Stop inversions by restoring growth and job creation

As the United States continues its slow recovery from the Great Recession, a growing number of U.S. businesses are moving overseas or looking for ways to move overseas in order to take advantage of more competitive tax rates. This trend, known as inversion, and the jobs that will certainly follow, pose a grave threat to continued economic growth. 

The reason for the migration? America’s corporate tax rate. Our combined federal-state corporate rate of 39.1 percent is the highest in the world and it is accompanied by a tax system that is incredibly complex and has grown into the tens-of-thousands of pages.

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It’s no secret that America is badly in need of a revamped tax code. For many years now, experts throughout industry and academia, as well as leaders on both sides of the aisle, have called for comprehensive reform that lowers rates and creates a simpler, modern tax code. But suddenly, in the past six months, problems caused by the out-of-date code are threatening our economic future just when the nation is only beginning to realize real job creation after years of flat or even increasing unemployment.

The growing alarm regarding inversions has not been lost on our political leaders. In recent days there have been calls by members of Congress and from the administration for legislation that would make it more difficult for companies to move overseas. However, such proposals miss the mark when it comes to comprehensively dealing with inversions. Instead of curing the disease, they disguise the symptoms. 

In a rapidly globalizing international marketplace and with competition greater than ever before, U.S. businesses are being forced by macroeconomic trends and fiduciary responsibilities to seriously consider options that previously were beyond the pale. In order to keep companies growing and hiring here in the United States, our elected officials should follow the example of the bipartisan Tax Reform Act of 1986 by lowering the corporate rate to an internationally competitive level and streamlining the code

There is widespread agreement on the principles of achieving comprehensive tax reform. Democrats and Republicans, by and large, concur on the primary goals of reform and how to achieve them. In fact, there are even examples that Congress can follow. States such as Rhode Island, Indiana and North Carolina, among others, have recently lowered their corporate tax rates in a bid to improve their competitiveness, boost job creation and increase their tax bases and they are meeting with success. However, even if states were to lower their corporate tax rates to zero, they would still have among the highest rates in the world compared to foreign nations because of America’s federal 35 percent rate.

The increasing number of inversions can’t be fixed with stopgap, punitive measures. Instead, the United States needs to offer businesses an environment that fosters growth and encourages entrepreneurship. Just as other nations have reformed their tax systems to attract enterprise, the United States must once again focus on simplifying the code and lowering the rate to a competitive a level. A key part of such reform is preserving revenue from tax reform for a true overhaul, instead of using it one short-term projects.

The writing is on the wall. Companies are leaving the United States because other nations offer lower rates, simpler systems and a business atmosphere that boosts commerce, not one that penalizes it. The Senate Finance Committee members, almost to a person, agree on the need for tax reform. That consensus can act as a bipartisan foundation for a real solution to inversions – comprehensive tax reform.

Kamarck and Pinkerton are the bipartisan co-chairs of the RATE Coalition.