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Capital Formation Newsletter
May-June, 2006, Vol. 31, N0. 3
ACCF, ICCF Participate in Environmental Debates
at the UN, in the U.S. Senate, and in California
The Honorable Lloyd M. Bentsen
Sarbanes Oxley: Is It the Tip of the Iceberg?
ACCF Association Council Holds Spring Meeting
Noted Pundits Debate Implications of 2006 Election
for U.S. Economy
Top House and Senate Tax Staffers Assess 2006
Agenda
ACCF in the News...
ACCF Hosts 143rd Economic Policy Evening
(PDF
Version)
ACCF, ICCF Participate in Environmental Debates
at the UN, in the U.S. Senate, and in California
Dr. Margo Thorning, managing director of the ACCF’s affiliate,
the Brussels-based International Council for Capital Formation,
spoke before the UN Commission on Sustainable Development on May
5 as a member of a panel of international experts debating challenges
and opportunities related to investing in energy and industrial
development. Dr. Thorning told Commission members that among the
key challenges to reducing “energy poverty” is strengthening
the protection that encourages necessary investment, reducing the
bias against nuclear power, and examining the potential impact of
carbon caps on energy investment. She stressed that governments
should reduce barriers and promote investment through tax incentives
and encourage free trade and stable governance. Appearing on the
panel with Dr. Thorning were Faith Birol, chief economist with the
International Energy Agency in Paris, and Christine Woerlen, Climate
Change Focal Area, Global Environment Facility. More information
is available at www.iccfglobal.org.
Dr. Thorning, as senior vice president and chief economist of
the American Council for Capital Formation, participated in a roundtable
on “Exploring Greenhouse Gas Technologies” sponsored by
the U.S. Senate Committee on Environment and Public Works on May
25. Committee Chairman James M. Inhofe (R-OK) and Ranking Member
James M. Jeffords (I-VT) opened the session and welcomed invited
experts from the energy industry, academia, and think tanks to the
roundtable discussion. Dr. Thorning’s remarks focused on greenhouse
gas reduction technologies and economic growth, including the impact
of new technologies on carbon emissions in the U.S. China, India,
and Japan and a comparison of energy intensity reduction in the
U.S. with that of the EU from 1991 to 2003. Over the 1991-2003 period
the U.S. reduced its energy intensity by 20.10 percent compared
to a reduction of 16.80 percent in EU-15 countries. More information
on Dr. Thorning’s presentation can be found on the ACCF website,
www.accf.org.
As California policymakers debated Assembly Bill 32, a proposal
for a mandatory California-only emissions cap, Dr. Thorning released
a report shows that Californians could expect higher energy costs,
millions of dollars in lost gross state product and widespread job
under the bill. The ACCF report provides a wide body of economic
forecasts on the arbitrary, California-only cap proposal currently
pending in the California state legislature. AB 32 is likely to
“leakage” of industry to states and countries with no
mandatory emission caps resulting in job losses and no net reduction
in GHGs, according to the report. Given the quality and quantity
of empirical research demonstrating that near-term targets and timetables
CO2 emissions reductions will negatively impact California without
materially slowing the growth of global emissions, policymakers
California should consider carefully whether they want to proceed
down this path alone. The Los Angeles Times (June 26), Investor’s
Business Daily (June 16), and Energy Washington Week (June 21) took
note of the ACCF’s report. The full ACCF report and release
are available on the ACCF website, www.accf.org.
The Honorable Lloyd M. Bentsen
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The distinguished public service of the late Lloyd M. Bentsen,
who served as a U.S. Senator and Secretary of the U.S. Treasury,
has been appropriately recognized by President George W. Bush
and former President Bill Clinton, among many others over
the past weeks. Secretary Bentsen also served for more than
a decade as a director of the American Council for Capital
Formation. It is in that context we would like to note three
of his significant contributions to sound U.S. economic policy
over his more than half a century of public service.
First, in the late 1970s Senator Bentsen, as Chairman of
the Congressional Joint Economic Committee (JEC), held a series
of groundbreaking hearings on the importance of capital formation
to our country’s economic well-being and future. First,
in the late 1970s Senator Bentsen,
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as Chairman of the Congressional Joint Economic Committee (JEC),
held a series of groundbreaking hearings on the importance of capital
formation to our country’s economic well-being and future. True
to Lloyd Bentsen’s core values and leadership, the hearings were
bipartisan and the resulting consensus was a catalyst for a shift
in U.S. economic policy toward greater attention to the role of the
supply side of economics to growth and job creation. Chairman Bentsen
helped make capital formation as American as apple pie and the JEC
hearings provided the intellectual underpinning for the significant
subsequent shift in U.S. tax policy in a procapital formation direction.
