Mr. President, last evening at 8:30, the Senate assembled as a body to proceed to the House Chamber to sit together as one Congress. We did so because every year about this time, we meet to hear the…
Mr. President, last evening at 8:30, the Senate assembled as a body to proceed to the House
Chamber to sit together as one Congress. We did so because every year about this time, we meet to hear the President deliver his State of the Union Address. We also meet together in the House--all Members of the Senate and Members of the House of Representatives--for an address to the Congress, for example, by a foreign leader. We did so for the address last July by the Prime Minister of India. But it is the exception rather than the rule when the House and Senate sit together.
Our country's Founding Fathers, in their wisdom, created a bicameral legislative branch; that is, the House and Senate separately. Carrying into practice the ideas of Montesquieu and Madison, our Constitution creates a very separate House of Representatives and Senate, two totally, entirely different bodies.
Oftentimes when confronted with the same task, the House and the Senate come to very different solutions. That is certainly the case with the bill before us today, the tax reconciliation bill.
We have something called a budget resolution which we take up every year. That resolution gave the House and the Senate the same task. On April 28 of last year, the Congress adopted that resolution, and the conference report was adopted by a narrow margin of 52 votes. That budget resolution instructed both the House Ways and Means Committee and the Senate Finance Committee to report legislation that would cut taxes by a net of $70 billion.
Underlying that budget resolution was the assumption that the two committees--the Ways and Means Committee in the House and the Finance Committee in the Senate--could cut taxes on capital gains, cut taxes on dividends, prevent tax increases by virtue of the alternative minimum tax, otherwise known as the AMT, and extend a series of expiring tax provisions.
The chairmen of the Ways and Means Committee and the Finance Committee each set out to do those things, and each of those able chairmen found that it was not easy to assemble the votes to do all of those things. Faced with that reality, faced with that task, the House and the Senate came to very different solutions.
The Senate is a place where Members often work together across party lines. The Senate is a place that often requires a supermajority, which helps encourage Senators to work together. Chairman Grassley, the chairman of the Finance Committee, often works with me, the senior Democrat. We meet together every Tuesday the Senate is in session, and I might say, those Tuesday meetings are terrific. We get an awful lot done at those weekly meetings. It is essentially bipartisan, working together to get solutions.
Last year, Chairman Grassley worked together with many Democrats and produced the Senate's version of the reconciliation bill. The Senate reconciliation bill included continued alternative minimum tax relief. The Senate bill included extensions of expiring tax provisions. The Senate bill, however, did not include capital gains and dividends tax cuts. And the Senate included offsets--that is some increases, basically the so-called loophole closers--to pay for some of the bill.
In keeping with the traditions of the Senate, that was also a consensus solution, because in November of last year the Senate passed a bill with 64 votes.
Contrast that with the House of Representatives, which took a different path. The House is a body where the majority rules. There is no requirement of supermajority. And often the majority rules absolutely. It is often a place where the slimmest of majorities rules. Some on the House side of the Capitol, I believe, too conveniently and inappropriately believe any votes more than needed for a majority are wasted votes. That is a mistake. But that is the House. That is their decision.
When the House considered this tax bill that is under the same instructions the Senate considered it, the House did something different. It did include capital gains and dividend tax cuts. The House did not, however, include AMT relief as contained in the Senate bill. And the House bill did not include any offsets to pay for any of the bill for them.
In keeping with the House traditions, that was a partisan solution. In December of last year, the House passed that bill with 234 votes, 16 more than the 218 needed to pass the bill.
Confronted with the very same task, the House and Senate came to very different solutions. At the heart of this debate today is the difference between alternative minimum tax protection for working families and capital gains tax cuts for investors.
What is AMT, alternative minimum tax? For 17 million American families the year 2006 came in with an unwelcome surprise; that is, a stealth tax, a new tax, an additional tax called AMT. The temporary protection from the AMT expired on December 31 of last year. That means 17 million more American families will be subject to this additional tax in the tax year 2006. That is an increase from 3 million people to 20 million people in 1 year alone. Three million last year paid it. This next year, if Congress does not act, 20 million Americans will be paying the additional AMT stealth tax.
Many families will not see this higher tax bill until later this year or next April. But saying, Don't worry, we will fix it, probably will not reassure those families when they hear there is nothing--that is right, nothing--in the House bill to fix the alternative minimum tax; that is prevent that tax from going into effect. The House tax reconciliation bill before us today chooses to extend capital gains and dividends cuts. However, those tax cuts do not expire until January 2009. AMT protection expired 3 weeks ago. That is why I urge my colleagues to reject the House solution and insist on the Senate version, remembering we have an enforcer here, a limitation of $70 billion. We cannot lower taxes in the net, the aggregate, more than $70 billion, so it is almost impossible to do all the provisions lowering taxes so many Members have in mind. We have to choose.
I think the better choice is to prevent the tax going into effect next year rather than worrying about a tax increase that may go into effect in the year 2009. We do not have the luxury to do it all right now, today.
The House proposal says the extension of capital gains and dividends tax cuts is a priority over AMT. If that House proposal fails, then taxpayers will have reason to worry. If Congress does not extend the alternative minimum tax protection, then the AMT will hit a family with three children earning $63,000 this year. The AMT is a family- unfriendly tax and the AMT creeps deeper and deeper into the middle class each year. Protection from the AMT should be a priority for all in both Houses of Congress, and especially for the American people.
Instead, however, the House has passed a separate AMT bill that is outside the context of the budget resolution. That bill does not have the procedural protections of this reconciliation bill. This other House bill purports to protect families from the AMT, but under that other House bill there would still be 600,000 additional taxpayers paying higher taxes next year due to this stealth AMT tax.
