DETROIT - Presidential candidate John Kerry, eager to rebut charges that he is a tax-and-spend Democrat, on Friday proposed cutting the corporate tax rate and paying for it by eliminating incentives for U.S. companies to shift jobs overseas.

In the battleground state of Michigan, hit hard by the flight of manufacturing work to other countries and suffering from an unemployment rate of 6.6 percent -- a full point above the national average -- Kerry offered an economic trade-off he said would help create 10 million jobs in four years.

'CUT CORPORATE TAXES' U.S. Presidential candidate and Massachusetts Senator John Kerry (L) sits on stage as he waits to speak at Wayne State University March 26, 2004 in Detroit, Michigan. REUTERS/Rebecca Cook

He pledged to end a tax provision that lets companies defer paying U.S. taxes on income earned by foreign subsidiaries and said he would use the $12 billion in annual savings to fully fund a 5 percent cut in corporate rates.

"Today we have a tax code that does more to reward companies for moving overseas than it does to reward them for creating jobs here in America," Kerry said in a speech at Wayne State University.

The proposal, one piece of a broader job-creation package to be unveiled over the next few weeks, amounted to "a simple tax cut" for the 99 percent of American companies that did not send jobs overseas, according to Kerry economic adviser Gene Sperling.

It comes when President Bush and his Republican allies are portraying the four-term Massachusetts senator as one of the main opponents of tax relief in Congress who has voted more than 350 times for increases.

"This is nothing but a reshuffling of the tax code and a political shell game," White House spokesman Scott McClellan said.

Kerry called his plan the most sweeping reform of international tax law in 40 years. Sperling cited it as evidence that the senator "has always been a pro-growth, pro-jobs Democrat."

"Some may be surprised to hear a Democrat calling for lower corporate tax rates," Kerry said. "The fact is, I don't care about the old debates. I care about getting the job done and here in the United States of America."

MICHIGAN A KEY BATTLEGROUND

Michigan, home to the automobile industry, is a key battleground in the Nov. 2 presidential election. In 2000, Democrat Al Gore won the state by five percentage points over Bush.

Under existing law, U.S. companies do not have to pay taxes on foreign income until they bring it back to the United States. If they keep it abroad, they can avoid taxes entirely.

Kerry's plan would tax profits from foreign subsidiaries just like domestic profits. It would still allow companies to defer the income earned by production overseas if they are serving foreign markets.

The $12 billion saved would pay for a cut in corporate tax rates, to 33.25 percent from 35 percent.

Kerry's plan would expand a proposal for manufacturing job tax credits to include industries that the Commerce and Labor Departments determined to be at risk of being outsourced.

It would offer a one-year, 10 percent tax holiday to encourage companies that are keeping profits overseas to avoid taxes to bring them back to the United States.

The Detroit speech was the first of three Kerry will deliver in the next few weeks on his plans to create jobs. The second will focus on jobs tied to energy and other technology, while the third will outline efforts to restore U.S. fiscal discipline and economic confidence.

Kerry, who has promised to cut the budget deficit in half during his first term, says he will soon release a complete economic plan with a full breakdown of the figures he is using.

He has vowed to repeal Bush's tax cuts for Americans earning more than $200,000 a year, create new tax breaks for the middle class, pay for a health-care plan costing $72 billion a year and increase spending on a variety of programs.

© Copyright 2004 Reuters Ltd

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