Destroying jobs in order to save them: Obama's corporate tax "reforms" make a bad situation worse.

• Author: de Rugy, Veronique
• Position: Columns

PRESIDENT BARACK OBAMA is very insistent on the need to "save American jobs." The spending and the Buy American provisions of his massive stimulus package, approved by Congress in February, were meant to "create or save" millions of U.S.jobs. "Saving jobs" was also the stated goal of his recent pledge to eliminate tax advantages for companies that do business overseas. But instead of saving American jobs, Obama's new corporate tax is apt to worsen what is already the highest unemployment since 1983 and make America's companies even less competitive in the global marketplace.

Last spring, partly in response to the anti-bailout tea parties that were sweeping through the country on and around the April 15 tax deadline, the president announced that he plans to simplify the tax code. That sounds like a worthwhile goal, but it turns out that for Obama, simplification means taxing previously untaxed income.

For instance, the proposal targets what executives consider to be a lifesaving feature of an otherwise depressing corporate tax code: permission to indefinitely defer paying U.S. taxes on income earned overseas. According to the Obama administration, this practice keeps $700 billion or more of American corporate earnings in overseas accounts, beyond the taxman's reach.

The president also wants to overhaul what he describes as a "much-abused" set of tax regulations known as the "check-the-box" rules. These regulations give companies some latitude in deciding where their subsidiaries will be taxed and make it easier for multinationals to transfer money between countries. The result, which Obama frowns upon, is that many companies have placed their offshore subsidiaries in low-tax countries.

While he's at it, the president wants to restrict tax credits that the U.S. grants companies to offset taxes they pay to foreign governments.

Until now, Obama said when unveiling his plan in May, we've suffered under "a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." This notion is wrong in several ways.

It is a mistake to assume that U.S. domestic firms and U.S. multinationals are primary competitors, engaged in a zero-sum struggle. In fact, the true competitors of U.S-based firms with international operations are mainly foreign-based companies. And in that competition, the existing U.S. corporate tax code puts American firms at a clear disadvantage--one for which the alleged...