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Morning Brief: Tax Breaks are Expensive and Popular

by Renewing America Staff
March 26, 2012

U.S. 1040EZ Individual Income Tax form at the main Post Office in New York (Chip East/Courtesy Reuters) U.S. 1040EZ Individual Income Tax form at the main Post Office in New York (Chip East/Courtesy Reuters)

The nonpartisan Congressional Research Service (CRS) reported that income tax credits and deductions cost over $1 trillion annually in foregone revenue. Eliminating these special tax incentives could yield a simpler tax code with smaller rates. However, elimination would be unpopular as over 90 percent of the potential savings is concentrated into 20 programs that benefit millions, such as the mortgage-interest deduction, and the non-taxable status of employer provided health insurance. Both the Washington Post and Wall Street Journal analyzed the report.

This CFR Backgrounder outlines the competing policy paths on fiscal reforms and the global consequences for failing to bring down U.S. Debt.

Debt and deficits. Read more from experts on the challenges in reducing U.S. debt.

Infrastructure

Dry Winter Fallows Californian Farmland

After an unusually dry winter, California’s Central Valley farmers fallow farmland (WSJ) in response to water allocation cutbacks. California’s water infrastructure is not able to adequately smooth out yearly fluctuations in precipitation, and weak water rights ensure that farmers bear the brunt of droughts. Economic effects will ripple beyond the Central Valley; farm payrolls will be reduced and declining production will raise prices on supermarket shelves.

Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness.

International Trade and Investment

Apple’s iPad may be hurt by Chinese Trademark Reforms

Proposed reforms to strengthen Chinese intellectual property laws—including higher damages for infringers—are usually cheered by large multinationals; half of American firms in China said IP infringement hurt their businesses. Bloomberg discusses how domestic Chinese firms are better protecting their IP rights. Consider the iPad; disputes over Apple’s contract with the Hong Kong firm that has owned the trademark to IPAD since 2001 has exposed Apple to infringement damages in the largest market for iPads outside of the United States.

International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy.

Corporate Regulation and Taxation

Shareholder Pressure Restrains CEO Pay

The Wall Street Journal reports that despite robust revenue and profit growth, total direct compensation growth for CEOs stalled in 2011. As the SEC increases disclosure requirements for executive compensation, shareholders pressure directors to keep pay in line with performance. Many of the 65 firms surveyed missed performance targets—despite median growth rates of 9 percent for revenue and 17 percent for net income—and so CEO pay rose just 1.4 percent.

Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform.

Education and Human Capital

Start-Ups Flourish in Education Technology

The Chronicle of Higher Education reports that venture capital investment in education technology tripled in the past five years. VCs believe education is poised for a digital revolution, with key enablers in place: widespread wireless and high speed networks, growth of smartphones, and increased comfort with cloud software. While the potential benefits of emerging technologies are large, successful entrepreneurs will need to surmount cultural differences between business and education.

Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies.

Steven J. Markovich holds an MBA from the University of Chicago’s Booth School of Business.

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