America has the unwanted distinction of having the highest business tax rates in the developed world. One of the clearest consequences of the ineffective code is the increasing frequency of corporate inversions – the much-maligned practice where an American business relocates overseas following a merger or acquisition with a foreign business.

There is a clear need to reform the code – and H.R. 4377, “The American Business Competiveness Act (the ABC Act),” introduced by Congressman Devin Nunes (R-Ca.) will do just that. At the same time, this bill will eliminate the underlying reasons that inversions occur.

Corporate inversions occur for two simple reasons, and the ABC Act addresses both.

The first reason inversions occur is U.S has the highest corporate tax rates in the developed world. Including state income taxes, the business tax rate is nearly 40 percent for corporations and approaching 50 percent for flow-through firms.

The ABC Act lowers the top federal corporate rate to 25 percent, which brings it in line with the rest of the developed world, and makes the current uncompetitive code a thing of the past. The ABC Act also harmonizes business rates by reducing the current top non-corporate business rate from 39.6 percent to 25 percent. 

The second reason for inversions is that the U.S. double taxes income earned abroad. Most other countries have a territorial tax system, meaning they tax money earned in their country but welcome the return of money earned abroad tax-free. This makes sense because any income is already taxed in the country where it was earned.

The U.S. is one of a few countries that has a worldwide tax system, which means that if you are an American business, the IRS tries to tax everything you earn regardless of where you earn it.

The solution here is simple – change the code to a territorial system, and the ABC Act does exactly that. The ABC Act also provides a one-time, five percent repatriation of funds stranded overseas – bringing this back will mean billions more to invest in the economy.

Congressman Nunes’ bill will not only stop inversions, it will also dramatically increase economic growth, create more jobs, level the playing field, and increase wages.

A recent analysis by the Tax Foundation found that over a ten-year window this legislation will increase GDP by over 7 percent, create 1.4 million new jobs, increase capital by 22 percent, and increase wages by 6 percent.

In addition, it will reduce the tax burden by $1.6 trillion on a static basis – but because of pro-growth reforms will actually increase federal revenues by $631 billion when dynamically scored.

The benefits of passing the ABC Act are clear – not only will it provide a much needed booster shot to the economy, it will also end the practice of corporate inversions by addressing the underlying reasons they occur. All Members of Congress should support and vote for Rep. Nunes’ American Business Competitiveness Act.