Floor Statements

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 President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. President, I will spend a few minutes talking about Iraq this afternoon. I start with my conclusion and then go into the body of my remarks after I state what that conclusion is.

The administration's position that we will stay as long as the Iraqis need us to is too open-ended and sends the wrong message to Iraqis that their failure to make the necessary political compromises will not affect how long we stay, and it makes it less likely that those compromises will be reached.

Our military commanders have repeatedly stated there is no purely military solution in Iraq and that a political settlement is a necessary element for success. In view of that, I believe, unless the Iraqis achieve a political settlement by the end of this year, we must consider a timetable for the withdrawal of U.S. forces from Iraq, and we must make that point clearly to the Iraqis now while they are in the process of deciding whether to come together through consensus.

The Iraqi National Assembly approved a draft Constitution on August 28, despite objections from the Sunni Arabs over provisions relating to federalism that most Sunnis believe will disadvantage the areas of Sunni concentration. Those provisions essentially would enable the Kurds in the North and the Shiites in the South to establish autonomous regions in which most of the country's oil reserves are located. Sunni Arab voters who chose to boycott the last election, and thus were underrepresented in the National Assembly and on the constitutional drafting committee, registered in large numbers for the referendum on the Constitution scheduled for October 15, with the apparent objective of rejecting the existing draft. If two-thirds of the voters in 3 or more of Iraq's 18 provinces vote no, the Constitution will be rejected, and the elections scheduled for December will elect a new National Assembly, which will start the constitutional drafting process anew.

Additionally, there are reports that firebrand Shiite cleric Muqtada al-Sadr will exhort his followers to reject the Constitution because he favors a unified Iraq, and he sees the existing draft leading to the dissolution of Iraq as a single State. Muqtada al-Sadr has a huge following in Baghdad, which lacks oil resources, and thus is disadvantaged in a manner similar to the predominantly Sunni Arab provinces.

Meanwhile, the administration is urging the American people to ``stay the course.'' That is a bumper sticker slogan not a strategy.

Secretary Rice, among others, has stated we will be in Iraq as long as we are needed, adding no incentive, therefore, to Iraqis to reach a political settlement. An open-ended commitment to keep our troops in Iraq, even in the absence of a political settlement by the Iraqis, flies in the face of our military commander's assessment that there can be no military success in the absence of an Iraqi political coming together.

U.S. forces, particularly the U.S. Army, are stretched thin, despite the unprecedented use of a large segment of our National Guard in Iraq. Their lengthy and repeated deployments mean that much of a unit's time is devoted to recovery from a previous deployment and preparation for the next one, thus leaving little time for training to develop war- fighting capabilities or sustaining readiness for other contingencies. These actions, in turn, mean less time at home for soldiers with their families and lower morale, which threatens recruiting and retention.

The level of participation of the Armed Forces of other countries has been disappointing, leaving the United States to bear most of the burden. The absence of forces from Muslim countries is deeply disappointing, since the outcome in Iraq has effects throughout the world and also impacts the future direction of Islam. While it would likely be unwise for Iraq's neighbors to supply any forces, the failure of the Arab states to express their condolences over the recent stampede, in which almost 1,000 Iraqis were killed, was noted angrily by Iraq's President and Prime Minister, as was the lack of Arab diplomatic representation in Baghdad.

The administration should take advantage of the presence of so many national leaders at the United Nations later this week to press nations with substantial Muslim populations, other than those neighboring Iraq, to send forces to Iraq. The President should also make clear to the Iraqi leaders that we expect them to extend invitations to such nations.

Speaking as a Senator, I delivered that message to President Talabani this afternoon in Senator Frist's office. It is a message that I delivered on a number of occasions and directly in the past to Iraqi's leaders in Iraq.

U.S. Ambassador Zalmay Khalilzad wrote in the Washington Post that one of the two standards to evaluate the Iraqi Constitution is ``its potential to be a national compact that brings Iraqis together and undermines the insurgency.''

He went on to say:

If Iraqi voters ratify the draft overwhelmingly, it becomes

a national compact. If they reject the draft, the next

Assembly will negotiate anew.

He continues:

Under all scenarios, the United States will continue to

encourage Iraqi leaders and communities to come together.

But Ambassador Khalilzad failed to mention that there is another scenario; namely, that the Sunni Arabs vote overwhelmingly against the Constitution but fall short of achieving a two-thirds negative vote in three provinces. In such a case, the violence and insurrection is more likely to continue and even civil war could result. Moreover, the Ambassador's words fail to display urgency that Iraqis reach a political settlement and unwisely suggest the U.S. forces may stay in Iraq indefinitely until legal consensus is achieved.

Despite the National Assembly's approval of the draft Constitution, the Iraqis continue to negotiate and make changes to the draft. For example, the Washington Post reported on September 6 that President Talabani said in his statement that he had agreed to changes that would ease concerns among Sunni Arabs that the wording of the draft loosened Iraqi ties to the Arab world. And Reuters reported on Sunday that the United Nations is unable to start printing Iraq's draft Constitution because the National Assembly had not yet certified the text and now has set Sunday, September 18, as the date by which any changes to the draft Constitution can still be met.

This week provides a critically important opportunity for the administration to make clear to the Iraqis that U.S. forces cannot be in Iraq indefinitely. We must make it clear to the Iraqis that they have a limited time to achieve a political settlement and that if they do not do so, one way or another, by the end of this year, we will consider a timetable for withdrawal of our forces.

Speaking as one Senator, again, I delivered that viewpoint to President Talabani in Senator Frist's office earlier this afternoon.

We cannot write a constitution for Iraq, and we should not dictate the compromises they need to make to achieve a political settlement. But we do control whether our troops stay in Iraq and how long they stay.

The framework for agreement appears to be at hand. Some Shiite leaders reportedly have come to realize the existing draft of the constitution, which grants a high degree of control over natural resources to autonomous regions, would apply to water resources as well as to oil resources. That could negatively impact on the amount and quality of water available to predominantly Shiite areas. The Shiites are mainly located in the south, downstream of both the Kurds in the north and the Sunni Arabs in the center, who are able to dominate the flow of Iraq's two great rivers, the Tigris and Euphrates.

If the Shiites give up their ability to form an autonomous region or regions,

or agree to greater control by the central government over the country's natural resources, the Sunni Arabs might then be able to support a revised draft constitution which would be a critical step in achieving a political settlement.

The administration needs to move quickly. Both President Talabani and Prime Minister Jaafari--the leading Kurd and Shiite, respectively, in the transitional Iraqi Government--are in Washington this week and available for straight talk from the President and his Cabinet.

The United States has done and is doing more than our part in Iraq. It is up to the Iraqis now to step up to the political compromises which need to be made if Iraq has a realistic chance to defeat the insurgents and to become a nation.

Mr. President, I yield the floor and suggest the absence of a quorum.

Mr. President, I ask I be allowed to proceed as though in morning business.

Mr. President, it is essential that we turn promptly to consideration of the Defense authorization bill. Our troops are fighting in Iraq and Afghanistan and providing law and order and saving lives in the aftermath of Hurricane Katrina. The Defense authorization bill contains numerous provisions to improve their compensation and enhance the quality of their lives and their families' lives. Passing the Defense authorization bill sends an unmistakable message that we care about them and that as a nation we appreciate their sacrifices.

More than 64,000 Active-Duty and National Guard troops have been sent to the Gulf Coast where they are assisting in the recovery from Hurricane Katrina. These troops are playing a critical role in conducting search and rescue missions; evacuating displaced persons; providing security in impacted areas; delivering essential food, water, and medicine; and rebuilding damaged infrastructure throughout the region. I saw firsthand last Sunday in Battle Creek, in my home State of Michigan, just how effective and professional the Michigan National Guard is in preparing for the needs of hundreds of evacuees of Katrina.

And, of course, about 138,000 American soldiers, sailors, airmen, and marines are engaged in taking on aggressive insurgency in Iraq, and 17,000 remain in harm's way in Afghanistan. Tens of thousands more are supporting the war effort through deployment thousands of miles from home. Our Armed Forces also continue to bear the brunt of the continuing effort to stabilize and rebuild Afghanistan, keep the peace in Bosnia, Kosovo, and other hot spots, while remaining prepared to execute other missions in support of the national military strategy.

Some of these troops deployed overseas are from the Gulf Coast area. Some of them will soon return home to find that Katrina has damaged or destroyed their homes. Some will have nothing left. Taking up and passing the national Defense bill will improve their quality of life while they remain on active duty and when serving in hurricane recovery duty. Passage of the Defense bill will send an important message to them that we as a nation understand their loss and appreciate their service.

At a time when members of our Armed Forces are performing heroically both at home and overseas to make our country safer and stronger, it would be unconscionable to give the Defense authorization bill anything less than top legislative priority. Our military both needs and deserves the support that Congress can provide in the Defense authorization bill.

First and foremost, the Defense authorization bill would support our troops by improving compensation and quality of life for our service men and women and their families as they face hardships imposed by continuing military operations within the United States and around the world. For example, the bill would provide funding for a 3.1-percent across-the-board pay raise for military personnel. The bill contains a $70 million increase in childcare and family assistance services for military families and $50 million in supplemental educational aid to school districts affected by the assignment or location of military families. The bill would provide increases in housing allowances and payment of over 20 types of bonuses and special pay for our service men and women.

The bill will increase the death gratuity paid to survivors of our military personnel who die while on duty. It would increase their life insurance to $400,000. And that total death benefit of $500,000 is a small price for a nation to pay to a family of a soldier or sailor, an airmen or marine who has made the ultimate sacrifice of giving his or her life in service to our Nation.

If the Defense authorization bill is not enacted, the military's authority to pay bonuses and special pay to our men and women in uniform will expire, exacerbating an already troublesome problem that we face in recruitment and retention. If this bill is not enacted, the enhanced death gratuity of $100,000 and the increased life insurance benefit that we enacted for servicemembers earlier this year will lapse and substantially lower benefits will be reinstated. If this bill is not enacted, more than $6 billion in military construction and family housing projects to improve the conditions in which our servicemembers work and live will be unable to proceed.

The Senate obviously has a lengthy list of legislation that it wants to consider and needs to consider over the next few months, but surely if we truly value the contribution that our Armed Forces have made and continue to make every day, each and every minute at home and abroad, taking up and passing the Defense authorization bill before the end of this month will reflect that sentiment. It is essential we do so. We have many things to take up, but I can't think of anything more important, other than our response directly to Katrina to help the victims and their families, than taking up and passing the Defense authorization bill.

I thank the Chair and I yield the floor. I note the absence of a quorum.

Mr. President, according to a report last year by the Brady Campaign to Prevent Gun Violence, teenagers and children are involved in more than 10,000 accidental shootings in which close to 800 people die each year. Further, about 1,500 children age 14 and under are treated in hospital emergency rooms for unintentional firearm injuries per year. About 38 percent of them have injuries severe enough to require hospitalization. We can do more to reduce the number of these tragedies, the vast majority of which could be prevented if safe gun storage techniques were more widely practiced.

A study released Tuesday by researchers from the Center for Disease Control and Prevention, reportedly the largest of its kind ever carried out, analyzed the prevalence of firearms in homes and the storage practices of gun owners. Researchers analyzed survey results from more than 240,000 randomly selected households in all 50 States and the District of Colombia.

While the rates of gun ownership and the storage practices vary widely from State to State, the CDC researchers found that nearly a third of households in the U.S. have firearms. According to the study, in 18 different States more than 10 percent of households contain loaded firearms. In one State, the number is higher than 19 percent. In addition, in 23 different States more than 5 percent of households keep firearms unlocked and loaded. The most startling statistic revealed by researchers is that 1.69 million children in the U.S. live in households where firearms are kept unlocked and loaded.

Statistics like these should give us pause, especially when we consider the impact that safe gun storage practices can have on preventing accidental shootings and suicides by kids using guns. A study published recently in the Journal of the American Medical Association found that the risk of unintentional shooting or suicide by minors using a gun is reduced by as much as 61 percent when ammunition in the home is locked up. Simply storing ammunition separately from the gun reduces such occurrences by more than 50 percent.

Recently, I joined with 69 of my colleagues in voting for an amendment offered by Senator Kohl that would require licensed dealers, manufacturers, and importers to include a safe gun storage or gun safety device with every handgun they sell. Hopefully Senator Kohl's amendment will become law.

We can do more to help stop accidents involving children and guns. I

urge my colleagues to join me in supporting commonsense gun storage requirements so that fewer families will have to endure the pain of losing a child or loved one because of a preventable tragedy involving a firearm.

Mr. President, it is with great pride that I pay tribute to an exceptional educator and steward of the Great Lakes, LCDR Luke Clyburn. Commander Clyburn is captain of the ship ``Pride of Michigan'' and president of the Noble Odyssey Foundation. He is an innovative, committed leader who has worked for more than 32 years to educate young people about the importance of the Great Lakes and other fresh water lakes through the Naval Sea Cadets training program. We are grateful for his long and distinguished service.

The U.S. Naval Sea Cadet Corps was incorporated by an act of Congress in 1962, and a Great Lakes Division was added in 1973. The mission of the Corps is to ``encourage and aid American youth to develop, train them in seagoing skills, and to teach them patriotism, courage, self- reliance and kindred virtues.'' For more than 32 years, Commander Clyburn has accepted that charge.

Under Commander Clyburn's able leadership, the Sea Cadet program acquired a retired naval vessel, the ``Noble Odyssey,'' in 1977. On it, Sea Cadets from Michigan learned to man a ship from bow to stern, and they took part in invigorating scientific missions. With the cadets as crew, Commander Clyburn put together a series of Great Lakes research projects with professional scientists.

In 1989, it was my honor to help Commander Clyburn replace the ``Noble Odyssey'' with a larger ship, another retired naval vessel, the ``Pride of Michigan.'' On the ``Pride of Michigan,'' Luke has continued the same great work with the same great results. The scientific work has included significant research on invasive zebra mussels, which are harming the Great Lakes, and an investigation of an ancient drowned forest 2 miles off of Lexington, MI. These projects have been filmed and produced into documentaries, including the educational videos ``Fresh Water Invaders,'' ``Angels of the Sea,'' ``Emperor,'' ``The Underwater Forest,'' and ``The Norwood Project.''

In 2002, the Noble Odyssey Foundation was established as a nonprofit organization to raise money for the Sea Cadet Corps. With Luke as its president, the foundation has ensured the future of the Naval Sea Cadet Program, Great Lakes Division.

