Last week, the Obama administration issued new regulations to limit corporate tax inversions. This maneuver, as our own Joan McCarter explained, is "the practice of corporations buying subsidiaries in foreign countries, then renouncing U.S. citizenship to get out of paying U.S. taxes." In other words, another scam by big money to stick the rest of us with the tax bill they should be paying. When Burger King announced plans for such a move last month, Sen. Sherrod Brown (D-OH) said they'd "abandoned their country" and called for a boycott. Damn straight.
On the one hand, we should applaud the White House for taking action, but the problem is that regulatory changes alone aren't enough to do the job. Sen. Chuck Schumer (D-NY) noted: "The administration wanted to go as far as they legally could, but they're very careful." He referred to the changes as "a good effort," but added "the only real way to stop inversions is legislative." Schumer urged Congress to craft a stricter definition of inversion and enact a ban on "earnings stripping."
Earnings stripping? You'll love this. Earnings stripping refers to a practice by which a foreign-based parent corporation loans large sums to -- wait for it -- itself. How? By loaning, on paper, the money to one of its own U.S. subsidiaries. Then the corporation gets to deduct the interest it is paying -- again, to itself -- and cancel out, dollar for dollar, taxes on profits it owes our government.
Sen. Ron Wyden (D-OR) called for legislation that would solve the problem for good "before this growing wave of inversions erodes our nation's tax base." And why hasn't Congress passed such legislation? You guessed it, congressional Republicans have blocked it over and over again, saying they are waiting for "comprehensive tax reform." Right on cue, we have Sen. Chuck Grassley (R-IA) complaining that President Obama's move on inversions will "take the pressure off for tax reform." Bear in mind that Rep. Dave Camp (R-MI)--who, by the way, also slammed the White House's action last week--proposed just such a comprehensive tax reform plan in February. What happened? House Speaker John Boehner (R-OH) dismissed it, replying "blah, blah, blah," (I'm not kidding, check the link) when asked about its specifics. Now is the time for Democrats -- especially those in tight Senate races -- to call out their Republican opponents on the issue of tax inversions.
We've got a number of Senate races that will be extremely close. I'd love to see incumbents such as Mitch McConnell (R-KY) and Pat Roberts (R-KS) try to defend Republican efforts to block inversions. Even in races in which the Republican isn't a sitting senator, Democrats can still hit their opponents hard, asking whether they agree with their Republican colleagues. How about an ad that goes something like this:
(voiceover): More and more big corporations are moving their headquarters overseas just so they can avoid paying taxes on their profits. You might be asking: why is this shady practice still allowed? The answer: Senator Pat Roberts and his Republican friends blocked legislation that would outlaw these so-called "tax inversions." Why would he do that? Because big multinational corporations know they'll never have a better friend in Washington than Pat Roberts. Greg Orman won't be in their pocket. He'll fight for you.
Senate Democratic candidates need to hit their opponents hard on this issue every opportunity they get (unlike, for example, former President Clinton, who refrained from doing so when he spoke about the matter last week). On a related note, when organizations like the U.S. Chamber of Commerce or their Republican allies defend tax inversions by complaining about our "high" corporate tax rate of 35 percent, they conveniently forget the myriad ways big corporations have of ensuring that they pay a rate far less than that nominal figure. Sometimes it's 35 percent of nothing, even for companies that earn huge profits. As you can see below, the actual tax rate corporations paid on their profits has been declining significantly in recent years, and is nowhere near 35 percent.
A study by Citizens for Tax Justice examined the most profitable 288 of the Fortune 500 companies, the 288 that turned a profit in each year between 2008 and 2012. These "corporate tax dodgers" paid an effective tax rate of only 19.4 percent. Most interestingly, given the argument that our corporate tax rate forces inversions and puts U.S. companies at a competitive disadvantage compared to their overseas counterparts, the CTJ study found that "of those corporations in our sample with significant offshore profits, two thirds paid higher corporate tax rates to foreign governments where they operate than they paid in the U.S. on their U.S. profits." Damn those stubborn facts.
It's just immoral that an American company -- one that sells its products to American consumers, grew strong thanks to the skills of an American-educated workforce, and that relies on American-built infrastructure -- is able to avoid contributing its fair share to pay for our common expenses. As Treasury Secretary Jack Lew put it, we must "shut down this abuse of our tax system," adding, "what we need as a nation is a new sense of economic patriotism, where we all rise and fall together." President Obama slammed the inversions as "gaming the system," and declared, "I don't care if it's legal, it's wrong."
And not only is what these big corporations are doing unpatriotic, as well as a violation of our values, it's also unfair to their competitors, companies that aren't big enough to merge with a foreign partner and undergo a tax inversion. And I thought Republicans wanted to avoid having government "pick winners" through legislation. The tax inversion option -- a function of our dysfunctional tax code -- definitely disadvantages smaller businesses.
This is one of those issues that you feel in your gut. It's one that we cannot let Republicans run away from. And it's one where we can move people to our side. In a CNBC/Burston Marsteller poll released just last week, 70% of U.S. respondents said it is "very important" that corporations pony up their "fair share" of the tax burden. People don't like it when some take advantage, and use the law to shirk their responsibilities. And they really don't like the people who let them get away with it by blocking a law that would stop it. We must remind voters which candidates are on the side of big corporations that would abandon America, and which ones are on the side of the American people. It's an issue that might just deliver the Senate.