America's number one enemy isn't Al Qaeda, Libya, North Korea, or Cuba. It's Bermuda! At least that is what Senator John Kerry of Massachusetts would like American voters to believe. At almost every campaign stop, he maliciously attacks 'Benedict Arnold corporations' who move to Bermuda. The insinuation, of course, is that Bermuda is some sort of predatory regime that provides refuge to scoundrels.

These irresponsible charges are repeated on the campaign's website, which states, "John Kerry will save jobs by ending the unpatriotic practice of US corporations moving jobs offshore (known as inversions) to avoid paying their fair share of taxes… He isn't afraid to crack down on corporations that are hiding their money in Bermuda to avoid paying their fair share and will end special tax giveaways to companies that ship jobs abroad."

It is difficult to decide what is most objectionable about Kerry's demagoguery, his deliberate smear of a friendly regime or his reckless disregard for accuracy. The denigration or Bermuda is certainly reprehensible, particularly since the territory's market-based tax policy and race relations are both much better than can be found in the United States. And for what it's worth, Bermuda also has much more onerous anti-money laundering laws than America, thus disproving Kerry's snide attempt to imply criminality.

But Kerry's inability to understand the issue also is troubling. It appears that he does not comprehend US tax law, which certainly fits with his reputation in the Senate as a legislative lightweight. But more disturbing is the fact that both he and his campaign staff make obvious errors with the simplest facts. The language on the campaign website provides several good examples. First, he confuses "outsourcing" with "inversions." Outsourcing occurs when a company purchases labour services in another country. Inversion is when a company re-charters in another jurisdiction. And while it is correct to say that outsourcing "moves jobs offshore", this has nothing to do with the inversion issue. Inversions take place because America's worldwide tax system and high corporate tax rate make it very difficult for US-chartered companies to compete with foreign-chartered companies, most of which come from nations with lower tax rates and territorial tax regimes.

Indeed, companies invert to places like Bermuda to save US jobs. Inversions give them the ability to compete on a level playing field with their major competitors around the world. This makes it easier to keep jobs and factories in America. Indeed, it is worth noting that Stanley had to lay off more than 1,000 workers after political pressure forced the company to abandon a planned inversion. Having a charter in Bermuda - as opposed to Delaware - is also much better for US jobs since it reduces the likelihood of a foreign takeover and the subsequent loss of high-level jobs for management and research. A good example is the Daimler-Chrysler merger. The combined firm is a German-based company in part because of America's anti-competitive tax code.

Another sophomoric mistake on the website is the accusation that companies hide money in Bermuda. Kerry would be completely - if uncharacteristically - accurate if he said inversions allow tax avoidance, but this is perfectly legal and is not hidden. Simply stated, it is not evasion when a company takes legal steps to get out from under America's uncompetitive worldwide tax system, just as it is not evasion when I buy a house and take a deduction for home mortgage interest.

Perhaps Kerry meant to say that US-chartered companies are "hiding money" by using "offshore" subsidiaries, something that has become an issue because of the Enron scandal. But even this charge would be inaccurate. Enron was hiding losses, not profits. Moreover, almost all of Enron's subsidiaries were in Delaware, Holland, and the Cayman Islands, not Bermuda. There are many companies that do have subsidiaries in low-tax jurisdictions like Bermuda, of course, but this is a legitimate form of tax planning and is fully reported to the IRS. If John Kerry wants to fix this alleged problem, he should propose to abolish America's Byzantine tax code and replace it with a simple and fair flat tax. Don't hold your breath waiting for this to happen.

Kerry's rhetoric is shameful and his command of facts is suspect, so what happens if he is elected President? Nobody knows for sure, but he may decide to never mention Bermuda again. Many politicians use certain issues only as convenient props during an election, so this optimistic assessment is not unrealistic.

But there also is a pessimistic scenario. Kerry's website specifically states that, "…inverters should not get government contracts or any other perks or incentives from the government." It is quite likely that this type of protectionism could become very prevalent under a Kerry Administration. Bermuda's reinsurance industry also could face discriminatory treatment. Kerry already has endorsed big tax increases, and there is pre-existing legislation in Congress to impose special new taxes on companies that purchase reinsurance through Bermuda-based companies. This is the same Bermuda reinsurance industry, incidentally, that came to New York's rescue after the World Trade Center disaster, paying its claims while US insurance companies often resisted payment, sometimes even going to court in an effort to avoid their responsibilities. Kerry may never get to the White House, so this entire discussion may be pointless. Nonetheless, it is rather unfortunate that this debate is occurring. The United States should be emulating Bermuda, not attacking it. Unfortunately, election years usually are not the best time for rational discourse.

Daniel J. Mitchell is the Washington-based Heritage Foundation's chief expert on tax policy and the economy.