American Jobs Creation Act of 2004 - Conference Report

CONGRESSIONAL RECORD
SENATE
Oct. 10, 2004

AMERICAN JOBS CREATION ACT OF 2004-CONFERENCE REPORT

Mr. GRASSLEY. I yield myself as much time as I may consume.

The PRESIDENT pro tempore. The Senator is recognized.

Mr. GRASSLEY. Mr. President, there are several antifraud provisions in this conference report. Most of the focus in the media has been on the tax benefits of this legislation, but an extremely important aspect of the bill is how it closes giant corporate tax loopholes. This legislation, by closing them, obviously is going to bring revenue into the Federal Treasury that is otherwise just going into the treasuries of corporations.

This legislation includes Enron reforms that Members have been pushing for since Enron was exposed 3 years ago. Don't forget, for about 5 or 6 years before that, before the year 2001, Enron was doing their dirty work. But we finally got it exposed in 2001, and we have been taking some corrective action through corporate governance policies already passed by the Congress, and now we are taking action to close the abuse of the Tax Code by Enron-type executives.

It is a little ironic that many of those same Senators who have demagogged the Enron scandal are now opposing this bill. They seem to be more interested in something that is not in this bill than the very good public policy of cracking down on fraud that is actually in this bill. I am proud of the fact that many of these antifraud measures in this report stemmed from cases that were investigated and exposed by the very capable staff of the Senate Finance Committee. With that staff working for me and staff working for Senator Baucus, along with various whistleblowers and informants, and now with the House of Representatives passing this bill, we are about ready to shut down these Enron-type corporate tax abuses.

This has not been an easy process, but it is a real example of how our perseverance pays off. Back in July of 2001, the Finance Committee staff first discovered what has become known as a huge fraud upon the taxpayers, and that is the fuel tax evasion. This fraud is costing the taxpayers at least $10 billion. So, No. 1, Enron-type fraud, abusive tax shelters; now we are talking about fraud that comes from people not paying the fuel tax on gasoline and diesel fuel that would be then spent on the highways.

The Finance Committee had a very important hearing exposing this type of fuel fraud tax scam. The problem has come to light in more recent prosecutions. One involved an alleged terrorist cell that was skimming off fuel and selling it, using the money for God only knows what. It could have found its way into terrorist activity against the United States.

In another case, in July, prosecutors charged 19 workers at the Miami International Airport with falsely classifying jet fuel as contaminated to avoid paying the fuel tax. They would then sell it on the sly, stealing 2.7 million gallons of fuel.

Another tax scam that my staff uncovered involves what is known as service-in/lease-out, or SILO. These schemes were discovered by a Finance Committee major hearing, showing these fraudulent arrangements are put together by high-priced lawyers and accountants. In these scams, companies actually lease public works systems such as subways and sewers from cities, and then turn right around and lease them back to the same cities. The cities get upfront money, presumably under the argument that their municipal treasuries can use it, particularly in times when the economy is down. But here is what happens: The cities get a little bit of upfront money, but the companies get millions of dollars of tax writeoffs. So the taxpayer is left holding an empty bag under this scheme.

That sounds unbelievable, doesn't it? But it is true. The bill we are about to vote on puts a stop to this and saves the taxpayers over $27 billion.

Let me also note that we have provisions in this bill that address other abuses, significant abuses in the donation of intellectual property, as well as the donations of cars.

Corporations have been reducing their tax bills by hundreds of millions of dollars each year by taking intellectual property of little to no value and donating it to charity. This legislation ends this abuse by corporations while still encouraging the donation of legitimate intellectual property that has real value for actual development.

We also ended the shady tax practice of people providing some junker cars to a charity and claiming thousands for it off their individual income tax.

The reforms in this legislation will place no additional burden on the donor, will not reduce the amount going to charities from the donated car by a single dime, and will benefit all taxpayers by ending this abusive scheme.

There has been noise coming from a few that this reform shouldn't have been done on this bill. A lot of that noise is not coming from charities but from middlemen who are the ones who really make the profit off of this abuse.

To say we should have delayed this is nonsense. As my comments highlight, it is very difficult and also uncommon for us to have a legislative opportunity to address tax shelters and tax abuse.