Some called the House AMT tax a hold-harmless provision, but that provision does not hold everyone harmless. Under existing tax law, 3.6 million American taxpayers paid this alternative minimum tax in 2005. Under the House bill, 4.2 million taxpayers would pay the alternative minimum tax in 2006, an increase of 600,000 taxpayers and an increase I hope we can avoid. The House gave alternative minimum tax relief second-class status--not first-class status, second class, although it expired last year. Not only that, the House bill pokes a hole in the patch. Instead, this House bill allocates $50 billion over the next 10 years in order to extend for 2 years the capital gains and dividends tax cuts--again reminding all present, Senators especially, that need not be done because the current provision with respect to dividends and capital gains, that is the provision that was in effect last year, is also in effect next year and the next year up until, as I mentioned, January 1, 2009.
In summary, I think it makes sense for us to reject the House solution. Let us remember what our priorities are, especially the priorities of the American people, given the limitations we have in the budget reconciliation instructions, and let us protect the millions of working families now subject
to a tax increase courtesy of the alternative minimum tax.
Sounds good.
Madam President, I must say it is delightful to listen to the Senator from Mississippi. I wish sometimes he could come to the floor more often. He makes a good point, that we have to work together. And we all know that we try hard to work together. At the same time, Senators have the right to offer amendments. We will work together the very best we can.
I want to say how much I appreciate the comments he made and how much I appreciate the addition he is making to the discussion.
As I noted in my opening statement, one of the weightiest differences between the underlying House bill and the pending Senate substitute before us is that the House bill includes capital gains and dividend tax cuts. The Senate didn't include them. The Senate chose instead to favor AMT protection for working families. We couldn't do both. The Senate chose to apply the AMT relief.
There are several reasons the Senate did not include the capital gains and dividend tax cuts. One among the many good reasons is that the Senate's rules make them hard to include.
In a moment, I will propound a series of parliamentary inquiries to the Presiding Officer on this point. But let me first take a moment to explain.
The Senate's Byrd rule--actually, we know there are several Byrd rules--section 313 of the Congressional Budget Act contains what a reconciliation bill can include. The rule is named after the distinguished senior Senator from West Virginia. Senator Byrd and those who joined him in writing the Byrd rule recognized that the budget reconciliation process is a powerful engine. And the Byrd rule keeps reconciliation bills more on the purpose for which they were intended.
One subparagraph of the Byrd rule deals with the worsening deficit in the outyears; that is, years beyond the budget resolution. Section 313(b)(1)(E) of the Budget Act says that a provision is out of order if the title that includes it would worsen the deficit for any future fiscal year after the fiscal years covered by the reconciliation bill. The provision was designed to prohibit legislation that would make our deficit problem worse by hiding the costs in the future.
The capital gains provision in the House bill is one such provision. The dividend provision in the House bill is another. The capital gains provision in the House bill would worsen the deficit by close to $13 billion in fiscal year 2012 alone. This is because lower capital gains tax rates in the short run will induce holders of property to sell their assets earlier than they otherwise would have. As a result, the U.S. Treasury may realize some increased revenues in the short run as property holders pay capital gains on those sales. But the Treasury will lose revenue in the long run because the property holders will not sell that asset at the later time which they otherwise would have sold the asset. And the Treasury will also lose revenue in the long run because the Government will tax capital gains at a lower rate.
A similar phenomenon takes place with dividend tax cuts. The dividend
tax cuts in the House tax bill would worsen the deficit by more than $9 billion in 2011 alone.
I have been citing numbers provided by the Joint Committee on Taxation.
I ask unanimous consent that the full table setting forth the Joint Committee's estimated revenue effects of the House bill be printed in the Record.
Madam President, under the Budget Act, the Budget Committee is the authority on scoring matters. Section 312(a) of the Budget Act provides in relevant part that ``the levels of . . . revenues for a fiscal year shall be determined on the basis of estimates made by the Committee on the Budget . . . the Senate, as applicable.''
In practice, this means that the Presiding Officer will turn to the chair of the Budget Committee for projections of dollars and cents effects of the legislation. In practice, the chair of the Budget Committee tends to rely on the Joint Committee on Taxation for revenue estimates.
I have let the chairman of the Budget Committee know that I was going to propound this inquiry. I believe the chairman of the Budget Committee concurs that the Joint Committee on Taxation estimates that I have just cited are authoritative.
I have a series of parliamentary inquiries. Is it not true that by virtue of section 313(b)(1)(E) of the Budget Act, section 313(b)(1)(E) of the act--part of the Byrd rule--applies to conference reports?
Madam President, if the conference committee on the legislation before us today were to return a conference report that included the capital gains and dividends tax cut provisions in the underlying House bill before us today, is it not true that a point of order would lie under section 313(b)(1)(E) of the Budget Act against both of those provisions?
Madam President, if a Senator raised that point of order against the provisions just cited, and the Presiding Officer sustained the point of order, is it not true that the offending provisions would be deemed stricken from the conference report and the Senate would then have before it an amendment between the Houses consisting of the rest of the conference report not so stricken?
Madam President, is it not true that a motion to waive a point of order raised under that section of the Budget Act or an appeal of the ruling of the Chair under that section would require the affirmative vote of 60 Senators to succeed?
Thank you, Madam President.
I believe this set of inquiries has established an important point. The capital gains and dividend provisions in the House bill worsen the deficit in the outyears. The conference committee thus must remove those provisions from the bill, pay for them in the outyears, or plan for needing 60 votes to waive the violation of the Budget Act. Those are the alternatives.
I might note that in the waning days of the last session, the Senate demonstrated that it is capable of employing the Byrd rule against reconciliation conference reports. For example, Senator Conrad raised a point of order under the Byrd rule against several provisions in the spending reconciliation bill, and the Presiding Officer sustained the points of order under the Byrd rule. That is why the House of Representatives, this very day, in 2 or 3 hours, is voting on that spending reconciliation bill again.
So there are good reasons for the conference committee on this bill not to include the capital gains and dividend tax cuts the House bill includes. One of those good reasons is the Senate rules.
I yield the floor.
Madam President, I very much thank my good friend from North Dakota. More than any other Senator, he is constantly reminding Members that our budget deficit is getting out of control. It is a message I wish more Senators and the public would heed. I hear the problem constantly.
