Secretary Lew gave his tax reform speech this morning. It lasted maybe 10 minutes and he didn’t take questions afterwards. Given the buzz the speech’s announcement created on Wall Street and in tax policy circles, the event itself was a major disappointment.
The Obama Administration is beginning to resemble an old Brian Regan comedy routine about how passengers on an airplane get excited when the pilot comes on the intercom, even though the pilot never has anything good to say. Just a variation on the same old theme that the flight will be delayed because….
This Administration never appears to say anything new either. Faced with a raft of inversions, Lew used this speech to plug the Administration’s two-year old “business tax reform” outline that went nowhere two years ago, and has even less momentum today.
Raising the overall tax burden and increasing the penalty of our worldwide system is a non-starter for both political and policy reasons. From the pass through perspective, the Administration’s “business tax reform” plan is nothing more than corporate tax reform in disguise, with little or nothing to help S corporations and partnerships. The plan appears to offer lower tax rates for C corporations and higher tax burdens for everybody else.
Lew did tamp down expectations that Treasury would take strong administrative action to address inversions. In the speech, Lew announced Treasury would act “in the very near future” but also made clear whatever action they took would not be sufficient to fix the problem. Congress must act, he cautioned.
But action by Congress is also in doubt. Majority Leader Harry Reid earlier had signaled the Senate might take up inversion legislation when the Senate returns this week, but disagreements among key Democratic tax writers over the best approach may kill that effort.
So there you have it – after the President took ownership of the tax inversion issue by announcing his Treasury Department would address them administratively, Secretary Lew is now lowering expectations and attempting to toss the ball back into Congress’ court, where most observers believe it belonged the entire time.