This bill provides the most sweeping attack on abusive corporate tax shelters in an entire generation of this Congress. So we cannot pass up an opportunity to address an abusive corporate tax situation. It can very well be years before another opportunity presents itself to the Congress to deal with the problem of people not paying their fair share of taxes. Forget about the word "fair share"-just say paying taxes that are due.

These efforts to address abuses in charitable donations are part of an ongoing bipartisan Senate Finance Committee review of nonprofits, something the Democratic ranking member, Senator Baucus, and I are working on together.

I anticipate we will be addressing other areas in the future such as land donations and facade donations based on our investigations of the Nature Conservancy and other land donation organizations.

But I do want to say, since I named some of these organizations, that I think some of these organizations have gotten the message and are making attempts to correct some of the deficiencies in their own operations that abuse the Tax Code.

I am very pleased that in this bill we deal with a situation where executives take corporate aircraft for personal travel. Legislation in this bill will put significant limitations on corporations being able to write off such high living.

Again, based on the work of the Finance Committee, we were able to ground a good number of these high-flying corporate executives. The Finance Committee initially placed limitations to deal with abuses that were seen in the Virgin Islands and other U.S. territories. There were many people going down there to the Virgin Islands to not only get a tan but also to avoid the taxman.

I am pleased that, working with Treasury and working with the Ways and Means Committee of the other body, we were able to further tighten these limitations to address the tax problems we are seeing down there in the sunny islands of the Caribbean.

Finally, I am glad that in the conference committee we were able to adopt the Finance Committee's proposal championed by Senator Nickles to end the SUV deduction for businesses. Senator Nickles also was right when he said it would be an embarrassment if we couldn't deal with this abuse, and we did. That is around $50 billion of fraud which the Finance Committee uncovered, pursued, and that is in this bill. That doesn't count the billions of dollars which I considered abuse but which the House of Representatives must not have considered abuse because they wouldn't agree to putting it in this bill. But I am going to continue to deal with corporate abuse.

I made this statement to the leaders of the Ways and Means Committee in our conference committee. I offered amendments to go further than this conference report goes. The House conferees refused, but I made clear that where these corporate abuses aren't adequately handled and dealt with in this conference report, that come January I intend, if I am chairman of the committee, to pursue more closing of corporate tax abuses. If I am not chairman, Senator Baucus will be chairman, and I think, although I shouldn't speak for him, he is as committed to this as I am because we have had 2 good years of working together on this issue.

The taxpayers are getting their money's worth out of this Senate Finance Committee. They are entitled to get more of their money's worth out of Senate Finance Committee when we continue to clamp down on these corporate tax abuses.

The Constitution may say that revenue measures have to start in the House, but the fact is, they are being created in the Senate by closing loopholes and cracking down on fraud and abuse.

I thank the House of Representatives, and particularly the cooperative working arrangement we had on this conference report with Chairman Thomas of the House Ways and Means Committee in getting as far as we have in closing down these corporate tax abuses.

The Senate Finance Committee has been so successful in rooting out tax fraud. We have more and more information coming to us over the transom about newer, more crooked and creative scams being cooked up out there in the underworld of tax shelters. All I can say to this underworld is, watch out, because we are coming after you.

I yield the floor.
BREAK IN TEXT

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

The PRESIDENT pro tempore. Without objection, it is so ordered.

The Senator from Iowa is recognized.

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

Ms. LANDRIEU. Reserving the right to object.

The PRESIDENT pro tempore. The Senator has control of 13 minutes 25 seconds. There is no right to object.

Ms. LANDRIEU. Thank you.

Mr. GRASSLEY. Mr. President, for this entire year I have come to the floor many times to tell my colleagues all the reasons this conference report is a must-pass piece of legislation. I have talked about trade and I have talked about tariffs. I have talked about the necessity of stopping outsourcing, lowering the cost of capital to our corporations so they can be more competitive in international competition, keeping jobs in America, reducing that cost of capital, as this bill does, by reducing the corporate tax rate for manufacturing in America-a direct incentive to produce here rather than producing overseas.

Now, that is what the main part of this bill is all about, but it has some other aspects to it. I want to talk about $24 billion-$24 billion-that may be gone forever if we do not pass this bill; $24 billion to go into the highway trust fund. I do not serve on the committee that expends the money from the highway trust fund. I do serve on the committee, the Finance Committee, that provides how much gas tax we should have and other moneys that go into the highway trust fund. But for those who do deal daily with the highway trust fund, this $24 billion is the biggest single increase in highway trust fund income in over 6 years.