Commander Clyburn has dedicated himself to teaching young people about the importance of fresh water and how to protect these resources for future generations. He has been an inspiration and a gift to so many youth, and, along the way, he has made great contributions to scientific discovery. I know that my colleagues join me in thanking and praising Commander Clyburn for his distinguished service to our country.

Mr. President, this year marks the 50th anniversary of the Great Lakes Commission. The Great Lakes Commission is a bi-national agency working to improve the Great Lakes and the region. The Commission promotes the orderly and comprehensive development, use and conservation of the Great Lakes basin, its tributaries and the St. Lawrence River. Its members include the eight Great Lakes States, Illinois, Indiana, Michigan, Minnesota, Ohio, New York, Pennsylvania and Wisconsin, with associate member status for the Canadian provinces of Quebec and Ontario.

Since its establishment in 1955, the Great Lakes Commission has been a pioneer in applying principles of sustainability to the natural resources of the Great Lakes basin and St. Lawrence River. The Commission promotes the paired goals of environmental protection and economic improvement and has built its reputation on an integrated and objective approach to public policy issues and opportunities.

When the Great Lakes Commission was founded in 1955, the Great Lakes region was about to gain greater regional and economic importance; St.

Lawrence Seaway was close to completion. With a greater influx of commercial activity along the waters, there was a collaborative desire in the region to form an organization whose task would be to promote the development, use and conservation of the Great Lakes Basin while making it possible for the States to derive maximum benefit from its resources. Additionally, the Commission was to serve as an advisory agency of the States and Federal Government. In 1954, at the Great Lakes Seaway and Water Resources Conference the notion of creating a State and provincial compact was discussed. In the following year, the eight Great Lakes States all passed legislation to establish the Commission.

Congressional ratification did not come until 1968 after jurisdiction over the type of consultation the Commission would be able to provide to both the U.S. and Canada had been addressed.

Over the years, the Great Lakes Commission has been responsible for providing a unified voice, quality research, and sound advice for the Great Lakes region. Among its accomplishments are the establishments the Great Lakes Regional Water Use Database, the Great Lakes Basin Program for Soil Erosion and Sediment Control, the Great Lakes Information Network, the Michigan Water Corps, and Great Lakes St. Lawrence Mayors' Conference. I would just like to share briefly with my colleagues a bit about these great programs.

In 1988, the Great Lakes Regional Water Use Database was one of the first compilations of its sort. It provides a comprehensive collection of information on the region's water use, including reports, charts and other publications. Today, it is just one of many database and monitoring programs initiated by the Great Lakes Commission.

The Great Lakes Basin Program for Soil Erosion and Sediment Control works in partnership with the U.S. Department of Agriculture, the EPA and the U.S. Army Corps of Engineers. It was created in 1991 to prevent further soil erosion and sedimentation from damaging the Great Lakes waters by using educational and financial tools. This program has already saved more than 650,000 tons of soil and prevented 487 tons of nitrogen and 674 tons of phosphorus from flowing into the waterways.

The Great Lakes Information Network is an online database that combines economic, environmental, travel, and educational information about the Great Lakes. It is a premier search engine on information regarding the region and has won numerous awards. The Commission's work to establish and maintain such a network is invaluable to those who need data and research on the Great Lakes.

Recently, the Michigan Clean Water Corps has also joined the long list of successful programs supported by the Great Lakes Commission. The Clean Water Corps was established in 2003 by executive order from Governor Jennifer Granholm to work in partnership with the Huron River Watershed Council and the Michigan Department of Environmental Quality. The goal of the Corps is to provide volunteers with training to monitor and distribute information on the water quality of the waters around Michigan and to provide educational tools to assist in creating an informed public.

In 1987, the Commission brought together the regional mayors to meet about Great Lakes issues for the first time. The Commission helped promote the idea that the mayors in the Great Lakes region could unite and be a driving political force. This annual conference also provides a forum for the mayors of the Great Lakes region to share ideas to address the area's problems.

These are just a few of the programs that the Great Lakes Commission oversees and implements. As they continue these initiatives in the coming years, they will also focus more on sustainability and growth.

The Great Lakes Commission is vital for the health and future of the Great Lakes. I would like to thank the Great Lakes Commission for the wonderful work they have done over the past 50 years and congratulate them on reaching this milestone. I hope that my colleagues will join me in expressing that appreciation.

Mr. President, I would like to take this opportunity to pay tribute to Benjamin Aaron Benjamin, a great musician and teacher, who passed away at the age of 40 on May 22, 2005. Mr. Benjamin was well respected in the Detroit community and dedicated his life to sharing the gift of music with others. He will be sorely missed by those whose lives he has touched.

Benjamin Aaron Benjamin, who learned to play the piano at a very young age, was born in Stamford, CT on March 8, 1965, to James and Rebekah Benjamin. He attended the Hart School of Music and was a concert pianist who devoted much of his time to instilling in children his love of music. He founded the Benjamin Conservatory of Music in 2002 to provide music education to the people of the greater Detroit area.

He is mourned by his family, former students, and many people across my home State of Michigan. Benjamin is survived by his parents, his daughter, Yasmine, and his seven siblings: James, John, Mark, Richard, Chandler, Grace, and Myah.

This is, indeed, a great loss to all who knew him and to those who have benefitted from his talent and love of music. I know my colleagues will join me in paying tribute to the life and work of Benjamin Aaron Benjamin. I hope his family takes comfort in knowing that his legacy will be passed on through the music he loved so much and by the many whose lives have been enriched by his efforts.

Mr. President, today I am introducing legislation to give the President the temporary authority to freeze the price of gasoline and other petroleum products at their levels just prior to the devastation wrought by Hurricane Katrina on the Gulf Coast of the United States. This authority would expire once supplies of these products have been restored to their pre-hurricane levels.

Our topmost priority, of course, must be to provide immediate aid directly to the victims of this immense tragedy. Hundreds of thousands of people have been driven from their homes. Thousands may have died. The destruction along the Gulf Coast is extensive, and much of New Orleans is still submerged. We must continue to place the highest priority on providing food, clothing, and shelter for the people displaced by the hurricane.

At the same time, we must start to take measures to address other consequences of the damage caused by Katrina. Katrina has damaged a number of oil refineries along the Gulf Coast, knocking out about ten percent of our daily gasoline production. Current estimates are that it will take several months before production is restored to pre-hurricane levels.

Gasoline prices have skyrocketed in the wake of Katrina. Last Friday, the average price for a gallon of regular gasoline in Michigan reached $3.13. Today the national average is about $3.05 per gallon. These prices are record highs in the United States. Even adjusted for inflation, these prices are higher than they were during the energy crises of the 1970s, when high energy prices helped push the economy into a recession.

For most people, driving the car each day is not a luxury but a necessity. Millions of Americans depend upon affordable gasoline and other petroleum products for essential goods and services, including transportation to and from work, schools, grocery stores, and medical care; home heating oil; jet fuel for the other airlines; and a host of other daily needs.

Most people cannot drive less to get to work, school, or to buy groceries, so they are forced to pay whatever the oil companies charge for gasoline. In the language of economics, demand for gasoline is largely inelastic. Higher prices will not lead to a reduction in demand, or an increase in speed of repairs, since pre-Katrina production and profits were already at record levels and were more than sufficient to provide a major incentive to speed up repairs.

Moreover, the massive and unjustified gasoline price increases of the last week will not bring on more supply--only more profits for oil companies, as well as severe hardships for millions of Americans. Higher prices will not bring on additional supply, in the short term, only more profits for the oil companies and more pain for consumers.

I do not favor price controls when the market is working properly. In a properly functioning market, prices are set by the law of supply and demand.

However, in the current situation, we do not have a properly functioning market. Part of the market infrastructure has been physically destroyed by Hurricane Katrina. Price cannot play its normal role under the laws of supply and demand because increasing prices cannot produce either an increase in supply short-term or a significant reduction in demand. In a largely inelastic market, like our gasoline markets, where people depend upon gasoline for life's necessities, and cannot significantly reduce their consumption, increasing prices in the aftermath of a disaster serve no function other than to enrich the sellers at the expense of the buyers.

At a time of national crisis and tragedy, it is unseemly for a few to gain huge profits at the expense of everyone else. In the wake of the hurricane, millions of Americans are opening their hearts and homes to aid to the victims of the hurricane. It is unfair for a few to gain huge profits while many others are sacrificing.

A frequent comment in recent discussions about the effectiveness of price controls is ``Price controls didn't work in the 1970s.'' However, price controls in the 1970s were imposed for long periods of time, several years in fact. In the current situation, we are talking about a much shorter period of freeze--indeed I am urging a temporary freeze until supplies are restored to pre-hurricane levels. Until then, the market cannot function properly: supply cannot be increased no matter how high the price. Hence, the experience of the 1970s is not relevant to the current situation.

Under the bill I am introducing, once the market is restored to its pre-hurricane condition, the authority in this bill to freeze prices would expire.

There is a recent precedent for this action. In 2001, the Federal Energy Regulatory Commission imposed price caps on the wholesale price of electricity in California and other western markets in times when demand outstripped supply. FERC found the market was ``dysfunctional'' under these circumstances and price controls were necessary to provide ``just and reasonable'' rates for consumers.

President Bush supported FERC's price controls in the California electricity market. In so doing, the President referred to FERC's action as a ``market-based mitigation plan'' rather than price controls. Whatever the name, however, the effect was the same: when supply was inadequate to meet demand, the FERC stepped in to cap prices to keep rates just and reasonable.

The legislation I am introducing would provide the President with the authority to temporarily freeze the price of gasoline and other refined products at or below the levels that prevailed before Hurricane Katrina hit the Gulf Coast of the United States. This authority would terminate when the President determines that the domestic supply of refined petroleum products meets or exceeds the level of domestic supply before Hurricane Katrina.

I ask unanimous consent that the text of this bill be printed in the Record. I urge my colleagues to support this legislation.

Mr. President, today I am introducing legislation to give the President the temporary authority to freeze the price of gasoline and other petroleum products at their levels just prior to the devastation wrought by Hurricane Katrina on the Gulf Coast of the United States. This authority would expire once supplies of these products have been restored to their pre-hurricane levels.

Our topmost priority, of course, must be to provide immediate aid directly to the victims of this immense tragedy. Hundreds of thousands of people have been driven from their homes. Thousands may have died. The destruction along the Gulf Coast is extensive, and much of New Orleans is still submerged. We must continue to place the highest priority on providing food, clothing, and shelter for the people displaced by the hurricane.

At the same time, we must start to take measures to address other consequences of the damage caused by Katrina. Katrina has damaged a number of oil refineries along the Gulf Coast, knocking out about ten percent of our daily gasoline production. Current estimates are that it will take several months before production is restored to pre-hurricane levels.

Gasoline prices have skyrocketed in the wake of Katrina. Last Friday, the average price for a gallon of regular gasoline in Michigan reached $3.13. Today the national average is about $3.05 per gallon. These prices are record highs in the United States. Even adjusted for inflation, these prices are higher than they were during the energy crises of the 1970s, when high energy prices helped push the economy into a recession.

For most people, driving the car each day is not a luxury but a necessity. Millions of Americans depend upon affordable gasoline and other petroleum products for essential goods and services, including transportation to and from work, schools, grocery stores, and medical care; home heating oil; jet fuel for the other airlines; and a host of other daily needs.

Most people cannot drive less to get to work, school, or to buy groceries, so they are forced to pay whatever the oil companies charge for gasoline. In the language of economics, demand for gasoline is largely inelastic. Higher prices will not lead to a reduction in demand, or an increase in speed of repairs, since pre-Katrina production and profits were already at record levels and were more than sufficient to provide a major incentive to speed up repairs.

Moreover, the massive and unjustified gasoline price increases of the last week will not bring on more supply--only more profits for oil companies, as well as severe hardships for millions of Americans. Higher prices will not bring on additional supply, in the short term, only more profits for the oil companies and more pain for consumers.

I do not favor price controls when the market is working properly. In a properly functioning market, prices are set by the law of supply and demand.

However, in the current situation, we do not have a properly functioning market. Part of the market infrastructure has been physically destroyed by Hurricane Katrina. Price cannot play its normal role under the laws of supply and demand because increasing prices cannot produce either an increase in supply short-term or a significant reduction in demand. In a largely inelastic market, like our gasoline markets, where people depend upon gasoline for life's necessities, and cannot significantly reduce their consumption, increasing prices in the aftermath of a disaster serve no function other than to enrich the sellers at the expense of the buyers.

At a time of national crisis and tragedy, it is unseemly for a few to gain huge profits at the expense of everyone else. In the wake of the hurricane, millions of Americans are opening their hearts and homes to aid to the victims of the hurricane. It is unfair for a few to gain huge profits while many others are sacrificing.

A frequent comment in recent discussions about the effectiveness of price controls is ``Price controls didn't work in the 1970s.'' However, price controls in the 1970s were imposed for long periods of time, several years in fact. In the current situation, we are talking about a much shorter period of freeze--indeed I am urging a temporary freeze until supplies are restored to pre-hurricane levels. Until then, the market cannot function properly: supply cannot be increased no matter how high the price. Hence, the experience of the 1970s is not relevant to the current situation.

Under the bill I am introducing, once the market is restored to its pre-hurricane condition, the authority in this bill to freeze prices would expire.

There is a recent precedent for this action. In 2001, the Federal Energy Regulatory Commission imposed price caps on the wholesale price of electricity in California and other western markets in times when demand outstripped supply. FERC found the market was ``dysfunctional'' under these circumstances and price controls were necessary to provide ``just and reasonable'' rates for consumers.

President Bush supported FERC's price controls in the California electricity market. In so doing, the President referred to FERC's action as a ``market-based mitigation plan'' rather than price controls. Whatever the name, however, the effect was the same: when supply was inadequate to meet demand, the FERC stepped in to cap prices to keep rates just and reasonable.

The legislation I am introducing would provide the President with the authority to temporarily freeze the price of gasoline and other refined products at or below the levels that prevailed before Hurricane Katrina hit the Gulf Coast of the United States. This authority would terminate when the President determines that the domestic supply of refined petroleum products meets or exceeds the level of domestic supply before Hurricane Katrina.

I ask unanimous consent that the text of this bill be printed in the Record. I urge my colleagues to support this legislation.

