Trump order takes aim at Obama-era tax regulations

Treasury chief says ‘we are going to fix the tax code.’

WASHINGTON — President Donald Trump ordered his Treasury Department on Friday to review measures put in place by the Obama administration, setting the stage for a rollback of regulations that were intended to curtail corporate tax evasion and prevent another financial crisis.

Frustrated by the slow pace of action in Congress on his goal of overhauling the 2010 Dodd-Frank financial regulation law and the fact that his mission of rewriting the tax code remains in limbo, Trump is trying to take matters into his own hands.

“This has to do with the complexity of tax regulations,” Treasury Secretary Steven Mnuchin said at a briefing before the signing on Friday. “The president wants to make clear to the American people that we are going to fix the tax code.”

Trump has made deregulating the financial industry a priority of his presidency. Critics of the president said that if the reviews he requested became policy, they would represent a return to the freewheeling days that led up to the 2008 financial crisis.

“From our perspective, it is a direction that is dramatically backwards on financial stability,” said Lisa Donner, executive director of Americans for Financial Reform.

The presidential order asks Mnuchin to review the tax regulations imposed by President Barack Obama in 2016. Those include efforts to clamp down on corporate inversions, in which U.S. companies merge with foreign companies to take advantage of lower tax rates abroad.

Obama’s Treasury Department, concerned about Pfizer’s $152 billion bid to acquire Allergan, which makes Botox, issued the rules to thwart inversions. They included regulations to prevent moves like “earnings-stripping,” in which a U.S. subsidiary borrows from a parent company and uses the interest payments on the loans to offset its earnings.

The uproar over inversions dogged a number of transactions in the last five years, including Burger King’s takeover of Canadian chain Tim Hortons and drugmaker AbbVie’s planned acquisition of an Irish rival, Shire.

But the biggest target of such outrage was Pfizer’s acquisition, by far the biggest effort by a company to give up its U.S. citizenship to cut its taxes. Pfizer first raised the issue when it sought to buy another international rival, AstraZeneca of Britain, with the intent of moving its corporate citizenship overseas.

Pfizer executives expected pushback from the Obama administration, but were surprised by how aggressive the White House was in fighting the deal. Within a few months, Pfizer and Allergan ended their agreement.

The Treasury Department’s ability to act was limited to tinkering with existing regulations, since a wholesale ban on inversions would have required Congress to overhaul the tax code. But its measures still managed to kill a number of deals. AbbVie backed away from its planned takeover of Shire and Pfizer walked away from the Allergan deal.

Robert Willens, an independent tax consultant, said reversing these rules would be a gift to Wall Street bankers and lawyers who have complained that international deal making has been hampered by the regulations.

“They’ll be dancing in the streets and jumping for joy,” Willens said.

Sen. Sherrod Brown, D-Ohio, assailed Trump for trying to undermine rules that he said were put in place to protect the economy.

“Any actions to undermine these protections encourage Wall Street’s risky behavior and leave taxpayers and our economy exposed to another catastrophe,” Brown said.

He said Trump appeared to be breaking a campaign promise by making it easier for companies to use inversions.

“We should be working to lower taxes for hardworking families and workers across Ohio, not helping multimillion-dollar corporations cheat the system to avoid paying their fair share,” he said.