Congressional Budget For The United States Government For Fiscal Year
Mr. President, I am pleased to vote for this budget resolution today. I believe this blueprint for the government's spending and revenues will help put us back on a fiscally responsible path. Before I turn to the merits of this resolution,…
Mr. President, I am pleased to vote for this budget resolution today. I believe this blueprint for the government's spending and revenues will help put us back on a fiscally responsible path.
Before I turn to the merits of this resolution, I want to address the fact that my amendment to establish a deficit neutral reserve fund to promote American manufacturing has been included in this resolution. I thank Senators Conrad and Gregg for accepting this amendment, and I look forward to working with them and other Members to carry out its intent.
I believe that we must take strong and dramatic actions in this Congress to revitalize and support our domestic manufacturing sector. We need to enhance our research and development programs, provide tax incentives to encourage and sustain domestic manufacturing, and level the playing field for our domestic manufacturers in the global marketplace. My amendment will be helpful as we fight in this Congress to take these important steps.
We need to stop the hemorrhaging of manufacturing jobs from the United States. Our economy and well-being are directly linked to the health of our manufacturing sector, yet we continue to lose manufacturing jobs in this country. Since 2001, we have lost 3 million manufacturing jobs nationwide--including more than 200,000 in my home State of Michigan.
Millions more manufacturing jobs hang in the balance. Our companies face enormous pressure in competing in the global marketplace without sufficient support from the U.S. government. Our companies are not competing against other companies overseas--they are competing against other governments that strongly support their manufacturing sectors.
We need to provide significant federal support for technology initiatives and advances that will help keep our companies on the cutting edge of technology development and competitive in the global marketplace. All of this requires a bold and comprehensive effort across many segments of our federal government. It will involve many committees and many federal agencies, but I believe it is critical to stem the tide of the domestic manufacturing crisis occurring in this country.
My amendment points us in the direction we need to take. It will support legislation that would revitalize our domestic manufacturing sector in four critical ways--by increasing Federal research and development; by expanding the scope and effectiveness of manufacturing programs across the Federal Government; basing support for development of alternative fuels and leap-ahead automotive and energy technologies; and by establishing tax incentives to encourage the continued production in the U.S. of advanced technologies and the infrastructure to support them.
There are many other parts of this resolution to be pleased with as well. For too long now we have been digging deeper and deeper into a ditch of debt. President Bush's budget submitted to Congress in February would continue that trend by increasing the gross Federal debt by nearly $3 trillion to $11.5 trillion by 2012. That's $38,000 per person. The budget resolution we are considering today should start to reverse that trend.
First, this resolution reestablishes a strong pay-go rule, which would require any new spending or tax cuts to be paid for elsewhere in the budget or receive a supermajority of at least 60 votes in the Senate. This concept is common sense for most families, who work to live within their means by balancing what goes out with what comes in. I heartily welcome its return.
This budget also takes the positive steps of establishing a new budget point of order against long-term deficit increases and allowing the Senate's unique budget reconciliation process, which was abused in recent years by the Republican majority, to be used for deficit reduction only, not to increase the deficit with measures which otherwise could not pass the Senate.
This budget also sets a blueprint for going after our country's massive $350 billion tax gap, which is the difference between the amount of taxes owed by
taxpayers and the amount collected. One of the primary tax gap areas I hope Congress will focus on this year is the offshore tax haven and tax shelter abuses that are undermining the integrity of our tax system. There are many ways Congress can go about tackling these problems, and I commend Chairman Conrad and the Budget Committee for their willingness to take on and push Congress to address these complicated areas. Cracking down on these abuses which shift the tax burden onto ordinary taxpayers is a critical step toward achieving fairness in our tax system.
Additionally, I am pleased that this budget assumes an extension of alternative minimum tax, AMT, relief for 2 years. This is relief we know is needed to avoid imposing this unintended tax increase on millions of middle income families. This time frame gives the Finance Committee time to work out a fix that is appropriate and, I hope, paid for.
The two AMT amendments offered to this resolution which we considered today were not paid for. The amendment offered by Senator Lott would add $231 billion to the debt over the next 5 years, and Senator Grassley's amendment would have cost $533 billion over that same time. We must not only fix AMT, we must fix it responsibly.
Furthermore, I am pleased that this budget resolution supports our men and women in uniform by providing all the funding requested by the President for national defense, for both the underlying national defense program and the additional costs of operations in Iraq and Afghanistan. I believe our policy in Iraq must change, but I do not support attempts to cut off funds for our troops in the field. This resolution fully funds our forces at home and overseas, at the levels I and Senator McCain, the ranking member of the Armed Services Committee, requested in our letter to the Budget Committee.