Mr. President, I am supporting the conference report on the Energy bill. The conference report includes provisions that will increase the diversity of our Nation's fuel supply, encourage investment in infrastructure and alternative energy technologies, increase domestic energy production, take steps to improve the reliability of our electricity supply, and improve energy efficiency and conservation. This conference report is far from perfect but on balance it moves toward a sounder energy policy that will lead the way to greater energy security and efficiency for the United States.

Our policies have long ignored the problem of U.S. dependence on foreign oil, and we remain as vulnerable to oil supply disruptions today as we have been for decades. Taking the steps necessary to reduce our dependence on foreign oil is an important objective for this country. We need a long-term, comprehensive energy plan, and I have long supported initiatives that will increase our domestic energy supplies in a responsible manner and provide consumers with affordable and reliable energy.

There are some positive provisions included in the conference report in this regard, particularly those provisions that address energy efficiency and will lead us toward greater use of advanced vehicle technologies and alternative fuels such as ethanol and biodiesel. I have also long advocated Federal efforts that will lead to revolutionary breakthroughs in automotive technology that will in turn help us reduce our oil consumption. We need a level of leadership similar to the effort of a previous generation to put a man on the moon.

The conference report includes a wide-range of energy efficiency provisions that will make conservation and efficiency a central component of our Nation's energy strategy. These provisions address Federal, State, and local energy efficiency programs, provide funding for important programs such as home weatherization, and establish efficiency standards for a wide variety of consumer and commercial products. I am particularly pleased that the conference report authorizes both the weatherization program and the Low Income Home Energy Assistance Program, LIHEAP, at higher levels of funding than the Congress has provided in recent years.

The conference report takes critical steps to improve the reliability of our electrical grid and promote electricity transmission infrastructure development. Our economy depends upon electric power, and, in some cases, electric power literally saves lives. Failures in the electric system interrupt many crucial activities, and the need for improvement was underscored painfully by the August 2003 blackout. There were 2 key lessons from the blackout--the need for strong regional transmission organizations to ensure that reliability standards are carried out and enforced, and the need for additional transmission upgrades to maintain reliability. I regret that it has taken 2 years to legislate on these issues, but I am pleased that the conference report includes the steps necessary to ensure there will be mandatory and enforceable reliability standards.

The conference report also puts increased emphasis on diversity of supply and includes a range of provisions intended to encourage the use of new and cleaner technologies, particularly for power generation. Nearly 60 percent of electricity generation in Michigan is generated from coal, which will remain a vital resource well into the future. Programs authorizing research in clean coal-based gasification and combustion technologies will ensure that the most advanced technologies are developed for power generation. Other provisions of the conference report also encourage the use of innovative technologies for both power generation and other end-uses.

Increased emphasis on diversity of fuel supply will help to take the pressure off our tight natural gas supply, which is important for States such as Michigan with a large manufacturing base. Over the past 6 years, the tight natural gas supply and volatile domestic prices have had significant impacts on the U.S. manufacturing sector, which depends on natural gas as both a fuel source and a feedstock and raw material for everything from fertilizer to automobile components. As domestic production of natural gas has declined, demand for natural gas has increased dramatically, particularly in the area of power generation. Today, U.S. natural gas prices are the highest in the industrialized world, and many companies have been forced to move their manufacturing operations offshore. More than 2 million manufacturing jobs have been lost to overseas operations in the 5 years, in part no doubt because natural gas prices jumped from $2 per million Btu to more than $7 per million Btu.

I am pleased that the conference report includes significant provisions from the Senate bill for research, development, demonstration and commercialization effort in the area of hydrogen and fuel cells. I believe that this program will help us make critical strides toward realizing the goal of putting hydrogen fuel cell vehicles on the road over the next 10 to 15 years. The conference report also includes an amendment I offered in the Senate to have the National Academy of Sciences conduct a study and submit a budget roadmap to Congress on what level of effort and what types of actions will be required to transition to fuel cell vehicles and a hydrogen economy by 2020. If hydrogen is the right answer, we will need the equivalent of a moon shot to get there. We will need a significant Federal investment--well beyond anything we are doing today--in conjunction with private industry and academia to reach that goal. This study and roadmap will be an important step toward determining if that is the right path to follow.

We also need to put greater Federal resources into work on other breakthrough technologies such as advanced hybrid technologies, advanced batteries, advanced clean diesel, and hybrid diesel technology. Federal Government investment is essential not only in research and development but also as a mechanism to push the market toward greater use and acceptance of advanced technologies. Expanding the requirements for the Federal Government to purchase advanced technology vehicles will help provide a market for advanced technologies. Encouraging and supporting State and local efforts is also important in the effort to push these advanced technologies forward. Therefore, I am pleased the conference report includes the amendment offered by Senator Voinovich in the Senate to authorize $200 million annually for 5 years to fund Federal and State grant and loan programs that will help us to replace older diesel technology with newer, cleaner diesel technology. These initiatives will help the U.S. to develop advanced clean diesel technology, which can make a major contribution toward our meeting stricter emissions standards in a cost- effective manner.

Finally, the conference report also includes important tax incentives for advanced technology vehicles--including advanced clean diesel, as well as hybrid and fuel cell vehicles--that are critical to encourage consumers to make the investment in these technologies. I would have liked for the tax package to have included more generous tax credits for consumers and to have included an investment tax credit to manufacturers to help defray the cost of re-equipping or expanding existing facilities to produce advanced technology vehicles. The tax incentives included in the conference report are a modest first step. I will continue to

press for an investment tax credit for manufacturing of advanced technology vehicles because I believe it is necessary to offset the high capital costs of such an investment and to ensure that these vehicles will be made in the U.S.

I am pleased that the conference report includes an amendment that I offered in the Senate with Senator Collins to direct the U.S. Department of Energy to develop and use cost-effective procedures for filling the U.S. Strategic Petroleum Reserve. This provision requires DOE to consider the price of oil and other market factors when buying oil for the SPR and to take steps to minimize the program's cost to the taxpayer while maximizing our energy security. Since early 2002, DOE has been acquiring oil for the SPR without regard to the price or supply of oil. During this period the price of oil has been very high-- often over $30 per barrel--and the oil markets have been tight. Many experts have stated that filling the SPR during the tight oil markets over the past several years increased oil prices. With this provision, the conference report directs DOE to use some common sense when buying oil for the SPR.

I am also pleased that the conference report provides at least a short-term approach to some air quality issues in West Michigan. Interstate pollution from upwind areas such as Chicago and Gary, has resulted in several Michigan counties being designated by the EPA as in nonattainment with the National Ambient Air Quality Standards. This interstate pollution not only has environmental and health ramifications, but also has economic development implications because nonattainment regions are required to comply with more stringent regulatory standards. The 2 year respite from these additional regulatory provisions for West Michigan counties whose air quality problems were caused by upwind sources will provide temporary regulatory relief. However, these counties are still burdened with air pollution they did not cause. I am hopeful that EPA's 2 year demonstration study of the long-range transport of ozone and ozone precursors required in the Energy bill will provide helpful information for addressing the source of the pollution and result in improved air quality for downwind areas. Until the source pollution is addressed, West Michigan will continue to be plagued by pollutants from upwind areas. I am hopeful that this study and 2 year delay in regulatory requirements will provide the motivation for addressing the broader problems of interstate air pollution.

I am pleased that the conference report contains a ban on future drilling in the Great Lakes. Millions of people rely on the Great Lakes for drinking water, and it is simply irresponsible to risk contamination of this source of drinking water, tourism and recreation. Preventing future drilling does not jeopardize more than a minute amount of our energy supply, and the bill does that for a very good cause, which is the protection of one of the world's truly great natural assets, the source of about 20 percent of the world's fresh water.

The conference report puts some increased emphasis on renewable energy technologies, such as wind, biomass, and solar power. These technologies are becoming more economical every year. In fact, in some areas of the country these technologies are competitive with traditional fuels such as coal and natural gas. However, I regret that the conference report deleted the Renewable Portfolio Standard, which I supported in the Senate bill that would have pushed the sellers of electricity to obtain 10 percent of their electric supply from renewable energy sources by the year 2020. I believe that these goals could have been met and that an increased use of renewable technologies will both reduce our dependence on foreign oil and lead to the creation of tens of thousands of new jobs.

I regret that the conference report does not include a comprehensive effort to adequately address the impact of global climate change. For years, almost all scientists have agreed that human actions are causing temperatures around the world to increase. Experts also agree that this global climate change will lead to environmental problems and economic hardship, but there has been no consensus in the United States about what we should do to stop climate change.

The threat is real and growing, and the longer we wait to reach a reasonable consensus, the more painful the solutions will be. I believe two major policy changes are needed at the Federal level: support for a new, binding international treaty that includes all countries, and a massive new Federal investment in research, development and commercialization of new technologies. Both of these steps would provide real environmental and economic benefits while being fair to American workers. The Senate considered several well-intentioned proposals on this issue, though I did not believe they would have taken us in a comprehensive direction. I supported a Sense of the Senate resolution that acknowledges the problem and calls on the administration to work with the Congress to enact a comprehensive national program to address this issue. I regret that the conference report did not include such a modest provision.

Finally, I am disappointed the provision allowing continued export of highly enriched uranium was included in the conference report. The amendment that Senator Kyl and Senator Schumer offered to strike this provision from the Senate passed bill was adopted by the Senate by rollcall vote. It is unfortunate that this provision, which is a special interest provision, granting relief to one Canadian company was reinserted in the final agreement. This provision undermines longstanding U.S. efforts to eliminate highly enriched uranium in commerce, and increases the possibility that highly enriched uranium could be stolen by terrorists and used in a nuclear weapon or radiological device.

The energy bills considered by the Congress over the last couple of years have been doomed by a heavy-handed, partisan approach. We lost valuable time in putting us on the course toward a sounder energy policy. The conference committee pursued a different approach this year, and as a result, was able to produce a bill with bipartisan support, which, while far from perfect, on balance, is an improvement over current policy.

Mr. President, the misnamed Protection of Lawful Commerce in Arms Act would rewrite well-accepted principles of liability law, providing one industry, the gun industry, legal protections not enjoyed by other industries. In addition, this bill would set a dangerous precedent by giving a single industry broad immunity from civil liability and deprive many victims of gun violence with legitimate cases of their day in court.

Law enforcement and community groups oppose the gun industry immunity bill because they understand its negative impact on the legal rights of gun violence victims. The list of law enforcement groups opposing this bill includes the International Brotherhood of Police Officers, the Major Cities Chiefs Association, the National Black Police Association, and the Michigan Association of Chiefs of Police as well as police departments from around the country. The bill is also opposed by many organizations in Michigan including the League of Women Voters of Michigan, the Michigan Partnership to Prevent Gun Violence, and local chapters of the Million Mom March.

Tort law has been traditionally left to the States to define, and if changes have been necessary, Congress has usually deferred to State legislatures to make those changes. This bill seeks to impose a Federal tort regime that would significantly restrict the ability of State courts to hear and decide cases involving grossly negligent or reckless conduct by gun dealers and manufacturers, even where existing State law would permit such cases.

Some have argued that this legislation would protect the gun industry from frivolous lawsuits meant to bankrupt the entire industry. While most gun dealers and manufacturers conduct their business responsibly, this gun industry immunity legislation would provide broad protection from liability even in these cases where gross negligence or recklessness lead to someone being injured or killed. The issue here is not whether innocent manufacturers or gun dealers should be held accountable for the criminal actions of those who use their product. Manufacturers and dealers of guns have a right to make and sell guns. However, that right is not unlimited. It comes with some responsibility. Like every other business in this country, people who are in the gun business have a responsibility to conduct that business with reasonable care. If a member of the gun industry fails to do so, and their negligence or recklessness leads to someone being killed or injured, they should not be immune from suit.

As this bill is currently written, it is not sufficient that persons injured as a result of a gun manufacturer or dealer's negligence or reckless conduct prove their case; with a few exceptions, they would also have to show that the actions of the manufacturer or dealer were illegal to recover damages. This is a radical departure from not only common law but also from principles of fairness and the protection of victims' rights.

What if a gun dealer is not violating the law, but is reckless or grossly negligent in the way they maintain their inventory or secure the weapons they are selling? Tragically, we had such a situation in the 2002 DC area sniper shootings. Last year, the victims of the DC area sniper shootings won a multimillion-dollar settlement from Bulls Eye Shooter Supply for their negligence relative to the assault rifle used in the shootings. According to published reports, audits by the Bureau of Alcohol, Tobacco, Firearms and Explosives indicate that 238 guns had gone missing from Bull's Eye's inventory and over 50 had been traced to criminal acts since 1997. Had this gun industry immunity bill been enacted prior to the DC area sniper shootings, the victims would have been unable to even have their case against Bull's Eye Shooter Supply heard in court.

Another tragic example involving an innocent victim of gun violence is that of Danny Guzman. On Christmas Eve 1999, Danny Guzman was shot and killed in Worcester, MA. The gun used in the shooting was found nearly a week later by a 4-year-old child and was turned over to police. The gun had no serial number.

The investigation following the shooting revealed the gun was one of several stolen by employees of Kahr Arms. It was discovered that one of the employees in the Kahr manufacturing facility had stolen the gun used to kill Danny Guzman and sold it to buy crack cocaine. Publicly available records indicate this employee of the Kahr facility had been addicted to cocaine and was ``habitually stealing money to support his cocaine habit.''

In March of 2000, the police arrested the Kahr employee who later pled guilty to the gun thefts. The investigation also led to the arrest of a second Kahr employee who also pled guilty to stealing a gun.

According to a complaint that was filed by Danny Guzman's family, Kahr Arms not only apparently hired a drug addict with a record of criminal charges, but the company also chose not to utilize basic security measures that could have prevented the theft, or an inventory tracking system that could have determined that guns were missing. According to the family's complaint, Kahr Arms did not conduct background checks on employees. The company did not install metal detectors, security cameras, x-ray machines, or other devices to ensure that employees did not walk off with guns.

Despite the fact that Kahr Arms manufactures several types of ``ultra compact'' handguns, the company did not track its inventory in any meaningful way. And according to the complaint, from February 1998 to February 1999, approximately 16 shipments of handguns from Kahr Arms failed to arrive at their points of destination.

The lawsuit that was filed by Danny Guzman's surviving family members alleges the wrongful death based on Kahr Arms alleged negligence. While the defendants moved to dismiss this case on April 7, 2003, the Massachusetts Superior Court denied the motions. If the bill before us is enacted, the court would be required to dismiss the case against Kahr Arms.

Responsible gun dealers and manufacturers do not need immunity from liability, and we should not be protecting the reckless and negligent ones.

