Tax Relief Extension Reconciliation Act of 2005

TAX RELIEF EXTENSION RECONCILIATION ACT OF 2005

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Mr. GRASSLEY. Mr. President, I rise to make an opposite point of view and critical comments on a statement that was made yesterday by the Senator from North Dakota, Mr. Dorgan. Once again, he made a very impassioned case, and everybody who hears him knows he presents his case very well. He made an impassioned case for American workers whose jobs have been lost when plants move overseas.

We have all witnessed this heart-wrenching event. I know even in my home State of Iowa we have had plant closings for that reason. Some of those operations have been moved out of the United States. But as far as Iowans are concerned, let me remind you this has been a phenomenon of plants moving from Iowa to other places for a long time, before we ever heard the word ``outsourcing.''

I remind my colleagues I was a member of the International Association of Machinists at a sheet metal factory, the Waterloo Register in the town of Cedar Falls, IA. We made furnace registers. I started working there in 1961, when I was a young member of the Iowa Legislature, to supplement the income of a citizen legislator, and also to supplement the income of a young farmer getting started at that time because I was only farming 80 acres at that time. Even in 1961, you could not make a living farming 80 areas. You could not make a living getting $3,000 every other year being an Iowa legislator. So I became a factory worker.

At about 1971, the people who owned our company decided people in Texas would work for less money than people in Waterloo, IA, so they moved the plant to Texas. Our job was shut down. Our job was lost. The outsourcing was not to China, it was to Texas. I presume that 25 years later there were jobs that moved from Iowa to Texas that eventually moved to Mexico, and then it was not long Mexico was losing jobs from Mexico to China. Now we hear about jobs moving from China to someplace else, where somebody is going to work someplace else for a lower wage. I guess when you have a planet of 6.5 billion people, and people want to eat, they want jobs, somebody is going to seek that work and do it. So I believe I have been a victim of outsourcing not to China but to Texas. But it is still a problem today, and it is one for which we have to have sympathy.

Senator Dorgan, obviously, presents a great case for those people. But I want people to know I have lived through that and know what it is like when I am commenting because I do not want people to think I am unsympathetic to outsourcing. But I think we have to recognize the economic facts of life, whether it is my job at the Waterloo Register in Cedar Falls, IA, or whether it was 250 years ago when manufacturing jobs left Great Britain to come to the Colonies in the United States of America.

Now, I want to say, unfortunately, Senator Dorgan's amendment--if it is the same one we saw in 2004. And you can tell from the debate that we just had that we do not have the language on these amendments, and we are begging for them. Anybody who believes in transparency of Government ought to get these amendments out here. There is no reason to be secretive about the people's business because everybody is watching us right here on television. We are not trying to hide anything. So we need to see those amendments.

But the point is, if it is like the amendment in 2004, that amendment will not do one thing to bring jobs back to America. In fact, it could very well cost even more U.S. jobs. I would like to explain, then, why I come to this conclusion.

This amendment, if it is similar, repeals deferral for property imported into the United States by a foreign subsidiary of a U.S. company, without regard to whether that property was ever previously produced, manufactured, or grown in the United States.

This means the amendment by Senator Dorgan fails to focus on their primary complaint that U.S. companies are shutting their plants, moving production offshore, and selling back into the United States. The bill does not focus on this scenario. Instead, it overshoots the mark by hitting all goods sold into America by U.S. companies, even if it is impossible for those goods to be produced in America.

For example, if a produce company sets up a banana farm in Costa Rica to import bananas into the United States and around the world, the income from sales to the United States is not eligible for deferral. I may be mistaken on this point, but I am not aware of too many banana farms in Texas or Florida, so I do not see how allowing a banana farm in Costa Rica is going to cost U.S. jobs.

Similarly, if a U.S. company wanted to start a mining operation in some faraway land to extract a new and exotic mineral that is not found at home, they could see that anywhere in the world, but they cannot import that back into the United States without triggering the impact of this amendment.

Or let's look at coffee. We have a lot of coffee shops on our streets these days. If they set up their own coffee plantation in Brazil, they would be hit by the Dorgan amendment. I think we only raise coffee in one State in the United States, and maybe they do not do that in Hawaii anymore. But there is not much coffee raised in the United States. We sure do not raise it in my State of Iowa.

Our friends from New York and New Jersey ought to consider the effects of this amendment on Puerto Rican residents who work in plants owned by subsidiaries of U.S. companies. Many of the U.S. multinationals have manufacturing subsidiaries in Puerto Rico that import products into the U.S. market. Since our Tax Code treats Puerto Rican corporations like foreign corporations, this amendment would hit those companies very hard. But it would not hit their foreign-owned competitors who sell into the United States.

It seems Senator Dorgan's amendment would allow a U.S. company to sell a foreign-produced good to anyone in the world except Americans, but it would allow a foreign-based company to sell those same goods to Americans. When you stop to think about looking out for the benefit of Americans, this does not make any sense.

I have described how the bill would operate, but I do not think this is the intent of the legislation. What I believe is intended is that deferral should be denied if a company closes a U.S. plant, produces the goods offshore, and then imports the goods back into the United States.

This does not actually happen very often. We have had this debate before. The last time I spoke on this issue was when we were debating the JOBS bill back in 2004. I do not think much has changed since then.

At that time, the latest Department of Commerce data on U.S. multinationals showed that only 7 percent of foreign subsidiary sales were into the United States--only 7 percent.

