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Why Washington will do nothing to keep companies from avoiding taxes

Move over immigration reform, minimum wage rate hike and climate change. Corporate tax avoidance is the latest hot issue on Capitol Hill which also has no prayer for compromise and legislation.

This morning Senator Dick Durbin (D-Ill) introduced a bill to curb the latest craze to limit corporate taxes: inversion. By using corporate inversion, a U.S. company will merge with a company based overseas where tax rates are lower. The foreign company is then considered the owner of U.S. operations, so the company is taxed at the lower rate. Nothing else changes in terms of corporate operations.

Senator Durbin calls inversion a "monetary calculation ... a decision to desert America while still expecting the same benefits as truly American companies."

Treasury Secretary Jacob Lew, in a recent Washington Post op-ed, says the growing popularity of inversions runs the risk of "eroding" the U.S. corporate tax base and "the progress" made in reducing U.S. budget deficits. The Joint Commission on Taxation says inversions reduce corporate tax revenues by as much as $20 billion over 10 years.

The White House supports Durbin's bill which would ban federal contracts for businesses that use inversions to reduce their taxes and redefine what an inversion is.

"No one likes tax inversions," says Douglas Holtz-Eakin, a former economic advisor to President George W. Bush and  president of American Action Forum, a center-right think tank. But he says the White House proposal [which is essentially Durbin's bill] would make matters worse because it would "ship managerial control overseas" along with jobs.

He doesn't think Congress will be able to pass new legislation on the issue and expects "we will continue to have this problem until we fix the U.S. corporate income tax."

The U.S. currently has the highest corporate income tax of any country: 35%. But many companies don't pay it. Twenty-six of the Fortune 500 companies including GE (GE), Verizon (VZ) and Boeing (BA) paid no federal income tax in the five years from 2008 through 2012, according to a 2014 report from Citizens for Tax Justice.

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