ACCF Hosts Issues Roundtable on Tax, Trade, and Environmental Policies

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ACCF Hosts Issues Roundtable on Tax, Trade, and Environmental Policies

The American Council for Capital Formation and its public policy think tank, the ACCF Center for Policy Research, brought together top tax, trade, and environmental policy experts from its corporate, association, and foundation supporters for an Issues Roundtable on December 11 in Washington, D.C.

The 1998 ACCF Issues Roundtable focused on The Outlook for U.S. Business in the Global Economy: Impact of Tax, Trade, and Environmental Policies on U.S. Corporate Competitiveness. Discussion leaders included F. Gregory Ahern, senior vice president, industry affairs, State Street Bank and Trust Company; Mark Bloomfield, president, American Council for Capital Formation; Stuart J. Brahs, vice president, federal government relations, Principal Financial Group; E. Joseph Hillings, vice president, federal government affairs, Enron Corp; Paul R. Huard, senior vice president, policy and communications, National Association of Manufacturers; Joe J. Mayhew, vice president, regulatory and technical issues, Chemical Manufacturers Association; William F. O'Keefe, executive vice president, American Petroleum Institute; Barry Solarz, vice president, tax and trade, American Iron and Steel Institute; and Margo Thorning, senior vice president and chief economist, American Council for Capital Formation.

Kent Bonham, deputy chief of staff to Senator Chuck Hagel (R-NE), chairman of the Subcommittee on International Economic Policy, Export, and Trade Promotion of the Senate Committee on Foreign Relations and head of the Senate Climate Change Observer Group, and James D. Clark, chief tax counsel, House Ways and Means Committee, addressed the luncheon session of the ACCF Issues Roundtable.

The Political and Economic Environment

Mark Bloomfield opened the Issues Roundtable with an overview of current political and economic realities. Noting that the uncertain political environment could have a powerful impact on the 1999 congressional agenda, Mr. Bloomfield stressed that the good news for business is that Americans today have more of a vested interest in the economy than at any time in the past, with more than 50 percent of households participating in the equity markets. At the same time, the political parties are changing, with some in the GOP advocating a more populist Republican agenda and greater influence by moderate "new" Democrats on the Democratic agenda. ACCF, with its focus on the impact of tax, trade, and environmental policies on saving and investment and the economy, is well positioned to address issues in the globalized economy, he stressed.

Margo Thorning focused on how government policies can affect the competitiveness of U.S. businesses in the globalized economy. As an example, she discussed ACCF research showing how U.S. firms are disadvantaged relative to their foreign competitors because of U.S. tax policy. A tax system that allows U.S. firms to stay competitive is needed. Environmental and trade policy and the social security system also affect the ability of U.S. firms to compete in world markets. ACCF will be addressing these issues in the months ahead, Dr. Thorning noted.

Tax Policy

Paul Huard reviewed the prospects for fundamental tax reform in the 106th Congress, stressing that a number of factors, including the current emphasis on "saving social security first," make tax reform difficult in the new congressional session. While House Ways and Means Committee Chairman Bill Archer (R-TX) is committed to fundamental tax reform, the issue will certainly be demagogued. The required revenue for tax reform, to fund transition rules, for example, could well be used for other purposes, including social security reform, making the tax reform effort all the more difficult. Nevertheless, Mr. Huard said, Chairman Archer should move forward on the issue and the business community should be actively engaged in the debate.

Stuart Brahs discussed retirement saving issues, noting that despite the recent expansion of Individual Retirement Accounts, the United States has a dismal saving rate. In addition, only about 46 percent of Americans are covered by employer-sponsored retirement plans, implying that the United States will be under tremendous pressure to finance retirement needs when the baby boomer generation leaves the work force. The tax code is the basic instrument through which retirement savings are encouraged, he said, adding that we need to urge Congress to take a look at additional mechanisms to promote personal savings.

Mr. Bloomfield assessed the outlook for tax legislation in the next congressional session. He suggested that a number of factors would affect the prospects for a tax cut next year, including whether there is a budget surplus and whether efforts to reform social security put tax cuts on hold. Competing with pro-capital formation tax cuts for available tax cut dollars will be the social conservative agenda of marriage tax penalty relief and child care credits and the new "Kemp-Roth" push for across-the-board marginal individual tax rate cuts. The fundamental tax reform debate itself may become a part of the 2000 presidential debate, and, if so, make it a viable issue in the next presidency.