Nevertheless, this amendment insists that the rule of ``deferral'' in our tax law is somehow a ``tax benefit'' that moves jobs offshore and allows you to not pay taxes on foreign income. This is not true, of course. Deferral has nothing to do with moving jobs, and it never forgives taxes that are owed on foreign profits of U.S. companies.

Many U.S. companies, however, choose to reinvest their foreign earnings in foreign markets, and so the U.S. tax on those earnings is, then, indefinitely deferred.

As Senator Dorgan noted, the JOBS bill, that we call the American Jobs Creation Act of 2004, did contain a provision that provided U.S. multinationals a temporary ability to receive dividends from their foreign subsidiaries at a reduced tax rate. Now, it is important to note that companies could only avail themselves of this reduced rate on an amount of earnings they identified in SEC filings as ``permanently reinvested.'' That is a legal term, which means they had no intention of bringing that money back to the United States.

Senator Dorgan's characterization of that provision is misleading, and I would say in two ways. First, Senator Dorgan calls the repatriation provision a tax cut of over $100 billion. To arrive at that huge number, the Senator's calculation must assume these companies would have brought close to $340 billion of their foreign earnings home in the absence of the repatriation provision of the JOBS bill.

Now, the fact is--and I get this from scoring by the nonpartisan Joint Committee on Taxation--this provision has a cost to the Treasury of not $100 billion but $1.9 billion over 5 years and $3.3 billion over 10 years; and it actually scored as a revenue raiser in the first year of $2.8 billion.

Now, I plan on looking at the actual results of this repatriation provision when all the facts are in, after the fact. You are kind of guessing before you pass a bill. But after it has operated for a couple years, then you get a chance to get a real look at it. So we are going to look at this repatriation provision. But the Joint Committee on Taxation must have scored this provision as a raiser in year 1, and a relatively small cost over 5 and 10 years, because 5.25 percent of a large amount that was repatriated is a lot more than 35 percent of a much smaller amount that would have been repatriated otherwise.

In other words, it is not as much money coming back into this country, and if it does not come back here, it is not taxed.

I am not here to defend the repatriation provision or those companies that laid off workers or took advantage of the repatriation provision. I am just as troubled by those announcements as Senator Dorgan. I am simply pointing out that Senator Dorgan's characterization of that provision as a $100 billion tax cut is extremely misleading.

Second, Senator Dorgan talks as if the repatriation provision was the cornerstone of the American Jobs Creation Act, and it was kind of an appendage. In fact, the repatriation provision was a very small part of the bill. One of the key pieces of the JOBS bill was the manufacturing deduction which does actually give a tax break for companies that manufacture, leaving jobs here or creating jobs here. The Joint Committee on Taxation scored this provision as a cost to the Treasury of $76 billion over a 10-year period. That is, in fact, a tax cut, and it is a tax cut that will maintain jobs in America and will create jobs because one of the problems for American corporations compared to international competition is the high tax rate that we have on corporations compared to a lot of other countries. Those other countries are waking up. Just look at Ireland, look at Europe, what we are talking about doing now--sometimes through the European Union, sometimes through individual countries. They are seeing great advantage by reducing the corporate tax rate in their respective countries.

Two years ago, we thought we had moved ahead of them. Now they are following suit. We may have to go back and look at our corporate tax to find out if we are going to continue to be noncompetitive.

I would like to go back to the deferral issue. The rule of deferral exists to keep U.S. companies competitive in the global marketplace. Deferral is not something new. It has been in our tax laws since 1918. We have debated the rule of deferral on several occasions, and we will no doubt continue to do so when we debate tax reform proposals.

Opponents of deferral too often make wild accusations about how this rule, which has been in place since 1918, spells doom for the American worker. Of course, none of this is true. In fact, just the opposite is true because we must always be vigilant about enhancing international competitiveness for our U.S. companies. Hence, deferral ensures an ever-growing base of opportunity for U.S. companies and, more importantly, their employees at home and abroad.

U.S. multinationals are a critical component of our economy. These companies operate in virtually every industry and, the last time I checked, have investments of more than $13 trillion in facilities located within the United States. As employers, they provided 23.5 million jobs for Americans in the year 2001. That was nearly 18 percent of the payroll jobs in the United States. They had a payroll of $1.1 trillion. When you go back to this debate we had in the year 2004, I noted at that time that the U.S. multinationals created more than 53 percent of the manufacturing jobs in America and employed more than two U.S. employees for every foreign worker. Those were the latest years for which I had figures, but I have no reason to believe it is different today.

During the 10 years from 1991 to 2001, U.S. multinationals increased domestic employment at a faster rate than the overall economy. A recent study confirms that U.S. multinationals are significant job creators, and those jobs are not created through ``exporting'' jobs to foreign nations with low-labor and low-tax costs, as Senator Dorgan contends. The Department of Commerce data shows that the bulk of the U.S. investment abroad occurs in high-income, high-wage countries.

Again, referring to the year 2001, 79 percent of foreign assets and 67 percent of foreign employment of U.S. multinationals were located in high-income, developed nations such as Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, South Africa, and the countries of the European Union. We have to remember a very simple maxim for why companies go into foreign markets: 4 percent of the people in the world live in the United States. If you want to create jobs in America and you just want to sell to that 4 percent, you are going to have a very limited market. Whether you are in agriculture, like I and my son and grandson are, selling corn and soybeans overseas, or whether you are manufacturing John Deere tractors, whatever you are manufacturing, if you want prosperity, you go where the market is. That is the 96 percent of the people who don't live in the United States.

