Politico’s Whopper: Corporate Tax Evasion Issue A ‘Flop’ For Democrats

Dave Johnson

With polls showing most Americans just hate companies that renounce their U.S. citizenship to dodge paying their taxes, the D.C./corporate-centric outlet Politico says Democrats are making a mistake by pushing this issue.

Politico’s article, “Democrats’ whopper of a strategy flop,” claims that Democrats trying to do something about this problem is a “strategy failure” because Democrats aren’t predicted to keep control of the Senate.

“The issue does not seem to have come up in any of the most hotly contested Senate races and most forecasters say GOP odds of taking the six seats they need to gain control have consistently risen in the months since inversions because a significant political topic.”

The article makes the case that the better approach would be for Democrats to give corporations a huge tax cut (a.k.a. “tax reform”),

Republicans seem increasingly comfortable arguing that companies looking to “invert” by moving their official address out of the U.S. highlights the disaster of the American Tax Code and the need for a complete overhaul, not another one-off fix sure to be shredded by corporate accounting wizards.

To validate the premise that going after companies that leave the country to dodge taxes is a “flop” of an election issue for Democrats, the article quotes noted Democratic Sens. Orrin Hatch (R-Utah) and Rob Portman (R-Ohio), and Democrat spokesman Brad Dayspring (spokesman for the National Republican Senatorial Committee). The article also quotes various objective and uninterested sources, including Chris Krueger, who is policy analyst at Guggenheim Securities, and Tony James, who is president of the private-equity firm The Blackstone Group.

The Politico article also refers to polling that confirms that politicians campaigning against the problem of companies abandoning the U.S. in order to dodge their taxes is a “flop.”

Polling does, in fact, suggest that when you explain what inversions are to voters, they don’t like them. In fact, they pretty much hate them.

A Wall Street Journal/NBC poll this week showed that 59 percent of registered voters support Congress taking action to “penalize and discourage” inversion transactions.

… A recent survey conducted by Morning Consult, a digital media company that conducts weekly national polls, showed 64 percent had an unfavorable view of “inversions” when the transaction was explained in plain language. But only 40 percent had heard of the phenomena and 30 percent said they thought it was hurting the economy.

There you have it. The article’s title, that going after this issue is a “whopper of a strategy flop” for Democrats is proven beyond a shadow of a doubt!

The Chamber’s Position

Politico’s argument just happens to closely follow the argument laid out by the U.S. Chamber of Commerce, a Republican-affiliated lobbying organization, in their July blog post “At-Risk Democrats Run from Leadership’s Preferred Inversion Solution.” In that post the Chamber wrote,

The economic situation is brought about entirely because the U.S. tax code remains grossly out of sync with the global economy, while the Administration again refuses to lead and the Congress still refuses to act on comprehensive tax reform to lower business tax rates and move toward a globally competitive tax system. …

The right answer is comprehensive tax reform. The wrong answer and the answer preferred by many in the U.S. Senate – the Stop Corporate Inversions Act of 2014 introduced by Senator Carl Levin (D-MI) – is to attempt to increase the artificial tax barriers to these transactions.

Certain Senators may feel they’ve got a good campaign issue to use to draw attention away from the many ignored problems and crises piling up on the nation’s doorstep. However, there is strong evidence to suggest the political saliency of the inversion issue may be vastly overstated. The evidence, as is so often the case, rests on what they do, not what they say.

However, any effort to claim that Politico is echoing the Chamber’s position would be a “flop.”

Here Are Examples Of Democrats “Running Away From” The Issue

This week a number of Senate Democrats wrote a public letter to Burger King, urging the company to reconsider its “inversion” strategy. (Inversion is the technical name for an American company buying a non-U.S. company and then pretending it has become a non-U.S. company.)

“Many of your loyal customers may choose to spend their hard-earned money at one of your many competitors, instead of supporting a company that wants all the benefits of America but refuses to pay its fair share to support our nation,” the senators wrote to Burger King chief executive Daniel Schwartz.

Sens. Sherrod Brown (D-Ohio), Carl Levin (D-Mich.), Jack Reed (D-R.I.) and Bernie Sanders (I-Vt.) joined Durbin’s letter.

Democrats have been pushing legislation to basically make it impossible for a U.S. company to merge with a smaller foreign company without being counted as American for tax purposes.

Today Michigan Rep. Sander Levin, the top Democrat on the House Ways and Means Committee, said that legislation to block inversions is “unavoidable.”

This week Senators Schumer and Durbin have offered a solution to corporate inversions, with a bill co-sponsored by Senators Sherrod Brown (D-Ohio), Chris Coons (D-Del.), Jay Rockefeller (D-W.Va.), Debbie Stabenow (D-Mich.), Ben Cardin (D-Md.), Jack Reed (D-R.I.), Bob Menendez (D-N.J.) and Edward Markey (D-Mass.).

Treasury Secretary Jack Lew has said that if Congress doesn’t act on this problem the administration will take action:

“The administration is clear-eyed about the possibility that Congress may not move as quickly as necessary to respond to the growing wave of inversions. Given that, the Treasury Department is completing an evaluation of what we can do to make these deals less economically appealing.”

Democrat Mark Udall has used the inversion issue in his Colorado campaign against Republican Bob Schaffer. From Udall’s campaign site:

Schaffer Supported Keeping a Tax Loophole that Allows Corporations to Locate Their Headquarters Offshore in Order to Avoid Paying Federal Taxes.

Schaffer opposed a measure to close a loophole that allowed corporations to locate their headquarters offshore in order to avoid paying federal taxes. It would prevent the practice of ‘corporate inversion,’ under which a U.S. company inverts its corporate structure so that the parent firm is technically located in a tax-free nation and only a subsidiary is located in the United States, for the purpose of escaping federal taxes. (HR 4931, 6/21/02, Vote #247)

Note also that there are no Republicans running on pro-inversion platforms.

These Issues Have Real Power

Populist issues – taking the side or ordinary, working people who are being squeezed by the giant corporations – are a potent, powerful way to build support in elections. (See the polling at PopulityMajority.org). Just this week New York Democratic primary challengers Zephyr Teachout and Tim Wu were able to get one-third of the statewide vote, despite being outspent 40-to-1. Andrew Cuomo spent $60.62 per vote while Teachout spent $1.57 per vote.

Many Democrats have been slow to recognize that these issues are powerful. But people are waiting for leadership.

This issue will “flop” because Democrats aren’t lowering corporate tax rates! Politico, we see what you’re doing there.

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