THE BLOG

No More Subsidizing Corporate Tax Cheats

07/29/2014 08:33 am ET | Updated Sep 28, 2014

By Reps. Rosa L. DeLauro and Lloyd Doggett

There is a crisis at our border. Not only is there no will to fix it, there is little willingness to acknowledge it exits. Costing us billions, too many corporations are making a run for the border to dodge taxes by incorporating overseas, and then audaciously seeking lucrative federal contracts. We strongly believe this unpatriotic, unfair practice must end.

We should not be rewarding those "who would clip the wings of the American eagle in order feather their own nests" -- to borrow a phrase from President Franklin Roosevelt's 1941 State of the Union address.

Too many American corporations have recently sought to renounce their corporate citizenship and reincorporate as a citizen of another country in order to avoid paying a fair share of taxes. The technical term for this practice is an "inversion," but it really is a perversion of our tax laws.

Unfortunately, more and more corporations - after exploiting loopholes in the tax code that encourage corporations to shift American profits and jobs offshore - are renouncing their citizenship. Over the last 10 years, at least 47 U.S. corporations have moved their tax headquarters offshore, and fourteen more companies have completed or announced such inversion deals this year.

These companies don't actually move their executives overseas - they just move their mailbox. They take advantage of our education system, our research and development incentives, our skilled workforce, and our infrastructure, all supported by U.S. taxpayers, to build their businesses. And when federal contracts are being applied for, they are all as American as Uncle Sam. But when the tax bill comes due, they renounce their citizenship.

For a long time, the tax havens of choice were Bermuda and the Cayman Islands. Now many corporations are opting for Ireland, the U.K., the Netherlands, Switzerland, and others over the Caribbean. We recently saw the medical device manufacturer Medtronic, a company founded in a Minnesota garage with deep roots throughout that state, announce it was effectively moving its mailbox overseas to escape its tax obligations. Pfizer recently tried to do much the same with its attempted purchase of British drug maker Astra Zeneca. Some contend that these moves have been motivated by a lower statutory tax rate in these other countries, but the principal reason for reincorporating abroad is to access the cash hoard they have stashed abroad in tax havens. Changing their tax citizenship means they will forever escape taxation on profits, much of which has been earned by doing business within the United States.

This incentive is both substantial and of the companies' own making. According to a recent joint study by the U.S. Public Interest Research Group and Citizens for Tax Justice, 70 percent of the companies in the Fortune 500 used tax havens last year. These companies stashed nearly $2 trillion offshore for tax purposes, with almost two-thirds of that total (62 percent) being hidden away by just thirty companies. When these giant, multinationals dodge their fair share of taxes, small businesses and individual taxpayers are forced to pick up more of tax burden for our national security and other vital public services.

These corporations should not be allowed to game the system and bilk the American people. But changing tax law is a very hard thing to do. At the very least, we can make sure that our government does not spend our tax dollars on federal contracts for companies that have renounced their American citizenship. This gravy train for corporate tax evaders needs to stop.

At our urging, Congress has taken some steps to prevent corporate tax avoiders from receiving government contracts. In 2002, Congress prohibited the Homeland Security Department from awarding federal contracts to inverted corporations. This ban was expanded to the entire government in 2005. Current law prevents a company from getting a government contract if it seeks to incorporate overseas yet its original shareholders still own 80 percent or more of the company after the acquisition.

Today we are introducing the No Federal Contracts for Corporate Deserters Act, barring contracts from going to businesses that incorporate overseas to avoid U.S. taxes that are at least 50 percent owned by U.S. shareholders and that do not have substantial business opportunities in the foreign country in which they are incorporating. This legislation will also close many of the loopholes that companies like Accenture have exploited for the last decade.

The House also recently approved amendments that we authored to this year's federal appropriation bills banning federal contracts from going to companies that have reincorporated in Bermuda and the Cayman Islands.

Simply put, if a company is going to abuse tax loopholes at the expense of businesses that are paying their fair share, they should no longer be rewarded with government contracts. "Buy American" should mean exactly that; we should support real American companies that pay their fair share.