Now, where does the $24 billion come from? It does not come from new taxes. Instead, we overhaul an outdated excise tax system to address our Nation's increased use of renewable fuels, such as ethanol.
In addition to overhauling the excise tax system that is outdated, we crack down on big-time fuel fraud to make sure that bad guys are not robbing our States of their much-needed highway money. But the only way we can get all of that money is if we pass this bill, and do it right now, because that will bring $24 billion into the trust fund-the only way.

You have to put the money into the trust fund today to build roads tomorrow. And you cannot start collecting any new money until we change these outdated rules that keep this $24 billion from going into the road fund. All of the Senators who are filibustering this bill are costing every State new highway dollars.

To put this in perspective, my home State of Iowa, as an example, under this bill could get an additional $900 million over 6 years, but only if we pass this bill this year. So anybody from the State of Iowa voting in the Congress of the United States ought to know if they vote no on this bill that they are costing the State of Iowa $900 million. Even if we postponed the rule changes until we pass a highway bill now, which is not going to be passed until next year, Iowa will still lose $140 million forever-never get that back.

How many roads can Iowa build with $900 million? How many bridges can we repair with $900 million? I do not know why any Senator would jeopardize the safety of every citizen in his State by failing to pass the highway trust fund.

There are other Senators who do not want to put money in the bank today so we can build the roads for tomorrow. Every Senator, of course, has their right to vote as they please, but every State also has the right to know what that vote will cost the highway bill and what it will cost their State.

Let's look at California. They are going to be big winners in this VEETC and fuel fraud reform that is in this legislation. The estimated increase in California's highway revenue is over $2 billion-$2 billion of new highway money. But the only way to get the full benefit of the estimate is to pass this bill now. So I would ask the California Senators to look at this legislation, put the money in the bank today, and then build roads tomorrow.

Illinois would be a big loser if Members of that delegation would vote no on cloture and no on this bill. The Illinois Department of Transportation knows exactly what they would lose if this bill does not pass. It is close to $3 billion. That $3 billion can be put in the trust fund today to build roads tomorrow.

I would hope no one comes whining to me as chairman of the Senate Finance Committee next year that we do not have enough money to fund the highway bill, especially when you have an opportunity-right here today-handed to you on a silver platter to put $24 billion into the highway trust fund, more money for your States. And you ought to consider that not a silver platter, you ought to see that as some sort of a golden platter, a golden opportunity. But we have Senators who are bound and determined to deny every State department of transportation $24 billion. We never get an opportunity like this to put a package of highway funding together. We may not get this opportunity again.

Vote no today, and every road, bridge, highway construction project is cheated. Vote no today and every highway job not only next year but until the year 2010 will be in jeopardy, running short of money. I do not know if we can ever get this kind of funding package put together again.

Let me suggest to you how tenuous it was on aspects of this. Disagreements between me and the House of Representatives a year ago last summer-not differences involving Democrats and Republicans, differences involving Republicans, between me and the House of Representatives-to get this put together so this money would come into the highway trust fund, so we would take care of this issue of fuel fraud.

The Vice President of the United States intervened to bring a compromise together a year ago last June because, quite frankly, I thought a year ago now we were going to have the highway bill passed, and this was going to be part of the highway bill, to bring this $24 billion into this road fund. You do not get opportunities like that very often. You do not get strokes of luck like that very often to get to where we are today.

Now, the other thing about being where we are today is this bill before us is not a highway bill. The highway bill should have passed, but I guess now it is going to go over until next year. That is not in my area of responsibility, so I am anticipating what other Senators would tell you. But we have the good fortune of people looking very broadly at what is good for America or not good for America, and feeling that this provision of $24 billion into the highway trust fund so we do not lose this revenue-and we have already lost some-we have this opportunity now. We can do it in this JOBS bill as opposed to the highway bill so we don't lose that revenue.

One other thing that is in dispute is why we don't have the regulation of tobacco in this bill. I don't know how the Senate Finance Committee that deals with taxes and trade and Medicare and Medicaid and Social Security and welfare and pensions and Customs and the IRS, all of those things, how we get saddled dealing with an issue that belongs in the Committee on Health or the Committee on Agriculture. But we got it dumped on us.

