President Barack Obama on Tuesday called on Congress to close “one of the most insidious tax loopholes out there,” saying a corporate financial practice that shifts profits out of the U.S. shortchanges the country.
Obama spoke one day after the Treasury Department announced a series of steps to make “tax inversions” less financially appealing. Inversions happen when U.S. companies relocate their business interests on paper to take advantage of lower tax rates.
The president said less tax revenue means the government can’t fully spend on schools, transportation networks and other things to keep the economy strong. He said the practice also hurts middle-class Americans because “that lost revenue has to be made up somewhere.”
“When companies exploit loopholes like this it makes it harder to invest in the things that are going to keep America’s economy going strong for future generations,” Obama said at the White House.
Obama said the regulations will make it more difficult and less lucrative for companies to exploit the tax code in this manner. But the regulations would not make the practice illegal. Only Congress can outlaw the practice.
Obama called on Republican lawmakers to “end this kind of irresponsible behavior” by enacting comprehensive tax reform.
Last November, drug companies Pfizer and Allergan announced a $160 billion deal that could save New York-based Pfizer hundreds of millions of dollars in U.S. taxes annually by moving its headquarters for tax purposes to Ireland, where Allergan is based. The companies said in a joint statement late Monday that they are reviewing the new Treasury rules and would not speculate on their potential impact.
Obama also said a massive leak of 11.5 million documents from a Panama-based law firm that shed light on a world in which wealthy individuals can shelter their wealth from tax authorities are another reminder that “tax avoidance is a big global problem.”
He said the so-called Panama Papers demonstrate that leaders should do more to tighten tax laws and crack down on individuals and companies that use tax shelters. He said the U.S. and other countries should “lead by example” in closing loopholes and provisions.
“A lot of its legal, but that’s exactly the problem,” he said.