using tricky accounting gimmicks like inversion to avoid paying their fair share of the costs of keeping up our roads and other essential government services which allow goods to get to the market.
Speaking of roads, the U.S. is facing a practically empty fund for highway infrastructure repair and transit construction projects. Experts at the U.S. Department of Transportation estimate that the Highway Trust Fund (HTF) will run dry in a matter of weeks. In order to make the roads safer for drivers, to allow much-needed mass transit projects to move forward, and to help reduce climate-change causing pollution, we must find a solid source of funding for the HTF.
Luckily, Congress is paying attention to the pressing issues of corporate inversions and depleted highway funds as well. Rep. Van Hollen (D-Md.) and Rep. Sander Levin (D-Mich.) have introduced the Stop Corporate Expatriation and Invest in America's Infrastructure Act (H.R. 4985.)
H.R. 4985 solves two problems at once. First, it would treat an inverted company as domestic for tax purposes if more than 50 percent of the newly formed "foreign" corporation's stockholders are the same as the previous U.S. company's, or if the company continues to be managed and controlled in the U.S. and has significant business activities in our country. Secondly, it would use that saved revenue to reinvest it in our roads and transit infrastructure, creating more jobs here in the U.S.
Reducing the ability of companies to perform corporate inversions would raise $19.5 billion in revenue according to the Joint Committee on Taxation. It's not a permanent solution, since the bill's sponsors estimate the regained revenue would only shore up the HTF's coffers for the next 18 months, but it has enormous appeal from the viewpoint of increasing fairness in our tax code and decreasing the incentive for companies to shift profits offshore for tax purposes.
Now that's an idea that will make a truly stronger America.
So, to those members of Congress who have not yet signed-on to H.R. 4985, wouldn't you like to do the right thing and hear, "GO USA!" for your patriotism? The choice is yours.
Lisa Gilbert is director, and Susan Harley is deputy director, of Public Citizen's Congress Watch division.