Investigative panel backs off from attacks on corporate America

The Senate’s permanent subcommittee on investigations, long feared by Wall Street, took a more hands-off approach with corporate America on Thursday. 

Now led by Sen. Rob Portman (R-Ohio), the subcommittee’s first hearing examined how the U.S. tax code has given corporations plenty of incentive to flee offshore and made the case for making the tax system more business-friendly.

{mosads}The corporate executives at the witness tables included representatives from Burger King and the pharmaceutical giant Valeant, both of which moved their corporate headquarters to Canada in offshore tax deals known as inversions.

“If there is a villain in this story, it is the U.S. tax code. And, frankly, it’s Washington not doing what Washington should be doing to reform it,” said Portman, who is facing a competitive reelection race in 2016.

That’s a far cry from how the panel operated under former Sen. Carl Levin (D-Mich.), when the villain was often corporate giants such as Apple, Caterpillar, Goldman Sachs and Hewlett-Packard.

Levin frequently confronted company executives for hours at a time over their business activities, sometimes putting those corporations even more squarely in the sights of their regulators.

But this time around, even the panel’s top Democrat, Sen. Claire McCaskill (Mo.), sounded more in line with Portman than Levin. The corporate executives were also given a much looser leash, as lawmakers instead prodded them to provide cautionary examples of why companies would seek to set up shop abroad to lower their tax bills.

“What Congress needs to do instead is hold the mirror up to ourselves,” McCaskill said. “Quit blaming companies for simply doing the math.”

Jim Koch, the founder of Boston Beer Company, which produces Sam Adams, also testified Thursday about the pressures caused by mergers such as the one between InBev and Anheuser-Busch.

The chairman of Allergan, which Valeant tried to acquire, sat before the panel as well, as did the former vice chairman of Emerson Electric.

To bolster his case, Portman also released a report Thursday that examined the tax system’s role in pushing away companies. He found that the current set-up and its high 35 percent corporate rate is a double-whammy, with the U.S. losing both jobs to foreign competitors and much-needed revenue to the Treasury Department.

“The lesson policymakers should draw from our findings is straightforward: The high U.S. corporate tax rate and worldwide system of taxation are competitive disadvantages that make it easier for foreign firms to acquire American companies,” the report said.

Koch, the Boston Beer Company chairman, said he regularly hears from investment bankers touting the benefits of selling or merging with a foreign company. He said he has decided to keep the company best known for a beer named after a founding father based in the U.S. for reasons far removed from good business. 

“We were born in America, we’ve grown because of the advantages available in the United States and we don’t mind paying our taxes here,” he said. “But don’t mistake that for good financial decision-making.”

Koch went on to predict that he would be the last American owner of the company, citing the tax advantages of a foreign base of operations.

Walter Galvin, the former vice chairman at Emerson Electric, argued that companies that did end up leaving had little choice, given the compelling business reasons to do. Emerson acquired a Scottish-based competitor in December.

Galvin and other executives contended that it falls to U.S. policymakers to keep companies home by overhauling how corporations are taxed in America.

“We’re not asking for a tax handout. We’re asking for a level playing field,” Galvin said.

Portman and other Republicans have largely dismissed Democratic proposals to stop the tax deals known as inversions, in which companies merge with a foreign competitor and reincorporate abroad, while often changing little about their business practices. 

Democrats want to make those deals harder to clinch, but Republicans have said the only way to truly put a clamp on those deals is with a broader revamp of the tax code.

To that end, Portman called Thursday for cutting the corporate tax rate from 35 percent to 25 percent and implementing a system that would shield most offshore corporate income from U.S. taxation.

Portman and Sen. Charles Schumer (D-N.Y.), along with a bipartisan group in the House, have also proposed cutting taxes on income stemming from intellectual property.

Other industrialized countries have already started implementing that sort of plan, commonly known as a patent or innovation box. Portman and Schumer argue that the U.S. will lose out on pharmaceutical and high tech jobs if Washington doesn’t follow suit.