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Hillary Clinton proposes tough new rules on corporate inversions

Clinton proposed a new plan to address inversions 鈥 US firms combining with foreign firms for lower tax rates. The plan is far more aggressive than the actions President Obama has taken.

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Charlie Neibergall/AP/File
In this Dec. 9, 2015, photo, Democratic presidential candidate Hillary Clinton speaks during a town hall meeting in Waterloo, Iowa. Hillary's new proposal aggressively target inversions.

Yesterday, Democratic presidential front runner Hillary Clinton聽聽three steps to address the growing number of U.S. firms that combine with foreign firms in order to sidestep U.S. tax liabilities. Our Tax Code currently contains several curbs on the most egregious combinations鈥攂ut they have been ineffective.

First, Clinton called on Congress to act immediately to stop more tax-motivated combinations by lowering the聽current聽threshold that triggers the anti-inversion rules. She鈥檇 ban U.S.-foreign combinations with more than 50% continuing U.S. ownership (down from 80% or 60%, depending on the anti-inversion rule).

Second, she proposed an 鈥渆xit tax鈥 on the untaxed overseas earnings of U.S. multinational companies that depart, whether or not they satisfy the 50% threshold.聽 She did not specify the details of this levy but it could look similar to the one I聽聽last week.

Finally, she called for tough new earnings-stripping rules to prevent a foreign company from loading up its U.S. subsidiary with debt to reduce the subsidiary鈥檚 taxable income.聽 (A U.S. subsidiary typically does not actually borrow any money鈥攊t just distributes a note to its foreign parent and then makes interest payments, which are deductible, rather than dividend payments, which are not.)

Clinton said that if Congress fails to close the earnings stripping loophole, she鈥檇 use executive authority to do it herself. She would ask her Treasury Department to use its 鈥溌爐o restrict earnings stripping.鈥澛 This suggests she鈥檇 be far more aggressive than President Obama.聽 For the last year, the Obama Administration has been studying its authority to address the problem, but has been聽聽that power.

Clinton also said she鈥檇 announce plans 鈥渢o reform and simplify our business tax code鈥n the months ahead.鈥澛 How she designs that tax reform will be critical to assess whether or not her proposals will work in the long run.聽 But she also insisted she would not allow the U.S. corporate tax base to continue to erode while Congress remains gridlocked.聽 I agree:聽 Tax reform is important, but we cannot wait for it to happen to stop the hemorrhaging of our tax base.

This article first appeared at

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