With some of the area’s largest corporations considering taking their headquarters to foreign soil, both Rep. Brad Schneider (D-Deerfield) and his challenger, former Rep. Robert Dold (R-Kenilworth), want to see government action.
Reforming the corporate tax code and specific legislation to curb the incentive for American corporations to move overseas and take advantage of lower corporate taxes has emerged as a leading issue in this rematch for the 10th Congressional District seat between Dold and Schneider Nov. 4.
With North Chicago-based Abbott Laboratories spin-off AbbVie joining Deerfield-based Walgreens in considering a shift to Europe, two of the 10th District’s biggest employers may pick up roots.
“We should start with reversing this trend to have economic and job growth at home, but any success we have to stem the tide will be lost in the long term if we do not change our corporate tax system,” Schneider said.
Dold has no disagreement with Schneider about tax reform or its long-term importance keeping businesses here. He has talked about it since he took office in January 2011, and Schneider has discussed it since he first announced his candidacy for his current term five months later. Dold sees it as a jobs issue for the area.
“When I look out at the 10th District we should be growing jobs, not losing them,” Dold said. “These are things to look for to be competitive in the global economy. We need to be doing more to keep jobs in the 10th District, Illinois and beyond.”
Both Walgreens and AbbVie are considering buying smaller foreign companies in order to reincorporate the company overseas and pay a lower corporate tax rate. To complete the maneuver, called an inversion, an American-based business must purchase a company that is at least one-fifth of its size.
In order to discourage inversions, President Barack Obama has already proposed increasing the size requirement to 50 percent and lowering the corporate tax rate from the existing 35 percent to 28 percent, according to the White House website. Neither Schneider nor Dold have embraced those specifics.
“I don’t know what percentage is going to be best (for an inversion cap),” Dold said. “We need a business-friendly environment so businesses keep their corporate headquarters here. We need to be creative to get new business in northern Illinois and compete around the world.”
Schneider is ready to increase the cap but also wants to give it more study before deciding on the ideal percentage. He knows it will work but cautions about doing it without quickly reforming the corporate tax laws, which he sees as the genesis of the problem.
“The idea of moving it up will slow the rate of inversions,” Schneider said. “Inversions will cost us $2 billion if we don’t do something to stem the flow. It is critical we follow it up by reforming our corporate tax system.”
Both Schneider and Dold want to see the corporate tax rate lowered and loopholes removed. Schneider is not ready to commit to a new rate but Dold has a ceiling of 25 percent.
“I would like to see the rate dropped to at least 25 percent and get rid of the lobbyist loopholes,” Dold said. He explains those as dodges designed for a specific company or industry to reduce its effective rate.
Schneider is taking a more contemplative approach to rates and loopholes. Before he settles on a rate, he said he wants to see a bill that offers thorough change.
“My view is we need complete reform,” Schneider said. “We have to get rid of the loopholes to let companies, small and large, compete globally.”
Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, introduced a corporate tax bill in February, but it cannot escape Republican gridlock in the working group, let alone any Democratic opposition.
“When Chairman Camp introduced the bill, Speaker (John) Boehner (R-Ohio) said, ‘blah, blah, blah’ and now Camp is looking for different work,” Schneider said.
Camp is not running for reelection.
Dold has based his campaign on bringing independent leadership to Washington to break the gridlock that exists. He sees developing a comprehensive corporate tax law as a way to do that.
“Someone needs to step up and lead in a bipartisan way,” Dold said. “We need it to be effective and Brad Schneider is not doing that. It needs to be the thoughtful independent leadership this district has had for a long time.”
Not responding directly to Dold’s charge, Schneider discussed the amendment he introduced to the corporate tax proposal.
“I introduced a resolution that would extend the provisions to LLCs (limited liability companies) and S corps, which most small businesses are,” Schneider said. The legislation has 12 sponsors, six Republicans and six Democrats, including Schneider.
There is another key issue related to corporate inversions that require government attention, according to Abbott CEO Miles White. He considers the tax rate less important than treatment of cash that has piled up overseas and will be taxed if invested in the United States.
“When a company inverts it still pays the same taxes in the United States that it paid before,” White said to a group of investors July 14 in a conference call. “It still pays the same taxes internationally that it paid before. There’s no change to the taxes. The only motivation for an inversion would be access to, let’s just call it buildups of cash over time.”
Returning that cash without tax consequences is something Dold and Schneider call repatriation. They agree something must be done to reduce or eliminate the tax consequences of investing that cash in the United States. They both refer to $2 trillion overseas that could come home.
“Not all of it will come back,” Dold said. “If we bring it back from overseas we can put it into investment to create economic and job growth.”
Like Dold, Schneider wants to see repatriation as part of comprehensive corporate tax reform. He believes it is something that will help the country now and in the future.
“This is part of the comprehensive tax reform we need,” Schneider said. “A globally competitive tax code will help us grow an economy that we deserve and each generation deserves.”