Capital Formation Newsletter
September-October 2004, Vol. 29, N0. 5

Corporate Tax Reform Measure Becomes Law

Dr. Margo Thorning Speaks at Economic Policy Forums

Mark Bloomfield Moderates Panel on Economic Challenges

From the Salon: 127th ACCF Economic Policy Evening

From the Salon: 128th ACCF Economic Policy Evening

(PDF Version)

Corporate Tax Reform Measure Becomes Law

President George W. Bush signed the "American Jobs Creation Act of 2004" (HR 4520), a major overhaul of corporate tax rules, into law on October 22. Earlier in the month, the measure passed the U.S. House of Representatives by a vote of 280-141 and was approved by the Senate by a vote of 69-17 shortly thereafter.

Among other significant changes, the new law repeals the U.S. export tax regime ruled illegal in 2002 by the World Trade Organization (WTO) and replaces it with a new system of corporate tax rules. An EU official indicated that the European Union has decided to lift, at least temporarily, the sanctions it imposed on US goods, now that the new bill is law. However, the official indicated that a new complaint would be filed with the WTO, because the EU doubts that the new law complies with the 2001 WTO ruling.

Other key provisions of the measure would:

• Provide a one-year reduction in the tax rate on repatriated earnings of U.S. foreign subsidiaries;
• Establish a 3 percent tax rate cut for domestic manufacturing activity, phased in through 2010;
• Raise the small business expensing limit to $100,000 from $25,000 through 2007;
• Reform rules for S Corporations;
• Add incentives to increase the production of ethanol and biodiesel;
• Simplify rules for U.S. multinationals related to foreign tax credits, interest expense allocation, and overall domestic losses; and
• Raise U.S. Custom user fee and close various tax shelters.

The ACCF Center for Policy Research, the economic policy think tank affiliate of the American Council for Capital Formation, sponsored a study of the economic impact of the temporary one-year reduction in the tax rate on repatriated earnings of U.S. foreign subsidiaries by the highly regarded macroeconomist, Dr. Allen Sinai, president and chief global economist, Decision Economics, Inc. Dr. Sinai's analysis showed that the temporary reduction in the tax rate on repatriated earnings of U.S. foreign subsidiaries to 5.25 percent (versus the prior law 35 percent) would provide enhanced cash flow that could be used to increase financial assets, purchase capital goods, pay down debt, pay dividends, improve balance sheets, remit taxes owed on the funds, and hire workers. Overall, the measure would help put the U.S. business sector into a strong expansionary mode. (See the Center's special report on Dr. Sinai's 2003 study, "Macroeconomic Effects of a Temporary Reduction in the Tax Rate on Repatriation of Foreign Subsidiary Earnings.")

Fundamental tax reform, including modernization of international tax laws, is a long-term goal of the American Council for Capital Formation. The ACCF applauds the new tax law changes to modernize U.S. corporate tax rules and advance the ability of U.S. firms to compete in the international business arena.

ACCF President Mark Bloomfield discussed the new corporate tax provisions on the BBC "News Hour" and, just hours after the polls closed, commented for NPR's "All Things Considered" on the impact of the election on U.S. economic policy. To listen to Mr. Bloomfield's comments on "All Things Considered" please go to http://www.npr.org/programs/atc/

Dr. Margo Thorning Speaks At Economic Policy Forums

Dr. Margo Thorning, ACCF senior vice president and chief economist participated in two panel discussions on climate and economic policy issues.

On August 20, at the annual Mont Pelerin conference in Salt Lake City, Dr. Thorning spoke on climate change and its economic impact. Pictured below are Dr. Thorning (far right); Julian Morris, director of International Policy Network, Andrei Illarionov, senior economic advisor to Russian President Vladimir Putin, and Pete Geddes, program director, Foundation for Research on Economics and the Environment.

