Tipsheet

Corporate Tax Inversion: Quick Fix or Complete Overhaul?

The Senate Finance Committee met Tuesday to address the increasing national concern over corporate tax inversion and its negative impact on U.S. economy. Lawmakers were split along partisan lines when discussing whether relocated firms should be subject to punitive legislation.

The Congressional Research Service recently revealed that over the past 10 years, at least 47 American corporations inverted by reincorporating abroad. This is a significant spike considering only 29 did so the previous 20 years combined.

(Click here to see enlarged graph.)

The latest deal is pharmaceutical research and development corporation AbbVie Inc.'s merger with Ireland-based Shire PLC. As I reported last month, medical technology giant Medtronic also moved its headquarters to Dublin, where corporate tax is just 12.5 percent compared to the U.S. rate of 40 percent.

Nearly a dozen more are currently seeking to buy out smaller foreign companies in order to move their legal addresses overseas, thus escaping the superfluous tax burden imposed on American businesses.

Yesterday, chairman of the committee Sen. Ron Wyden (D-Ore.) described the anomaly of inversion as a "virus" and called for a stand-alone law to retract the tax benefits enjoyed by these corporations.

Republicans are reluctant to support any retroactive bill, instead pushing for a broader tax overhaul. Sen. Orrin Hatch (R-Utah), explained, "Rather than incentivizing American companies to remain in the U.S., these bills would build walls around U.S. corporations in order to keep them from inverting. This approach, in my view, completely misses the mark."

Our country has the highest corporate tax rate of any other in the industrialized world. Take a look at how we stack up:

Something needs to be done. If Sen. Wyden has one thing right, it's this: "My concern is that tax reform is moving slowly, inversions are moving rapidly and that is a prescription for chaos."