I don't know why the Health, Education, Labor Committee that has this in their jurisdiction, particularly when Democrats are complaining about it not being in this bill, couldn't have passed that in the year 2001 and 2002 when they controlled that committee. But, no, they dumped this on us. Anyway, we have to deal with it, and it is not in there. It makes some people mad, both Republican and Democrat.

I want everybody to know, even though it should not have been in this bill, I voted for it on the floor of the Senate to hasten this bill along, to put it in here, and I offered it to the House of Representatives that it be included. I didn't offer it; one of my colleagues offered it. But I supported my colleague because I thought regulation of nicotine was legitimate. Now it is not here, and we had a lot of speeches last night and today about it. So I want to speak about that.

I voted for this despite the growing problems that are coming to light about the FDA falling down on its current responsibilities. And my investigative staff has been in the middle of that, of buyouts, as an example, trying to get the FDA to recognize that their scientists are trying to tell us there is some danger out there. And they won't listen to them; in fact, they tried to suppress it. Or antidepressants, as in the case of the FDA scientists raising questions about that and being stomped on for a year until finally the study committee studied it and voted 15 to 8 that there ought to be a warning put on antidepressants for children because they are committing suicide. Yet people want to put more on the back of FDA when they have problems there.

Anyway, that is a whole other issue. The FDA has come under investigation, including my own that I have just talked about, involving Vioxx, as we have been reading about within the last week. It was revealed by my Finance Committee staff that it looked as though the FDA pressured employees to suppress negative findings regarding Vioxx.

In today's paper, we read about what looks like the FDA falling down on the job in regard to the flu vaccine crisis.

So, I hope some around here aren't trying to mislead the American people into thinking that FDA regulation is some kind of panacea for smoking.

I heard one Senator from the other side say that we sided with the tobacco companies when the FDA provision failed. Well that is interesting. That is surely what opponents would like you to think. But, there is a dirty little secret involved here. Or, at least it is a secret vis-a-vis the public.

The fact is, the tobacco companies are divided on whether there should be FDA regulation. In fact, the largest tobacco company actually supports FDA regulation, and has been lobbying heavily and pouring money into the effort to get it.

Why? Well, for one thing, a great deal of its business is overseas, and it will therefore be immune from FDA regulation. This will give it a competitive edge against its competitors. So, the tobacco companies, or at least the biggest one, is much more in favor of FDA regulation than against it.

Therefore, anybody trying to frame this as tobacco versus kids, or tobacco versus health groups, is just flatly misleading the public.

But, even for those of us who pushed for FDA oversight, our legs were cut right out from under us during the negotiations. And guess who cut the legs right of from under us? The leadership of the Democratic Party cut the legs right out from under us. That's who.

The leader of the Democratic party, Senator KERRY, went down to North Carolina to talk to tobacco farmers. Guess what he said. He said he'd support a tobacco buyout with or without FDA regulation.

So, it looks to me like the senior Senator from Massachusetts didn't communicate very well with the junior Senator from Massachusetts-or vice-versa.

Moreover, we had the Democratic Senate Campaign Chairman saying the same thing last week. He said he didn't need FDA regulation with a tobacco buyout.

And, he even had his candidate for the North Carolina Senate seat up here lobbying right over in the conference committee room to get this buyout through, with or without FDA. Can you believe that?

And, to add insult to injury to the Democratic Senators from Massachusetts, and Iowa, the Senate Democratic Leader even signed the conference report.

So, obviously, when the House leadership knew the votes were there in the Senate for a buyout without FDA, they weren't about to agree to it in conference, and there's no way we could have successfully pushed it.

Now, what more does it take from their own leaders to undermine what the Democratic Senators from Iowa and Massachusetts wanted to do? Seems to me they need to get their own house in order before criticizing others.

The PRESIDENT pro tempore. The time of the Senator has expired.

Mr. GRASSLEY. Does that mean all the time we had remaining on this side?

The PRESIDENT pro tempore. The Senator has 15 minutes, but it occurs later in the allocated time.

