Thomas Donlan of Barron’s explains why a race to the bottom makes sense when the topic is corporate income tax rates.

With redoubled determination, the U.S. Treasury Department has stepped up to the plate to take another swing at a big American tax problem. Unfortunately, the Treasury secretary and his tax officials hit another foul ball.

Treasury wrote new regulations to deal with inversions, which are tax-motivated mergers of corporations domiciled in the U.S. with corporations based in countries with lower tax rates. But the American problem actually lies with the taxes that prompt such mergers and the regulations that attempt to control the mergers.

High on the list of foolish injustices in the corporate-tax code is the attempt to tax income of U.S. corporations that is earned and taxed in other countries. Of course, the writ of the Internal Revenue Service does not usually run across oceans, so tax can be collected only when U.S. corporations bring their profits home.

Result: $2 trillion of profits parked overseas, waiting for the U.S. government to wise up—if it ever does. The money may also be waiting for its corporate owners to change citizenship. …

… The Treasury Department twice published regulations intended to make inversions more difficult, with scant effect. But the regs published last week sank the biggest merger yet, in which Pfizer intended to buy Allergan and save a billion or so in U.S. taxes by keeping the new company’s headquarters in Ireland.

Treasury’s latest rules were tailored to block the Pfizer-Allergan deal, and two days later, after the rules were published, the companies called off the $150 billion deal. Mission accomplished, as a president might say. …

… While Obama has spent seven years resisting corporate income-tax reforms focused on growth, he has asked Congress for reforms to produce more corporate-tax revenue.

Calling last week on a familiar trope about the importance of government investment, he said, “When companies exploit loopholes like this, it makes it harder to invest in the things that are going to keep America’s economy going strong for future generations.”

Obama’s subtext is that government is the best manager of investment capital. Unfortunately, he never hears the horselaugh that such a claim deserves.