President Obama slams tax-inversion mergers: 'An unpatriotic tax loophole'
Inversions growing more popular with biopharma, healthcare firms
- President Barack Obama on Thursday slammed the burgeoning trend of U.S. companies reincorporating overseas for tax relief, a strategy known commonly as tax-inversion mergers.
- Obama acknowledged that there is nothing illegal about the mergers, but emphasized that he believes such business practices are "wrong" and should be prevented.
- Biopharma and healthcare companies have been ramping up the mergers in recent years.
American corporations -- particularly those in the healthcare and pharmaceutical sectors -- have been ramping up their use of tax-inversion mergers in an effort to flee the United States' corporate tax rate, which tops out at 35%. Several high-profile mergers have already taken place in 2014, including Medtronic's $43 billion deal with Covidien and AbbVie's $54 billion buyout of Shire.
The inversions have been occurring at such an accelerated rate that American lawmakers from both parties -- not to mention President Obama -- have openly questioned whether they should be legal. Critics of the mergers say that they have the potential to destabilize America's corporate tax base.
On Thursday, the Obama administration announced it would push for legislation to essentially ban tax-inversion mergers. Furthermore, the administration's preferred plan would also retroactively strip all tax benefits from mergers completed back through May of this year. That would affect both the Medtronic and AbbVie deals.
Industry officials and House Speaker John Boehner say corporate flight would be less likely if the U.S. adopted a more reasonable tax rate. Although Obama has signaled his support for slashing the top corporate rate by 20% -- from 35% to 28% -- Republican and Democratic lawmakers remain split on how to fund such a tax cut and whether the tax relief should be offset by closing loopholes and eliminating deductions elsewhere in the tax code.