Again, referring to that debate on the JOBS bill in 2004, fully 95 percent of the world's population and 80 percent of its purchasing power--so the only new thing I am giving is not that 96 percent of the people live outside of the United States, but 80 percent of its purchasing power--is located outside the United States. Foreign sales growth has outstripped domestic sales growth. So our companies are taking advantage of selling to the rest of the world. This increased growth requires increased employment wherever you can find it. The good news is that foreign growth also results in U.S. job growth.

A recent study confirmed that during the 10 years from 1991 through 2001, for every one job that U.S. multinationals created abroad, they created nearly two U.S. jobs in their parent corporations. That is why it is critical to our economy that U.S. companies remain competitive in the international marketplace.

I would like to review a more rational explanation of deferral and how it works to keep our U.S. companies competitive. The United States taxes all of the worldwide income of its citizens and corporations. The U.S. income tax applies to all domestic and foreign earnings of U.S. companies. The United States fully taxes income earned overseas by foreign subsidiaries of U.S. companies. However, many foreign countries tax their companies on a territorial basis, meaning that they only tax income earned within their country's borders and don't impose tax on the earnings of foreign subsidiaries. Major countries using this territorial system of corporate taxation are Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Luxembourg, Netherlands, Sweden, and Switzerland. A company from one of these countries that uses the territorial tax system has great advantage over U.S. companies.

For example, a U.S. company with a Singapore subsidiary will pay U.S. tax and Singapore tax on the subsidiary's income. A French company with a Singapore subsidiary will pay Singapore tax but no French tax. This means that a U.S. company in Singapore has a higher tax burden than a French company in Singapore. Two basic tax rules answer this problem and seek to put U.S. companies on a level playing field with foreign competitors from territorial countries. The first rule says that when foreign income is brought home, the U.S. allows a reduction against U.S. tax for any foreign taxes paid on that income. The foreign tax credit prevents the U.S. from double-taxing foreign earnings which would make our companies noncompetitive in the international marketplace. And like deferral, this has been in the tax law since 1918.

The foreign tax credit, however, is limited. It may only offset the U.S. tax on that income which is currently imposed at a 35-percent rate. If the foreign tax rate is higher, the credit stops at 35 percent. If the credit is lower, say 10 percent, then additional U.S. taxes will be owed up to the full 35 percent. In this example, an additional 25 percent of the taxes would be owed to the United States, which is the difference between the 10 percent and 35 percent of the U.S. rate.

The second basic tax rule is that U.S. companies are allowed to defer U.S. tax on income from the active business operation of a foreign subsidiary until that income is brought back into this country, usually in the form of dividends paid to the U.S. parent. This is referred to as the rule of deferral, meaning that the U.S. tax is deferred until the earnings are brought back. This is the rule the Dorgan amendment attacks.

It is important to note that deferral is not the forgiveness of tax. It simply means that we impose the full U.S. tax when foreign earnings are repatriated to the United States instead of doing it the very day of earning. The reason that we defer tax on active business operations is so that U.S. companies can remain competitive with foreign companies that have a different system of taxation than what we have. I am referring to what I called the territorial tax. We don't defer tax on passive activities like setting up an offshore bank account or other passive investments. We tax passive activities yearly. But active operations are subject to competitive disadvantage.

For example, if we impose U.S. tax today on the profits of a Singapore subsidiary, then the U.S. company will pay a 35-percent tax in the United States, net of any Singapore taxes, but that French competitor located right next door in Singapore will pay only the Singapore tax. If the Singapore tax rate is less than 35 percent, which is the U.S. tax rate, then the French competitor will have a tax advantage. Who wants to give any advantage to a French competitor? This is because the United States allows a foreign tax credit to offset the U.S. income tax imposed on those foreign earnings but only up to the 35 percent U.S. corporate rate.

If the foreign rate is less than the U.S. 35 percent rate, then residual U.S. taxes are owed on the difference between the U.S. tax rate and the foreign rate. For example, if a Singapore tax is 15 percent and the U.S. tax is 35 percent, then the United States will impose an additional 20 percent on those Singapore earnings. The French company, however, would only pay the 15 percent Singapore tax. If we did not allow deferral on that additional 20 percent of tax, then the U.S. company today would have a 20-percent tax disadvantage compared to the French company.

The question on repealing deferral is whether we want to hand over the world market to companies from France and Germany and other countries that have a different system of taxation than we have, called the territorial system. Repealing deferral means that we export our high U.S. tax rates to U.S. corporations around the globe. The United States has one of the highest corporate tax rates in the world. There are few countries with rates higher than the United States. This means that without deferral, U.S. companies will be at a continual worldwide disadvantage compared to their foreign competitors.

That is why we defer U.S. tax on active business operations, so that U.S. companies can be competitive in the global marketplace.

Some Senators have proposed repealing deferral or cutting back on it, as Senator Dorgan's amendment would do. These proposals would export the high U.S. tax rate to U.S. operations around the world. That would be fine if all companies around the world were paying the high U.S. tax rate, but, as I have said so many times, they are not. We have one of the highest corporate tax rates in the world. Companies of foreign countries are not subject to our tax laws and are usually taxed at lower rates. This all brings us back to the implications of Senator Dorgan's proposal. It would enhance the competitive advantage of foreign-owned multinationals over U.S. multinationals.

Our focus in considering this amendment must be on the ability of American companies to compete within the United States as well as in foreign markets if we want to maintain and create jobs in America. The issue is not whether we tax foreign earnings currently but whether we cede the U.S. market to foreign competition.

