President Barack Obama may be stirring up the midterm election debate by going after a corporate tax loophole, but analysts see little chance Congress will take action any time soon.
In an interview with CNBC's Steve Liesman, Obama pressed his case against corporate tax inversions, a popular vehicle used to lower tax rates for U.S. companies through the acquisition of another company in a country with a lower tax rate. The inversion kicks in when the U.S. company changes its domicile to the home of its acquisition target.
"For you to benefit from the entire architecture that helps you thrive but move your technical address simply to avoid paying taxes is neither fair, nor something that's going to be good for the country over the long term," Obama said in the exclusive interview. The president said he also is eager to begin a longer-term effort toward a sweeping tax reform plan that would not just lower the tax rate, but close loopholes.
But analysts see the efforts to pass legislation against so-called inversions failing, though it may encourage some dealmakers to hold off on some high-profile deals to stay out of the political crossfire.
"All of this stuff hits the brick wall in the House," said Greg Valliere, chief political strategist at Potomac Research. "I don't gather any momentum in the House to do a stand-alone bill. If they start doing it this way, they remove any hope of comprehensive tax reform. That's the view of House Republicans."
Valliere said tax reform could come up again next year, pushed by Rep. Paul Ryan, R-Wis., in the GOP-controlled House of Representatives.
"Paul Ryan, who is showing more and more signs in my opinion of running for president, wants to get a tax reform bill through the House next year," said Valliere, adding Congress will run out of time on any effort to move legislation through this summer. "They're going to take a five-week vacation. ... They're only back for a handful of days in September."
The stakes are high in the midterm election for Obama and the Democrats. The party risks losing control of the Senate, but strategists say the inversion battle is not likely to resonate with voters.
"They're using economic patriotism and Benedict Arnold and all that, and it's not registering in any of the polls we're seeing. It's a shot they're going to try, and they're going to try to move the needle on it," said Dan Clifton, head of policy research at Strategas. He said the Senate Finance Committee should bring up inversions next week.
Clifton said a case is being made that closing the loophole on inversions would generate a $20 billion savings to the Treasury over 10 years, but that's a small sum when considering corporate tax revenues of $4 trillion over the same period.
"You get the political messaging but at the same time what the administration is trying to do is prevent a Walgreens or Monsanto from doing this before Congress gets to act. There's a lot of rumors about other companies doing this," he said. A bipartisan effort was announced to curb inversions in 2002, and that brought a halt to activity, Clifton said. But the legislation didn't pass for two more years, and it then resulted in a rule requiring a change in ownership of 20 percent of the acquirer.
Clifton said that just resulted in bigger deals. The biggest so far in 2014 is AbbVie's $55 billion deal for Ireland-based Shire. Eliminating the ability to do inversions, Clifton said, could put a target instead on U.S. companies for foreign takeovers.
Obama also spoke in the CNBC interview about improvements in the economy, including a reduction in the deficit and the dramatic increase in U.S. energy production. He also said the Federal Reserve was doing the right thing in focusing on improving the employment situation. He also acknowledged that the record-high stock market was driven there in part by low interest rates, leading investors to look for higher-yielding assets.
"You've got a lot of savvy investors out there. You've got people who recognize that what goes up can come down as well," Obama said. "I'll leave it up to them to make determinations about whether valuations and stock prices are too high."
Analysts said Obama is also trying to generate a domestic debate, as Americans are beginning to get concerned about global events, like the fighting in Gaza and the tense relations with Russia over Ukraine. Obama said he hopes the shooting down of Malaysia Airlines Flight MH17 would help "stiffen the spine" of Europeans when dealing with Russia.
"The election is going to be determined by more local issues in these Senate races and the fact the president has been in office for six years, and the economy is not doing that great," Clifton said.
The U.S. economy in the first quarter contracted 2.9 percent, and while economists mostly blame the weather, the second-quarter rebound in growth of about 3 percent or less means there was no growth in the first half of the year.
The president said he was hopeful about the economy but acknowledged issues. "There are a lot of things there that give me confidence we're poised to take off," said Obama. "But there's some things that are holding us back. The main thing that is holding us back is inaction by our federal government on things like infrastructure, on raising the minimum wage—on doing some things that would help middle-class families feel a little bit of relief."
Clifton said historically midterms do not go well for the incumbent president's party in the second term. "They are in a very tough place. The reason is the Republicans need six seats and the Democrats are defending seven states that Mitt Romney won—traditional Republican states that are held by Democrats. The math of the Senate map is working against the Democrats. Every president in the second midterm election since 1918 has had their party wiped out," Clifton said, noting the exception was Democratic President Bill Clinton.
"The Republicans have to do something really stupid not to pick up significant seats this election," he said.
—By CNBC's Patti Domm