What's going on?

The Obama administration is changing the rules to make it harder for companies to complete so-called �inversion deals.� Such deals involve a US company buying a smaller foreign company and headquartering the combined entity outside of the US. That allows the company to pay a lower tax rate than it would in America.

What does this mean?

The location of a headquarters is very different than, say, a company�s factories. American jobs are lost when Ford moves some of its car making production to Mexico. But when a corporation changes its head office, not that many jobs necessarily move abroad (it�s amazing how slim a �head office� can be). But the corporation pays tax overseas at a lower rate – and therefore the US government loses important tax revenue.

Why should I care?

For stocks: It�s bad for some stocks. The biggest immediate impact is on the deal to combine massive US drugmaker Pfizer with Dublin-based Allergan. Allergan shares, which had increased when the deal was first announced, fell 15%. The merger now appears unlikely to proceed (it hadn�t completed the various steps, like a shareholder vote, required for it to be final). The new regulations could also depress the value of mid-size companies (especially in pharmaceuticals) that are based in lower-tax jurisdictions like Britain and Ireland since their profits could be impacted (it�s kind of complicated) and they�re now less likely to be bought by big American rivals.

For you personally: Taxation of companies is a big political issue � do you care? It�s a bigger deal than just jobs and tax income. For example, many American companies are currently leaving a ton of their profits in overseas bank accounts (e.g. what Apple makes in Europe doesn�t come back to the US to be spent on things like R&D). If they returned that money to America it might be spent creating more US jobs or buying American companies (i.e. you�re more likely to get a new, higher paying job or have your startup acquired). But not everyone thinks companies should pay less tax – and so it�s a tough pill for politicians to swallow (pharma pun intended…).