A key Democratic senator on Tuesday decried the recent wave of American companies restructuring abroad to avoid U.S. taxes, describing it as a virus infecting the economy and urging legislation to halt it.
But despite the call from Senate Finance Committee Chairman Ron Wyden (D-Ore.) for quick action to restrict so-called tax inversion deals, Republicans cautioned that pending proposals could backfire and push more U.S. companies overseas.
The split showed that even though there is bipartisan agreement that offshore tax shifting is bad for the U.S. economy, there is no consensus on Capitol Hill on how to address the problem.
The split means there's little chance for legislation this year in the Senate, where bipartisan cooperation would be crucial to passing a bill. The odds are even longer in the Republican-controlled House.
Republicans on the tax-writing Finance Committee want to deal with inversions as part of a comprehensive overhaul of the U.S. corporate tax code.
"I hope we’ll use this unfortunate situation…to actually get us to the point where we’re solving the underlying problem," said Sen. John Thune (R-S.D.).
But Wyden warned the effort to enact comprehensive corporate tax reform is moving slowly and lawmakers need to act quicker before more companies restructure overseas.
"Absent tax reform being enacted immediately, what happens if the inversion virus leads to 20 more inversions over the summer?" Wyden said at a hearing on the U.S. tax code. "How many more infections can America’s economic body endure?"
On Friday, U.S. drug maker AbbVie Inc. said it would buy European rival Shire for $55 billion and reincorporate on the British island of Jersey, which does not tax most corporate earnings.
AbbVie said the move would allow the company to slash its overall tax rate because foreign earnings would no longer be taxed at the high U.S. corporate rate of 35%.
It was the second such deal last week and the largest of about 50 corporate inversions over the past decade.
Robert B. Stack, deputy assistant Treasury secretary for international tax affairs, told senators Tuesday that there were "many more inversions in the works."
"Letting our corporate tax base erode through inversions will worsen our fiscal challenges over the coming years, and will reward countries that practice race-to-the-bottom tax competition in an effort to lure away our large U.S. multi-nationals," Stack said.
President Obama proposed changes to the tax code in his fiscal 2015 budget that would make inversions more difficult by requiring a company to have at least 50% foreign ownership instead of the current 20% in order to be considered foreign for U.S. tax purposes.
Democrats in the Senate and House have introduced bills based on that proposal. Both would be retroactive to May. That's when the issue flared after U.S. pharmaceutical giant Pfizer Inc. sought to purchase British drug maker AstraZeneca in an inversion deal that later fell through.
Sen. Orrin Hatch (R-Utah), the committee's top Republican, said Tuesday he was "greatly concerned about corporate inversions."
But he also has problems with Democratic legislation, which he called "punitive and retroactive."
"Rather than incentivizing American companies to remain in the U.S., these bills would build walls around U.S. corporations in order to keep them from inverting," Hatch said. "This approach, in my view, completely misses the mark."
Hatch said the best way to deal with the problem is through a broad overhaul that lowers the U.S. corporate tax rate and enacts other changes that reduce the incentive to restructure abroad.
In the meantime, he said he was open to considering legislation focused on inversions. But Hatch said he would not support any bill that is retroactive, a key component of the Democratic legislation.
Wyden said he was committed to a broad corporate tax overhaul. But he and other Democrats warned that quicker action was needed to limit inversions.
"Saying that we should wait for tax reform to deal with inversions is a green light to allow many more inversions to occur," said Sen. Charles Schumer (D-N.Y.). "For some who make it, frankly, it's an excuse to keep this loophole in place for the foreseeable future."