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Obama wants limits on U.S. company mergers abroad

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Staking out a populist stand ahead of the midterm elections, President Barack Obama on Thursday demanded "economic patriotism" from U.S. corporations that use legal means to avoid U.S. taxes through overseas mergers.

"I don't care if it's legal," Obama declared. "It's wrong."

Obama and congressional Democrats are pushing to severely limit such deals, a move resisted by Republicans who argue the entire corporate tax code needs an overhaul. At issue are companies that enter into arrangements with foreign companies, shifting their tax addresses overseas while retaining their U.S. headquarters.

"They're technically renouncing their U.S. citizenship. They're declaring they are based someplace else even though most of their operations are here," Obama said at a technical college in Los Angeles. "You know, some people are calling these companies corporate deserters."

He also charged that such companies are "cherry-picking the rules."

Though Obama included a proposal to rein in such mergers and acquisitions in his 2015 budget, his speech marked a new, more aggressive focus on the subject.

The push came amid a developing trend by companies to reorganize with foreign entities through deals called "inversions" partly to reduce their tax payments in the U.S.

It also came ahead of the fall political campaign as Democrats seek to draw sharp contrasts with Republicans by portraying them as defenders of corporate loopholes. Sen. Elizabeth Warren, D-Mass., and others have been drawing praise from liberal arms of the Democratic Party for their overtly populist positions.

The growth of inversions has also concerned Republicans, but by and large they have called for a broader tax overhaul that would reduce corporate rates.

A total of 47 U.S.-based companies have merged with or acquired foreign businesses over the past decade in inversions, according to the Congressional Research Service. The issue gained attention earlier this year when Pfizer made an unsuccessful attempt to take over British drugmaker AstraZeneca. The deal would have allowed Pfizer to incorporate in Britain and thus limit its exposure to higher U.S. corporate tax rates

Most recently, Walgreen Co., the drug store chain that promotes itself as "America's premier pharmacy," is considering a similar move with Swiss health and beauty retailer Alliance Boots.

Obama, speaking in shirt sleeves under a hot sun in a campaign rally atmosphere, sought to shame companies seeking such deals even though he mentioned none by name.

"You don't get to pick the tax rate you pay," Obama told a crowd of about 2,000. "Folks, if you are secretary or a construction worker you don't say, 'You know, I feel like paying a little less so let me do that.' You don't get a chance to do that. These companies shouldn't either."

He added: "You shouldn't get to call yourself an American company only when you want a handout from American taxpayers."

The speech came at the end of a three-day West Coast fundraising tour. Obama employed many of the same partisan themes in his speech at the college that he did exhorting donors to help the Democratic Party.

"What really is going on is the Republicans in Congress are directly blocking policies that would help millions of Americans," he said.

The Obama administration began to ramp up attention to inversion transactions last week with a letter from Treasury Secretary Jacob Lew to House and Senate leaders. Lew said such deals "hollow out the U.S. corporate income tax base."

Obama is calling on Congress to enact legislation that is retroactive to May, arguing that will stop companies from rushing into deals to avoid the law.

Senate Democrats picked up the call this week, with Sen. Dick Durbin of Illinois, the second-ranking Democratic leader, sending a letter to Walgreen President and CEO Gregory Wasson urging him and his board to reconsider the overseas deal.

"I believe you will find that your customers are deeply patriotic and will not support Walgreen's decision to turn its back on the United States," Durbin wrote.

On Wednesday, Senate Majority Leader Harry Reid weighed in with a floor speech that called inversions a "corporate citizenship scam."

Walgreen's spokesman Michael Polzin said the company is evaluating where to take its partnership with Alliance Boots. "We will do what is in the best long-term interests of our customers, employees and shareholders," he said.

Under such inversion deals, U.S.-based, multinational companies can lower their tax bills in part by combining with a foreign company and reorganizing in a country with a lower tax rate. The United States has a 35 percent income tax rate, the highest in the industrialized world, and unlike many other countries it also taxes income earned overseas and then brought home.

