Congressional Budget for the United States Government for Fiscal Year 2009 -- Continued

Floor Speech

CONGRESSIONAL BUDGET FOR THE UNITED STATES GOVERNMENT FOR FISCAL YEAR 2009--Continued -- (Senate - March 11, 2008)

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Mr. President, I wish to discuss with my colleagues one of the sources of revenue that the chairman of the Budget Committee claims would bring in $100 billion per year to offset the cost of extending existing tax policy, and that would be the issue of shutting down offshore tax havens.

I feel that I have been very aggressive as a member of the Finance Committee in combating abusive tax shelters offshore or otherwise, so I am not here to find fault with anything in the budget about going after abusive offshore tax havens. But I do have a degree of disagreement on the amount of revenue that will come in and whether this is the ``goose that laid the golden egg'' that will solve all of the problems we have with the budget.

So I have worked hard on this subject for a long period of time. In fact, I would go to a bill that we passed in 2004 called the JOBS Act. It shut down the tax benefits for companies that enter into corporate inversion transactions and abusive domestic and cross-border leasing transactions. The JOBS bill also contained a package of 21 anti-tax shelter provisions--not just 1 or 2 but 21.

Now, of course, I am ranking member of the Finance Committee, but having a good working relationship with Senator Baucus, we have been continuing to look at all these abusive parts of the Tax Code, or these parts of the Tax Code that are abused, and look at where we can get some additional revenue. We are not out to tax people who would not otherwise be taxed or to change the rate of taxation, and we are not out to get people who should pay more money than what we are paying if they are doing it in a legal way. We are after subverting the Tax Code in a way that wasn't intended by Congress.

So in my role on the minimum wage small business tax relief bill that passed the Senate last year, we also included provisions that contained anti-tax loophole provisions, including shutting off tax benefits for corporations that inverted--after Senator Baucus and I issued a public warning on that issue that legislation would stop these deals, shutting off tax benefits from abusive foreign leasing transactions that weren't caught in the passage of the JOBS bill, and, of course, doubling penalty and interest for offshore financial arenas.

In that particular bill, the minimum wage bill I referred to--it happened to be that the House Democrats rejected our offsets. It was kind of surprising to me, but they did that. I use it as one example that is a somewhat unrealistic account on these offsets in the budget resolution.

The chairman of the Budget Committee went on and on yesterday about abusive foreign sewer systems and city hall leasing deals on which U.S. banks were claiming depreciation deductions. I didn't disagree. I led the effort to shut down these deals on a prospective basis, which we did in the 2004 bill, and I have continued to lead the effort to legislatively deny future tax benefits for deals that were entered into before the 2004 legislation. But here again, people, for reasons I don't know--and it was quite surprising to me--in the other body, the leadership of the Ways and Means Committee over there has continued to stop us cold. In fact, while the chairman of the Budget Committee was holding up a chart of a German sewer system during last year's budget debate--I am referring to last year's budget debate, but it is a prop that can be used this year as well--the chairman of the Ways and Means Committee at that time was holding a hearing that sympathized with U.S. banks that entered into these very same deals.

So I sure hope this distinguished chairman, my friend, the Senator from North Dakota, is not counting on any revenue for doing something the House Democrats have rejected over and over again. But do you know what. My distinguished friend and chairman of the committee, it seems to me that he is counting on that revenue. Well, maybe he will have better luck a second time. We didn't do very well the first time.

The Budget Committee chairman is also continuously referring to the billions of dollars that the Permanent Subcommittee on Investigations says we can get through offshore tax scams. Well, those of us who have to do this heavy lifting in this area, by passing tax legislation, know that whatever numbers the Permanent Subcommittee comes up with have tended to be meaningless. We all know there is not a dollar's worth of tax legislation that can be based on the Permanent Subcommittee's estimates. That is not their expertise, nor their job. That falls into the area of the Joint Committee on Taxation.

So having studied these issues and having legislated in these areas for a long period of time, I consider my views on tax policy directed at tax shelters and tax havens to be credible. From what I can tell, the chairman of the Budget Committee views the problem of offshore tax havens in two categories: one, the ability of U.S. multinationals to shift income to these tax havens, and two, the evasion by U.S. citizens who hide assets and income in these tax havens.

We have seen Democratic Senators, including the chairman of the Budget Committee, hold up a picture of the Ugland House, a law firm's office building in the Cayman Islands, which is home to 12,748 corporations. Senator Baucus and I asked the GAO to investigate the Ugland House. In fact, the Government Accountability Office is down there doing that right now. As often as that building is used to justify a pot of tax haven gold, it will be good to get an independent agency, such as the Government Accountability Office, to give us an objective perspective on this issue.

I would like to give Senators some background on where that picture comes from and what issue it is aimed at. The picture comes from an article published in the Bloomberg Market, August 2004, titled ``The $150 Billion Shell Game.'' The article focused on the ability of U.S. multinationals to shift income to low-tax jurisdictions through transfer pricing.

