Capital Formation Newsletter
July-August 2005, Vol. 30, N0. 4

Senate Plans Vote on Death Tax Repeal

Former CEA Chairman Harvey S. Rosen Joins Center Board

ACCF Research Featured in Wall Street Journal Editorial

ACCF Chief Economist Speaks at ALEC Meeting

137th ACCF Economic Policy Evening Focuses on Globalization

Special Report: New International Survey Shows U.S. Death Tax Rates Among Highest

(PDF Version)

Senate Plans Vote on Death Tax Repeal

As Capital Formation goes to press, the U.S. Senate is poised to vote once again on the fate of the federal estate tax, possibly as early as Tuesday, September 6. In last minute procedural maneuvering before the Senate left for its August recess, Senate Republican Leader Bill Frist “filed for cloture” on pending legislation that could prompt a vote shortly after Labor Day on several options to permanently repeal or significantly reduce the estate tax. The key word here is “permanently” because every year since President Bush first proposed repealing the estate tax, either the House or Senate, but not both legislative bodies, have tinkered with the law. Passage of legislation by both the Senate and the House, resolution of the differences between the two bills, and a presidential signature are needed to change the current law and permanently repeal the estate tax. Earlier this year, the House of Representatives voted overwhelmingly to make the repeal of the law in 2010 permanent. The odds are good that the Senate will soon take action on the death tax. If there are any differences between the House and Senate legislation, they will be resolved and President Bush could sign a new estate tax into law before year’s end.

As early as September 6, the Senate will face two realistic choices on the estate tax. The first would be to agree with the House-passed legislation and make repeal of the death tax in 2010 permanent. The second would be the compromise championed by Senator John Kyl (R-AZ) based on the ACCF’s “CAPTAX” concept of a top estate tax equal to the 15 percent top capital gains tax rate with step up in basis. ACCF continues to be concerned about other pieces of such a “deal,” including how the gift tax fares under such a regime, the exemption level and the “double whammy” in some states of state death taxes on top of the federal estate tax. Senator Max Baucus (D-MT), the senior Democrat on the tax-writing Finance Committee, has been very supportive of making a deal, as has Senate Finance Committee Chairman Charles Grassley (R-IA). House Ways and Means Committee Chairman Bill Thomas (R-CA), the senior tax writer in the House of Representatives, has also in the past suggested a version of the CAPTAX in which the maximum tax rate for dividends, capital gains and estates would be the same. Chairman Thomas is the author of recent changes in law that made the top tax rate on dividends and capital gains the same.

A very important political point bears repeating. Senator Kyl is one of the most conservative U.S. Senators; he is second to none in wanting repeal of the death tax; and he is a “legislator’s legislator.” He has concluded that immediate repeal or repeal in 2010 cannot garner the votes needed to pass the Senate, but a compromise based on the ACCF CAPTAX is doable. The choice thus is between the Kyl CAPTAX and current law. The ACCF believes that the Kyl compromise wins hands down. Sixty votes are needed to pass the Kyl “deal” in the Senate. Its fate is in the hands of six undecided moderate Democratic Senators. Absent unusual pressure from “repeal or nothing” interest groups, all Republicans should ultimately vote for a Kyl CAPTAX compromise and, after negotiations with the House, the odds favor the President signing it into law.

The American Council for Capital Formation has long advocated repeal because the estate tax is a tax on a family’s lifetime saving, it is a tax on capital formation and it is a tax on economic growth. The ACCF’s think tank has undertaken research and analysis by some of the nation’s best scholars on the economic impact of this bad tax. (These studies are available at www.accf.org.)
A new ACCF international comparison of estate taxes found that the U.S. has one of the harshest death taxes. (See special report with this newsletter.) According to the 50-country survey, the current maximum U.S. estate tax rate of 47 percent is exceeded only in Japan and Korea. The U.S. also has undoubtedly the most bizarre estate tax in the world. Until 2010, there is a gradual decline in the estate tax rate and an increase in the exemption level, the estate tax (but not the gift tax) is eliminated in 2010, and then the old estate tax law is resurrected with rates as high as 55-60 percent and much smaller exemption levels.
A significant, permanent reduction in the estate tax that would be a victory for America’s savers, capital formation, and the economy is definitely in the cards before the end of the year. Stay tuned. Do not hesitate to contact ACCF President Mark Bloomfield if you have any questions about the possibility of putting the estate tax to rest this year.