I also believe funding for these ongoing operations in Iraq and Afghanistan should be accounted for in our budget, and that it was past time the President and Congress stop treating these costs as if they were unanticipated ``emergency'' expenditures. I am pleased that this resolution supports the request Senator McCain and I made to build these costs into the budget.
This has two beneficial effects. First, it makes this budget more honest about the cost of this war and the impact it has on our federal deficit. Second, putting this spending into the regular budget process helps ensure that funding requested for operations in Iraq and Afghanistan will receive greater congressional oversight. I commend Senator Conrad for his continuing leadership on fiscal responsibility and accountability.
On the issue of funding for our Nation's veterans, I am pleased that this resolution includes the resources needed to ensure that our veterans get the health care they deserve. In total, the resolution provides more than $43 billion for the Veterans Affairs healthcare system--$3.5 billion more than President Bush's budget. Again, this year, the Senate has rejected President Bush's proposal to raise copayments and to impose new fees and higher copayments on certain veterans.
I am also pleased that this budget affirms the Senate's commitment to authorize at an appropriate level the Children's Health Insurance Program, SCHIP, before it expires in September 2007. Making sure children have adequate health care should be one of our nation's top priorities. However, President Bush's budget would lead to the loss of critical coverage in many states. It is imperative that we reject that inadequate proposal, and this budget resolution does that.
This budget also represents a significant improvement over the President's budget for education. There are more funds for Pell grants, IDEA, and No Child Left Behind Act than the President requested. It would be shameful to fail in our responsibility to our children to adopt a spending blueprint that does not provide our schools the resources they need.
I am also pleased that this budget rejects the broad array of cuts to environmental protection programs that were included in the President's budget. This budget resolution fully funds the Environmental Protection Agency's programs to support clean and safe drinking water, and increases funding for the Superfund program by $211 million over the level in the President's budget. The budget also provides about $900 million more for the EPA than the President's budget. This bill also protects Federal lands by rejecting President Bush's proposal to assume revenues from proposals to sell Federal lands.
I am also heartened that the budget rejects the President's proposal to drill in the Arctic National Wildlife Refuge, ANWR.
Further, I also support the Senate's adoption of an amendment to fund the Low-Income Home Energy Assistance Program, LIHEAP, at $3.2 billion, which will ensure that more households can be served by this very important program. Unfortunately, this program has been woefully underfunded by President Bush's budget, as well as in past years.
I also want to talk a bit about a couple more of the amendments we voted on today. I support extending tax cuts for low- and middle-income taxpayers. However, I opposed Senator Graham's amendment because it would have extended the excessive tax cuts for those in the highest income bracket which I have opposed from the first time we voted on it in 2001, and which we simply can't afford.
I also opposed an estate tax amendment offered by Senator Ben Nelson. I would support legislation to prevent a return to the 2001 exemption level, which is too low and no longer appropriate. The current law estate tax exemption level for 2009 of $3.5 million, $7 million for couples, is appropriate and results in only one-third of one percent of estates owing any estate tax. I also had concerns about the Nelson amendment because it proposed a reduction of the rate to 35 percent, which would be a huge loss to the treasury and the amendment does not specify how the revenue needed to keep these changes from increasing the deficit would be raised.
It is a welcome change to be voting for a budget resolution that I believe can change the failed fiscal policies and irresponsible tax cuts pushed by this administration. This resolution paves the way for important investments in America's future to put our country back on track and to begin the long process of climbing out of the ditch of debt.
Mr. President, during this budget debate there have been different views expressed regarding the amount of revenue that would result if Congress will go after the offshore tax haven and tax shelter abuses that are undermining the integrity of our tax system. There are many ways Congress can go about tackling these problems, and I commend Chairman Conrad and the Budget Committee for their willingness to take on and push Congress to address these complicated areas. Cracking down on these abuses is a critical step toward achieving fairness in our tax system.
If Congress addresses these inequities, it would also bring in billions of dollars needed to pay for many important national priorities. These priorities are recognized in this budget resolution itself, such as education, children's health care, veterans medical care, community development block grants, and law enforcement. We can go a long way toward paying for these critical programs by stopping these tax dodges that rob the Treasury of up to $100 billion a year, and shift the tax burden from high-income persons and companies who are principal users of offshore tax havens onto the backs of middle-income families who pay their taxes.