``Transfer pricing'' is the term for how affiliated corporations set prices for transactions between those corporations. Transfer pricing is important because it determines how much profit is subject to tax in the different jurisdictions involved in related party transactions.

The $150 billion figure is an academic estimate of the annual amount of profits that corporations shift outside the United States with improper--and I emphasize ``improper''--transfer pricing--in other words, trying to violate the law.

One of the Democrats' revenue raisers that is still on the shelf purports to target this transfer pricing problem. But you would not know it by looking at the language of the proposal because it doesn't make any changes to our transfer pricing rules. Instead, the proposal would eliminate deferral for income of any U.S. multinational foreign subsidiaries incorporated in certain black-listed jurisdictions. It is called the tax haven CFC proposal.

Deferrals have been part of our Tax Code since 1918. Deferral means that U.S. multinationals do not pay tax on the active income of their foreign subsidiaries until that income is repatriated to the United States.

Passive income is subject to tax on a current basis. Deferral only applies to active income.

I agree with the premise of this proposal that the U.S. multinationals should pay their fair share of U.S. taxes. I think I proved that with closing some of these tax shelters and improper offshore activities in previous legislation. I have already talked about that issue. U.S. multinationals who use improper transfer pricing do so to obtain the benefit of deferral on profits that economically should be subject to tax in the United States on a current basis.

Here is my quote from this Bloomberg article:

We have to get on top of corporate accounting and manipulation of corporate books for the sole purpose of reducing taxes.

My view is that stronger transfer pricing rules and stronger enforcement of those rules is the way to target this problem in our current international tax system.

The IRS is taking steps to tighten our transfer pricing rules. For example, the IRS has proposed regulations that would overhaul the rules for the so-called cost-sharing arrangements. These are arrangements by which multinationals of our country are able to transfer intangible property to subsidiaries in low-tax jurisdictions. Based on the volume of complaining I have seen from lobbyists and their leveling it at the Treasury and the IRS, the proposed IRS regulations would go a long way to prevent this artificial income shifting. I hope to see these regulations finalized soon, and I believe they will be. Others have a whole different view. They would eliminate deferrals altogether.

Another quote in the Bloomberg article succinctly states this view. This is a quote from Jason Furman. He is a former aide to Senator KERRY:

American companies should pay taxes on their profits in the same way whether they earn them in Bangalore or Buffalo.

That is where these proposals to eliminate or curtail deferrals on a piecemeal basis are headed. They are headed to the complete elimination of deferrals for U.S. multinationals.

Without a significant corporate tax-rate reduction--and thank God some candidates for President are talking about that. There are Members of this body who believe we ought to reduce the corporate tax rate so we can be competitive on an international basis but without a significant corporate tax rate reduction. Eliminating deferrals altogether would have the effect of exporting our high tax rates and putting U.S. multinationals at a competitive disadvantage in the global marketplace.

Understand, our corporate tax rate is the second highest in the world. We are not even learning from Germany yet, a socialist country that decided they have to reduce their marginal tax rate to be competitive in the world market. Ireland found that out in 1986 and has economically advanced since they did that. Everybody understands our tax rates make us uncompetitive. Do we want to make it worse so we lose more jobs? I don't think so, but I don't think people have thought about it.

The Senate is on record as wanting to protect the competitiveness of U.S. businesses in the global marketplace. The Senate passed the American Jobs Creation Act of 2004. I referred to that bill before in my remarks this afternoon. That bill contains several international simplification provisions, and it passed with a vote of 69 Senators, including 24 Democrats. The Senate version of the JOBS bill, which also contained these provisions, received a vote of 92 Senators, including 44 Democrats.

There has been a longstanding debate about whether our international tax system should be fundamentally changed, and that is a legitimate debate. Some say the transfer pricing regime used by virtually every major country is broken and calls for taxing all foreign income on a current basis. Others argue for completely exempting active foreign income under a territorial system, as many of our trading partners do and, consequently, one of the reasons behind our uncompetitiveness. But we want to have that debate, and if we do, then it is a fair debate.

The budget resolution does not contain specific proposals, but if the Democratic record is assumed on offshore tax issues, then we can count on a lively debate from this side to eliminate deferrals because we do not intend to do anything to make our businesses in America that create jobs more uncompetitive. We have to do things to make us more competitive.

We have already seen what the House Democrats would do, and I am a referring to points I referenced already this afternoon. I may disagree with most of the international proposals in that bill that was referred to as ``the mother of all tax bills'' last fall--that is what the chairman of the Ways and Means Committee called his tax reform plan--but at least the chairman of the Ways and Means Committee raises the issue in an intellectually honest way, setting the stage then for fundamental reform and also proposes to lower the corporate tax rate to 30.5 percent. That rate may still be too high, but at least the Ways and Means Committee chairman recognizes the concern that I laid out earlier about exporting our high tax rates.

The piecemeal cutbacks on deferral for active foreign income that we have seen in the Senate would do nothing but complicate the Tax Code and create opportunities for tax planning around these cutbacks.

