With journalists and law enforcement officials still combing through a massive leak of documents to uncover the global networks of offshore companies the wealthy and powerful use to hide their activities, President Obama made a rare appearance at the daily White House briefing to call out some of the people who encourage and enable such deception.
After laying out new Treasury Department rules intended to discourage American companies from using international mergers to get out of paying their taxes, Obama connected the dots between such “inversion” mergers and the revelations of the Panama Papers. While the early stories to come out of the leak focus on foreign figures and sanctioned governments, he said, powerful Americans use the same elites-only financial clubhouse too.
“In the news over the last couple of days we’ve had another reminder in this big dump of data coming out of Panama that tax avoidance is a big global phenomenon. It is not unique to other countries because frankly there are folks here in America who are taking advantage of this same stuff,” the president said. “A lot of it’s legal, but that’s exactly the problem. It’s not that they’re breaking the laws, it’s that the laws are so poorly designed that they allow people, if they’ve got enough lawyers and accountants, to wiggle out of responsibilities that ordinary citizens have to abide by.”
The networks of global wealth-concealment now coming to light thanks to the Panama Papers leak often serve a very different purpose from the inversions Obama’s administration is targeting. But they take advantage of the same basic weaknesses in international disclosure and tax regimes. Inverted firms are “getting all the rewards of being an American company without fulfilling the responsibilities to pay their taxes the way everybody else is supposed to pay them,” Obama said.
When a large corporate entity keeps relying on U.S. roads, patents, research funding, and workers while ensuring they don’t kick as much money back into public coffers as they are supposed to, they are effectively changing their corporate passports in order to loot American society. Such tax avoidance, while carefully designed to stay within the letter of the law, “makes it harder to invest in the things that are going to keep America’s economy going strong for future generations,” he said.
The new rules Treasury announced Tuesday will have one high-profile and immediate impact. American pharmaceutical giant Pfizer will not be able to complete its planned merger and inversion with Allergan. Because Allergan itself is the product of multiple inversions that dragged U.S. corporate incomes out of the Internal Revenue Service’s reach, the administration’s new regulations against “serial inverters” will force Pfizer back to the drawing board. It’s at least the second time the drug giant’s attempts to emigrate went askew, after a 2014 plan to merge with AstraZeneca that would have cost America $1 billion a year went kaput.
Obama didn’t stop at criticizing the corporate actors who abuse seams in the international business tax code. Even his efforts to enforce existing tax laws have been undermined by Republicans determined to starve the government of resources, he said.
“We’ve taken steps to make sure our tax laws are actually enforced, including efforts to crack down on off-shore evasion. I will say it gets tougher sometimes when the IRS is starved for resources and squeezed by the congressional appropriation process so that there are not enough people to actually pay attention to what all the lawyers and accountants are doing all the time,” said Obama.
Republican appropriators started going after the IRS’ enforcement funding three years ago, using trumped-up allegations of partisan abuse by the agency to justify cutting it off at the knees. They cut enforcement by $309 million in early 2014, then another $135 million at the end of that year. The most recent budget deal slashed another $25 million from the department, leaving tax enforcers almost half a billion dollars lighter than they were in 2013.