IN THE final year of the Obama administration its relationship with big business, always testy, is deteriorating into outright combat. On April 4th Jack Lew, the treasury secretary, announced a renewed crackdown on “inversions”, takeovers that allow American firms to switch their nationality to that of the firm they are buying, in order to escape America’s tax net.

Two days later Pfizer, a pharmaceutical firm, cancelled its $160 billion purchase of Allergan. It would have been the third-biggest takeover in history and was premised on shifting Pfizer’s tax-domicile to Dublin. Howls of outrage were heard from America’s boardrooms and from Allergan investors, who lost $13 billion in 48 hours as its shares sank. European multinationals panicked that they might become the injured bystanders in an American brawl.

The spat makes everyone look bad. It reveals an administration that is capricious and a Republican Party establishment so out of touch that it thinks it should be the mouthpiece for firms that renounce their citizenship. It shows great companies, such as Pfizer, reduced to shifty deal-junkies that are obsessed with financial fixes. It exposes a tax system that is 30 years out of date and obsolete in an age of globalisation. And it highlights a hyper-partisan political system that is incapable of reform—even though, in this case, almost everyone privately agrees what must be done.

The backdrop is that America’s headline corporate-tax rate is far too high. It stands at 39%. That is roughly the same as it was in the late 1980s, but since then other rich countries have slashed their tax rates, to an average of 25%. At the same time big American firms have become more global. Financial markets have become more sophisticated. And the tax code has become far more complex, reaching 4m words.

It is a golden arbitrage opportunity—one that big American firms have become brilliant at exploiting, pushing their bills far below the official rate. The actual tax paid by all corporations was 33% of their domestic pre-tax profits in 2015 (see table). The 50 largest listed firms in America paid global cash tax equivalent to just 24% of their pre-tax profits in 2015. Apple paid a rate of just 18% and Pfizer 27%. Despite having a notionally tougher tax regime, American firms got clobbered far less than their European cousins—the biggest 50 of which paid 35% of their global profits in tax.

How do big American firms manage it? After all, their taxman claims a right to grab a share of their global profits, unlike most European authorities, which aim to tax only the local profits of global firms. Partly by exploiting myriad loopholes: there is a reason why America Inc spends $3 billion a year lobbying politicians. But crafty global tax-planning is vital, too. Firms shift where they book profits to countries with lower tax rates, and hope that the American tax authorities do not make up the difference. They allocate debt and its associated interest costs to their American subsidiaries, reducing profits there and boosting them elsewhere. They decline to repatriate foreign profits back to America (these are taxed only when they cross the border). At the end of 2015 the accumulated profits of big American firms stranded overseas reached an awe-inspiring $2 trillion. Apple has $92 billion parked abroad. Pfizer has $80 billion. Tax inversions are the logical culmination of all of these tactics—the ultimate expression of a system that doesn’t work. You buy a firm that is foreign and adopt its tax domicile, which will ideally be somewhere with rock-bottom rates. You book your global profits in that territory, which is especially easy if your firm specialises in intellectual property that has no physical presence, as pharmaceutical and technology firms tend to. Because the merged company is no longer American, it can access the trapped cash and pay it out as dividends and buy-backs to shareholders without incurring American tax. Since 2012 there have been 20-odd inversions. Allergan is itself the mutant product of two prior deals. The Treasury has tried to crack down before. This time its intervention will be decisive. The test for whether a firm qualifies will be tightened and companies that engage in serial inversions will be barred. The Treasury will also lean on firms that use intercompany loans to allocate debt to the American operations and depress their profits there. The number of pending inversions is small. Most sensible firms had already concluded they were pushing their luck. The odds of new inversions happening are negligible.

The collateral damage may include foreign multinationals, which have $550 billion of net debt allocated to their American operations. Often this is legitimate and has nothing to do with tax. By matching their assets and liabilities in dollars foreigners can hedge against currency risks. It can make sense for them to tap America’s huge bond market. The Treasury’s new ruling on intercompany debt could prompt a giant and expensive rejig of foreign firms’ American balance-sheets.

But the big loss is the chance to rewrite the tax code. The last time it happened was in the 1980s, when Ronald Reagan won cross-party support in Congress for comprehensive reform. The contours of a new settlement are obvious. Slash the headline rate to 25-30%, ditch all of the loopholes and charge American tax only on American profits. That would cut complexity, prod firms to bring profits home and keep tax revenues steady at about 2% of GDP.

Sadly, as the primary campaign demonstrates, the corporate-tax system is not the only thing that has deteriorated. So has the quality of America’s political leaders and the effectiveness of its government. Tax reform will have to wait until after the election, in the hope that a more pragmatic president and Congress are in place. Don’t hold your breath.