The Dorgan amendment will increase taxes on U.S. companies, but their foreign competitors in the U.S. will not face a similar tax increase. This can lead to a loss of domestic market share, or even if market share is maintained, losses may be incurred on domestic sales because of pricing pressures and uncompetitive margins created by the additional tax burden.

No one is happy when companies move abroad to a tax haven to avoid U.S. tax. But let me tell you another side effect of the proposal to eliminate and cut back on deferrals. In the American Jobs Creation Act of 2004--that bill I always referred to as the JOBS bill--we enacted a provision that prevents corporate inversion, where a company would pretend to move its corporate headquarters to Bermuda, to a simple post office box there, and do it not because they are going to do anything productive there but for the sole purpose of avoiding U.S. taxes. Many U.S. multinationals complained that inversions were necessitated by an inability to compete with foreign-owned multinationals that aren't subject to the higher U.S. tax rate.

We should be proud, then, that we shut down those inversions, those shell corporations, those postal box corporations which do nothing over there except go there to avoid tax and then make the situation even worse for honest corporate taxpayers in America that are paying the tax into the Federal Treasury. But in the process of doing that, we didn't do it at the expense of repealing deferral. Now that we have shut down inversions, if we repeal deferrals, or significantly cut back on them, the only other alternative that would be available to U.S. multinationals would be to sell themselves to foreign companies or to be taken over by a foreign company in a possible hostile takeover. If we prevent U.S. companies from deferring their foreign profits, we will see more and more U.S. multinationals being bought out by foreign-owned multinationals. Tax changes have consequences.

Increasing taxes on U.S. multinationals will not bring jobs back to America. You only pay taxes if the company is profitable, and you only stay profitable as long as you remain competitive. But in the United States, taxes are 35 percent cost-to-profit, and that is where a competitiveness disadvantage can occur when a U.S. company is competing against foreign companies that will not incur this tax increase.

Senator Baucus and I held hearings a couple years ago regarding the effects of the international competition within the United States, so we as leaders of the Finance Committee are very familiar with the effects of these kinds of rate differentials.

I think a quote by Joseph Guttentag, international tax counsel of the Clinton administration, during testimony before the Finance Committee in July of 1995 is a very good place to end this debate. So I end with this quote:

Current U.S. tax policy generally strikes a reasonable balance between deferral and current taxation in order to ensure that our tax laws do not interfere with the ability of our companies to be competitive with their foreign-based counterparts.

Now, if that position just expressed by Joseph Guttentag, international tax counsel in the Clinton administration, the last Democratic administration, testifying before a Republican Congress, isn't good enough evidence that the route Senator Dorgan wants to go is the wrong route and a route contrary to previous leaders of his own party, then I don't know what will be evidence that this position is going to make American companies uncompetitive, not go to the marketplace of the other 96 percent of the consumers around the world outside the United States, and consequently creating jobs in the United States, and I don't know what it takes to convince him that position is a wrong position for the United States and is so different than what we have traditionally had for the Tax Code since 1918. When I say 1918, that goes back almost to the beginning of the income tax in the United States.

I yield the floor.

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Mr. GRASSLEY. Mr. President, I yield myself such time as I might consume.

I will make some additional points on the Dorgan tax haven included in the Conrad substitute. I share Senator Conrad's concerns about the ability of large corporations to manipulate the Tax Code, to shift large amounts of profit offshore, but this provision is not the right way to address those concerns. It is very overbroad and inadequate. It is overbroad because it harms the competitiveness of United States multinationals, repealing deferral for holding company structures that allow them to efficiently allocate active foreign generated resources among their foreign operations without incurring U.S. tax on entirely foreign transactions.

It is inadequate because it applies only to the subsidiaries in black-listed countries. Companies that use tax savings for abusive purposes could easily avoid this rule by locating in a low-tax country that is not on the list.

Ireland would be a perfect example of that, where we read press reports that companies such as Microsoft are shifting huge profits. Treasury would have authority to add countries to the list, but does anyone think Ireland, with whom we already have a tax treaty, would be added to that black list? The way to deal with those cases is through effective transfer pricing policy and enforcement, not by curtailing deferrals.

Another issue that is going to be soon before us is the Democratic substitute of revenue raisers that are in our bill. I am flattered by the tax relief side of Senator Conrad's substitute amendment since it includes extension of the same widely applicable tax relief provisions in the underlying bill.

I should also be flattered, and I am, by some of the pay-fors in that amendment--in particular, the provisions regarding the so-called SILO transactions. It is a fact that we shut down the abusive tax shelters that involve U.S. corporations claiming tax benefits on foreign subways and sewer systems in 2004. So these deals can no longer be done. The underlying bill would repeal a generous grandfather provision for certain domestic deals and would deny benefits for foreign deals entered into before the effective date of the JOBS Creation Act of 2004.

We have introduced a fully offset tax relief bill in the past. Most recently, that act of 2004 produced $82 billion of tax relief that was completely offset. The underlying bill, in fact, contains almost $20 billion of offsets while providing $90 billion in broad-based tax relief. We do not need any more offsets to pay for the lost AMT revenue that we never intended to collect and for other provisions, such as the R&D credit, for example, that are broadly supported as good for the economy.

We all know tax receipts are on the rise. In 2005, we had $274 billion more coming in over the taxes that came in in 2004 under the same tax policy, and we exceeded the CBO baseline by--can you believe it--$97 billion. It is a very vibrant economy which produces that kind of revenue. That amount, whether it is the $274 billion in 2005 over 2004 or the $97 billion above the CBO baseline, that amount exceeds the $70 billion of reconciled tax relief over 5 years provided in the budget resolution.

