ACCF Hosts Issues Roundtable

Chief Economic Adviser To Bush Campaign Speaks at ACCF Forum

ACCF Chairman Discusses 1986 Tax Reform

Dale Jorgenson Elected President of American Economic Association

Margo Thorning Testifies Before Senate of Canada

The American Council for Capital Formation and its public policy think tank, the ACCF Center for Policy Research, sponsored an Issues Roundtable for supporters on December 1 in Washington, D.C. Participants focused on a pro-capital formation strategy for the second session of the 106th Congress and in the 2000 campaigns.

Roundtable discussion leaders included Mark Bloomfield, president, American Council for Capital Formation; Jeffrey Keeler, director, Federal Government Affairs, Enron Corp.; James A. Klein, president, Association of Private Pension and Welfare Plans; Theresa A. Pugh, director, Environmental Affairs, American Forest & Paper Association; Arthur G. Randol, III, senior environmental adviser, Exxon Mobil Corp.; Margo Thorning, ACCF senior vice president and chief economist; and Charls E. Walker, ACCF founder and chairman.

James Clark, chief tax counsel, House Committee on Ways and Means, and David Garman, chief of staff to Senate Energy and Resources Committee Chairman Frank Murkowski (R-AK), addressed the luncheon session of the ACCF Issues Roundtable.

Shaping a Capital Formation Strategy in the 106th Congress,
The 2000 Campaigns, and the Economic Agenda of the Next President

Mark Bloomfield opened the roundtable with an overview of how the political calendar-the second session of the 106th Congress, the 2000 campaigns, and the economic agenda of the next president-would affect prospects for pro-capital formation tax, trade, and environmental policies. Mr. Bloomfield stressed that efforts must be made to get both GOP and Democratic congressional and presidential candidates to make capital formation policy a top priority on their economic agendas.

He noted that American Council for Capital Formation officers and supporters are meeting with the chief economic advisers to the major presidential candidates to help bring capital formation issues to their attention. In addition, the ACCF plans to prepare issue papers on key tax, trade, and environmental policy questions for use in the 2000 campaigns and will submit a statement outlining a pro-capital formation economic and environmental agenda to the Democratic and Republican Platform Committees. Mr. Bloomfield said that the business community needs to analyze the capital formation challenges of the "new economy" and let policymakers know how best to maintain economic growth, job creation, and competitiveness in the new economy.

Capital Formation in the New Economy: Tax Policy Issues

Assessing the current economic environment, Margo Thorning warned that the U.S. saving rate is low relative to past levels and in comparison to that of our global competitors. The low saving rate indicates that the typical American is not saving enough to live at a satisfactory level in retirement, a growing problem as the baby boom generation begins to leave the work force. While recent U.S. investment and growth in labor productivity have been strong, a study by Harvard University Professor Dale Jorgenson shows that growth in U.S. multifactor productivity, a more complete measure, compares unfavorably to that of other countries.

Maintaining an adequate level of saving and investment is critical to the continued growth of the economy, yet the United States taxes investment more harshly than many other countries do. This fact is even more important as competition increases in the global marketplace, Dr. Thorning said, and the need for environmental expenditures will increase to address current environmental regulations as well as for mitigating the potential threat of global climate change.

Pension Law Reform

Jim Klein gave an overview of legislative changes in the pension area since the late 1980s. As the largest tax expenditure in the 1980s and 1990s, pension provisions made a tempting target for lawmakers and led to a patchwork of pension rules as policymakers attempted to cut back on these measures. By the mid-nineties, lawmakers began to strip away some of the complexity as both Democrats and Republicans recognized the appeal of pension issues to baby boomers in particular. The bipartisan Portman-Cardin pension reform legislation in the House of Representatives, which has 150 cosponsors and was included in the tax bill vetoed by President Clinton in the fall, as well as similar measures in the Senate, would encourage individuals at all income levels to save more effectively for retirement. Mr. Klein explained that while there is an institutional bias toward personal saving measures like Individual Retirement Accounts, employer-sponsored pension plans are an effective means of delivering retirement security. Mr. Klein and roundtable participants also engaged in a wide-ranging discussion concerning cash balance pension plans and their role in the overall retirement system.