The other offshore issue identified by the chairman of the Budget Committee is U.S. tax evasion by individual taxpayers who hide their assets and income in foreign bank accounts and foreign corporations. Let's go back to the beginning of the Tax Code in 1913. Our Tax Code has subjected U.S. citizens to tax on their income wherever it is made worldwide. No matter what the Internet purveyors of tax evasion say, this principle cannot be avoided by putting passive assets and income into foreign corporations. The Tax Code has rules to prevent that. Taxpayers who willingly violate these rules are guilty of tax fraud and, in many cases, criminal tax fraud.

The problem of offshore tax evasion is not that our laws permit it; the problem is there are some taxpayers who are intent on cheating and hiding their income from the Internal Revenue Service.

The IRS has been successful in catching many of these tax cheats, but more can be done. The IRS has difficulty detecting tax evasion and obtaining the information necessary to enforce our tax laws. One important tool for the IRS is information exchanged with other jurisdictions. Our double-tax treaties contain an article on information exchange designed to help the IRS obtain quality information to enforce our tax laws.

In addition, administrations, past and present, have entered into over 20 tax information exchange agreements with jurisdictions that are often referred to as tax havens. We are seeing this information exchange network in action as we speak, providing the IRS and other countries with information related to the use of bank accounts in Liechtenstein. Sensible solutions to this problem should aim to improve on our tax information exchange network and not put that network at risk or the efforts at risk.

Underreported income is the largest piece of the tax gap. We should keep in mind that hiding assets and income from the IRS is not just an offshore tax problem, it is not an offshore tax haven problem; it may also be an onshore problem. In fact, it is an onshore problem.

An article in USA Today last year noted that ``there is a thriving mini industry that has capitalized on real or perceived gaps in domestic and corporation laws and virtually nonexistent Government oversight to promote some U.S. States as secrecy rivals of offshore havens.''

The picture of the Ugland House in the Cayman Islands that I referred to earlier makes for good grandstanding, but as I am sure the distinguished chairman of the Budget Committee is aware, there are also office buildings in some States that are listed as addresses for thousands of companies that are incorporated in those States for similar reasons as those incorporated in the Cayman Islands: secrecy of ownership and a permissive regulatory environment. Whatever additional solutions the Finance Committee comes up with to shine sunlight on tax evaders will need to consider both offshore and onshore evasion of taxes.

I emphasize that I am all for shutting down inappropriate tax benefits from offshore arrangements. The chairman of the Budget Committee has said he thinks we could get, I believe, $100 billion from this source. I have not seen any proposals scored by the Joint Committee on Taxation that come close to bringing in this kind of money, and the Joint Committee on Taxation is the official scorer. The last score I have seen for a tax haven CFC proposal is about $1.5 billion per year. The more fundamental ``mother'' bill that I referred to from the chairman of the Ways and Means Committee in the other body would raise about $10 billion per year.

I wish to emphasize to my colleagues another point. Each of these proposals that would eliminate or curtail deferral involve tax policy changes that raise taxes, which is the last place the distinguished chairman of the Budget Committee said he wanted to go to raise revenue.

On the offshore evasion issue, Senators Levin, Coleman, and Obama have introduced a bill that contains several proposals, and these proposals are aimed at offshore tax havens. Yet, again, I have not seen a Joint Committee on Taxation score of that bill, and they are the official scorer.

Once again, it will be the Finance Committee's responsibility to come up with real, sensible, effective proposals that combat offshore and onshore tax evasion, which I am glad to do, but the likelihood that they will be scored by the Joint Committee on Taxation to bring in the kind of money assumed in this budget resolution is very remote at best.

Given these facts, it should be obvious how much of a shell game is going on and how unreal this budget resolution is.

Mr. President, as my colleagues know, within the Finance Committee, we have jurisdiction over health care issues. I wish to address those health care issues in this budget resolution as well.

The biggest health care issue in this budget resolution is a stealth provision--stealth. You cannot see it, but it is there. And I am going to talk about the issue of reconciliation, a process that was supposed to be used to save money, but I think in a stealthy way, before this is done and out of conference, it is going to be used to increase expenditures.

It is true there are no reconciliation instructions for spending in the Senate resolution, but there is in the House version, and that is going to make it conferenceable.

Last year there was a single committee instruction in the House-passed resolution but not in the Senate-passed resolution. The final conference version last year deferred to the House, no reconciliation. So I am willing to bet that the House instructions will be the final budget that comes back from the House-Senate budget conference.

Truthfully, it makes no sense for the House to have reconciliation instructions in the first place. The House does not need reconciliation protection. The Speaker and the Rules Committee make sure the House is strictly controlled by a majority vote. Reconciliation is only important for the purposes of the Senate to avoid filibuster, to avoid a 60-vote supermajority, to get to finality in the process, limiting the role of the minority. And, remember, the Senate is the only institution in our political system where minority rights are meant to be protected and are, in fact, protected.

