I have sent the following letter to all members of the House Ways and Means Committee, the Senate Finance Committee, and the Majority and Minority Leaders of the Senate and the Speaker of the House.
For the past 40 years I have worked diligently to see that errant CEOs and boards were held accountable, and few would disagree that my efforts greatly enhanced the value of hundreds of companies, making many billions of dollars for shareholders. I believe the time has come to also hold Senators and Congressmen accountable for the current gridlock in Congress that prevents important legislation from being passed. This is why I’m currently preparing to form a Super PAC with an initial commitment of $150 million from me personally. The first thing the PAC will do is focus on the pernicious effects that are occurring and will continue to occur as a result of Congress’s failure to immediately stop so many of our great companies from leaving our country. This exodus has often been called “corporate tax inversions.” While I plan to raise third party funds, I believe my own commitment of $150 million to the PAC will be more than enough to make voters fully aware of the horrible consequences that will ensue if Congress fails to pass legislation immediately to stop these “inversions.” I recently received an outpouring of emails and letters after pointing out the absurdity of this situation in a recent video (which is posted on my website: www.carlicahn.com). Many individuals are asking me to take action and I have obviously decided to do so.
At this year's Sohn Investment Conference, Dan Sundheim, the founder and CIO of D1 Capital Partners, spoke with John Collison, the co-founder of Stripe. Q1 2021 hedge fund letters, conferences and more D1 manages $20 billion. Of this, $10 billion is invested in fast-growing private businesses such as Stripe. Stripe is currently valued at around Read More
The issue of corporate tax inversions is so important because many of this country’s great companies are currently merging with or being purchased by foreign companies. In the last few years over 50 companies have left the country through “inversions,” representing over half a trillion dollars in market value, hundreds of millions in tax dollars, and tens of thousands of jobs. If this exodus is allowed to accelerate, there will be disastrous consequences for our already fragile economy, as well as meaningful and unnecessary job losses. Foundational American companies, such as Pfizer, Walgreens, Monsanto, Omnicom, etc., have been reported publicly to be considering corporate “inversions” and currently many others are planning the same behind closed doors.
I credit my success as an investor in large part to understanding markets and the motivations of large companies. Companies have “interests.” They do not have “beliefs.” While they can contribute greatly to America, they are not “patriots.” They are motivated to take actions that are in the best economic interests of their shareholders, which include leaving the country if it offers a compelling opportunity to dramatically increase profits. Ironically, it is the “short term” oriented shareholders (mostly hedge fund managers) who benefit the most when, through an inversion, a foreign company pays a premium for an American company. In fact, these large holders are currently pressuring companies in which they own large positions to expatriate through “inversions” so that the value of the stocks they hold will afford them large “short term” profits. Some have argued that I am “short term” oriented. To preempt this possible criticism of my record, the average holding period for stocks in our portfolio is five to seven years.
We can solve the dangerous problem we face by passing legislation for international tax reform as outlined in the framework put forth by Senators Charles Schumer and Robert Portman, and supported by Chairman Paul Ryan, to fund the Highway Bill.
How does international tax reform prevent further inversions? The answer is simple. American corporations currently have over $2.2 trillion deposited abroad. They earned this money abroad and have already paid taxes on it to the country in which it was earned. These companies want to bring this money back to the United States, but they choose not to because we require they pay a “double tax” if they do. We are the only country in the world that does this, and it’s counterproductive because it creates an incentive to keep the money abroad. A lower “double tax” would solve this problem. Most of these companies would be willing to pay a 5% to 10% incremental tax on this money upon bringing it back to the United States where much of it would be invested in new capital and used to create new jobs. Additionally, the nearly $200 billion in new taxes thus realized could be used in part for the Highway Bill which is vital given that our nation’s infrastructure is recently ranked at a D+ by the American Society of Civil Engineers. Presently, Congress has only identified half the funding for a six-year Highway Bill, which itself contains inadequate spending to sustain our highways because it fails to include international tax reform. Also, as proposed, this inadequate version of the Highway Bill does nothing to stop corporate inversions.
It’s a no-brainer for Congress to pass a Highway Bill that includes international tax reform because, if it does not, many of our companies, currently holding $2.2 trillion abroad, will invest this money outside the United States rather than pay the double tax we are now foolishly demanding, and which they will obviously not pay. Even worse, they might elect to be acquired by foreign companies through “inversions,” in which case the United States would not only lose the $2.2 trillion that would be invested in this country if we had passed a Highway Bill with international tax reform, but also lose all future taxes and job creation that these companies would have contributed. Additionally, our country would forfeit the $200 billion tax these companies would immediately pay, a portion of which would be used to fund the Highway Bill. Not passing this bill immediately makes absolutely no sense. The Senators and Congressmen to whom I have spoken, including Charles Schumer and Paul Ryan, all agree we should enact this legislation immediately, and that after this December, because of elections, etc., it will be almost impossible to pass this legislation until the next administration. I’m certain, if we wait two years it will be too late. The obvious question: why hasn’t a bill that makes so much sense already passed through the House Ways and Means Committee, the Senate Finance Committee and been presented for passage before December? The American public has the right to an answer. There can be no defense for even a gridlocked Congress not passing legislation regarding the repatriation of $2.2 trillion, saving tens of thousands of jobs, stopping the exodus of hundreds of companies, as well as providing much needed capital for the Highway Bill. I promise, the PAC we have started will leave no stone unturned to find out who is most responsible for this ridiculous and unconscionable situation and what can be done about it. The inability of Congress to enact desperately needed legislation because of certain members not willing to compromise is reprehensible, and the members responsible must and will be held accountable. Intransigence and the unwillingness to compromise is a form of corruption that has ruined many businesses, as well as countries, and is now afflicting our great democracy. If it is not stopped now, I fear we will soon suffer the dire consequences.
I have been a student of the market and the economy for over 50 years, and I believe most would agree I have developed a keener insight than most concerning where the market and economy is going at any given time. I believe that today is an extremely dangerous time and have extensively outlined the reasons for why in my recently released video (www.carlicahn.com). Indeed, the current economic news is very disturbing. Even with interest rates close to zero, our economy is extremely fragile. The Fed can do no more to add stimulus and has already kept rates too low for too long, causing dangerous “bubbles.” And we certainly can expect no fiscal stimulus from our gridlocked Congress. This is by far the worst time imaginable to have an exodus of hundreds of companies. It would not only hurt our economy badly but would also meaningfully tarnish our reputation as a world power, giving our enemies abroad more ammunition to use against us. Not passing this legislation now will be recorded in history as a greater blunder then “Custer’s Last Stand.”
I have sent this letter to all the members of the House Ways and Means Committee and the Senate Finance Committee as well as the Majority and Minority Leaders of the Senate and the Speaker of the House. I hope to be able to speak with you shortly. I intend to make the letter public in the next few days. However, if you do not wish me to make public any conversations I have with you, I will respect those wishes.
Throughout history, a country failing to take “simple actions” necessary to prevent what could turn into disaster often leads to the decline of its hegemony. I hope and pray that the House Ways and Means Committee and the Senate Finance Committee will take the “simple actions” necessary. I am not exaggerating when I say if you do not, our country runs the risk of losing its hegemony and those of you who are in power will have only yourselves to blame.
Thank you for taking the time to read this and I look forward to speaking with you in the very near future.