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President Obama traveled to Ohio today to outline a series of economic proposals. They include new tax breaks for businesses. At least on paper, American businesses pay some of the highest taxes in the world, but they also get plenty of deductions and exemptions. Corporate taxes and changing them are the topic today in our series on tax cuts.

Heres NPRs Jim Zarroli.

JIM ZARROLI: Republican Senator Judd Gregg of New Hampshire says if Washington really wants to fix the economy, it should start by cutting corporate taxes.

Senator Judd Gregg (Republican, New Hampshire): We want to create jobs here by attracting companies from overseas to invest here, and we want our American companies to expand here. We should have a tax law that incentivizes them to do that.

ZARROLI: Gregg, a conservative, recently teamed up with liberal Democrat Ron Wyden of Oregon to propose a bill that would overhaul the nations tax code, in part by cutting the corporate tax rate.

Douglas Shackelford, professor of taxation and accounting at the University of North Carolina says countries all over the world have been cutting business taxes to help their companies compete, leaving the United States at the high end.

Professor DOUGLAS SHACKELFORD (Taxation and Accounting, University of North Carolina): We have a 35 percent tax rate and that rate is now considerably higher than basically everybody but Japan, which is considerably higher above everyone else.

ZARROLI: At least on paper, �businesses pay 35 percent of their profits in federal taxes. And the rate approaches 40 percent when state taxes are included.

But Steve Wamhoff of Citizens for Tax Justice says most companies dont actually pay that much.

Mr. STEVE WAMHOFF (Legislative Director, Citizens for Tax Justice): Theres a huge number of special breaks and loopholes for corporations that are pretty outrageous. And in some cases they can even result in a negative tax rate on the return from certain corporate investments.

ZARROLI: For instance, companies get a huge deduction for domestic manufacturing expenses.

Mr. WAMHOFF: They define manufacturing to include all sorts of crazy�things like producing hamburgers for fast-food restaurants, writing software, extracting oil - things that we would not really call manufacturing.

ZARROLI: And thats only one example. There are special tax breaks for industries like timber and oil. Globalization gives companies other opportunities to maneuver through the tax code. They can set up offshore subsidiaries to shift profits to low-tax countries. They can borrow money in the United States, take a tax deduction and send what they borrow to an overseas division. Companies are quick to take advantage of these tax breaks and often their shareholders pretty much demand it.

Larry Harding is president of High Street Partners, which advises companies that do business overseas.

Mr. LARRY HARDING (President, High Street Partners): So youre incented to, you know, sign up advisers and structure a Cayman Islands entity and do all sorts of different things. And basically, you could keep going and going and really get to a point where the tail is wagging the dog, in terms of really having your tax advantages alter how you might otherwise do business.

ZARROLI: When all these breaks and exemptions are taken into account, the effective U.S. tax rate for corporations ends up being about 29 percent. Citizens for Tax Justice says that is about the median for major countries. But the complexity of the tax code also exacts a toll on U.S. companies.

Mr. BRAD MILLER (CFO, Emptoris): So this is customer support here.

ZARROLI: Brad Miller is chief financial officer at Emptoris, a software company off Route 128 in Boston. The company has been expanding a lot and it has offices throughout China, India and Europe. Miller says trying to comply with the U.S. tax code can absorb a lot of resources. Take employee expenses...

Mr. MILLER: So for example, your typical hotel room would be deductible. To the extent they do something thats viewed by the IRS as entertainment, thats not deductible. I have to have a way of keeping track of those things and making sure that theres integrity to the way that each one of those different sets of costs are tracked.

ZARROLI: To take advantage of the tax code without crossing the line into doing something illegal, companies have to be sure they have good lawyers and tax advisers. And some companies, especially small ones, may not have the resources to do that.

The bill proposed by Senators Gregg and Wyden would create a more level playing field. It would lower the tax rate and also strip the code of a lot of deductions and exemptions. But at a time when the budget deficit is so large, any attempt to lower the tax rate is going to face extra scrutiny in Congress.

Jim Zarroli, NPR News.

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