By Christina Cameron
(Reuters) – Three prominent Democratic senators on Tuesday urged President Barack Obama to use his executive authority to reduce or eliminate tax breaks for companies that shift their headquarters overseas to cut their U.S. tax bills.
These three senators, Richard Durbin, Jack Reed, and Elizabeth Warren, are hoping the president will make matters more difficult for those businesses that choose to participate in these corporate inversions due to their direct cause with lost U.S. revenue.
In a letter to the President, Durbin, Reed, and Warren, wrote, “Although we will continue to work toward a legislative solution to the problem, we urge you to use your authority to reduce or eliminate tax breaks associated with inversions.”
President Barack Obama “has denounced so-called tax inversions as unpatriotic and has urged Congress to stop them,” according to the Huffington Post.
Investopedia explains a corporate inversion as a situation when “a company overseas re-incorporates in order to reduce the tax burden on income earned abroad. Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.”
America’s corporate income tax rate is 35 percent, the highest in the industrialized world according The Associated Press. These high rates make overseas headquarters seem both more attractive and more profitable.
The LA Times reported that forty-seven companies in the United States have constructed inversions with foreign businesses in the past decade, according to the Congressional Research Center.
One business that will not be chasing an inversion is Walgreen Co. Due in part to criticism from the idea, “Walgreen Co. plans to keep its roots firmly planted in the United States, saying it will no longer pursue an overseas reorganization that would have trimmed its U.S. taxes but which drew political scorn,” the LA Times reported.
If the President does utilize his executive authority to carry out a solution to this problem, he will be testing the limits of presidential power.
Obama is already being sued by House Republicans for surpassing his authority as president, and if he pursues this issue without Congress’s approval, he would potentially be accused of rewriting the tax code.
“Obama has said he supports a legislative overhaul that would close loopholes but also lower the corporate tax rate. Congress hasn’t been able to agree on such a broad revamp of the tax code. With that reality in mind, Obama has called for lawmakers to move narrowly to close the inversion loophole, but that, too, appears an elusive goal,” AP reported.
One of the Democratic senators urging the President to move quickly and by himself on the matter of these tax inversions, Elizabeth Warren, said “It would be an important first step toward treating companies that renounce America the same way we treat people who renounce America — as freeloaders who get cut off from other benefits.”