Lew calls for ‘economic patriotism,’ seeks to limit offshore tax moves

Treasury Secretary Jacob Lew says a trend of U.S. companies reorganizing as foreign firms serves "to hollow out the U.S. corporate income tax base." Above, Lew at a forum this month in Washington.
(Saul Loeb / AFP/Getty Images)

Calling for “a new sense of economic patriotism,” a top Obama administration official urged Congress to take immediate action to stop U.S. companies from reorganizing as foreign firms to avoid paying taxes.

The maneuver, known as tax inversion, serves “to hollow out the U.S. corporate income tax base,” Treasury Secretary Jacob J. Lew wrote in a letter Tuesday to congressional leaders that was obtained by the Times.

“What we need as a nation is a new sense of economic patriotism, where we all rise or fall together,” Lew wrote to the top Democrats and Republicans on the congressional tax-writing committees.


“We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes,” he said.

Some lawmakers have pushed to restrict the practice, in which a U.S.-based multinational company restructures so the parent company is a foreign corporation.

The maneuver allows firms to avoid paying corporate taxes in the U.S., which has the highest rate among major developed nations.

This week, Pennsylvania-based Mylan agreed to buy Abbott Laboratories’ generic drug business in developed countries and create a new company that will be incorporated in the Netherlands.

The new firm will pay lower taxes although Mylan plans to keep its headquarters just outside Pittsburgh.

Lew said such moves were unfair to U.S. taxpayers.

“The firms involved in these transactions still expect to benefit from their business location in the United States, with our protection of intellectual property rights, our support for research and development, our investment climate and our infrastructure, all funded by various levels of government,” he wrote.


Walgreen Co. reportedly is considering a similar offshore tax shift and there have been 47 inversions by U.S. corporations since 1984, according to Rep. Sander Levin (D-Mich.)

He has introduced legislation to make the maneuver more difficult. The legislation is similar to a proposal in Obama’s proposed fiscal 2015 budget that would generate about $17 billion in additional tax revenue over 10 years, Levin said.

Lew said the best way to deal with the problem was as part of a broad overhaul of the business tax system that also would include lowering the nation’s 35% corporate rate.

But a bipartisan push for major tax legislation has stalled in Congress.

Given the difficulties with a broad overhaul, Lew said lawmakers should move quickly now to restrict tax inversions.

“Congress should enact legislation immediately -- and make it retroactive to May 2014 -- to shut down this abuse of our tax system,” Lew wrote.

Chris Krueger, a senior analyst at financial services firm Guggenheim Partners, said there was virtually no chance Congress would act on the issue this year with only about 24 legislative days before the November mid-term elections.


“Not only is there no time, there is no consensus among Democrats on inversions -- and Republicans are almost entirely unified against acting on inversions (at least outside the context of broad corporate tax reform),” Krueger wrote in an emailed commentary.

He said Lew’s letter, leaked to numerous media outlets, was a political move designed to set up the issue as a key Obama administration talking point heading into the mid-term elections.

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