EDITORIAL: Make U.S. globally competitive through corporate tax reform

The vast majority of multinational companies support reforming U.S. corporate taxes. If polled, they would generally agree that the goal of the reform should be to make America more competitive internationally so more money can flow here, more investments can be made, more jobs can be created and the economy can grow more quickly.

President Barack Obama also supports corporate tax reform — but not for the reasons mentioned above.

Because of our convoluted tax laws, U.S. companies have an estimated $2 trillion stashed at offshore subsidiaries. Those companies owe taxes on their profits no matter where they earn them, but they don’t have to make any payments on those taxes until the profits are sent back to their parent companies in the United States. As a result, huge corporations such as Apple and Microsoft have stashed profits overseas to avoid double taxation. Some companies have gone as far as borrowing money to do things like buy back shares and pay dividends.

President Obama wants to allow multinational companies to repatriate that estimated $2 trillion in profits — at a tax rate of 14 percent. According to the president’s proposal, future foreign earnings would then be taxed at a minimum of 19 percent — down from the 35 percent standard corporate rate, which would be lowered to 28 percent and 25 percent for manufacturers — with a credit to offset any foreign taxes already paid.

The problem: Some countries have no corporate taxes at all, so repatriating profits from those countries results in no credit — and the kind of huge tax bill that companies are already going to great lengths to avoid.

So what is the president’s policy goal? Is he looking to stimulate investment and job creation or spur economic growth? Is he trying to create the best business climate in the world? Nope. It’s all about federal spending money. Mr. Obama wants $478 billion for domestic infrastructure. (Wasn’t the $787 billion stimulus of 2009 supposed to fund infrastructure? We digress.)

To say his plan faces obstacles is an understatement.

For starters, many small businesses and partnerships are likely to cry foul because they pay taxes at individual rates, not the lower rates that corporations would enjoy.

Also, while President Obama proposes a lower, 19 percent minimum tax rate on foreign income, a tax reform proposal offered last year by Republican Rep. Dave Camp would have set the rate at a mere 1.25 percent. That kind of discrepancy is enough to produce a stalemate on the issue.

When state and local corporate taxes are rolled on top of the federal levy, the United States has one of the highest business tax burdens in the developed world. No wonder companies, money and jobs are headed elsewhere. Why not stop taxing foreign earnings altogether? Why not reduce corporate and income tax rates across the board and simplify the tax code by eliminating deductions?

President Obama’s plan would be more appealing if it was designed to boost the economy, but it isn’t. At a time when the federal government is already bringing in record revenues, the president wants even more.

The good news? He’s not likely to get it with this proposal.