The bit about eliminating incentives to create jobs overseas is an attempt to raise taxes on US multinationals.  The problem is that US multinationals already pay the highest rates in the world and are at a severe disadvantage to foreign competitors. (Japan was #1 but they just changed to territorial taxation which lowers their effective rates.)

So now Canada, Europe, and Japan (primary competitors to the US) have territorial taxation and their corporate tax rates are low or are getting lower. The US has a global/credit system, has arguably the highest effective corporate tax rates and is about to make them higher. If this happens, it will either hurt US firms’ competitiveness or drive them offshore. What idiot came up with this policy initiative?

Here is why Obama should embrace tax competition: it is the government’s role to make the country attractive to capital investment, which creates jobs and raises standards of living for its citizens. My company has located most of its North American operations (ie all the jobs) in Canada because the government there has made Canada a much more attractive place for capital, mainly through lower employment taxes and benefit costs. If governments don’t succeed in attracting capital to their jurisdictions, they are not able to deliver better standards of living to their citizens. The Canadian govt gets this; Obama rejects it.

The counter-example is California, where the government is so actively hostile to capital that capital is fleeing, and the California legislature is stuck trying to take ever-bigger slices of a shrinking pie. As California goes, so goes the nation.

Obama proposed to limit itemized deductions to a 28% rate regardless of one’s marginal rate.  The White House justified this with a fairness argument: they say it is not fair that the deduction is more valuable to taxpayers in higher brackets.  The nonprofits screamed that this would really be a tax on them and the proposal appeared to be dead.

However, EJ Dionne just wrote an editorial where he trotted out this same fairness argument:

Obama’s proposal is based on a sound intuition: Do we really believe it’s fair that when a married couple with a taxable income of $50,000 gives $1,000 to charity, they get a tax benefit of $150, while a couple earning $1 million making exactly the same contribution gets back $350? Is it fair that the higher-income couple also gets a bigger tax advantage on their mortgage payments?

The value of the deductions is currently worth more to the higher-income couple because they pay taxes at a higher rate. Obama wouldn’t even close the whole gap. Applied to this example, his 28 percent cap would still let the wealthier couple deduct $280.

Dionne answers his own question but then ignores the answer.  The higher value on the deduction is fair because of the higher marginal rate.  This whole proposal is an attempt to raise marginal tax rates without having to call it a tax increase.

Dionne justifies the tax increase by saying we need to tax the wealthy to raise revenues for universal health care.  The alarming thing here is the narrowing of the tax base: Obama and friends seem to want the country to be a place where most people get government entitlements but only a small number of people actually pay taxes.  We can look at the job losses and capital flight in California to see how well that will work for the country.