ACCF and the Association of Private Pension and Welfare Plans (APPWP) cosponsored a study, Stretching the Pension Dollar: Improving U.S. Retirement Security and National Saving by Enhancing Employer-Based Pension Plans [PDF file] that made the case that strengthening employer-sponsored pension plans is essential to providing adequate retirement security for U.S. workers. The study was prepared for ACCF and APPWP by Sylvester J. Schieber and two of his colleagues at Watson Wyatt Worldwide and released at a press briefing in August by Representative Rob Portman (R-OH), a leader in Congress on private pension reform.

Environmental Policy Issues

Randy Randol outlined some of the environmental policy issues that will be raised next year in Congress and in the 2000 campaigns. ACCF's research and that of others has shown that government plays a critical role in advancing technology through a wide range of policies, Mr. Randol commented. In particular, tax incentives that allow markets to work have been shown to be a highly effective approach. Measures now pending in Congress illustrate how government can play a positive role. These include a bill sponsored by Senators Frank Murkowski (R-AK), Chuck Hagel (R-NE), Robert Byrd (D-WV), and Larry Craig (R-ID) (S. 882) that would encourage voluntary reductions of greenhouse gas emissions and private-sector partnerships with government for R&D. Additional legislation introduced by Senator Craig (S. 1776 and S. 1777) would provide incentives for investment in the reduction of greenhouse gas emissions. Senator Craig's bills address policy evaluation, enhance global climate science, and promote investment in greenhouse gas technology.

Among other environmental policy issues on the agenda of the second session of the 106th Congress are Superfund and "environmental justice," Mr. Randol noted. He cautioned that some of these environmental issues represent serious threats to capital formation and utilization.

Theresa Pugh addressed environmental policy issues from the perspective of the forest and paper industry. She said that industry analysis of the environmental rules that affect forest and paper companies shows that the industry currently spends about $500 million per year in current operating expenses to meet environmental standards. However, capital outlays for the industry will rise to about $20 billion for environmental costs in 2000-2012 even without implementation of the Kyoto agreement. With costs like these, some in the industry wonder if they should continue doing business in the United States. Ms. Pugh stressed that executives in every industry should assess the cumulative costs of prospective environmental investments.

Financial Derivatives

Jeff Keeler discussed over-the-counter (OTC) derivatives, including swap agreements, options, and hybrids, and the history of their regulation. OTC derivatives essentially are products used for risk management and to stabilize cash management. The terms of OTC instruments are individually negotiated and reflect individual credit decisions, which allow customers to adjust risk positions with greater precision. However, confusion over regulation of futures and derivatives has created legal uncertainty for OTC derivatives, which could have an adverse impact on the competitiveness of U.S. firms, development of new risk management practices, and the growth of capital markets in the United States. In response to a request from Congress, the President's Working Group on Financial Markets issued a Report on OTC Derivatives in November 1999, which made a series of recommendations toward creating more legal certainty for OTC transactions. Congress will hold hearings on the Report in 2000 and legislation will be developed. Mr. Keeler noted that there are several contentious issues in the Report that he anticipates will be raised in the debate over the issue in 2000.

Economic Growth and Trade Policy

As the WTO met for a second day in Seattle, Charls Walker told roundtable participants he hoped they agreed that open trade is a major and essential key to meeting the material needs of all Americans, as well as those of people around the world. The General Agreement on Tariffs and Trade that was implemented following World War II set the stage for new and greater world trade. Dr. Walker commented that it is difficult to understand those who turn their backs on globalization and what it can mean in terms of higher living standards for people in every country, but the problems that surfaced at the Seattle WTO meeting indicate that we are at a major crossroads for the global economy. This suggests that the need for an organization like the American Council for Capital Formation to make the case for free trade, greater saving and investment, and less regulation is just as great as it ever was, he concluded.

Congressional Tax and Environmental Policy Agendas

Jim Clark led off the luncheon discussion with comments on the prospects for pro-capital formation tax legislation in the year ahead. He reminded roundtable participants that the 1999 tax bill crafted by the House Ways and Means Committee and vetoed by the President included a number of provisions to promote capital formation, including a cut in capital gains tax rates, death tax reform, expanded IRAs, and greater utilization of the corporate alternative minimum tax. For 2000, Mr. Clark said that Ways and Means Committee Chairman Bill Archer (R-TX) has indicated he might like to look into issues raised by the Treasury's depreciation study and by the second cut in the capital gains tax included in the 1997 tax bill that reduces capital gains rates from 20 to 18 percent for property held more than five years and purchased after December 31, 2000. In addition, Superfund reform and the tax plan Texas Governor George W. Bush has just made public could also serve as engines to move a 2000 tax bill.

