Corporate “inversions” are all the rage.
No, I’m not talking about Wall Street yoga — although the term does refer to a method for companies to twist and contort themselves in order to evade taxes.
Inversions are when a corporation buys a foreign company and reincorporates overseas in a country with a lower corporate income tax rate. Operations remain the same — they still benefit from U.S. infrastructure and stability and research and development. They just change their answer when the government asks where home is, thereby avoiding paying billions of tax dollars.
As Stephen Colbert said, “It’s like me adopting an African child, then claiming myself as his dependent.” And it’s becoming increasingly popular.
Enter Walgreen, which made big news last week when it announced that it would forgo its inversion plans. As I’ve previously written , the drugstore giant had been considering a rather unpatriotic move to reincorporate in Europe. But after strong backlash, including petitions signed by several hundred thousand people, protests at Walgreens stores, and even rumblings of a consumer boycott, the company decided to keep its legal status as an American corporation.
Their decision means that the United States government won’t lose an estimated $4 billion in tax revenue. That money alone could fund six months of Head Start, providing a preschool education to nearly a million low-income children. Walgreen’s reversal is a victory for the American people and a testament to the power of groups that advocated tirelessly against the proposed inversion, including Americans for Tax Fairness, Campaign for America’s Future, and the United Food and Commercial Workers.
But it’s hardly time for celebration; the United States stands to lose a great deal more from deals like these. Since 2011, 22 companies have attempted corporate inversions, including giants such as Pfizer and Medtronic. And the rate is picking up. We’ve gone from just three attempted deals in 2011 to 10 that have started in 2014 — and we’re only two-thirds of the way through the year. If this trend continues, the potential losses will be in the tens of billions.
President Obama called these companies “corporate deserters,” and he’s right. This is tax evasion, plain and simple. It’s a shameless effort on the part of corporations to get around paying their fair share. And it’s wrong.
Unsurprisingly, some blame also lies with Congress, which allows and, indeed, provides an incentive for bad behavior. When a dog bites someone, you blame the dog, but you also blame the guy who didn’t put him on a leash.
Even if we manage to block inversions, they are just one among a plethora of popular corporate tax-dodging tactics that are draining our nation’s resource and contributing to income inequality. The corporate tax code is a “rotting economic carcass,” as Sen. Ron Wyden (D-Ore.) describes it, with so many loopholes that those who can afford the best tax lawyers — such as corporations — can game the system and win.
But in a Congress that has been deemed the least productive in history thanks to unprecedented Republican obstruction, comprehensive individual and corporate tax reform seems like a pipe dream. While both sides of the aisle agree on the need for change, the devil, as always, is in the details. Republicans are primarily interested in lowering rates for individuals with the highest incomes, while Democrats want them to pay more of their fair share. Given these seemingly intractable differences, the White House has called for Congress to just concentrate on corporate tax reform, which seems easier to deal with — but Republicans don’t want to separate the two issues.
With lawmakers on an undeserved vacation and the midterms around the corner, it’s hard to imagine them finding the political nerve, or stomach, to rewrite the tax code.
In the absence of legislation, President Obama refuses to sit still. He’s exploring a range of potential executive actions, regulations that could stem the growing tide of inversions. There are some promising options, most of which involve the Treasury Secretary issuing new rules and reclassifications to reduce the economic incentives for inversion.
The administration deserves credit for responding to movement pressure and standing up against this unseemly practice — and with any luck, the president will succeed. But the bigger challenge, and the more urgent imperative, is to cure the underlying disease.