The Treasury Department is once again doubling down on the bad bet that more regulation will stop U.S. firms from moving abroad. Treasury's Nov. 19 anti-inversion notice repeats the same mistakes from years past and doesn't address the underlying incentives which discourage businesses from headquartering in the United States.

This latest guidance notice from Treasury comes as Pfizer Inc. decided to combine with Allergan PLC, headquartered in Dublin, Ireland. At the conclusion of this so-called "inversion," the domestic firm Pfizer will merge with the foreign Allergan and move the new corporation's headquarters to the lower-tax Ireland. If the merger is successful, it will be the largest inversion ever to a lower-tax jurisdiction – valued at around $160 billion.

Tax inversions are perfectly legal. However, Treasury's guidance limits three mechanisms often used in inversions which are seen by some as loopholes in the current regulations. The changes add additional requirements which narrow the pool of potential inversion partners and make it harder to meet initial ownership requirements.

The new rules are Treasury's second attempt in 14 months to curtail corporate inversions, and Treasury Secretary Jack Lew said it will issue additional rules in the coming months. Continually issuing new regulations to discourage inversions is a poor strategy that will have minimal effect, and bad governance.

In recognition of Treasury's misguided policy, House Ways and Means Chairman Kevin Brady (R-Texas) noted that the new rules make American businesses "more attractive takeover targets for foreign corporations. Treasury is contradicting its own call to pursue a more competitive tax code in favor of shortsighted counterproductive triage."

The new rules raise the cost of inverting by increasing the complexity of international corporate tax rules. The new rules will hold many U.S. firms hostage under our increasingly uncompetitive tax system. A select number of specially situated firms will continue to escape through inevitable loopholes in the current system.

In August of last year, The Economist magazine estimated nine U.S. businesses would attempt to move abroad over the next year to lower their tax burden. These inversions are a symptom of the nation's broken and outdated corporate tax code, not a lack of Treasury regulation.

Corporate taxation in the United States has two distinct characteristics: 1) high tax rates, that are 2) imposed on worldwide income.

The United States has the single highest statutory corporate tax rate in the developed world – its combined corporate tax rate is 39.1 percent.

The United States is one of just six Organization for Economic Cooperation and Development countries that still uses the 1960s-era tax rules that attempt to tax the worldwide income of its domestic corporations. Worldwide systems tax all income of domestically headquartered businesses, including income earned by subsidiaries operating abroad. Firms are allowed to defer paying taxes on "active" foreign income that has not yet been brought back into the United States. Deferring taxes on foreign income allows U.S. firms to compete abroad without the additional burden of U.S. taxes.

Instead of trying to address the symptoms of corporate inversions by issuing more complex regulations, the United States should address the cause by moving toward a territorial tax system and significantly lowering the corporate tax rate.

A system of territorial taxation only taxes income earned within the country's borders. Taxing income where it is earned levels the playing field, so that operations in one jurisdiction are taxed at the same rate, regardless of parent ownership.

A territorial system could grow the economy, allowing corporate profits to flow to their highest valued use. The current U.S. system of worldwide taxation locks corporate profits out of the U.S. economy, forcing them to either be reinvested or idly held abroad waiting for a lower U.S. corporate tax rate.

Over $2 trillion of U.S. corporate profits have been systematically locked out of the U.S. economy by our outdated tax system. Under a territorial system, corporate profits could be reinvested in American infrastructure, factories, research and development, or paid out to American investors and retirees as dividends.

If the United States had a relatively low corporate tax rate, the distinction between a worldwide or territorial tax system would make very little difference.

Specifically, U.S. policymakers should lower the top marginal federal corporate income tax rate to be at or lower than the OECD average of 25 percent. Truly competitive reform would ideally eliminate the corporate income tax altogether.