So I hope we will be able to take these points I have just made about the inadequacies of the amendments we are going to be dealing with when we vote on these amendments.

I would now, Mr. President, speak on the issue of an amendment I am going to place before the Senate this afternoon. In fact, I will submit this amendment at this point.

I wish to take just a few minutes, in offering this amendment, to speak about amendments that are also offered by Senator Bingaman and Senator Nelson regarding the Medicare prescription drug program. I thank the Senators for their amendments. I know their intentions are good and their hearts are in the right place. But having said that, I am forced to oppose the amendments, and my reasons follow.

Opponents of the benefit are trying to make it look as if Republicans are indifferent to the problems of the implementing part of the Medicare program. Such is not the case because everyone has to be concerned about the issues faced by some beneficiaries in getting their prescription drugs, even if that might be a very small percentage of the people who are involved. Whoever needs these prescriptions, we have to do everything we can to get them to them.

Like everybody else, I am concerned about the drug benefit implementation issues. It is not acceptable that some of the most vulnerable and frail seniors are experiencing problems. But my opposition to the amendments is rooted in the goal of not just taking some action, but that we need to take the right action when we act. There is no question that Congress meddling could just make things worse.

With that in mind, I want to share with you the following quote as to another new program that was getting underway:

As the program gets under way the danger is that the strains on it will generate pressures for unsound change. They will come from those who will be disappointed because they have been led to expect too much as well as from those who see failure in every shortcoming. Changes will come in time, but they should be made on the basis of the program's own experience. This program must be given ample time to get over its growing pains.

Now, that is not about the prescription drug bill that is just now going into effect. That is a quote from the July 1, 1966, edition of the New York Times, and it is about the implementation of the original underlying Medicare Program passed by Congress a year before this July 1 edition of the New York Times.

Now, when I read that quote of 1966 just now, it said ``the program'' instead of ``Medicare'' because I did not want to give it away. The point of this editorial is that those words are extremely relevant today.

I am not trying to make excuses or minimize the difficulties some are having. Those problems need to be fixed, and fixed fast. By all accounts, everyone is working hard to get them resolved. But in my opinion--echoed by the New York Times nearly 40 years ago--rushing to ``fix'' things through legislation could do more harm than good.

Just last week, the Finance Committee, in a bipartisan setting--with almost every member of the Finance Committee there--had a meeting with Secretary Leavitt and CMS Administrator Mark McClellan. We had a candid discussion about the unfortunate glitches, and we heard about steps taken by the agency to address them. We had a very constructive dialog. That dialog covered a range of issues the Agency had identified and the administration's actions already taken to address them.

It is clear to me legislation is not needed at this time. Secretary Leavitt has the authority. Current law allows him to have a smooth transition. And administrative actions will work faster than if we pass this legislation. That is because changes in law have to be followed by more administrative actions. This is very much going to slow things down. That is not what we want. We want, need, and will get quick action.

The issues that have surfaced do not lend themselves to legislative fixes. For example, we talked about problems in the data files. The data files have not always identified the plan where a dual eligible is enrolled. Obviously, that is a problem. But can Congress write a law to dictate exactly how to fix computer system data files? That is not something I would want to do. There is an opportunity for getting something wrong, if I ever saw an opportunity for Congress to do something wrong.

But more importantly, these amendments are unnecessary. Senator Bingaman's amendment gets at issues that have already been addressed administratively. CMS has the authority to address these that way. And it will get fixed faster than if we pass additional legislation.

So I am going to offer a sense-of-the-Senate resolution. That resolution expresses our concerns about these problems, and it expresses the Senate's support for the Agency's efforts to fix them.

For example, prescription drug plans must have a first-fill policy. The first-fill policy already requires at least 30 days of coverage for the first prescriptions filled, even if the drugs are not on the plan's formulary. And just yesterday, Secretary Leavitt announced that the first-fill policy is being extended further. It is now going to be in place for 60 or 90 days as a first-fill policy. The Bingaman amendment requires only a 30-day policy. So it is already out of date. The administrative actions are much faster. Changes in law are not needed to address the issue.

Now, here is another one. The Bingaman amendment says that dual-eligible beneficiaries, whom we call dual eligibles, should be presumptively eligible. But the dual eligibles are already automatically eligible under the law, and they are automatically assigned to a plan. So again, no change in law is required.

Another example. The Bingaman amendment says it would require plans to reimburse enrollees for cost-sharing problems. Here again, plans are already responsible for the costs to cover drugs. They are responsible for reimbursing beneficiaries for any cost-sharing charged in error. No change in law is required.

Let me give you another one. Some States have stepped up to fill claims during the transition. The Bingaman amendment requires States to be reimbursed for their costs. This is already happening. Last week, Secretary Leavitt announced that the Federal Government will reimburse States for costs they have incurred during the transition period. We were told that that day we met with Secretary Leavitt. I do not know exactly when Senator Bingaman was there, but he was there for that meeting. Not every Senator stayed for every minute of the meeting, but Secretary Leavitt made this very clear. So again, legislation is not needed because administrative action is being taken, with the legal authority of the Secretary to do it. So no additional legislation is needed.

Senator Nelson's amendment would extend the enrollment period through the end of the year and permit beneficiaries to change once before the end of the year. We have discussed this amendment before. The Senate has already voted twice, and we voted it down twice. And changing the enrollment period does nothing to address any of the issues experienced by beneficiaries just this last month.