Mr. GRASSLEY. I thank the Chair.
BREAK IN TEXT

Mr. GRASSLEY. I would be glad to entertain a question from the Senator from Pennsylvania.

Mr. SANTORUM. I believe the purpose of this provision is to determine the amount of permanently reinvested earnings eligible for repatriation in the case in which a company discloses in its applicable financial statements the incremental amount of U.S. tax that would be due on such permanently reinvested earnings if they were repatriated, rather than stating the actual amount of such earnings.

Mr. GRASSLEY. That seems to be an accurate interpretation.

Mr. SANTORUM. It would appear that the formula assumes that the incremental tax so disclosed would be at the full U.S. tax rate of 35 percent. Is it not correct that the amount of U.S. tax disclosed would instead be a lesser amount that takes into account the amount of foreign taxes already imposed with respect to such earnings?

Mr. GRASSLEY. As I read the statute, a 35 percent rate is assumed to apply only when a financial statement fails to show earnings permanently invested outside the U.S. but also includes an amount of tax liability attributable to such earnings. I believe that the formula is intended to produce an amount comparable to what would have been shown if the amount of earnings permanently invested offshore had been set forth on the financial statements. One shortcoming of the formula, which you have identified, is that the financial statements only take into account the incremental U.S. tax liability that would be incurred if the company repatriates its earnings, which would be the 35 percent rate reduced by any foreign tax credits. I think you raise a very good point that Congress should revisit in the future. In the meantime, I encourage the Department of Treasury to consider issuing guidance that permits taxpayers to more accurately reflect the actual amount of earnings permanently invested offshore.

Mr. SANTORUM. I thank the Senator for his insights.
DISTRIBUTION OF FILMS

Mr. BAUCUS. Mr. President, I would like to ask the chairman of the Committee on Finance an additional question regarding the American Jobs Creation Act of 2004.

Mr. GRASSLEY. Mr. President, I would be glad to take a question from the ranking member of the Finance Committee.

Mr. BAUCUS. I want to confirm that footnote 30 of the statement of conferees, relating to the methods and means of distribution of films, should not be read to create a negative inference with respect to the means of distribution of any other qualifying production property.

Mr. GRASSLEY. That is correct. No negative inference was intended.

Mr. BAUCUS. I thank the chairman.
CIVIL RIGHTS TAX RELIEF

Mr. BAUCUS. Mr. President, I congratulate Chairman GRASSLEY for assuring that the conference committee included Section 703, civil rights tax relief, in the conference report. As a member of the conference committee, I was very pleased to support this very important provision, which enjoyed strong bipartisan support among Senate and House colleagues.

As I understand it, the case law with respect to the tax treatment of attorney's fees paid by those that receive settlements or judgments in connection with a claim of unlawful discrimination, a False Claims Act, "Qui Tam," proceeding or similar actions is unclear and that its application was questionable as interpreted by the IRS. Further, it was never the intent of Congress that the attorneys' fees portions of such recoveries should be included in taxable income whether for regular income or alternative minimum tax purposes.

Is it the understanding of the chairman that it was the conferees' intention for Section 703 to clarify the proper interpretation of the prior law, and any settlements prior to the date of enactment should be treated in a manner consistent with such intent?

Mr. GRASSLEY. The Senator is correct. The conferees are acting to make it clear that attorneys' fees and costs in these cases are not taxable income, especially where the plaintiff, or in the case of a Qui Tam proceeding, the relator, never actually receives the portion of the award paid to the attorneys. Despite differing opinions by certain jurisdictions and the IRS, it is my opinion that this is the correct interpretation of the law prior to enactment of Section 703 as it will be going forward. In adopting this provision, Congress is codifying the fair and equitable policy that the tax treatment of settlements or awards made after or prior to the effective date of this provision should be the same. The courts and IRS should not treat attorneys' fees and other costs as taxable income.

As I stated in my May 12, 2004 press release summarizing this and other provisions passed by the Senate as part of S. 1637.

Tax relief gets the headlines, but part of tax relief is tax fairness. It's clearly a fairness issue to make sure people don't have to pay income taxes on income that was never theirs in the first place. That's common sense.