I do not think the other side wants a debate in the Senate about reconciliation, so they have hidden the reconciliation instructions in the House bill so they can drop it in their final budget. Since I am pretty confident it will be there in the final budget, I want to bring attention to the problems this creates as we consider all the work, and three-fourths of it comes out of the Finance Committee over the next few months of this session.

It is true, of course, that reconciliation can be a very useful and powerful tool for actually making policy to reign in Government spending. Reconciliation can be used to pass controversial reductions in entitlement spending. By design, the reconciliation process greatly reduces the role of the minority, be it Democrats for 12 years prior to now or Republicans now. But let us review the basics on how to make law around here. To make law, not only does Congress have to pass it but the President has to sign it or you have to have votes to override a veto. In the last 20 years, precisely four vetoes have been overridden--not a very high percentage.

Pursuing an override strategy is an uphill battle as anyone such as Senator Baucus and I, who have worked so hard on the SCHIP bill last year, found out. To have the President sign it means the bill will have to be bipartisan. The President is not going to sign a partisan bill. The President will not sign a bill that lacks involvement and support from the minority as well as the majority.

Since reconciliation cuts Republicans out of the process, it ain't going to work. Likewise, what do you have to have to override a veto? Republicans, of course. About 16 in the Senate and 60 in the House if you are going to get anything done. Since reconciliation is a partisan process, it is passed with only partisan support, it is pretty clear it will not work. It will be a pointless political exercise. It will not become law, plain and simple.

If you want to make law around here, it has to be bipartisan. That means in this body involving the Republicans, and since you will need Republicans to make law, you do not need reconciliation to get a bill passed in the first place. If the effort is bipartisan, you do not need the restrictive rules of reconciliation to get it done. I think Senator Baucus and I, working together in this legislative process in this body, have proved that over and over and over in the 8 years we have been working together.

What we are considering today is not about making policy. So what is the point of it? Well, I think it is about playing politics. We are in an election year. In fact, it is a Presidential election. We all know the stakes are very high. So why on Earth should anyone believe that trying to move a partisan Medicare and Medicaid reconciliation bill makes any sense at all?

Exactly what bill does the majority want to pass that will not have broad bipartisan support? Fortunately, the chairman of the House Ways and Means Committee answered that question for all of us. He confirmed that he wants to include the House-passed Medicare bill from last year in reconciliation, a bill better known in the health care circles as the CHAMP Bill, acronym C-H-A-M-P, CHAMP.

You may be wondering what it is in the CHAMP bill that would not pass unless it would be included in reconciliation. Fortunately, there is an answer. The House CHAMP bill includes drastic cuts to home health care, to hospital care, and skilled nursing care. The House CHAMP bill also would end availability of Medicare Advantage plans and their extra benefits in most of rural America. It would also drastically cut benefits for rural seniors who are enrolled in Medicare Advantage plans throughout the country. It would also cut other benefits such as preventive health benefits that seniors rely on when they enroll in Medicare Advantage plans.

The House CHAMP bill would also result in higher out-of-pocket costs for lower income seniors who are enrolled in Medicare Advantage. The House CHAMP bill also has some changes in the State Children's Health Insurance Program that merit further discussion, to be sure. It would turn the capped SCHIP block grant program into an uncapped entitlement program. Childless adults would be allowed to stay on SCHIP indefinitely. Remember, we had that debate last year. Everybody said a children's health insurance bill is for children, not for adults. We did things in this body to make sure adults were not covered by the children's health insurance bill because it cheats children.

So why would you want to go back to something we debated and carried by a two-thirds vote in this body? And it would add coverage for immigrants who have come here illegally to the SCHIP program as well.

None of those provisions were included in the bipartisan package we worked out together last year. I have got a chart here that will emphasize this. It is the whole to-do list that is hidden in their agenda for the year. It is hidden in their stealth plan to do a reconciliation bill this year.

One logical question you might ask is: Why would they be thinking about using reconciliation this year? The answer is simple. They know they do not have the votes to pass these kinds of dramatic Medicare cuts and they do not have the votes for these bad policies we changed in SCHIP last year. So they want to force it through the process by stuffing it into a partisan reconciliation bill.

Now, focusing back on Medicare, let us consider what is at stake. We have until the end of June to pass a Medicare bill that the President signs into law. If the Democratic leadership insists on using budget reconciliation for this Medicare bill, they will fail to get a bill enacted. Failure to get this done by June 30 has serious consequences for seniors and disabled Americans who rely on this important Government program we call Medicare for their health care. Failure to get the bill done and signed means that severely disabled and injured Medicare beneficiaries will not be able to get the therapy they need beginning in July. Failure means that sorely needed doctors and other health care professionals in rural areas are going to see drastic reductions in their Medicare reimbursement. It means low-income beneficiaries who need help with their Part B premium will not be able to get it because the Qualified Individuals Program in Medicare will have expired. It means patients with end stage renal disease who need dialysis will still be in the system in need of payment reform. Necessary reforms are needed to improve how end stage renal disease facilities are paid so they have stronger incentives for improved critical outcomes and enhanced quality of care.