A letter to members of Congress from 75 law professors from universities around the country illustrates the extensive negative impact that this bill would have on the rights of innocent gun violence victims. Here's a few excerpts:

It might appear from the face of the bill that S. 397 and

H.R. 800 would leave open the possibility of tort liability

for truly egregious misconduct, by virtue of several

exceptions set forth in Section 4(5)(i). Those exceptions,

however, are in fact quite narrow, and would give those in

the firearm industry little incentive to attend to the risks

of foreseeable third party misconduct.

One exception, for example would purport to permit certain actions for ``negligent entrustment.'' The bill goes on, however, to define ``negligent entrustment'' extremely narrowly. The exception applies only to sellers, for example, and would not apply to distributors or manufacturers, no matter how egregious their conduct. Even as to sellers, the exception would apply only where the particular person to whom a seller supplies a firearm is one whom the seller knows or ought to know will use it to cause harm. The ``negligent entrustment'' exception would, therefore, not permit any action based on reckless distribution practices, negligent sales to gun traffickers who supply criminals, as in the above example, careless handling of firearms, lack of security, or any of a myriad potentially negligent acts.

Another exception would leave open the possibility of liability for certain statutory violations, variously defined, including those described under the heading of negligence per se. Statutory violations, however, represent just a narrow special case of negligence liability. No jurisdiction attempts to legislate standards of care as to every detail of life, even in a regulated industry; and there is no need. Why is there no need? Because general principles of tort law make clear that the mere absence of a specific statutory prohibition is not carte blanche for unreasonable or dangerous behavior. S. 397 and H.R. 800 would turn this traditional framework on its head and free those in the firearms industry to behave as

carelessly as they would like, so long as the conduct has not been specifically prohibited. If there is no statute against leaving an open truckload of assault rifles on a street corner, or against selling hundreds of guns to the same individual, under this bill there could be no tort liability.''

I ask unanimous consent that a copy of this letter be printed in the Record.

I offered an amendment to help address this problem in the bill. Many recklessness and gross negligence suits are not based on a violation of the law, but on a violation of a standard. My amendment would have provided that reckless or grossly negligent conduct by gun dealers or manufacturers, in other words, those whose own actions are a proximate cause of someone's death or injury, may be held liable in civil court for the damages they caused. This approach would have preserved well- established principles of our tort law. No one proposes, and this amendment did not propose, to make members of the gun industry responsible for the actions of criminals. This amendment would have made sure members of the gun industry are still responsible for their own reckless or negligent conduct.

It is truly unfortunate that the majority in the Senate did not adopt my amendment to protect the rights of victims of gun violence and to hold members of the gun industry accountable for their own actions when they lead to the injury or death of another person. I am also disappointed that the Senate failed to adopt amendments that would have protected the rights of children and law enforcement officers to file suit against irresponsible gun dealers and manufacturers who continue to contribute to the gun violence problem in our country.

We should not infringe upon the rights of gun violence victims in order to provide a single industry with immunity from liability. If this bill is enacted, other industries will almost certainly line up for similar protections. This is unwise legislation and it should not be adopted.

The University of Michigan

Law School,

Ann Arbor, Michigan.

Dear Senators and Representatives: As a professor of law at

the University of Michigan Law School, I write to alert you

to the legal implications of S. 397 and H.R. 800, the

``Protection of Lawful Commerce in Arms Act.'' My colleagues,

who join me in signing this letter, are professors at law

schools around the country. This bill would represent a

substantial and radical departure from traditional principles

of American tort law. Though described as an effort to limit

the unwarranted expansion of tort liability, the bill would

in fact represent a dramatic narrowing of traditional tort

principles by providing one industry with a literally

unprecedented immunity from liability for the foreseeable

consequences of negligent conduct.

S. 397 and H.R. 800, described as ``a bill to prohibit

civil liability actions from being brought or continued

against manufacturers, distributors, dealers, or importers of

firearms or ammunition for damages resulting from the misuse

of their products by others,'' would largely immunize those

in the firearms industry from liability for negligence. This

would represent a sharp break with traditional principles of

tort liability. No other industry enjoys or has ever enjoyed

such a blanket freedom from responsibility for the

foreseeable and preventable consequences of negligent

conduct.

It might be suggested that the bill would merely preclude

what traditional tort law ought to be understood to preclude

in any event--lawsuits for damages resulting from third party

misconduct, and in particular from the criminal misuse of

firearms. This argument, however, rests on a fundamental

misunderstanding of American tort law. American law has never

embraced a rule freeing defendants from liability for the

foreseeable consequences of their negligence merely because

those consequences may include the criminal conduct of third

parties. Numerous cases from every American jurisdiction

could be cited here, but let the Restatement (Second) of

Torts suffice:

Sec. 449. tortious or criminal acts the probability of which makes

actor's conduct negligent

If the likelihood that a third person may act in a

particular manner is the hazard or one of the hazards which

makes the actor negligent, such an act whether innocent,

negligent, intentionally tortious, or criminal does not

prevent the actor from being liable for harm caused thereby.

(emphasis supplied)

Similarly, actors may be liable if their negligence enables

or facilitates foreseeable third party criminal conduct.

Thus, car dealers who negligently leave vehicles

unattended, railroads who negligently manage trains, hotel

operators who negligently fail to secure rooms, and

contractors who negligently leave dangerous equipment

unguarded are all potentially liable if their conduct creates

an unreasonable and foreseeable risk of third party

misconduct, including illegal behavior, leading to harm. In

keeping with these principles, cases have found that sellers

of firearms and other products (whether manufacturers,

distributors or dealers) may be liable for negligently

supplying customers or downstream sellers whose negligence,

in turn, results in injuries caused by third party criminal

or negligent conduct. In other words, if the very reason

one's conduct is negligent is because it creates a

foreseeable risk of illegal third party conduct, that illegal

conduct does not sever the causal connection between the

negligence and the consequent harm. Of course, defendants are

not automatically liable for illegal third party conduct, but

are liable only if--given the foreseeable risk and the

available precautions--they were unreasonable (negligent) in

failing to guard against the danger. In most cases, moreover,

the third party wrongdoer will also be liable. But, again,

the bottom line is that under traditional tort principles a

failure to take reasonable precautions against foreseeable

dangerous illegal conduct by others is treated no differently

from a failure to guard against any other risk.

S. 397 and H.R. 800 would abrogate this firmly established

principle of tort law. Under this bill, the firearms industry

would be the one and only business in which actors would be

free utterly to disregard the risk, no matter how high or

foreseeable, that their conduct might be creating or

exacerbating a potentially preventable risk of third party

misconduct. Gun and ammunition makers, distributors,

importers, and sellers would, unlike any other business or

individual, be free to take no precautions against even the

most foreseeable and easily preventable harms resulting from

the illegal actions of third parties. And they could engage

in this negligent conduct persistently, even with the

specific intent of profiting from sales of guns that are

foreseeably headed to criminal hands. Under this bill, a

firearms dealer, distributor, or manufacturer could park an

unguarded open pickup truck full of loaded assault rifles on

a city street corner, leave it there for a week, and yet be

free from any negligence liability if and when the guns were

stolen and used to do harm. A firearms dealer, in most

states, could sell 100 guns to the same individual every day,

even after the dealer is informed that these guns are being

used in crime--even, say, by the same violent street gang.

It might appear from the face of the bill that S. 397 and

H.R. 800 would leave open the possibility of tort liability

for truly egregious misconduct, by virtue of several

exceptions set forth in Section 4(5)(i). Those exceptions,

however, are in fact quite narrow, and would give those in

the firearm industry little incentive to attend to the risks

of foreseeable third party misconduct.

One exception, for example would purport to permit certain

actions for ``negligent entrustment.'' The bill goes on,

however, to define ``negligent entrustment'' extremely

narrowly. The exception applies only to sellers, for example,

and would not apply to distributors or manufacturers, no

matter how egregious their conduct. Even as to sellers, the

exception would apply only where the particular person to

whom a seller supplies a firearm is one whom the seller knows

or ought to know will use it to cause harm. The ``negligent

entrustment'' exception would, therefore, not permit any

action based on reckless distribution practices, negligent

sales to gun traffickers who supply criminals (as in the

above example), careless handling of firearms, lack of

security, or any of a myriad potentially negligent acts.

Another exception would leave open the possibility of

liability for certain statutory violations, variously

defined, including those described under the heading of

negligence per se. Statutory violations, however, represent

just a narrow special case of negligence liability. No

jurisdiction attempts to legislate standards of care as to

every detail of life, even in a regulated industry; and there

is no need. Why is there no need? Because general principles

of tort law make clear that the mere absence of a specific

statutory prohibition is not carte blanche for unreasonable

or dangerous behavior. S. 397 and H.R. 800 would turn this

traditional framework on its head; and free those in the

firearms industry to behave as carelessly as they would like,

so long as the conduct has not been specifically prohibited.

If there is no statute against leaving an open truckload of

assault rifles on a street corner, or against selling 100s of

guns to the same individual, under this bill there could be

no tort liability. Again, this represents radical departure

from traditional tort principles.

My aim here is simply to provide information, and insure

that you are not inadvertently misled about the meaning and

scope of S. 397 and H.R. 800. As currently drafted, this Bill

would not simply protect against the expansion of tort

liability, as has been suggested, but would in fact

dramatically limit the application of longstanding and

otherwise universally applicable tort principles. It provides

to firearms makers and distributors a literally unprecedented

form of tort immunity not enjoyed or even dreamed-of by any

other industry.

Professor Sherman J. Clark, University of Michigan Law

School; Professor Richard L. Abel, UCLA Law School;

Professor Barbara Bader Aldave, University of Oregon

School of Law; Professor Mark F. Anderson, Temple

University Beasley School of Law; Professor Emeritus

James Francis Bailey, III Indiana University School of

Law; Professor Elizabeth Bartholet, Harvard Law School;

Professor Peter A Bell, Syracuse University College of

Law; Professor Margaret Berger, Brooklyn Law School;

Professor M. Gregg Bloche, Georgetown University Law

Center; Professor Michael C. Blumm, Lewis and Clark Law

School; Professor Carl T. Bogus, Roger Williams

University School of Law; Professor Cynthia Grant

Bowman, Northwestern University School of Law; Director

of the MacArthur Justice Center and Lecturer in Law;

Locke Bowman, University of Chicago Law School;

Professor Scott Burris, Temple University Beasley

School of Law; Professor Donna Byrne, William Mitchell

College of Law; Professor Emily Calhoun, University of

Colorado School of Law; Professor Erwin Chemerinsky,

Duke Law School; Associate Clinical Professor Kenneth

D. Chestek, Indiana University School of Law; Associate

Professor Stephen Clark, Albany Law School; Professor

Marsha N. Cohen, University of California Hastings

College of the Law.

Professor Anthony D'Amato, Northwestern University School

of Law; Professor John L. Diamond, University of

California Hastings College of Law; Professor David R.

Dow, University of Houston Law Center; Professor Jean

M. Eggen, Widener University School of Law; Associate

Professor Christine Haight Farley, American University,

Washington College of Law; Associate Professor Ann E.

Freedman, Rutgers Law School-Camden; Professor Gerald

Frug, Harvard Law School; Professor Barry R. Furrow,

Widener University School of Law; Associate Clinical

Professor Craig Futterman, University of Chicago Law

School; Professor David Gelfand, Tulane University Law

School; Professor Phyllis Goldfarb, Boston College Law

School; Professor Lawrence Gostin, Georgetown

University Law Center; Professor Michael Gottesman,

Georgetown University Law Center; Professor Stephen E.

Gottlieb, Albany Law School; Professor Phoebe Haddon,

Temple University Beasley School of Law; Professor Jon

D. Hanson, Harvard Law School; Professor Douglas R.

Heidenreich, William Mitchell College of Law; Professor

Kathy Hessler, Case Western Reserve University School

of Law; Professor Eric S. Janus, William Mitchell

College of Law; Professor Sheri Lynn Johnson, Cornell

Law School;

Professor David J. Jung, University of California

Hastings College of Law; Associate Professor Ken

Katkin, Salmon P. Chase College of Law, Northern

Kentucky Univ.; Professor David Kairys, Temple

University Beasley School of Law; Professor Kit

Kinports, University of Illinois School of Law;

Professor Martin A. Kotler, Widener University School

of Law; Professor Baily Kuklin, Brooklyn Law School;

Professor Arthur B. LaFrance, Lewis and Clark Law

School; Professor Sylvia A. Law, NYU School of Law;

Professor Ronald Lasing, Lewis and Clark Law School;

Professor Robert Justin Lipkin, Widener University

School of Law; Professor Hugh C. Macgill, University of

Connecticut School of Law; Professor Mari J. Matsuda,

Georgetown University Law Center; Associate Professor

Finbarr McCarthy, University Beasley School of Law;

Director (Retired Professor) Christine M. McDermott,

Randolph County Family Crisis Center, North Carolina;

Professor Joan S. Meier, George Washington University

Law School; Professor Naomi Mezey, Georgetown

University Law Center; Professor Eben Moglen, Columbia

Law School; Professor Dawn C. Nunziato, George

Washington University Law School; Professor Michael S.

Perlin, New York Law School; Clinical Professor Mark A.

Peterson, Northwestern School of Law, Lewis and Clark

College.

Professor Mark C. Rahdert, Temple University Beasley

School of Law; Professor Denise Roy, William Mitchell

College of Law; Professor Joyce Saltalamachia, New York

Law School; Clinical Assistant Professor David A.

Santacroce, University of Michigan School of Law;

Professor Niels Schaumanm, William Mitchell College of

Law; Professor Margo Schlanger, Washington University

School of Law; Professor Marjorie M. Shultz, University

of California Boalt School of Law; Senior Lecturer

Stephen E. Smith, Northwestern University School of

Law; Professor Peter J. Smith, George Washington

University Law School; Professor Norman Stein,

University of Alabama School of Law; Professor Duncan

Kennedy, Harvard Law School; Professor Frank J.Vandall,

Emory University School of Law; Professor Kelly

Weisberg, University of California Hastings College of

the Law; Professor Robin L. West, Georgetown University

Law Center; Professor Christina B. Whitman, University

of Michigan School of Law; Professor William M. Wiecek,

Syracuse University College of Law; Professor Bruce

Winick, University of Miami School of Law; Professor

Stephen Wizner, Yale Law School; Professor William

Woodward, Temple University Beasley School of Law.

