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Boehner, Camp Profit From Corporate Bid to Avoid U.S. Tax

By Richard Rubin
August 26, 2014 12:00 AM EDT 370 Comments
U.S. Speaker of the House John Boehner.
Photographer: Win McNamee/Getty Images
U.S. Speaker of the House John Boehner.

Two top Republican lawmakers profited from a corporate tax-avoidance maneuver that the U.S. Treasury Department is seeking to curb.

While U.S. House Speaker John Boehner and Ways and Means Committee Chairman Dave Camp have resisted calls for a crackdown on companies adopting overseas addresses to pay lower taxes, both have made money off one of the deals. They also have investments at risk of losing value because of government action.

The two lawmakers reported the sale of stock in Covidien Plc within nine days of Medtronic Inc. saying it was planning a takeover, an announcement that sent Dublin-based Covidien’s shares near a 52-week high. The deal, one of several that have sparked a national debate over U.S. corporate tax policy, would put the combined company’s headquarters in Ireland and reduce its tax rate.

How U.S. Companies Buy Tax Breaks

Boehner, the top Republican in Congress, and Camp, whose committee controls tax policy, haven’t backed a proposal by President Barack Obama and Democrats for a retroactive law that would penalize the Medtronic-Covidien deal and seven others.

According to an analysis of public disclosures, the lawmakers still hold Medtronic shares -- and Camp bought additional stock after the medical-device maker announced the transaction. Those holdings, though only a small part of the two multimillionaires’ stock portfolios, give them an interest in the deal’s completion, along with their ability to influence the outcome.

‘Beyond Suspicion’

Their actions are legal, and spokesmen for both say the congressmen weren’t involved in the financial decisions and that the trades were made by their investment advisers. Still, the two lawmakers, who have more sway over tax policy than any other House members, are invested in deals that Obama and other Democrats say are wrong and unpatriotic.

A Bloomberg News review of public filings of congressional leaders and members of the tax committees found at least five other lawmakers with investments in companies involved in inversion deals.

“The opportunities for being swayed by that are legion,” said Miles Rapoport, president of Common Cause, a Washington-based group that advocates for open government. “This is not a small issue where we wonder whether legislators are acting entirely in the public interest or whether somewhere in their mind it’s about how they will fare themselves.”

Delegating Authority

Boehner and Camp each sold between $15,000 and $50,000 in Covidien shares in June. Boehner holds at least $15,000 in Medtronic stock and Camp at least $20,000. Lawmakers are only required to report such transactions within broad ranges, and the Medtronic figures could be far higher for Camp.

“Speaker Boehner is not involved in day-to-day stock trades,” his spokesman, Michael Steel, said in an e-mailed statement. “He delegated that authority to an investment adviser, who has handled such transactions for years.”

Camp “releases a full and complete disclosure of his personal finances on a regular basis,” said his spokesman, Sage Eastman. “A firm handles all trades, and the chairman is not involved in the day-to-day investment decisions.”

The Medtronic-Covidien transaction would be penalized under bills proposed by Democrats that would make it harder for U.S. companies to carry out such tax-inversion deals. The terms of the deal allow Minneapolis-based Medtronic to walk away from the transaction if the law passes.

Boehner and Camp say the U.S. should instead address the issue in a broader revamp of the tax code that reduces the corporate rate and provides a more permanent solution to the problem.

Drawing Scrutiny

Inversions have become more common and larger over the past year, drawing closer scrutiny. In the recent wave, U.S. companies have bought smaller overseas businesses and then taken the foreign addresses, without moving executives or operations. The deals give companies easier access to offshore profits and open opportunities to reduce taxes on their U.S. income.

Burger King Worldwide Inc., the second-largest U.S. burger chain, is in talks to buy Tim Hortons Inc. and move its headquarters to Canada, the companies said on Aug. 24.

Democrats call such deals a threat to the corporate tax base. The bill they’re backing would penalize eight transactions, including the Medtronic-Covidien deal and AbbVie Inc.’s merger with Dublin-based Shire Plc.

