Unemployment Compensation Extension

Floor Speech

Mr. SCHUMER. Mr. President, I rise to speak in favor of the unemployment relief expansion that the Senate is poised to pass, hopefully, later today, with broad bipartisan support, although there were, I am sorry to say, some unnecessary delays from the other side.

This bill is vitally important and we could have, and should have, passed it weeks ago. I am relieved to finally see the light at the end of a very long, very dark tunnel that being out of work has caused for hundreds of thousands of American workers who have lost their jobs.

Since we first began considering this vital legislation nearly a month ago, nearly a quarter of a million Americans, and 50,000 New Yorkers have seen their benefits dry up. With each passing day of inaction, tens of thousands of middle-class families have seen their safety net pulled out from under them. So I am glad to see the Senate finally take action.

I think of something that happened to me on Monday. I was rushing to my New York City office in midtown Manhattan. A well-dressed gentleman was obviously waiting at the front door of the office building in which my office is 17 floors up. He was well dressed, in a camel hair coat, and he was well groomed. I could see anxiety in his eyes. He pulled me aside and said, ``Senator, I have been waiting for you. Can I speak with you for a minute?'' I said, ``I am late for a meeting, so can you walk with me?'' He said to me again, ``I would like to ask you a question. When will you pass an unemployment benefit extension? I have a lot of friends who are asking.'' I sort of knew what was happening. Of course, he was a man who was obviously middle class, and maybe more, who had lost his job and could not find his benefits. He was too proud to ask me for himself, so he asked me for others.

It hit home to me that New Yorkers of all backgrounds and economic levels and all parts of our State are out of work through no fault of their own. They are desperately looking for jobs, and not enough of those jobs have come back. Our job is to help them. That is what this bill does. I am glad to see the Senate finally take action.

The bill will also extend the home buyer tax credit for 7 months, which I support, and it will provide for a 5-year carryback of net operating losses, or NOLs.

The main focus of my remarks today is on this last provision, since one of the important effects of this NOL part of the legislation will be to provide much needed and deserved tax relief and, in too many cases, the money needed to survive to thousands of Americans who were lured into Ponzi schemes such as Bernie Madoff's and have lost everything. These evil schemes hurt so many people.

When we hear about the Madoff investors, we hear a lot about celebrities who lost hundreds of millions. But for every wealthy individual, there are hundreds, if not thousands, of people not at all of wealth who had their retirement savings stolen from them. They trusted Madoff or their investment adviser who put their money with Madoff. Now these poor folks have lost everything. In many ways, these average people are worse off than the people who lost many times as much, because so many--too many--of these smaller victims lost everything.

As you know, many of them are in New York, because Bernie Madoff was located there. I want to explain to my colleagues how what we are doing today helps the little guy, the average person, who saved for their retirement and now finds, at age 60, 65, or 70, that their retirement savings are gone. Everything they have worked for their whole life has been stolen from them. In many cases, the victims are destitute and have nothing to live on. They saved their money for years. They got statements and confirmations and 1099 forms that looked real. The SEC had checked out Madoff and said everything was fine. The victims did everything right. They played by the rules, and then their future financial security evaporated before their eyes on December 11 of last year.

Here is what we are doing to try to help those thousands of smaller investors. There are basically two types of Madoff investors, leaving out the charities and pension funds that were also decimated. There are the direct investors, who knew Madoff and invested directly with him. Then there are the indirect investors, who went through someone they knew or an investment advisor called ``feeder fund'' investors. In general, direct investors tend to be the bigger investors, the wealthy who had personal relationships with Madoff. The indirect investors are the folks who tend to have a lower net worth, and a lot of them are elderly people who saved all their lives, and suddenly they are destitute. Many gave their money to somebody they trusted, such as an investment advisor, and didn't even know their money was invested with Bernie Madoff.

When the IRS issued a revenue ruling in April, which I urged them to do, the ruling simplified and clarified the rules under which a direct investor could take a theft loss deduction for their Madoff losses, by saying that theft losses could be treated as NOLs, as if the individual investors were small businesses. Direct investors were allowed to ``carry back'' their losses for 5 years instead of 3 and carry forward any remaining losses for up to 20 years. A longer carryback is important because it allows the investor to recoup some of those losses and put cash in their pockets.

But investors in a ``small business'' with more than $15 million in assets could not qualify for this relief. As a result, the IRS guidance was of help only to direct investors because the feeder funds that had the money of thousands of smaller investors were usually worth more than $15 million. They aggregated lots of little investors and gave one big chunk of money to Madoff. The IRS was sympathetic. They told us it was right to help these people, but they said they needed a change in the law.

I should also add that the indirect investors are also not eligible for the $500,000 of relief from the Security Investor Protection Corporation, or SIPC, so they have been hit by a double whammy: They are the smaller people usually, and they got shut out of the expanded carryback on the theft losses because the feeder funds of which they were a small part were too big, and they get no SIPC relief either.

The bill we are considering today will allow larger businesses to carry back their NOLs for 5 years. They can offset 100 percent of the income for the first 4 years and 50 percent in the fifth. I have worked hard to ensure that this language is drafted in such a way that the Madoff indirect investors will qualify for the expanded NOL relief, because these individuals will no longer be subject to the ``small business test.''

I believe very strongly that the indirect and direct investors should be treated equally. I tried to amend the bill so that those who are victims of theft losses from fraudulent investment schemes could get the full 100 percent in the fifth year. I particularly thank the chairman of the Finance Committee, Senator Baucus, and his staff, for being receptive to this, and for working with my very capable staff to make it happen. I believe we could have added this to the bill if we could have gotten it scored in the compressed timetable that we had had.

I will continue to work with the Finance Committee and the Joint Committee on Tax and the victims advocates to get the necessary data so that future tax relief for Ponzi scheme victims can be considered by the full Senate, and not stalled by unrelated scoring issues.

The action we are taking today will help millions of unemployed, thousands of home buyers, and many large corporations that need the refunds to improve their cash flow and make new investments, and that is hugely important. But I also wanted to explain how what we are doing today will help provide some modest assistance to thousands of people whose life savings were stolen from them 11 months ago.

The victims haven't been sure where to turn, but I assure them that they have allies in the Senate, including the chairman of the committee and myself. We hear them, and we are doing everything we can to help right these wrongs and at least make up for some of the evil done by Bernie Madoff.

I yield the floor.

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