Max Baucus

Mr. BAUCUS

Mr. BAUCUS. I yield the Senator 60 more seconds.

Mr. BAUCUS. Mr. President, I yield 10 minutes to the Senator from Iowa.

Mr. BAUCUS. Mr. President, I see the Senator from Iowa on the floor. Does he wish to speak now?

Mr. BAUCUS. Mr. President, I yield 10 minutes to the distinguished Senator from New Jersey.

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 President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. BAUCUS. I suggest the absence of a quorum.

Mr. BAUCUS. I see the Senator from Florida on the floor. I yield 5 minutes to him.

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 President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. BAUCUS. There is not a lot of time left on the debt limit for debate. I urge Senators who want to speak to come over now because, otherwise, I will yield back the remainder of our time. I suggest the absence of a quorum.

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 President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. BAUCUS. Mr. President, we all owe a debt of gratitude to the Senator from Wisconsin for his long-time concern about budget deficits. I can think of no one in the Senate who has been a more articulate advocate of getting our house in order. Mr. President, I yield 5 minutes to the Senator from South Dakota.

Mr. BAUCUS. Mr. President, the Senate is here today to respond to the administration's request once again to increase the statutory limit on the Federal debt. More fundamentally, we are here in response to a warning. Like a proximity alert on an aircraft, the debt limit warns the Government is headed for a crash. We need to change course. Unless we change course, the administration's fiscal policy will consign American families to a lower standard of living. Unless we change course, American workers will have lower incomes than they would otherwise have, and the dollars they earn will be worth less than they otherwise would have been worth. Unless we change course, millions of Americans will live poorer lives. That is what we are really debating today when we debate the debt limit, and that is why I shall vote against the bill, to signal that we must change course. Narrowly speaking today, we are considering the ceiling on Federal debt, the cap that the law places on borrowing by the Federal Government. The legislation before us would raise the debt ceiling to $8.184 trillion. It would increase the debt ceiling by $800 billion. As this chart to my left shows, it will be the third largest increase in the history of the country. This chart indicates debt limit increases since 1982, and in roughly 1990, it was $915 billion, and then the highest was $984 billion, and this $800 billion is the third highest increase in the debt ceiling. Unfortunately, this large debt ceiling increase, and particularly the recent increases, are becoming all too common. Just last year we were forced to raise the debt ceiling by a record $984 billion. Almost $1 trillion in additional Federal borrowing, that limit was raised in 1 year. In just the year before that, the debt ceiling had to be increased by $450 billion. That is more than $2.2 trillion in debt in just 3 years. In contrast, prior to those 3 years, there had been no increase in the debt ceiling for 5 years. An increase of $800 billion of debt that is requested in this legislation before us means $2,700 more debt for every man, woman, and child in America, and a total of $8 trillion in total debt means about $25,000 of debt for every man, woman, and child. That is a $25,000 burden on each of us, our children, and our grandchildren. I believe that each of us who runs for public office and serves has a moral obligation, and that obligation is to leave this place in as good a shape or better shape than we found it. It is that simple. As this President and this Congress keeps piling up more and more debt, clearly we are leaving this place in worse shape than we found it. We are putting a huge additional obligation and burden on our successors and upon, more importantly, the people we represent and, even more importantly, those who follow the people we represent. That is not the moral, correct thing to do. My judgment is that it is not only not responsible, it is irresponsible. This chart shows per capita total Federal debt outstanding. This is per capita, on a per person basis in America. It has steadily been rising from 1997 from close to $20,000 to more than double, to $25,000 being asked for today. Today's increase also will not be the end of large increases in the debt ceiling. It will not be the end because before the next year runs out, we will need to raise the debt ceiling once again. The reason for these record increases in the debt ceiling is the record Federal budget deficits that our Government is running. To clarify for those who may be unsure about the terminology here, the term ``deficits'' obviously means annual deficits that this Government runs, and the term ``debt'' means the accumulation of all the deficits. That is why the deficits sound a little less. It is some $400 billion, whereas the total publicly held debt is over $8 trillion. I must add to this, I don't want to lay the blame totally in the hands of the President, but the President submits budgets to the Congress. Congress tends to work with the budgets that the President submits. Every year the President submits a budget and Congress does work around the edges, maybe add a little, subtract a little, but it is Presidents, not Congress, in the main, who actually determine the amount of either surplus or the amount of deficits that are actually enacted. It is primarily the Presidents. Since the current administration took office, there have been record annual surpluses that have turned into record annual deficits. In the fiscal year 2001--that is the transition year between the two administrations--the Federal Government ran a surplus