White House Principal Deputy Press Secretary Eric Schultz told reporters Wednesday that the White House is studying ways to go after U.S. corporations that elect to undergo a process known as “inversion” and become a foreign-based corporation.
The practice is not new, but has become increasingly popular as efforts to reform the U.S. tax code have become less likely. The U.S. has one of the highest corporate income tax rates in the world, and is one of a small number of nations that subjects corporate profits earned overseas to U.S. taxation when brought back to the U.S. for reinvestment or other uses.
Over a trillion dollars of money earned by U.S. companies abroad is stuck there due to the “worldwide” tax system the U.S. imposes on domestically domiciled corporations, and U.S. companies are put at a disadvantage not being able to reinvest or use in the United States without paying taxes on those earnings.
Here’s the exchange with ABC’s Jonathan Karl:
JONATHAN KARL: The good folks at Bloomberg had a … story out today about a number of the President’s stop donors being able to profit off of corporate inversions at the same time the President has condemned [them.] So, I’m wondering… will the President be asking Democrats to return money contributed by some of the corporate inversions [sic].
ERIC SCHULTZ: No.
KARL: Why not? I mean … these guys are profiting off the very practice the President has condemned and wants to see stopped.
SCHULTZ: As you know Jon, we are not privy to the details and have no role in any company’s plans. But what the President’s focused is on is stopping the problem, and stopping companies from renouncing their citizenship just to get out of paying their fair share of taxes is something that just can’t wait. That is why the President called on Congress to do this. That is also why, um, we’ve noted that the last time Congress closed this loophole was in 2004 with bipartisan majorities in the House and in the Senate and signed into law under by a Republican President. So we’re going to whether there are steps we can take with or without waiting for Congress, um, to further encourage companies to build their businesses and create jobs here at home.
KARL: Isn’t this hypocritical, um, essentially the President has profited himself, his political apparatus has profited, uh, by taking contributions from people who made money doing exactly this.
SCHULTZ: I guess I would understand the skepticism more if we weren’t doing something to tackle the problem, but instead, we are going after any company that renounces its U.S. citizenship in order to pay more in taxes… in order to pay less in taxes.
KARL: Then why don’t renounce those donations?
SCHULTZ: What we’re renouncing is the practice of, um, using shifty accounting in order to avoid, um, paying their fair share, which subsequently passes on to middle class families.
Bloomberg also recently reported that the Obama administration helped Delphi, a major auto parts supplier, invert to become a British corporation as part of the auto bailout in 2009. In light of this, the Pittsburgh Tribune-Review editorialized that Obama’s calling the practice “unpatriotic” was “hypocrisy.”
The president has previously supported lowering the corporate tax rate to 28 percent. Democrats, however, have been slow to support moving the U.S. from its “worldwide” system of taxation—where foreign earnings by U.S. corporations are subject to U.S. taxation—to a “territorial” system of taxation (used by nearly all modern economies) where foreign earnings are only taxed by the jurisdiction in which they are earned.
You can watch the exchange below: