Tax Policy to Support a Growing U.S. Economy in a Competitive Global Marketplace
CENTER FOR STRATEGIC TAX REFORM
WWW.CSTR.ORG
TAX POLICY WIRE
Volume 1, Issue 2, April 2006


SENATOR HATCH SEEKS CSTR'S BEST IDEAS FOR TAX REFORM
BY
ERNEST S. CHRISTIAN

Senator Orrin Hatch (R-UT) led the discussion at CSTR's seminar on April 25th, urging the assembled experts to give him their best ideas for making the tax code both simpler and more conducive to economic growth. In an impressive performance that ranged across both tax and spending policies, as well as political philosophy, the Senator seemed prepared to lead a multi-year tax reform effort that will actually succeed in stimulating economic growth and making the American people better off. Any plan will have to take into account political realities as they exist -- including entitlement spending and budget constraints -- and will have to attract at least some degree of bipartisan support. While Senator Hatch acknowledged the difficulties, he said he is ready to do the hard work necessary to achieve something good for America. He challenged the tax and economic experts in attendance to do the same and to provide him their best ideas for reform.

THE WTO AS TAX NANNY
BY
DR. GARY CLYDE HUFBAUER

In a recent paper published by the WTO, but issued solely under the author's name, Michael Daly (2005) examined "The WTO and Direct Taxation". The paper makes interesting reading, both for its summary of the WTO's role as creeping regulator of direct taxation and for its discussion of the anachronistic distinction between direct and indirect taxation.

Creeping Regulator

The GATT's original (1947) role in tax matters was essentially limited to Article III, National Treatment on Internal Taxation and Regulation. Article XVI, Subsidies, permitted the rebate or exemption of indirect taxes, but had no teeth with respect to direct taxes until the Tokyo Round Subsidies Code was adopted in 1979 (Hufbauer and Erb, 1984). Beginning with the Tokyo Round code and continuing with the Uruguay Round Agreements on subsidies, investment and agriculture, member countries have expanded the WTO's mandate.

National Treatment. Article III(1) proscribes, in general terms, the use of internal taxes and other charges as a means of protecting domestic production. Article III(2) prohibits the application of internal taxes and other charges on imported products in excess of the amounts levied on "like domestic products".

CONTINUED...



CSTR is a nonprofit organization whose purpose is to evaluate and develop in full operational detail all options for fundamentally restructuring the American tax system.

The Honorable Bill Frenzel and the Honorable Murray Weidenbaum are co-chairmen and Ernest S. Christian is the Executive Director.


SUPPORT TAX REFORM

To subscribe to the "Tax Policy Wire" and to support CSTR's tax reform research efforts, please send a tax deductible contribution of $250.00 made payable CSTR-TRI at:

CSTR-TRI
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Suite 705
Washington, DC 20006


TAX POLICY WIRE SPOTLIGHT

Dr. Gary C. Hufbauer is the Reginald Jones Senior Fellow at the Institute for International Economics.

Diana Furchtgott-Roth is the Director of the Center for Employment Policy at the Hudson Institute.

Gary A. Robbins is the Chief Economist of the Center for Strategic Tax Reform.

 

A SHORT COURSE ON FIRST-YEAR EXPENSING
BY
GARY A. ROBBINS

Because depreciation postpones and devalues deductions for the cost of capital equipment, it inhibits investment and, therefore, wages and jobs growth. The delay is equivalent to an interest-free loan to the government. The cost to a business is the after-tax interest it could earn on the value of an immediate write-off. For seven-year assets under the current MACRS depreciation schedule, this amounts to a 3 percent increase in cost. Immediate expensing could reduce the cost of seven-year assets by 3 percent. This would mean that businesses would purchase more. If businesses only spent what they had planned to spend prior to expensing, they could purchase 3 percent more units. Amending the tax code to allow first-year expensing would increase real wages by 1 percent, add 750,000 new jobs, and increase output by nearly 2 percent.


TAX CUTS CAUSED ECONOMIC GROWTH
BY
DIANA FURCHTGOTT-ROTH

According to Raghuram Rajan, Chief Economist of the International Monetary Fund, the United States should adopt "revenue-enhancing measures," such as tax increases, to reduce its deficit.

However, the tax cuts that Congress adopted were instrumental in stimulating the economy after the recession and increasing tax receipts. At a time when global growth was practically stagnant, the U.S. economy was the world's engine of growth.

After the tax cuts were put in place, real GDP growth expanded from 0.8% in 2001, to 2.7% in 2003, to 4.2% in 2004. In 2005 GDP growth was 3.5%, and it is forecast to remain in this range in 2006. And the average annual growth rate of productivity since the business cycle peak in March 2001, at 3.4%, has been one of the best rates in over 30 years. Retail sales are almost 8% higher than a year ago, and construction spending is at a record high, 7.4% higher than this time last year.

Particularly impressive are the labor market data. In 2003 the media was full of "jobless recovery" stories, with the theme that corporate profits were expanding but the hiring of workers was left behind ...

CONTINUED...

 

PEOPLE WHO MAKE
A DIFFERENCE

CSTR Member James Carter has been appointed Deputy Undersecretary of Labor for International Labor Affairs.

Dr. Ike Brannon has been named Principal Economic Advisor to Senator Orrin Hatch (R-UT).

UPCOMING EVENTS

Upcoming Seminar Dates:

Tuesday, May 23, 2006
Tuesday, June 20, 2006
Tuesday, July 18, 2006
*No August Seminar
Tuesday, September 12, 2006
Tuesday, October 10, 2006



MEMBERS' RESEARCH

"Capping Federal Spending"
By Chris Edwards
Cato Institute

"$217 Billion Repatriated Back to America,
At Least Another $100 Billion On Its Way"

By Daniel Clifton
American Shareholders Association

"Running on Empty: Senate Proposals for New Oil Taxes"
Congressional Advisory No. 203
By Stephen J. Entin and Michael Schuyler
IRET

"March Employment Growth Shows that
Congress Should Finish Its April Tax Bill"

By Rea S. Hederman Jr. and James Sherk
The Heritage Foundation


MEMBERS' COMMENTARY

"Real Fourth Estate Located on K Street"
By Ernest S. Christian and Gary A. Robbins
First Appeared in Investor's Business Daily on April 3, 2006

"Tax Policy: A Behavioral Science"
By Ernest S. Christian and Gary A. Robbins
First Appeared in Tax Notes on April 3, 2006

"The Simple (Tax) Life"
By Chris Edwards
Cato Institute
First Appeared in the Salt Lake Tribune on April 6, 2006

"Time To Take Federal Budget Off Autopilot"
By Dr. Rudolph Penner and C. Eugene Steuerle
The Urban Institute
First Appeared in Investor's Business Daily on August 25, 2005

Questions or comments? Email us at info@cstr.org.