I was in India and China for 10 days earlier this month. We all travel overseas, and we all talk to the leaders privately and publicly worldwide. I heard this constantly. We Americans have to get our fiscal house in order. We have to do it right away. The earlier we begin the better. There is no doubt, all mainstream economists agree, after a while it makes it very difficult for the United States to compete, and we have such a low savings rate, our national savings rate and our personal savings rate.
I thank the Senator again. I want him to know how much I appreciate all he is doing to try to get some attention to this very important subject.
Madam President, our personal savings rates are negative. We consume more than we save in America
today. Our national savings rate is low today because our fiscal deficit is so high. Corporate and private debt is high.
We have a great country, no doubt about that, a wonderful country. I am saying as clearly as I can say it, we run a great risk as a country of squandering what we now have as Americans if we do not, sooner rather than later, get our act together and get the deficits down. I am not being partisan.
It was not too many years ago we had projected surpluses. President Clinton bit the bullet. It was tough, very tough. He sent a budget to the Congress which included spending cuts and included some revenue increases only on the most wealthy. It was 50-50, 50 percent revenue cuts and 50 percent revenue raises on only the top 2 percent income earners in America, and it got through the Congress, one vote in each body.
Guess what. As a consequence, we projected surpluses, about $5 trillion in surplus over the following 10 years. I know that gave a great boost of confidence to businesses, to investors, that we would have a surplus in America, that we would be a strong country. It did not adversely affect the overall economic factors we face today.
With that huge deficit, I remind everyone, who is financing the deficit? Foreigners. Foreign governments by and large are financing this deficit. China's reserves at the end of the year will be $1 trillion, surpassing Japan's foreign reserves. They are building up their bank accounts to such a great degree, loaning dollars to the United States with treasuries and other instruments. They are financing this.
We have to begin to get this budget deficit down right away. There is no alternative. The sooner we begin the better. I thank the Senator from North Dakota and others who are working very hard to try to get the job done and get our budget deficits reduced.
The Senate is now considering, to remind my colleagues, the House tax reconciliation bill, the bill before the Senate now. The Senate substitute is not yet pending. Thus, I encourage Senators who wish to speak on the tax provisions--that is, the House bill before the Senate--to come to the floor and deliver their statements. At some point in midafternoon we expect the majority leader or the assistant majority leader to offer the Senate substitute and the Grassley-Baucus perfecting amendment, essentially taking the House bill before the Senate now and substituting the Senate-passed reconciliation bill. We hope the Senate will adopt the Grassley-Baucus perfecting amendment by voice vote. Thereafter, I encourage tax-related amendments.
Just to review the situation now, this is a good time to make statements on the bill. I also encourage Senators who have tax-related amendments to offer those first. I would like the tax-related amendments brought before the Senate, debated, and dealt with. Afterwards, we can deal with the non-tax-related amendments, amendments which will be nongermane and, if offered, against which points of order will be made, we are in a 60-vote situation.
That is where we are today. It is Wednesday noon. We have a total of 20 hours on the whole bill. I am hopeful we will not have to use that 20 hours, but it is 20 hours. The clock is ticking. I urge Senators to come to the Senate now.
Like the budget deficit, earlier is better than later. Senators can offer their amendments now, and they have a better chance of getting full debate. Later, they probably will get squeezed.
I yield the floor.
Mr. President, I yield 15 minutes to the Senator from New York.
Mr. President, I yield 10 minutes to the Senator from New York.
Mr. President, on another matter, I am speaking now because we are waiting for the Senator from North Dakota. I ask unanimous consent to speak as in morning business.
Mr. President, I rise in support of our National Guard, and I want to express my serious concern for their future.
The National Guard comprises only 45 percent of the entire Department of Defense budget, yet next week when the President's budget and the Quadrennial Defense Review are presented to Congress, the Guard's force structure may be dangerously reduced. There is a grave national security danger in doing this, and quite simply, it just does not make sense.
Last night in his State of the Union Address, the President stated that ``we remain on the offensive in Afghanistan and Iraq.'' At a time when we cannot forsee any cutbacks in our military commitments at home and abroad, why are we proposing cutbacks in our National Guard?
The Guard is now fighting overseas in unprecedented numbers. In the global war on terrorism, over 50 percent of the land combat forces in Iraq are Army National Guard and over 85 percent of available Army National Guard units have been mobilized. The Air National Guard is providing over 50 percent airlift capability.
Since September 11, 2001, about 80 percent of Montana's National Guard members have been deployed to the Middle East, some of them more than once. Our guardsmen have never failed a mission. In fact, they have gone above and beyond, and they have fought with maturity and experience.
Reports estimate that the Department of Defense will be carrying out across-the-board cuts of up to 26,000 Guard personnel. On January 18, the Secretary of the Army confirmed that DoD has proposed making cuts to the number of brigade combat teams. Their ground units are in Pennsylvania, North Carolina, Washington State, Tennessee, Mississippi, Louisiana, Minnesota and Idaho.
In Montana, the National Guard's 1-163rd Infantry Battalion is a subordinate unit of the 116th Brigade Combat Team of the Idaho National Guard. This is one of the units to face troop reduction, and the loss of this unit would mean the loss of 800 of Montana's Army National Guardsmen. That's one third of the Montana Army National Guard.
The Guard predicts that the payroll losses associated with these jobs could reach $15.5 million.
Our Governors and adjutant generals should not have to send guardsmen to war without the security that those troops will have jobs and a future when they return home.
We are treating our guardsmen as active-duty members with full time demands, but not in the benefits that they receive. Let me emphasize the danger that this presents to the volunteerism that has kept our guard going. Montana has a proud tradition of serving our country, and we need the resources of our National Guard.
Montana is a rural, northern border State, and it is crucial that we have our guardsmen to fight fires, support law enforcement, and support homeland security initiatives.
I traveled to the Gulf States days after Hurricane Katrina hit, and I saw first-hand the valuable and unique emergency response capabilities of Montana's guardsmen who had been deployed to the region. The Guard has a dual role, and we must have them available to fulfill these requirements at home.