We are well into the enrollment period. Enrollment is exceeding expectations. Twenty-four million beneficiaries out of 44 million, potentially, have prescription drug coverage. Every day, nearly 90,000 beneficiaries are enrolling in the program, and about 1 million prescriptions are being filled daily. So again, legislation is not needed.

There are a number of resources for beneficiaries to help them choose a plan. There is the Medicare call center. It is available 24 hours a day, and the Medicare Web site. Every State has counselors available to assist beneficiaries through the State Health Insurance Information Program. That is the whole point of that program--the SHIIP program, it is called for short--to help beneficiaries understand their Medicare benefits. The prescription drug plans based their proposals to serve Medicare beneficiaries on the enrollment period specified in the law.

In addition, there are already rules in place under which a beneficiary can change their enrollment outside of the open enrollment period. A beneficiary can seek what is called a special election period if that is needed for that individual--for example, if a plan fails to provide a beneficiary with information about the plan's benefits on a timely basis, or if it fails to provide benefits in line with quality standards, or if the plan, its agent, or plan provider materially misrepresents the plan in marketing that plan. So in all of these instances, there can be a special enrollment period or an opportunity to change.

So again, we do not need legislation. These are issues already covered in the law today.

I want to make another point about what is going on with these amendments. There was a time when opponents of this benefit were concerned that there wouldn't be enough choice. Now their concern is that there is too much choice. When we were in conference with the House on this 2 years ago, we were fearful there might not be a choice for people. So we provided if there wasn't a choice, the Secretary set up a subsidized choice so that every individual could at least choose from two. We wanted people to have choice. We followed the Federal Employees Health Benefit Plan where people have the choice of many plans to choose from, and they get to change once a year. We wanted to make sure we didn't cram anything down any senior citizen's throat. If they didn't want to participate, if they were satisfied with Medicare the way it was, they didn't have to. But if they wanted to participate, they elected.

You don't write one plan for 44 million seniors because everybody has different benefits. And one-third of the people already had some prescription drug coverage. We didn't want to screw up their plans. So we subsidized those plans so that those people who had something they wanted would be able to keep it. I don't know when you satisfy people. I didn't think there would be enough choice. Now we are hearing complaints about too many choices. There are 44 million Americans; there are 44 million different personal needs of those people. We, sitting on the floor of the Senate, are not going to figure out what those 44 million needs are and pass a one-size-fits-all plan that is going to satisfy the needs of everybody.

The point is, the opponents of this new benefit will complain and fight it no matter what happens. I hope everyone remembers that. I also find it ironic that folks think that legislation is the answer. These are the same people who are concerned about confusion. Now they are proposing legislative changes in a bill that has only been in operation for 1 month, on top of administrative actions that the agency has already taken. They want to screw that up with legislation on the floor of the Senate with changes that will have no impact on any of the problems encountered this last month, legislation that would have to be followed by yet more administrative action, a snowball rolling down the hill, just getting more complicated as it rolls on.

I ask whether this is going to help these perceived problems. Well, not just perceived problems; I admitted there are problems out there. I admitted when you put something like this into place, there are growing pains, just like I quoted that New York Times article from 1966 about the growing pains that we were going to have with Medicare when it was first put in place. Do you think these things are going to smooth the transition? I don't think so. Talk about opportunity for confusion among beneficiaries, pharmacists, and plans. This is not going to reduce the confusion.

Passing legislation now runs the very real risk of undermining and complicating things. It can undermine the progress already made. It will interrupt actions taken by the administration. It will create more problems, not fewer problems. I, for one, have a steadfast commitment to gaining a full understanding of the problems and pursuing the most appropriate and timely course of action.

When the Secretary came before my committee and everybody turned out to make their complaints known, and the Secretary announced at that time seven problems and he announced at that time seven solutions to those problems and took full responsibility for them, I had a feeling people left that meeting fairly satisfied that nobody was going to blame somebody else and they had a grasp of the problems and solving problems, with some accountability that some changes had already taken place for the better.

So then when you come out of an environment of a committee meeting like that, you wonder what planet they have been on when these amendments are being offered--amendments that, if they were passed, would not get to the President for another 30 days--to solve problems that were evident 30 days ago that the Secretary has already identified and taken action to overcome.

Senator Baucus and I are working together to get to the bottom of this issue. That is how we do it in our committee. We do it in a bipartisan way so that we are going to also be able to work together if it turns out that legislation is needed. But I asked the Secretary at that very committee meeting: Do you need any legislative changes to take care of these problems that we have all identified, particularly the seven that he identified? He said: No, he had ample legislative authority to do it.

An important part of Senator Baucus's and my work in this regard is going to be brought up at next week's Finance Committee hearing, an open hearing. We will hear from Dr. McClellan. We will hear from representatives of the plans. We will hear from pharmacies. We are, most importantly, going to hear from the people involved in educating and enrolling beneficiaries into the plan. More than once I have heard Members take issue with attempts to bypass the committee process. The amendments before us are just that.

Senator Bingaman's amendment has not gone through the Finance Committee. It is clear that this amendment falls within the jurisdiction of the Finance Committee, and the Senator from New Mexico is a member of that committee. I ask him to work within the committee. If the Senate proceeds on legislation that the full committee has not considered, then nothing would prevent the Senate from legislating on other Finance Committee issues without the benefit of hearings or committee action.

