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By: Sen. John Barrasso, M.D.
IBD Editorials
October 15, 2012

In the first presidential debate, President Obama said he will take any good idea to help the middle class, no matter whose idea it was. Tuesday night, the president will have a chance to prove it.

During his second debate with Gov. Romney, Obama should embrace the territorial tax policy his advisers have long recommended to create jobs.

Right now U.S. companies that also do business overseas have $1.7 trillion parked outside the U.S. The reason they're not bringing it home to invest in America is that they'll have to pay taxes on the money a second time. Bringing that money back into the country could lead to five million more U.S. jobs.

Most countries have what is called a "territorial tax system." Among G-7 countries, only the U.S. does not. Of the 34 countries in the Organization for Economic Cooperation and Development, 26 have territorial systems. They tax businesses on the money earned only within their borders.

Under that setup, a U.S. company earning money in England would still pay the British taxes on those earnings.

Then it could spend the profits expanding its operations in America without getting a second tax bill.

The U.S. has what's called a "worldwide tax system." Businesses that earn money in another country pay taxes on the money twice.

First, they pay taxes in the country where the money was earned.

Then they pay additional U.S. taxes on the same money as soon as it is brought back into this country.

Playing Politics

Businesses that don't want to be hit with this second tax are likely to invest those dollars where they earned them. As a result, the profit is not invested in America.

Not only are we one of the only countries still using worldwide taxation — Greece is another — but our corporate tax rates are the highest in the world. Other countries have cut their rates in recent years to better compete in world markets. America has not followed suit and has dropped in global competitiveness from No. 1 in 2008 to No. 7 today.

These two factors combine to hold back job creation and business growth. The Commerce Department's Manufacturing Council said a territorial tax plan would "allow manufacturers to make greater investment in expansion, innovation and job creation."

The Simpson-Bowles commission called for a switch to territorial taxation. So did the president's Export Council. Even Treasury Secretary Tim Geithner was willing to go along at one point last year, according to Bob Woodward's new book.

Why has Obama rejected the consistent recommendations of his advisers? Politics!

While Geithner reportedly admitted we should move to a territorial system, he also said it would go against "decades of Democratic orthodoxies." He could have just said, "unions." Labor unions have a long history of opposing territorial tax plans. Obama has a long history of doing what unions want, especially close to elections.

Success Punished

So the president simply walked away from what his treasury secretary had proposed. Instead of even considering this common-sense bipartisan idea, the president and vice president have resorted to false scare tactics. At the Democratic National Convention, Vice President Joe Biden claimed that a territorial tax system would create 800,000 jobs in low-tax countries instead of here. Fact checkers have pointed out that he's wrong.

Moving to a territorial system would make American firms more competitive around the world. It would let them bring overseas income back to the U.S. without paying a second tax and restore the incentive to invest that money on our shores instead of another country's.

Lowering corporate tax rates could help American businesses compete on a level playing field. The current tax code does the opposite. America's businesses want to grow and invest. Our worldwide tax system punishes them for their success in foreign markets.

We can expect businesses to obey the law. We can't blame them for the law's warped incentives and unintended consequences. The real blame lies with Washington for designing a tax system that makes it harder and more expensive for businesses to invest in America.

Obama has a chance Tuesday night to announce that he supports common-sense corporate-tax reform. If he doesn't, the blame will lie with him for thinking only of his own job and not jobs for America's workers.

• Barrasso, a Republican, is the junior senator from Wyoming.