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In the past decade there have been close to 50 business inversions. The reason that so many American businesses are leaving is simple – the U.S. tax code is higher and more complex than any other in the developed world.

A business inversion is a simply a merger between a U.S. headquartered business and a business based overseas. However, this new combined company inevitably chooses to be headquartered in the foreign country because compliance with the U.S. tax code is so burdensome.

Indeed, the disparity between the U.S. and its competitors is wide. The combined state/federal U.S. rate is more than 39 percent. Compared to direct competitors like Canada (26.3 percent), the United Kingdom (20 percent), and Ireland (12.5 percent), the U.S. rate is two or three times higher.

As a result, lowering the corporate tax rate to a more globally competitive rate is one step that lawmakers must take if they are serious about reducing inversions. Another step must be converting the U.S. code from the outdated worldwide system to a territorial tax system.

Not only will this reform put a stop to inversions, it will also produce tremendous benefits for workers, families, and the economy as a whole.

As the Business Roundtable points out, as much as 75 percent of the costs of the corporate tax rate are passed directly onto workers. In addition, reducing the rate in line with the average of the developed world (25 percent) could increase worker wages by more than 6 percent in the long term, according to research by Rice University professors John Diamond and George Zodrow. Their research also estimates reducing the rate to 25 percent could result in GDP more than 3 percentage points higher in the long term.

To be sure, lowering the corporate rate is just one step lawmakers should take to fix America’s competitiveness problem. Going further with tax reform will only result in more substantial economic benefits.

For instance, a Tax Foundation analysis of Congressman Nunes’ American Business Competitiveness Act — which reduces the rate to 25 percent in addition to creating full business expensing and transitioning to a territorial tax system — estimated gains of 1.4 million full time jobs and economic growth more than 7 percent higher.

Undoubtedly, there are strong economic benefits to reducing the corporate tax rate. Given, the ever-increasing frequency of businesses inverting to countries with lower and more efficient tax systems, it is imperative that lawmakers act quickly to save U.S. businesses.

Below is the corporate rate of all developed countries:

 

Country

Top Corporate Income Tax Rate (Percentage)

United States

39

France

34.43

Belgium

33.99

Japan

32.11

Germany

30.18

Australia

30

Mexico

30

Portugal

29.5

Luxembourg

29.22

New Zealand

28

Spain

28

Italy

27.5

Norway

27

Israel

26.5

Canada

26.3

Greece

26

Austria

25

Netherlands

25

Average in Developed World

24.99

Korea

24.2

Denmark

23.5

Chile

22.5

Slovak Republic

22

Sweden

22

Switzerland

21.15

Estonia

20

Finland

20

Iceland

20

Turkey

20

United Kingdom

20

Czech Republic

19

Hungary

19

Poland

19

Slovenia

17

Ireland

12.5

 

Source: Organisation for Economic co-operation and Development –http://stats.oecd.org//Index.aspx?QueryId=58204