The United States has a tax problem. Many of the presidential hopefuls from both parties have proposed changes to the tax code that will supposedly fix the budget deficit and save Americans money, but the biggest problem with our tax code is how it treats corporations.

 

Currently, the United States federal corporate tax rate is set at 35 percent and can be much more when state taxes are taken into consideration. This is the highest rate in the world and towers over the global average of 25 percent. Staples of American business such as Burger King, Garmin, Michael Kors, Carnival, and Nielsen have all fled due to tax reasons.

 

Corporations have begun using a process called inversion to avoid the high U.S. tax rate without altering their business flow. Inversion is when an American company acquires a foreign entity and then reincorporates itself in the foreign country. Global headquarters, the location of executives, and means of production can stay the same — as long as the paperwork is updated.

 

 

Last September, the United States Treasury released new guidelines and restrictions in an attempt to prevent further inversion. While this is a step in the right direction, the reforms were not comprehensive enough. Since their release, inversions have slowed down slightly, but the rate at which American corporations are being taken over by foreign competitors is increasing significantly. Since the restrictions on inversion went into effect, foreign acquisitions of U.S. companies has been valued at approximately $156 billion, as opposed to $106 billion in the previous year.

 

Two corporations have inverted in 2015, and five more are in the process of inversion. The only way to prevent more corporate tax dollars from leaving the United States is to overhaul the tax code — something that should be hot topic of debate as we get closer to the 2016 elections.

 

Do you think inversion should be regulated on a federal level? Would inversion be beneficial to small businesses? Let’s talk in the comments here, or find me on Twitter @Andrew_Morse4