On New Year’s Eve 2001, Ingersoll Rand’s management made a simple announcement: The company was moving to Bermuda.

The firm, a manufacturer of everything from zero-emissions golf carts to air conditioners, didn’t move any operations to the island getaway. Nor did it relocate its headquarters, which remained in New Jersey. Not a single employee was transferred.

Instead, Ingersoll Rand set up a mailbox there and changed its official address. By doing so, its chief financial officer would later reveal, the company saved $40 million in corporate taxes each year. It paid Bermuda $27,653 for the privilege of calling the island country home.

Ingersoll Rand’s move was one of the most notorious instances of what tax experts call “inversions,” the act of an American corporation buying a company or just a mailbox in a low-tax country, and then switching its official headquarters there to cut its tax bill.

Inversions have become a big issue again, as more than a dozen major businesses have used the maneuver to "leave" the U.S. in the past two years. The highest-profile move of them all, by Burger King, was announced last month. The fast-food chain will buy Tim Hortons, the Canadian doughnut and coffee chain, and move north of the border.

President Obama has denounced the trend, calling fleeing companies “corporate deserters.” Treasury Secretary Jack Lew accused them of lacking “economic patriotism,” and he called on Congress to pass a new law to prevent this corporate exit strategy.

It is not new for corporations to try to move abroad officially without giving up the advantages of doing business in the U.S. Rhetoric aside, it’s also a problem that Obama might find intractable, given a corporate tax system that most people agree is outdated and in urgent need of drastic reform at a time when Congress is too divided to fix it.

An old anger

Populist wrath over corporations moving is as old as the corporate tax code itself, according to UCLA tax historian Steven Bank. In a debate over foreign tax credits in 1921, Sen. Charles Curtis of Kansas, who would later become vice president under Herbert Hoover, warned that “all people will get the worst of it, and they ought to,” if they sought to invest abroad instead of at home.

“That isolationist kind of view still has populist resonance,” said Bank, “but not as much” as it did even up to the 1980s, when the first company, engineering and construction firm McDermott International, inverted to Panama.

Resentment against companies leaving gripped Republicans when the pace of inversions accelerated in the early 2000s. A few months after Ingersoll Rand bolted, Sen. Chuck Grassley of Iowa, then the ranking Republican on the Senate Finance Committee, issued a warning to corporations, saying, “Let me be clear to everyone developing or contemplating one of these deals — you proceed at your peril.”

In 2004, President George W. Bush signed an anti-inversion measure as part of a larger corporate tax bill. No longer would it be possible to do a “naked” inversion, in which a company simply claimed a mailbox in a tax haven such as Bermuda or the Cayman Islands as its home. Under the law, the newly inverted company had to be at least 20 percent owned by the foreign company it snapped up to avoid being taxed as a domestic corporation.

The 2004 law temporarily assuaged Washington’s fears. But it was not long before companies starting finding new ways to leave the U.S. tax system.

Again, it was Ingersoll Rand that presaged a broader movement out of the country. In 2009, it told its investors it would be leaving Bermuda to take up official residence in Ireland, citing the emerald isle's favorable tax structure and its membership in the European Union.

The grass is greener

That 2009 move typified the latest wave of inversions, which involves companies bidding America adieu not for a tiny, insular tax haven festooned with brass nameplates, but for another industrialized country with a more attractive tax system. Most developed nations have aggressively pursued tax reform over the past 30 years, offering not just low rates but also the benefits of a modern economy and open trade.

Canada, for example, which will be Burger King’s new home once the deal is approved by antitrust regulators, has reduced its combined corporate tax rate from 43 percent to 26 percent over the past 15 years.

"The biggest driving force is globalization,” said Tax Foundation economist Kyle Pomerleau, “especially as countries were joining the EU, [which] made it a lot easier to move capital around.”

While all this tax action has been going on abroad, the U.S. has missed the fiscal boat. We haven't had a major tax overhaul since 1986. As a result, America has seen some of its biggest and most cutting-edge companies pull up stakes and move elsewhere. The trend has gathered pace during the past two years. America’s 35 percent corporate tax rate is now the highest among the developed countries that make up the Organization for Economic Cooperation and Development.

“The U.S. used to have a relatively low corporate rate compared to the rest of the world, but what happened in the ‘90s and beyond was the rest of the world started lowering rates and we didn’t,” said Joseph Thorndike, a tax historian at Northwestern Law School. “It wasn’t so much that we changed, but that the world changed around us.”

Even more importantly, the U.S. is one of only a handful of OECD nations that tax companies on income earned abroad.

Most advanced countries have territorial tax systems, in which companies are taxed only on income earned at home. This allows companies to repatriate income earned abroad without their home country demanding a cut.

For a multinational corporation, choosing to place its headquarters in the U.S. means paying higher taxes on domestic earnings plus taxes on income earned abroad.

In many cases, however, U.S. companies can defer taxation on foreign income by keeping their earnings abroad. The result is that U.S. companies have gradually racked up more than $2 trillion in corporate profits which they are holding overseas. General Electric has an overseas stash of $110 billion, according to research firm Audit Analytics.

