Firms Back Tax Reform—Just Not Obama’s

American companies are happy to see President Barack Obama get the ball rolling on corporate tax reform. They just don’t like where it’s going.

The president has proposed letting companies bring back the approximately $2 trillion of profits now held at overseas subsidiaries at a tax rate of 14%. His proposal would then tax their ongoing foreign earnings at a minimum of 19%—a discount to the 35% standard corporate rate, but still higher than zero.

U.S. multinationals have long complained that their rivals in most other developed countries don’t have to pay taxes on the profits they make outside their home bases. Their priority is to level that playing field by eliminating taxes on profit that isn’t earned in the U.S.

“We as a country have to do something with the international tax code,” said Jeff Lasher, chief financial officer of footwear-maker Crocs Inc. The company had $350 million of cash and equivalents at the end of September, roughly three-quarters of it overseas.

Some firms have also hoped to pay taxes only in the single digits on cash they repatriate.

U.S. companies are holding billions of dollars at offshore subsidiaries thanks to an oddity of U.S. tax rules. American companies owe tax on their profits wherever they are earned, but they don’t have to pay those taxes until those earnings are sent home to the parent company. So corporations like Apple Inc. have kept the cash at the subsidiaries and then borrowed money needed to buy back shares and even pay dividends.

The practice has led to some odd contortions. Some firms have lots of cash but very little at their U.S. parent. Others do deals with foreign companies—called inversions—to relocate overseas and get freer use of internationally generated profits.

Mr. Obama’s proposal is an opening bid to break the logjam and raise $478 billion the government can spend shoring up the country’s infrastructure. But a wide gulf remains between the president’s idea and what many businesses hope to secure.

Marty Regalia, chief economist for the U.S. Chamber of Commerce, said multinationals don’t like being made responsible in effect for increased infrastructure spending and they don’t want to codify another tax on overseas profits. “I don’t expect our multinational companies to be all that excited about this,’’ Mr. Regalia said. ”Companies in the past have not expressed a great deal of interest to go down this path.’’

John Engler, president of the Business Roundtable, which represents CEOs of the biggest U.S. companies, took issue with the suggested 19% minimum tax on all future foreign profits. That would penalize U.S. companies that had long believed they would never owe such taxes as long as they invested their foreign profits abroad.

He also criticized President Obama’s proposed 14% tax rate on accumulated earnings that are repatriated. "That’s probably twice as much tax as has been proposed before on trapped foreign earnings,’’ he said.

Not all CEOs are grumbling. Scott Wine, CEO of snowmobile and recreational vehicle maker Polaris Industries Inc., said he sees merit in using a one-time repatriation tax to fund infrastructure investment, which could benefit his firm, though he would prefer a lower rate. He’s also pleased that the discussion has begun.

“American corporations are at a significant disadvantage due to our high corporate tax rates,’’ Mr. Wine said in an email sent while he was at the Super Bowl. ”So if this can be the beginning of a real discussion to make us more competitive, I am all for it.’’

U.S. industrial companies have emphasized the constraints that current tax laws place on their operations. United Technologies Corp. CEO Greg Hayes said in an interview just after he took over the company in December that he would like to buy back more of the company’s stock but is constrained because so much of the company’s cash is overseas.

Honeywell International Inc. Chief Financial Officer Tom Szlosek said last summer the company was racking up debt in the U.S. to pay for things it would otherwise have paid for with cash that was piling up overseas. “It would be wonderful to be able to take the cash that we have overseas and be able to use it for M&A, to be able to use it for other things,” Mr. Szlosek said. in July. “But the tax rules make it just cost prohibitive for us to do that.”

Spokesmen for Honeywell and United Technologies didn’t comment on the administration’s tax proposals

General Electric Co. indicated moving away from taxing overseas earnings is a priority. “We support comprehensive U.S. tax reform, including closing loopholes and adopting a competitive international system in line with those of most of our major trading partners,” spokesman Seth Martin said.

—Ted Mann contributed to this article.

Write to Vipal Monga at vipal.monga@wsj.com and Joann S. Lublin atjoann.lublin@wsj.com