If you were listening to last week’s Senate Finance Committee hearing on corporate inversions, you might have thought you’d accidentally stumbled into a HELP (Health, Education, Labor & Pensions) Committee hearing on some strange new epidemic. Finance Chairman Ron Wyden (D-OR) and several witnesses used medical analogies to talk about the wave of corporate mergers that are allowing U.S. companies to invert into foreign-based companies and avoid U.S. taxes.
In his opening remarks Sen. Wyden noted that inversion virus, multiplying every few days, is the latest outbreak of a tax code infected with the chronic diseases of loopholes and inefficiencies.
But witness Allan Sloan, senior editor at Fortune Magazine and author of the recent Fortune cover story on inversions, put it best—comparing the inversions to an emergency-room patient who is bleeding out. First you put on a tourniquet, stabilize the patient, and then deal with the underlying problem.
No doubt about it, the patient—the U.S. corporate tax code—is losing massive amounts of blood through corporate inversions. If we don’t deal with it soon there will be nothing left for Congress to fix when it finally gets around to tax reform. The corporate tax base will have been mostly eviscerated.
President Obama, in a Los Angeles appearance on Thursday and in his Saturday weekly address, also called on Congress to close the loophole now. Jack Lew, Secretary of the Treasury, followed with an op-ed in today’s Washington Post.
The recent wave of inversions is being driven by Wall Street: advisers are telling their corporate clients they’ve got to do this now. The iconic American drugstore Walgreens is considering an inversion in its merger with Alliance Boots, moving the corner of happy and healthy to somewhere in the Swiss Alps. Investment firms, hedge fund managers, and private equity investors are pressuring the company to do the inversion.
We’ve got an emergency here: it’s a Wall Street mania. The Wall Street that gave us massive indigestion with the dot-com bubble and a financial meltdown with toxic sub-prime mortgages that left us with an anemic economy is the same Wall Street that is puncturing what’s left of the U.S. corporate tax base.
Congress needs to stand up to Wall Street and the multinationals and stop the bleeding before it’s too late.