Democrats and Republicans disagree about solutions, but they agree that America, by taxing corporations on worldwide profits, has a serious problem.

Simply put, America's tax code gives companies strong reasons to move out.

Businesses and Republicans generally argue that high U.S. corporate tax rates and its insistence on taxing money earned abroad make it hard for corporations to stay American and compete. But some tax experts point to complicating factors.

In addition to saving on worldwide income, companies can also reduce their domestic tax costs by shifting money to the overseas parent company once the inversion has taken place. It’s a matter of debate how much “earnings stripping,” as this maneuver is called, takes place. Some tax experts believe that businesses seek inversions to distribute vast stocks of overseas earnings, tax-free, to shareholders.

In other words, argues University of Southern California law professor Ed Kleinbard, inversions are about boosting stock prices and have nothing to do with actual business operations or competing internationally. On the other hand, higher stock prices raise the capitalization of a company, which allows it, for example, to borrow more to invest in growth.

Studies of effective corporate tax rates — the percentage of taxes actually paid by companies once they use all available credits, deductions and loopholes — suggest that companies don’t let high statutory rates ruin their competitiveness. A 2013 Government Accountability Office study, for instance, found that profitable companies paid only a 13 percent effective tax rate on worldwide income.

“I think it’s that simple,” Kleinbard, who formerly ran Congress’ Joint Committee on Taxation, told the Washington Examiner.

In June, Minneapolis medical device maker Medtronic agreed to buy Covidien, a Dublin medical supply maker, for $43 billion, and move its headquarters to Ireland. The deal was not intended to lower the company’s tax rate, Medtronic’s CEO said in an interview with Bloomberg, but was meant to help the firm gain access to roughly $20 billion that it had accumulated overseas without having to pay American taxes on it.

Inversion have also become more attractive for reasons unrelated to taxes. One is that “the lawyers just got better” at finding ways to reduce companies' tax bills, said Martin Sullivan, chief economist at Tax Analysts.

Another is that actual location matters less. “The physical location of your plant was very important in the 1920s. You had to pay a lot of money to ship things around the world,” said UCLA’s Bank, but “today, if you’re talking about computer code and intellectual property, you can shift a lot to elsewhere.”

What’s clear, though, is that companies increasingly find the rewards to leaving these shores great enough to justify navigating the obstacles to inversions put in place by Bush’s 2004 law.

“It’s a lot more complicated to do, because you have to have a partner” big enough to satisfy the 2004 law’s requirements, Sullivan said. “But when you do it as a merger, you get around the restrictions that were put in place in 2004.”

Such companies are in short supply in tax havens such as the Cayman Islands, but they do exist in countries with reformed tax codes such as Ireland, the United Kingdom and the Netherlands.

One recent example: In July, Illinois drug maker Abbvie agreed to buy Shire, a rival in the U.K., for $54 billion. Abbvie, itself worth more than $80 billion, expected that by taking on Abbvie’s address it would eventually lower its overall effective tax rate from 23 percent to 13 percent.

‘Rightfully outraged’

The idea that businessmen are self-servingly deserting the U.S. to boost their stock prices has caused outrage on the Left.

“I find it ironic that you see a lot of Republicans that hate immigrants, but then defend these corporations that aren’t U.S. citizens,” said William Spriggs, chief economist for the AFL-CIO labor federation. “These corporations, by essentially turning their backs on the U.S., are robbing the U.S. Treasury of billions of dollars. And yet you see Republicans yell about some 15-year-old who braves traveling all the way from Central America to Texas to avoid being shot.”

Congress’s official tax scorer, the Joint Committee on Taxation, doesn’t anticipate that corporate departures will cost the Treasury significant amounts, at least for the moment. It estimated in May that a Democratic bill to prevent inversions would save $19.5 billion over 10 years — a small fraction of the total $450 billion the corporate tax code is expected to bring in over the same time.

But part of the reason for critics' outrage over inversions is that they seem to leave other domestic companies at a disadvantage.

“Average Americans and companies that remain in America are rightfully outraged when companies leave the United States, leaving the rest of us to foot the bill,” Grassley said in a speech on the floor of the Senate in July.

A company that has reduced its taxes through an inversion gains a competitive edge, and others have to keep up, Sullivan explained.

“It’s a snowball effect, especially within industries. Once one company in an industry is doing it, its competitors are compelled to do it,” Sullivan said, a claim supported by the concentration of inversions among pharmaceutical companies.

That raises the nightmare scenario: That U.S. companies might feel competitive pressure to leave the U.S. in huge numbers if the government doesn’t take steps to stop them.

Missed opportunities

The possibility of a stampede of companies leaving the country has frightened Democrats, and particularly the Obama administration, which knows it would be blamed.

“Whoever is in the White House and the Treasury can’t stand by and say, ‘Eh, this isn’t a big deal,” Thorndike said. “For sure, if there were a Republican in the White House, the debate would look different,” he added, noting Bush’s aggressive efforts to stop inversions in the early 2000s.