Reforms are also needed to eliminate incentives for the overuse of drugs in that program. It means that seniors' reliance on ambulance services in rural areas will be put at risk because of underpayments for rural ambulances. It means that beginning in July, Medicare beneficiaries will have their health care threatened when family doctors, surgeons, medical specialists, and nurse practitioners all across the country will have Medicare payments cut by more than 10 percent.

I hope you realize how demoralizing that will be to doctors in this country when they face a 10-percent reduction. In many areas, doctors are already in short supply. With a 10-percent pay cut, some may solve their problem by not accepting Medicare beneficiaries. New beneficiaries may also have trouble finding a doctor.

Failure also means other important initiatives will not get done. It means that legislation to strengthen incentives for physicians to use electronic prescribing will not happen. This means we will continue to have higher rates of dangerous medical errors, that people have their lives put at risk.

It means our Nation's seniors and disabled Americans will still be in the health care system that rewards poor quality care, because enacting hospital value-based purchasing in Medicare is not going to happen. These are some of the reasons why we should not be thinking about reconciliation as a way to avoid this set of outcomes in July. I hope we can set aside this reconciliation charade. I hope we can continue to work in this body in a bipartisan way, as we have a reputation for doing in the Finance Committee, to get a Medicare bill passed and signed by the President by the end of June.

It is quite clear: The stakes for failure are too high. So let us not kid ourselves about including a reconciliation instruction in the final budget, meaning what comes out of conference. It is not about making policy. No one should mistake it for a serious effort. It is about jamming a bill through Congress and forcing the President to veto it. It is about making politics that threaten the Medicare Program and the seniors who rely on it. I will have nothing to do with that sort of a process. I do not think very many people on this side of the aisle will either.

What we are considering today is not about making policy. Then what is the point? It is politics. If we are going to have a serious effort at legislating, I hope the other side would decide not to pursue a partisan reconciliation bill. Instead we need to work out a bipartisan bill that can become law.

The bottom line is that reconciliation is a bad idea. It is partisan. It will not become law. We have serious work to do before the end of June, and a sham political reconciliation exercise is not getting us any closer to getting the job done.

While the stealth reconciliation instruction is the most disturbing facet of this budget, it is not the only problematic health care provision. The budget misses the opportunity to continue the bipartisanship that was forged in the Senate over the State Children's Health Insurance Program last year that passed this body, sometimes with 69 votes.

Last year, SCHIP reauthorization was a top health priority. It was a difficult and it was a bruising battle. But the $35 billion compromise bill garnered 68 votes in the Senate. It was a true show of bipartisanship.

Now, rather than come back to the second session of this Congress to roll up their sleeves and finish the job, it looks to me as if the Democratic majority is abandoning that bipartisan work from last year.

Now you might say, how do I know that? Well, it is very clear, because the budget before us returns to the $50 billion reserve fund for SCHIP from last year's Democratic budget, a figure that was soundly rejected by the Senate last year in the compromise that was put before us that got those 68 votes.

My colleagues know that a key feature of last year's SCHIP deal was to cap spending at $35 billion. But they did not include the $35 billion for SCHIP that had bipartisan support. So where, then, is the bipartisan spirit on SCHIP that was here last year? Why is it not here this year?

Mr. CONRAD. Will the Senator yield on that point?

Mr. GRASSLEY. Yes, I will yield.

The PRESIDING OFFICER (Mrs. McCaskill.) The Senator from North Dakota.

Mr. CONRAD. I asked that same question myself. Why do we not put in the $35 billion figure? And the answer was: It is up to $50 billion so it would accommodate the $35 billion compromise, but it also was with the understanding that a year later, maybe that would need to be $36 or $37 billion, to have the same force and effect.

I would say to the Senator, there was no intention here to leave an impression that we were not eager to continue the bipartisan effort.

I wish to salute the Senator. He made an enormous effort, as did Senator Baucus, Senator Rockefeller, and Senator Hatch. They spent many hours putting together a bipartisan agreement on SCHIP. We certainly don't want to in any way leave the impression that we don't want to pursue that again.

Mr. GRASSLEY. The Senator from North Dakota backed us on that effort, and I thank him for that. And the extent to which you say you would be willing to work, I assume you are speaking as a person, for $35 billion instead of 50, I accept that. But I am saying for the public who is looking at this document we call the budget resolution, that has $50 billion in it. You draw other conclusions.

Mr. CONRAD. If the Senator will continue to yield, that is why the language in the resolution says up to 50. Again, I say to my colleagues, I have every intention to pursue again the effort that you and the chairman of the committee pursued so vigorously last year.

Mr. GRASSLEY. I thank the Senator. I am happy to yield to the Senator from New Hampshire without losing my right to the floor.

Mr. GREGG. In order to accomplish the goals the Senator wishes to accomplish and which have been subscribed to by the chairman of the committee, you wouldn't need reconciliation to accomplish that, would you?