Next week's hearing is very important. We need to gather more information about what is happening. This is needed to inform all of us of any necessary response. In the absence of such information gathering, it is dangerously premature to consider any amendments related to the prescription drug program. We all know that this whole issue of Medicare prescription drug coverage has long been a political issue. With the amendments offered today, I can't help but think that is very unfortunate. It is also unfortunate that is probably not going to change during the 109th Congress.

On the other hand, I hope that is not the case. But here we are, just 1 month into the prescription drug program, already we see a lineup of amendments to perhaps the most inappropriate vehicle there could ever possibly be to deal with Medicare. In other words, these amendments are on a tax bill. But more importantly than just the process, these amendments are unnecessary because of administrative actions taken to date or to be taken tomorrow, if a new problem comes up.

When these amendments that I have discussed--the Bingaman and Nelson amendments--come up for a vote, I hope my colleagues will trust what we learned in the committee: that the Secretary of HHS doesn't need any new legislative authority, consequently bringing any more uncertainty into this process by voting for these amendments. Vote them down.

I said that I had an amendment I wanted to have considered when we vote this afternoon. I send the amendment to the desk and ask for it to be printed.

I yield the floor. And since nobody else is desiring to speak, I suggest the absence of a quorum.

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Mr. CONRAD. Mr. President, the chairman and ranking member have done an excellent job in putting together this package that is in the interest of the American people. I have all of the same tax relief provisions that are in their package. The only difference is that I have paid for it over the 10 years. I have done it by adopting the same offsets as in the managers' package: closing the tax gap by shutting down abusive tax shelters and other reforms, raising some $34 billion, including revoking tax benefits for leasing foreign subway and sewer systems; second, ending a loophole for big oil that lets them avoid taxes on foreign operations, raising $9 billion; requiring tax withholding on Government payments to contractors such as Halliburton, raising $7 billion; renewing the Superfund tax so that polluting companies pay for cleaning up toxic waste sites, raising $17 billion; and closing additional loopholes, raising $22 billion.

This is the package that has all of the tax relief in the managers' package. It just has additional pay-fors, so we cover the costs. We have exploding deficits, exploding debt. Let's pay for these tax cuts we are offering.

I thank the Chair.

The PRESIDING OFFICER. The Senator from Iowa is recognized.

Mr. GRASSLEY. Mr. President, I disagree with the proposal in two important parts.

First, the proposal does not extend to 2009 several provisions that are very important to both sides, bipartisan--specifically, the section 179 expensing, which encourages the growth of small business in our country, and the college tuition deduction, which will give parents more certainty in the planning of their children's education, and the low-income savers' credit, which assists families who make less than $50,000 in saving for their retirement.

The second point I have----

Mr. CONRAD. Mr. President, would the Senator yield on this point?

Mr. GRASSLEY. I only have 1 minute.

Mr. CONRAD. Can I grant you some additional time?

Mr. GRASSLEY. We don't have that time.

Mr. CONRAD. Mr. President, I ask unanimous consent for 30 seconds on this point, if I could.

Mr. GRASSLEY. Then I will take 30 seconds, too.

The PRESIDING OFFICER. Without objection, it is so ordered.

Mr. CONRAD. That is more than fair.

I say to my colleague that the statement he made is just not true. I have precisely the same tax relief in my package as in yours. Every one of the items the chairman just mentioned is in my package for exactly the same period of time as is in yours.

Mr. GRASSLEY. All I can say in my 30 seconds on my point is that the Senator may be entirely correct, but that is one of the things that happens when we have 2 days of debate and these amendments are not put before the Senate to study until the last minute.

The second concern I have about the proposal is the inclusion of offsets which we have not had an opportunity to fully consider or with respect to which we have some policy concerns. An example of that is the revival of the environmental excise tax offered, referred to as the ``Superfund tax.'' As you might expect, I believe the bill passed by a bipartisan majority with 64 votes in the Senate in November, which we are not going through again, represents a more balanced bill, one that provides longer-term benefits, including increased certainty and reduced complexity for planning.

In addition, I raise a point of order that the budget does not meet reconciliation instructions to the Senate. It is an issue of germaneness, Mr. President.

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AMENDMENT NO. 2731 TO AMENDMENT NO. 2707

Mr. GRASSLEY. Mr. President, the amendment expresses the sense of the Senate about the concerns regarding the problems encountered in implementing the new drug benefit. It expresses the Senate's support for the administration's efforts to fix them. These efforts have proven to be much speedier in getting the problems fixed, and fixed fast, than any legislation can do. To that point, one amendment offered yesterday has provisions that are completely unnecessary because administrative actions have already taken care of it.

I see no point in legislating for the sake of legislating.

Moreover, legislative action on top of administration action will undermine and complicate progress to date.

I urge my colleagues to support this sense-of-the-Senate amendment.

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Mr. GRASSLEY. Mr. President, I object to this amendment. Remember, all but two of our members of the Committee on Finance, Republican and Democrat, joined with Secretary Leavitt to go over the problems 2 weeks ago that this program is having. Secretary Leavitt took responsibility for those problems. He laid out seven problems. He laid out seven solutions to those problems that he has already inputted.

I asked him if he needed additional legislative authority to solve these problems. He did not need any additional legislative authority. He had plenty. We are going to pass legislation now that not only will take a while to get passed, but we will also have a period of time afterwards of having regulations to administer that legislation.

The problem goes on and on. The problem is being solved by the Secretary right now. Let's not screw up what the Secretary is trying to do, something that is working very well. There are problems, yes, but those problems are identified, and they can work.

