The Tax Inversion Problem: A Hard Nut to Crack

Abstract

Tax inversions are a popular topic of discussion among politicians, consultants, news outlets, and academics. Tax inversions are not a new topic; they were discussed in the early 1990s and in the previous decade. Tax inversion is a tax strategy in which a company reincorporates in another country for tax purposes. Several U.S. firms have merged with foreign firms to move their headquarters out of the U.S. Firms have defended their tax inversions by saying that inversions enhanced shareholders’ wealth by increasing the firms’ efficiencies and/or reducing their corporate taxes. The federal government has attempted to reduce and/or eliminate tax inversions. The government is concerned that tax inversions will reduce the tax base at a time when the federal government is experiencing budget deficits and the national debt is at an all-time high. Furthermore, individuals are increasingly aware of the huge financial disparity between the wealthiest members of our society and everybody else, and they believe tax inversions exacerbate this disparity in wealth. This paper briefly discusses why solving the tax inversion problem is politically problematic.