Administration officials did not offer details about what possibilities were under consideration. But Senate Democrats have pointed to a paper published last week by Stephen Shay, Harvard Law School professor who was a Treasury official earlier in Obama's presidency. Writing in the trade publication Tax Notes, Shay argued that the Treasury could weaken the benefits that entice companies to pursue inversions.
As an example, after a company reincorporates overseas, it typically shifts large amounts of debt from the foreign company to the U.S. subsidiary, which can then deduct that debt when it files taxes. Shay said Lew could use regulations to start treating that debt as equity, which can't be deducted.
"It would be an important first step toward treating companies that renounce America the same way we treat people who renounce America — as freeloaders who get cut off from other benefits," said Sen. Elizabeth Warren, D-Mass., one of three Senate Democrats who sent a letter Tuesday to Obama urging him to take immediate executive action on inversions.
But Thomas Lys, who teaches corporate restructuring at Northwestern University's Kellogg School of Management, said it wasn't clear that Obama has the legal authority to deter inversions. "It's a stretch of current regulations," he said.
Obama's move to curb inversions comes three months before the midterm elections, in which Democrats are seeking to portray themselves as aggressive advocates for the middle class while Republicans are accusing Obama of presidential overreach.
A spokesman for House Speaker John Boehner urged Obama on Tuesday to work with Congress on adding inversions rather than acting on his own, while the U.S. Chamber of Commerce warned that Obama's actions could potentially make the situation worse.
"Congressional Republicans often don't want to be in a position of angering the corporate interests that are so beneficial to their political campaigns," said White House spokesman Josh Earnest.
Tax inversions began attracting attention earlier this year when the drug company Pfizer attempted unsuccessfully to take over AstraZeneca, a British company. Nearly 50 U.S.-based companies have merged with or acquired foreign businesses over the past decade in inversions, the Congressional Research Service said.
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