

Treasury Secretary Jack Lew (Andrew Harrer/Bloomberg)

As Congress returns to Washington for the last time before the Nov. 4 election, Democrats are busily lambasting corporations that renounce their U.S. citizenship and laying the groundwork for new policies to deter firms from moving overseas.

On Monday, Sens. Charles E. Schumer (D-NY) and Richard J. Durbin (D-Ill.) were circulating draft legislation that aims to suck the profits out of cross-border relocation by limiting tax breaks for companies that moved abroad as far back as 1994.

Meanwhile, Treasury Secretary Jack Lew said the Obama administration is "completing an evaluation" of whether the Treasury Department can act unilaterally to discourage firms from employing the maneuver, known as "tax inversion." Speaking at the nonpartisan Urban Institute on Monday morning, Lew promised a decision "in the very near future."

But behind the scenes, the likelihood of meaningful action to block inversions appeared to be slowly draining away. Lawmakers are deeply divided over any form of legislation, with many worried that punitive action against inverting companies might serve to encourage full-scale foreign takeovers of U.S. firms. The current work period is scheduled to last just two weeks -- nowhere near enough time to bridge the divide.

As for the Treasury Department, the master of corporate tax avoidance, John Samuels, General Electric's vice president of tax policy and planning, argued Monday that no regulation could effectively keep corporations in the U.S. when every other country in the world -- including such appealing locations as the United Kingdom and Japan -- has adopted a more favorable tax system.

"I don’t think any anti-inversion activity can be effective in a global economy where capital is mobile," said Samuels, who is credited with pushing the tax bill paid by General Electric, the nation's largest corporation, toward zero. Samuels argued instead for Washington to rewrite the corporate tax code to reduce America's highest-in-the-developed-world 35-percent rate and end taxation of profits earned overseas, as most other countries have.

"Why are we trying to raise the bar so it will be harder for companies to leave the United States?" Samuels said. "Why aren’t we trying to do something to make it more attractive for them to stay here?"

Samuels also spoke at the Urban Institute, home to the nonpartisan Tax Policy Center, a joint project with the Brookings Institution. After Lew's speech, Samuels joined a panel of four tax and policy experts to explore the prospects for action to deter inversions.

So far this year, more than a dozen U.S. companies — including such well-known brands as Medtronic medical devices and Chiquita bananas — have merged with foreign firms and shifted their headquarters offshore to avoid U.S. taxes, analysts say. In the latest deal, Burger King purchased the Canadian doughnut-and-coffee chain, Tim Hortons.

Dozens of additional deals are in the works, according to administration and congressional officials, and could deprive the U.S. Treasury of billions in corporate tax dollars. For that reason alone, Treasury action to block inversions is a "no-brainer," said Stephen Shay, a former Treasury official who now teaches at Harvard Law School.

Shay, who made waves earlier this summer by publishing a paper that urged Lew to act, pronounced himself a "huge skeptic" that the White House and Congress can come together to overhaul the corporate tax code. "I just don't see the consensus," he said. Meanwhile, he said, it's important for Treasury to "stop the bleeding" and prevent companies from permanently reducing U.S. tax collections.

Even Lew acknowledged, however, the limits of his powers.

"Any action we take ... will not be a substitute for meaningful legislation — it can only address part of the economics," Lew said in his speech. "Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that leads to inversions."