NEW YORK (TheStreet) –- U.S. Treasury Secretary Jack Lew delivered on his promise that the White House was going to do something to slow down or stop the practice of corporate tax inversion. Under inversion, a U.S. company merges with a smaller foreign company and later relocates its headquarters overseas. That move is taken to capture a smaller tax rate for the combined companies.
Lew's effort to halt or limit the use of corporate inversion begun sixty days ago, when the Treasury Secretary sent a letter to the chairman of the House Ways and Means Committee, asking for tax reform legislation to limit inversion. But with 42 days left until the mid-term November elections, many feel that he had to do something before the fall elections. As a result, Lew has come up with a "quick fix" to get the issue in front of the voting public.
In the meantime, the issue has become more politically charged. Pres. Obama quickly followed up Secretary Lew's initiative in a speech given at the Los Angeles Trade-Technical College where the president called the companies who have completed such transactions "corporate Deserters," saying they are giving up their American citizenship.
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The problem with rushing a policy into place that is not well thought out, or is not sufficiently comprehensive is that the policies can often have "unintended consequences."
The stakes are potentially high. It has been estimated that the U.S. could lose as much as $17 billion in corporate taxes, due to inversion.
Obama's administrative action is unlikely to achieve exactly what it wants, because an administrative action goes only so far. For example, Sen. Charles E Schumer welcomes the changes that the Obama administration was introducing, but added that the only real way to stop the practice would be for legislation to take place.