Section 703 will help in well known cases, such as that of Cynthia Spina, an Illinois police officer that secured a settlement in a sexual discrimination case that left her owing $10,000 or more. There are literally dozens of others like her in similar situations and it is my strong belief that the courts and the IRS should apply the guidelines of Section 703 not only after the date of enactment but also to settlements put in place prior to that time.
BREAK IN TEXT

Mr. GRASSLEY. Mr. President, first, this bill passes an ultimate test that any bill has to pass that is of consequence.

This bill passes one of the strictest tests that something must pass in the Senate in order to get something done, and that is, it is bipartisan. It is bipartisan because of the leadership of Senator Baucus, and I thank him.

We have been hearing quite a bit about this legislation. Most of the complaints have been about what is not in the bill. I would like to have those who are complaining to focus on what is in the bill. Everyone needs to know that a vote against cloture is a vote against the items in this bill. This is a recorded vote, for which we will all be held accountable. The conference is closed. The House has voted overwhelmingly for this bill. If this bill does not get cloture, it is a dead bill.

Vote to end the Euro sanctions against U.S. exporters. They are now 12 percent. They will be 17 percent by March. Those sanctions hit farm products, timber, paper, citrus, and manufacturing. There are people being laid off because of these sanctions against our exports. A vote against cloture is a vote to continue the sanctions.

Farms and businesses shoulder this burden because Congress has failed so far to act. The manufacturing tax cut to create jobs in America that is in this bill goes to large and small corporations, family-held S corporations, partnerships, sole proprietorships, farmers, and co-ops. This $76 billion portion of this bill is only for manufacturing in the United States. It is not creating jobs offshore because it does not benefit manufacturing offshore.

Are you going to vote against giving individuals a deduction for the State sales tax against their Federal income tax that is in this bill? This bill is the most comprehensive agricultural, small business, and rural community incentive tax package ever. A vote against cloture is a vote against benefits in this bill that will help value-added agriculture.

The bill contains VEETC; 37 of our 50 States will receive more highway money because of the provisions in this bill. VEETC and this bill's provisions that shut down fuel tax fraud will put over $24 billion into the highway trust fund alone. This provision alone will create 674,000 new jobs across the country. A vote against cloture is a vote against highway money for your State.

A vote against cloture is a vote against highway jobs for construction of highways in your State. The energy package in the bill includes new incentives for biodiesel. This provision means jobs in our heartland, over 150,000 new jobs.

The bill accelerates production of natural gas from Alaska and the construction of a pipeline to carry it to the lower 48 States. This will create nearly 400,000 jobs in construction, trucking, manufacturing, and other sectors.

This bill devotes over $2 billion to section 45, renewable electricity production credit. This was a high priority for Senators BINGAMAN, SMITH, DASCHLE, HATCH, BAUCUS, SNOWE, BREAUX, LINCOLN, CONRAD, BUNNING, and GREGG.

The small business package in this bill extends small business expensing for another 2 years, and contains significant S corporation reforms. S corporation reform has always been a high priority in the Senate because it helps family-owned businesses.

A provision in this bill expands the new markets tax credit to help economic development in rural counties.

We have included also the Civil Rights Tax Fairness Act. We included a National Health Service Corps loan program to enhance the delivery of medical services to rural areas.

The bill provides all these benefits, nearly $140 billion worth, and this is a revenue-neutral bill, which means this bill does not add one dime to the Federal deficit.

It is all paid for by shutting down corporate expatriation to Bermuda, tax shelter leasing abuses by corporations, and ends all the Enron-type tax shelter deals. This is the most tough antitax shelter measure since 1986.

This bill contains some of the most important international tax reforms in decades, bringing foreign earnings home for investment in the United States instead of investing overseas, hence creating jobs in the United States.

We have heard complaints from Senator Landrieu because the bill does not contain her reservist amendment. I would like to make it clear that Senator Baucus and I offered that amendment on her behalf. We came up with a way to pay for that. All Senate conferees, Republican and Democrat, voted for it. The conference was open to the public. There were no backroom deals. The House, the other body, rejected it.

Voting down this bill will not bring back the reservist amendment. The conference is closed.

There is a great deal of good in this bill. We can rescue the manufacturing sector; we can end European Union sanctions on our farmers; we can respond to the recent rise of gas prices by supporting renewable fuels, and we can shut down every known tax abuse. Vote to finish the job. Vote for cloture. It is time to pass this very important bill.

I yield the floor.