Fall of Inversions
Autumn is upon us. In addition to leaf color tours, pumpkins and cider, this fall has brought a political frenzy to Michigan as numerous members of the congressional delegation retire. Among the departing lawmakers is a real tax policy heavyweight, U.S. Rep. Dave Camp (R).
Camp soon will leave his position as chairman of the powerful U.S. House of Representatives Ways & Means Committee without having accomplished his chief goal of comprehensive tax reform. His languished swansong proposal to update the tax code, though flawed in many ways, offered some bold moves, like taxing banks and limiting executive pay.
In his remaining time, Camp should continue to push for such bold proposals. He also should focus on closing international tax loopholes that cost the U.S. an estimated $90 billion per year, and which allow some highly profitable companies pay no federal corporate income tax. With 150,000 Michigan families being hit by food stamp cuts, this is unacceptable.
Corporations avoid taxation in a number of ways, including using tax breaks that allow corporations to indefinitely put off — or “defer” — paying taxes on certain profits. One such scheme allows tax avoidance on some profits that appear to be made by foreign subsidiaries. Another huge loophole allows tax deferral on profits from interest made by foreign financial subsidiaries. Apple and GE are well known to make use of these supposedly temporary loopholes, which are bundled with 50 plus other tax breaks, referred to in Washington, D.C., as “extenders” because they are renewed every couple of years.
The package of corporate tax breaks is estimated to cost taxpayers more than $84 billion and up to nearly $700 billion over 10 years if they are continuously renewed. Even with that stunningly high price tag, the cost of these tax cuts won’t be held to the same standard as is applied to programs on which ordinary Americans depend. For example, House Republicans have refused to allow a vote on extending emergency unemployment benefits for the 3.6 million Americans who have been out of work for more than six months, unless the $25 billion-plus cost of the program is “paid for” with other cuts or tax increases.
The package of “extender” tax breaks expired at the end of last year, but renewing them is one topic likely to be taken up when Congress comes back after the election. The Senate Finance Committee has already passed a two-year extension of the tax cut package, where it awaits a floor vote in the November session.
Camp’s strategy has been to make some of the extenders permanent instead of renewing them for a year or two at a time as is traditionally done. Making them permanent would sap our tax revenue stream, shriveling our already-shrunken government services like dying leaves on a branch. Camp instead should be using his leadership position to stem tax losses.
Camp also should address inversion, which is when American companies desert our nation, seeking to avoid U.S. taxes, merge with another company and reincorporate in a foreign jurisdiction with lower tax rates. Inversions have been getting a lot of play in the media since big name companies like Walgreens and Burger King have contemplated moving their headquarters to other countries. Though the U.S. Treasury recently announced some stopgap measures to limit the economic incentives of inversions, congressional action is still needed to halt the exodus of American companies.
Camp could deal a real blow to international tax loopholes by tying anti-inversion legislation (like the Stop Corporate Inversions Act, introduced by U.S. Sen. Sander Levin (D) and U.S. Rep. Sandy Levin(D) to the tax extender package. Camp has voted for some provisions that deny federal contracts to companies that were formally U.S. companies but are now incorporated in Bermuda or the Cayman Islands, notorious tax havens. So it isn’t a stretch for him to do the right thing on this.
The days are getting shorter and time is running out for Camp to leave a positive legacy on taxes. A path to doing this can be found by only temporarily extending tax breaks while working to stop corporations’ ability to dodge taxes through inverting. Putting multinational corporations on the road to paying their fair share would be the perfect parting gift to his Michigan constituents.