This was the question posed in a recent editorial in The Wall Street Journal commenting on United States tax policy.Within the past month, Medtronic agreed to acquire a rival medical-device manufacturer (Covidien) for $42.9 billion. Pfizer’s offer of $119 billion to acquire biopharmaceutical company AstraZeneca was rejected. These large transactions raise the normal questions about the purpose of an acquisition, which can include filling gaps in product or service offerings, exploiting operating synergies and bringing products and services into new markets. Now, it appears a fourth incentive for an acquisition has emerged: establishing legal residencies overseas in an effort to reduce taxes.

These inversions (situations where an acquiring company assumes the legal domicile of the acquired company) provide two potential tax benefits. First, the United States corporate rate of 35% is among the highest in the world, and there is little optimism that Congress will reduce this rate in the near future. Second, U.S. tax laws assess an additional tax on profits earned outside of the United States that are returned for use in the United States. Several companies with large cash balances (most notably, Apple) have issued debt to fund dividends and stock repurchases rather than pay the additional taxes on foreign profits.

Consider the case of Medtronic, which earned $4.2 billion prior to taxes in 2013. Using a U.S. tax rate of 40% (35% corporate rate and state and local taxes), the tax bill would be $1.7 billion. Based on Covidien’s Ireland domicile and 12.5% corporate tax rate, the taxes on this would be $525 million, a savings of almost $1.2 billion. The average European Union rate of 21% or average Asia rate of 22% are almost one-half of the U.S. rates. The answer is simple: The United States needs to engage in serious corporate tax reform to be competitive with the rest of the world or watch companies, jobs and investments move to more tax-friendly havens.