Last night, regarding Iraq, President Bush said, ``We must stand behind the military in this vital mission.'' The President is a former Governor and National Guardsmen. So I have no doubt that the President is aware of the Guard's immense contribution to our Nation.
I stand behind our military and I support the National Guard Association, the Governors, and the adjutant generals in their opposition to all reductions in National Guard troop structure.
Last week, I joined Senator Ben Nelson, Senator Lindsey Graham, and others from both sides of the aisle as an original cosponsor of a resolution which calls for the Department of Defense to consult the Governors and the TAGs whenever there are decisions to make changes to the Guard. I have joined that National Guard Caucus' letter to Secretary Rumsfeld, and I have sent my own letters to Secretary Rumsfeld and the President.
Last summer, I fought hard on behalf of Montana's 120th Fighter Wing when DoD proposed closing their base. I should not be here again.
Our Air Guard last year won the Air Force Outstanding Unit Award, the Maintenance Effectiveness Award, and the Air Force Security Forces Award, while standing alert and deploying to Iraq. Montana's Army Guard has deployed many times overseas and the 1-163rd Infantry Battalion has just returned from an 18 month deployment in Iraq.
Our brave National Guards men and women join the ranks of many other military personnel and lay their lives on the line to help protect the freedoms we enjoy as Montanans and
Americans. At a time when our Guard is already stretched too thin, we should not be sacrificing manpower. We should be boosting it. The National Guard is the backbone of our armed services, and troop reductions of any kind would be detrimental to the Nation and to my home State of Montana.
While I am waiting for the Senator from North Dakota--he wants to speak for about 35 minutes, and he is the ranking member of the Budget Committee--let me again remind Senators of where we are. Essentially, we are still on the House bill. My sense is that the majority leader, in the not too distant future, will offer the Senate amendment as a substitute. It will include the perfecting amendment by Senator Grassley and myself. It is my hope that the perfecting amendment can be adopted by voice vote. I think it is not controversial. Then we will have before us both bills, the House bill, as well as the Senate substitute amendment. I am not sure how much time remains. We have 20 hours on this bill. But it is my expectation and my hope that Senators will come up quickly and offer amendments.
I might say to my very good friend, the chairman of the committee, we face an alternative. Frankly, I hope we can work this out in a way that is amicable to Senators. We have two options. One option is to fill a tree; that is, prevent any amendments from coming up until we get to the expiration of the 20 hours. At that point, Senators can offer amendments because when you get off the bill and pass the bill, we have to start taking down the tree.
When the tree starts coming down, amendments come down, and Senators can offer amendments then. Although we will be in a vote-arama situation, time will not have expired for the purpose of offering amendments. Senators will still be able to offer amendments. The question is, Is it better all the way around to have the tree filled and offer those amendments when we get to the so-called vote-arama, or is it better to let Senators offer their amendments earlier and accommodate Senators a little more because we are going to get the 20 hours one way or the other?
It is my thought that probably if Senators are allowed to offer amendments earlier on--that is, the tree is not filled up--and there is an accommodation made to Senators who are going to offer amendments anyway, that we may be able to proceed more expeditiously because Senators will be accommodated and won't be upset and so forth. On the other hand, if the tree is filled and Senators are not allowed to offer amendments until afterward--I don't know this; I am just saying this because it is a possibility or speculation--that Senators may say: I was denied my opportunity, and I can't offer it now. They didn't give me an opportunity to offer my amendment. Maybe he wasn't going to offer it anyway.
I raise that question for the majority to think about as we decide how to proceed on this bill. Many Senators have come up to me and said they wanted to offer an amendment. That is a Senator's right. I have said to them I understand that, but I am not sure when they will be able to offer them. They will be able to anyway, but the question is whether they will be able to do it earlier or later. I know that is not a decision that is going to be decided at this point, but it is a decision I think we are going to have to deal with. My general view is it is better to work with people than not. Generally, if you work with people, you are more likely to get matters resolved more expeditiously and more amicably. I raise that point for the consideration of all concerned.
No negotiation goes on higher than the chairman of the Finance Committee.
Mr. President, my good friend makes a very good point. I had a chuckle to myself because, I say to my friend, I am not even aware of all of the amendments. The Senators don't come to me, frankly, as I would like them to. It makes it difficult to decide some of these issues. The Senator makes a good point. Over the next hour and a half or so, let's sit down and see what we can do to work out a list the best we can to get a sense of things so that we can proceed more expeditiously.
Mr. President, I yield up to 35 minutes to the Senator from North Dakota, the ranking member of the Budget Committee.
Mr. President, I yield 15 minutes to the Senator from Massachusetts.
Mr. President, I listened with great attention to my good friend from Iowa. I feel very lucky to have him as chairman of my committee. I don't know any Member who is more decent and fair and in a certain sense nonpartisan than the Senator from Iowa. I deeply appreciate his approach and friendship.
I think he knows no one is trying to delay anything. This is the Senate, after all. The Senators on both sides of the aisle have the opportunity to offer amendments. That is why we are Senators. We can offer amendments to bills. Sometimes one political party is in the majority and sometimes the other party is in the majority. As the Senator knows, it goes back and forth. I remember years when the party on the Senator's side of the aisle was in the minority, and my Lord, we faced all kinds of amendments because Senators wished to offer amendments to their points of view.
We are here today trying to work our way through. I have instructed Senators on the Democratic side of the aisle to tell me all the amendments Members have and we will work our way through this so we can be more than accommodating to the Senator from Iowa.
My view is to lay all your cards on the table so people know what they are. As civil and reasonable people we will figure out a reasonable way to deal with this. We all know the rules. We will let Senators offer their amendments in a way that is civil, positive, and accommodating--nothing personal. These are legitimate points of view that 100 Senators have. I hope to get the list to the Senator from Iowa very quickly so we can work that out.
I yield 10 minutes to our new Member, Senator Menendez, from New Jersey. We are honored to have him here.
Madam President, I yield 5 minutes to the Senator from Florida.
Madam President, I suggest the absence of a quorum.
Madam President, I ask unanimous consent that the order for the quorum call be rescinded.
