Senator Hagel Speaks on U.S. Global Economic Leadership at ACCF Forum

ACCF on the Road in Seattle and Brussels

Comparison of Estate Tax Plans

Capital Formation Abroad: Germany Enacts Bold Tax Cuts

Senator Hagel Speaks on U.S. Global Economic Leadership At ACCF Forum

"We live in a global world and a global society and we must ask ourselves what role a great nation like ours should play in this new world," Senator Chuck Hagel (R-NE) told ACCF supporters at the June 29 Capital Formation Forum. "We face crucial decisions on issues such as U.S. trade relations with China, a national missile defense system, and international sanctions, among many others, all of which affect not only our own country but also the well being of nations around the globe. We can no longer look back to a time when we were less connected to the world. That time is over."

Senator Hagel, who chairs the Foreign Relations Subcommittee on International Economic Policy, Export and Trade Promotion, also serves on the Committees on Banking, Housing, and Urban Affairs; Special Aging; and Health, Education, Labor and Pensions. He is a Republican Deputy Whip and chairman of the Senate Government Oversight Task Force. As chairman of the Senate Global Climate Change Observer Group, he joined forces with Democratic Senator Robert Byrd (WV) on a resolution that sent a signal to the Clinton Administration that the Senate would not support a treaty that might impose emission limits on the United States but not on developing nations. The measure passed, 95-0.

"The world is so competitive and the United States is so big, we policymakers in Washington don't see what's really happening," Senator Hagel said. "Policymakers are often snagged in the underbrush of politics and let go of larger questions. We have to guard against this. The role of the business community is to bring 'real' voices to the debate." He commended the ACCF and its supporters for helping inform members of Congress. "What you do is very useful," Senator Hagel said. He added that the question of permanent normal trade relations with China illustrates how the business community can play a role in key policy issues. Senator Hagel noted that many policymakers have focused on human rights issues in the China trade debate and lost sight of the larger political and economic questions involved in the issue.

Turning to the upcoming national elections, the Nebraska Republican said he thinks the 2000 presidential race is one of the most critical in many years. "We have squandered opportunities over the last eight years and now tough decisions must be made. The U.S. energy situation is one of the most crucial areas we need to address because it is so basic to the nation's economic health, and in particular to the capital formation that drives the economy."

Senator Hagel concluded on an upbeat note, stressing that he is confident the United States can meet the challenges ahead.

Seattle: Estate Tax Repeal

Repeal of the estate tax was ACCF President Mark Bloomfield’s theme as he addressed the Seattle Rotary Club on July 19. Members of the group, the fourth oldest and also the largest Rotary Club in the world with over 700 members, heard a detailed assessment of the legislative outlook for H.R. 8, the "Death Tax Elimination Act." H.R. 8 passed the House on June 9 and the Senate on July 14 by strongly bipartisan but not veto-proof majorities. Congress will send the bill to the White House in late August or early September for an almost-certain veto, but President Clinton has indicated that he may be willing to compromise on estate tax relief as part of negotiations on other key issues. See elsewhere in this issue of Capital Formation for a comparison of present law, H.R. 8, and the House and Senate Democratic alternatives to estate tax repeal.

Mr. Bloomfield attributed the wave of support for estate tax repeal to the current fundamental shift in the public’s attitude toward the estate tax. The average American, he said, even with little chance of ever paying the tax, objects to the arbitrary taking of a life’s work at death. Policymakers have listened, and as a result have voted for repeal of a tax that is not only unfair, but difficult to administer and harmful to economic growth and entrepreneurship.

The ACCF has worked closely on this issue, Mr. Bloomfield stressed, with key members of Congress and the media, and made available analysis by mainstream economists in order to rebut the opponents of repeal.

For an update on the legislative outlook for estate tax repeal, contact Mr. Bloomfield at 202/293-5811 or MarkBloom@aol.com.

Brussels: Contrasting U.S. and European Approaches to Climate Change Policy

Speaking at a conference sponsored by the European Commission in Brussels on July 6, ACCF Senior Vice President Margo Thorning presented a U.S. perspective on the economics of climate change policy. The audience at the EU’s conference "Have Allies Become Adversaries? The Ethics and Economics of Transatlantic Disputes" consisted of government officials and representatives of the European business community.