Mr. GRASSLEY. No, you would not. In fact, it detracts from it. Because too often reconciliation tends to be a partisan issue, and we will never get SCHIP through here that is not bipartisan. I think you are making the case that I have taken a long time to make, that reconciliation is not a process we need to accomplish most of the major goals in some of these areas that there is bipartisan agreement to reach.

Mr. GREGG. That was my point. I think the Senator from Iowa has made an excellent case for why this reconciliation, I think he called it a stealth vehicle floating around here, should not be used. It is inappropriate and certainly undermines the integrity of the process to use reconciliation for this type of an issue.

Mr. GRASSLEY. Based upon what the Senator from North Dakota said about SCHIP, I will not go on making my case about that. He has pointed out what the intention is, which is not to preclude something less than $50 billion, and that brings us back to the possibility of a bipartisan compromise, assuming we don't have reconciliation.

I will go on then to certain CMS regulations and how they are treated in the budget resolution. I know some people have concerns with the CMS Medicaid regulations. I will not argue that these regulations are perfect. In fact, I have written for my constituents a lot of letters to CMS raising questions about some of these regulations. However, the regulations do address areas where there are problems in Medicaid. Somehow I read this budget resolution as not recognizing those real problems. States don't have clear guidance and could be inappropriately spending taxpayers' dollars. We ought to make sure that since Medicaid is a Federal-State program, that we have 50 States to deal with, they ought to have as much assurance as they can have in our basic law and regulations as to what they can do and not do. We ought to be concerned that they know that. Because if they do something wrong, we pay over half. In my State, we pay 62 percent of the cost of Medicaid. So let's talk about how many dollars might be involved.

The budget resolution provides for $1.7 billion that is going to be addressed by these regulations. The amount is only to delay the regulations until the end of March of next year in hopes the next administration will pull back those regulations. Of course, that is what the people who are supporting this provision are hoping for. What would it cost if we tried to completely prevent these regulations from ever taking effect? Not the $1.7 billion that is in this budget resolution to get us through to March of next year. It would actually cost taxpayers $19.7 billion over 5 years and $48 billion over 10 years. Let me emphasize that, $48 billion over 10 years. It is a farce, from my position, an absolute farce for anyone to argue that all those dollars are being appropriately spent and that Congress ought to walk away from these issues, forget about what CMS is trying to do to bring some rationale to the spending of taxpayer dollars.

CMS still has a fundamental responsibility to combat fraud, to prevent inappropriate spending, and to protect the integrity of the Medicaid Program. This budget resolution tells CMS to stop your work. Take the rest of the year off. Your work is no longer necessary.

This is a serious mistake. What we ought to do is have an instruction that requires the Finance Committee to replace the regulations. Instead of making the regulations go away, the Finance Committee ought to be tasked with replacing them with a policy that fixes the problems. That is what we should be doing for the American taxpayer.

So let's review what we have in the budget resolution. First, we have a stealth reconciliation provision that promises to place politics over getting important policies accomplished. Second, we have an SCHIP provision that abandons the bipartisan progress made in 2007, recognizing the dialog I had with the chairman of the Budget Committee on that point, after I made my point. Third, we have a Medicaid provision that carelessly abandons the integrity of programs in several key areas, costing, if it would stay in place forever, $48 billion over 10 years. With spring training in full swing, I would like to borrow a baseball analogy. That is one, two, three--well, you know all the rest.

I have some comments I wish to make about the provisions that might be offered in what is called the tax relief measures and particularly those that might not be included in an amendment that is going to be offered from the other side of the aisle. I would like to define for my colleagues some of the widely applicable expiring tax relief provisions that are not going to be covered by an amendment that I think is going to be offered by my friend from Montana, Senator Baucus, in an amendment he has. I know already that Senator Gregg, the ranking Republican on the Budget Committee, has pointed this out, that the lower rates on capital gains and dividends would rise after 2010, under the pending amendment. That means that lower income taxpayers', those in the 10- and 15-percent tax brackets, capital gains rates rise from the current zero rate to 10 percent.

It means for dividends for the same group, the tax rate would go from zero rate to either 10 or 15 percent. Why would anybody want to discourage people who are in those brackets, usually lower income earning people, from having to pay a higher rate of tax on their savings, when the rate of savings in this country is at such a low level compared to other countries? In fact, last year it was a negative savings rate for all America. For all other taxpayers, though, the capital gains rate would go up 33 percent, from 15 percent to 20 percent. For those taxpayers, the dividend rate would go from 15 percent to as high as 39.6 percent on dividends as opposed to capital gains.

As important are marginal tax rate hikes that would kick in after the year 2010. Here I am talking about all the tax brackets above the 15-percent bracket. We have a chart that tells exactly what is going to happen with each of these and how many families and individuals are being affected by these tax rates--who are going to have the tax rate increase. The chart shows the current law brackets and the number of tax-paying families and individuals in each bracket. The data is the latest available from the Internal Revenue Service Statistics of Income Office. There are four brackets above 15 percent. The first is a 25-percent bracket which contains 22 million families and individuals. The next bracket is 28 percent. There are almost 4 million tax-paying families and individuals in that bracket. The next bracket is the 33-percent bracket. There are 1.5 million tax-paying families and individuals in that bracket. And the top bracket is 35 percent, and in that 35-percent bracket is almost a million people. This is a group whom you will hear most about from the other side. Even it is a sizable group, 963,000 people. It contains a lot of stable and long-term small business owners who create most of our jobs. The other side would like to leave the impression that these are nothing but Wall Street moguls.