of $127 billion, a surplus. We actually ran a surplus of $127 billion in fiscal year 2001. For the next year, 2002, the first full fiscal year in the current administration, the Government ran a deficit--not a surplus but a deficit--of $158 billion. In the next fiscal year, the Federal Government ran a record deficit of $377 billion. Last year, in fiscal year 2004, there was yet another record deficit of $413 billion. This chart basically outlines what I just said; namely, we start with a reduction in Federal debt. That is the total. Beginning about 2001 it starts skyrocketing back up again. These record deficits are even more painful when they are compared with the record annual budget surpluses that preceded them. In fiscal year 1998, the Government ran a surplus of $69 billion. This was a record budget surplus at the time and the first budget surplus since fiscal year 1969. In fiscal year 1999, this was another record surplus, $126 billion. That was followed by yet a third record surplus of $236 billion in fiscal year 2000. So we had 3 years of growing surpluses. So in just 4 years, the Government has moved from a record surplus of $236 billion to a record deficit of $413 billion, which is quite a dramatic swing of about $650 billion in our annual Federal budget outcome just over a 4- year period of time. That is why we are here today. That is why we have to, in a technical level, raise the debt ceiling. It is because we are running record budget deficits. It is that simple. In contrast, when we were running budget surpluses, the Government was doing what it should do. It was beginning to pay off the debt held by the public. That is what took place the second half of the previous administration. So between 1998 and 2001, our Government paid off about $450 billion worth of debt. Indeed, when the current administration took office, there was serious talk that all debt held by the public would be paid off within about 10 years or so. I think we all remember that. Gosh, if we totally pay off our national debt--is that possible? People were saying it would be bad if we paid off our total national debt. But we were on the glidepath at that time, a few years ago, to pay off the national debt, and there was very serious talk about what would we do when we got down to zero national debt. How soon we forget. What a sad turnaround we experienced. The turnaround can clearly be seen in this chart here which outlines the dramatic change. Our national debt was steadily coming down as we had annual deficits and we were using the deficits to pay off the national debt. That is what happened in 2001. Then in 2002 and 2003 and beyond it is just the opposite. Is this going to continue, this trend? Unfortunately, if we are objective about this, I think the answer is yes. The President claims he will cut the deficit in half in 5 years. Indeed, Senator Kerry campaigned for the Presidency and said he would cut the deficit in half in 5 years. But I must say, to be totally candid, those estimates are a little rosy. That is not going to happen. For example, the independent nonpartisan Concord Coalition projects a deficit of about $450 billion 5 years from now. That will be higher than last year's record. Don't forget the Concord Coalition is known by most Members of Congress as being a fair, objective, nonpartisan organization looking at these matters very closely and very fairly and accurately. Ten years from now the Concord Coalition projects the deficit will be an astronomical $734 billion. The Concord Coalition says it is going to get worse, much worse, with each passing year and the total deficit, they say, for the next 10 years will be almost $5 trillion. That means the Federal borrowing for the public will be $5 trillion in 10 years, and the debt ceiling will have to be raised by $5 trillion as well just to accommodate that increase. Some may ask, Does it matter if Federal Government borrowing increases by $5 trillion? Does it really matter? Mr. President, it does. It really matters. When the Federal Government borrows money from the public, it threatens two bad results. First, the Federal borrowing could compete with borrowing by businesses and consumers. What does that mean? That means that interest rates would go up. They have to go up. They are competing for the supply of money. Borrowing by businesses for new investments would have to go down. Borrowing would have to go down, all things being equal, and with fewer business investments, economic growth would, therefore, decline relative to what it could be. High interest rates are killers. High interest rates, more than almost anything else, are a drag on the economy. It really slows the economy down and could deepen any recession that might occur. Conversely, very low interest rates help businesses borrow, help homeowners buy homes, et cetera. It is very good for economic growth. In addition, because of this crowding out effect, our future standard of living could be lower than otherwise it would be. Moreover, the rise in interest rates caused by increased Federal borrowing would make household purchases by credit more expensive. The increased costs would cause households to have less purchasing power and, therefore, would have to buy less. You may have to postpone or maybe not be at all able to buy that new refrigerator, to buy that new stove, that TV set, whether it is a plasma TV or regular TV, whatever it might be. The increased cost would cause households to have much less purchasing power. For example, an increase in mortgage rates of just 2 percentage points would increase home buyers' annual payments on a $200,000 home by about $1,700. Potential home buyers would decide whether to buy these homes or, in the alternative, reduce other purchases. In either case, the home buyer's standard of living would be lower. The second bad outcome that the additional Federal borrowing could cause is that Americans would owe more