May 21 (Bloomberg) -- President Barack Obama vowed this month to create employment at home by ending tax incentives for U.S. companies such as Caterpillar Inc., General Electric Co. and Microsoft Corp. that “ship jobs overseas.”

A $190 billion measure Obama proposed this month will create few, if any, jobs, according to economists, businesses and some of the president’s supporters. Ending the three offshore tax-avoidance techniques may even have a negative effect by slowing expansion to new markets that helps boost domestic output, some experts said.

“It’s sort of a red herring,” said Eric Toder, a fiscal policy expert at the Washington-based Urban Institute and a former Treasury tax official under President Bill Clinton. Toder said while Obama’s proposals will “close loopholes that erode the corporate tax base,” they aren’t “going to have any effect on employment in the U.S.”

On May 4, Obama said Democrats have “for years” called for “ending tax breaks for companies that ship jobs overseas and giving tax breaks to companies that create jobs here in America.” That is what his proposal will do, he said.

That message -- a staple of the campaign pitches of Democratic presidential candidates including Obama in 2008, Massachusetts Senator John Kerry in 2004 and Vice President Al Gore in 2000 -- is partly aimed at labor groups. They’ve argued that repealing the tax breaks would help bring back some of the 3 million U.S. manufacturing jobs that have been lost since 1988.

‘Shirk Their Responsibility’

“American businesses reap the benefits of millions spent on Washington lobbying with tax codes that allow them to shirk their responsibility to pay taxes and actually pay them to create jobs overseas,” said Anna Burger, secretary-treasurer of the Service Employees International Union, the second-largest U.S. labor group.

For their part, companies and business groups said they plan to fight Obama’s proposal by warning that it will destroy jobs.

“If the Obama tax proposals are adopted, the U.S. share of the global marketplace will erode, and this will have a long- term detrimental effect on the jobs in the U.S. that support those markets,” said Cathy Schultz, vice president for tax policy at the National Foreign Trade Council, one of several Washington lobbying groups that have formed a coalition that includes companies such as GE and Microsoft to oppose Obama’s plan.

Domestic Benefits

The coalition cited research indicating that overseas expansion stimulates domestic growth and job creation.

“Firms that grow abroad grow domestically as well,” said Fritz Foley, a professor at Cambridge, Massachusetts-based Harvard Business School who wrote a study of the issue with Harvard colleague Mihir Desai and economist James Hines of the University of Michigan in Ann Arbor.

Ginny Terzano, senior director of public affairs at Redmond, Washington-based Microsoft, said that has been the world’s biggest software maker’s experience.

“Our foreign operations support thousands of high-paying jobs for Microsoft’s U.S. employees,” she said.

Anne Eisele, a spokeswoman for Fairfield, Connecticut-based GE, the world’s biggest maker of power-plant equipment, said the company wants to ensure that any changes to U.S. tax laws won’t impede its ability to compete.

‘Whip the Multinationals’

“We need to get off of the, you know, ‘let’s whip on the multinationals because they’re offshoring jobs,’” said Jim Owens, chief executive officer of Peoria, Illinois-based Caterpillar, the world’s largest maker of bulldozers and excavators.

In a conference call Treasury officials held with more than 100 companies earlier this month, Foley asked Gene Sperling, an economic adviser to Treasury Secretary Timothy Geithner and an architect of Obama’s tax proposals, to demonstrate the correlation between lost U.S. jobs and tax policy. Sperling asked to continue the discussion privately.

He later cited papers by Congressional Research Service economist Jane Gravelle and by University of Michigan tax lawyer Reuven Avi-Yonah and economist Kimberly Clausing of Reed College in Portland, Oregon. Both studies, Sperling said in an e-mail last week, show “the tax code provides an incentive for companies to invest and create jobs overseas instead of investing and creating jobs at home.”

Limiting Deductions

Obama’s proposals would limit U.S. companies’ ability to take most expense deductions against foreign profits on which they are deferring U.S. tax; repeal so-called check-the-box rules that companies use to shift foreign profits to offshore subsidiaries; and tighten rules for claiming foreign tax credits.

The administration proposes to use about $75 billion of the $190 billion in new revenue to make permanent a research tax credit that it said would create jobs, though it didn’t specify how many. That credit has expired and been renewed 13 times since 1986 and has fully lapsed only one year in that period.

Jason Furman, a White House economic adviser, said in an online discussion that the “goal of this is not to stop American companies from competing and succeeding in the global economy.” Instead, he said, the proposal will “shift more investment and job creation to the United States.”

Gravelle said in an interview that overhauling the tax rules may ultimately redirect some investment to the U.S., though the administration may be overselling the jobs impact.

“You’re not going to see anything in the near term,” she said.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net.

Last Updated: May 21, 2009 00:01 EDT