On September 30, Dr. Thorning participated in the American Petroleum Institute and the U.S. Department of Energy 3rd Conference on "Voluntary Actions by the Oil and Gas Industry to Address Climate Change." Dr. Thorning addressed the conference as a member of a panel including non-governmental (NGO), government, and U.S. industry experts. In addition to Dr. Thorning, other NGO panelists included representatives from the American Enterprise Institute, World Resources Institute, and Climate Actions Network. Government perspectives were presented by representatives of the U.S. Department of Energy, the British Embassy in Washington, the Senate Energy and Public Works Committee, and the World Bank. API President Red Cavaney, a member of the ACCF's board of directors and co-chairman of the ACCF Association Council, moderated the panel.

API/ DOE Panel participants from left to right: Margo Thorning, American Council for Capital Formation; Jason Anderson, Climate Action Network; Paul Faeth, World Resources Institute; Jim Glassman, American Enterprise Institute, Red Cavaney, moderator, American Petroleum Institute; Larisa Dobriansky, U.S. Department of Energy; and Bob Greco, American Petroleum Institute.

ACCF President Moderates Panel on Economic Challenges Ahead

A t the annual meeting of the board of directors of the American Benefits lCouncil, on September 21, ACCF President Mark Bloomfield moderated a panel discussion of the economic challenges the next Administration will face. Panel members were John J. Kelliher, former chief counsel for the House Ways and Means Committee, speaking for the Bush-Cheney Campaign and Gary Gensler, former U.S. Treasury Under Secretary for Domestic Finance, representing the Kerry-Edwards Campaign. James A. Klein, president of the American Benefits Council and a key member of the ACCF Association Council, introduced the panel at the ABC board meeting.

James A. Klein (left), introduces Mark Bloomfield at ABC’s annual board meeting. Panelists were: Gary Gensler (center) and John Kelliher (right)

Key Policymakers and Media Attend 127th ACCF Economic Policy Evening

ACCF hosted its 127th Economic Policy Evening on September 28. Guests at the session included leading policymakers from Congress and the Bush lAdministration, top journalists from the print and electronic media, business leaders and diplomats. For more than 20 years, ACCF Economic Policy Evenings have attracted policymakers from Congress and the Executive Branch, Washington-based diplomats from key nations around the globe, journalists and private sector leaders.

Click here for more information on these sessions.

Senator Lindsey Graham (R-SC) and Peter Batten, chief executive officer, Premium Hospitality Group, Inc		Deborah Solomon, staff writer, Wall Street Journal, and David Mohre, executive director, Energy & Power Division, National Rural Electric Cooperative Association
M. Douglas Todd, director, Legislative Affairs, Energy, Transportation and Industry, Siemens Corporation and Robert Weidner, president, Metals Service Center Institute.

128th ACCF Economic Policy Evening Draws Top Policymakers, Media

On October 20, ACCF hosted its 128th Economic Policy Evening. Guests at the session included leading policymakers from Congress and the Bush Administration, top journalists from the print and electronic media, business leaders and diplomats. For more than 20 years, ACCF Economic Policy Evenings have attracted policymakers from Congress and the Executive Branch, Washington-based diplomats from key nations around the globe, journalists and private sector leaders.

Click here for more information on these sessions.

Margo Thorning, ACCF senior vice president and chief economist, and Todd Flemming, president and chief executive officer, Infrasafe.		Jody Allen, managing editor, U.S. News & World Report, Joseph McGuire, president, Association of Home Appliance Manufacturers, and Philip Merrill, president and chairman, Export-Import Bank of the U.S..
Philip Merrill, president and chairman, Export-Import Bank of the U.S., the Honorable Josette Shiner, Deputy United States Trade Representative, Office of the U.S. Trade Representative, and Gary Gensler, Kerry- Edwards campaign surrogate and former U.S. Treasury Under Secretary for Domestic Finance.		Michael J. Fleming, president, Equipment Leasing Association, Mark Bloomfield, ACCF president and Todd Flemming, president and chief executive officer, Infrasafe.
Gary Gensler, Kerry-Edwards campaign surrogate and former U.S. Treasury Under Secretary for Domestic Finance, Kevin Hassett, Bush-Cheney campaign surrogate and resident scholar, American Enterprise Institute for Public Policy, Margo Thorning, ACCF senior vice president and chief economist, and Joseph McGuire, president, Association of Home Appliance Manufacturers.