The United States of America presently has a high corporate tax-rate and ridiculous tax code supporting this high rate that effects corporations. For many years, corporations have moaned about the painstakingly difficult process of creating shareholder wealth while dealing with a punitive tax code that does not reward corporation’s success. To ensure shareholder wealth, corporations have been utilizing a tax loophole to their advantage known as inversion. If an American company merges with a foreign company, which results in the new company have more than twenty percent of shareholders residing outside of the United States, then that company avoids the hefty corporate tax.

Many companies have been doing this for years, which has resulted in plenty of profits for shareholders. In merger and acquisition deals of this type, both the target and acquirer have had their stock prices increase on this news alone. Despite producing instant profits for shareholders, there are two downsides to inversion that must be investigates thoroughly.

First, inversion causes tax avoidance of billions of dollars, which heavily affects the federal government revenue stream. (Please note, I am all for low tax rates and bringing jobs back to America, but it is important for me to remain objective on this topic). Second, whenever a company does this kind of merger and acquisition, it hurts U.S. job creation, which is already dismal and hurting college graduates even more. During the Obama administration, there was little chance this loophole would be amended even though there was Republican support for fixing this loophole. However, Republicans urge to comprehensively reform the whole tax code and not just one section led Obama and Democrats to give up hope on fixing this serious issue in the short term.

With a new administration arriving in just a few weeks, there is murmurs about President-elect Trump willingness to look at this issue and perhaps add it to his tax reform plan. Until real legislation is hatched out and passed in congress, investors should continue to look at inverted companies as a source of nice profits for the time being.