Capital Formation Newsletter
March-April 2005, Vol. 30, N0. 2

ACCF and ACCF Center for Policy Research Elect New Directors

ACCF Association Council Holds Spring Meeting

ACCF Association Council Members

ACCF Testimony Examines Cost-Effective Climate Change Policies for Oregon and the
United States

Congress Tackles Pro-Saving and Investment Policies

ACCF in the News...

132nd ACCF Policy Evening Focuses on Social Security Debate

133rd ACCF Economic Policy Evening Brings Together Top Policymakers, Media

(PDF Version)

ACCF and ACCF Center for Policy Research Elect New Directors

At the March 1 annual meeting of the Boards of Directors of the American Council for Capital Formation and the ACCF Center for Policy Research, the directors of the ACCF and the Center elected new board members. The ACCF and Center are honored to welcome the following distinguished policymakers, business leaders and academic economists to their boards.

New ACCF directors are Frank L. (Skip) Bowman, a former admiral in the U.S. Navy and now president and CEO of the Nuclear Energy Institute; John Engler, former Governor of Michigan and now president and CEO of the National Association of Manufacturers; Kyle E. McSlarrow, former Deputy Secretary and Chief Operating Officer of the U.S. Department of Energy and now president and CEO of the National Cable & Telecommunications Association; Don Nickles, former United States Senator from Oklahoma and now partner at the Nickles Group; and Charles W. Stenholm, former member of the U.S. House of Representatives from the 17th Congressional District of Texas.

Joining the Board of Scholars of the ACCF Center for Policy Research are two eminent economists. The immediate past Chairman of President Bush’s Council of Economic Advisers, Professor N. Gregory Mankiw, the Allie S. Freed Professor of Economics at Harvard University (on leave), has rejoined the Center’s Board of Scholars. Professor Edward C. Prescott, winner of the 2004 Nobel Prize in Economic Sciences and W.P. Carey Chair of Economics at Arizona State University, is a new member of the Center’s Board of Scholars.

Frank L. (Skip) Bowman	John Engler	Kyle E. McSlarrow	Charles W. Stenholm

N. Gregory Mankiw	Don Nickles	Edward C. Prescott

ACCF Association Council Holds Spring Meeting

Members of the ACCF Association Council met on April 22 to consider the capital formation impact of important economic policy issues now before Congress. Marc Lackritz, president of the Securities Industry Association and cochairman of the Association Council, led the discussion of short- and long-term tax policy issues on the agendas of the Administration and Congress. Lisa McGreevy, executive vice president, External Affairs, and president, Government Affairs Council, The Financial Services Roundtable, and John Endean, president, American Business Conference, assessed the impact of the Sarbanes/Oxley legislation on U.S. business. Red Cavaney, president and chief executive officer, American Petroleum Institute and cochairman of the ACCF Association Council, and Thomas R. Kuhn, president, Edison Electric Institute, shared their views on the outlook for energy policy in this session of Congress. Margo Thorning, ACCF senior vice president and chief economist, led a discussion of the goals policymakers should set for Social Security. Mark Bloomfield, ACCF president and chief executive officer, discussed the programs the ACCF offers its association members, including ACCF Economic Policy Evenings and the opportunity to network with their peers in other industries through ACCF activities. He also described a new ACCF program, the ACCF – Executive Roundtable, which is designed to bring young executives with an interest in public policy on board as ACCF members.

Michael Barone, senior writer, U.S. News and World Report, and coauthor of The Almanac of American Politics, addressed members of the ACCF Association Council at the luncheon session of the meeting. Mr. Barone, a highly regarded pollster and long-time observer of the Washington political scene, noted that the 2004 election had made significant changes in American politics, including a substantial increase in the number of voters. Both parties worked to get out the vote, but the GOP was more successful.

As a result, President Bush received 23 percent more votes in 2004 than in the 2000 election, while Senator Kerry’s total was 16 percent higher than Vice President Gore amassed in 2000. “The electorate has changed. The Democrats now realize they have to win votes from the new electorate and just saying no doesn’t work,” Mr. Barone said.

The ACCF Association Council is comprised of 35 associations from every sector of the U.S. economy, from manufacturing to financial services, high tech, real estate, farming and small and medium-sized businesses. For more information, see the ACCF’s website, www.accf.org.

	Michael Barone, senior writer, U.S. News and World Report, spoke at the ACCF Association Council spring meeting.
	Pictured left to right: Steven A. Wechsler, president and CEO, NAREIT; Robin Wiener, president, Institute of Scrap Recycling Industries; Michael J. Fleming, president, Equipment Leasing Association; Neil Milner, president and CEO, Conference of State Bank Supervisors, Inc.; and Frederick L. Webber, president and CEO, Alliance of Automobile Manufacturers.