Former CEA Chairman Harvey S. Rosen Joins Center Board

Hon. Harvey S. Rosen

The ACCF Center for Policy Research is pleased to announce that the Honorable Harvey S. Rosen, immediate past Chairman of President Bush’s Council of Economic Advisers (CEA), has joined the Board of Scholars of the ACCF Center for Policy Research.

Professor Rosen is the John L. Weinberg Professor of Economics and Business Policy at Princeton University, where he has been a member of the Department of Economics since 1974. He served as Chairman of the Department from 1993-1996, and has been Co-Director of the Center for Economic Policy Studies since 1993. Professor Rosen’s main field of research is public finance. He has published several dozen articles in scholarly journals on this topic, and authored an undergraduate textbook on it, as well. He serves on the editorial boards of several journals dealing with public finance and taxation. In addition to serving on the President’s Council of Economic Advisers, he served in the U.S. Department of the Treasury as Deputy Assistant Secretary (Tax Analysis) from 1989-1991.

Dr. Rosen joins four other former CEA chairmen on the Board of Scholars of the ACCF Center for Policy Research. They are the Honorable Michael Boskin, Tully M. Friedman, Professor of Economics and Senior Fellow, Hoover Institution, Stanford University; Honorable R. Glenn Hubbard, Dean and Russell L. Carson, Professor of Finance and Economics, Columbia University, Graduate School of Business; Honorable N. Gregory Mankiw, Allie S. Freed Professor of Economics, Harvard University, Department of Economics; and Honorable. Murray L. Weidenbaum, Edward Mallinckrodt Distinguished University Professor, Washington University in St. Louis.

The top U.S. federal estate tax rate is higher than those of almost all of the fifty industrialized and emerging countries surveyed according to a new study just released by the American Council for Capital Formation.

Taking note of the ACCF’s survey, a Wall Street Journal editorial on July 28 said, “Death should not be a taxable event, as most serious countries seem to understand. A study released last week by the American Council for Capital Formation finds that of 50 major nations around the world, only two have higher death tax rates than the U.S. and 24 have no inheritance tax at all. (See nearby table.) America is about the most expensive place to die on the planet.”
To read the complete study, “New International Survey Shows U.S. Death Tax Rates Among Highest,” see www.accf.org.

ACCF Chief Economist Speaks at ALEC Meeting

Dr. Margo Thorning, ACCF senior vice president and chief economist, addresses 32nd Annual Meeting of the American Legislative Exchange Council.

Dr. Margo Thorning, ACCF senior vice president and chief economist, addressed state legislators, business leaders and public policy experts gathered for the 32nd Annual Meeting of the American Legislative Exchange Council August 1-5. Dr. Thorning noted that Europeans are not on track to meet their mandated emissions reduction targets under the Kyoto Protocol. A more promising approach is the new Asia-Pacific Partnership on Clean Development and Climate, a group comprised of China, India, Australia, the United States, Republic of Korea, and Japan, which focuses on the transfer of less-emitting energy technologies and carbon sequestration to developing countries. The more than 2,000 leaders from the public and private sector gathered in Grapevine, Texas to participate in an “exchange of ideas” about how they could improve public policy and further their goals of a limited government that promotes free markets and individual liberties.

Dr. Thorning presented an “Economic Report of the States’ Climate Change Efforts” during the meeting’s panel session on climate change. Also speaking on the panel were Scott Nauman, manager of Gas Marketing for the Americas, Exxon Mobil Gas and Power Marketing, and Jim Sims, executive director, Western Business Roundtable.

137th ACCF Economic Policy Evening Focuses on Globalization

On July 19, the American Council for Capital Formation hosted its 137th ACCF Economic Policy Evening. The evening’s discussion centered on Globalization: What Can and Should the U.S. Government Do or Not Do? Guests at the session included key economic policymakers from Congress and the Bush Administration, top journalists and private sector leaders. For more information on ACCF Economic Policy Evenings, see www.accf.org.

Josef Hebert, Associated Press, and Red Cavaney, president and CEO, American Petroleum Institute		Josephine S. Cooper, group vice president, Government and Industry Affairs, Toyota Motor North America, Representative Michael G. Oxley (R-OH), and M. Robert Weidner, III, president and CEO, Metals Service Center Institute
Mark Bloomfield, ACCF president and CEO, and Representative Adam Smith (D-WA)		H. Josef Hebert, Associated Press, and Kevin S. Crossett, executive vice president and global general counsel, Nationwide