Madam President, I wish to make the very simple but very important point that given the choice, given the alternative between an extension of dividend and capital gains tax provisions compared with the AMT change, it is far better for this Congress to grant the alternative minimum tax relief than it is to grant an extension of the dividend and capital gains tax reduction.
First of all, the current law provides, under what is called the alternative minimum tax--which taxpayers who have certain incomes will pay, basically middle-income taxpayers--that this year they will be paying more taxes if we do not change the law. And 17 million Americans will be paying more taxes than they would pay under an ordinary calculation of their income under the Tax Code.
To say the same thing differently, because of this provision called the alternative minimum tax, 17 million more Americans will be paying more taxes--actually 20 million. Three million Americans this last year paid more taxes because they fell under the alternative minimum tax. Next year, if we do not make changes for tax year 2006, 17 million more will be paying it, for a total of 20 million. If we do not make these changes, 20 million Americans will be paying increased taxes next year, and those 20 million are essentially middle-income taxpayers.
To contrast that with dividend and capital gains, current law provides for lower dividend and capital gains taxation. That law extends, if we do nothing, for 2 more years, until essentially January 1, 2009.
So we have a choice here, all things being equal. We have a choice generally because we have a $70 billion floor. The budget resolution says we cannot pass more than $70 billion of tax cuts unless we want to override that with 60 votes. We have that floor, and it is hard to do everything. It is hard to have a capital gains extension,
and it is hard to have an AMT extension. But basically we have the choice of either preventing a tax increase this year under AMT or extending dividends and capital gains, which need not be extended because currently the favorable dividends and capital gains is already in law and does not expire until January 2009.
The alternative is to extend capital gains and dividends from January 1, 2009, for 2 more years and do nothing to AMT. Or do we say, that's not very smart, we will deal with a dividends and capital gains extension later. Or do we, instead say, we are not going to extend something that does not need to be extended but rather we will reduce the AMT bite for this year. To say it differently, will we prevent the implementation of the alternative minimum tax this year, which has the effect of raising people's taxes? That is the question.
The Senate bill answered that question by saying, it makes more sense to prevent the AMT from going into effect this year than it does to extend dividends and capital gains which doesn't have to be extended anyway for the reasons I indicated.
The House bill, on the other hand, looks at that exact opposite. The House bill says, we are not going to prevent the increase of the alternative minimum tax this year. They are going to allow that to go ahead. Rather, they are saying, we want to extend dividends and capital gains favorable treatment, even though current law gives that treatment and it is going to be in law until January 1, 2009. That is what the House did.
There were some on the Senate floor earlier today who said: Gee, the House bill is better. Why? The argument is, without addressing the timing issue, because AMT relief is only for wealthy Americans. That is the argument. Whereas a dividends-and-cap-gains extension gives favorable tax treatment to a lot broader base and maybe middle-income Americans because a lot of people have mutual funds and own stocks and so forth. So, really, if you are going to help middle America, basically it is better to extend dividends and capital gains than it is to pass AMT relief, although we don't have to anyway because current law provides those benefits.
I would like to show with this chart a little bit about what AMT actually does to rebut that point. The facts show that AMT relief helps middle-income taxpayers a lot more than does favorable dividend and capital gains treatment. I will show that with a couple other charts.
This first chart basically shows income levels where the alternative minimum tax starts to take hold. To remind everyone, taxpayers have to make two calculations when calculating their income taxes. One is the regular way. You look at your deductions, decide whether you have the standard deduction or itemized deductions. That is the standard, ordinary way.
After a taxpayer has calculated his or her income taxes, every taxpayer has to then go through a separate set of calculations. It is called the alternative minimum tax. Under that separate set of calculations, if it turns out that you owed more under the AMT than under the regular tax, then that is the tax you pay. You pay the greater of the two calculations.
AMT, when it was passed years ago, was supposed to hit the very wealthy. That was the intention. But it has not worked out that way. The actual effect of the AMT is to hit essentially middle-income Americans.
It comes down to the question, what do you mean by middle income? That is the question. This chart shows that for a family earning about $80,000--that is becoming more and more the middle-income taxpayer. If you have a family making $80,000, they have expenses: kids going to school--$80,000 these days is not an awful lot of money.
Unfortunately, most Americans earn less than that, but an awful lot of Americans earn $80,000. The point being, if you earn $80,000 roughly, then you probably don't have to pay the alternative minimum tax if you have no children. But this chart shows that the more children you have, if you have one child, two children, four children, then--and that is what the brown lines show on the chart for this year, 2006--it shows that if you have more children, then the level at which the AMT starts to kick in is lower and lower.
That means, say, you have four children. At that level, if you are earning $60,000 for a family with four children, then at that point the AMT starts to kick in, which is to say, you start paying more tax.
There are other considerations, such as if the taxpayer is in a State with high State and local taxes. If you are in a State with high State and local taxes, or the more children you have, et cetera, then the AMT is going to be much more of a bite and hurt you. The main point is, we are talking about income levels. For families with one child, it is $72,000; for a family down on the end of the chart with, say, six children, it is about $50,000. That is not a lot of money for a family with six kids. So it is a middle-income tax.
Before I turn to the next chart, this is for this year showing what will happen if we do nothing. Those are the brown bars on the chart. The blue bars are really for last year, 2005, which goes to show you that if we do nothing this year, this AMT is really going to hit. The current AMT hit about 3 million taxpayers. This year, it is going to hit 17 million more, for a total of 20 million. That is why there is a difference between the blue and the brown lines on the chart. This year, it will really start to hit.
This chart shows that relief from the alternative minimum tax helps taxpayers more in the middle income of the tax bracket compared with tax relief under dividends and capital gains. The blue bars are the alternative minimum tax relief. That is what the blue bars show. The other brown bars show relief from dividends and capital gains reductions. What does this show? We are talking about a little bit wealthier taxpayer. The blue bar shows if your income is, say, $75,000 to $100,000, and then especially about $100,000 to $200,000, 52 percent of the relief of what we will be enacting, if we pass the alternative minimum tax, will be for taxpayers in that bracket. I grant you that is higher than a lot of Americans, but it still shows that beginning at about $50,000 of income and up to $100,000, then it starts to fall off if you earn $200,000.