Mr. President, for over 2 years Congress has been trying to reauthorize the Federal surface transportation and safety programs that to keep commerce and traffic flowing smoothly across our Nation. The reauthorization bill is long overdue and I am pleased Congress will finally complete this process today. Funding for transportation infrastructure such as roads, bridges and border crossings is an important investment that increases the mobility of people and goods, enhances economic competitiveness, reduces traffic congestion, and improves air quality.

Improvements in transportation infrastructure are critical to all of our States, and the Federal highway money that States receive is critical for funding them. In addition, few Federal investments have as large and immediate an impact on job creation and economic growth as transportation infrastructure. The Department of Transportation estimates that every $1 billion in new Federal investment creates more than 47,500 jobs.

Unfortunately, the formula that distributes Federal highway funds to States is antiquated and inequitable and has discriminated against Michigan and other states for 50 years since the interstate system was first legislated. Historically, about 20 states, including Michigan, have been ``donor'' States, sending more gas tax dollars to the Highway Trust Fund in Washington than are returned in transportation infrastructure spending. The remaining 30 States, known as ``donee'' States, have received more transportation funding than they paid into the Highway Trust Fund.

This unfair practice began in 1956 when small states and large Western states banded together to develop a formula for distributing Federal highway dollars that advantaged themselves to the disadvantage of the remaining States. Once that formula was in place, they have tenaciously defended it.

At the beginning, there was some legitimacy to the concept that large, low-population, and predominately Western states needed more funding than they contributed to the system. It was necessary in order to build a national interstate highway system. However, with the national interstate system completed, the formulas used to determine how much a state will receive from the Highway Trust are simply unfair.

Each time the highway bill has been reauthorized, I, along with my colleagues from other donor States, have fought to correct this inequity in highway funding. Over the years, through these battles, some progress has been made. For instance, in 1978, Michigan was getting around 75 cents back on our Federal gas tax dollar. The 1991 bill brought us up to approximately 80 cents per dollar, and the 1998 bill guaranteed a 90.5-cent minimum return for each State. This bill will bring us to 92 cents per dollar by fiscal year 2008.

During the past 2 years, in its effort to reauthorize TEA-21, the Senate has twice passed bills that would have been better for Michigan and other donor States in terms of rate of return than is today's Conference Report. The first Senate-passed bill died in conference due to President Bush's veto threat and his unwillingness to accept the funding levels in either the House or Senate bill. This year's Senate- passed bill was modified in the conference with the House of Representatives.

The bill before us has less overall funding than either of the previous Senate passed bills and does not go as far as it should go in closing the funding equity gap for donor States. Although I am disappointed we did not do as well as we proved could be done in the two Senate bills, this Conference Report still allows Michigan to make a little progress toward achieving equity. Michigan will go from a current 90.5 percent minimum rate of return on its gas-tax contributions to the Highway Trust Fund to 91.5 percent in fiscal year 2007 and to 92 percent in fiscal years 2008 and 2009.

This bill will provide more than $1.123 billion annually to fund transportation projects in Michigan, $239 million more per year than the prior 6 year highway bill, and will create 61,500 new jobs across the State.

Furthermore, the bill provides funding for a number of critical highway related projects in Michigan. I am delighted to have helped to secure significant additional funding for Michigan roads and highway related projects which will help make up for the fact that we are a donor State.

For example, the bill provides $40.8 million to reconstruct and widen I-94 in Kalamazoo. The bill also provides $29 million for the Detroit Riverfront Conservancy to establish a West Riverfront walkway and greenway along the Detroit River from Riverfront Towers to the Ambassador Bridge. It provides $12 million for the construction of a new at-grade crossing and I-75 interchange in Gaylord to reconnect Milbocker and McCoy Roads and a new overpass to reconnect Van Tyle to South Wisconsin Road. It also provides $13.28 million to repave a portion of H-53 in Alger County.

The legislation we will pass today represents some progress in the ongoing fight for equity for donor states. I will continue to fight in the future, as I have in the past, until we are able to achieve full equity for Michigan. I recognize, however, that we have succeeded in reducing the inequity a little more in each reauthorization bill, and we do so in this bill as well. I therefore will support this bill.

Mr. President, I would like to take this opportunity to recognize Dr. Robert H. Bartlett, an accomplished surgeon, professor and inventor, who recently retired from seeing patients at the University of Michigan Medical Center. Dr. Bartlett, who earned his bachelor's degree from Albion College and graduated cum laude from the University of Michigan Medical School, was honored by his peers during a ceremony on June 23, 2005.

Dr. Bartlett is admired across Michigan for his dedicated service to his patients and his contributions to the advancement of medicine. His excellence in the practice of medicine has been demonstrated throughout his exemplary career, which spans more than 40 years. In particular, his work in developing a heart-lung bypass technique called extracorporeal membrane oxygenation, or ECMO, has saved the lives of over 30,000 infants, children, and adults.

Dr. Bartlett began his work on ECMO in 1965 while an assistant resident at Boston's Brigham and Children's Hospital. After his residency, Dr. Bartlett received a series of surgical teaching and research fellowships at Harvard to continue his research. In 1970 Dr. Bartlett became an assistant professor of surgery at the University of California in Irvine, while also practicing medicine at the Orange County Medical Center. Five years later the first successful use of ECMO in an infant would take place at the Orange County Medical Center. Over the next 5 years, Dr. Bartlett would use this technique successfully 25 times.

In 1980, Dr. Bartlett returned to the University of Michigan Medical Center to continue to conduct research and treat patients until his retirement earlier this year. It was there that ECMO transistioned from being an experimental procedure to becoming standard practice at more than 90 medical facilities worldwide. In addition to this work, Dr. Bartlett continued to treat patients and served as chief of critical care medicine at the University of Michigan. Dr. Bartlett plans to continue his groundbreaking medical research.

Dr. Bartlett has published numerous articles, monographs, chapters, and books throughout his illustrious career. In 2003, he was awarded the prestigious Jacobson Innovation Award from the American College of Surgeons. He was also elected to the Institute of Medicine and was the recipient of the Medal of Special Recognition from the National Academy of Surgery of France. Dr. Bartlett has served as president of both the American Society for Artificial Internal Organs and the International Society for Artificial Organs. Dr. Bartlett has been married for more than 30 years to his college sweetheart, Wanda, with whom he has 3 children and 4 grandchildren.

I know my colleagues join me in congratulating Dr. Bartlett on his success and achievements in the field of medicine. I am pleased to offer my best wishes on his retirement from seeing patients and his continued efforts to advance medical research.

Mr. President, tax shelter and tax haven abuses are undermining the integrity of our tax system, robbing the Treasury of tens of billions of dollars each year, and shifting the tax burden from high income individuals and businesses onto the backs of middle income families. These abuses account for a significant portion of the more than $300 billion in taxes owed by individuals, businesses, and organizations that goes unpaid each year. As a matter of fairness, these abuses must be stopped. Today, I am introducing, with Senator Norm Coleman, a comprehensive tax reform bill called the Tax Shelter and Tax Haven Reform Act of 2005 that can help put an end to these abuses. Senator Barack Obama is also an original cosponsor.

The Permanent Subcommittee on Investigations, on which I serve with Senator Coleman, has worked for years to expose and combat abusive tax shelters and tax havens. In the previous Congress, we introduced legislation confronting these twin threats to U.S. tax compliance; today's bill reflects not only the Subcommittee's additional investigative work but also innovative ideas to stop unethical tax advisers and tax havens from aiding and abetting U.S. tax evasion.

Abusive tax shelters are very different from legitimate tax shelters, such as deducting the interest paid on your home mortgage or Congressionally approved tax deductions for building affordable housing. Abusive tax shelters are complicated transactions promoted to provide large tax benefits unintended by the tax code. Abusive tax shelters are marked by one characteristic: there is no real economic or business rationale other than tax avoidance. As Judge Learned Hand wrote in Gregory v. Helvering, they are ``entered upon for no other motive but to escape taxation.''

Likewise, a tax haven is simply a country or jurisdiction that imposes little or no tax on income and offers non-residents the ability to escape taxes in their home country. The abuse of tax havens occurs when income is attributed to that country, even though little or no business activity actually occurs there. Tax havens are also characterized by corporate, bank, and tax secrecy laws that make it difficult for other countries to find out whether their citizens are using the tax haven to cheat on their taxes.

Today's tax dodges are often tough to prosecute. Crimes such as terrorism, murder, and fraud produce instant recognition of the immorality involved. Abusive tax shelters and tax havens, by contrast, are often ``MEGOs,'' meaning ``My Eyes Glaze Over.'' Those who cook up these concoctions count on their complexity to escape scrutiny and public ire. But regardless of how complicated or eye-glazing, the hawking of abusive tax shelters by tax professionals like accountants, bankers, investment advisers, and lawyers to thousands of people like late-night, cut-rate T.V. bargains is scandalous and has got to stop. Hiding tax schemes through offshore companies and bank accounts in tax havens with secrecy laws also needs to be attacked with the full force of the law.

Today, I would like to take a few minutes to try to cut through the haze of these schemes to see them for what they really are and explain what our bill would do to stop them. First, I will look at our investigation into abusive tax shelters and discuss the provisions we have included in this bill to combat them. Then, I will turn to tax haven abuses and our proposed remedies.

For three years, the Permanent Subcommittee on Investigations has been conducting an investigation into the design, sale, and implementation of abusive tax shelters. While I initiated this investigation when I was Chairman of our Subcommittee in 2002, it has since had the support of our new Chairman, Senator Coleman.

In November 2003, our Subcommittee held two days of hearings and released a report prepared by my staff that pulled back the curtain on how even some respected accounting firms, banks, investment advisors, and law firms had become the engines pushing the design and sale of abusive tax shelters to corporations and individuals across this country. In February 2005, the Subcommittee issued a 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.

The Subcommittee investigation found that many abusive tax shelters were not dreamed up by the taxpayers who used them. Instead, most were devised by tax professionals, such as accountants, bankers, investment advisors, and lawyers, who then sold the tax shelter to clients for a fee. In fact, as our investigation widened, we found hordes 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 November 2003 Subcommittee hearings has since become part of an IRS effort to settle cases involving a set of abusive tax shelters known as ``Son of Boss.'' To date, more than 1,200 taxpayers have admitted wrongdoing and agreed to pay back taxes, interest and penalties totaling more than $3.7 billion. That's 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 Tax Shelter and Tax Haven Reform Act of 2005 that we are introducing today contains a number of measures to curb abusive tax shelters. The bill strengthens the penalties on promoters of abusive tax shelters. It codifies and strengthens the economic substance doctrine, which eliminates tax benefits for transactions that have no real business purpose apart from avoiding taxes. The bill deters banks' participation in abusive tax shelter activities by requiring regulators to develop new examination procedures to detect and stop such activities. It ends outdated communication barriers between key enforcement agencies to allow the exchange of information relating to tax evasion cases.

The bill also requires the Treasury Department to issue tougher standards for tax shelter opinion letters. It increases incentives for whistleblowers to report tax evasion to the IRS. The bill also provides for increased disclosure of tax shelter information to Congress. It simplifies and clarifies an existing prohibition on accountants being paid contingent fees which increase as phony tax losses increase. And it expresses the sense of the Senate that the IRS needs more funding to combat tax shelter abuses.

Let me be more specific about these key provisions to curb abusive tax shelters.

Title I of the bill strengthens two very important penalties that the IRS can use in its fight against the professionals who make these complex abusive shelters possible. A year ago, the penalty for promoting an abusive tax shelter, as set forth in Section 6700 of the tax code, was the lesser of $1,000 or 100 percent of the promoter's gross income derived from the prohibited activity. That meant in most cases the maximum fine was just $1,000.

Many abusive tax shelters sell for $100,000 or $250,000 apiece. Our investigation uncovered some tax shelters that were sold for as much as $2 million or even $5 million apiece, as well as instances in which the same cookie-cutter tax opinion letter was sold to 100 or even 200 clients. There are big bucks to be made in this business, and a $1,000 fine is laughable.

The Senate acknowledged that last year when it adopted the Levin- Coleman amendment to the JOBS Act, S. 1637, raising the Section 6700 penalty on abusive tax shelter promoters to 100 pefcent of the fees earned by the promoter from the abusive shelter. A 100 percent penalty would have ensured that the abusive tax shelter hucksters would not get to keep a single penny of their ill-gotten gains. That figure, however, was cut in half in the conference report, setting the penalty at 50 percent of the fees earned and allowing the promoters of abusive shelters get to keep half of their illicit profits.

While 50 percent is an obvious improvement over $1000, this penalty still

is inadequate and makes no sense. Why should anyone who pushes an illegal tax shelter that robs our Treasury of much needed revenues get to keep half of his ill-gotten gains? What deterrent effect is created by a penalty that allows promoters to keep half of their fees if caught, and of course, all of their fees if they are not caught? Tax shelter promoters ought to face a penalty that is at least as harsh as the penalty imposed on the person who purchased their tax product, not only because the promoter is usually as culpable as the taxpayer, but also so promoters think twice about pushing abusive tax schemes.

Effective penalties should make sure that the peddler of an abusive tax shelter is deprived of every penny of profit earned from selling or implementing the shelter and then is fined on top of that. Specifically, Section 101 of this bill would increase the penalty on tax shelter promoters to an amount up to the greater of either 150 percent of the promoters' gross income from the prohibited activity, or the amount assessed against the taxpayer--including back-taxes, interest and penalties.

A second penalty provision in the bill addresses what our investigation found to be one of the biggest problems: the knowing assistance of accounting firms, law firms, banks, and others to help taxpayers understate their taxes. In addition to those who meet the definition of ``promoters'' of abusive shelters, there are professional firms that aid and abet the use of abusive tax shelters and enable taxpayers to carry out the abusive tax schemes. For example, law firms are often asked to write ``opinion letters'' to help taxpayers head off IRS questioning and fines that they might otherwise confront for using an abusive shelter. Currently, under Section 6701 of the tax code, these aiders and abettors face a maximum penalty of only $1,000, or $10,000 if the offender is a corporation. This penalty, too, is a joke. When law firms are getting $50,000 for each of these cookie-cutter opinion letters, it provides no deterrent whatsoever. A $1,000 fine is like a jaywalking ticket for robbing a bank.

Section 102 of the bill would strengthen Section 6701 significantly, subjecting aiders and abettors to a maximum fine up to the greater of either 150 percent of the aider and abettor's gross income from the prohibited activity, or the amount assessed against the taxpayer for using the abusive shelter. This penalty would apply to all aiders and abettors not just tax return preparers.

