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 1, March 2006


CSTR UPDATE: TAX REFORM WITH A FUTURE
BY ERNEST S. CHRISTIAN

Senator Bill Frist -- He endorsed the “Five Easy Pieces” approach to tax reform, specifically including lower rates and expensing, during Larry Kudlow’s “Kudlow & Company” on March 16th.

Congressman English -- In the keynote address at the CSTR meeting on March 14th, he said that the substantive elements of tax reform are included in H.R. 4707 and are alive and well in the Congress (lower rates, a 15 percent rate on dividends/gains, a boost for personal savings and expensing, border adjustment and territoriality). Congressman English says that there is considerable support for tax reform on the Republican side; and there is a reasonable chance that retiring Chairman Bill Thomas may this year lay down a Chairman’s mark to set the stage for the future. It is highly likely that such a road map would be focused heavily on international competitiveness and partial or full expensing.

A LOT IS RIDING ON LOWER TAX ON INVESTMENT
BY BILL ARCHER
FIRST APPEARED IN INVESTOR’S BUSINESS DAILY, 3/17/06

Passed in 2003, the dividend tax rate reduction expires at the end of 2008. Unless Congress moves to extend it, we may all miss out on a benefit that puts more money in our bank accounts, allows companies to grow and creates jobs.

First, the lower rate has been good for investors. The Treasury Department estimates that 24 million investors saved an average of $947 on their taxes last year. And for the 7 million seniors who own dividendpaying stocks, the average savings exceeded $1,200.

Keep in mind that the typical electric utility shareholder is over the age of 65, has been a shareholder for more than 10 years, and relies on dividend payments to supplement income. Extending the 15% rate means these shareholders would be able to keep more of their earnings in their pockets ... 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. Its ultimate goal is the implementation of economically rationale and efficient tax policies operating in and supporting a complex economy.

UPCOMING EVENTS

CSTR Meeting at the Capitol Hill Club featuring Senator Orrin Hatch
Tuesday, April 25, 2006
8:15 a.m. — Directions

Upcoming Meeting Dates:
Tuesday, May 23, 2006
Tuesday, June 20, 2006
Tuesday, July 18, 2006
*No August Meeting
Tuesday, September 12, 2006


TAX POLICY WIRE SPOTLIGHT

Ernest S. Christian has been named a Visiting Research Fellow in Tax Analysis at The Heritage Foundation and will be writing a book on the relationship between taxes, economic growth and personal liberty.

Ernest S. Christian and Gary A. Robbins are writing a regular column entitled “Inside Tax Reform” for Tax Notes.

 

THE USE OF DYNAMIC ANALYSIS IN EVALUATING TAX POLICIES

The establishment of the new Dynamic Analysis Division at the Treasury Department and the apparent decision by the President to use the results of dynamic analysis in publicly evaluating tax policy changes likely will have great and beneficial results for tax reform -- but much of that potential success depends on the use of a neoclassical model that identifies growth effects of tax changes (instead of a Keynesian model that tends to mask them). CSTR is sponsoring a small seminar on March 22nd at which a group of experts will engage in a technical discussion about how to get the most reliable and useful information out of a dynamic model in a highly transparent way so that both the public and the economics/tax communities can understand both the inputs and the outputs.


EXPENSING OF CAPITAL ASSETS IS IMPORTANT FOR TAX SIMPLIFICATION AND U.S. COMPETITIVENESS
BY
CLIFF JERNIGAN

When I was head of the tax department at Advanced Micro Devices, I was constantly reminded by the chief financial officer that cash flow was everything to a capital intensive business. To generate more cash flow, I would attempt to reduce taxes by every legal means, including deferring revenues and making sure we used the fastest depreciation methods available. Component depreciation studies helped in the analysis of possible greater tax deductions for new plants and equipment.

It is not uncommon for a new, state-of-the-art semiconductor plant to cost today between two-three billion dollars. To be able to afford this size plant, tax considerations are an important part in the overall planning mix. Many foreign countries permit asset expensing or grant generous tax holidays for new plants. In an attempt to help the U.S. become a more competitive location, the Semiconductor Industry Association has been one of the leaders in pursuing shorter depreciation periods under U.S. law. In a major study in the early 1990s, a government/industry panel recommended that semiconductor depreciation lives be reduced from five to three years, with the result, according to the study, that investment would increase by 11% a year and more U.S. jobs would be created in the industry ... CONTINUED...

 

TAX STAFF UPDATE

Jeffrey Kupfer, the former Executive Director of the President’s Advisory Panel on Federal Tax Reform, has been appointed to the National Economic Council as Special Assistant to the President for Economic Policy.

Alex Brill, formerly Senior Tax Economist for the Committee on Ways and Means, has been named Senior Advisor and Chief Economist by Ways and Means Chairman Bill Thomas.

Margit Archer, Tax Counsel to Congressman English, is moving to Denver to join a law firm. Dave Stewart will assume her duties.



MEMBERS' RESEARCH

"Make the Dividend and Capital Gains Tax Rates Permanent to Keep the Economy Growing"
By William W. Beach and Rea S. Hederman, Jr.
The Heritage Foundation

"The Bush Budget's Hidden Gold: Dynamic Scoring
Comes to the Treasury"

By William W. Beach
The Heritage Foundation

“Extend the Tax Cuts to Preserve
The Economic Expansion”

By Stephen J. Entin
Institute For Research on the
Economics Of Taxation

“Comments on JCT Efforts to Model Dynamic Economic and Budget Effects of Fiscal Policy Changes”
By Stephen J. Entin
Institute For Research on the
Economics of Taxation


MEMBERS' COMMENTARY

"How to Fight a Tax Hike"
By Chris Edwards
The Cato Insititute
First Appeared in The Washington Times

“Interview With Ernest S. Christian”
By Jasper L. Cummings, Jr., and Alan J. J. Swirski
ABA Section of Taxation NewsQuarterly

“Tax Reform by another name”
By Ernest S. Christian and Gary A. Robbins
First Appeared in Tax Notes and The Washington Times

“The Best Cap-Gains Tax Rate Is Zero”
By Cesar Conda
First Appeared in NRO Financial

 


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