But without recourse to do any sort of comprehensive reform in the near term, and with legislative days before the midterm elections running out, the administration is considering extraordinary steps to stop inversions through executive action, circumventing a gridlocked Congress.

Treasury Department officials, whilst avoiding specifics, told the Examiner that the agency is looking at a range of options.

They cannot unilaterally raise the size of the foreign company needed for an inversion merger, as envisioned by congressional Democrats. But, stretching its authority, it could use tax rules to undercut the tax benefits of any inversion, said Stephen Shay, a former Treasury official. He argues that the Treasury has the power unilaterally to reduce the tax gains that an inverted company would realize on its foreign income and to prevent it from engaging in earnings stripping.

Lew said in September that he would reach a decision on whether to pursue a regulatory fix in the “very near future.” But he and Obama have acknowledged that a quick fix is no substitute for comprehensive action by Congress.

Obama’s critics say he squandered the chance of a comprehensive overhaul when it was on the table in negotiations over the federal debt ceiling in 2011. Then, the so-called super committee created to find a “grand bargain” recommended corporate tax reform that would have reduced rates and moved the U.S. to a territorial system.

But the White House and congressional Republicans could not reach a deal, disagreeing over Obama's demand that reform should net Washington new tax revenues.

Businesses began giving up hope of reform in spring 2013 when Obama announced that he was sending Sen. Max Baucus as ambassador to China. The Montana Democrat was chairman of the Senate Finance Committee and had expended enormous political effort to push reform.

It was approximately at that moment that American corporations turned to plan Plan B — inversions. “Part of what you’re seeing is businesses saying 'we’re not going to get legislation,'" said Eric Toder, a tax official in the Clinton Treasury Department and a researcher at the Urban Institute. "Companies are saying, ‘well, we’re going to use our own devices to fix the system for ourselves.’”

Chance for legislation soon: Slim to none

Republicans no longer favor anti-inversion legislation, at least not the measures proposed by Democrats. Democrats, led by brothers Rep. Sander Levin and Sen. Carl Levin of Michigan, propose ramping up provisions of the 2004 law requiring that an overseas company being acquired in an inversion be at least half the size of the American firm buying it.

Grassley championed the 2004 law that banned “naked” inversions, but doesn’t favor going further, as the Levin brothers do. The 2004 reforms “were never intended to establish a ‘Berlin Wall’ that forever trapped companies in the United States regardless of business needs,” Grassley explained in a July Senate Finance hearing speech outlining his reluctance to back new measures.

He said “building an ever taller wall in our tax code to keep companies in the United States ... is not a solution.” He called for a “tax code that recognizes the realities of the 21st century. We need a competitive tax code that makes American business want to stay here and foreign business want to come here.”

Tax-reform advocate Grover Norquist, who exerts considerable pressure on GOP lawmakers, even more adamantly rejects anti-inversion legislation and the rhetoric the administration has used to promote it. “The East Germans used to talk about people who left Germany as traitors. That’s crap,” Norquist told the Examiner.

Norquist is the president of Americans for Tax Reform, the group that maintains the Taxpayer Protection Pledge, which commits candidates for office to opposing any tax increases. Like many Republicans, Norquist blames inversions on Obama because he failed to reach a tax reform deal with the GOP during his six years in office despite his stated support for a corporate tax overhaul.

Some Republicans have not completely written off the possibility of short-term measures. Senate Finance Committee Chairman Ron Wyden, D-Ore., said in August that he is drafting legislation with Sen. Orrin Hatch, ranking GOP member of the panel. Hatch, for his part, has said that he would consider measures provided that they do not raise taxes and would move the tax code toward reform that includes territoriality.

But it appears that such a measure would have no chance in the GOP-controlled House. Ways and Means Committee Chairman Dave Camp brushed off the possibility of short-term action, telling the Examiner that “we’ve been down this road before, and we know companies will continue to do this as long as our tax rates remain the highest in the world. America cannot compete as long as our tax policy is so dysfunctional.”

Wisconsin’s Rep. Paul Ryan, the Budget Committee chief likely to replace Camp as the House’s top tax writer when the Michigan congressman retires at the end of the year, also has consistently opposed anti-inversions legislation in favor of a broader overhaul.

“I think most Republicans are on board with the Paul Ryan view that he doesn’t want piecemeal stuff,” said Greg Valliere, a political strategist at Potomac Research. “He wants a comprehensive bill next year, and I think that is a widespread consensus,” Valliere added.

In other words, reform will have to wait at least until after the midterm elections. If the Treasury hasn’t acted by then, and perhaps even if it has, the stakes for American commerce will be high.

“Any tax gets old and creaky over time, and it either gets modernized, or it disappears,” said Thorndike, the tax historian.

“I think this is an inflection point,” he said. “We’re going to look back at this moment and say, ‘Oh, yeah, that was when the corporate tax began to die,’ or ‘Oh, yeah, that was when we rescued it.’”