Capital Formation Newsletter
March-April, 2008, Vol. 33, N0. 2

ACCF in the News...

The Next First 100 days

156th Policy Evening Assesses The U.S. Economic Slowdown: Short- and Long-Term Policy Options

How We Beat the ‘70s

(PDF Version)

“ACCF Project 100 Days” Features Senior Advisers to Leading Presidential Candidates

Under the banner of "ACCF Project 100 Days," the American Council for Capital Formation met with senior advisers to this campaign season's top presidential candidates. ACCF's message to each has been the same: First, sound capital formation policy needs to be at the top on the next president's agenda. Second, planning for the first 100 days can't wait for inauguration day. The next president needs to heed the examples set by Presidents Franklin D. Roosevelt, John F. Kennedy, and Ronald Reagan and sharpen his or her policy focus for those critical first 100 days in office.

To understand how each of the three major presidential candidates would approach the opportunities and the challenges of their "first 100 days," ACCF sponsored a program of "Conversations with the Senior Advisers to the 2008 Presidential Candidates." Senior advisers to Senators Hillary Clinton, John McCain, and Barack Obama each presented an overview of their candidates' perspectives on the path forward for the U.S. economy. The forums promoted an understanding of how each major presidential candidate would approach the opportunities and challenges ahead.

The ACCF forums featured the Honorable Gary Gensler, former Under Secretary for Domestic Finance in President Clinton's Administration, speaking on Senator Hillary Clinton's policy proposals; University of Chicago Graduate School of Business Professor Austan Goolsbee discussing Senator Barack Obama's economic views; and Dr. Douglas Holtz-Eakin, Economic Policy Chair for "John McCain 2008" and a member of the Board of Scholars of the ACCF Center for Policy Research, describing some of Senator John McCain's economic policy prescriptions.

"Americans have come to expect a slate of vigorous policy proposals to tackle major economic and domestic issues at the birth of each presidency," ACCF President and CEO Mark Bloomfield wrote in an op-ed in the widely read Capitol Hill newspaper, The Hill. In addition to the Iraq war and national security, which remain at the top of the country's concerns, a number of serious economic challenges facing the country have now risen to the forefront. The next president must use his campaign to build a mandate for change and be ready from "day one" to tackle the challenges before our country.

ACCF in the News...

ACCF/NAM Study Featured in The Wall Street Journal


The ACCF/NAM analysis of the "Economic Impact from the Lieberman-Warner Proposed Legislation to Reduce Global Carbon Emissions" was cited in an editorial in The Wall Street Journal on April 17, 2008. The Journal noted the study "…concludes that (the Lieberman-Warner bill) will result in as much as a 2.6% reduction in GDP by 2030." See www.accf.org for results of the study.

ACCF President Challenges Candidates to Focus on "The next first 100 days"

In an op-ed in the widely read Capitol Hill newspaper, The Hill," ACCF President and CEO Mark Bloomfield on April 16, 2008 warned that "Americans have come to expect a slate of vigorous policy proposals to tackle major economic and domestic issues at the birth of each presidency." He added that the next U.S. president will have to "act quickly to capture the honeymoon period and jump-start a legacy." See http://www.accf.org/pdf/04162008_Hill.pdf on the ACCF website, www.accf.org.

ACCF Directors Nickles and Stenholm Outline Economic Impact of Carbon Cuts in Investor's Business Daily Op-Ed

Former Senator Don Nickles and former Congressman Charles Stenholm stressed that "the economic debate over the cost of attempting to achieve (emission reductions) has gotten little attention despite the direct financial impact it will have on all our nation's citizens" in their op-ed appearing in Investor's Business Daily on April 14, 2008. Both former Senator Nickles and former Congressman Stenholm are members of the ACCF's Board of Directors. To read the op-ed, visit http://www.accf.org/publications/articles/IBD-041408.html on the ACCF website, www.accf.org.

ACCF Comments in Chicago Tribune and AP

ACCF President and CEO Mark Bloomfield warned in the Chicago Tribune that "any new financial regulations should tread lightly." In an article in the Associated Press, Mr. Bloomfield said, "There are some that are skeptical of the free market, and others who say don't touch the free market because you don't know the unintended consequences." Both articles ran on March 28, 2008.

