Top leaders in the Senate are pushing to make it more difficult for a corporations to perform an “inversion” for the purpose of lower taxes. An inversion refers to when a company sets up a small office abroad in a nation that has lower tax rates. Usually, the company’s main operations still remain in the United States, so the move is made solely to dodge taxes.
Bipartisan Debate Over Tax Reform
So far, however, support for reforms have been split along party lines. Democrats are pushing for an immediate measure that will close the tax loophole, or at least make it more difficult for companies to perform an inversion. Republicans, on the other hand, want to close the tax loophole but only as part of a larger effort to reform the U.S. tax code.
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With Congress being unable to pass any substantial reform due to gridlock and partisan conflict, however, it appears unlikely that any form of tax overhaul will be accomplished this year. And without the support of Republicans, it is unlikely that Democrats will be able to push through tax reform.
The basic divide comes down to how the tax code should be reformed. Republicans argue that on the whole tax burdens should be decreased on corporations, making loopholes unnecessary and hopefully attracting business investments. Democrats believe that corporate taxes should be used to drive revenues.
With such a wide gap between ideological views and given the poor track record of partisan cooperation over the last several years, it is unlikely that Democrats or Republicans will be able to hash out any sort of agreement. Hence why Democrats are pushing for a stop-gap until larger reforms can be worked out.
Inversions Increasing Rapidly
Inversions are a relatively rare thing, with only about 60 of them having been performed since 1980. The potential negative publicity associated with the move and the risk of political backlash. Still, more and more companies are showing a willingness to risk it in the last few years. Roughly half of all inversions have come in the last six years.
As such, making it more difficult for companies to perform an inversion is becoming a priority for the Obama administration and leaders in Congress. Apparently, numerous other companies are considering inversions, likely ahead of any potential moves by Congress to close the loopholes. Any laws passed likely won’t be retroactive, meaning if a company performs an inversion now, they’ll be protected.