Environmental Policy

Bill O'Keefe briefed Roundtable participants on the recent Buenos Aires meeting on climate change. He said that the meeting was widely viewed and described as "another step along the journey." No significant decisions were made at the meeting. The 106th Congress will probably continue to focus on the economic implications of the Kyoto Protocol, as well as the state of science, Mr. O'Keefe said, but added that the Protocol will not be ratified and should be scrapped and an alternative should be designed in which developing countries can have an interest. There is time to resolve the difficult issues involved in this important matter, he stressed.

Joe Mayhew reviewed key environmental policy topics and trends, including the Clean Air Act, clean water issues, and toxic substances. He noted that he expected to see more policy debate than rules and legislation in 1999. Mr. Mayhew added that there is more activity on the state level than at the federal level and little support for legislative changes from the Environmental Protection Agency. The current system delegates to the states much of the power to regulate certain activities which creates problems because, in essence, both entities are involved in regulating these activities.

Trade Policy

Joe Hillings told participants that he believes trade policy will be a very contentious issue in the 106th Congress, adding that he expects Congress will debate trade policy but may not enact legislation. Trade policy issues--including protectionism--will also play a role in the 2000 presidential race. Fast track authority, which failed in the 105th Congress, is likely to be among the trade issues again considered but is unlikely to pass both Houses. Mr. Hillings added that he is not optimistic that those favoring trade will find much enthusiasm in the next Congress to address the difficult issues in trade policy.

Barry Solarz described some of the unfair trade practices faced by the U.S. steel industry today. He stressed that the industry has become far more competitive since the early 1980s by engaging in a costly and painful restructuring through which it has emerged as the most competitive steel industry in the world. However, he noted, unfair trade can destroy even the most competitive of industries. When the market is not working, government has a responsibility to make sure competitive industries are not destroyed by unfair practices, he said, adding that the United States needs credible trade rules that are fully enforced.

Social Security Reform

Greg Ahern told participants that, even though Congress will debate the social security issue next year, whether social security reform can pass in the near term is not clear. Key questions that must be answered are how to protect current and soon-to-be retirees while allowing workers to enjoy the fruits of their labor without putting too much strain on government resources. At the recent White House conference on social security, the possibility of investing some part of social security funds in the private market was raised. Mr. Ahern reviewed several problems that would need to be resolved if privatization were considered, adding that, only a few years ago, it would have been hard to imagine the debate coming this far. However, he said, it remains very hard to predict the outcome of the social security debate.

Congressional Tax and Environmental Policy Agendas

Jim Clark stressed that tax action in Congress in 1999 will be affected by what occurred in 1998, and in particular by the focus on "saving social security first" pressed by the Clinton Administration in 1998. Without leadership from the White House, he added, social security reform will get off to a very slow start, and without bipartisan support for reform, it will be difficult to make real progress.

Mr. Clark said he sees two possible outcomes on the tax policy agenda. First, if social security reform is achieved, making the system sound for the future, then a portion of the remaining budget surplus could be used for tax relief. Second, if social security reform cannot be put in place next year, some tax relief might still be doable, perhaps similar to the 1998 "90/10" plan through which 90 percent of the budget surplus would be used for social security and 10 percent for tax cuts. Alternatively, the expiring provisions could form the nucleus of a tax cut bill. He also suggested that, unless there is an economic downturn, tax relief would be focused on individual tax cuts, such as the provisions included in the 1998 House tax bill.

Kent Bonham gave an overview of the Conference of the Parties in Buenos Aires, stressing that the Kyoto Protocol is, for all intents and purposes, not viable. While some in the Administration tried to make the case that progress had been made in Buenos Aires, the treaty has become so divisive that the only way to go is to start from scratch, he said. If a new start were made, Mr. Bonham outlined areas where the different sides can agree, including increasing resources devoted to basic research on climate science, developing programs to encourage energy efficiency, and promoting clean technologies abroad.  

• M. Kathleen Behrens, President, National Venture Capital Association;
  
  
• Hon. Glenn English, Chief Executive Officer, National Rural Electric Cooperative Association;
  
  
• Harry S. Flemming, Chairman, Advantor Holding Company; and
  
  
• Frederick L. Webber, President and Chief Executive Officer, Chemical Manufacturers Association.