Navigating our broken tax system and the new BEPS restrictions has put immense pressure on multinational American companies. Keeping their IP in the U.S. could force them to pay a tax rate of between 20 and 30 percentage points more on income generated by that IP. For companies responsible to shareholders, the choice will be obvious. As a result, the U.S. faces a challenging road ahead if Congress fails to enact meaningful tax reform.
Rise in corporate inversions: Bloomberg reports that since 2004 when Congress enacted legislation to combat corporate inversions, approximately 40 companies have left the U.S. for more hospitable tax regions abroad. Notably, this includes 20 inversions since 2012 alone.
Growth of foreign acquisitions: According to the Wall Street Journal, between 2013 and 2014 the amount foreign companies spent to purchase American companies doubled to $275 billion. The U.S. market is hit hard when American companies are bought by foreign competitors. One study by the Business Roundtable estimates that in the last decade alone, the U.S. has lost out on $179 billion in assets of U.S-based companies.
Weakening of the U.S. tax base: The end result of the loss of American multinational corporations to foreign countries is a massive erosion of our U.S. tax base and overall decline of our economy. The CBO estimates that the U.S. Treasury will lose about 5 percent of American corporate revenue over the next decade to inversions and acquisitions, a sum that equals about 0.1 percent of the U.S. gross national product.