For many years, the Permanent Subcommittee on Investigations, of which I am chairman, has been looking at the problem of offshore corporate, bank, and tax secrecy laws and practices that help taxpayers dodge their U.S. tax obligations by preventing U.S. tax authorities from gaining access to key financial and beneficial ownership information.
The subcommittee has also spent years looking at abusive tax shelters, which are complicated transactions promoted to provide tax benefits unintended by the Tax Code. They are very different from legitimate tax shelters, such as deducting the interest paid on home mortgages or congressionally approved tax deductions for building affordable housing. Some abusive tax
shelters involve complicated domestic transactions; others make use of offshore shenanigans. All abusive tax shelters are marked by one characteristic: no real economic or business rationale other than tax avoidance.
I would like to talk briefly about what we found during those investigations. I think the specifics help make clear that if we have the political will, these are areas ripe with abuses that we can put an end to.
Offshore Investigation. During its year long investigation into offshore tax haven abuses, the subcommittee issued more than 70 subpoenas, conducted more than 80 interviews, and reviewed more than 2 million pages of documents. In the resulting hearing held in August 2006, the subcommittee showed through case studies that offshore tax haven countries have, in effect, declared economic war on honest U.S. taxpayers by giving tax dodgers a way to avoid their U.S. tax bills and leave them for others to pay. Offshore tax havens attract these tax dodgers by shrouding their financial transactions in a ``black box'' of secrecy that is extremely difficult to penetrate. They sell secrecy to attract customers and reward them with low or no taxes.
This legal black box allows tax dodgers to hide assets, mask who controls them, and obscure how their assets are used. An army of ``offshore service providers'' lawyers, bankers, brokers, and others then joins forces to exploit the impenetrable curtain of secrecy and help clients skirt U.S. tax, securities, and antimoney laundering laws. Many of the firms concocting or facilitating these schemes are respected names here in the United States.
These schemes require the secrecy of tax havens because they can't stand the light of day. Our investigation laid out six case studies that illustrated the scope and seriousness of the problem. In one case, two U.S. citizens moved about $190 million in untaxed stock option compensation offshore to a complex array of 58 offshore trusts and corporations and utilized a wide range of offshore mechanisms to exercise direction over these assets and hundreds of millions of dollars in investment gains. These untaxed earnings were then used to finance business ventures, acquire real estate, provide loans, and buy art, furnishings and jewelry for the personal use of the family members.
Much of this elaborate scheme involved an offshore bank and an administrative services firm for offshore entities, both housed in a building in the Cayman Islands that we have shown a few times on the Senate floor during this budget debate, the Ugland House. Believe it or not, the building is the official address of 12,748 companies. Just having a post office box in the building enables these shell companies to shift profits that otherwise should be reported as taxable income in the country where it is actually earned.
In another case study, two offshore shell corporations engaged in fake stock transactions, seeming to trade stock back and forth as if it were fantasy baseball to create the illusion of economic activity. The shell corporations pretended to run up hundreds of millions of dollars in fake stock losses and then used these phantom losses to offset about $2 billion in real capital gains of the promoters' U.S. clients. The result was $300 million in lost tax revenues to the Treasury. This offshore scheme would be comical because of its complexity but for the sobering fact that these tax haven abuses are eating away at the fabric of the U.S. tax system and undermining U.S. laws intended to safeguard our capital markets and financial systems from financial crime.
Our investigation shone a needed spotlight into the black box of offshore tax havens. It revealed a system that is corrupt and corrupting. Honest Americans are footing the bill for tax haven abuses, and it is long past time for Congress to shut those abuses down.
Abusive Tax Shelters. In addition to offshore shenanigans, there are plenty of homegrown tax shelters being used to dodge taxes. For 5 years, our subcommittee has also been conducting investigations into the design, sale, and implementation of these complex transactions that have no economic or business rationale other than to avoid tax. Our first hearing on this topic in recent years was held in January 2002, when the subcommittee examined an abusive tax shelter purchased by Enron. In November 2003, the subcommittee held 2 days of hearings and released a staff report that pulled back the curtain on how even some respected accounting firms, banks, investment advisors, and law firms had become engines pushing the design and sale of abusive tax shelters to corporations and individuals across this country. In February 2005, the subcommittee issued a bipartisan report that provided further details on the role these professional firms played in the proliferation of these abusive shelters. Our subcommittee report was endorsed by the full Committee on Homeland Security and Governmental Affairs in April 2005. Most recently, a 2006 subcommittee staff report entitled, ``Tax Haven Abuses: The Enablers, the Tools, and Secrecy,'' disclosed how financial and legal professionals designed and sold yet another abusive tax shelter known as the POINT Strategy, which depended on secrecy laws and practices in the Isle of Man to conceal the phantom nature of securities trades that lay at the center of that tax shelter transaction.
