WASHINGTON Aug 5 Three prominent Democratic
senators on Tuesday urged President Barack Obama to use his
executive authority to reduce or eliminate tax breaks for
companies that shift their headquarters overseas to cut their
U.S. tax bills.
Senator Richard Durbin, the second-ranking Senate Democrat,
along with senators Jack Reed and Elizabeth Warren, said
immediate action was needed to stop so-called corporate
inversions, in which U.S. firms move their headquarters
overseas, often in connection with a foreign merger.
"Although we will continue to work toward a legislative
solution to the problem, we urge you to use your authority to
reduce or eliminate tax breaks associated with inversions," the
senators wrote in a letter to the president.
They said companies that have moved their tax domiciles
abroad still benefit from U.S. government investments and tax
expenditures, from infrastructure spending, patent protections
and tax credits for research.
"Yet these companies claim to be foreign corporations when
it's time to pay their tax bill - denying the United States
billions of dollars in tax revenue and thereby increasing the
tax burden on other U.S. taxpayers," they wrote.
A former U.S. Treasury Department official said last week
that Obama could invoke a 1969 tax law to bypass congressional
gridlock and restrict foreign tax-domiciled U.S. companies from
using inter-company loans and interest deductions to cut their
U.S. tax bills.
Stephen Shay, former deputy assistant Treasury secretary for
international tax affairs, said quick action on this could
thwart some of the corporate inversion deals said to be in the
The letter from Durbin, Reed and Warren did not specify a
specific law or method for Obama to use.
Republicans have argued that instead of changing laws or
regulations governing inversions, Congress should instead pursue
comprehensive tax reform to lower U.S. corporate tax rates, a
goal that has proved elusive despite widespread criticism of a
complex and outdated U.S. tax code.
The Democrats, however, said that even this might not deter
inversions, because some jurisdictions would still undercut the
28 percent nominal rate envisioned in Obama's corporate tax
"Companies will still chase lower tax rates in jurisdictions
like Ireland where the corporate tax rate is 12.5 percent," they
wrote. "This is a race to the bottom the United States simply
can't win and should not be lured into entering."
(Reporting by David Lawder; Editing by Kevin Drawbaugh)