President Barack Obama said Wednesday “it’s not fair, it’s not right” for U.S. companies to avoid U.S. taxes by setting up overseas. But in 2009, the Obama administration spent almost $2 billion to help a corporation do exactly that.
President Barack Obama listens to a question during a news conference at the U.S. Africa Leaders Summit in Washington, Wednesday, Aug. 6, 2014. (AP Photo/Jacquelyn Martin)
“The company is still using all the services and all the benefits of effectively being a U.S. corporation; they just decided that they’d go through this paper exercise,” Obama said during a press conference. “I think it’s something that would really bother the average American, the idea that somebody renounces their citizenship but continues to entirely benefit from operating in the United States of America just to avoid paying a whole bunch of taxes.”
A “whole bunch” could be an accurate characterization, as the United States has the highest corporate tax rate in the developed world, prompting corporate inversion, a practice of a U.S. company with a foreign subsidiary becoming a foreign company with a U.S. subsidiary to get a more favorable tax climate.
It was among the reasons that Delphi Automotive, an auto parts manufacturer, switched from being an American company to being a British company – with the help of $1.7 billion from the U.S. Treasury Department in 2009, Bloomberg News reported. Thus, the federal government essentially subsidized a move that would mean less revenue.
Revenue has been Obama's chief reason for reform.
“Well, it’s not fair, it’s not right,” Obama said during the Wednesday press conference, speaking broadly on the issue. “The lost revenue to Treasury means it’s got to be made up somewhere, and that typically is going to be a bunch of hardworking Americans who either pay through higher taxes themselves or through reduced services.”
That's why he said Treasury Secretary Jack Lew is looking into potential executive actions if Congress doesn't pass a reform.
“What we are doing is examining: Are there elements to how existing statutes are interpreted by rule or by regulation or tradition or practice that can at least discourage some of the folks who may be trying to take advantage of this loophole?” Obama said.
The Delphi inversion assistances was part of the larger auto bailout, and one means of the government helping to boost General Motors, the chief customer for Delphi. Delphi still paid taxes in the U.S., but their tax bill was reduced by as much as $110 million per year, according to Bloomberg News.
At 39.1 percent, the United States has the highest tax rate on business of any other developed country in the world, according to Americans for Tax Reform, a conservative group.
The United Kingdom – where Delphi incorporated – has a corporate tax rate of 21 percent, according to Bloomberg.
Each of America’s other major trading partners – Canada, Mexico, Japan, Germany, and France – have lower corporate tax rates than the United States, averaging about 25 percent, according to ATR.
After getting back on its feet with the government’s help, Delphi's shares have more than tripled since going public in 2011, Bloomberg reported. So, in June, the Internal Revenue Service told the company that the 2009 switch from Michigan to England should be disregarded and that it's time to pay U.S. taxes again. Delphi responded it its securities filing that it will “vigorously contest” the IRS demand.
Though Obama and other Democrats frequently talk about “economic patriotism” as a reason for companies to pay U.S. corporate taxes, the administration has awarded more than $1 billion in government contracts each year to companies that incorporate overseas, Bloomberg reported.
Democrats on the House Ways and Means Committee contend that not taking action will mean nearly $20 billion is lost in revenue over a decade.
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