A reader of my recent blog about the Obama Administration’s international tax proposals sounded a note of exasperation that’s becoming increasingly familiar when corporate tax pros discuss the issue: “Why NOT bring in money from other countries? What’s wrong with putting a McDonald’s in India? It brings money into the organization as a whole, which means they can pay higher salaries,” argued Ralph Comstock.

Sound points, and Ralph might have added that there’s precious little evidence that the President’s proposals will do what they’re intended to do, i.e., increase employment in the United States by curtailing activity in lower-tax jurisdictions abroad.

The day after my post, the Tax Foundation released a report arguing that the Administration’s program will backfire by undermining the competitiveness of U.S. companies, and that it’s taking the U.S. in exactly the opposite direction of most tax authorities around the world.

The first part of the argument is familiar enough: The U.S. system combines high statutory corporate income tax rates with deferral of tax until the money’s repatriated — take away the deferral and you take away the only thing that allows U.S. companies to compete on a relatively level playing field with foreign firms. (As usual, the Foundation glosses over the knotty question of how far statutory rates translate into effective rates; a Treasury report last May estimated the effective tax rate on U.S. multinationals’ foreign earnings at around 2.3 percent, and the deferral is only one part of the difference.)

But for me the real eye-opener here is just how dominant the territorial approach is becoming worldwide. Countries that operate a territorial tax system exempt foreign earnings from income tax. The list of such authorities is long, according to the Tax Foundation; it includes Australia, Canada, New Zealand, and a bunch of E.U. countries (France, Germany, the Netherlands …). And it’s growing — Britain and Japan both joined the territorial army last year.

Countries with a foreign-tax-credit system like the United States’ can literally be counted on one hand: Ireland, Korea, Mexico, and Poland.

If the U.S. maintains its high statutory tax rates and its foreign-tax-credit system and eliminates deferral, it may find itself in a unique position globally.

But being on the opposing side to the territorials doesn’t look like a good idea. ###