Hatch: Only Tax Reform Can Cure US Inversions

Senate Finance Committee Chairman Orrin Hatch reiterated his view that the only solution to corporate tax inversions is United States tax reform, during remarks at a conference hosted by the Brookings Institution on January 23.

Hatch has long been skeptical of short-term measures – legislative or non-legislative – to deter the tax inversion techniques that are being used by US multinationals to move their tax residences abroad – away from the high 35 percent US headline federal corporate tax rate – and to unlock their unrepatriated earnings held offshore.

“I don’t think it will surprise anyone here to learn that I do not believe the best solution to the inversion problem is government regulations,” he said. “And, the solution is not building a [legislative] wall around US companies to keep them from moving offshore.”

Noting the non-legislative measures put forward by the US Treasury Department in September last year, Hatch confirmed they had “certainly stymied inversions, but, if history has taught us anything, we can count on seeing more. The pace of inversions could in fact pick up again – and, if we are unable to fix our tax code once and for all, it almost certainly will.”

He pointed out that: “There is a cycle when it comes to inversions, and it usually happens in four steps – a few high profile-inversions take place and people become concerned about the possibility of a trend; the Government takes steps to shut these inversions down; inversions are temporarily halted, but the underlying economic conditions remain the same; and companies find ways around whatever solution the Government puts in place and another wave of inversions takes place. We need to learn from this history.”

He saw inversions as “symptomatic of a dysfunctional tax code that is taxing at too high a rate and is attempting to tax worldwide income. … The best solution to this problem is, in my view, tax reform. Tax reform, if it’s done right, will help grow our economy, create jobs in the US, and discourage businesses from leaving our shores and invite businesses to set up and locate here.”

He was also positive about the prospects for tax reform, even after President Barack Obama’s partisan tax proposals in his State of the Union address. “Though there are disagreements on the details, there is bipartisan support for tax reform in Congress,” he concluded. “Indeed, members of both parties have expressed their support for a tax overhaul. And, I believe there is real momentum to get something done on tax reform this year, if we remain committed.”

He confirmed that the Senate Finance Committee is “already fully engaged in a very real tax reform effort. … My goal is to introduce such a bill and mark it up in the Committee later this year.”