Experts question Clinton’s hostility to overseas moves

Chad Livengood
Detroit News Lansing Bureau

Democratic presidential hopeful Hillary Clinton has filmed a campaign commercial outside the Milwaukee headquarters of Johnson Controls making the contentious claim that the auto supplier “begged taxpayers for a bailout and they got one” in 2009 and now is moving overseas to evade U.S. corporate taxes.

The Clinton campaign said it is airing the TV ad in Minnesota ahead of that state’s caucuses Tuesday, making it her latest attack on Johnson Controls for merging with Ireland-based Tyco International to shave $150 million from its American tax bill. It comes seven years after a company official advocated federal aid for Detroit’s Big Three automakers during the recession.

“Now that Johnson is back on their feet, they’re gaming the system and moving profits to Ireland so they can avoid paying taxes here at home,” Clinton says in the ad. “It’s an outrage. If I’m president, when companies walk out on America, they’ll pay a price.”

But two auto industry observers said Johnson Controls is following the same path overseas that President Barack Obama’s administration let the former Chrysler Group LLC, auto supplier Delphi Corp. and the former Saginaw Steering follow in the aftermath of the 2009 auto industry rescue.

“It is just remarkably hypocritical because, of course, Hillary Clinton was a key member of that administration at the time of the bailout,” said Logan Robinson, a former Delphi general counsel from 1998 until 2005 and a retired University of Detroit Mercy law professor.

“They’re not avoiding U.S. taxes on any U.S. source income — profits made in the U.S. are still taxed,” Robinson said about Johnson Controls. “Hillary’s ad really misleads people.”

Johnson Controls is the latest in a string of large U.S. corporations combining with foreign companies and moving their headquarters out of the country to avoid paying U.S. taxes on profits generated in other nations.

“It’s almost one of those things you can’t afford not to do because you’re trying to be as competitive and be as profitable as you can,” said Dave Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor.

Some companies tied to the auto bailouts immediately or eventually moved offshore.

As a result of Chrysler’s 2009 bailout and bankruptcy, the Auburn Hills automaker was bought by Italian automaker Fiat S.p.A. Fiat merged with Chrysler to become Fiat Chrysler Automobiles in 2014, and the combined company was registered in the Netherlands and headquartered in the United Kingdom — with no criticism from the Obama administration.

Obama officials and taxpayer money were involved in 2009 when Delphi emerged from the bankruptcy it declared in 2005 and was headquartered in the United Kingdom for tax purposes. At the time, the Obama Treasury Department let General Motors Co., which exited bankruptcy the same year, use taxpayer money to buy a part of its former parts maker Delphi as well as Delphi’s Saginaw Steering division.

Obama’s automotive task force played a leading role in GM’s bankruptcy and the decision to cut Delphi salaried employee pensions up to 70 percent but keep relatively intact the pensions of Delphi’s union workers, according to a special federal inspector general report.

GM sold a majority stake of the supplier Saginaw Steering to Chinese investors. The newly renamed company, Nexteer Automotive, was listed on the Hong Kong Stock Exchange in 2014.

As a New York U.S. senator in October 2008, Clinton voted in favor of an unsuccessful Senate bill to financially rescue Chrysler and GM. She has supported the subsequent auto bailout payments made by Presidents George W. Bush and Barack Obama.

Company denies getting aid

While acknowledging the merger will sharply reduce the company’s U.S. tax bill, Johnson Controls is pushing back on Clinton’s repeated claims that the company was in the bailout line with Chrysler and GM. The auto supplier never received direct cash from taxpayers, a company spokesman said.

“Contrary to recent reports and comments, Johnson Controls did not request or receive aid from the government during the financial crisis,” spokesman Fraser Engerman said in a statement to The Detroit News. “Nor did it declare bankruptcy or seek other means of protection like many of its competitors and other suppliers did at the time.”

But the Clinton campaign argues the auto supplier benefited from the bailout of GM and Chrysler since it did business with both.

Clinton has railed against Johnson Controls for weeks in her battle with U.S. Sen. Bernie Sanders of Vermont.

“I think we need to go after a company like Johnson Controls that is trying to avoid paying taxes after all of us bailed it out by pretending to sell itself in a so-called inversion in Europe,” Clinton said at a Feb. 3 town hall event in New Hampshire. “It’s a perversion. It should be stopped.”

Sanders, a self-described democratic socialist, challenged Clinton for the Democratic nomination by focusing on her connections to Wall Street banks and big business.

“Basically she’s bending to Bernie’s socialist (agenda) to make sure everybody has equal income,” said Cole, a Johnson Controls shareholder.

Clinton’s Johnson Controls ad comes two weeks before Michigan’s March 8 primary.

COO gave bailout testimony

Johnson Controls, which employs about 1,000 people at an automotive seating design center in Plymouth, did not get federal tax dollars in the $85 billion bailout of GM, Chrysler and the automakers’ lending arms in 2008-09.

In late 2008, Johnson Controls’ then-chief operating officer Keith Wandell testified before the Senate Banking Committee about the consequences of a collapse of one or more of Michigan’s automakers to the nation’s automotive supply chain, Engerman said.

“As a representative of the broad supply chain, Mr. Wandell encouraged the Congress to support the automakers, noting that failure of even one of them would have devastating consequences for many U.S. suppliers, particularly many small, women and minority-owned businesses,” Engerman said.

Through its merger with Tyco, Johnson Controls plans to spin off its entire automotive seating and interiors business into a new company called Adient by October. Both GM and Fiat Chrysler are customers of Johnson Controls, Engerman said.

Johnson Controls has not announced where Adient will be domiciled, so it’s unclear whether the new automotive supplier that benefited from GM and Chrysler’s survival will be an American company or have a foreign headquarters for tax purposes.

Clinton proposed cracking down on the controversial use of a foreign headquarters by American companies through corporate inversion following the November merger of pharmaceutical giants Pfizer and Allergan, which also will be based in Ireland for tax purposes.

Under Clinton’s proposal, American companies would be slapped with an unspecified “exit tax” and could only renounce their U.S. identity for tax purposes if the foreign company it merges with controls “a common-sense 50 percent threshold” of the American company’s shares.

Former Delphi general counsel Robinson said Clinton’s approach is akin to locking horses in a smoky barn. .

“The horses want to leave because there’s a fire in the barn called the U.S. tax code,” he said.