Moral Low Ground

Economy

Democrats Seek Federal Contract Ban On Tax-Dodging Corporations

(David Boeke)

(David Boeke)

Congressional Democrats have introduced legislation that would deny federal contracts to US companies which incorporate overseas in order to avoid paying taxes.

The No Federal Contracts for Corporate Deserters Act, introduced by Sen. Carl Levin (D-MI), Sen. Richard Durbin (D-IL), Rep. Rose DeLauro (D-CT) and Rep. Lloyd Doggett (D-TX), would ban federal contracts to companies which reincorporate, are at least 50 percent owned by US shareholders and which have no significant business in the foreign nation in which they incorporate.

This tax-dodging strategy is known as corporate inversion. Richard Trumka, president of the AFL-CIO, the largest federation of trade unions in the United States, calls inversion “a gaping, unpatriotic tax loophole.”

Congress enacted a law to curb inversion back in 2004. But a loophole in that legislation allows US companies to circumvent the law by merging with foreign firms. Companies avoid paying US taxes by effectively renouncing their American “citizenship” and changing their corporate addresses to foreign nations.

Among the most egregious examples is Walgreens, America’s largest drugstore chain, which is seeking to save around $4 billion over the next five years by relocating its headquarters to Europe. This, despite the fact that a quarter of the company’s revenue is paid by the US government — and taxpayers — in the form of Medicare and Medicaid payments.

“We ought to put a stop to all inversions, but at the very least, we should stop these companies from receiving federal funding from the same American families who have to pick up the tax burden inverted companies shrug off,” Levin is quoted in the Washington Post.

“Corporations that renounce their citizenship not only invert their business operations but pervert our laws,” Doggett said in a statement. “Those dodging their fair share of taxes should not be rewarded with taxpayer-funded government contracts.

President Obama has also weighed in on the issue.

“My attitude is, I don’t care if it’s legal, it’s wrong,” he said in Los Angeles last Thursday.

Obama blamed congressional Republicans for “directly blocking policies that would help millions of Americans.” Among these are his corporate tax overhaul plan.

In 2012, Obama began urging Congress to pass his Bring American Jobs Home Act, which would eliminate corporations’ ability to deduct the cost of outsourcing US jobs from their tax bills. Obama’s plan would instead grant tax credits for “insourcing” jobs back to the United States.

Although “buy American” has long been a rallying cry of many US conservatives, congressional Republicans, who Democrats accuse of prioritizing tax breaks for corporations and wealthy individuals, blocked the plan.

Republicans have instead called for lowering corporate taxes.

“Under President Obama, the United States has the highest corporate tax rate in the developed world,” Michael Steel, spokesman for House Speaker John Boehner (R-OH), told the Wall Street Journal. “It doesn’t have to be that way: comprehensive tax reform would reduce deductions and lower tax rates for everyone.”

According to the advocacy group Americans for Tax Justice, 26 of America’s wealthiest corporations pay no taxes on their massive profits. These companies paid more in CEO compensation than in federal income tax, and some received billions of dollars in tax credits.

Some of the worst offenders include California-based utility giant PG&E, whose federal income tax rate between 2008 and 2011 was -18.4 percent, General Electric, whose tax rate over the same period was -18.9 percent and Pepco Holdings, at -39.5 percent.

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