Get ready for a wave of American companies moving overseas

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last updated 8 January 2015

Corporate America is about to get a lot more international. Lawmakers in Washington, D.C., are warning that big U.S. companies like Walgreens could begin fleeing overseas in droves to avoid paying taxes, according to The Washington Post. The tactic, known as "tax inversion," could cost the economy $20 billion in tax revenue over the next decade, says Congress' Joint Committee on Taxation.

Here's how it works: an American company buys a smaller foreign company, usually from Europe, where corporate tax rates are lower. The headquarters are technically moved to Europe and presto — the company no longer has to pay U.S. taxes on foreign profits that would normally have to be repatriated. The scheme has become much more popular, putting pressure on other U.S. companies to consider changing their address.

Washington dysfunction is partly to blame. Members of both parties, including President Obama, agree that the U.S. corporate tax rate — which at 35 percent is one of the highest in the industrialized world — should be lowered. But a big deal to reform the tax code is far beyond Congress' abilities. Instead, Democrats are proposing bills to limit inversions, which not-so-coincidentally makes for good politics as we head toward the 2014 midterms.