ACCF Calls for Enactment of Progrowth Tax Measures

Beginning with the testimony of ACCF President Mark Bloomfield and Chief Economist Margo Thorning on January 24, 1995, the ACCF has stressed that tax relief without progrowth tax measures this year would squander a rare opportunity to promote the higher levels of saving and investment in the United States needed to enhance productivity growth and foster rising family incomes.

Investment spending in the United States in recent decades compares unfavorably with that of other nations as well as with our own past experience. From 1973 to 1992, gross nonresidential investment as a percent of gross domestic product (GDP) was lower for the United States than for any of our major competitors. Even more disturbing is the fact that net annual business investment in this country in recent years has fallen to only half the level of the 1960s and 1970s.

These trends in saving and investment not only helped slow the increase U.S. living standards, but also have jeopardized our future economic strength and our ability to maintain our world leadership. In addition, the need to finance the retirement of the "baby-boomer" generation looms: recent research by respected scholars shows that baby boomers' saving is only one-third the rate required to finance a retirement standard of living comparable to that enjoyed before retirement.

Congress is considering three important tax measures which would reduce the bias against capital formation in our current tax system. The ACCF believes that enactment of these measures as the progrowth centerpiece of the 1995 tax package would promote saving and investment, economic growth, and higher living standards:

• Substantial cuts in capital gains taxes for individuals and corporations. The ACCF, a national leader since 1978 of efforts to restore and maintain a favorable capital gains tax differential, has stressed again this year the economic benefits to be won by reducing capital gains taxes: lower capital costs; amelioration of the impact of inflation on capital gains; increased mobility of capital; and an improved entrepreneurial environment. Working with House Ways and Means Committee Chairman Bill Archer on the capital gains provisions of the Contract With America Tax Relief Act of 1995 (H.R. 1215) and with Senators Orrin Hatch and Joe Lieberman on their capital gains tax cut proposal, the Capital Formation Act of 1995 (S. 959), the ACCF once again leads the private-sector effort to help enact significant capital gains tax cuts this year.
  
  
• Significant liberalization of Individual Retirement Accounts (IRAs). For more than two decades, the ACCF has pointed out the dangers of the low rate of U.S. saving through its widely read publications and blue-ribbon symposia. A number of economic studies have demonstrated that IRAs, which enjoy bipartisan support among policymakers, stimulate new saving. In 1981, the ACCF championed the liberalization of IRAs and in 1995 is again urging Congress to adopt measures to improve IRAs. Both the American Dream Savings Account included in the Contract With America Tax Relief Act of 1995 (H.R. 1215) and the Savings and Investment Incentive Act of 1995 (S. 12) introduced by Finance Committee Chairman Bill Roth and Senator John Breaux would liberalize IRAs, thus encouraging greater saving.
  
  
• Repeal of the corporate alternative minimum tax (AMT). Since the substantial expansion of the AMT in the Tax Reform Act of 1986, the ACCF has documented its negative impact on investment, productivity, and economic growth. The ACCF published one of the first economic analyses of this issue and a ground-breaking international comparison of the AMT's impact. Legislation addressing the AMT is an important step in putting U.S. firms on an equal footing with their international competitors. AMT repeal was included in the Contract With America Tax Relief Act of 1995 (H.R. 1215). Senators Conrad Burns and Don Nickles have introduced (S. 1000), legislation to significantly reform the AMT.

Policymakers in Congress and the Administration have a tremendous opportunity this year to promote U.S. economic strength by enacting progrowth tax measures. It is an opportunity that should not be wasted.

To encourage an informed debate on the pro-capital formation provisions of the 1995 tax bill, the ACCF is pleased to share with readers of Capital Formation the enclosed special reports: "Update: Questions and Answers on Capital Gains," "Update: Questions and Answers on IRAs," and "AMT Repeal, U.S. Investment, and Economic Growth." These were prepared by the ACCF Center for Policy Research, the public policy think tank affiliated with the American Council for Capital Formation. For additional copies, contact the ACCF Center for Policy Research, 1750 K Street, N.W., Suite 400, Washington, D.C. 20006-2300.

Forum Presents Research on Climate Change Policies

Six new studies strongly suggesting that imposing near-term goals to reduce greenhouse gas emissions would be a costly and potentially unnecessary response to concerns about possible climate changes were presented at "An Economic Perspective on Climate Change Policies," a public policy symposium sponsored by the ACCF Center for Policy Research on September 13 in Washington, D.C.

Senator Frank Murkowski (R-AK), chairman of the Committee on Energy and Natural Resources and the forum's keynote speaker, noted that "Economic analysis on the impact of climate change policies ought to precede any negotiations on climate change. That's another reason why I think the ACCF Center for Policy Research conference is particularly timely at this crucial stage."
Major conference findings from the six new studies include:

• The goal of reducing CO2 emissions to 1990 levels or below by 2005 or 2010 is politically motivated rather than determined by economic or scientific analysis.
  
  
• If the United States were to cut back sharply on emissions in the near future, it would have almost no impact on CO2 emissions or concentration in the atmosphere because developing countries' emissions will be going up sharply. The costs of CO2 reductions in terms of U.S. GDP growth and lifestyle changes would be high with little benefit for total worldwide reductions.
  
  
• Industrialized countries should focus their efforts on the development of new technologies to curb emissions. Such a policy would have maximum benefit for the environment while minimizing the negative impact of emission reduction policies on economic growth and lifestyles.
  
  
• Strong measures taken in the near future to reduce emissions will cause lost jobs and exit of energy-intensive companies from the United States with no overall cutback in worldwide CO2 emissions. Capital and industries are mobile worldwide and energy-intensive industries will tend to "migrate" to where CO2 emissions are not restricted.

The following papers were presented at the symposium:

• Developing a Framework for Short- & Long-Run Decisions on Climate Change Policies by W. David Montgomery, Vice-President, Charles River Associates
  
  
• Costs & Benefits of Alternative CO2 Emissions Reduction Strategies by Alan S. Manne, Professor of Operations Research, Emeritus, Stanford University
  
  
• Stabilizing Atmospheric CO2: Rethinking the Emissions Problem by Jae Edmonds, Technical Leader, Economic Programs, Battelle, Pacific Northwest Laboratories
  
  
• Joint Implementation in the Framework Convention on Climate Change: Opportunities & Pitfalls by Kenneth R. Richards, Senior Economist, Battelle, Pacific Northwest Laboratories
  
  
• Carbon Dioxide Emission Restric-tions in the Global Economy: Leakage, Competitiveness, and the Implications for Policy Design by Thomas F. Rutherford, Assistant Professor of Economics, University of Colorado-Boulder
  
  
• The Impact of Carbon Taxes on Consumer Living Standards by Lawrence M. Horwitz, Principal, DRI/McGraw-Hill