to foreigners. Foreigners would increase their holdings of U.S. assets. What does this mean? This would lower our future standard of living, as the earnings from American assets would have to go to foreigners, not to Americans. Thus, when the Federal Government borrows more, the standard of living of the American families suffers. It is zero sum, axiomatic; it by definition has to happen. There is another danger from added Federal borrowing as well. If foreigners, especially foreign central banks--that is the governments, foreign governments--buy a significant portion of our debt, our U.S. economy will be subject to serious jolts, particularly if these lenders decided to sell off that debt precipitously. At the very least, they will have a little hold on us as they increase their holdings of American Treasurys, American securities--which is what they buy mostly these days, partly because it is more liquid, which means they could get rid of them much more easily, more quickly. But they have a little hold on us, a little leverage on us in any trade negotiation, any political negotiation, any foreign policy negotiation with these countries. Whether it is China or Japan or wherever, there would be a little edge because this country might hint that, gee, maybe we might start pulling out our purchases, sell the U.S. Treasurys we have unless you Americans go along with something we want. I am not saying it will be a huge factor. It may be a huge factor. I am saying it will be a factor we would not want to have to deal with. Suppose the U.S. dollar declines further. It has come down about 30 percent in the last couple of years against the Euro. When the Euro was first announced, the dollar was fairly strong compared to the Euro. Now it has fallen about 30 percent. As Federal debt and interest payments from our national debt are denominated in U.S. dollars, what happens? The value of those assets starts to drop. That is what is happening. The U.S. dollar, compared with other currencies, is starting to fall significantly. What happens then? Foreigners, including foreign central banks, might be afraid the dollar will go further. That is the trend. It is going down. Why is it going down? Because of the huge deficits and debts. A little less confidence in America. The more it goes down, then central banks in other countries will ask, do they want their dollar- denominated assets, as U.S. Treasury, to decline further? Probably not. So what are they going to do about that? Sell. Sell before they fall. Once they start to sell, what happens? The fall is greater. That is the danger we are facing. I am not saying this is actually going to happen. Nobody knows if this is going to happen. There is a school of thought that there is so much savings in the world this will not happen. But we all know it is getting more and more risky and more likely this will happen. If we exercise a little common sense as we run our household, we know there comes a point we cannot continue to borrow. There comes a point when the bank says no. There comes a point when we have to be more responsible as a household. The same is true here. There comes a point when the bank says--in this case it is foreign banks, or in this case the taxpayers--Enough is enough. We do not know there will be a huge, precipitous decline. We do not want there to be a precipitous, huge decline. If there is, we do not want to know when it is because we do not want it to happen, but we do know if we are irresponsible and turn a blind eye to all of this, it is much more likely to happen and we will pay the consequences and rue the day when we, at an earlier date, did not take the necessary steps to correct this. There is a real danger that foreign banks, as they look at their hole card, may sell off some of the Federal debt they now hold. Half of the foreign holdings are held by central banks. That would cause a spike in interest rates. Why? Because as they begin to sell, what does the U.S. Government have to do? It has to raise interest rates to keep the companies in America securities. Raise interest rates, and we will have all the other consequences I mentioned earlier--higher mortgage interest rates, consumer interest rates go up, companies cannot borrow as much because the banks are charging them much more. This is not some fringe possibility; this is real. Why do I say it is real? Why am I very concerned about this? Let me quote the former Chairman of the Federal Reserve, Paul Volcker. He said quite recently he thought there is a 75-percent chance of a currency crisis in the United States within 5 years. Those are odds we do not want to have to deal with. One of the hardest things to do is managing economic affairs early before you get in real trouble. It is so easy to postpone and put off. It is a bit of an abstraction right now. We do not know what will happen. It does not hit Americans right in the gut. It is not like raising taxes or lowering taxes which people feel immediately in their household budgets. I can guarantee if these problems do occur, and all the evidence indicates it is very likely to occur unless we take some very serious steps today, it is going to hit Americans so hard in the gut, it will have such an impact on Americans that this country is going to have a very serious problem. Something else we should consider is the international competitiveness we Americans face with other countries worldwide, irrespective of our current deficits and trade deficit--which is humongous, which we will have to pay for sooner rather than later--with other countries. Take China, for example. We graduate in the United States of America about 65,000 engineers a year. Engineers can build new products and help make America strong. Guess how many engineers China graduates each year. Over 300,000 yearly. Are they brighter or dumber than our engineers? No, they are smart, progressive young men and women. And they are hungry. For