Under current law, shareholders of a U.S. company that merged with an offshore entity would have to own less than 80 percent of the combined entity to take advantage of a lower foreign tax rate. Obama's budget proposes slashing that cutoff to 50 percent and making the restriction retroactive to last May.

Republicans such as Sen. Orrin Hatch of Utah say the U.S. first must change its policy of taxing income earned abroad. But in a hearing this week, Hatch also said he was open to addressing the issue directly provided it was not retroactive and did not generate additional revenue.

"Ultimately, the best way to solve this problem will be to reform our corporate and international tax system in a manner that will make our multinationals competitive against their foreign counterparts," he said.

Administration officials estimate the deals, if allowed to continue, will cost the U.S. Treasury $17 billion in lost revenue over the next decade.

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  • What Nick said
    I keep wondering why I keep hearing about this problem of corporations leaving America, and I never hear a reasonable proposal to lower corporate tax rates and raise personal rates on income from capital gains and dividends, especially for high earners. It is just too simple of a solution for Congress to embrace?
  • lower corporate tax, increase personal tax
    There is a relatively easy fix to this that does not involve shaming corporations - corporations that have duties to shareholders. Un-American? There is nothing more American than being maximizing revenue. So how do we do it? Steps 1 and 2 have to happen at the same time or the plan will not work. Sorry to ignorant politicians who vow never to increase taxes (by the way - do you just tell the credit card company your not paying the bill?) Step 1: Decrease corporate tax to 10 per cent. Step 2: Increase personal taxes for exceptionally high income earners and people who do not pay taxes. Everyone should pay taxes to some extent, and if you cannot afford it, you can help pick up trash, work at an animal shelter, or provide some public good. There should be individual tax brackets for billionaires 50% of income; 100s millionaires 47%; 10s millionaires 44%; then the current tax rates for everyone else. Then people at the bottom should either pay a tax or lose their standard deduction. Sorry, we all live here and have to pay our way. Now, how does this fix the matter? If Corporations have low tax rates and individuals have high tax rates, it will stimulate employment, growth and quit Obama's whining (Personally, I love the guy, voted for him, but, sometimes, I am a little confused at what he is doing.) Rather than have Mr. CEO debate whether to take a huge bonus that will be taxed at a higher rate, she will keep the money in the company and the company in the country where it will use those dollars to higher more employees and increase business. This tax system existed with much higher personal and corporate taxes in the late 40s, 50s, and 60s which, by the way, witnessed the greatest economic growth in the history of the world. The change in this policy to increased corporate taxes and decreased individual taxes has lent more to income inequality than any other policy. Reasonable Dems and reasonable Republicans would agree to these terms. Unfortunately, stubborn tea party reps and bleeding "I hate corps" dems will never let it out of the house. Obama needs to stick to solutions not whine about problems. We have a great opportunity to implement these policy changes just after the midterm elections. Please Vote!
  • Simple Answer
    This all came about because the 35% corporate tax rate is the highest of any industrial country in the world. Simple answer: reduce the tax rate to a competitive percentage and inversions will slow down. Obama and his ilk are socialists (some are communists). As long as socialists are able to make policy, believers in free-enterprise will look for other free-enterprise economies. And if you are leadership of a public company, you are duty bound to do that which is a). legal and b). in the best interest of the shareholders. How dare the worst, most anti-American president in American history ever call anyone else unpatriotic. That guy will say anything.
  • Hilarious
    Obama and the Demos have the highest corporate tax rate in the world, yet he wonders why companies go overseas. This is what Washington deserves. I could build my business 5 times as fast employing hundreds more employees annually if I didn't have to hedge against the anarchy and irresponsibility emanating from the Obama White House. He hates America. These corporations are the fabric of the country. These corporations should be appreciated not attacked. America is in big trouble.
  • It goes beyond this
    US companies that offshore, outsource to foreign companies, bring H1bs to the US in place of US workers are essentially unpatriotic an turncoats on the American people. Shipping jobs and factories offshore should mean penalties and tell them to leave the U.S and no longer be companies here they are not welcome

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