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Members of Minnesota's congressional delegation expressed concern Tuesday about Medtronic's plans to relocate its corporate headquarters to Ireland as part of its $43 billion acquisition of Covidien.


 
Such a move could potentially have a big effect in lowering Medtronic's tax bill to Uncle Sam. The planned deal comes as lawmakers say they want to overhaul the tax system — but remain deadlocked as to how.

To the members of the Minnesota delegation, the Medtronic deal speaks to a commonly held sentiment among members of Congress from both parties: the tax code is a mess that encourages corporations to shelter money overseas. The Medtronic deal, legislators say, highlights that problem, one that has companies spending too much and money determining how to avoid taxes.


 
"We don't need more lawyers and accountants or compliance officers...to go through the machinations of how should companies be taking advantage of different deductions," said U.S. Rep. Erik Paulsen, a House Republican who sits on the tax writing Ways and Means Committee.


 
Democratic U.S. Sen. Amy Klobuchar agreed.


 
"We have a serious need for comprehensive tax reform," Klobuchar said.


 
Medtronic has nearly $14 billion parked overseas. If it brought the money back to the United States, it could be subject to the 35 percent corporate tax rate, the highest in the world.


 
But if Medtronic moves its headquarters to Ireland, the money would be subject to its 12.5 percent corporate rate.


 
Medtronic officials say by taking advantage of the lower rate, the company will be able to spend billions more in the United States.


 
Lawmakers have been talking about overhauling the nation's tax laws for years now with little to show for it, said Steven Rosenthal, a senior fellow at Tax Policy Center in Washington.


 
"There's a lot of disagreement about what tax reform would look like," he said. "Republicans generally view tax reform as a way to cut taxes and Democrats generally view tax reform as a way to shift the tax burden."


 
The United States taxes companies on their global income, whereas most other countries tax companies only on their domestic profits. That has led U.S. corporations to stashing an estimated $2 trillion overseas to keep from paying taxes on it.


 
Paulsen and other Republicans argue the United States should be like the rest of the world and not tax global earnings.


 
"I don't think we should be taking action to make overseas the worst place to do business or to operate," Paulsen said. "I think we should be taking action to make the United States the best place to do business."


 
Some question whether the tax bill is really all that bad or whether American companies are simply greedy.


 
While many point to the 35 percent corporate tax rate in the United States as the reason for why all that cash is parked offshore, the real rate is nowhere near that high, notes Steven Wamhoff, legislative director of Citizens for Tax Justice, a group that's been critical of corporate tax policies.


 
"They get to subtract what they pay to foreign governments from their U.S. tax bill," Wamhoff said.


 
Klobuchar and U.S. Sen. Al Franken, a fellow Democrat, are co-sponsors of a newly-introduced bill that would prevent U.S. companies from merging with a foreign firm and reincorporating overseas to reduce their tax bill.


 
Franken and Democrats argue that the companies are avoiding their obligations to the United States. Franken said if the companies don't pay up somehow, then the country will either have to make due with poorer public services or higher taxes on ordinary Americans.


 
"In the end it's all of us who pay for it," he said.


 
For Democrats and Republicans alike, the Medtronic merger adds an urgency to passing tax reform done, Klobuchar said.


 
"We're going to see more of these messed up situations if you we don't start to think creatively about how to bring that money back," she said.


 
One proposal that Klobuchar supports is to a temporarily lower rate if companies bring their overseas cash home and invest it. But Franken and some other Democrats worry that such a tax holiday would only encourage companies to leave more money overseas in the future in the hopes of future tax holidays.


 
Wamhoff, who opposes such a deal, said prodding legislators in Congress to act on almost any issue these days is a stretch.


 
That means more companies are likely to follow Medtronic's path until Congress finally is able to act.
 


"Congress needs to pass a tax reform," he said. "Right now, I don't know if Congress can even name a post office at this point."

Politics and Government News

Brett Neely

Author

Medtronic plans to move its headquarters to Ireland and such a move could potentially have a big effect in lowering Medtronic's tax bill. The planned deal comes as lawmakers say they want to overhaul the tax system -- but remain deadlocked as to how.

Medtronic's plan to move HQ to Ireland raises tax avoidance eyebrows in Washington

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