those who have been to China recently, it is stunning to see the degree to which the Chinese people are hungry. They are going to compete very aggressively on the world market. We are in a sense almost fiddling while Rome is burning. That is, not only not paying attention to our fiscal problems but also not paying attention to the competitiveness we have around the world; that is, not making sure we have more trained engineers who can do better worldwide. We will find ourselves not too many years from now in a real pickle. I am saying, right now, start taking measures so we do not have huge problems we otherwise would have. I mentioned earlier central banks, if this trend continues, might decide to change their holdings and Federal debt for political reasons. Not only economic, but also for political reasons. For example, a foreign government might be involved in a trade dispute with the United States. This foreign government would know it could roil markets for the U.S. Federal debt and U.S. economy if a central bank sold a large portion of its holdings of U.S. Federal debt. It knows that. So what does it do? That government or country might hint around or might threaten to sell off, roil international markets, with an adverse effect on U.S. currencies, undercutting the United States' position in that trade dispute. At the end of September this year, foreigners held about $1.9 trillion of our debt, close to $2 trillion of the total. Japan alone held $720 billion. China was next with $174 billion. Moreover, of $1.9 trillion of total debt held by foreigners, foreign central banks held $1.1 trillion. That is significantly more than half owned and controlled by central government banks. That is the government banks in those countries which, therefore, are in a great position of control. Those total amounts are nearly double the totals of 3 years ago. This has accelerated dramatically, almost double, over the last 3 years. Total debt held by foreigners is now 43 percent of all debt held by the public. Pretty close to half of all our national debt is held by foreigners--not by Americans, but by foreigners--and foreign central banks hold a full 30 percent of all such debt, one-third. That is significant. Before I got in the Government, I worked for the Securities and Exchange Commission and I can remember back then the controlling interest was 10 percent. We are talking about 30 percent here. That is much more than a controlling interest in an entity's financial position. The forecast for future Federal deficits and borrowing does not look good. I must add, this is not the worst of it. It gets worse. President Bush, for example, has made it clear he wants to pursue a plan for partial privatization of Social Security. Under that plan, part of a worker's and employer's Social Security payroll taxes we divert into new private savings accounts for the workers. That sounds good, but what does that mean? That means there would be less revenue left in the Federal budget for other spending. The Federal Government would have to borrow more money to cover the difference. That adds even greater pressure on the Federal debt and greater upward pressure on interest rates. For many of the various partial privatization plans being proposed, these revenue losses would not be small. They would be more than significant, between $150 and $200 billion a year in each of the next 10 years. The losses would be even larger in subsequent years. These revenue losses, these additional revenue losses, and the associated increases in interest costs on top of that, would raise annual deficits to previously unimaginable heights. For example, the annual deficit projected by the Concord Coalition for 10 years from now would rise to over $1 trillion. That is in addition. Federal debt would rise by an additional $2 to $3 trillion in the next 10 years to a total of about $7 to $8 trillion of new borrowing during that period. That is on top-- that is in addition--$8 trillion today, double in 10 years. So we should take two lessons from this dismal picture. The first is we need to exercise true fiscal discipline. That is just common sense. Americans sit around that kitchen table very often--maybe it is weekly, maybe it is monthly--trying to make ends meet. Some cannot keep spending more than they take in each year. Most cannot. No one can continue that indefinitely because at some point the banks just won't lend people any more money. They will insist that existing loans be paid off. We have bankruptcies. We have chapter 11. We have chapter 7. The point of all that is to stop the hemorrhaging, to pay off creditors to try to get the economic houses of Americans and companies back in order. I am not saying we have to declare bankruptcy. That would be something else, wouldn't it, if the United States of America declared chapter 11 and tried to reorder all the creditors. It is unimaginable, but if that were to happen, just think what would happen to the value of the dollar, what the value of the U.S. dollar would be then. In the world of borrowing China and Japan now play the role of the banks. They are our bankers. They hold 30 percent of our debt and foreign individuals own another, what, roughly 23 percent of our debt. All of this will force the United States at some point to begin to live within its means--at some point. And it could happen suddenly. Remember not too many years ago when the financial markets just collapsed. The first was in 1987, I remember, and the stock market just went whoosh. Back in the Asian currency crisis not too many years ago things went haywire immediately. The deck of cards totally collapsed. It doesn't take much, and it is usually unforeseeable. It is usually some little event which is not predictable but which happens which triggers this selloff and collapse. We do not want that to happen, and it will not happen, it is less likely to happen if we today begin constructing a path