Obama Says Tax Law Must Change to Stop ‘Corporate Deserters’

(Bloomberg) President Barack Obama attacked companies that use cross-border mergers to escape U.S. taxes, accusing them of being “corporate deserters who renounce their citizenship to shield profits.”

In remarks at a technical college in Los Angeles today, the president called for a new “economic patriotism” from companies. He also decried those that use corporate inversions to benefit economically by being in the U.S. while adding to the tax burden of middle-income families.

“You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers,” he told an audience gathered between palm trees on the campus green Thursday.

While dealing with multiple foreign policy crises and a slow economic recovery, Obama is turning to a populist economic message to help Democrats in the November congressional elections, blaming Republicans for obstructing progress.

There’s little chance Obama will get Congress to act quickly on the inversion issue. Republicans, who favor addressing the matter as part of a revamp of the U.S. tax code, can block any such legislation in the Democratic-controlled Senate and can keep it from even coming up in the House, where they are the majority party.

Senate Democrats, including Charles Schumer of New York, said Thursday that they don’t expect to act on the issue before Congress leaves at the end of next week for a month-long recess. Some Democrats on the Senate Finance Committee, including Mark Warner of Virginia and Robert Casey of Pennsylvania, have declined to endorse Obama’s approach. Instead, they say they prefer a broader revamp of the tax code.

Republican Reply
Republicans blame Obama for the stalemate on taxes, saying he hasn’t done enough to negotiate with them.

“Until the White House endorses our tax reform plan or convinces Senate Democrats to act, every pink slip from companies moving overseas may as well be signed, ‘President Barack H. Obama,’” House Speaker John Boehner’s spokesman, Michael Steel, said in an e-mail.

Boehner, an Ohio Republican, hasn’t endorsed his party’s tax plan beyond generalities, and the draft from Ways and Means Chairman Dave Camp of Michigan has languished since it was released earlier this year.

In an interview with CNBC recorded before he spoke at the college, Obama rejected criticism that he’s not put effort into pushing a reworking of the tax code. He said he continues to support lowering corporate tax rates while closing loopholes.

Blaming Congress
“We reached out repeatedly,” he told CNBC. “The reason it’s not getting done right now is that Congress, as you may have noticed, is just not real productive.”

About 41 U.S. companies have switched their addresses to low-tax nations such as Ireland since 1982, often through a takeover of a smaller company, reducing their tax bills while typically keeping their executives and listings in the U.S.

Eight more such moves are pending, including by Minneapolis-based Medtronic Inc. and Canonsburg, Pennsylvania-based Mylan Inc.

Pfizer Inc., based in New York, attempted to move its tax address to the U.K. by purchasing London-based AstraZeneca Plc. The company’s effort was rebuffed.

Giants including Walgreen Co. and Monsanto Co. have flirted with the idea, and more may do so amid no sign that Congress will act quickly on legislation to stop them.

“I don’t care if it’s legal, it’s wrong,” Obama said. “It sticks you for the tab to make up for what they’re stashing offshore.”

Quicker Pace
The quickening pace of inversions prompted the White House to intensify its calls for action, administration officials said. Last week, Treasury Secretary Jacob J. Lew called for a “new sense of economic patriotism,” asking Congress to pass tax changes. The Treasury has said that blocking inversions would prevent $17 billion from escaping the U.S. tax system over the next decade.

The administration’s plan, which was included in its budget released earlier this year, would effectively prevent U.S. companies from taking advantage of inversions through purchasing smaller foreign businesses. The curbs would be retroactive to May of this year, a proposal the administration says will encourage companies to reevaluate pending mergers.

Election Politics
“This Democratic push on inversions is entirely about midterm election politics,” Guggenheim Securities LLC said in a market commentary to clients today. “There is likely to be a lot of noise as Democrats believe this issue will resonate with voters in the midterm elections.”

According to a Gallup poll conducted in April, 66 percent of Americans say corporations are paying too little in taxes, compared with 20 percent who say they are paying their fair share and 8 percent who say they are paying too much.

Camp’s plan for the broader reworking of the tax code hasn’t advanced in Congress in part because of Republican concerns about politically unpopular votes it would require and in part, party members say, because Obama hasn’t engaged deeply enough in the issue.

“He’s not been a willing participant,” Representative Charles Boustany, a Louisiana Republican, told reporters yesterday. “There’s no easy fix for this. Tax reform is the answer.”

The Senate advanced a Democratic bill Wednesday that would deny companies federal tax deductions for the physical cost of moving operations abroad and provide them with a tax credit for moving operations into the U.S. The legislation, backed by the administration, doesn’t address inversions. Rather, it would deny companies deductions for what are typically ordinary business expenses.

—With assistance from Roger Runningen and Kathleen Hunter in Washington.

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