I raise a point of germaneness on this amendment. I raise a point of order under section 310 of the Budget Act, and I ask for the yeas and nays.

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Mr. GRASSLEY. Mr. President, the problem with the Dodd amendment is that it doesn't even do what the author says it does. He says it is paid for by using capital gains, but capital gains offsets don't even come into play until the year 2009. The author is leading us to believe that the military assistance is coming now. But it is not, if it is tied to an offset that won't come due until 2009. Our alternative now before the Senate will do the same thing as the Dodd amendment, but we don't tie it up with an offset that is way down the road 3 years. That is not truth in budgeting. I urge support for my amendment.

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Mr. GRASSLEY. The same arguments that I made on the previous amendments apply here as well. My amendment will do the same as the Reed amendment but doesn't raise taxes to pay for it, so it will provide more equipment for our troops without increasing taxes. I urge support of my amendment.

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Mr. GRASSLEY. I dispute the presumption we have to choose between AMT hold harmless and not extending capital gains and dividends. We can do both. The presumption in this bill is that we can and we are going to be able to do that in the conference committee.

Since the amendment reflects the position of what we in the Senate previously had anticipated doing anyway, Members ought to vote for the amendment. I will vote for it.

Yesterday afternoon, I took time to respond to Senator HARKIN's statement that we have an AMT problem to a significant degree because of what the Finance Committee did in the 2001 tax bill. Importantly, he fails to recognize that we have addressed the problem for 2001 to 2005. And, now, we are trying to do the same thing for 2006--to make sure that the AMT problem is not worsened.

To the extent that Senator HARKIN suggests, like others who have looked at this issue, that the Bush tax cuts are responsible for the AMT problem, I respond in this way. Most who have reached that conclusion have done so by misusing data provided by the Joint Committee on Taxation, JCT, to distort the record on this issue. Additional analysis will demonstrate that conclusion to be erroneous. To the contrary, the analysis suggests an alternative explanation for the AMT problem--Congress's failure to index the AMT for inflation over the past 35 years.

Senator HARKIN suggests that the Bush tax cuts are responsible for the AMT problem. The conclusion is reached in error because it is based on faulty logic. Those who have done similar analyses have based their conclusions on the mistaken assumption that a reduction in Federal receipts should be interpreted as percentage causation of the AMT problem. JCT was asked to project Federal AMT revenue if the Bush tax cuts were extended, but the current-law hold-harmless provision was not extended--$1.139 trillion--and Federal AMT revenue if neither the Bush tax cuts nor the hold-harmless provision is extended--$400 billion. From that data, some erroneously concluded and publicly represented that the Bush tax cuts are responsible for 65 percent of the AMT problem--$1.139 trillion minus $400 billion divided by $1.139 trillion--and conversely, that the Bush tax cuts tripled the size of the AMT problem--$1.139 trillion divided by $400 billion.

The logic used to reach that conclusion is flawed. That is because the many variables affecting the AMT have overlapping results, and the order in which one analyzes those overlapping variables will directly impact the outcome of the analysis.

In that way, we can use the same JCT data in the analysis above to suggest that failure to index is actually the dominant cause of the AMT problem. If one were to first index the current tax system for inflation by permanently extending an indexed version of the current hold-harmless provision, Federal AMT revenue would be reduced from $1.139 trillion to $472 billion over the 10-year period. Thus, extending and indexing the current hold-harmless provision for future inflation would reduce AMT revenues by 59 percent over the same period, referred to in a JCT letter dated October 3, 2005, as ``percentage of AMT effect attributable to failure to extend and index hold-harmless provision''. A copy of the entire letter is attached. If we then assume that the Bush tax cuts are repealed, AMT revenue falls by an additional $302.3 billion, from $472 billion to $169.7 billion. That second drop, attributable to the repeal of the Bush tax cuts, reduces Federal revenues by only 27 percent. Thus, one could argue that failure to index is the greater cause of the AMT problem--59 percent vs. 27 percent. Using logic similar to that undertaken above would also cause us to conclude that failure to index is responsible for 59 percent of the AMT problem--$1.139 trillion minus $472 billion divided by $1.139 trillion--or alternatively, that failure to index also nearly tripled the size of the AMT problem, $1.139 trillion divided by $472 billion.

But simple logic suggests that the Bush tax cuts cannot be responsible for 65 percent of the AMT problem and failure to index responsible for 59 percent of the problem. The anomaly arises because there is overlap between the variables being analyzed. Although the analysis fairly demonstrates the amount of AMT revenue saved by making a particular change to the Federal tax system, it is inappropriate to represent that such analysis accurately isolates causation of the AMT. Because there is overlap in the variables being analyzed--in these examples, indexing and the Bush tax cuts--the order of analysis of those variables is crucial to the outcome. JCT acknowledges this point to us in a letter dated October 3, stating: ``There is, however, interaction between these two contributing factors to the AMT effect. In order to avoid double counting of interactions, a stacking order is imposed. The apportionment of effects to each contributing factor will vary depending on the stacking order, even though the total effect remains constant.''

To this point in time, I have not seen anything that accurately suggests that the 2001 tax cuts have worsened the AMT problem to date. It is my intention to ensure that we continue to honor that commitment and that is an important part of this tax reconciliation legislation.

I ask unanimous consent that a memorandum be printed in the RECORD.

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Mr. GRASSLEY. Mr. President, I appreciate the Senator bringing this matter to my attention and regret that it is too late to amend the bill today on the floor. I will agree with the Senator, however, to review this proposal further with the intent of taking it up in conference.

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