The sharknado on Wall Street
U.S. Treasury officials have
acknowledged that the administration is researching possibilities for executive action to stem corporate inversions, the practice of corporations buying subsidiaries in foreign countries, then renouncing U.S. citizenship to get out of paying U.S. taxes. The administration can't move fast enough, some experts warn, because a deluge of these corporate expatriations is coming.
So far this year, about a dozen U.S. companies—including such well-known brands as Medtronic medical devices and Chiquita bananas—have merged with foreign firms and shifted their headquarters offshore to avoid U.S. taxes, analysts say.
Dozens of additional deals are in the works, according to administration and congressional officials, and other companies are quietly contemplating the move. Last month, CVS Caremark chief executive Larry Merlo met with Sen. Charles E. Schumer (D-N.Y.) and urged him to act to stop the rash of expatriations. Otherwise, Schumer said that Merlo warned him, CVS “might be forced to do it, too,” to duck a total tax bill expected this year to approach 40 percent. […]
[T]he potential costs to the U.S. treasury are enormous. One measure, by the congressional Joint Committee on Taxation (JCT), suggests that the nation stands to lose nearly $20 billion in tax revenue over the next decade. Former JCT director Edward Kleinbard said he thinks the potential loss is much higher.
“My guess is they didn’t fully reflect the sharknado of inversions that is about to happen,” said Kleinbard, a law professor at the University of Southern California.
A real fix will probably have to be legislative. President Obama could issue an executive action limiting the ability of companies with government contracts to exploit the loophole, but the extent of action Treasury can take isn't clear at the moment. And legislative action isn't going to be happening any time soon, not with the Republican House and the obstructionists in the Senate. Conservative lawmakers might decry the tactic of inversion, but they're unlikely to do anything to get more tax revenue out of corporations.
