July 30 (Bloomberg) -- Senate Republicans halted a Democratic measure that would limit tax breaks for companies that outsource jobs and operations from the U.S.
The plan would have denied U.S. companies a tax deduction for the costs of moving out of the country and provided a tax credit for companies bringing operations home. It wouldn’t have affected the trend of companies moving their legal addresses to other countries through transactions known as inversions.
Today’s procedural vote was 54-42, six votes short of the 60 needed to advance in the Senate.
“We Democrats are lined up against outsourcing,” Majority Leader Harry Reid, a Nevada Democrat, said on the Senate floor before the vote. He said the bill would end the practice in which “a company moves from America and the American taxpayers help pay for the move.”
The tax increase in the bill would raise $143 million over the next decade, according to the Joint Committee on Taxation. That’s 0.003 percent of the $4.5 trillion that the corporate income tax is scheduled to raise over 10 years.
The bill doesn’t address the more politically contentious issue of corporate inversions, in which companies including Medtronic Inc. and AbbVie Inc. are using mergers to move their legal addresses outside the U.S. and cut their tax bills.
Through inversions and transactions to create real estate investment trusts and master limited partnerships, companies such as Windstream Holdings Inc. and Hess Corp. are looking for ways to shield profits from the corporate income tax.
Democrats have talked about addressing inversions with a retroactive law. They haven’t attempted to advance legislation on those issues.
Instead, with Congress scheduled to leave for a five-week break and about three months left until a midterm election where Democratic control of the Senate is in jeopardy, they returned to a populist issue they had voted on in 2012.
Democrats said the tax measure would remove an incentive for companies to shift operations and jobs out of the U.S.
The bill would deny deductions for ordinary business expenses, such as the cost of shipping equipment. Business groups representing multinational companies oppose the bill.
“Disallowing a deduction for a legitimate cost of doing business would inject even more uncertainty into business planning, add additional complexity to the tax code and further increase costs for U.S. companies, making them less competitive in the global marketplace,” the groups, including the National Association of Manufacturers and the Business Roundtable, wrote in a July 22 letter to lawmakers.
Republicans dismissed the bill as a political stunt and criticized Democratic leaders for not allowing them to offer amendments.
The bill is S. 2569.
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