Congressional Democrats are seeking to ban companies that reincorporate abroad from getting federal contracts, expanding a fight on offshore tax deals that they clearly see as a winning issue for the midterm campaign.
{mosads}The Democratic legislation introduced Tuesday is just the latest shot taken against companies that take over a smaller foreign competitor for tax purposes, in a maneuver known as inversion.
With help from President Obama, Democratic leaders have railed against the inversion deals for weeks, adding another plank to their populist platform for the November elections.
Still, Democrats acknowledge that simply railing against inversions, an obscure and complicated scheme, will be a difficult sell, and are trying to reframe the debate around the issue of “patriotism.”
“We’re not going to use the word inversions very much,” said Rep. Sandy Levin (Mich.), the top Democrat on the House Ways and Means Committee.
“I don’t think most members of Congress understand them,” added Rep. Lloyd Doggett (D-Texas), one of the lawmakers leading the fight against inversions.
Democrats have ramped up their rhetoric against the deals in recent days, with Obama labeling companies seeking a foreign address “corporate deserters.” Doggett said Tuesday that businesses inverting their address “pledge allegiance to some foreign power.”
Senate leaders have already pushed a measure — almost identical to a 2012 proposal and backed by vulnerable senators such as Mark Pryor (D-Ark.) and Kay Hagan (D-N.C.) — that would target tax breaks for companies that move jobs overseas.
Inversion deals, Democrats say, fit in with the broader argument that corporations and the wealthy shouldn’t be able to avoid paying their taxes, even if the maneuvers they use are legal.
That message becomes even clearer, Democrats say, because some of the companies who are or were considering shifting their legal address abroad are well known American brands, such as Walgreen and Pfizer.
“They can’t decide to send a mailbox some other place and not pay taxes,” Rep. Rosa DeLauro (D-Conn.) said about voters. “They get it.”
Close to 50 companies in all have shifted their legal address abroad in the last decade, according to the Congressional Research Service. Just this month, AbbVie wrapped up the largest inversion deal yet, at $55 billion, while several other top healthcare companies have also explored the move.
Sen. John Thune (S.D.), a member of GOP leadership, admitted that inversions were becoming a more prominent campaign issue. “Sex appeal is the wrong word, but it’s a hot topic in political circles right now,” Thune told reporters Tuesday.
But Thune also brushed aside the idea that the tax deals could be a political liability for the GOP, which is in a strong position heading into the midterms because of the continued frustration with ObamaCare, a friendly electoral map and voter fatigue with the president.
“A lot of what the Democrats are proposing right now is more designed to give a political issues to the fall campaigns than actually fix the problem,” Thune said.
Like a lot of other fiscal issues, Democrats and Republicans do agree that the influx of inversions is a problem — but have found little common ground in seeking a bipartisan fix.
Rep. Levin and his brother, Sen. Carl Levin (D-Mich.), have introduced similar legislation that says that a merged company would remain American for tax purposes if at least 50 percent of its shareholders were from the original U.S. company. The current threshold, enacted in 2004, is 80 percent.
Senate Finance Chairman Ron Wyden (D-Ore.), who previously wanted to deal with inversions through tax reform, is now working on a potential targeted solution that, like the Levin bills, would be retroactive to May.
Sen. Chuck Schumer (N.Y.), the No. 3 Democrat in the chamber, has highlighted tax breaks that companies can use after they invert, and could introduce his own measure after the August break.
GOP lawmakers, like Thune, say that the deals should be handled in a broader tax overhaul that solves the underlying problem — the U.S.’s 35 percent tax rate. Sen. Orrin Hatch (R-Utah) has sounded more open to an inversions-only measure, but has also said he won’t back anything that’s retroactive.
The bill Democrats introduced Tuesday — known, in an apparent nod to Obama, as the No Federal Contracts for Corporate Deserters Act — would forbid companies that meet that same 50 percent threshold from getting federal contracts.
DeLauro and the other Democrats backing the federal contract bill acknowledged that they might have more luck with that approach, after a narrower proposal targeting Bermuda and the Cayman Islands passed the House with the support of almost three dozen Republicans this month.
“It says to those companies that are seeking to invert: think twice,” Senate Majority Whip Dick Durbin (D-Ill.) said about the new proposal.
One idea Democrats have yet to coalesce around is a suggestion from Stephen Shay, a former senior Treasury official under Obama, that the president already has the power to basically shut down inversions.
Despite his expanded use of executive power this year, Republicans aren’t expecting Obama to go it alone.
“Listen, knowing this president, and having a pen and a phone — if he could do it, he’d do it,” said Rep. Chuck Grassley (R-Iowa), a former Finance chairman who helped craft the 2004 anti-inversions legislation. “If he did do it, he couldn’t blame the Republicans.”
— This story was first posted at 12:02 p.m. and has been updated.