where we do live within our means. This increase in the national debt today obviously signals just the opposite. There is no plan at this point. So I say we would be far better if we were to eliminate our annual deficits on our own rather than having foreigners force us to that point. We can take concrete steps to reduce our Federal budget deficits. We can enact tough but reasonable caps in spending, renewed each year, and we can institute a requirement that all new tax cuts and new permanent spending be fully paid for. We can do that if we have the common sense and if we have the moral courage to do so as we are expected to do by the people who elect us. We could do all this without resorting to gimmicks. This town, this country, this Government has been full of too many gimmicks--the lockbox for Social Security. There are a lot of gimmicks this President has proposed. We have almost reached the end of our string of gimmicks. We have reached the point of reality. We have to do what is right. We can enact a tough requirement that new tax cuts and new permanent spending be fully paid for. That was in place actually, as you recall, from 1990 until the spring of 2003. This requirement helped the budget turn from deficit into surplus. We should restore that. We should restore that quickly. The second lesson we need to learn is that we should not enact the partial privatization of Social Security. There are a number of important reasons to stay clear of this. For example, these plans would likely cut total retirement income for many beneficiaries, have the effect of cutting income, not increasing it. Even this lowered income would be subject to great risk in the private market. Social Security, it may not pay hugely but it is stable. It is there. You can count on it. I know a lot of young people say it won't be there. I disagree with that. I say it is going to be there. Why do I say that? I say that because with each passing year there are more and more voters who are seniors. There are more and more people who are age 55 up to 60 who really care about Social Security. I have forgotten the exact date. I saw one estimate that by about the year 2030 half of all voters will be age 60 or over. I do not know if that estimate is true. It was made by a reputable person--I won't mention his name today but it is someone we all know who is quite reputable. But in addition to that, partial privatization would dramatically increase Federal borrowing. It would increase annual Federal budget deficits and it would increase the Federal debt. This would further lower both our current and our future standard of living. It would also make the U.S. economy even more vulnerable to recession and it could put the U.S. Government in a vulnerable position, even more so in its relationships with foreign governments. These fiscal dangers alone are sufficient reason to reject the partial privatization of Social Security. Clearly, we should look for new vehicles to increase savings. We should look for more ways to assure that our seniors are more secure in their retirement. We could bolster Social Security. We could find more private savings vehicles. We could help our pension system. But the partial privatization of Social Security will have the effect of lowering the benefits to those currently 50, 60, 62, or 63, unless there is a massive enough additional borrowing by the Federal Government. And that is the low estimate, $1 trillion over 10 years, and the higher estimate is $2 trillion. That is in addition. I ask from where is that money going to come? Can we really borrow that much more compared to what we have already borrowed? We cannot. So we need to respond to the debt limit. I started out saying really technically this is an increase in the debt limit, which is required by statute, but more fundamentally the issue being raised today is how much more can this Government go into hock? That is really the question. And how quickly can we get ourselves out of it? We need to respond to the warning of the debt limit increase. We need to change course. We need to prevent that crash. We still have time. We should heed Paul Volcker's warning of a 75-percent chance of a currency crisis in the United States in 5 years. I think I know what he is talking about. He may not be right, but if Paul Volcker says that, we should listen. We should take his warning very seriously. We should, obviously, act with a sense of urgency and do what we can to avoid that dangerous result. We should change course now. We should wait no longer. With next year's budget, we have an opportunity. The President, in his submission to Congress this January, February, whenever it is, in working with the Congress, can begin to chart a proper course, begin to chart a course or begin to actually honestly get our Federal budget deficit under control. We have that opportunity. We have that obligation. The time is now. The time is January when the President submits his budget and the next months when the Congress works with the President as we begin to get our Federal fiscal house in order. We have to change course so American families can hope for a better standard of living in the future, so American workers can have good jobs with good incomes and we have a strong dollar with real value in the international trade. We need to change course to make all that happen so future generations of Americans lead richer lives. I will end with the statement I mentioned in the beginning. We have a moral obligation to leave this place in as good shape or better than we found it. It is an obligation we have--I assert whether environmental matters, whether Federal budget--to inspire confidence and togetherness in our people. I urge us very much to take the course of action that we well know is correct. Mr. President, I now yield 10 minutes to the Senator from Wisconsin, Mr. Feingold, who is a real leader in the fight for fiscal responsibility.

