In pursuit of lower tax rates, American multinationals are merging with smaller foreign companies and moving their headquarters overseas. About 50 U.S. companies have leveraged this "inversion" tactic in the past 30 years—and more than 20 have done so in the past two years. And just recently we have seen Pfizer PFE -0.48% make a bid forAstraZeneca AZN.LN -2.39% that would move its tax domicile to the United Kingdom.
While they may not be breaking U.S. laws, many of these companies are navigating a loophole in America's broken and dysfunctional tax code. And while their shareholders may secure a temporary win, workers, taxpayers and this country all lose. America's tax base erodes at a cost of hundreds of millions of dollars in revenue, increasing the burden on other companies and individuals. America also loses good jobs, talent, investment, and the ability to compete on a global stage.
Legal or not, this loophole must be plugged. Current law requires that U.S. companies reincorporating overseas must ensure that at least 20% of their stock is owned by their new, foreign partner. As chairman of the Senate Finance Committee, I am committed to raising this floor to at least 50% for all inversions taking place from May 8, 2014, on. I don't approach retroactivity in legislation lightly, but corporations must understand that they won't profit from abandoning the U.S.
It would be easy to point a finger at these runaway corporations alone and simply question their morality or patriotism, but that would be ignoring our own failure to bring the tax code into the 21st century. An uncompetitive tax code strains our economy, and we should not be surprised when corporations fight to get out from under antiquated tax rules.
Congress has a responsibility to reverse the tide—now.
Comprehensive tax reform will entice leading companies to invest further in the U.S. and reduce the ability, as well as the need, to manipulate the system. I'm committed to making this happen and including changes in the inversion rules as part of a tax overhaul. Tax reform is a heavy lift and won't be done overnight, but it has been done before and it can be done again.
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The U.S. is stuck with a 35% corporate tax rate—one of the highest in the world—and a painfully complicated and outdated tax code. Few companies pay the full 35%, but some come close and others pay next to nothing. Effective tax rates vary wildly by industry; the entire system flunks the fairness test.
The last overhaul of the U.S. tax code was in 1986. Meanwhile, other countries have modernized their tax policies to encourage investment, and today the average corporate tax rate among the 34 member countries of the Organization for Economic Cooperation and Development has fallen to 25%.
A corporate tax rate that creates a favorable investment climate and reduces the incentive to game the system is critical to successful reform. The bipartisan tax-reform bill I introduced in the Senate with Republican Judd Gregg in 2010, and reintroduced with Republican Dan Coats and Democrat Mark Begich in the last Congress called for a single flat corporate rate of 24%. Where the rate ends up depends almost entirely on the American business community's willingness to pitch in by closing loopholes. I continue to believe that reducing the current corporate tax rate by approximately one-third will bring the U.S. in line with other developed countries that long ago recognized the need to evolve their policies to compete globally while growing their domestic economies.
The window of opportunity to enact comprehensive tax reform that both the business community and individual taxpayers desperately need is short. Recognizing the unique dynamics that come with a presidential election, there is just over a year to get the job done. But with the cooperation of my colleagues on both sides of the aisle, we can.
Over the next few months, I will be working closely with members of the Senate Finance Committee to delve into the areas necessary for modernizing our tax code. That includes taking a serious look at addressing the growing and emergent challenge of our international tax regime.
While there are many varying viewpoints and approaches to this pressing issue, members of Congress share a common goal of ensuring that the U.S. is on a long-term path to sustained economic growth. House Ways and Means Committee Chairman Dave Camp and former Senate Finance Chairman Max Baucus have played important roles in building a solid foundation for tax reform. Now is the time for us to build on their work and move the country forward.
Mr. Wyden, from Oregon, is chairman of the Senate Finance Committee.