It also shows that the very wealthy don't pay the alternative minimum tax. The wealthy whose income is, say, $500,000, $1 million, $2 to $3 million, AMT doesn't affect them. Rather, the AMT hits people whose incomes are roughly between $75,000 up to, say, $200,000 to $250,000.
Contrast that with the dividends and capital gains tax relief. That is the brown bars on the chart. What does that show? The brown bars show that by far the greater relief that people receive from the benefit of the dividends and capital gains reduction is the very high income bracket of Americans. That is what the brown bars show. That is $1 million--more than $1 million in income. The bar shows that about over 52 percent of the relief from dividends and cap gains relief goes to taxpayers where incomes are over $1 million; whereas 52 percent of the AMT tax relief goes to taxpayers in the bracket at under $200,000. Again, the facts show that dividend and capital gains relief goes by far to the most wealthy Americans. Those earning $1 million or more get by far the largest break from this provision. Whereas the AMT tax relief does not give relief to the most wealthy. It gives relief to those, as shown by this chart, roughly between $50,000 in income and up to $150,000 and $200,000 in income. That is a big difference.
Again, I must remind all my colleagues, the alternative minimum tax will be a tax this year, 2006, this year, if we do nothing. If we pass the relief we are talking about here for 1 year, then taxpayers who pay taxes in 2006 will find their taxes are not increased. If we do nothing about capital gains and dividends taxes this year, there will be no change in taxation on dividends and capital gains. There will be no change next year on income taxes on dividends and capital gains.
It is abundantly clear to me that in the alternative, we should certainly focus on passage of a provision which prevents a tax increase for 2006 that will otherwise go into effect rather than not doing that, let the tax increase go into effect, and say, well, we will extend the current law with respect to dividends and capital gains for
2 more years, beyond 2009 into 2010. That is a no-brainer.
You might ask: Gee, why not do both? Let's do both. Therein is the rub because we have a $70 billion limit given to us by the budget resolution which we all passed in this body and the other body. You can't do it all. And add to that that we don't want to, I don't think, worsen the deficit. We already have huge deficits facing the country, increasing debts on top of that.
We could pay for both, if we want to, by raising taxes someplace else. That is an option. I don't know whether we want to do that. But we cannot and should not pass dividends and capital gains relief at the expense of AMT.
I might add, under a ruling from the Parliamentarian earlier today, I think the Presiding Officer was presiding at that moment, a budget point of order would lie against a conference report that came back with dividends and cap gains extensions because of the outyear costs, unless it is paid for.
It is my fervent hope that we deal with what we have to deal with now, and that is the alternative minimum tax. Let's not let that go into effect.
I don't see anybody else who wishes to speak, so I suggest the absence of a quorum.
Mr. President, I ask unanimous consent that the order for the quorum call be dispensed with.
Mr. President, I was pleased to hear President Bush talk last night about the U.S. economy in the State of the Union Address. Some of the other proposals of the President, such as reducing the deficit and making the R&D tax credit permanent, make a lot of sense. I strongly support them. Others, such as his proposal on health care costs, frankly, would do very little to rein in soaring health care costs that we see. And that is important, frankly. We must do more to rein in health care costs because they serve as a drag on the competitiveness of American industry. But there are certainly areas where we can work together on health care.
For the past year, I have made a number of statements on the steps our country must take, in my judgment, to bolster U.S. competitiveness. Just last week, I unveiled plans for a comprehensive legislative effort to bolster U.S. competitiveness from education to savings to innovation and research. I invite the President to support these provisions, to support this agenda. I look forward to working with him to turn these proposals into law. Only by working together can we ensure that we keep America first in the world, preserve its economic leadership, and assure jobs and prosperity for American generations to come.
``Competitiveness'' is an amorphous term because it covers some different areas, from international trade to education. But these are the issues which are critical to our future. Why? Because the world is changing, and for America to remain on top, we have to make sure our domestic house is order.
I just got back from a 10-day trip to China and India. I must tell you, it was, to say the least, very eye-opening.
In China, I saw gleaming superhighways burrowing through brightly lit tunnels. I saw robots stacking the shelves of a Chinese computer company. I saw teams of Chinese researchers determined to discover the next big thing. I saw capitalists and entrepreneurs betting on China's rise. I saw a confident middle class ready for the future.
It is astounding. We all know that. Every time you go to China, it is amazing how much more advanced they are compared to the previous visit. I was there only a year earlier.
After a quarter century of growth, China is set to become the world's largest economy by about the year 2030. Just think about that. By 2030, China is positioned to become the world's largest economy. China is already the world's third largest exporter. China has surpassed America as the largest exporter of information technology products.
India, I might say, is no different. There, I saw confident, young engineering students who have no doubt that the India of tomorrow will be better than the India their parents left them. I saw information technology companies where state-of-the-art technology has made them global technology leaders. I saw Indian Government leaders bent on making 21st century India the world's success story.
As a side note--it is a very small point but not so small--I asked the head of a major high-tech research center in India why they are in India. What is the answer I got? The answer I got was because India has the greatest talent pool for engineers and scientists.
I asked, What is the next best country?
China, he said.
I asked, Where is the United States?
Sorry, Senator, you are down the list pretty far.
That is a small slice of what we are going up against. These two reawakening civilizations, with over 2.3 billion people between them, are on the march. Their confidence is palpable. Are we prepared to meet the challenge they present? Of course we are. We are Americans. We have a great history of meeting challenges. America is capable of overcoming any challenge. We are capable, but we must act.
America remains the world's economic powerhouse--very much so. We are undisputed today. We lead all major economies in output. Our companies' workers grow more productive each year. However, we also have to face facts. In many important areas, America is beginning to lose its competitive edge.
In information technology, we have lost our preeminence, falling behind Singapore, Iceland, Finland, and Denmark. At the same time, Federal support for R&D is in a 30-year decline.