ACCF Speaks Out on Impact of Climate Bill

Dr. Margo Thorning, ACCF senior vice president and chief economist, appeared on E&ETV on March 25, 2008 to discuss the impact of the America's Climate Security Act of 2008 (the Lieberman-Warner bill) on the United States and on specific states. To listen, visit http://www.eenews.net/tv/2008/03/25/ at the ACCF website, www.accf.org.

Regulatory Impact Is Focus of New York Times Article

"If we don't tread very carefully on restructuring a very complex financial system, we might stifle the necessary animal instincts of a free market," ACCF President and CEO Mark Bloomfield warned in an analysis of the outlook for new financial market regulation in the New York Times on March 23, 2008.

ACCF Perspective on "Money for Breakfast"

On March 18, 2008, Mark Bloomfield, ACCF president and CEO, was interviewed on the Fox Business program, "Money for Breakfast." Mr. Bloomfield discussed how current U.S. economic problems resemble those of the late 1970s and how they differ. Mr. Bloomfield made the case for tax policies that promote economic growth, job creation, and international competitiveness.

ACCF Op-Ed Appears in The Wall Street Journal

"How We Beat the '70s," an op-ed by ACCF President and CEO Mark Bloomfield appeared in The Wall Street Journal on March 17, 2008. He made the case that the "lessons from cutting capital gains taxes over the past thirty years should not be ignored." See http://www.accf.org/pdf/beat70s-WSJ.PDF on the ACCF website, www.accf.org.

Media Focuses on ACCF/NAM Analysis of National and 50-State Economic Impact of Climate Bill

Media coverage of the jointly sponsored ACCF/NAM study highlighting the national and 50-state economic impact of the Lieberman/Warner climate change bill (S. 2191) appeared in a number of outlets, including the Associated Press, E&E News, Birmingham Business Journal, Great Falls (MT) Journal, CongressNow, and Carbon Control News, March 14, 2008. To read the results of the ACCF/NAM study, visit the ACCF's website, www.accf.org.

ACCF Op-Ed Calls for Permanency for Capital Gains, Dividend Tax Cuts in Investor's Business Daily

"One way Congress can send a strong signal to Wall Street and Main Street and build an effective bulwark against recession and protect Americans' jobs is to act now to make the soon-to-expire 2001 and 2003 cuts in capital gains and dividend taxes permanent," Dr. Margo Thorning, ACCF senior vice president and chief economist, stressed in her op-ed that appeared in Investor's Business Daily, February 29, 2008. To read the op-ed, visit http://www.accf.org/publications/articles/IBD-022908.html

The Next First 100 days

The Hill
By Mark Bloomfield
April 16, 2008

It’s barely 100 days into 2008, but now is a good time to start thinking about the first 100 days of the next presidency. While the president-elect will have to take a fresh look at policy, the Beltway’s array of special interests will have to take a fresh look at a new face — and therefore, both sides ought to let history provide some guidance in creating a working relationship.

It goes without saying that successful campaigning and successful governing are not mutually exclusive. The next president may well experience a Robert Redford moment: like when, at the end of his surprise victory in “The Candidate,” he asks in the movie’s closing scene, “What now?”

Candidates should start thinking about the “what now,” particularly as the next president heads to the White House with the support of the voters and some message of “change” but faces a Beltway mentality where cynicism and gridlock have reigned for decades.

“What now” will be acting quickly to capture the honeymoon period and jump-starting a legacy. Franklin D. Roosevelt inaugurated the concept of the vital “first 100 days” when he swept into office and immediately tackled the onslaught of the Great Depression.

Similarly, John F. Kennedy sent Congress a flurry of broad proposals to promote rapid economic growth, reform taxes, provide opportunities for the less fortunate and ensure civil rights for all Americans.

When Ronald Reagan entered office, the country’s economic pot was boiling over with double-digit inflation, high interest rates and a decaying tax system. He successfully enacted a sweeping economic and tax package in his first months.