Again, the Senate has recognized the need to toughen this critical penalty. In last year's JOBS Act, Senator Coleman and I successfully increased this fine to 100 percent of the gross income derived from the prohibited activity. Unfortunately, the conference report completely omitted this change, allowing aiders and abettors to continue to profit without penalty from their wrongdoing.

If further justification for toughening these penalties is needed, one document uncovered by our investigation shows the cold calculation engaged in by a tax advisor facing low fines. A senior tax professional at accounting giant KPMG compared possible tax shelter fees with possible tax shelter penalties if the firm were caught promoting an illegal tax shelter. This senior tax professional wrote the following: ``[O]ur average deal would result in KPMG fees of $360,000 with a maximum penalty exposure of only $31,000.'' He then recommended the obvious: going forward with sales of the abusive tax shelter on a cost- benefit basis.

Title III of the bill would strengthen legal prohibitions against abusive tax shelters by codifying in Federal tax statutes for the first time what is known as the economic substance doctrine. This anti-tax abuse doctrine was fashioned by federal courts evaluating transactions that appeared to have little or no business purpose or economic substance apart from tax avoidance. It has become a powerful analytical tool used by courts to invalidate abusive tax shelters. At the same time, because there is no statute underlying this doctrine and the courts have developed and applied it differently in different judicial districts, the existing case law has many ambiguities and conflicting interpretations.

Under the leadership of Senators Grassley and Baucus, the Chairman and Ranking Member of the Finance Committee, the Senate has voted on multiple occasions to enact this economic substance provision, but the House conferees have rejected it each time. Since no tax shelter legislation would be complete without addressing this issue, Title III of this comprehensive bill proposes once more to include the economic substance doctrine in the tax code. I hope that with continued pressure, it will become law in this Congress.

The bill will also help fight abusive tax shelters that are disguised as complex investment opportunities and use financing or securities transactions provided by financial institutions. In reality, tax shelter schemes lack the economic risks and rewards associated with a true investment. These phony transactions instead often rely on the temporary use of significant amounts of money in low risk schemes mischaracterized as real investments. The financing or securities transactions called for by these schemes are often supplied by a bank, securities firm, or other financial institution.

Currently the tax code prohibits financial institutions from providing products or services that aid or abet tax evasion or that promote or implement abusive tax shelters. The agencies that oversee these financial institutions on a daily basis, however, are experts in banking and securities law and generally lack the expertise to spot tax issues. Section 202 would crack down on financial institutions' illegal tax shelter activities by requiring federal bank regulators and the SEC to work with the IRS to develop examination techniques to detect such abusive activities and put an end to them.

These examination techniques would be used at least every 2 years, preferably in combination with routine regulatory examinations, and the regulators would report potential violations to the IRS. The agencies would also be required to prepare joint reports to Congress in 2007 and 2010 on preventing the participation of financial institutions in tax evasion or tax shelter activities.

During hearings before the Permanent Subcommittee on Investigations on tax shelters in November 2003, IRS Commissioner Mark Everson testified that his agency was barred by Section 6103 of the tax code from communicating information to other federal agencies that would assist those agencies in their law enforcement duties. He pointed out that the IRS was barred from providing tax return information to the SEC, federal bank regulators, and the Public Company Accounting Oversight Board (PCAOB)--even, for example, when that information might assist the SEC in evaluating whether an abusive tax shelter resulted in deceptive accounting in a public company's financial statements, might help the Federal Reserve determine whether a bank selling tax products to its clients had violated the law against promoting abusive tax shelters, or help the PCAOB judge whether an accounting firm had impaired its independence by selling tax shelters to its audit clients.

A recent example demonstrates how ill-conceived these information barriers are. A few months ago the IRS offered a settlement initiative to companies and corporate executives who participated in an abusive tax shelter involving the transfer of stock options to family- controlled entities. Over a hundred corporations and executives responded with admissions of wrongdoing. In addition to tax violations, their misconduct may be linked to securities law violations and improprieties by corporate auditors or banks, but the IRS has informed the Subcommittee that it is currently barred by law from sharing the names of the wrongdoers with the SEC, banking regulators, or PCAOB.

These communication barriers are outdated, inefficient, and ill- suited to stopping the torrent of tax shelter abuses now affecting or being promoted by so many public companies, banks, and accounting firms. To address this problem, Section 203 of this bill would authorize the Treasury Secretary, with appropriate privacy safeguards, to disclose to the SEC, Federal banking agencies, and the PCAOB, upon request, tax return information related to abusive tax shelters, inappropriate tax avoidance, or tax evasion. The

agencies could then use this information only for law enforcement purposes, such as preventing accounting firms or banks from promoting abusive tax shelters, or detecting accounting fraud in the financial statements of public companies.

Another finding of the Subcommittee investigation is that some tax practitioners are circumventing current State and Federal constraints on charging tax service fees that are dependent on the amount of promised tax benefits. Traditionally, accounting firms charged flat fees or hourly fees for their tax services. In the 1990s, however, they began charging ``value added'' fees based on, in the words of one accounting firm's manual, ``the value of the services provided, as opposed to the time required to perform the services.'' In addition, some firms began charging ``contingent fees'' that were calculated according to the size of the paper ``loss'' that could be produced for a client and used to offset the client's other taxable income--the greater the so-called loss, the greater the fee.

In response, many States prohibited accounting firms from charging contingent fees for tax work to avoid creating incentives for these firms to devise ways to shelter substantial sums. The SEC and the American Institute of Certified Public Accountants also issued rules restricting contingent fees, allowing them in only limited circumstances. Recently, the Public Company Accounting Oversight Board sent the SEC for approval a similar rule prohibiting public accounting firms from charging contingent fees for tax services provided to the public companies they audit. Each of these Federal, State, and professional ethics rules seeks to limit the use of contingent fees under certain, limited circumstances.

The Subcommittee investigation found that tax shelter fees, which are typically substantial and sometimes exceed $1 million, are often linked to the amount of a taxpayer's projected paper losses which can be used to shelter income from taxation. For example, in three tax shelters examined by the Subcommittee, documents show that the fees were equal to a percentage of the paper loss to be generated by the transaction. In one case, the fees were typically set at 7 percent of the transaction's generated ``tax loss'' that clients could use to reduce other taxable income. In other words, the greater the loss that could be concocted for the taxpayer or ``investor,'' the greater the profit for the tax promoter. Think about that--greater the loss, the greater the profit. How's that for turning capitalism on its head!

In addition, evidence indicated that, in at least one instance, a tax advisor was willing to deliberately manipulate the way it handled certain tax products to circumvent contingent fee prohibitions. An internal document at an accounting firm related to a specific tax shelter, for example, identified the States that prohibited contingent fees. Then, rather than prohibit the tax shelter transactions in those States or require an alternative fee structure, the memorandum directed the firm's tax professionals to make sure the engagement letter was signed, the engagement was managed, and the bulk of services was performed ``in a jurisdiction that does not prohibit contingency fees.''

Right now, the prohibitions on contingent fees are complex and must be evaluated in the context of a patchwork of Federal, State, and professional ethics rules. Section 201 of the bill would establish a single enforceable rule, applicable nationwide, that would prohibit tax practitioners from charging fees calculated according to a projected or actual amount of tax savings or paper losses.

Past laws, such as the Whistleblower Protection Act and qui tam lawsuits under the False Claims Act, demonstrate that individuals with inside information can help expose serious misconduct that the U.S. government might otherwise miss. The tax arena is no different. Persons with inside information can help expose millions of dollars in tax fraud if they are willing to step forward and tell the IRS what they know about specific instances of misconduct.

Under current law, potential whistleblowers with inside information about tax misconduct do not have an established IRS office that is sensitive to their concerns, provides consistent treatment, and oversees the calculation and payment of monetary rewards for important information. Section 206 of this bill, which is very similar to a provision developed by the Senate Finance Committee, would, among other measures, establish a Whistleblowers Office within the IRS, codify standards for the payment of monetary rewards, and exempt whistleblower monetary payments from the alternative minimum tax.

Each of these measures is intended to increase incentives for persons to blow the whistle on tax misconduct. The one key difference between our bill and the Finance Committee provision is that we would continue to give the IRS the discretion to determine the amount of money paid to an individual whistleblower; our bill would not enable whistleblowers to appeal to a court to obtain additional sums. The fact-specific analysis that goes into evaluating a whistleblower's assistance and calculating a reward makes court review inadvisable. The existence of an appeal also invites litigation and necessitates the expenditure of taxpayer dollars--not for tax enforcement but for a court dispute. The new Whistleblowers Office is intended to promote the consistent, equitable treatment of persons who report tax misconduct, without also inviting expensive and time-consuming litigation.

Section 205 of the bill would direct the Treasury Department to issue new standards for tax practitioners issuing opinion letters on the tax implications of potential tax shelters as part of Circular 230. The public has traditionally relied on tax opinion letters to obtain informed and trustworthy advice about whether a tax-motivated transaction meets the requirements of the law. The Permanent Subcommittee on Investigations has found that, in too many cases, tax opinion letters no longer contain disinterested and reliable tax advice, even when issued by supposedly reputable accounting or law firms.

Instead, some tax opinion letters have become marketing tools used by tax shelter promoters and their allies to sell clients on their latest tax products. In many of these cases, financial interests and biases were concealed, unreasonable factual assumptions were used to justify dubious legal conclusions, and taxpayers were misled about the risk that the proposed transaction would later be designated an illegal tax shelter. Reforms are essential to address these abuses and restore the integrity of tax opinion letters.

The Treasury Department recently adopted standards that address a number of the abuses affecting tax shelter opinion letters; however, the standards do not take all the steps needed. Our bill would require Treasury to issue standards addressing a wider spectrum of tax shelter opinion letter problems, including: preventing concealed collaboration among supposedly independent letter writers; avoiding conflicts of interest that would impair auditor independence; ensuring appropriate fee charges; preventing practitioners and firms from aiding and abetting the understatement of tax liability by clients; and banning the promotion of potentially abusive tax shelters. By addressing each of these areas, a beefed-up Circular 230 could help reduce the ongoing abusive practices related to tax shelter opinion letters.

The bill would also provide for increased disclosure of tax shelter information to Congress. Section 204 would make it clear that companies providing tax return preparation services to taxpayers cannot refuse to comply with a Congressional document subpoena by citing Section 7216, a consumer protection provision that prohibits tax return preparers from disclosing taxpayer information to third parties. Several accounting and law firms raised this claim in response to document subpoenas issued by the Permanent Subcommittee on Investigations, contending they were barred by the nondisclosure provision in Section 7216 from producing documents related to the sale of abusive tax shelters to clients for a fee.

The accounting and law firms maintained this position despite an analysis provided by the Senate legal counsel showing that the nondisclosure provision was never intended to create a privilege or to override a Senate subpoena, as demonstrated in federal regulations interpreting the provision. This

bill would codify the existing regulations interpreting Section 7216 and make it clear that Congressional document subpoenas must be honored.

Section 204 would also ensure Congress has access to information about decisions by Treasury related to an organization's tax exempt status. A 2003 decision by the D.C. Circuit Court of Appeals, Tax Analysts v. IRS, struck down certain IRS regulations and held that the IRS must disclose letters denying or revoking an organization's tax exempt status. The IRS has been reluctant to disclose such information, not only to the public, but also to Congress, including in response to requests by the Permanent Subcommittee on Investigations.

For example, earlier this year the IRS revoked the tax exempt status of four credit counseling firms, and, despite the Tax Analysts case, claimed that it could not disclose to the Subcommittee the names of the four firms or the reasons for revoking their tax exemption. Our bill would make it clear that, upon receipt of a request from a Congressional committee or subcommittee, the IRS must disclose documents, other than a tax return, related to the agency's determination to grant, deny, revoke or restore an organization's exemption from taxation.

Section 208 of the bill would establish that it is the sense of the Senate that additional funds should be appropriated for IRS enforcement, and that the IRS should devote proportionately more of its enforcement funds to combat rampant tax shelter and tax haven abuses. Specifically, the bill would direct increased funding toward enforcement efforts combating the promotion of abusive tax shelters and the aiding and abetting of tax evasion; the involvement of accounting, law and financial firms in such promotion and aiding and abetting; and the use of offshore financial accounts to conceal taxable income.

Tax enforcement is an area where a relatively small increase in spending pays for itself many times over. If we would hire adequate enforcement personnel, close the tax loopholes, and put an end to tax dodges, tens of billions in revenues that should support this country would actually reach the Treasury.

In addition to abusive tax shelters, the bill addresses the abusive tax havens that help taxpayers dodge their U.S. tax obligations through using corporate, bank, and tax secrecy laws that impede U.S. tax enforcement. The London-based Tax Justice Network recently estimated that wealthy individuals worldwide have stashed $11.5 trillion of their assets in tax havens. At one Subcommittee hearing in 2001, a former owner of an offshore bank in the Cayman Islands testified that he believed 100 percent of his former clients were engaged in tax evasion. He said that almost all were from the United States and would take elaborate measures to avoid IRS detection of their money transfers. He also expressed confidence that the government that licensed his bank would vigorously defend client secrecy in order to continue attracting business to the islands.

Corporations are also using tax havens to reduce their U.S. tax liability. A GAO report I released with Senator Dorgan last year found that nearly two-thirds of the top 100 companies doing business with the United States government now have one or more subsidiaries in a tax haven. One company, Tyco International, had 115.

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. Estimates show that funneling these profits from the U.S. to tax havens deprives the U.S. Treasury of anywhere from $10 billion to $20 billion in lost tax revenue each year.

Here's just one simplified example of the gimmicks being used by corporations to transfer taxable income from the United States to tax havens to escape taxation. Suppose a profitable U.S. corporation establishes a shell corporation in a tax haven. The shell corporation has no office or employees, just a mailbox address. The U.S. parent transfers a valuable patent to the shell corporation. Then, the U.S. parent and all of its subsidiaries begin to pay a hefty fee to the shell corporation for use of the patent, shifting taxable income out of the United States to the shell corporation. The shell corporation declares a portion of the fees as profit, but pays no tax since it is a tax haven resident. The icing on the cake is that the shell corporation can then ``lend'' the income it has accumulated from the fees back to the U.S. companies for their use. The companies, in turn, pay ``interest'' on the ``loans'' to the shell corporation, shifting still more taxable income out of the United States to the tax haven. This example highlights just a few of the tax haven ploys being used by some U.S. corporations to escape paying their fair share of taxes here at home.