It was at precisely that time that the ACCF came on the public policy
scene and worked closely with Senator Bentsen to bring about the capital
gains tax cut of 1978 and the significant capital cost recovery reforms
for American business in 1981. In subsequent years, the ACCF sometimes
differed with the Senator but, more often than not, applauded his
leadership in moving our tax system away from taxing saving and investment.
Second, Lloyd Bentsen’s service as Secretary of the Treasury
in President Clinton’s Administration and his contribution
to sound economic policy should not be underestimated. Secretary
Bentsen was the seasoned Washington “wise man” in the
President’s cabinet and the fiscally prudent policymaker who,
as historians now recognize, played a critical role in winning the
debate in favor of a fiscally responsible Federal budget for which
the Clinton Administration can rightfully be proud.
Third, when Senator Bentsen left public service, he did us great
honor by joining the ACCF’s board of directors. Although not
closely involved in the ACCF’s operations, Secretary Bentsen’s
membership on our board reinforced what he began in the late 1970s
as Chairman of the Joint Economic Committee and continued in his
steadfast leadership as Secretary of Treasury. His contributions
to U.S. tax policy, among other levers of capital formation public
policy, and to prudent fiscal policy as a critical step in meeting
our country’s need for the saving and investment essential
to long-term economic prosperity will long be remembered.
Let us conclude with a few personal notes. In today’s political
climate, with its unnecessary harshness, unconstructive partisanship
and inability to build consensus which is so necessary to resolving
difficult public policy challenges, Lloyd Bentsen stands apart.
Senator Bentsen was always the gentleman; he knew when to be partisan
and when to be bipartisan in the interests of the country. He knew
that sound economic policy often is not the easy political road
but understood how to bend politics to further good public policy.
Charls E. Walker, Founder and Chairman Emeritus
Mark A. Bloomfield, President and CEO
Sarbanes Oxley: Is It the Tip of the
Iceberg?
The American Council for Capital Formation and the Small Business
& Entrepreneurship Council co-sponsored a forum on Capitol Hill
on “Sarbanes-Oxley: Is It the Tip of the Iceberg?” on
Tuesday, July 11. Keynoting the session was Representative Tom Feeney
(R-FL) who introduced of HR 5405, a bill to reduce the burdens of
the implementation of section 404 of the Sarbanes-Oxley Act of 2002.
Alan Murray, the Wall Street Journal, moderated the forum. Professor
Eric Talley, Professor of Law, UC Berkeley (Boalt Hall) School of
Law, and Senior Economist, RAND Corporation, gave an overview of
problems firms face under the Sarbanes-Oxley legislation. Participants
representing small and large businesses gave their perspectives
on issues such as the non-negligible compliance costs, effects on
small business and possible future negative consequences of the
Act in terms of litigation. Panelists were Woodie Neiss, cofounder
and CFO, FLAVORx, Inc.; Michael Paese, executive vice president
and chief administrative officer, Mercantile Bankshares Corporation;
Daniel G. Pocrnich, CFO, Wells Fargo Equipment Finance, Inc.; Dan
Cummings, managing director and co-head of Equity Capital Markets
the Americas, Merrill Lynch; and Glynn Tyranski, senior vice president
for Financial Compliance, New York Stock Exchange. To listen to
an audiocast of the forum, click on www.accf.org.
ACCF Association Council Holds Spring Meeting
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ACCF Association Council members gathered on May 18 to discuss
the short- and long-term outlook for Congressional action
on a broad range of capital formation policies. Zanny Minton
Beddoes, U.S. Economics Editor, The Economist, and a frequent
commentator on public affairs programs, was the guest speaker
at the meeting.
Assessing the current state of the U.S. economy, Ms. Beddoes
told meeting participants there are three things we worry
about but shouldn’t. First among these is the prospect
of a nasty dollar crash, which she believes can be avoided.