Americans have come to expect a slate of vigorous policy proposals to tackle major economic and domestic issues at the birth of each presidency. Candidates seeking to follow in the footsteps of presidents who have seen successful first 100 days should consider some “do’s” and “don’ts”:

• A successful president must use the campaign to acquire the necessary mandate for change. This mandate must be based on a vision and broad principles that are as well-articulated as they were under FDR, JFK and Reagan. All three were successful because they had all of the right ingredients — a climate ripe for change, normally balkanized interest groups speaking in unison for the good of the country, and a credible message that played in the heartland, on Capitol Hill and on K Street.

• Candidates can’t get too tangled in details, where the real devil lies.

• Don’t let winning preclude governing. The mandate cannot be built upon cheap political points that will become a setup for reneging later, much like former President George H.W. Bush’s “Read my lips” pledge on taxes, or the colorful former Louisiana Gov. Earl Long (D), who, when called on to keep a campaign promise for a new bridge, stated: “Tell ’em I lied.”

• Each of the candidates should pause for a long moment to figure out whether to bring legitimate K Street special interests into the big tent or to go over their heads to the American people. The former strategy, while more difficult, can present long-run benefits for the new president’s full term. After all, a president who can harness the reality and the strength of the American polity, diverse interests and constantly shifting alliances will be a president who goes into the history books as a success.

• Start now. For example, our organization has already met with the economic advisers of all the top presidential candidates. Ideas need to be formulated, scrutinized, debated and ultimately packaged for sale — long before their 100 days begin.

Likewise, for K Street, it will be important for Beltway insiders to start planning and finding common ground with one another for how to deal with the likely domestic policy positions of the next president. The challenges we face are not lessening. While Iraq and national security remain on everyone’s mind, the economic challenges facing us now have risen to the forefront.

The economy is showing cracks as the anticipation of a recession becomes a reality for Wall Street and Main Street. Most economists would agree that tax increases in an economic downturn are not a recipe they would recommend. How will the next president attend to the Bush-era tax cuts, which are set to expire in 2010? The Alternative Minimum Tax is a looming crisis for the middle class. Will the next administration be bold enough to finally overhaul a tax system designed during the age of buggywhips, chambermaids and printing presses, but which operates during the age of BlackBerrys, outsourcing and video file-sharing?

Our retirement system, both its private and public components, is at risk as millions of baby boomers approach age 65. The problems with our healthcare system call out for sober analysis and a unified voice. Will the next president have truly effective (and politically viable) healthcare plans ready to go in the first 100 days?

The answer to that question, like so many others, will be answered in a year. But the test, and preparation, begin now.

Mark Bloomfield is president and CEO of the American Council for Capital Formation , a nonprofit, nonpartisan organization dedicated to public policies supportive of saving and investment to promote long-term economic growth, job creation and competitiveness. Bloomfield also served as secretary of a President-Elect’s Task Force on Tax Policy.

156th Policy Evening Assesses The U.S. Economic Slowdown: Short- and Long-Term Policy Options

On April 1, the American Council for Capital Formation held its 156th Economic Policy Evening in Washington, D.C. The evening's discussion focused on The U.S. Economic Slowdown: Short- and Long-Term Policy Options. Guests included leading members of Congress, top journalists, and prominent business and association executives. Pictured, left to right: 1) Representative Earl Pomeroy (D-ND) and ACCF president & CEO Mark Bloomfield; 2) Tony M. Edwards, executive vice president and general counsel, NAREIT, Representative Shelley Berkley (D-NV),and Jim Angle, chief Washington correspondent, Fox News; 3) Zanny Minton Beddoes, economics editor, The Economist, Yuctan A. Hodge, II, manager, Strategic Planning, General Dynamics Corp., J. Stephen Larkin, president, The Aluminum Association; and Ruth Marcus, member, Editorial Board, and columnist, The Washington Post; 4) Rep. Pomeroy, Paul Schott Stevens, president & CEO, Investment Company Institute, and Mark Weinberger, Americas vice chairman of Tax Services, Ernst & Young, LLP; 5) Representative Neil Abercrombie (D-HI); and 6) Charles Fritts, vice president, Government Relations, American Gas Association, Red Cavaney, president & CEO, American Petroleum Institute, and Dr. Margo Thorning, ACCF senior vice president and chief economist.