In education, we have neglected our human capital. When I started in the Senate, America ranked third in the world in the share of young people with science or engineering degrees. Thirty years later, we have slipped--not back to 3rd, 4th, or 5th; we have slipped to 17th. In global rankings of math, reading, and science skills, our 15-year-olds have also fallen even further behind 17th in the world.
In health care, rising costs threaten to cripple many companies. Too often, employees have little or no health care coverage. The average American spends more than $5,000 a year on health care costs--twice as much on a per capita basis as the next most costly country. We spend twice as much on health care in America as any other country. I ask, are we twice as healthy even though we spend twice as much per person? Clearly, the answer is no. We must cut back on the cost we pay for health care.
In international trade, over the last few years we have distanced ourselves from Asia, leaving China to engage the region. By not pushing to open the world's biggest markets and not explaining the importance of trade, this administration fosters surging protectionism.
To make that same point, I heard constantly in Asia, China, India, and Singapore--I had a very long conversation with Lee Kuan Yew, who is the wise man of Singapore--where is America? Where is the American Government? There are all kinds of international trade negotiations and forums. We don't show up. We don't participate. I asked: What about our companies? Our companies are not there. Sure, we have American companies in China. In India, I heard constantly from every person I spoke with that we can't find Americans; we need American companies to do business in India.
There is a big, fancy subway, for example, in New Delhi. When you think of New Delhi, most Americans don't have an image of tall, gleaming skyscrapers as in Manhattan. Think of
Delhi, India. It is a huge city. There is a New Delhi and an Old Delhi. But India and Delhi have a subway system built, completely finished, and it is gleaming. It is fancy. It is up to date. Guess what. Cell phones work in the New Delhi subway. In a lot of American subways, you can't turn on your cell phone. They are not wired for cell phone use. You can in India. And they plan to build subways in 18 other cities in that country.
Finally, our macroeconomic fundamentals are at a danger point. That is a fancy term. What does that mean? Essentially, it means that we are in deep financial trouble. Our country is set to rack up another record account deficit. That is another big, fancy word. It basically means we are importing a lot more materials and goods than we are exporting. That is the current account deficit.
We borrow more than 80 percent of the world's savings. Think of that for a second. Americans borrow more than 80 percent of the world's savings.
Our net foreign debt has not been this high as a percentage of gross domestic product--that is how we count our economy--since Grover Cleveland was in the White House. This is unsustainable and costly. And too few people think about it. When they do they wonder, Why didn't we do something about it earlier?
Do we just put our heads in the sand and give up? No. Clearly, we must choose a path to greater economic competitiveness. That means taking advantage of opportunities we see and meeting our challenges head-on. We need a comprehensive agenda for a 21st century competitive economy. We must look inward and scrutinize our own policies thoroughly, comprehensively, and honestly. Look at the facts, put aside ideologies, put aside partisanship. The stakes are just too high.
I have spent much of the last year attempting to develop such an agenda--not perfect, clearly. I have no monopoly on the best ideas. But I believe we must start, and I have done my best to start.
In the coming months, I will launch seven individual legislative proposals to address America's competitiveness in education, energy, health, savings, research, tax, and international trade. That is how we can compete better--by improving our education dramatically.
How do we wean ourselves from OPEC? Thank goodness the President mentioned that, and I praise him for his comments in the State of the Union last night.
How do we address this health care problem in America, the high cost of health care, and make sure more Americans are covered? How do we encourage more savings? That is a bit alarming. I know that it is just a statistic. It is still quite alarming.
We Americans are not savers. We Americans have a negative personal savings rate. We also on average spend more than we save. We charge up our credit cards, mortgage payments, and we spend more than we save. That adds up. After a while, it catches up to us.
What about other countries? In China, the personal savings rate is about 40 percent. About 40 percent of what the Chinese people earn, they save. There are similar, high statistics in other Asian countries. Japan--I do not know the exact figure; I know it is high. In Singapore, it is about the same level. In India, it is very high, too. Some might say that is because those countries don't have savings accounts; they don't have Social Security, as well, as we have; they do not have health care benefits or pension plans as lucrative as ours. Ask any American how well our savings plans are working and how health care benefits are working. We have a problem.
The point is, they are saving and we are not saving. They are saving, we are spending. They are investing, we are consuming. After a while, that catches up.
As I said, I don't pretend to have all the answers. But we have to start tackling these questions right now. I invite my colleagues on both sides of the aisle as well as the administration and anyone in our country to join me in enacting these bills.
I welcome the President's focus on education. I will soon introduce what I call the Education Competitiveness Act, designed to make the priority of lifelong learning an inseparable part of American society and American culture. We have to continue to be educated to grow and learn. My bill will encourage more students to go into math and science by funding college scholarships for the sciences, providing free tuition for science and engineering students, and creating partnerships with employers and continuing education centers to meet the technology needs of companies. I will also propose legislation to invest in our teachers by raising starting salaries and providing loan forgiveness for teachers.
I was very impressed a couple of nights ago to see on the evening news that in the city of Chicago, Chinese language is offered at every level K-12. Chinese language is offered in the Chicago school system. That is incredibly important. I wish Chinese were offered in many more American school systems. Why? Because Chinese is the language that is going to be very important down the road. Sure, English is going to be the major language in the countries of the world. That is absolutely clear. But the more we understand Chinese, the more we are going to help. We can learn the Indian language and lots of others, too, but Mandarin Chinese is going to be very important in the future.
Also, students might not be fluent in Chinese. They may just take 2 or 3 years. Some students may become very fluent in Chinese. Even for those students who don't become fluent in Chinese, what does it do it for us and for our kids to think a little bit more about overseas, about Asia, think more internationally, think more about what is going on in the world? When some event occurs in a country--it doesn't have to be China--if you study Chinese, it will help. You will think about it more and read the newspapers or watch the news. You will begin to think about how these things are interrelated.
We have to strongly boost our education system. I must say that I take my hat off to the Chicago school system for offering Chinese at every single level, K-12.