ACCF Association Council Members

The ACCF Association Council is comprised of 35 associations from every sector of the U.S. economy, from manufacturing to financial services, high tech, real estate, farming and small- and medium-sized businesses. Current members include:

ACCF Testimony Examines Cost-Effective Climate Change Policies for Oregon and the
United States

Dr. Margo Thorning, ACCF senior vice president and chief economist, appeared as an invited witness before the House Committee on the Environment of the Oregon State Legislature on April 5, 2005. In her remarks before the Committee, Dr. Thorning explained that the reason the Bush Administration rejected the Kyoto Protocol approach to addressing climate change was that the Administration had analyzed the costs of sharp, near-term emissions reductions and found that the economic costs were significant.

A range of credible macroeconomic models showed that reducing U.S. CO2 emissions to the Kyoto Protocol level (7 percent below 1990 levels by 2010) would reduce U.S. GDP by 2 to almost 4 percent annually. A study by Charles River Associates, an internationally recognized energy modeling firm, showed that Oregon’s state economic output, employment and state budget receipts would decline and the poor and elderly would be affected more than other groups if the State adopted the McCain/Lieberman proposal to reduce GHG emissions to 2000 levels starting in 2010 followed by the much tighter targets of the New England Governors/East Canadian Premier’s agreement (a trajectory to reduce emissions to 80 percent below 1990 emissions levels by 2050).

The current U.S. climate policy is a measured approach that is flexible and can adjust to new information and take advantage of new technology, Dr. Thorning said. It is one that acts to ensure continued economic growth and prosperity for U.S. citizens. This approach is likely to be much more productive than having individual states sacrifice their economic well-being and job growth to make emissions reductions that are too small to affect global concentrations of GHGs or have any discernable impact on global temperature. In any policies that Oregon considers, it should carefully evaluate the costs to its citizens and the benefits to its citizens before enacting policies that could do more harm than good, she concluded. (To read Dr. Thorning’s complete testimony before the House Committee on the Environment of the Oregon State Legislature, see www.accf.org.)

Congress Tackles Pro-Saving and Investment Policies

Capital formation provisions of the U.S. tax code that could affect the health and vitality of the nation’s economy for years to come – permanent repeal of the estate tax and permanency for the 15 percent top rate for capital gains and dividend taxes – are now in focus on the Congressional agenda. The American Council for Capital Formation, long an effective and strong supporter of “death tax” repeal or reform and permanency for the new, lower tax rates for capital gains and dividends, is playing a key role in the debates.

*Estate Tax Repeal
As one of its first items of business after the spring Congressional recess, the U.S. House of Representatives on April 13 by a vote of 272-162 passed legislation to make permanent the one-year repeal of the estate tax in 2010. Forty-two Democrats joined 230 Republicans in approving permanent repeal. Under the 2001 tax law, the estate tax is reduced in increments from a top rate of 55 percent on estates larger than $675,000. For 2005, the top rate is 47 percent and the exemption level is $1.5 million. The rate drops to 46 percent in 2006 and 45 percent in 2007-09; exemption levels rise from $2 million (2006-08) to $3.5 million (2009). In 2010, the estate tax will be eliminated but, in 2011, the old law with a 55 percent rate and $1,000,000 exemption level is brought back.

Action on death tax repeal now moves to the Senate, where the outlook is cloudy, at best. Supporters of repeal still lack the 60-vote majority necessary to break a likely Democratic filibuster, but Republican and Democratic lawmakers are said to be negotiating a compromise that could clear the Senate this summer. Observers note that, despite broad disagreements, an increasing number of senators of both parties would like to find a way to get the job done. One compromise under active consideration would exempt the first $20 million of an estate from the tax and lower the rate to 15 percent. Some Democrats would prefer to exempt privately held businesses, such as many farms, from the tax. Senate Finance Committee Chairman Chuck Grassley (R-IA) has asked Senator Jon Kyl (R-AZ), a leader of the Senate repeal forces, to “strike a deal” that will win 60 votes. Senator Charles Schumer (D-NY) is said to be the Democratic point man for negotiations on the estate tax.

ACCF continues its strong support for full and immediate repeal of the estate tax. However, given the impasse on the estate tax over the past several years, ACCF proposed a simple “middle-of-the road” compromise to provide some interim relief, pending final repeal, to Americans who die before 2010. Labeled the “Capital Gains Solution” (the CAPTAX), the proposal calls for an immediate reduction in the top estate tax rate to 15 percent, the current top rate on individual capital gains. Support for the ACCF’s CAPTAX has been growing among policymakers and those in the private sector. While the CAPTAX would not fully solve the estate-tax dilemma, it would at least reduce the gross unfairness that now exists in the tax code.

