Obama Urges Congress to Tackle Tax Loopholes
July 24, 2014
CBS News - Most of President Obama's West Coast fundraising trip has been spent raising money behind closed doors, but he'll speak publicly to the Los Angeles Technical College Thursday to push Congress to close loopholes for U.S. businesses that shift their residences abroad to avoid a higher tax bill.
It's a political nonstarter in Congress during an election year, but could help Democrats - who are fighting to keep control of the Senate - rally voters ahead of November's midterm elections.
The president will frame his remarks around the idea of "economic patriotism," White House officials said, a recurring theme he has used recently to encourage the idea of closing tax loopholes to help fund investments in education and job training. He's used the term in speeches recently calling for a long-term infrastructure plan for the U.S., and his four-year, $302 billion transportation proposal is funded in part by closing tax loopholes for companies that send profits overseas.
The tactic Mr. Obama is targeting Thursday is known as "inversion," the process in which a U.S. company reorganizes with a foreign entity to avoid paying U.S. taxes even while the headquarters and most of the business remain here. The practice has occurred across several industries including pharmaceuticals, retail, consumer and manufacturing.
"Such transactions allow firms to reduce their level of worldwide taxation, but in the aggregate, they function to hollow out the U.S. corporate income tax base," Treasury Secretary Jack Lew wrote in a letter to the heads of the House Ways and Means Committee and Senate Finance Committee last week.
Lew encouraged Congress to pass business tax reform that lowers the corporate tax rate and broadens the base while closing loopholes. But to prevent the inversions, Lew noted that Mr. Obama included a proposal in his 2015 budget that would now allow companies to change the country in which they pay taxes without handing over control of the company itself to a foreign entity. He said Congress should make this legislation retroactive to May 2014 to prevent a last-minute wave of businesses seeking to move their tax home ahead of any changes in the law.
Sen. Orrin Hatch, R-Utah, the top Republican on the Senate Finance Committee, wrote back to Lew that he shared a concern about the inversions but did not believe in enacting "punitive, retroactive policies" like the ones Mr. Obama is proposing. Instead, Hatch called for alternatives that "could easily be enacted and are less punitive and restrictive to businesses than those outlined in your letter."
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