St. Louis Post-Dispatch - Durbin Urges Obama Executive Action to End Corporate Tax Loophole

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By Chuck Raasch

While Republicans and some constitutional scholars criticize President Barack Obama for creating an "imperial presidency" by doing too much with executive orders, Sen. Dick Durbin, D-Ill., and two colleagues want Obama to use that authority to stop U.S. companies from trying to avoid taxes by acquiring foreign companies.

Durbin and Sens. Elizabeth Warren, D-Mass., and Jack Reed, D-R.I., on Tuesday sent Obama a letter urging him to use his executive authority to "reduce or eliminate tax breaks associated with inversions."

Inversion is the label given to a growing practice where U.S. companies use a loophole in a 2004 law preventing foreign relocation for tax avoidance to acquire or merge with companies in lower-tax countries to avoid U.S. taxes. The trend has been especially pronounced in the pharmaceutical industry, with the Chicago-based AbbVie the latest example. Last month, it acquired the Irish company Shire for $55 billion Shire's headquarters are in Dublin but is incorporated in the island of Jersey for tax purposes.

Analysts have said the deal could result in billions of dollars in tax breaks. Durbin says the problem's effect on the treasury has become so urgent that the U.S. can't wait for Congress to act.

"Although we will continue to work toward a legislative solution to the problem, we urge you to use your authority to reduce or eliminate tax breaks associated with inversions," Durbin, Warren and Reed wrote to Obama. "Inverted corporations take advantage of all the things American tax dollars provide -- from tax credits for research and development, investments in transportation infrastructure, and strong patent and copyright protections, to profiting from taxpayer-supported programs like Medicare and the Veterans Health Administration. Yet, these companies claim to be foreign corporations when it's time to pay their tax bill -- denying the United States billions of dollars in tax revenue and thereby increasing the tax burden on other U.S. taxpayers."

Durbin previously sponsored legislation -- still being considered in Congress -- that would bar federal contracts from being given to businesses with majority U.S. shareholders that relocate overseas and that do not have substantial business in the places they incorporate.

In his weekly radio address July 26, Obama called the inversion practices by U.S. companies unpatriotic, and said a solution may include tax reform that lowers the corporate tax rate. But this badly divided Congress is unlikely to do that before the Nov. 4 election, when the partisan makeup of the next Congress that convenes in 2015 will become clear.

Obama's press secretary Josh Earnest was asked later Tuesday about the letter, and reiterated Obama's assertion that the issue would best be addressed by Congress through comprehensive "corporate tax reform." But he also said that if that doesn't happen, the White House hopes Congress "in the meantime... would take the step of closing this specific loophole and making it retroactive to send a clear signal that this is the kind of behavior that corporate America shouldn't engage in.

"If there's any sort of announcements that we have to make about steps the President could take unilaterally, we'll announce those at a later time," Earnest said. "I'm not in the position to make any announcements like that now. But it is our view that Congress should take the necessary step to address this loophole."

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