Morning Brief: Popular Tax Breaks Sustain Complexity

The Atlantic argues that the extensive use of income tax breaks creates a complex tax system that many decry, but few are willing to unravel by eliminating popular deductions or the refundable credits that maintain progressivity. Furthermore, using the tax code to meet policy goals creates a hidden expense larger than Medicare or defense spending. A Wall Street Journal analysis found that the average income tax rate generally increases with rising adjusted gross income, even though many deductions and the lower capital gains tax rate disproportionately benefit those with higher incomes.

As the United States continues to run budgets with high deficits, politicians debate different plans to reduce government costs and to raise revenue. This CFR Backgrounder by Jonathan Masters outlines the competing policy paths on federal fiscal reform 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.

EPA Issues New Fracking Air Quality Rules

The Environmental Protection Agency (EPA) issued new air quality rules for “fracking” (WSJ). Fracking is shorthand for hydraulic fracturing, a process of injecting a mixture of water, sand, and chemicals into the ground to harvest hydrocarbons bound up in rock formations. The technique has helped power a surge in natural gas production and brought prices to historic lows, but experts are concerned about emissions of toxic and carcinogenic chemicals. The EPA rules limit the release of these compounds but will not take effect until 2015.

Oil Speculation’s Effect Debated

Earlier this week, President Obama proposed a five point plan to curb oil speculation (TheHill). The Obama administration argues that a significant portion of the rising oil and fuel cost is driven by financial speculators, but there is no consensus among experts (TheAtlantic). In analyzing the oil price spike between 2004 and 2008, the Federal Reserve Bank of St. Louis determined that 15 percent of the spike was due to speculation, but Paul Krugman and noted oil economist Lutz Kilian argued there was insufficient data to tie speculation to oil prices.

CFR’s Blake Clayton—Fellow for Energy and National Security—wrote an article for Foreign Affairs last week arguing that speculators are not to blame for rising oil prices.

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

How Leaders Smother Innovation

The Harvard Business Review discusses how four executive archetypes—cowboy, Googlephile, astronaut, and pirate—each tend to undermine innovation they seek to support. Tips to avoid these behaviors stress focus, dedication, and discipline: clear, finite research targets, little bets instead of grandiose ones, rules-based budgeting, and employing a small dedicated innovation staff rather than using a small portion of everyone’s time.

Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth.

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