Morning Brief: Delaware, the Onshore Tax Haven

Delaware is the legal home of nearly half of all U.S. public corporations, though that home is often a simple dropbox (NYT). In 2011, corporations paid roughly $860 million in taxes and fees to the state, but other states claim Delaware's tax loopholes have cost them billions. Delaware treats income from certain intangible items such as trademarks, royalties and leases as non-taxable. Incorporating in the state can take less than an hour making it easy for corporations to take advantage of tax breaks, while Delaware's secrecy provisions attract criminal enterprises. The chairman of the Cayman Islands stock exchange decried the lack of a “level playing field.”

With the highest statutory corporate tax rate in the world—35 percent for federal taxes only—the United States is at a competitive disadvantage. This CFR Backgrounder by Jonathan Masters discusses the effect of current policy, and proposals for U.S. Corporate Tax Reform.

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

Congress Approves Two-Year Transportation Bill

On Friday Congress passed a transportation bill that secures $120 billion in federal funding for highway, bridge, rail, and mass transit projects for twenty-seven months (NYT). The advocacy group Taxpayers for Common Sense expects the program to require $18.8 billion in general tax revenue to supplement funds from gasoline and diesel taxes; fuel tax rates have not changed since 1993. The editors of the New York Times were generally optimistic, though acknowledged the bill was flawed. Judith Rodin was more pessimistic, arguing that the bill was “a significant step backward” (The Atlantic).

The first Renewing America Progress Report and Infographic Scorecard, assesses the current state of U.S. transportation infrastructure policy. The report concluded that, even with passage of the bill, “the United States will struggle simply to maintain, much less improve, its transportation infrastructure.”

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.

State-Directed Innovation

Emerging nations are using state coffers to grow innovative businesses that can challenge U.S. multinationals (Bloomberg Businessweek), writes CFR's Joshua Kurlantzick. Brazil’s strategic investments—incentives, loans and subsidies—supported firms like regional plane giant Embraer and oil firm Petrobas when private investors were hesitant. India has more than forty state-owned research labs, which together hold more U.S. patents than all private Indian firms combined. Singapore’s efforts to support innovation critical industries—initial angel investment, immigration policies that woo talented foreign workers, and funding basic research in universities—could serve as a model for developed economies.

Shrinking Global IPO Market

Despite Facebook’s large debut, funds raised by initial public offerings (IPOs) are down sharply in 2012 (WSJ). Analysts blame uncertainty in Europe and signs that China’s growth and the U.S. recovery are slowing. One banker observed: “It's increasingly difficult to bring an IPO to the marketplace now. We expect the market to remain so until we get some positive direction in the 'macro' environment.” U.S. IPO funding was up, but that was largely due to Facebook, the largest deal worldwide in 2012.

In the face of persistently high unemployment, policymakers and workers look to innovation and entrepreneurship, the primary engine of U.S. job growth over the past thirty years. This CFR Backgrounder by Steven J. Markovich discusses how entrepreneurs create and finance startups and the ramifications of policies such as the JOBS Act on the U.S. IPO market.

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

Five More States Get NCLB Waivers

Education Week reports that Arkansas, Missouri, South Dakota, Utah and Virginia received waivers from the Department of Education for mandates of the No Child Left Behind Act (NCLB). The five states submitted detailed plans for addressing lagging performance of subgroups in failing schools, and improvements to teacher evaluation systems. Twenty-four states now possess NCLB waivers, with thirteen states waiting. Virginia has not adopted the Common Core State Standards (CCSS), so its waiver came as a surprise to some observers.

The report of the CFR Independent Task Force on U.S. Education Reform and National Security highlights the importance of CCSS and asserts that fixing the nation’s underperforming K-12 schools is critical to economic competitiveness and national security.

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

The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.