Although the dollar needs to fall at some point, it is likely
to fall gradually. Second is the possibility that an oil shock
will bring back the “stagflation” that resulted
from the oil crisis of the ‘70s. However, Ms. Beddoes
noted that the role of oil in and the recycling of oil dollars
through the U.S. economy are not the same as they were in
the 1970s, which should
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reduce the chance for a recurrence of stagflation. Third is the decline
in the number of U.S. scientists relative to foreign scientists. Although
the dollar needs to fall at some point, it is likely to fall gradually.
Second is the possibility that an oil shock will bring back the “stagflation”
that resulted from the oil crisis of the ‘70s. However, Ms. Beddoes
noted that the role of oil in and the recycling of oil dollars through
the U.S. economy are not the same as they were in the 1970s, which
should reduce the chance for a recurrence of stagflation. Third is
the decline in the number of U.S. scientists relative to foreign scientists.
This should not be an issue of concern at present, she said, because
the U.S. still has the best university system and as long as talented
foreigners continue to be admitted to U.S. universities, many will
remain to work in the United States.
Ms. Beddoes pointed to three issues that should be of concern,
but are not. First, she suggested that the growth of productivity
relative to the growth in income should be a worry. The typical
worker’s wages have not risen as much recently as they have
in the past, she noted, and the broad middle class is not seeing
many income gains. Second, Ms. Beddoes said too little attention
is being paid to the current round of trade negotiations, which
could slow the advance of globalization. Finally, she stressed that
the current pattern of cutting taxes without cutting spending is
unsustainable over the long term. Policymakers should focus on tax
reform, not on making inefficient changes to the current tax system.
The recently enacted budget reconciliation package is one example.
We ought to have used this opportunity for tax reform, she concluded.
Mark Bloomfield, ACCF president and CEO, led off the agenda for
the meeting with an overview of tax policy issues before policymakers
for the remainder of the Congressional session and gave his perspective
on some of the longer term tax policy problems policymakers need
to address. Now that the reconciliation bill, which included pro-capital
formation provisions to extend the 15 percent tax rate for dividends
and capital gains for two years, as well as extensions of FSC-ETI
corporate tax benefits and small business expensing, has been signed
into law, Mr. Bloomfield said Congress may now act on other capital
formation issues before the end of the session. These include the
so-called “trailer bill” that is expected to contain an
extension of the research and development credit, among other provisions,
a pension reform measure, and permanent reform of the estate tax.
Kent Mason, partner, Davis & Harman, and an expert on pension
policy, gave an overview of some key reforms included in the pension
legislation now under consideration by House and Senate conferees.
Mr. Mason, representing the American Benefits Council at the meeting,
noted that the bill addresses defined benefit plan funding, cash
balance plans, defined contribution plans, and permanence for the
pension-related provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA), among other issues. Some of
the reforms under consideration would improve pension plans, while
others could make existing problems worse.
The U.S. government has an energy policy framework that reflects
the 1970s and earlier, when “Big Oil” held strong sway
over worldwide petroleum reserves, Red Cavaney, president and CEO
of the American Petroleum Institute, told ACCF Association Council
members. Today, foreign governments own a majority of reserves (almost
80%). Mr. Cavaney noted that strained refining capacity, geopolitical
uncertainty, and a large risk premium are among the other critical
problems the industry faces. He emphasized the U.S. needs to get
its energy policy framework reflective of the new realities we face.
| Rae Cronmiller, environmental counsel,
National Rural Electric Cooperative Association, addressed pending
climate policy legislation, such as proposals offered by Senators
John McCain and Joe Lieberman, and by Senator Jeff Bingaman.
Mr. Cronmiller explained that the common thread running through
these measures is that they propose a “cap and trade”
system for mitigating greenhouse gas emissions. The proposals
differ somewhat regarding the greenhouse gas emitting |
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entities that are brought under the respective
caps, but all would increase electricity prices and the prices of
fossil fuels, which would lead to adverse effects on the nation’s
economy. The key to mitigating greenhouse gas emissions is low or
no carbon technology innovation and commercialization, but these
types of cap and trade proposals fall drastically short in this
category.
Dr. Margo Thorning, ACCF senior vice president and chief economist,
discussed the ACCF’s current study of international capital
cost recovery rates for a range of assets and encouraged Association
Council members to suggest additional assets to include in the analysis.