If we were to raise this rate, as proposed, to 39.6 percent, the small business owners would be facing a 13-percent penalty vis-a-vis the largest corporations in the land.

Now where do you get the idea that is good for America, that small businesspeople, sole proprietors filing individual taxes and in the business of creating jobs, ought to pay 13 percent more than what corporations pay? In fact, the whole purpose of the 2001 tax bill was to make sure there was parity between sole entrepreneurships creating jobs and corporations creating jobs. We are talking about a small group of people, 963,000.

If you total the number of tax-paying families and individuals affected by these marginal rate increases, it is a total of 28 million families and individuals. Keep in mind, as I said yesterday, that is a group of tax-paying families who start paying on taxable income of $63,000, and for individuals it starts for as low as $32,000 of taxable income. This large group of taxpayers would face various marginal rate hikes, if the policy underlying the pending amendment were to become law.

The better way to deal with these current law levels of taxation would be to make them permanent because permanency of tax policy is the best tax policy that is going to create the most jobs.

There will be an amendment to be offered by Senator Graham that ensures capital gains and dividend rates stay at the current low levels for lower income taxpayers. The Graham amendment will ensure that roughly 28 million families and individuals would not face marginal tax rate increases after that.

For those Members waiting to speak, I have one more fairly short comment I wish to make on another provision in the bill that was put in, in committee.

I come before you to discuss payment limitations, meaning payments to farmers.

For years I have been leading an effort to put a very hard cap on the amount of Federal subsidies going to farmers. Last year, as everybody knows, I stepped aside. I wish to say I graciously stepped aside during the budget debate when--

Mr. CONRAD. Madam President, will the Senator yield?

Mr. GRASSLEY. Madam President, I will yield to the Senator.

Mr. CONRAD. Madam President, let me say there have been a number of examples last year and this year of what I think distinguishes the Senate. The actions by the Senator from Iowa last year were an example of courtesy and graciousness that I will never forget. I want to say publicly, as I have said before, how very much I appreciate what the Senator did last year to withhold an amendment that would have otherwise taken down the budget. It was an act of great courtesy, and I thank the Senator for it.

Mr. GRASSLEY. Well, Madam President, I appreciate the Senator's kind words. I am going to kind of use some words that I think he spoke to me last year, and I would not say they are an absolute quote, but it went something like this: Chuck--that is my first name. This was in private. You do not call us by our first name on the floor of the Senate. But something like this was said to me: Chuck, hold off on this. We will do this on the farm bill in 2007.

Well, we did do the farm bill in 2007, but we do not have it done yet. Anyway: Chuck, hold off on this. We will do this on the farm bill in 2007. You know you have the votes there.

So I backed off and I waited, as has been verified by the chairman of the committee. Everyone knows what happened. His colleague, Senator Dorgan of North Dakota, and I worked hard over a period of a couple years to be able to offer an amendment of a $250,000 hard cap to the commodity programs on the Senate floor to the farm bill. Do you know what. We had a majority. We had 56 Senators who voted to support this hard cap. I can tell by looking at some other Senators here, we probably had 58, but there were reasons otherwise for voting. But leadership--and all I can say is in a generic way--leadership imposed a supermajority requirement on the amendment. We did not have 60 votes. So if you do not have 60 votes around here, sometimes you do not get anything done.

At this point there is no guarantee we are even going to have a farm bill. I think we will, but I cannot guarantee it. I do not like to say this because I am very hopeful that we will, but there are a lot of hurdles to jump before we get there. We have not been able to come up with acceptable offsets that the administration can agree to. We have not been able to find a structure for the Finance Committee's assistance that the House can live with. The House has not even named conferees, so we have not even begun to engage in the very serious, substantive policy issues that get us to finality, even though there is a lot of talk going on and there are a lot of meetings going on. So this year, we are back where I was a year ago on the budget. Last week, Senator Allard and I offered an amendment on payment limits during committee consideration of the budget resolution. This amendment would limit commodity payments and allocate the savings to nutrition. The amendment was agreed to by a bipartisan vote of 13 to 9.

Here I am to put everybody on notice that this $250,000 hard cap should be carried through to the conference report. I want to have an adequate safety net for family farmers in the tradition of farm programs for six, seven, or eight decades, where it was targeted toward small- and medium-sized producers, people who maybe cannot ``weather the storm'' as the big gigantic farmers can. That storm can be natural or it can be politically instituted or it can be internationally instituted--a lot of things beyond the control of the family farmer. So we have had a safety net to guarantee a stable supply of food for our people, both for social cohesion as well as for national defense.