Rules Loom

Those efforts haven’t advanced in Congress, even in the Democratic-controlled Senate. The Treasury Department is working on potential rules that would make inversions less attractive; those wouldn’t require congressional approval.

For his part, Obama has raised campaign money from executives, directors and advisers involved in inversion deals, and the administration has said it won’t return any money. In 2009, as part of its bailout of the auto industry, the Treasury Department helped the Michigan parts supplier Delphi Corp. emerge from bankruptcy as a U.K. company.

Boehner and Camp have weighed in on the issue before. In 2004, the two lawmakers voted for a corporate tax bill that included language that made it more difficult for companies to invert without using a merger.

Last month, Camp was one of 34 Republicans backing a ban on federal contracts being awarded to some inverted companies, a vote he said “was important to highlight the issue.”

Revamp Proposed

And Camp has proposed a revamp of the tax code that would cut the U.S. corporate rate to 25 percent from 35 percent, reducing the incentive for companies to take a foreign address. Obama also supports lowering the corporate tax rate.

Camp’s plan hasn’t advanced, and the 61-year-old Michigan lawmaker is retiring from Congress at the end of the year.

Boehner, 64, of Ohio, has blamed a “broken tax code” for the problem, saying it gives U.S. companies incentives to stockpile profits overseas.

“It’s one of the reasons why we have to have tax reform,” he told reporters on May 20. “We bear some of the responsibility -- in forcing companies to actually take steps like this because we make it so expensive for them to bring some of those earnings back here.”

Earlier this month, in an article he wrote for Politico, Boehner urged Obama not to “act unilaterally” to prevent inversions, saying it would exceed his executive authority.

Fuller Picture

Members of Congress are required to report their finances annually in broad ranges. A 2012 law required additional disclosures. Now, they must disclose transactions within 45 days, giving a more current picture of their financial activities. Under the previous law, Boehner and Camp wouldn’t have had to report their June 2014 sales until May 2015.

“It’s just much, much, much more up to date,” said Sarah Bryner, research director at the Center for Responsive Politics, a Washington group that tracks money in politics.

The records show Boehner held $15,000 to $50,000 worth of Covidien stock in his individual retirement account on Dec. 31, 2013, when each share was worth $68.10.

After the Medtronic deal was announced on June 15, Covidien shares rose 20 percent in a day to $86.75.

Boehner sold $15,000 to $50,000 on June 24, when the closing price was $90.54. Covidien closed at $87.53 in trading yesterday in New York.

The Covidien sale was one of eight transactions the speaker has reported this year. It can’t be determined from the public filings whether he sold his entire holding.

370 Trades

In addition, Boehner held $15,000 to $50,000 in Medtronic shares, which he bought on May 30, 2013, when the stock closed at $52. Medtronic closed at $63.63 in trading yesterday in New York.

Boehner’s net worth as of Dec. 31 was $2.3 million to $6.7 million, according to his public disclosure.

Camp, who has reported 370 stock trades this year, sold Covidien shares on June 17, two days after the merger announcement. The closing price that day was $88.12, a 49 percent increase from its value on May 24, 2013, the day it was purchased.

Camp’s wealth is held in a variety of accounts, including some belonging to his children and some to trusts affiliated with his wife’s family.

Camp, whose net worth is $6.9 million to $23.6 million, has increased his holding in Medtronic this year, including on May 20, before the merger was disclosed, and then on June 30, after the announcement, when he bought another $5,000 to $75,000.

Other Lawmakers

As of Dec. 31, Camp had investments in two other companies involved in inversions: Abbott Laboratories and AbbVie.

Other lawmakers on tax-writing committees have invested in companies involved in inversion transactions.

Representative Jim Renacci, an Ohio Republican, owns shares of Abbott, AbbVie and Applied Materials Inc. Renacci has bought shares of AbbVie seven times this year, including after the July 18 inversion announcement.

Other members with holdings or trades in such companies include Senator Tom Carper, a Delaware Democrat; Senator Richard Burr, a North Carolina Republican; and Republican Representatives Kenny Marchant of Texas and Mike Kelly of Pennsylvania.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Mark McQuillan, Justin Blum

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