In 2004, Congress enacted a law to prevent "corporate inversions" in which corporations reincorporate in a foreign country to avoid paying U.S. taxes, but a gaping loophole allows corporations to get around this law by merging with a foreign company.
Simply put, it allows corporations to avoid paying taxes when they "renounce their U.S. citizenship" and change their corporate address to a foreign country.
In recent months, several large corporations have announced plans to exploit this loophole, with minimal change in their business operations, to avoid paying taxes. This wave of "corporate inversions" threatens to hollow out the U.S. corporate income tax base.
One striking example is Walgreens, the nation's largest drugstore chain, which may use an upcoming acquisition to become a foreign company in order to dodge more than $4 billion in taxes over five years. Walgreens is talking about abandoning America despite its reliance on the U.S. government -- and U.S. taxpayers -- for a quarter of its revenue paid for by the Medicare and Medicaid programs.
It's time for Congress to close the loophole and end this outrageous practice.
Last week, I was encouraged to see Congress finally begin to hold hearings and to hear President Barack Obama double down on his support. Under the president's leadership, the administration is taking the right approach and has proposed solutions to the problem.
This week, Treasury Secretary Jacob Lew in the Washington Post was right to suggest Congress make this legislation retroactive to May 2014, so corporations have notice that any transactions taking place after that date will not allow them to dodge taxes.
"This inversion loophole must be plugged," Sen. Ron Wyden (D-Ore.) recently said, and Sen. Carl Levin (D-Mich.) and Rep. Sandy Levin (D-Mich.) have both proposed legislation to plug it.
This is exactly the momentum we need to close the loophole once and for all.
The real problem is that many of these so-called "U.S." corporations want to keep dictating our economic policies and dominating our politics, yet they have less and less loyalty to the people who actually live and work in America. They want to keep benefiting from all the things our government does for them so they can make profits -- our legal system to protect their investments and patents, our education and training system to train their workers, our transportation system to get their products to market, our federally sponsored research, our military -- but they want the rest of us to front their share of the bill.
Sixty years ago corporations paid one-third of federal revenues, but today they pay only one-tenth. Now they say even that's too much. Corporate profits are at their highest ever and wage growth is near its lowest in half a century, but still these corporations are not satisfied. They want more. They want Congress to cut their income tax rate, even though many of the largest corporations get away with paying little or no taxes for years. They want Congress to eliminate taxes on the factories they ship overseas, even though an existing loophole already allows them to lower their tax bill when they outsource jobs. And if we don't give these corporations what they want, they threaten to renounce their citizenship and stop paying U.S. taxes altogether.
We need to start demanding a little more patriotism from these corporations. If they want to keep benefiting from everything our great country has to offer, they need to start showing a little more loyalty to the people who live and work in America. And they need to stop threatening to desert the United States and stop paying their taxes altogether unless America gives in to their demands.