Sections 401 and 402 of our bill tackle the issue of tax havens by removing U.S. tax benefits associated with jurisdictions that fail to cooperate with U.S. tax enforcement efforts. Dozens of jurisdictions around the world have enacted corporate, bank, and tax secrecy laws that, in too many cases, have been used to justify failing to provide timely information to U.S. officials investigating tax misconduct. Some tax havens have refused to provide timely information about persons suspected of either hiding funds in the jurisdiction's offshore bank accounts or using offshore corporations and deceptive transactions to disguise their income or create phony losses to shelter their U.S. income from taxation.

Section 401 of the bill would give the Treasury Secretary the discretion to designate such an offshore tax haven as ``uncooperative'' and to publish an annual list of these uncooperative tax havens. We intend that the Treasury Secretary will develop this list by evaluating the actual record of cooperation experienced by the United States in its dealings with specific jurisdictions around the world. While many offshore tax havens have signed treaties with the United States promising to cooperate with U.S. civil and criminal tax enforcement, the level of resulting cooperation varies. For example, after one country signed a tax treaty with the United States, the government that led the effort was voted out of office by treaty opponents. Treasury needs a way to ensure that tax treaty obligations are met and to send a message to jurisdictions that impede U.S. tax enforcement. This bill gives Treasury the tools it needs to get the cooperation it needs.

Under Sections 401 and 402 of the bill, persons doing business in tax havens designated by Treasury as uncooperative would be denied U.S. tax benefits and incur increased disclosure requirements. First, the bill would disallow the tax benefits of deferral and foreign tax credits for income attributed to an uncooperative tax haven. Second, taxpayers would be required to provide greater disclosure of their activities, including disclosing on their returns any payment above $10,000 to a person or account located in a designated haven. These restrictions would not only deter U.S. taxpayers from doing business with uncooperative tax havens, they would also provide the United States with powerful weapons to convince tax havens to cooperate fully with U.S. tax enforcement efforts and help end offshore tax evasion abuses.

Sections 403 and 404 further address offshore tax evasion. Section 403 would toughen penalties on eligible taxpayers who did not participate in Treasury programs designed to encourage voluntary disclosure of previously unreported income placed by the taxpayer in offshore accounts and accessed by credit card or other financial arrangements. Section 404 would authorize Treasury to promulgate regulations to stop ongoing foreign tax credit abuses in which, among other schemes, taxpayers claim credit on their U.S. tax returns for paying foreign taxes, but then fail to report the income related to those foreign taxes. Under the leadership of Senators Grassley and Baucus, both Sections 403 and 404 passed the Senate earlier this year as part of the Highway Bill, H.R. 3, but were dropped in conference.

The eyes of some people may glaze over when tax shelters and tax havens are discussed, but unscrupulous taxpayers and tax professionals see illicit

dollar signs. Our commitment to crack down on their tax abuses must be as strong as their determination to get away with ripping off America and American taxpayers.

Our bill provides our government the tools to end the use of abusive tax shelters and uncooperative tax havens and to punish the powerful professionals who push them.

It's long past time for Congress to act to end the shifting of a disproportionate tax burden onto the shoulders of honest Americans.

I ask unanimous consent that a summary of the bill's provisions and the text of the bill be printed in the Record.

Mr. President, tax shelter and tax haven abuses are undermining the integrity of our tax system, robbing the Treasury of tens of billions of dollars each year, and shifting the tax burden from high income individuals and businesses onto the backs of middle income families. These abuses account for a significant portion of the more than $300 billion in taxes owed by individuals, businesses, and organizations that goes unpaid each year. As a matter of fairness, these abuses must be stopped. Today, I am introducing, with Senator Norm Coleman, a comprehensive tax reform bill called the Tax Shelter and Tax Haven Reform Act of 2005 that can help put an end to these abuses. Senator Barack Obama is also an original cosponsor.

The Permanent Subcommittee on Investigations, on which I serve with Senator Coleman, has worked for years to expose and combat abusive tax shelters and tax havens. In the previous Congress, we introduced legislation confronting these twin threats to U.S. tax compliance; today's bill reflects not only the Subcommittee's additional investigative work but also innovative ideas to stop unethical tax advisers and tax havens from aiding and abetting U.S. tax evasion.

Abusive tax shelters are very different from legitimate tax shelters, such as deducting the interest paid on your home mortgage or Congressionally approved tax deductions for building affordable housing. Abusive tax shelters are complicated transactions promoted to provide large tax benefits unintended by the tax code. Abusive tax shelters are marked by one characteristic: there is no real economic or business rationale other than tax avoidance. As Judge Learned Hand wrote in Gregory v. Helvering, they are ``entered upon for no other motive but to escape taxation.''

Likewise, a tax haven is simply a country or jurisdiction that imposes little or no tax on income and offers non-residents the ability to escape taxes in their home country. The abuse of tax havens occurs when income is attributed to that country, even though little or no business activity actually occurs there. Tax havens are also characterized by corporate, bank, and tax secrecy laws that make it difficult for other countries to find out whether their citizens are using the tax haven to cheat on their taxes.

Today's tax dodges are often tough to prosecute. Crimes such as terrorism, murder, and fraud produce instant recognition of the immorality involved. Abusive tax shelters and tax havens, by contrast, are often ``MEGOs,'' meaning ``My Eyes Glaze Over.'' Those who cook up these concoctions count on their complexity to escape scrutiny and public ire. But regardless of how complicated or eye-glazing, the hawking of abusive tax shelters by tax professionals like accountants, bankers, investment advisers, and lawyers to thousands of people like late-night, cut-rate T.V. bargains is scandalous and has got to stop. Hiding tax schemes through offshore companies and bank accounts in tax havens with secrecy laws also needs to be attacked with the full force of the law.

Today, I would like to take a few minutes to try to cut through the haze of these schemes to see them for what they really are and explain what our bill would do to stop them. First, I will look at our investigation into abusive tax shelters and discuss the provisions we have included in this bill to combat them. Then, I will turn to tax haven abuses and our proposed remedies.

For three years, the Permanent Subcommittee on Investigations has been conducting an investigation into the design, sale, and implementation of abusive tax shelters. While I initiated this investigation when I was Chairman of our Subcommittee in 2002, it has since had the support of our new Chairman, Senator Coleman.

In November 2003, our Subcommittee held two days of hearings and released a report prepared by my staff that pulled back the curtain on how even some respected accounting firms, banks, investment advisors, and law firms had become the engines pushing the design and sale of abusive tax shelters to corporations and individuals across this country. In February 2005, the Subcommittee issued a 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.

The Subcommittee investigation found that many abusive tax shelters were not dreamed up by the taxpayers who used them. Instead, most were devised by tax professionals, such as accountants, bankers, investment advisors, and lawyers, who then sold the tax shelter to clients for a fee. In fact, as our investigation widened, we found hordes 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 November 2003 Subcommittee hearings has since become part of an IRS effort to settle cases involving a set of abusive tax shelters known as ``Son of Boss.'' To date, more than 1,200 taxpayers have admitted wrongdoing and agreed to pay back taxes, interest and penalties totaling more than $3.7 billion. That's 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 Tax Shelter and Tax Haven Reform Act of 2005 that we are introducing today contains a number of measures to curb abusive tax shelters. The bill strengthens the penalties on promoters of abusive tax shelters. It codifies and strengthens the economic substance doctrine, which eliminates tax benefits for transactions that have no real business purpose apart from avoiding taxes. The bill deters banks' participation in abusive tax shelter activities by requiring regulators to develop new examination procedures to detect and stop such activities. It ends outdated communication barriers between key enforcement agencies to allow the exchange of information relating to tax evasion cases.

The bill also requires the Treasury Department to issue tougher standards for tax shelter opinion letters. It increases incentives for whistleblowers to report tax evasion to the IRS. The bill also provides for increased disclosure of tax shelter information to Congress. It simplifies and clarifies an existing prohibition on accountants being paid contingent fees which increase as phony tax losses increase. And it expresses the sense of the Senate that the IRS needs more funding to combat tax shelter abuses.

Let me be more specific about these key provisions to curb abusive tax shelters.

Title I of the bill strengthens two very important penalties that the IRS can use in its fight against the professionals who make these complex abusive shelters possible. A year ago, the penalty for promoting an abusive tax shelter, as set forth in Section 6700 of the tax code, was the lesser of $1,000 or 100 percent of the promoter's gross income derived from the prohibited activity. That meant in most cases the maximum fine was just $1,000.

Many abusive tax shelters sell for $100,000 or $250,000 apiece. Our investigation uncovered some tax shelters that were sold for as much as $2 million or even $5 million apiece, as well as instances in which the same cookie-cutter tax opinion letter was sold to 100 or even 200 clients. There are big bucks to be made in this business, and a $1,000 fine is laughable.

The Senate acknowledged that last year when it adopted the Levin- Coleman amendment to the JOBS Act, S. 1637, raising the Section 6700 penalty on abusive tax shelter promoters to 100 pefcent of the fees earned by the promoter from the abusive shelter. A 100 percent penalty would have ensured that the abusive tax shelter hucksters would not get to keep a single penny of their ill-gotten gains. That figure, however, was cut in half in the conference report, setting the penalty at 50 percent of the fees earned and allowing the promoters of abusive shelters get to keep half of their illicit profits.

While 50 percent is an obvious improvement over $1000, this penalty still

is inadequate and makes no sense. Why should anyone who pushes an illegal tax shelter that robs our Treasury of much needed revenues get to keep half of his ill-gotten gains? What deterrent effect is created by a penalty that allows promoters to keep half of their fees if caught, and of course, all of their fees if they are not caught? Tax shelter promoters ought to face a penalty that is at least as harsh as the penalty imposed on the person who purchased their tax product, not only because the promoter is usually as culpable as the taxpayer, but also so promoters think twice about pushing abusive tax schemes.

Effective penalties should make sure that the peddler of an abusive tax shelter is deprived of every penny of profit earned from selling or implementing the shelter and then is fined on top of that. Specifically, Section 101 of this bill would increase the penalty on tax shelter promoters to an amount up to the greater of either 150 percent of the promoters' gross income from the prohibited activity, or the amount assessed against the taxpayer--including back-taxes, interest and penalties.

A second penalty provision in the bill addresses what our investigation found to be one of the biggest problems: the knowing assistance of accounting firms, law firms, banks, and others to help taxpayers understate their taxes. In addition to those who meet the definition of ``promoters'' of abusive shelters, there are professional firms that aid and abet the use of abusive tax shelters and enable taxpayers to carry out the abusive tax schemes. For example, law firms are often asked to write ``opinion letters'' to help taxpayers head off IRS questioning and fines that they might otherwise confront for using an abusive shelter. Currently, under Section 6701 of the tax code, these aiders and abettors face a maximum penalty of only $1,000, or $10,000 if the offender is a corporation. This penalty, too, is a joke. When law firms are getting $50,000 for each of these cookie-cutter opinion letters, it provides no deterrent whatsoever. A $1,000 fine is like a jaywalking ticket for robbing a bank.

Section 102 of the bill would strengthen Section 6701 significantly, subjecting aiders and abettors to a maximum fine up to the greater of either 150 percent of the aider and abettor's gross income from the prohibited activity, or the amount assessed against the taxpayer for using the abusive shelter. This penalty would apply to all aiders and abettors not just tax return preparers.

Again, the Senate has recognized the need to toughen this critical penalty. In last year's JOBS Act, Senator Coleman and I successfully increased this fine to 100 percent of the gross income derived from the prohibited activity. Unfortunately, the conference report completely omitted this change, allowing aiders and abettors to continue to profit without penalty from their wrongdoing.

If further justification for toughening these penalties is needed, one document uncovered by our investigation shows the cold calculation engaged in by a tax advisor facing low fines. A senior tax professional at accounting giant KPMG compared possible tax shelter fees with possible tax shelter penalties if the firm were caught promoting an illegal tax shelter. This senior tax professional wrote the following: ``[O]ur average deal would result in KPMG fees of $360,000 with a maximum penalty exposure of only $31,000.'' He then recommended the obvious: going forward with sales of the abusive tax shelter on a cost- benefit basis.

Title III of the bill would strengthen legal prohibitions against abusive tax shelters by codifying in Federal tax statutes for the first time what is known as the economic substance doctrine. This anti-tax abuse doctrine was fashioned by federal courts evaluating transactions that appeared to have little or no business purpose or economic substance apart from tax avoidance. It has become a powerful analytical tool used by courts to invalidate abusive tax shelters. At the same time, because there is no statute underlying this doctrine and the courts have developed and applied it differently in different judicial districts, the existing case law has many ambiguities and conflicting interpretations.

Under the leadership of Senators Grassley and Baucus, the Chairman and Ranking Member of the Finance Committee, the Senate has voted on multiple occasions to enact this economic substance provision, but the House conferees have rejected it each time. Since no tax shelter legislation would be complete without addressing this issue, Title III of this comprehensive bill proposes once more to include the economic substance doctrine in the tax code. I hope that with continued pressure, it will become law in this Congress.

The bill will also help fight abusive tax shelters that are disguised as complex investment opportunities and use financing or securities transactions provided by financial institutions. In reality, tax shelter schemes lack the economic risks and rewards associated with a true investment. These phony transactions instead often rely on the temporary use of significant amounts of money in low risk schemes mischaracterized as real investments. The financing or securities transactions called for by these schemes are often supplied by a bank, securities firm, or other financial institution.

Currently the tax code prohibits financial institutions from providing products or services that aid or abet tax evasion or that promote or implement abusive tax shelters. The agencies that oversee these financial institutions on a daily basis, however, are experts in banking and securities law and generally lack the expertise to spot tax issues. Section 202 would crack down on financial institutions' illegal tax shelter activities by requiring federal bank regulators and the SEC to work with the IRS to develop examination techniques to detect such abusive activities and put an end to them.

These examination techniques would be used at least every 2 years, preferably in combination with routine regulatory examinations, and the regulators would report potential violations to the IRS. The agencies would also be required to prepare joint reports to Congress in 2007 and 2010 on preventing the participation of financial institutions in tax evasion or tax shelter activities.