Now, in recent years, however, assistance to farmers has come under increased scrutiny by urban communities and the press.

Do we have a chart? Yes, we have a chart here I wish to have you look at.

The law that is now being administered maybe has unintended consequences, but they are real consequences. The law creates a system that is clearly out of balance. If we look at the results posted on this chart, we have a system where 10 percent of the farmers--the biggest farmers--get 73 percent of the benefits out of the farm program, and the top 1 percent gets 30 percent. I am not saying these corporate farms should not have a safety net like everyone else. This amendment is not means testing anybody. But it is saying at some point: Enough is enough. We have to set a hard cap, a hard level of payments that is equitable to all producers, no matter their size, with emphasis upon helping small- and medium-sized farmers.

My amendment adopted in committee and included in this resolution will help revitalize the farm economy for young people, at the same time saving taxpayers money or, better yet, using that money in nutrition where it will do some good for lower-income people.

The amendment will put a hard cap on farm payments at $250,000. I want to make a very clear distinction here. Even if we have a farm bill--because the arguments are going to be made against this bill: We are in negotiations on a farm bill. Why mess with this in a budget? Well, if we do have a farm bill, I have a feeling it is going to end up relaxing payment limit laws that we have in the 2002 farm bill. The House of Representatives, in their farm bill, actually increases direct payment caps. And both the House and the Senate totally eliminate the cap on marketing loan gains, making them virtually unlimited.

So you have farm bills passed by both Houses that you could drive a gigantic 9620 John Deere tractor through--and those are big tractors. I will support trying to lower the adjusted gross income limits, but I have seen a lot of data that suggests that not many farmers are going to be kicked out of the program if they are filthy rich, do not need the help, do not need the support, do not need to be subsidized to get bigger. They have the ability to get bigger on their own economic entrepreneurship. We should not have to subsidize them.

In addition, I have evidence that the U.S. Department of Agriculture is not even enforcing current law, the current adjusted gross income cap of $2.5 million. So what makes us think they are going to enforce something at $500,000?

This to me is more than just economics of the farm program. This is about good government. This is about responsibility to the taxpayers. Most importantly, this is about protecting the livelihood of America's small and midsize farmers who you might say are protected anyway because there is a safety net for them.

But my point is, you pay these 10 percent of the biggest farmers 73 percent of all the money out of the pot that is set aside for support for farmers, and we are going to lose urban support for the farm safety net, and small, medium, or big, there is not going to be any farm safety net, and someday you are going to wonder why there is not enough food in America.

I want to take a minute to outline some of the folks who have supported this in the past. All 12 Democrats on the Budget Committee have voted to support this measure at one time or another. Last week, we had 13 votes in favor of a $250,000 hard cap, including a majority of Democrats. We have support from groups that are concerned about hunger in America or hunger in the world. We have the support of environmental groups. We have churches backing this. We have small and beginning farmer advocates.

Let me remind this body of a report that was put out because of the 2002 farm bill. Remember, we had this argument in 2002. We won overwhelmingly in the Senate. It was taken out in conference because of big corporate farm interests that were on the House Agriculture Committee, and they are probably still there, even though it is under Democratic leadership.

We did not get these limits. So we had a commission report: Let's study this. Let's find out what we can do to make sure that 10 percent of the biggest farmers do not get 73 percent of the benefits out of the program.

Well, do you know what the report said. After about 2 years of study, it said: Do exactly what was done in the Senate in 2002. And that is exactly what we got 56 votes to do a couple months ago when the farm bill was up in the Senate--but not 60 votes to get over that hurdle.

The report also said that the 2007 farm bill is the time for these reforms to be made as part of a change in permanent law.

Well, that time has come. By supporting the policies included in the Allard-Grassley amendment, we can allow young people to get into farming and lessen the dependence upon Federal subsidies. This will help restore public respectability for public farm assistance by targeting this assistance to those who need it.

You might remember the last time we had a vote on payment limits was on the budget bill. Many of our colleagues said they agreed--no. The second time back we had a vote on this was on a budget bill. Well, at that time it was argued: Wait until the 2007 farm bill. It needs to be done on a farm bill. Well, you know what happened. You change the rules in the middle of the game. You think 51 votes will get an amendment adopted around here. Then somebody says: Well, we can't beat DORGAN and GRASSLEY with a majority vote, so we will somehow scramble around and wiggle the rules--and I don't know what all it takes; and it will never be in the history books--but it happens that all of a sudden you need 60 votes to get something done around here. We only got 56 votes, so we did not get it done.

But to all my colleagues who said: Wait, a couple years back during the budget debate, we are done waiting. We will not be brushed off again. Payment limits must be done now, and waiting for a stalled farm bill is not an appropriate strategy. I call upon my colleagues to back this commonsense measure which a majority of this body has supported numerous times in the past. I hope we can count on our Senate colleagues to support the Senate position on payment limitations in conference.

I yield the floor and thank all of my colleagues who were patient while I expressed my views.

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