Mr. BAUCUS

Mr. BAUCUS. Mr. President, I yield back the remainder of my time.

Mr. BAUCUS. Mr. President, before I yield to the Senator, one final point. I know he had a hard time deciding whether to retire, a very hard time. I spoke with him several times. I did not want to prejudice him or bias him: Is there some way I can help John make this decision? And I mean that in the best sense of the term because, of course, I want him to stay. On the other hand, I didn't want to influence his decision. I wanted him to do what is best for him. Because it was such a hard decision, that to me is very strong evidence again of the deep public service spirit and desire he has. He loves public service, serving the public as well as Louisiana but specifically the country generally. He decided there are other things in life besides the Senate. I will not get into that subject. I don't think that is a subject on which very many of us want to tread. But we deeply appreciate the friendship, the legislative talents of the Senator from Louisiana.

Mr. BAUCUS. I yield myself such time as I consume.

Mr. BAUCUS. Mr. President, before I yield to my friend from Louisiana, I would like to say how much I personally deeply appreciate and will miss the Senator from Louisiana. I don't know any Senator who works harder on a bipartisan basis to get things done than the Senator from Louisiana. He is amazing. He has so many talents. Now, maybe he is partly Cajun, I don't know, but it is that Louisiana stuff that enables him to see more, do more, be more creative, think of more ideas than the rest of us mortals in the Senate. He is amazing. He is always thinking, always working. Many times in the Finance Committee I look over to the Senator from Louisiana and he is there working. He is reading reams of briefing materials. He has his magic marker out and he is underlining and learning this stuff. And he knows it so well. There are many areas he does know so well. One is health care. He knows health care intricacies probably better than anybody else in this body. He has worked with it on several commissions. He cares passionately about reforming our health care system. Tax policy, Social Security, you name it, if it is before the jurisdiction of the Finance Committee, he is very knowledgeable about it. He also, frankly, wants solutions. It is not just that he has knowledge and is very smart, but he is looking to try to find solutions, looking for compromises, looking for ways to get things done. We are going to sorely miss him; I mean sorely. I do not know what we are going to do without him because he is a catalyst, not the only catalyst but one of the major catalysts, here to get agreements, to get solutions. We all know how partisan this place is. He is one of those who is cutting against the grain to try to do what is right, do what is right for Louisiana, do what is right for the country, getting a practical solution: Come on, let's get something done here that makes sense. You may not like it totally, you may not like it completely, but, heck, you all know this is more than half a loaf, it is three- quarters, seven-eighths of a loaf, so it is certainly better than no loaf. So come on, let's get something done here. He is wonderful. I want him to know how much I am personally going to miss him.

Mr. BAUCUS. I yield 1 minute to the Senator from Louisiana.

Mr. BAUCUS. I yield to the Senator.

Mr. BAUCUS. Finally, my greatest thanks are to the people of the State of Montana. I express my gratitude and thanks to the people of Montana for sending me here as their representative. I will never forget the people I work for. They are my bosses. They are my employers and the best anyone could ever have. I know each Member feels that way about his or her State. I am blessed to be able to represent Montana. Frankly, it is for that reason that, preparing for this bill last year, my staff and I spent a lot of time in Montana meeting with workers and owners of businesses all across our State. We visited over 140 companies, 8 accounting firms and law firms, 11 economic development organizations in Montana. We spoke with about 60 companies over the phone, asking them what they thought about this legislation. How are Montana companies and interests affected by this bill? I simply wanted to know the biggest problems facing Montana businesses, I wanted to know what is working for them and what is not working for them, and I wanted to make sure that the manufacturing deduction in this bill will work for Montanans. Obviously, they had a lot of concerns. People in my State, as in many States, are worried about job security, health security, and economic security. Will they have jobs tomorrow? Will their jobs be cut because business is slow? What about health insurance coverage with health care costs going up? Will their businesses be able to grow and compete with foreign competition? We learned that any bill targeted to just corporations--that is, the standard corporation called C corporations--leave out most Montana businesses. That is because in Montana most businesses do not operate as conventional corporations. They work as partnerships or other enterprises that report their income not on a corporate basis but an individual income tax basis. We needed a broader definition of manufacturing to ensure that Montana farmers and ranchers got some tax relief. That is what we are enacting in the bill. I thank the hard-working men and women of Montana. Carlyle once said: All work is noble. I thank the hard-working men and women of Montana for their help in formulating this legislation. I thank them for supporting me as we advanced this bill. And I thank them for their hard work in the businesses they run. So it is to them today we dedicate this bill. I yield the floor.

