Climate Briefing Examines Impact of Kyoto Protocol on Developing Economies

100th ACCF Economic/Environmenta Policy Evening Attracts Star Policymakers, Journalists, Business Leaders, and Diplomats

Lawmakers Act on ACCF Legislative Priorities

TWO OF THE ACCF’S long-term capital formation priorities—repeal of the estate tax and reform of private pensions, including expansion of Individual Retirement Accounts—have been high on the legislative agenda of the 106th Congress. As Capital Formation goes to press, the fate of the former has probably been sealed for this year, while the latter awaits final congressional action.

Outcome of Estate Tax Repeal Debate

The “Death Tax Elimination Act of 2000” (H.R. 8), which passed the House of Representatives on June 9 and the Senate on July 14 with strong bipartisan support, was vetoed by President Clinton on August 31. Chief sponsors of the bill were Representatives Jennifer Dunn (R-WA), John Tanner (D-TN), and Senator Jon Kyl (R-AZ). The measure would have repealed the estate tax over ten years and, with some exceptions, eliminated the step-up in basis after repeal. In his veto message, the President claimed the measure would “bust the budget” while providing an overwhelming bulk of its benefits to the wealthy.

Backers of H.R. 8 argued that the current estate tax violates the criteria—simplicity, fairness, and positive economic impact—for a “good tax.” Moreover, the revenue loss forecasts of the measure are controversial, in particular over the long term, since no consideration was given in the revenue forecasts to the “dynamic effects” of estate tax repeal or to the impact of step-up in basis on government revenues. (For a summary of key issues in the estate tax repeal debate, see the ACCF Center for Policy Research’s special report, Questions and Answers on Estate Tax Repeal.)

The House, in a bipartisan effort on September 7, failed to override the President’s veto on a vote of 274 to 157. (An override requires approval by two-thirds of those present and voting.) Fifty-three House Democrats voted to override the veto, compared to the 65 who supported H.R. 8 earlier in the year. Both Republican and Democratic proponents of estate tax repeal stressed that it will remain a high-priority goal in the next Congress.

Progress on Retirement Savings Reform

The House passed the “Comprehensive Retirement Security and Pension Reform Act” (H.R. 1102) on July 19 by a lopsided margin of 401 to 25. The measure, cosponsored by Representatives Rob Portman (R-OH) and Ben Cardin (D-MD), is intended to help millions of Americans to save more for retirement and makes numerous other pension reforms. Included in the bill were provisions permitting workers to make larger contributions to retirement savings plans, including IRAs and 401(k)s, and making it easier to transfer savings in employer-sponsored plans from job to job. (For an analysis of the need for expanded retirement savings vehicles, see the ACCF Center for Policy Research’s special report, Facts on Retirement Saving.)

On September 7, the Senate Finance Committee, under the leadership of its chairman Bill Roth (R-DE), unanimously approved a budget reconciliation bill that included a package of retirement savings and pension reform provisions that expanded on H.R. 1102. Like the House-passed measure, the Finance Committee bill would increase the annual contribution limit on IRAs, allow individuals age 50 and over to make “catch up” contributions annually to an IRA, and raise 401(k), 403(b) and 457 plan contribution limits, among other retirement plan incentives. The bill also includes some Democratic-backed initiatives, such as a tax credit for small business to make it easier for smaller firms to set up retirement savings plans.

Commenting on H.R. 1102, U.S. Treasury Secretary Lawrence Summers said that while the Administration supports the goals of increasing retirement savings and pension coverage, it has “continuing concerns with the legislation.”

On September 19, the House passed a new bill that combines the Federal debt reduction legislation approved by the House on September 18 with the previously passed pension reform bill. Congressional sources said that the legislative tactic was designed to encourage the Senate to consider both bills together in a single reconciliation measure.

As Capital Formation goes to press, end-of-session maneuvering has kept the Finance Committee’s savings bill from being brought up for consideration by the full Senate. However, congressional sources indicate that the measure may be attached to whatever legislative vehicle is used for the end-of-the-year “deal” between Congress and the White House.

ACCF Center for Policy Research Climate Briefing Examines Impact
of Kyoto Protocol on Developing Economies

A POLICY BRIEFING for congressional staff members and the Washington diplomatic community sponsored by the ACCF Center for Policy Research examined the impact on trade patterns and economic growth in developing countries of measures proposed under the Kyoto Protocol on climate change.

The August 30 briefing at the Cosmos Club featured climate policy expert Dr. W. David Montgomery, vice president, Charles River Associates, who presented updated findings from a study released at the June United Nations Framework Convention on Climate Change meeting in Bonn, Germany.

Dr. Montgomery’s study focuses on the economic implications of the Clean Development Mechanism (CDM) and other mechanisms proposed under the Kyoto Protocol for 20 developed and developing countries, including Argentina, Brazil, China, Colombia, India, Egypt, Indonesia, Malaysia, Mexico, Nigeria, South Africa, South Korea, Taiwan, Venezuela, Australia, Austria, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, United States, and the United Kingdom. It uses one of the few peer-reviewed global economic models available to focus on important features of the Protocol which have as yet received little attention, including the distribution of the economic burden across countries and regions and the implications for international competitiveness.

The results of the study show that the CDM diverts attention from optimal solutions. The CDM cannot replace full global trading as a cost-reduction strategy. Transaction costs or fees such as the Europeans are proposing reduce CDM adoption. Restrictions on type and location of CDM projects reduces the usefulness of the projects, and causes the real cost of imports to rise for many countries.

Future briefings will be held this fall on economic aspects of the Kyoto Protocol. For more information, please contact Dr. Margo Thorning, senior vice president and director of research, at 202/293-5811 or mthorning@aol.com.

100th ACCF Economic/Environmental Policy Evening Attracts Star Policymakers,
Journalists, Business Leaders, and Diplomats

ACCF ECONOMIC ENVIRONMENTAL POLICY EVENINGS are informal, off-the-record sessions that provide a unique opportunity for prominent members of Congress, influential journalists and editorial writers, leaders from the business community, and high-ranking members of the Washington diplomatic community to discuss timely economic and environmental policy issues. Held since 1982 at the residence of ACCF President Mark Bloomfield, the evening of September 12 celebrated the 100th session in this popular series.