This new international tax system is a compromise between a territorial system, which would exempt foreign income altogether, and a worldwide system, which would tax all income, foreign or domestic, on basis at the same rate. This quasi-territorial approach would create a system unlike any other in the world today, applying different tax rates depending on where the income is earned.

Faced with a 20 percent rate at home and a 12.5 percent (or less) effective rate on income earned abroad, companies would still be encouraged to move jobs and profits offshore. The Senate plan attempts to deal with this problem, at least in the case of intangible assets, by also granting a 12.5 percent rate on an American company’s domestic intangible income. But as I have argued elsewhere, this plank likely violates our obligations under the World Trade Organization agreements because the amount of income that receives the benefit of the lower rate is directly linked to the amount of income from exports, thereby qualifying as an unlawful export subsidy. The W.T.O. has ruled against several similar measures that Congress has passed, and the issue was thought to have been put to rest when Congress repealed the last such measure in 2004. The legal instability surrounding this part of the Senate plan will significantly reduce a company’s ability to rely on it in the future. Accordingly, corporations will continue to locate intellectual property overseas.

Other dynamics worsen the shifting problem. Because of the mechanics of the formula for calculating the minimum tax, the tax can be reduced by moving assets overseas. Additionally, because the minimum tax is essentially calculated on a global basis, rather than per country, this further encourages companies to shift investment offshore in order to blend low- or zero-taxed income from tax havens with income from higher-tax foreign countries. So, rather than paying 20 percent or even 12.5 percent on income earned in the United States, companies will move investment offshore to a tax haven until the global foreign tax rate is blended down to the minimum rate, avoiding paying American taxes altogether. In other words, the United States loses out on revenues and investment.

In fact, both plans largely maintain pressures for companies to locate corporate residency abroad, despite their claim to reduce taxes on corporate income. After all, a company that moves its residency to a tax haven can often achieve zero taxation, rather than being taxed at the American minimum rate, however low. Both plans have safeguards against this by increasing the tax burden on certain inbound investments, but these can be avoided by selling through independent distributors rather than related parties, among other strategies. And even then, business lobbying has already caused the House to scale back on its original proposal — a dynamic that does not bode well for the Senate’s counterpart measure.

Rather than revising the definition of corporate residency to account for factors such as the location of a company’s headquarters or shareholders, the House and Senate plans retain the place of incorporation as the sole determinant of corporate residency, a notoriously artificial definition that has become disconnected from economic reality. They also largely subscribe to the fiction that one can identify a specific geographic locale where income is produced.

Instead of modernizing the taxation of business income, Republicans have doubled down on outdated concepts like corporate residence and origin of income that have become meaningless in a global and digital economy, while also attempting to preserve dying industries. The result is a dizzyingly complex system that will interfere with market forces.

Other countries have increasingly relied on consumption taxes as pro-growth alternatives to traditional business income taxes. The United States, however, remains wedded by politics and ideology to an inefficient, easily manipulated and antiquated tax policy. Rather than driving the United States to be a competitive force in the 21st century, the Republicans’ plans hold the United States back in the last one.