Dr. Thorning, who presented a paper contrasting the U.S. and European Union approaches to climate change policy, stressed that Americans and their allies in the EU differ in their approach to policymaking as well as the seriousness with which they take legislated environmental or other mandates. Cultural and political differences include growing support in the United States for the use of cost-benefit analysis to assess the desirability of implementing costly emissions reduction policies, while the Europeans have done little research on the economic cost of the proposed policies. Americans believe in the sanctity of the law and thus in the importance of drafting legislation with major economic, social, or political consequences with great care; by contrast, EU governments are seen as taking a more conciliatory attitude toward regulatory enforcement. Americans also tend to take a more practical and results-oriented approach to solving potential climate problems.

Dr. Thorning’s paper "Climate Change Policy: Contrasting the U.S. and the European Union Approaches," released prior to upcoming international climate negotiations in Lyon, France, and The Hague, is available on the Center’s Web site at www.accf.org. 

“Saving is empowering. It allows families to weather economic fluctuations, to live without aid, and to deal with emergencies. But more than just being a safety net, savings offer families a ladder up, making it easier to plan for the future. That is because saving is the first step towards developing assets, and assets beget assets. Having savings and assets can not only change a family’s economic station, it can also promote an ethic of conservation and help foster better citizenship by giving American workers the tools they need to improve their lot in life.”

—from a letter to Senate colleagues signed by Senators Joseph I. Lieberman (D-CT), Rick Santorum (R-PA), Spencer Abraham (R-MI), and Richard J. Durbin (D-IL) discussing the Savings for Working Families Act

A gift tax is imposed on lifetime transfers and an estate tax is imposed on transfers at death. The gift tax and the estate tax are unified so that a single graduated rate schedule applies to cumulative taxable transfers made by a taxpayer during his or her lifetime and at death. The unified estate and gift tax rates begin at 18 percent on the first $10,000 in cumulative taxable transfers and reach 55 percent on cumulative taxable transfers over $3 million. The unified credit effectively exempts from tax transfers by gift and death an amount totaling $675,000 in 2000 and 2001, $700,000 in 2002 and 2003, $850,000 in 2004, $950,000 in 2005, and $1 million in 2006 and thereafter. Because the law allows each individual an exemption, a married couple can, with proper estate planning, use the exemption twice. The benefit of the unified credit applies between the 18 percent and the 37 percent estate and gift tax rates. Thus, in 2000, taxable transfers, after application of the unified credit, are subject to estate and gift tax rates beginning at 37 percent. The basis of property acquired or passing from a decedent is its fair market value on the date of the decedent's death. This step up (or step down) in basis eliminates the recognition of any income on the appreciation of the property that occurred prior to the decedent's death, and it has the effect of eliminating any tax benefit from any unrealized loss. Family businesses that meet the definition of a "qualified family-owned business interest" (QFOBI) can shield up to $1.3 million ($2.6 per married couple) of the value of the business from the estate tax. A credit is allowed against the federal estate tax for any estate tax paid to any state or the District of Columbia.

Germany's parliament recently approved dramatic reductions in both corporate and individual income tax rates and in corporate capital gains tax rates.

Corporate Tax Rates

• Income tax rates: Corporate tax rates will drop from 40 percent to 25 percent on retained earnings or to 30 percent on distributed profits in 2001.
  
  
• Capital gains tax rates: Corporate capital gains tax rates on the sale of shareholdings between corporations will be cut from nearly 50 percent to zero in 2002.

Individual Tax Rates

Individual marginal income tax rates will gradually decline from a top rate of 51 percent to 42 percent by 2005, and the lowest rate will fall from 25.9 percent to 15 percent. Dividends received by individuals will be taxed at one-half the personal income tax rate instead of at the personal income tax rate with credit for tax paid at the corporate level.

The sweeping German tax cuts are expected to increase economic growth by one percentage point annually over the next three years, unleash a wave of corporate restructuring, and make it more attractive for U.S. companies to reinvest earnings in Germany rather than repatriating the funds and subjecting them to the higher U.S. corporate tax rate of 35 percent.