Mr. BAUCUS. Mr. President, I first thank the chairman of our committee, Chuck Grassley, for the tremendous job he has done. I am blessed. We are all blessed to have him as chairman of our committee. He is very smart. He is very perceptive. He has terrific common sense and is wonderful to work with. He is as straight as they come. His word is his bond. If he tells you something, that is it. At the same time, when we work with him, it is very cooperative. In fact, he goes overboard. It reminds me of ``To Kill a Mockingbird'' when the protagonist, the lawyer, says: You walk around in his shoes to see that person's point of view. Chuck Grassley has the uncanny trait that he does not have to take the effort to walk around in another person's shoes because he already knows. He has walked around in so many shoes around Iowa. He has common sense that is rooted in the ground. He is a wonderful person. We are all very grateful to have him as chairman. I can say this having worked with him as the senior Democrat on the Finance Committee. Second, I deeply thank all of our staff who helped with this legislation. They have been wonderful. I ask unanimous consent to have their names printed in the Record.

Mr. BAUCUS

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

Mr. BAUCUS. Mr. President, I yield the remainder of our time. Cloture Motion

Mr. BAUCUS. I thank Senator Grassley.

Mr. BAUCUS. I yield myself time that is allotted under the rule. I appreciate if the Chair would advise me when I have 5 minutes remaining. The British historian Thomas Carlyle said all work is noble. And Psalm 97, attributed to Moses, the psalmist's prayer says: Establish the work of our hands. We all know the value and the meaning of work. It is so fundamental. Hard work counts. It helps us do what we need to get done. It also is good for the soul. I am privileged in my State of Montana to have what I call workdays. I work at different jobs in Montana, show up early in the morning with a sack lunch, work all through the day. I don't want to watch, don't want to be told, shown what is going on. I would rather just do the work. It is wonderful. I got the idea from Bob Graham of Florida. Bob has done this for countless years, and I can tell the Presiding Officer it is one of the privileges of the job I have. I know other Senators do the same. I would suspect the Presiding Officer has done that himself. He knows what I am saying. I can remember sitting on this very cold day outside of Butte, MT with a pipefitter trying to cut pipes and fit joints together. And I don't know how he did it, but he did it. I helped him. I probably caused more problems and mistakes that he had to correct. It meant so much to me to watch this pipefitter who so appreciated the value of his job and doing a good job. He wanted to do a super job, and he did. He worked hard to get it done. Another job I remember is in a mine outside of Columbus, MN, a platinum and palladium mine. You go up in the shafts. I was working a jack drill to try to drill holes into which charges are placed. I was totally fouled up. I couldn't do it. This guy was so skilled. He was creative. I mean he was a craftsman, setting that drill bit at the right spot, drilling those holes so the charges could be set. Or working in a hospital with a nurse, watching her so completely conscientious, wanting to do a great job in making sure her patients felt good and tending to her patients. This bill is about work. That is what this is. I am sure at one level it is about complying with the WTO ruling to assure that the United States is in compliance and the United States is no longer assessed these fees. As one Senator said, it could go up to 17 percent, which is a huge burden on our companies. So the bill before us is about work, it is about how we help more Americans do the work they want to do, how they and their companies can manufacture more products that are somewhat difficult to manufacture because of the onerous fees we are paying on your export-manufactured products, particularly to Europe. On another level, this bill is about straightening out our Tax Code. There are a lot of problems with the Tax Code and loopholes. They are huge, massive. This legislation, to pay for the replacement provisions--that is, the manufacturing deduction that will allow companies to manufacture more--are paid for with essentially loophole closers, corporate loophole closers. Some say this is a big corporate giveaway. That is just not accurate for two fundamental reasons. No. 1, there are many billions of dollars in loophole closers, tax shelters, for example, where a corporation has to list very dubious transactions so the IRS can look at them closely to see whether they are accurate. Several other post-Enron corporate abuse shelters that are closed down are also in this bill. It is many billions of dollars. Second, there are provisions in the bill which help our international companies and are designed to achieve one purpose: avoid double taxation. The international tax provisions are extremely complicated, very complicated. Unfortunately, American companies often are taxed twice. They are taxed by the foreign country in which they are doing business and