In his address to Congress on Tuesday, President Obama devoted exactly one sentence to corporate tax policy. But it was a significant one: “We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.”

Clearly the President intends to target the rules that allow U.S.-based corporations to defer income taxes on revenue earned by their overseas subsidiaries until that money is brought back to the United States. His efforts will be buttressed by a recent GAO report showing massive use of overseas low-tax jurisdictions by large U.S. companies, as well as outraged calls from fellow Democrats to crack down on overseas tax havens, as I reported in my last post.

It’s hard to see what can stop this particular Obama steamroller. So far, few voices have pointed out the obvious reason why these corporations keep billions of dollars stashed overseas: the double taxation of foreign operations’ income, by the United States — at a notoriously high statutory rate — and by the foreign jurisdiction.

Senator Charles Grassley, the ranking Republican on the Senate Finance Committee, came close in an NPR interview in which he noted that “the United States has a corporate tax system that’s a lot different than other countries’. From that standpoint, what we have to do — with the highest marginal tax rate of any corporate tax in the world — we have to make sure that we have the incentives to keep business within our country and to keep our businesses competitive with others’ …”

Really? The highest in the world?

Grassley’s right — almost. The U.S. top statutory tax rate of 35 percent is actually the second highest among developed countries (after Japan’s), according to a much-cited OECD study of its 30 member nations published last year.

But if you look at what really counts — the effective tax rate on foreign-source income — you get a very different picture. An August 2008 study by the Government Accountability Office pointed out that “… the United States imposes only a residual tax on foreign income, after providing a credit for taxes paid on that same income.” Combine that break with the deferral, and you get an average effective rate of around 4 percent, according to the GAO.

Still, the current Byzantine system serves nobody’s purposes, least of all the federal government’s. Grassley is calling for a reduction in the top corporate tax rate, as well as broadening of the tax base and elimination of loopholes, which might go some way toward easing companies’ huge compliance burden for foreign-source income tax. If the Obama administration does it right, ending the “tax breaks for corporations that ship our jobs overseas” might not be such a big loss for businesses after all. ###