During hearings before the Permanent Subcommittee on Investigations on tax shelters in November 2003, IRS Commissioner Mark Everson testified that his agency was barred by Section 6103 of the tax code from communicating information to other federal agencies that would assist those agencies in their law enforcement duties. He pointed out that the IRS was barred from providing tax return information to the SEC, federal bank regulators, and the Public Company Accounting Oversight Board (PCAOB)--even, for example, when that information might assist the SEC in evaluating whether an abusive tax shelter resulted in deceptive accounting in a public company's financial statements, might help the Federal Reserve determine whether a bank selling tax products to its clients had violated the law against promoting abusive tax shelters, or help the PCAOB judge whether an accounting firm had impaired its independence by selling tax shelters to its audit clients.

A recent example demonstrates how ill-conceived these information barriers are. A few months ago the IRS offered a settlement initiative to companies and corporate executives who participated in an abusive tax shelter involving the transfer of stock options to family- controlled entities. Over a hundred corporations and executives responded with admissions of wrongdoing. In addition to tax violations, their misconduct may be linked to securities law violations and improprieties by corporate auditors or banks, but the IRS has informed the Subcommittee that it is currently barred by law from sharing the names of the wrongdoers with the SEC, banking regulators, or PCAOB.

These communication barriers are outdated, inefficient, and ill- suited to stopping the torrent of tax shelter abuses now affecting or being promoted by so many public companies, banks, and accounting firms. To address this problem, Section 203 of this bill would authorize the Treasury Secretary, with appropriate privacy safeguards, to disclose to the SEC, Federal banking agencies, and the PCAOB, upon request, tax return information related to abusive tax shelters, inappropriate tax avoidance, or tax evasion. The

agencies could then use this information only for law enforcement purposes, such as preventing accounting firms or banks from promoting abusive tax shelters, or detecting accounting fraud in the financial statements of public companies.

Another finding of the Subcommittee investigation is that some tax practitioners are circumventing current State and Federal constraints on charging tax service fees that are dependent on the amount of promised tax benefits. Traditionally, accounting firms charged flat fees or hourly fees for their tax services. In the 1990s, however, they began charging ``value added'' fees based on, in the words of one accounting firm's manual, ``the value of the services provided, as opposed to the time required to perform the services.'' In addition, some firms began charging ``contingent fees'' that were calculated according to the size of the paper ``loss'' that could be produced for a client and used to offset the client's other taxable income--the greater the so-called loss, the greater the fee.

In response, many States prohibited accounting firms from charging contingent fees for tax work to avoid creating incentives for these firms to devise ways to shelter substantial sums. The SEC and the American Institute of Certified Public Accountants also issued rules restricting contingent fees, allowing them in only limited circumstances. Recently, the Public Company Accounting Oversight Board sent the SEC for approval a similar rule prohibiting public accounting firms from charging contingent fees for tax services provided to the public companies they audit. Each of these Federal, State, and professional ethics rules seeks to limit the use of contingent fees under certain, limited circumstances.

The Subcommittee investigation found that tax shelter fees, which are typically substantial and sometimes exceed $1 million, are often linked to the amount of a taxpayer's projected paper losses which can be used to shelter income from taxation. For example, in three tax shelters examined by the Subcommittee, documents show that the fees were equal to a percentage of the paper loss to be generated by the transaction. In one case, the fees were typically set at 7 percent of the transaction's generated ``tax loss'' that clients could use to reduce other taxable income. In other words, the greater the loss that could be concocted for the taxpayer or ``investor,'' the greater the profit for the tax promoter. Think about that--greater the loss, the greater the profit. How's that for turning capitalism on its head!

In addition, evidence indicated that, in at least one instance, a tax advisor was willing to deliberately manipulate the way it handled certain tax products to circumvent contingent fee prohibitions. An internal document at an accounting firm related to a specific tax shelter, for example, identified the States that prohibited contingent fees. Then, rather than prohibit the tax shelter transactions in those States or require an alternative fee structure, the memorandum directed the firm's tax professionals to make sure the engagement letter was signed, the engagement was managed, and the bulk of services was performed ``in a jurisdiction that does not prohibit contingency fees.''

Right now, the prohibitions on contingent fees are complex and must be evaluated in the context of a patchwork of Federal, State, and professional ethics rules. Section 201 of the bill would establish a single enforceable rule, applicable nationwide, that would prohibit tax practitioners from charging fees calculated according to a projected or actual amount of tax savings or paper losses.

Past laws, such as the Whistleblower Protection Act and qui tam lawsuits under the False Claims Act, demonstrate that individuals with inside information can help expose serious misconduct that the U.S. government might otherwise miss. The tax arena is no different. Persons with inside information can help expose millions of dollars in tax fraud if they are willing to step forward and tell the IRS what they know about specific instances of misconduct.

Under current law, potential whistleblowers with inside information about tax misconduct do not have an established IRS office that is sensitive to their concerns, provides consistent treatment, and oversees the calculation and payment of monetary rewards for important information. Section 206 of this bill, which is very similar to a provision developed by the Senate Finance Committee, would, among other measures, establish a Whistleblowers Office within the IRS, codify standards for the payment of monetary rewards, and exempt whistleblower monetary payments from the alternative minimum tax.

Each of these measures is intended to increase incentives for persons to blow the whistle on tax misconduct. The one key difference between our bill and the Finance Committee provision is that we would continue to give the IRS the discretion to determine the amount of money paid to an individual whistleblower; our bill would not enable whistleblowers to appeal to a court to obtain additional sums. The fact-specific analysis that goes into evaluating a whistleblower's assistance and calculating a reward makes court review inadvisable. The existence of an appeal also invites litigation and necessitates the expenditure of taxpayer dollars--not for tax enforcement but for a court dispute. The new Whistleblowers Office is intended to promote the consistent, equitable treatment of persons who report tax misconduct, without also inviting expensive and time-consuming litigation.

Section 205 of the bill would direct the Treasury Department to issue new standards for tax practitioners issuing opinion letters on the tax implications of potential tax shelters as part of Circular 230. The public has traditionally relied on tax opinion letters to obtain informed and trustworthy advice about whether a tax-motivated transaction meets the requirements of the law. The Permanent Subcommittee on Investigations has found that, in too many cases, tax opinion letters no longer contain disinterested and reliable tax advice, even when issued by supposedly reputable accounting or law firms.

Instead, some tax opinion letters have become marketing tools used by tax shelter promoters and their allies to sell clients on their latest tax products. In many of these cases, financial interests and biases were concealed, unreasonable factual assumptions were used to justify dubious legal conclusions, and taxpayers were misled about the risk that the proposed transaction would later be designated an illegal tax shelter. Reforms are essential to address these abuses and restore the integrity of tax opinion letters.

The Treasury Department recently adopted standards that address a number of the abuses affecting tax shelter opinion letters; however, the standards do not take all the steps needed. Our bill would require Treasury to issue standards addressing a wider spectrum of tax shelter opinion letter problems, including: preventing concealed collaboration among supposedly independent letter writers; avoiding conflicts of interest that would impair auditor independence; ensuring appropriate fee charges; preventing practitioners and firms from aiding and abetting the understatement of tax liability by clients; and banning the promotion of potentially abusive tax shelters. By addressing each of these areas, a beefed-up Circular 230 could help reduce the ongoing abusive practices related to tax shelter opinion letters.

The bill would also provide for increased disclosure of tax shelter information to Congress. Section 204 would make it clear that companies providing tax return preparation services to taxpayers cannot refuse to comply with a Congressional document subpoena by citing Section 7216, a consumer protection provision that prohibits tax return preparers from disclosing taxpayer information to third parties. Several accounting and law firms raised this claim in response to document subpoenas issued by the Permanent Subcommittee on Investigations, contending they were barred by the nondisclosure provision in Section 7216 from producing documents related to the sale of abusive tax shelters to clients for a fee.

The accounting and law firms maintained this position despite an analysis provided by the Senate legal counsel showing that the nondisclosure provision was never intended to create a privilege or to override a Senate subpoena, as demonstrated in federal regulations interpreting the provision. This

bill would codify the existing regulations interpreting Section 7216 and make it clear that Congressional document subpoenas must be honored.

Section 204 would also ensure Congress has access to information about decisions by Treasury related to an organization's tax exempt status. A 2003 decision by the D.C. Circuit Court of Appeals, Tax Analysts v. IRS, struck down certain IRS regulations and held that the IRS must disclose letters denying or revoking an organization's tax exempt status. The IRS has been reluctant to disclose such information, not only to the public, but also to Congress, including in response to requests by the Permanent Subcommittee on Investigations.

For example, earlier this year the IRS revoked the tax exempt status of four credit counseling firms, and, despite the Tax Analysts case, claimed that it could not disclose to the Subcommittee the names of the four firms or the reasons for revoking their tax exemption. Our bill would make it clear that, upon receipt of a request from a Congressional committee or subcommittee, the IRS must disclose documents, other than a tax return, related to the agency's determination to grant, deny, revoke or restore an organization's exemption from taxation.

Section 208 of the bill would establish that it is the sense of the Senate that additional funds should be appropriated for IRS enforcement, and that the IRS should devote proportionately more of its enforcement funds to combat rampant tax shelter and tax haven abuses. Specifically, the bill would direct increased funding toward enforcement efforts combating the promotion of abusive tax shelters and the aiding and abetting of tax evasion; the involvement of accounting, law and financial firms in such promotion and aiding and abetting; and the use of offshore financial accounts to conceal taxable income.

Tax enforcement is an area where a relatively small increase in spending pays for itself many times over. If we would hire adequate enforcement personnel, close the tax loopholes, and put an end to tax dodges, tens of billions in revenues that should support this country would actually reach the Treasury.

In addition to abusive tax shelters, the bill addresses the abusive tax havens that help taxpayers dodge their U.S. tax obligations through using corporate, bank, and tax secrecy laws that impede U.S. tax enforcement. The London-based Tax Justice Network recently estimated that wealthy individuals worldwide have stashed $11.5 trillion of their assets in tax havens. At one Subcommittee hearing in 2001, a former owner of an offshore bank in the Cayman Islands testified that he believed 100 percent of his former clients were engaged in tax evasion. He said that almost all were from the United States and would take elaborate measures to avoid IRS detection of their money transfers. He also expressed confidence that the government that licensed his bank would vigorously defend client secrecy in order to continue attracting business to the islands.

Corporations are also using tax havens to reduce their U.S. tax liability. A GAO report I released with Senator Dorgan last year found that nearly two-thirds of the top 100 companies doing business with the United States government now have one or more subsidiaries in a tax haven. One company, Tyco International, had 115.

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. Estimates show that funneling these profits from the U.S. to tax havens deprives the U.S. Treasury of anywhere from $10 billion to $20 billion in lost tax revenue each year.

Here's just one simplified example of the gimmicks being used by corporations to transfer taxable income from the United States to tax havens to escape taxation. Suppose a profitable U.S. corporation establishes a shell corporation in a tax haven. The shell corporation has no office or employees, just a mailbox address. The U.S. parent transfers a valuable patent to the shell corporation. Then, the U.S. parent and all of its subsidiaries begin to pay a hefty fee to the shell corporation for use of the patent, shifting taxable income out of the United States to the shell corporation. The shell corporation declares a portion of the fees as profit, but pays no tax since it is a tax haven resident. The icing on the cake is that the shell corporation can then ``lend'' the income it has accumulated from the fees back to the U.S. companies for their use. The companies, in turn, pay ``interest'' on the ``loans'' to the shell corporation, shifting still more taxable income out of the United States to the tax haven. This example highlights just a few of the tax haven ploys being used by some U.S. corporations to escape paying their fair share of taxes here at home.

Sections 401 and 402 of our bill tackle the issue of tax havens by removing U.S. tax benefits associated with jurisdictions that fail to cooperate with U.S. tax enforcement efforts. Dozens of jurisdictions around the world have enacted corporate, bank, and tax secrecy laws that, in too many cases, have been used to justify failing to provide timely information to U.S. officials investigating tax misconduct. Some tax havens have refused to provide timely information about persons suspected of either hiding funds in the jurisdiction's offshore bank accounts or using offshore corporations and deceptive transactions to disguise their income or create phony losses to shelter their U.S. income from taxation.

Section 401 of the bill would give the Treasury Secretary the discretion to designate such an offshore tax haven as ``uncooperative'' and to publish an annual list of these uncooperative tax havens. We intend that the Treasury Secretary will develop this list by evaluating the actual record of cooperation experienced by the United States in its dealings with specific jurisdictions around the world. While many offshore tax havens have signed treaties with the United States promising to cooperate with U.S. civil and criminal tax enforcement, the level of resulting cooperation varies. For example, after one country signed a tax treaty with the United States, the government that led the effort was voted out of office by treaty opponents. Treasury needs a way to ensure that tax treaty obligations are met and to send a message to jurisdictions that impede U.S. tax enforcement. This bill gives Treasury the tools it needs to get the cooperation it needs.

Under Sections 401 and 402 of the bill, persons doing business in tax havens designated by Treasury as uncooperative would be denied U.S. tax benefits and incur increased disclosure requirements. First, the bill would disallow the tax benefits of deferral and foreign tax credits for income attributed to an uncooperative tax haven. Second, taxpayers would be required to provide greater disclosure of their activities, including disclosing on their returns any payment above $10,000 to a person or account located in a designated haven. These restrictions would not only deter U.S. taxpayers from doing business with uncooperative tax havens, they would also provide the United States with powerful weapons to convince tax havens to cooperate fully with U.S. tax enforcement efforts and help end offshore tax evasion abuses.

Sections 403 and 404 further address offshore tax evasion. Section 403 would toughen penalties on eligible taxpayers who did not participate in Treasury programs designed to encourage voluntary disclosure of previously unreported income placed by the taxpayer in offshore accounts and accessed by credit card or other financial arrangements. Section 404 would authorize Treasury to promulgate regulations to stop ongoing foreign tax credit abuses in which, among other schemes, taxpayers claim credit on their U.S. tax returns for paying foreign taxes, but then fail to report the income related to those foreign taxes. Under the leadership of Senators Grassley and Baucus, both Sections 403 and 404 passed the Senate earlier this year as part of the Highway Bill, H.R. 3, but were dropped in conference.

The eyes of some people may glaze over when tax shelters and tax havens are discussed, but unscrupulous taxpayers and tax professionals see illicit

dollar signs. Our commitment to crack down on their tax abuses must be as strong as their determination to get away with ripping off America and American taxpayers.

Our bill provides our government the tools to end the use of abusive tax shelters and uncooperative tax havens and to punish the powerful professionals who push them.

It's long past time for Congress to act to end the shifting of a disproportionate tax burden onto the shoulders of honest Americans.

I ask unanimous consent that a summary of the bill's provisions and the text of the bill be printed in the Record.