also, as they properly should be, by the U.S. Government. We have a system, generally, where an international company is operating overseas but headquartered in the U.S., and it could generally take the taxes that are paid in another country and use that to offset taxes it pays in the U.S. to avoid double taxation. That is, the American company is taxed on its worldwide operations but doesn't have to pay twice, a second time, to that other country. There are many cases in the Tax Code where that doesn't work very well and, in effect, the corporation is taxed twice. So these provisions that some people are complaining about are essentially designed to prevent double taxation. There may be provisions that Senators might argue with on the margin and split hairs, but, in the main, these provisions are designed to avoid double taxation. Also, this bill is revenue neutral. Unfortunately, our country has accumulated massive Federal deficits--$415 billion for this year. This is a big bill. It is very large. It is large because it appeals to this regime which the WTO organization says is illegal. It is large because it replaces it with a structure which, as I mentioned, is a deduction for manufacturing done in the United States to help spur more manufacturing, and that is massive; it is massive because it closes corporate loopholes. But in the end, when you add it all up, it is revenue neutral. It doesn't add one cent to the Federal deficit. It is a responsible bill. It accomplishes the objective of complying with the WTO, and it also closes a lot of loopholes. It is massive. Also, it is fair because it avoids corporations being double taxed. This bill is not perfect. We all say many times around here that we should not let perfection be the enemy of the good. It is a platitude, it is commonplace, and we say it all the time. I often remind myself that sometimes the most trite things are the most true. That we should not let the perfection be the enemy of the good is a principle that we should apply here. We are 100 Senators, 435 House Members, and the President, and we cannot each have our own way. We have to work together and add up the pluses and minuses, and each Senator has to decide whether the pluses outweigh the minuses. In my judgment, it is very clear that the pluses here very much outweigh the minuses. The FDA tobacco regulation is not in the bill. I wish it were. There was a general agreement. I was not part of it, but there was a general agreement with those who worked with the companies and the farmers on a design where there would be a buyout. That is my understanding of the general understanding. Unfortunately, the House was resistant. They didn't want to put the FDA regulation in the bill. The question is, Should we kill this bill because that is not in here? That is a tough choice for many Senators, as it is for me. After all is considered, it is my judgment there is so much else that is good in the bill that it should pass. Unfortunately, we have to take up FDA regulation another day. I hope we do because I believe tobacco is a drug and it will help reduce a lot of deaths in the United States if that is properly regulated. I am also a bit distressed about the provisions for Montana that are not in here, particularly for Indian reservations. I have several ideas on how reservations could get a better break. That is also not in the legislation. Let me say one more thing and I will close and save the remaining few minutes. I want to explain one major corporate abuse, which is closed, but not sufficiently closed in this bill. The abuse is where an American financial institution will enter into a long-term lease, like say with the country of France, to build a subway system in France, for example. Because of the long-term lease, the American financial institution treats that as if it owns it and is able to take deductions against the lease purchase. Now, those are deductions that the financial institution can take against earned income. It lowers the income of that company. The net result of that is this: In the end, the American company takes huge deductions. The foreign government, in this case France, would own the system in the end, but the American taxpayers essentially are paying for that subway system, not the French. In fact, there is a small fee paid by the French for the privilege of allowing the American financial institution to take the tax deduction. Americans are essentially subsidizing that subway system and that fattens up the wallet of the U.S. company and the shareholders. Again, it is an extension of noncorporate shareholders as American taxpayers who are not shareholders of that company. It is an absolute outrage. This legislation stops that from this day forward, but it does not stop it for ongoing, currently operating transactions. So, unfortunately, America will still be subsidizing this. There are many of these instances overseas and in America, but I am most concerned about overseas, where there are municipal construction projects-- subways, streets, you name it. I think that is wrong. I wish closing that down were in the bill. I will reserve the remainder of my time.

Mr. BAUCUS. I thank the chairman. Civil Rights Tax Relief