Legislative Update: Capital Formation Provisions of the 1997 Tax Legislation

Capital Formation Forum: Senator Craig Gives Perspective on Climate Change

Climate Change Policy, Risk Prioritization, and U.S. Economic Growth: A New Book from the ACCF Center for Policy Research

ACCF in the Field

Capital Formation Provisions of the 1997 Tax Legislation

For more than two decades, the American Council for Capital Formation has advocated measures to address the bias in the U.S. tax code against saving and investment. Congress is now applying the finishing touches to a 1997 tax bill that provides the opportunity to make significant pro-capital formation changes in three areas: individual retirement accounts, capital gains taxation, and the corporate alternative minimum tax.

Both the House and the Senate approved their respective tax measures (H.R. 2014 and S. 949) prior to the July 4 congressional recess. President Clinton on June 30 offered his own tax cut proposal which includes expanded IRAs and scaled-down reductions in capital gains taxes for individuals. After the recess, House and Senate conferees will make the hard choices on the provisions of the competing measures, with President Clinton having the final say on signing the tax bill into law.

Expansion of Individual Retirement Accounts

One of the fundamental problems facing the U.S. economy is its low rate of national saving. The net national saving rate in this country was relatively stable for the twenty years from 1960 to 1980, averaging 9 percent of GDP. It has fallen dramatically since 1980 to only about 3.6 percent of GDP in the 1990s. Many economists who study saving policy, including Stanford University Dean John B. Shoven, believe that, while there are many determinants of the growth of real wages, the slow rate of improvement in worker productivity and real wages in this country can almost certainly be explained by the very low rate of national saving.

The U.S. net saving rate over the 1973-1993 period was also low relative to that of other countries, averaging 5.4 percent in the United States compared to 19.2 percent in Japan, 10.6 percent in Germany, and 8.3 percent in Canada. In addition, looming in the future is the need to finance the retirement of the baby-boom generation. Recent research suggests that this generation's saving rate is only about one-third the amount needed for secure retirement.

Both scholarly research and opinion polls support the proposition that the expansion of tax-deductible IRAs would increase U.S. personal saving. For example, over the 1986-1993 period, IRA contributions have fallen by 77 percent (see Table 1). Falling IRA contributions and participation rates are due to the loss of tax deductibility for many taxpayers as a result of the Tax Reform Act of 1986. The ACCF, therefore, has advocated expanding IRAs as an important step in addressing the low rate of national saving.

"Congress has been relatively silent on the climate change issue as it has worked its way from the international agreement in Rio de Janeiro of 1992," Senator Larry E. Craig (R-ID) told ACCF supporters at the May 7 Capital Formation Forum. Senator Craig is chairman of the Republican Policy Committee, the fourth highest Senate leadership position, and serves on the Committee on Energy and Natural Resources and the Appropriations Committee. "I am recommending that the Republican Policy Committee establish a task force on climate change policy," he said. The Idaho senator added that he thought the task force should get aggressively involved in climate change issues. "The task force can hold oversight hearings so we can make our views on climate change known at the international meeting in Kyoto later this year," he noted. "I hope we can move back toward a more voluntary approach to emission compliance, rather than signing a binding agreement to stabilize or reduce future CO₂ emissions," Senator Craig said. He added that the Kyoto agreement might not be suitable for ratification by the Senate and could take an approach that is not backed by a majority in Congress. "In my view, Republicans have failed to recognize how the message on climate change has been shaped and have not taken an aggressive enough stance on the issue. We need to become more involved so that we can be participants in the Conference of the Parties in Germany and Japan later this year," Senator Craig said. "The Administration is attempting to develop environmental policy through regulatory power, rather than Congress setting policy. One of my goals is to prove that while we Republicans are just as concerned about the environment, we cannot accept radical approaches," he concluded.

Climate Change Policy, Risk Prioritization, and U.S. Economic Growth

A New Book from the ACCF Center for Policy Research

Introduction

At Rio de Janeiro in 1992, the United States agreed to negotiate an international treaty on future greenhouse gas emissions without, according to many experts, careful evaluation of this many-sided issue. The experts believe the agreement that the United States is poised to sign in Kyoto, Japan in December has potentially serious consequences for all Americans that have not been fully analyzed and understood. To help shed light on this critical issue, the ACCF Center for Policy Research's latest volume presents these new studies:

• Carbon Dioxide Reductions: Impact on Economic Growth and Income Inequality. Professor Gary W. Yohe of Wesleyan University finds that a carbon tax sufficient to stabilize emissions at 1990 levels by 2010 would slow real wage growth, worsen the distribution of income, and make Americans feel like they were living through the oil price shocks of the 1970s and early 1980s all over again.
  
  
• Flexible Emissions Reductions and New Technologies Are Key to Cost-Effective Climate Mitigation Policy. Dr. Jae Edmonds, James Dooley, and Marshall Wise of Pacific Northwest National Laboratory find that flexibility in where and when emission reductions occur would dramatically reduce their cost. Development of energy-efficient technologies is also critical.
  
  
• Plus commentaries by Rep. John Dingell (D-MI), ranking member of the Commerce Committee, and Sen. Craig Thomas (R-WY), leading member of the Foreign Relations Committee.
  
  Also included:
  
  
• Risk Prioritization: Moving the Debate Forward by Professor Thomas D. Hopkins of Rochester Institute of Technology. Cost-benefit analysis and risk prioritization could substantially improve U.S. economic well-being and save lives.

TO ORDER: Phone 202/293-5811 ·Fax 202/785-8165 ·By mail: Enclose your name, return address, and check or money order and send to: ACCF Center for Policy Research, 1750 K Street, N.W., Suite 400, Washington, D.C. 20006-2302. ISBN: 1-884032-06-0/June 1997/174 pages/paperback/U.S. $25.00.

ACCF in the Field

Encouraging Private Savings

ACCF President Mark Bloomfield spoke at a May 6 forum sponsored by the National Commission on Retirement Policy, an organization established by the Center for Strategic and International Studies. At the forum, entitled "The Retirement Financing Challenge," Mr. Bloomfield drew on the recent work of the ACCF and its education and research affiliate, the ACCF Center for Policy Research, to make the case that long-term U.S. prosperity is threatened by the looming retirement of the baby boom generation, and tax policies that reward saving and investment-such as lower capital gains taxes and expanded IRAs-could stimulate the economic growth necessary to meet the coming challenge.

Economic Impact of Climate Mitigation Proposals

Speaking at the 8th U.S.-European Coal Conference in Rome, May 5-7, Dr. Margo Thorning, ACCF senior vice president and chief economist, told an international audience that reducing carbon dioxide emissions to 1990 levels or below-a goal on which U.S. and international policymakers are focusing-could slow U.S. GDP growth by 1-3 percent annually and change consumer lifestyles significantly. In addition, even if the United States and industrialized nations reduce emissions to zero, global carbon concentrations will not decrease because most new emissions will come from developing economies such as China, India, and the former Soviet Union. A three-stage approach, Dr. Thorning said, emphasizing research and development with later emission caps and, if necessary, the eventual phase-out of carbon venting, could lead to the same long-term results at a greatly reduced cost.