U.S. companies that renounce citizenship for tax gain should not receive COVID bailout funds

The COVID-19 crisis has put an inordinate strain on the U.S. economy. And America’s workforce is clearly hurting. In the last six weeks, an astounding 33.5 million Americans have lost their jobs.

If America’s domestic businesses aren’t already facing enough troubles, now comes news that some of their toughest competitors—the multinational companies that utilize tax havens to avoid corporate taxes—can receive coronavirus aid. The Federal Reserve has just issued guidelines extending a helping hand to the very corporations that dodge U.S. taxes.

At issue are so-called “inverted companies”—corporations that declare they’re no longer U.S. firms in order to pay only minor taxes in countries like Bermuda or Ireland. The Federal Reserve has ruled that these companies can access CARES Act funds through the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF).

This is stunning news for domestic American companies. They keep paying their fair share of U.S. corporate taxes even as they compete against the very companies that have moved operations and tax obligations offshore. They’re understandably furious—and for good reason. The way they see it, if a company has renounced its corporate American citizenship in order to avoid U.S. taxes, it shouldn’t be eligible for federal bailout money.

It’s a sensible point. But stateless multinationals have been abusing America’s tax system for decades—and happily enjoying the clever advantage of establishing themselves in low-tax countries like Ireland and the Cayman Islands. Doing so has allowed these multinationals to pay roughly half the corporate income tax rate of domestic companies. And now they’re cheekily asking the Federal Reserve to give them CARES Act aid.

Further complicating things is that the Fed’s decision conflicts with Congress’s recent precedent on individual payments. Giving corporate tax cheats access to U.S. funds contradicts what lawmakers explicitly decided—that only U.S. citizens would be eligible for CARES funds.

If the Federal Reserve ruled in a logical way, they would apply this same citizenship criteria to corporations as well. A company like Medtronic, for example, which declared itself an Irish entity in 2015 in order to avoid U.S. taxes, is not a U.S. corporate citizen. That’s because it chose to dodge U.S. taxes while profiting from sales to U.S. hospitals and consumers. The company made a clear choice, and now it should have no claim on a bailout from taxpayers.

However, bureaucrats at the Federal Reserve are simply defining these companies as being “American enough.” Under the vagaries of the CARES Act, the Fed is saying that these corporations only need to maintain some employees in the U.S., or to conduct operations through an American subsidiary, in order to qualify for aid.

But that decision is morally and strategically wrong. There must be consequences for avoiding the taxes that others pay to support our national defense, infrastructure, and disaster relief.

Going forward, a simple standard is needed: Any corporation wanting to access bailout money should be compelled to declare itself an American company—and be taxed as such.

There’s an old saying, “In for a penny, in for a pound.” Taxpayer-funded aid should be applied in the same way as tax obligations. If you pay your taxes on profits earned here like the rest of us, you can benefit in a crisis from our disaster relief efforts. But if you avoid taxes by renouncing your corporate citizenship, we don’t want to see you in the financial aid bread line.

Michael Stumo is CEO of the Coalition for a Prosperous America (CPA). Follow him at @michael_stumo.