The subcommittee investigations have found that many abusive tax shelters are not dreamed up by the taxpayers who use them. Instead, most are devised by tax professionals, such as accountants, bankers, investment advisors, and lawyers, who then sell the tax shelter to clients for a fee. In fact, as our 2003 investigation widened, we found a large number of tax advisors cooking up one complex scheme after another, packaging them up as generic ``tax products'' with boiler- plate legal and tax opinion letters, and then undertaking elaborate marketing schemes to peddle these products to literally thousands of persons across the country. In return, these tax shelter promoters were getting hundreds of millions of dollars in fees, while diverting billions of dollars in tax revenues from the U.S. Treasury each year.
For example, one shelter investigated by the subcommittee and featured in the 2003 hearings has since become part of an IRS effort to settle cases involving a set of abusive tax shelters known as ``Son of Boss.'' Following our hearing, more than 1,200 taxpayers have admitted wrongdoing and agreed to pay back taxes, interest, and penalties totaling more than $3.7 billion. That is billions of dollars the IRS has collected on just one type of tax shelter, demonstrating both the depth of the problem and the potential for progress. The POINT shelter featured in our 2006 hearing involved another $300 million in taxes lost to the Treasury on transactions conducted by just six taxpayers.
Tax Levies on Federal Contractors Who Don't Pay Their Taxes. That is not all. For the last 4 years, our subcommittee has been focusing attention on another sector of the tax gap involving Federal contractors who don't pay their taxes. These contractors are stuffing their pockets with taxpayer dollars, while stiffing Uncle Sam by not paying their taxes.
Past subcommittee hearings have exposed the fact that there are about 27,000 defense contractors with $3 billion in unpaid taxes; 33,000 contractors with other Federal agencies who owe $3.3 billion in unpaid tax debt; and 3,800 GSA contractors with $1.4 billion in unpaid tax debt. Earlier this week, another subcommittee hearing put the spotlight on 21,000 Medicare physicians and related medical suppliers with $1.3 billion in unpaid tax debt. These mind-boggling numbers represent tens of thousands of companies putting their hand in the taxpayers' wallet, while dodging billions of dollars in tax obligations.
A key program designed to stop this type of abuse is the Federal Payment Levy Program. This program was enacted about 10 years ago to enable the Federal Government to identify Federal payments being made to tax deadbeats, and to withhold a portion of those taxpayer dollars to pay off a portion of the person's tax debt. For the last 4 years, our subcommittee has conducted an intensive effort to strengthen the tax levy program for Federal contractors who don't pay their taxes. As a result, over the past 3 years, tax levy collections as a whole have more than doubled, increasing from about $136 million in 2004 to nearly $340 million in 2006. Of these totals, tax levy collections from Federal contractors in particular have also more than doubled, increasing from about $28 million
to $62 million. But $62 million is only a fraction of the billions of uncollected taxes owed by Federal contractors getting paid hundreds of billions in taxpayer dollars. Much more can and should be done to reduce the Federal tax gap by increasing tax levy collections.
The first step would be to require the Center for Medicare and Medicaid Services to move as quickly as possible to make all $450 billion Medicare and Medicaid payments each year subject to the tax levy program, so that all of these taxpayer dollars are screened for repayment of tax debt. The next step would be to strengthen the tax levy program as a whole. In 2006, for example, the Federal Government identified a total of about $122 billion in assessed tax debt that could be collected, in part, through the tax levy program. At the same time, it determined that only about 45 percent of that uncollected tax debt was actually matched against the Federal payments being made that year. In other words, in 2006, some $67 billion in tax debt was never ``turned on'' for actual collection under the tax levy program.
Simple reforms could ensure that a lot more of that $67 billion is set up for collection under the tax levy program. One key barrier right now, for example, is an elaborate series of tax levy notices, mandated by law, that currently have to be issued by the IRS before tax debt can be collected through the tax levy program. While the tax levy notices make sense if the Federal Government is targeting payments being provided by a third party, such as an employer, they make a lot less sense when the levy is targeting taxpayer dollars going to the very people who owe the tax debt. For that reason, Senator Coleman and I plan to introduce legislation to reform the tax levy notice process for Federal payments. We also plan to strengthen other aspects of the tax levy program to start narrowing that multibillion-dollar tax gap.