How We Beat the ‘70s

Wall Street Journal
By Mark Bloomfield
March 13, 2008

(PDF)

With rising oil prices, rising unemployment, and inflation eating away at the economy, a powerful politician pushes for a populist tax hike in Washington.

It sounds a little like the current state of play. But the year was 1978, the push for a tax hike came from President Jimmy Carter, and the tax in question was on capital gains. Mr. Carter wanted to tax capital gains at the same rate as ordinary income -effectively doubling the rate for many taxpayers.

He didn't get his tax hike, but he did spark a pro-growth insurgency that reframed the tax debate.

The chief insurgent was Republican Rep. Bill Steiger of Wisconsin, who called for cutting the top capital gains tax rate almost in half. From its inception, the 1978 "Steiger amendment" won bipartisan support. In the Senate, Democrat Russell Long (then chairman of the tax-writing committee), Alan Cranston (the second-ranking Democrat) and Republican Clifford Hansen signed up 59 Democrats and Republicans to co-sponsor legislation to cut capital gains taxes.

Within weeks, political and popular support turned in favor of the tax cuts as more people acknowledged that lowering the rates would reward the middle class for saving and investing, not just "fill the pockets of fat cats." Soon the Carter tax increase morphed into a tax cut, bringing the top rate down to 28% from 50%.

What prompted this unexpectedly strong support for lower taxes on capital gains? The tax on capital gains may have been seen as a tax on the rich by some in Washington, but most Americans saw it differently. People believe in the American Dream, the old-fashioned Horatio Alger rags-to-riches story. A tax on capital gains is a tax on the hard work and risk-taking people undertake to build their own wealth.

Mainstream economists know that lower capital gains taxes result in lower capital costs, more saving and investment, and a stronger economy. And ordinary citizens understand that low taxes on capital gains can make it possible for them to buy a new lathe or the newest software, which will give them the chance to compete effectively in today's global economy. Retirement security is also at stake. Low taxes on capital gains allow Americans to build up larger nest eggs.

The 1978 capital gains tax cut was an economic success, as we saw in the 1980s. What followed was a period of fluctuating capital gains tax rates. But a second round of substantial rate cuts came in 1997. Again the result was a clear benefit to the economy. The tax cut was pushed through by Sens. Joe Lieberman (then a Democrat) and Orrin Hatch (a Republican), and it took the top capital gains tax rate to 20% from 28%. President Bill Clinton signed the bill into law. According to a 1999 study by David Wyss of Standard & Poor's DRI, an economic consulting firm, the 1997 tax cut increased GDP, investment and jobs, and raised federal tax receipts.

Today, as in 1978, we are facing pressure to put in place a populist tax increase-in this case to eliminate "tax breaks for the rich"-at a time of rising oil prices and signs of rising inflation. This pressure is coming from two presidential candidates as well as Rep. Charles Rangel, chairman of the House tax-writing committee, who is proposing comprehensive tax reform, which in his view includes increasing the tax on capital gains.

But Mr. Rangel, a highly regarded and respected policymaker, is also calling for a full-scale and honest debate on tax policy. This is a debate we should welcome. Let's put the best economists to work and the best research on the table. Let's look at the fact that, as a recent study by the Organization for Economic Co-operation and Development pointed out, nearly half of the 30 countries surveyed do not subject individuals to any tax on capital gains. And let's consider that not keeping our capital gains tax at its current rate (15%) will put us at a disadvantage when competing for global capital.
On Jan. 20, a new president and a new Congress will begin work on a new economic policy. The lessons from cutting capital gains taxes over the past 30 years shouldn't be ignored.

President John F. Kennedy may have said it best in 1963 in a message to Congress: "The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital from static to more dynamic situations, the ease or difficulty experienced in new ventures in obtaining capital, and thereby the strength and potential for growth of the economy."

I couldn't agree more.

Mr. Bloomfield is president and CEO of the American Council for Capital Formation. He served as an aide to the late Rep. William Steiger (R., Wis.).