Sen. Chuck Grassley (R-Iowa) said Tuesday that the Obama administration's unilateral attempt to stop companies from leaving the U.S. for lower tax rates could seriously hurt the chances of passing broad tax reform legislation, which would be aimed at making the U.S. tax code more competitive with those found in other countries.
On Monday, Obama's Treasury Department announced five executive branch steps aimed at stopping corporate "inversions," which are attempts to dodge higher U.S. tax rates by reincorporating overseas.
Treasury Secretary Jack Lew announced unilateral efforts by his department to stop corporate inversions, but one Senate Republican said that move could make it harder to pass broader tax reform. Mark Wilson/Getty Images
Treasury's move won't stop inversions, but is aimed at making it harder for inverted companies to avoid U.S. taxes on income they source from their overseas partners. Democrats have gone as far as saying inversions are unpatriotic, and have called on companies to avoid the temptation of seeking out lower taxes.
Treasury Secretary Jack Lew said the government went ahead with its executive actions because Congress has failed to act on a bill to reform the tax code.
"Now that it is clear that Congress won't act before the lame duck session, we are taking initial steps that we believe will make companies think twice before undertaking an inversion to try to avoid U.S. taxes," Lew said Monday.
But soon after, Republicans roundly criticized the move as another unilateral effort by Obama to work around and without Congress. Grassley said Treasury announced it's decision without any significant attempt to rally Congress around a legislative proposal that would have more teeth, which could make it harder to pass the reform Obama is seeking.
"That's consistent with the president's approach to use his pen and phone instead of working with Congress," he said. "Unfortunately, that approach might give the president a short-term gain but it's bad for the country in the long term."
"The Obama administration's limited action on inversions might take the pressure off for tax reform," he said.
On Monday, House Ways & Means Committee Chairman Dave Camp (R-Mich.) said Treasury's move is the "bare minimum" and that the White House needs to help find a tax reform proposal that would lower the corporate tax rate and help keep companies in the country.
"Until the White House gets serious about tax reform, we are going to keep losing good companies and jobs to countries that have or are actively reforming their tax laws," Camp said. "A few campaign style speeches and stopgap measures from Treasury won't do it – it hasn't worked in the past, and even Secretary Lew admits the only real solution is tax reform."
The chair and ranking member of the Senate Finance Committee both said Congress needs to move. Ranking member Orrin Hatch (R-Utah) said Congress should lower the corporate tax rate to 25 percent to stop "further corporate income tax base erosion."
Chairman Ron Wyden (D-Ore.) didn't specify a permanent tax rate, but said a compromise could be a bill after the mid-term elections that creates incentives for companies to stay in the United States.