Dr. Pýnar Çebi, ACCF research economist, described
the forum on the impact of the Sabanes-Oxley legislation on business
that the ACCF and the Small Business & Entrepreneurship Council
will cosponsor on July 11. Dr. Çebi said the forum, “Sarbanes-Oxley:
Is It the Tip of the Iceberg,” will examine the impact of the
costs of complying with the legislation for small and mid-sized
firms, the effect on listings of foreign firms on U.S. exchanges,
and other critical issues. (See box on page 2 for more information
on the forum.)
The ACCF Association Council is co-chaired by Red Cavaney, president
and CEO, American Petroleum Institute, and Marc Lackritz, president,
Securities Industry Association. Members include more than 30 leading
trade associations representing Fortune 500 companies from the manufacturing,
financial services, technology, and real estate sectors, as well
as farmers, small businesses and entrepreneurs.
Noted Pundits Debate Implications of 2006
Election for U.S. Economy
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Syndicated columnist E. J. Dionne, Washington Post Writers
Group, and Senior Fellow, Governance Studies, Brookings Institution,
and Robert D. Novak, syndicated columnist, Chicago Sun-Times,
and a commentator on TV talk shows including “Capital
Gang” and “Meet the Press,” debated their very
different perspectives on “The 2006 Election: Prospects
and Implications for U.S. Business and the Economy” at
an ACCF Capital Formation Forum on Wednesday, June 7.
“Don’t count on a Democratic victory in the fall
elections,” Mr. Novak, a highly respected political analyst
and author of one of the longest running syndicated columns
in the nation, told ACCF supporters. “Despite the increasing
unpopularity of the Iraq war, the high price of gasoline,
the failure of Republicans to control Federal spending, among
other problems areas, he Democrats won’t prevail this
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t year because they favor big government and want to raise taxes.
The American people don’t want big government,” he said.
Although some observers believe Republicans could lose as many as
35 seats this year, Mr. Novak said his bi-monthly Evans and Novak
Political Report finds that only 9 House seats are at “great
risk” and 13 are at “moderate risk.” He added, “Republicans
may not be much, but compared to Democrats, we look pretty good.”
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Commenting on the results from the closely watched June 6
special election in California to fill a vacant House seat,
Mr. Novak said the losing Democratic candidate got about the
same number of votes as Senator Kerry received in the 2004
presidential election. “This shows that Republicans are
still voting for their party’s candidate because the
Democrats are not giving them anyone better to vote for.”
“The Republicans have set up a train wreck - the tax
provisions expiring in 2010 - that will elect a Democrat to
the presidency,” responded E.J. Dionne, whose analysis
of American politics and trends in public sentiment is recognized
as among the best in business. “We will end up with a
big push for tax reform after Bush leaves office.” Over
the past 20 years, policymakers have been experimenting by
cutting taxes in the expectation that the government would
shrink as a result, he said.
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“Just the opposite has happened - taxes have been cut, but the
government has not gotten smaller.” Turning to the California
congressional election, Mr. Dionne noted that the Democratic candidate
lost by only 5,000 votes in a majority Republican District. On the
state level, the hotly contested Democratic gubernatorial primary
“probably turned off voters and had the net effect of improving
Governor Schwarzenegger’s odds in the general election this fall.”
The outcome of the 2006 elections will depend to some extent on
national issues, including the war in Iraq, high gasoline prices,
immigration, and various scandals weighing on public perceptions
of the candidates, he said. Polls show substantial declines in support
for President Bush among conservative and moderate Republicans,
which creates a structural problem and is the impetus for legislation
like the amendments banning same-sex marriages and flag burning.
However, if Republicans work to increase support among conservatives,
they risk losing the support of more moderate members of the party,
which hurts moderate members of Congress.
There is an uneasiness about the U.S. economy now that Mr. Dionne
believes is based on concerns about the increased risk individuals
are shouldering in today’s economy. “Americans are trying
to figure out how to preserve risk-taking in the economy while still
allowing for some security,” he concluded.
Top House and Senate Tax Staffers Assess 2006
Agenda
As House and Senate negotiators struggled in late April to wrap
up a long-sought agreement on tax reconciliation, ACCF supporters
and guests heard Alex Brill, senior adviser to House Ways and Means
Committee Chairman Bill Thomas (R-CA), and Russ Sullivan, the Senate
Finance Committee’s Democratic chief of staff, give their perspectives
on the outlook for tax reconciliation, as well as the fates of the
“death tax” and pension reform, the debate over energy
prices, prospects for tax reform, and other tax-related issues at
the April 28 ACCF Capital Formation Forum.
