By Nick Evans

Ohio Capital Journal

U.S. Sen. J.D. Vance, R-OH, has introduced a bipartisan measure placing new limits on large corporate mergers.

The bill, co-sponsored with U.S. Sen. Sheldon Whitehouse, D-RI, would eliminate a tax exemption when the businesses involved have a combined annual revenue of $500 million or more.

The measure represents another example of Vance staking out a unique position for a Republican when it comes to corporate power. It’s one that takes a more skeptical view of longstanding promises that consumers throughout the economy will benefit from corporate concentration.

The Stop Subsidizing Giant Mergers Act

In some cases, a corporate merger or acquisition triggers taxes. For example, if Company A buys up Company B’s assets, the shareholders of Company B will likely pay capital gains taxes on the money they receive as part of the transaction. But the parties can avoid that tax liability if the transaction is structured as an exchange of stock.

Under current law, since it’s just stock changing hands, the appreciation in value isn’t “realized.” So, even if shareholders’ portfolios see a big increase, their tax liability is deferred. In practice, though, Vance and Whitehouse argue “the corporation and its shareholders may escape tax forever.”

That tax-free approach has been popular in recent years. The senators point to Facebook’s acquisition of WhatsApp in 2014, AT&T’s acquisition of Time Warner in 2018 and the subsequent spin-off of Warner Media in 2022, which then merged with Discovery. Those three transactions alone amount to almost $150 billion. In 2021, the congressmen argue, more than half of mergers worth at least $1 billion didn’t trigger taxes at all.

The argument underpinning those exemptions is classic trickle-down economics. Mergers and acquisitions spur growth or efficiency, and leaner, meaner companies benefit the economy as a whole. On the contrary, Vance and Whitehouse argue, most mergers don’t generate the increased profits they promised. Those that do, often get there because the new company has greater control of the market, not because it becomes more efficient.

“Massive corporate mergers rarely produce their promised benefits but often leave American workers and families behind,” Vance said in a press release. “It’s past time to close the unfair loopholes that allow these deals to escape tax liability.”

“Record numbers of giant corporate mergers have created an anti-competitive economic landscape,” Whitehouse added. “The families who get stuck paying higher prices as a result of these mega-mergers should not also have to foot the tax bill for them.”

The senators cite a 2020 study from the American Economic Liberties Project, which suggested corporate concentration raises prices for consumers — to the tune of $5,000 a year for the average American household.

To address the issue, the Vance and Whitehouse’s proposal adds a caveat to existing tax exemptions. Transactions structured as an exchange of stock would only avoid taxes if the companies involved brought in less than $500 million on average over the last three years.

“This commonsense, bipartisan legislation will ensure our nation’s largest corporations are held to a fair standard while preserving protections for small businesses to grow,” Vance explained.

A new approach

In a similar same vein, Vance recently argued U.S. regulators need to take a deeper look at how proposed mergers affect consumers. For decades, the standard for analysis has prioritized consumer prices. If regulators believe they’ll hold steady or decline, then there’s little reason to hold up a deal. Vance argued that’s just not good enough.

“The fundamental question to me is, how do we build a competitive marketplace that is pro-innovation, pro-competition, that allows consumers to have the right choices and isn’t just so obsessed on pricing power within the market, that it sort of ignores all the other things that really matter,” Vance explained.

And from the earliest days of Vance’s U.S. Senate campaign, he was criticizing the way large companies have improved their bottom line at the expense of American workers. In January of 2022, he called the off-shoring of manufacturing jobs, “one of the stupidest things that an American leadership class has ever done to its country.”

It’s a skepticism toward corporate power that, at least sometimes, puts him more in line with lawmakers across the aisle, than within his own caucus. His stance on how regulators review mergers puts him in line with Massachusetts’ Democratic U.S. Sen. Elizabeth Warren.

Vance’s posture is notable because it represents a departure from decades of Republican orthodoxy which built political power by allying with business interests. And while Vance’s suspicion of those interests means he sometimes finds common cause with Democrats, he’s quick to argue he’s not working across the aisle just for the sake of bipartisanship.

Also at that January 2022 event, Vance argued there’s a good and a bad kind of bipartisanship. On the bad side of the ledger, he pointed to NAFTA, the free trade agreement signed into law during the Clinton administration. On the good side, he highlighted a measure sponsored by U.S. Sen. Josh Hawley, R-MO, prohibiting members of Congress from trading stocks.

“Now, look, there’s a Democrat, at least one who’s willing to co-sponsor that legislation,” Vance said. “So I think there are opportunities for bipartisanship when you stand firm on principles, you actually know what you believe in, and you try to find people that you can work with to accomplish it.”

Read more at ohiocapitaljournal.com.

Read more at ohiocapitaljournal.com