*Permanency for 15 Percent Rate for Dividends and Capital Gains
With the 15 percent top tax rate for dividends and capital gains enacted in 2003 set to expire in 2008, ACCF is working closely with The Alliance for Tax Fairness and Growth, a private sector coalition in support of an extension of or, if possible, permanency for the 15 percent tax rate for dividends and capital gains. The House and Senate conference agreement on the FY 2006 budget calls for $106 billion of tax cuts over a five-year period. Of this total, nearly $70 billion in cuts would be shielded from a possible Senate filibuster, including temporary extensions of the current 15 percent tax rate for dividends and capital gains, among other GOP priorities. The budget assumes that a package of tax cuts will move through Congress after the August recess. In addition, legislation to make the 15 percent tax rate for capital gains and dividends permanent has been introduced in both the House and the Senate. (For more information on efforts to make the 15 percent rate for dividends and capital gains permanent, see http://www.taxfairnessandgrowth.com/index.html.)

The ACCF Center for Policy Research, the ACCF’s affiliated public policy think tank, is a well-respected source for analyses on the economic impact of the taxation of saving and investment. Among the Center’s recent special reports on saving and investment policies are “The Effectiveness of Tax-Preferred Savings Vehicles in Promoting Saving and Retirement Security;” “Double Whammy for U.S. Investors: U.S. Federal and State Capital Gains Tax Rates;” “Small Saver Incentives: An International Comparison of the Taxation of Interest, Dividends, and Capital Gains;” “The U.S. Tax Code in the 21st Century: Does the Estate Tax Fit?” and “Macroeconomic and Revenue Effects of Elimination of the Estate Tax.” (See www.accf.org for a complete listing.)

ACCF in the News...ACCF has long been one of Washington’s most effective proponents of lower taxes on capital income.- Excerpt from Death by a Thousand Cuts—The Fight Over Taxing Inherited Wealth, by tax policy experts and Yale University Professors Michael J. Graetz and Ian Shapiro, Princeton University Press (March 30, 2005)

132nd ACCF Policy Evening Focuses on Social Security Debate

With policymakers’ attention fixed on the Social Security debate, the focus of the 132nd ACCF Economic Policy Evening turned to the public policy consequences of retirement policy choices for U.S. economic growth. The American Council for Capital Formation has championed pension and Social Security policies that promote a secure retirement for all Americans for nearly three decades. Participants in the March 15th policy evening, aptly titled “The Ides of March: A Time to Reflect on the Fate of Social Security and Retirement Policy,” included economic policymakers from the Administration and Congress, influential journalists, and leaders from the business community. For more information on these events, please visit us online at www.accf.org. Pictured left to right are:

Robert D. Novak, nationally syndicated columnist, and Mark Bloomfield, ACCF president and CEO		Sen. Lindsey O. Graham (R-SC), and Margo Thorning, ACCF senior vice president and chief economist
Gov. Frank Keating, president and CEO, American Council of Life Insurers, and Sen. Tom A. Coburn (R-OK)		Gregory S. Lashutka, senior vice president, Corporate Relations, Nationwide; Andy Blocker, vice president, Government Relations, New York Stock Exchange; and Rep. Sander M. Levin (D-MI)

Mark Bloomfield, ACCF president and CEO; Rep. Earl Pomeroy (D-ND); Sen. Lindsey O. Graham (R-SC); and Robert D. Novak, nationally syndicated columnist.

133rd ACCF Economic Policy Evening Brings Together Top Policymakers, Media

On April 19, the ACCF hosted its 133rd Economic Policy Evening. The topic for the session was The Economic and Energy Policy Challenges for the 109th Congress and the President. Guests included key economic policymakers from Congress and the Bush Administration, top journalists and private sector leaders. For more information on these sessions, please visit us online at www.accf.org.

Margo Thorning, ACCF senior vice president and chief economist, and Glenn English, CEO, National Rural Electric Cooperative Association		Mark Bloomfield, ACCF president and CEO, David Rehr, president, National Beer Wholesalers Association, and Keith O. Rattie, president and CEO, Questar Corp.
Sen. Robert Bennett (R-UT), David N. Parker, president and CEO, American Gas Association, and Bob Stallman, president, American Farm Bureau Association		Glenn English, CEO, National Rural Electric Cooperative Association, Kristin J. Forbes, member, President’s Council of Economic Advisers, Sen. Robert Bennett (R-UT), and John B. Byrd, III, president, AMT—The Association for Manufacturing Technology

John J. Fialka, energy and environmental correspondent, The Wall Street Journal; Rep. Artur Davis (D-AL); and Laurence M. Downes, chairman and CEO, New Jersey Resources.