A primary argument Dems have made against Republicans this year is that they are the party of plutocracy: They are beholden to “billionaires” and “special interests” (i.e., the Koch brothers) who continue to “rig” the political system in their favor, through a gamed tax code and the push for a low-tax, low-regulation agenda that enriches them at the expense of ordinary Americans.
It would be hard to imagine an issue more suited to making this case than the debate over “corporate inversions.” Paul Krugman describes corporate inversions this way: “a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.” These tactics, Krugman notes, “deprive the U.S. government” of “revenue that you, the taxpayer, will have to make up one way or another.”
Senate Dems hope to hold a vote on closing this loophole this fall, I’m told, mainly because they see an outside shot at some Republican cooperation and want to get something done, but also because it would be good politics if Republicans block it.
Dem Rep. Chris Van Hollen, a top party strategist who has worked on this issue, is urging Senate Democrats to hold this vote. “We should all be pushing on this issue,” Van Hollen told me. “The Senate should move quickly to vote on it. This is the perfect symbol of what’s broken with our tax system. Republicans are trying to protect these multinational corporations that are deserting the U.S. in order to evade their tax responsibilities to the American public and to our country.”
“It’s time to bring this up, and House and Senate Republicans will have to let the American public know where they stand on this issue,” Van Hollen continued. “It helps crystallize some of the differences between the parties in Washington today.”
The Wall Street Journal had a good piece the other day laying out the state of play in Congress. Dems want to act immediately to close this loophole. Senator Carl Levin is pushing a proposal that would require a foreign company’s shareholders to own 50 percent of the company in question (it’s currently 20 percent) to avoid paying taxes here. And Senator Chuck Schumer wants to add a measure that would stop companies that have already done this from enjoying other tax loopholes, adding a further deterrent. Obama hit the issue in a speech the other day and he may do so again this week.
But some Republicans see that approach as “punitive,” as Senator Orrin Hatch has put it. And other Republicans who want to address this problem only seem willing to do so as part of broader tax reform, which of course isn’t going to happen at all under this Congress. Some Democrats, such as Finance Committee chairman Ron Wyden, had initially echoed that argument, but he’s since come around to quicker action, boosting the chances something might happen.
Democrats hold out slim hopes that Republicans might be willing to act to address the immediate problem, pointing out that Senators such as Chuck Grassley have acknowledged the potential need to act on it independent of broader tax reform.
Right now it’s uncertain whether Dems will be able to stage a vote on something reining in inversions this fall, given other items on the agenda (such as reauthorizing the Export-Import Bank and funding the government) that are expected to suck up time that will be in short supply heading in to the elections.
But if they do stage a vote — and Republicans nix it — you can expect that to figure into the Dem argument heading into Election Day.
“The way to communicate this to voters is to explain that corporations are using shady accounting practices and merging with companies abroad to get out of paying taxes here at home,” one Senate Dem aide says. “People hear that and immediately think, ‘if the big corporations are getting out of their taxes, mine are going to have to go up.’” If Democrats have employed a range of Senate votes on issues like pay equity and the minimum wage to create a blueprint for the fall campaign, here is another one that would seem to fit the bill.
UPDATE: David Dayen had a good piece recently laying out other elements of the legislative strategy Dems might employ here.