IRS Enforcement Efforts to Reduce the Tax Gap. In our efforts to reducing the tax gap, it will be critical that we give the IRS the funds it needs to go after tax dodgers. For every dollar invested in the IRS's budget, the service yields more than $4 in enforcement revenue. Beyond the additional revenues collected, increased IRS enforcement deters those who might otherwise have dodged their tax obligations and reassures honest taxpayers that compliance with the law is broadly achieved.
I am pleased that this budget resolution fully funds the President's budget request for the IRS, and includes an additional $399 million available for IRS enforcement activities. I can't think of many better investments to recover revenues wrongfully lost to the U.S. Treasury and to build respect for the law and respect for the honest Americans who play by the rules and meet their tax obligations.
Scope of Problem. The abusive tax shelters and offshore case studies that the subcommittee has delved into are merely a handful of examples that can be used to better understand the details behind these widespread problems.
Because secrecy is such a key component of offshore abuses, it is incredibly difficult to estimate just how much income is sheltered offshore. Recent estimates from tax experts, Joe Guttentag and Reuven Avi-Yonah, estimate that offshore tax haven abuses by individuals cost the U.S. Treasury between $40 billion and $70 billion a year in taxes that are owed but not collected.
Corporations are also using tax havens to avoid payment of U.S. taxes. Preliminary results from a study to be released soon by Kimberly Clausing of Wellesley College show that $50 billion in U.S. revenue was lost in 2002 from profit-shifting by corporations to low-tax countries. A GAO report Senator Dorgan and I released in 2004 found that nearly two-thirds of the top 100 companies doing business with the U.S. Government had one or more subsidiaries in a tax haven. One company, Tyco International, had 115. Enron, in its heyday, had over 400 Cayman subsidiaries.
Data released by the Commerce Department further demonstrates the extent of U.S. corporate use of tax havens, indicating that, as of 2001, almost half of all foreign profits of U.S. corporations were in tax havens. A study released by the journal, ``Tax Notes'' in September 2004 found that American companies were able to shift $149 billion of profits to 18 tax haven countries in 2002, up 68 percent from $88 billion in 1999.
A 2004 study by Professor John Zdanowicz found that transfer pricing abuses by corporations cost the U.S. Treasury $53 billion a year. Last year the IRS settled a transfer pricing dispute with one company alone, drug giant Glaxo SmithKline, for $3.4 billion. The size of this settlement with just one company indicates that it is worth looking to see if there are ways to improve the relevant portions of the Tax Code. Treasury has proposed regulations in this area, and I urge the administration to finalize those rules in as strong a form as possible. I also urge the Finance Committee and others to make it a priority to stop these transfer pricing abuses that are hurting average taxpayers as well as disadvantaging U.S. companies that play by the rules.
How to Address the Problem. One of the big questions that surrounds all of this is how to start addressing these problems. I have a bill that would be a huge step in the right direction. We can't let the offshore tax havens hide $100 billion in U.S. tax revenues which are needed to protect our troops, fund health care and education, and meet the other needs of American families. We cannot tolerate high-priced accountants, lawyers, and banks concocting ways for tax cheats to offload their unpaid taxes onto the backs of honest taxpayers. That is why earlier this year I introduced the Stop Tax Haven Abuse Act, along with Senators Coleman and Obama. This bill provides a powerful set of new tools to clamp down on offshore tax and tax shelter abuses.
Among other measures, our bill would:
Establish Presumptions to Combat Offshore Secrecy by allowing U.S. tax and securities law enforcement to presume that nonpublicly traded, offshore corporations and trusts are controlled by the U.S. taxpayers who formed them or sent them assets, and to presume that money moving between U.S. taxpayers and offshore entities is taxable income, unless the taxpayer proves otherwise;
Impose Tougher Requirements on U.S. Taxpayers Using Offshore Secrecy Jurisdictions by listing 34 jurisdictions which have already been named in IRS court filings as probable locations for U.S. tax evasion;
Authorize Special Measures to Stop Offshore Tax Abuses by giving Treasury authority to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement;
Strengthen Detection of Offshore Activities by requiring U.S. financial institutions that open accounts for foreign entities controlled by U.S. clients, open accounts in offshore secrecy jurisdictions for U.S. clients, or establish entities in offshore secrecy jurisdictions for U.S. clients, to report such actions to the