I applaud the President's recognition of energy as a critical facet of our Nation's competitiveness and the critical factor that innovation and R&D play in ridding ourselves of our dependence on Middle East oil. The President said last night that we are addicted to foreign oil. We are at our peril. The sooner we wean ourselves from OPEC and become more self-sufficient, the better off we are all going to be.
What can we do about it?
I will invite the President to support my energy competitiveness bill. What does it do? It will create a new agency, what I call the Advanced Research Projects Agency, or ARPA-E, modeled after the Defense Research Projects Agency, which is so helpful in providing so many cutting-edge technologies. It will help provide cutting-edge research to break out of the energy squeeze that we now face.
Last night, the President mentioned programs within the Department of Energy. I think that is good. My personal view is that this is such an important issue, we have to have a separate outfit called ARPA-E; otherwise, it will be consumed in the Department of Energy. I worry that it is going to be lost in the bureaucracy much too soon. It has to be a lean, mean agency.
I also support the commitment to expand research and to make permanent the research and development tax credit. I will introduce a research competitiveness bill in the coming weeks which does just that. The tax credit is not enough, especially when it comes to basic research. We have to do more than the R&D tax credit. I believe more support for private and public research partnerships can be an effective vehicle for basic research. They can help find the resources for more basic research.
We did this in the 1980s when semiconductor companies and the Government collaborated to share risk and leverage discoveries for semiconductor technology. It is called Semtech. It was in Austin, Texas. I spent a couple of days there and was very impressed with what they have done. It was so successful it helped support semiconductor technology that has spun off. Semtech is no longer necessary. It would get us jump-started in meeting the Japanese and other challenges where countries are underwriting the development of semiconductor production.
I welcome the President's focus on savings and acknowledge the need to address mounting Government costs and the growing deficit. We should not focus solely on programs such as Social Security and Medicare if we are going to address this problem. Rather, it is time to explore every nook and cranny for opportunity to bring the deficit down, to look at corporate tax loopholes, and to close the annual $300 billion tax gap.
What is that? What is the $300 billion annual tax gap? Every year about $300 billion in taxes legally owed is not collected. We can do better. I don't know if we can get it all, but we ought to get the lion's share of that collected. That is a way to help pay for some of these things, the investments we have to make. Let's do a better job in closing the tax gap. The IRS is working on it. I have prodded the chairman of the committee, Chairman Grassley, many times. The time has come to light a bigger fire, accelerate this effort to make sure that most of that $300 billion of taxes legally owed to Uncle Sam is collected; otherwise, we are subsidizing $300 billion worth of deadbeats because those taxes are not collected.
A savings competitiveness plan such as the savings competitiveness bill I will introduce will make certain the Federal Government spends taxpayer dollars wisely. We can accomplish that objective if, when we spend money around here, we pay for it; otherwise, the debt and deficit keep building. We are borrowing more and more. We cannot continue this borrowing binge.
It must also create incentives for private savings by pursuing the automatic enrollment savings plan. Make the tax credit permanent for savers. There are a lot of things we can do on the edges that will snowball as we increase personal savings in the country, which clearly is needed for investment in energy, other technologies, education, in training programs to assure people they can keep their job, and if they cannot keep the job, they can make the adjustment to a new job; otherwise, with all the hundreds of thousands of people who have been laid off in companies in America because of global competition, they will not have a stake in what we are trying to do. We have to do this together as a country. I certainly believe increasing the personal savings will be a large part of that.
Then we have to turn to international trade. Competitiveness requires we break down market access barriers and seek opportunities in foreign markets such as China and India, which continue to crave American investment. We pass laws to encourage our companies to export and to do business overseas. We must do that to help American companies strive and do well, so long as they pay attention to local workers. We must let them know their Government has their back and that foreign markets are open and stay open when they play by the rules. We have to make sure the countries play by the rules. They are not playing by the rules as much as they should and could.
Take intellectual property, for example. Many countries overseas-- China, India--are making some progress, but we are losing all kinds of dollars because America is not enforcing the rules sufficiently for other countries.
I will introduce a trade competitiveness bill to make the administration more politically accountable to Congress, identifying and pursuing the most egregious foreign market access barriers. It will build on an idea of Senator Stabenow of Michigan to create a new Senate-confirmed chief trade prosecutor at the USTR dedicated to investigating and prosecuting trade enforcement cases.
Then we have taxes. The President's focus there is not quite properly placed. We need to make sure our international tax rules, which were written in a time when U.S. businesses were the only players on the block, are changed. Make sure they provide other businesses flexibility to compete.
The Tax Code contains a number of anti-abuse rules so companies cannot shelter passive income but must allow U.S. businesses to redeploy the resources from active to foreign operations, as their competitors already do.
I will review these rules, as well as transfer pricing rules, cost recovery periods for business assets, and the inappropriate use of offshore tax havens to make sure U.S. businesses can compete fairly on a level playing field with both domestic and foreign competitors.
A final element of my plan is health care. That is where the President's address fell short. The President offered some options for some Americans, but as broad health care solutions, they may not be doing very much to control costs or expand health insurance coverage. In fact, Americans who need health insurance coverage the most could pay more out of their pockets under health savings account plans.
The President ignored the health care elephant in the room: the problems our seniors are having with the drug care benefit. I am surprised he did not mention that. It is on seniors' minds. We have to address that.
My health competitiveness legislation will invest in innovation, in efficiency, and also will put emphasis on making Medicare move toward pay for performance as we get better quality of value for Medicare dollars.
I close by saying competitiveness is the key to America's future. Bolstering our great companies' competitive potential will allow us to ensure that we leave our children more productive, more prosperous, and a more secure America than our parents left us. This is important. It is very difficult to get our hands wrapped around it. But the more we do and the earlier we do so, the better off we are all going to be.
I yield up to 20 minutes to the Senator from Rhode Island, the ranking Democrat of the Joint Economic Committee, the senior member of the Committee on Armed Services.
Mr. President, I yield 10 minutes to the Senator from Illinois.
Mr. President, I yield 15 minutes to the Senator from Connecticut.
