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Rule putting a crimp in ‘inversions’ is a small victory for U.S. taxpayers

Poor Pfizer. Poor Allergan. The companies had to abandon their plan to rip off American taxpayers after the Obama administration unveiled new tax rules that make “tax inversions” less attractive. It should have happened a long time ago.

In an inversion, an American company merges with another that has a foreign address. The American company gets a foreign address, but maintains its operations in the United States. The goal is to lower the company’s tax bill by paying taxes to a country with lower corporate tax rates.

That’s why Pfizer coveted the shelter of Allergan. But in that disgraceful maneuver, even Allergan was a party to the legalized pilfering of the American treasury. While its operations are concentrated in New Jersey, its tax home is Ireland. And American taxpayers are called on to make up the difference.

That didn’t stop the parties from issuing galling comments after the new rules were announced last week. Allergan griped it was “un-American” to change the rules after its $160 billion merger had already been structured, but the companies had to know that inversions were unpopular and the target not just of the Obama administration, but presidential candidates of both parties. Perhaps the problem was that Allergan considers tax avoidance to be “pro-American” and the duty of all patriots.

As Allergan pointed out, it was following rules approved by Congress, which also underscores the degree to which Congress holds taxpayers in disdain. For too long, American policy has tolerated, if not encouraged, corporations to play a shady game that puts other Americans at a disadvantage.

Congress should revisit this issue pronto – before the election would be useful for incumbents of both parties – and in the meantime, the Obama administration was wise to act as it could to deter these disreputable corporate tax games. Just because they are legal doesn’t mean they are ethical or appropriate.

Corporations may have a legitimate complaint about the taxes they pay, but they also have access to history’s largest and wealthiest population of consumers. We buy everything. The least the companies can do is make their case in an honorable way, paying their taxes while pushing for reforms rather than shoving their tax burden onto the buyers whose dollars they crave.