David Garman commented that both air and water quality in the United States are better today than in the past. Mr. Garman pointed out that government regulation, new technology, and the new information-based economy have all played a significant role in reaching this point. However, he added that he thought that government regulation gets more credit than it is due for its role. Reporting on the recent Conference of the Parties on climate change in Bonn, Mr. Garman suggested that the Kyoto Protocol will be repackaged in the Administration's remaining days as the "Hague Agreement." Arguments will be made that the "Hague Agreement" is a market-based, inclusive solution to global climate change. However, proponents are not advancing a reasoned approach to climate policy and are ignoring the very real environmental and economic effects of using alternative energy sources. The developed world should be taking action in a number of areas on the environmental front, including expanding the use of non-carbon emitting energy, removing regulatory barriers, and encouraging the use of new technologies, among other approaches, Mr. Garman emphasized.   

Chief Economic Adviser to Bush Campaign Speaks at ACCF Forum

 Lawrence B. Lindsey, chief economic adviser to Texas Governor George W. Bush's presidential campaign, met with ACCF supporters at the November 4 Capital Formation Forum. Dr. Lindsey discussed various aspects of the current U.S. economy and shared his thoughts on an approach to tax policy that would encourage, rather than impede, economic growth.

A Resident Scholar and holder of the Arthur F. Burns Chair in Economics at the American Enterprise Institute, Larry Lindsey served as a staff economist at President Reagan's Council of Economic Advisers, a domestic policy adviser in the Bush Administration, and a governor of the Federal Reserve Board for most of the 1990s. He is the author of Economic Puppetmasters: Lessons from the Halls of Power (AEI Press, Washington, D.C., 1999) and The Growth Experiment: How the New Tax Policy Is Transforming the U.S. Economy (Basic Books, New York, 1990) and has contributed numerous articles to professional journals.

The ACCF Capital Formation Forum with Dr. Lindsey is the first in a series of forums sponsored by the American Council for Capital Formation to focus on the economic agendas of the leading presidential candidates. Additional forums are planned over the next several months.

Dr. Charls E. Walker, chairman and founder of the American Council for Capital Formation, recently participated in a seminar on "Tax Reform and the Politics of Personality" hosted by the Congress Project of the Woodrow Wilson International Center for Scholars. The seminar compared the political struggles behind both the Tax Reform Act of 1986, which ultimately passed, and the 1995 "Contract With America." Dr. Walker commented on the presidents with whom he has worked for over four decades and how their personalities made a difference in getting things done in Congress.

Joining Dr. Walker on the panel were political scientist Randall Strahan of Emory University; Jeffrey Birnbaum, Washington bureau chief, Fortune; and former House Ways and Means Committee Chairman Dan Rostenkowski. 

The ACCF Center for Policy Research congratulates Dr. Dale W. Jorgenson on his election as president of the American Economic Association. Dr. Jorgenson has been a member of the Center's Board of Scholars since 1990.

Dr. Jorgenson is currently Frederic Eaton Abbe Professor of Economics at Harvard University. He has been a professor in the Economics Department at Harvard since 1969 and director of the Program on Technology and Economic Policy at the Kennedy School of Government since 1984. Dr. Jorgenson is a member of the National Academy of Sciences and the American Academy of Arts and Sciences, and is a foreign member of the Royal Swedish Academy of Sciences. He has served as president of the Econometric Society and, in 1971, received the prestigious John Bates Clark Medal of the American Economic Association, an award given every two years to an economist under forty for excellence in economic research. Dr. Jorgenson is the author and co-author of more than 200 journal articles, contributions to books, and books in economics. An important feature of his research program has been collaboration with students in economics at Berkeley and Harvard. Many of his former students are now professors at leading academic institutions in the United States and abroad.  

Ottawa, December 16, 1999—ACCF Senior Vice President and Chief Economist Margo Thorning testified as an invited witness before the Standing Committee on Banking, Trade and Commerce of the Senate of Canada as the Canadian Parliament considers tax reform proposals including capital gains tax reductions. The executive summary and full text of the ACCF's testimony are included with this issue of Capital Formation. Dr. Thorning also participated recently with Dr. Stephen Entin of the Institute for Research on the Economics of Taxation and Professor Glen Hubbard of Columbia University in a panel discussion on marginal tax rates and investment at the Tax Foundation's annual conference; and made presentations about the impact of climate change mitigation policies on the federal budget surplus at meetings of the Chemical Manufacturers Association and the Tax Economists Forum.