With the U.S. presidential election, along with many Senate and House elections, a little more than three months away, the economy and the proper role of taxes are taking center stage.

Consider President Obama's remarks at a recent campaign event in Cincinnati regarding challenger Mitt Romney's support for a territorial tax, or one in which income is taxed in the country where it is earned. "By eliminating taxes on corporations' foreign income, Governor Romney's plan would actually encourage companies to shift more of their operations to foreign tax havens, creating 800,000 jobs in those other countries," the President said.

A recent study by Kimberly Clausing, professor of economics at Reed College in Oregon, supports the President's figures. A purely "territorial system" in which the foreign income of U.S. multinational corporations is completely exempt from U.S. taxation "would significantly exacerbate incentives for U.S. firms to move economic activity abroad," Clausing writes in "A Challenging Time for International Tax Policy."

Clausing arrived at her figure using employment tax response elasticity figures -- that is, figuring how much employment changes in response to tax policy, and also by looking at actual employment and effective tax rate data for U.S affiliates in other countries.

The professor acknowledges that many other countries have moved to a territorial system; of the 34 OECD member nations, 26 have a territorial system or something close to it, according to information from PwC. However, Clausing says that most combine these with provisions that discourage companies from shifting jobs to countries with low tax rates. Moreover, some territorial tax systems do tax foreign income. Japan, for instance, taxes foreign income when the tax rate in the country is less than 20 percent, Clausing writes.

Clausing also points out that while U.S. taxes currently are assessed on a worldwide basis, loopholes allow companies to book income from U.S. operations as if it was generated in low-tax countries. That reduces overall corporate taxes in the U.S. by about $90 billion annually, she states.

Still, not everyone is convinced of Clausing's conclusions. Philip Dittmer, a research fellow with the Tax Foundation, writes that the "measure of 800,000 jobs is simply foreign employment growth. It does not mean job 'displacement' or 'migration' out of the U.S." And, lowering corporate tax rates in the U.S., as candidate Romney and other propose as part of a shift to a territorial system, likely would mitigate any flow of jobs overseas, he adds.

Even the President's own National Commission on Fiscal Responsibility and Reform supported a move to a territorial system. The Commission's 2010 report states, "A territorial tax system should be adopted to help put the U.S. system in line with other countries, leveling the playing field."

Perhaps the only thing everyone who analyzes the U.S.' current tax system can agree on is contained in the first line of Clausing's report: "By any measure, the current U.S. system of taxing multinational corporations is broken," she writes.

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