For more information on ACCF Capital Formation Forums, see the
ACCF’s website, www.accf.org.
ACCF in the News...
- ACCF Research in Wall Street Journal
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The Wall Street Journal on June
22 called attention to ACCF research on estate tax rates
around the globe in its editorial, “Doubting Thomas.”
The Journal noted: “The current (U.S.) death tax
rate is 46% on estates above $2 million, and under current
law if nothing is done the death tax falls to zero in
2010 but then reverts to the punitive 60% top rate in
2011 and beyond. America would then regain its position
as one of the highest death tax nations on the planet
(see chart).”
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- Center Scholar’s Commentary in DowJones “MarketWatch”
“It Is the Estate Tax Rate that Matters,” a commentary
by Dr. Harvey S. Rosen, John L. Weinberg Professor of Economics
and Business Policy at Princeton University, former Chair of President
Bush’s Council of Economic Advisers, and member of the Board
of Scholars of the ACCF Center for Policy Research, appeared in
DowJones “MarketWatch” on June 8. As the debate over
estate tax reform options moves forward, it is important to focus
on keeping the rate low because of the negative consequences that
a high rate has on the economy,” Dr. Rosen urged. To read
Dr. Rosen’s commentary, see www.accf.org.
- ACCF Speaks Out on Gore Film, “An Inconvenient Truth”
The Baltimore Sun on May 30 published Dr. Margo Thorning’s
oped on “Can we afford to heed Gore?” “Mr. Gore’s
movie will spark a new round of discussion about global warming,
and policymakers from state houses to the United Nations will
have choices about how to respond. They can learn from the lessons
of the past under Kyoto and look to curb greenhouse gases through
policies that will encourage research and development in cleaner
technologies. The other choice is to follow Mr. Gore and tinker
with failed policy that would lead to sharp increases in already
high energy prices, lost jobs and reduced revenue. That’s
an inconvenient truth we cannot afford,” Dr. Thorning stated.
To read the op-ed, see www.accf.org.
- ACCF Says Tax Cuts a Must
“Mark Bloomfield, president and CEO of the American Council
for Capital Formation, said the vote (on the budget reconciliation
package) was ‘a definite must’ because the (capital
gains and dividend) tax cuts ‘reduce the biases against saving
and investing,’ the key to the U.S. recovery.” Investor’s
Business Daily, May 11.
- ACCF Op-Ed in The San Francisco Chronicle
“California can do its part to promote cost-effective solutions
for energy efficiency, carbon sequestration and innovative new
technologies by keeping its economy strong and avoiding mandatory
curbs on emissions,” ACCF senior vice president and chief
economist Dr. Margo Thorning noted in an op-ed in the San Francisco
Chronicle on May 5, 2006. To read Dr. Thorning’s op-ed,
visit the ACCF’s website, www.accf.org .
“What Should Congress Tackle before
the Election” Is Focus of 143rd ACCF Economic Policy Evening
The American Council for Capital Formation held its 143rd ACCF
Economic Policy Evening on May 9. Discussion at the policy evening
focused on “What Should Congress Tackle before the Election
on Immigration Reform, Tax Policy, and Energy Policy?” Guests
at the session included key economic policymakers from Congress,
top journalists, and business leaders. For more information on ACCF
Economic Policy Evenings, see www.accf.org.
Pictured left to right: 1) Steve Bartlett, president and CEO, The
Financial Services Roundtable, Congressman Joseph Crowley (D-NY),
and ACCF president and CEO Mark Bloomfield; 2) Congressman Jim Kolbe
(RAZ) and Carol Wilner, vice president, Executive Branch Advocacy,
Federal Government Affairs, AT&T; 3) Congressman Charles Bass
(RNH) and Red Cavaney, president and CEO, American Petroleum Institute;
4) Carl Hulse, congressional correspondent, The New York Times,
and F. Gregory Ahern, chief public communications officer, Investment
Company Institute; 5) Senator Tom A. Coburn, MD, (ROK), and Jonathan
G. Traub, vice president, Federal Tax Legislation, Securities Industry
Association; and 6) Senator Craig Thomas (RWY), and Dr. Margo Thorning,
ACCF senior vice president and chief economist.
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