Congress Ditches 'Corporate Inversion' Legislation

by Mike Godfrey, Tax-News.com, New York

21 October 2002

Members of the US House of Representatives, eager to leave Washington to begin intensive campaigning for upcoming Congressional elections, engaged in some extensive deck-clearing last week, which to the delight of many liberal economists and offshore jurisdictions included abandoning the 'corporate inversion' legislation which sought to punish companies relocating offshore.

The 'corporate inversion' provisions were attached to a bill related to capital losses, pension reform and a provision extending benefits for unemployed workers. GOP leaders promised to address the unemployment benefits issue when Congress returns. Democrats had accused relocating corporations of acting unpatriotically; but many Republicans, including Hastert and Majority Leader Dick Armey, opposed the measure, as did major parts of the administration.

"When you really look in depth, the reason we're losing people offshore is the inequity of our tax code as compared to our competitors overseas," Hastert explained.

The Center for Freedom and Prosperity's said that its 10-month lobbying campaign against the 'misguided' anti-inversion legislation had paid off. "Everyone thought fiscal protectionism was an unstoppable train, so it is very gratifying that our hard work and effort paid dividends," said Andrew Quinlan, President of CFP. "We will have to re-fight this battle next year, but we continue to believe that we can prevail as more people became aware of the real issues."

In an attempt to enlighten Capitol Hill on the real issues underlying corporate expatriation, 20 of the country's largest and most influential free-market groups, participants in the Coalition for Tax Competition, had joined forces in the educational battle. Writing on April 24th to key lawmakers, they stated:

"American-based companies must pay tax to the IRS on income earned in other nations. This 'worldwide' system of taxing corporate income is very anti-competitive, causing many companies to give up their U.S. charters and instead become foreign-based companies..Lawmakers could take a number of steps to make the internal revenue code more competitive. The U.S. corporate income tax rate, for instance, is the fourth highest in the developed world. Lower tax rates would make America more attractive. Last but not least, Congress could junk 'worldwide' taxation and instead shift to a 'territorial ' system that would tax companies only on their U.S. income.'

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