Max Baucus

Mr. BAUCUS

Mr. BAUCUS. I appreciate that. Mr. President, I have a couple of points. I very much appreciate the efforts of the Senator from Florida in the amendment he has offered. He clearly is trying to address a problem that is very acute in this country, which is job loss. He is also attempting to address it in a way a good number of Senators and a good number of people think is a way to do it, and that is by making the cost of employment to an employer less expensive. In our country, it is regrettable, but we have come to the point where very often payroll taxes are the greatest expense an employee has. They pay more in payroll taxes, because the employer's half is imputed to the employee, than income taxes. We have to work hard to try to find ways so the cost of employment to employers is a little less expensive than at present. The Senator from Florida is trying to address that. I might say, though, his amendment strikes over 60 percent of the bill. This is a large bill. We don't have many tax bills that come around. I remember years ago we used to have a tax bill at the end of the year. Senator Long was then chairman of the Finance Committee. He would wait until the end of the year. There would be a lot of provisions and there would be a good tax bill. I don't think that is going to happen this year. This is becoming the major bill, and the reason for that is very clear. There was no World Trade Organization back 20 years ago. Times have changed so much. But the World Trade Organization has ruled that our tax regime, which gives our American companies that export a bit of a break, is illegal. Other countries have their tax regimes which give their companies breaks for their exports, and they are legal. But we set up ours in a way that, regrettably, does not pass muster with the WTO. There are a lot of reasons that is the case. Frankly, I think we Americans were a little naive. A number of years ago we agreed to a tax regime where companies in other countries could rebate their value- added tax for exports; whereas because we have a different tax system, because we did not have a value-added tax system and we tried to set up a different way to help our companies export, it turned out our way became illegal under the general rules of WTO. That happened a long time ago. We cannot recreate history. But basically that is why we are here today. Our tax regime which gives our companies a bit of a tax break has been declared illegal under WTO. We have an obligation now. We can't wait until the end of the year. We have an obligation now to replace that illegal regime with something that is legal. We have an obligation now because, as has been stated, the European Union, pursuant to rules under the WTO, has begun to tax American exports to Europe. With each passing month that tax becomes greater and greater. It gets up to 17 percent and that gets pretty severe after a while. So that is why we are here. The Finance Committee spent a lot of time trying to figure out what the basic replacement legislation should be--what is the best way to do this; what is the best way to help American companies produce jobs, make products, and also produce jobs in a way that is legal under the WTO regime. We worked hard at it, as I said. We talked to lots of different people around the country. We had several meetings in the Finance Committee about this issue. We had a big, long, open markup. We came up with a way which we think, by and large, helps American companies quite well. What is it? It is very simple. It is a 9-percent deduction for production by U.S. companies--in the United States, that is. If they produce the product in the United States, they get a 9-percent cost of production benefit for that production. It not only applies to big corporations, standard C corporations, it applies to smaller corporations generally known as S corporations, partnerships, sole proprietorships, as well as to any organization that produces some product in the United States. That is far better than the old regime we are going to displace because the old regime, which gave benefits for exports, was not available to a lot of farmers and ranchers and small businesspeople. So it is a good idea. Effectively, it lowers the top corporate rate-- if you are paying 35 percent--by 3 percentage points, down to about 32 percent as your income taxes, corporate income taxes. But if you are a partnership or if you are some other organization, your taxes are also lowered because of the 9-percent deduction for domestic manufacturing. So it does help provide jobs. What else does it do? It gives the employer who gets the benefit of this a choice. What is the best way for that company to meet competition? What is the best way for that company to do well? Whether it is a big company or small company, what is the best way? Generally, most believe the management of that company should have the choice of what works best for them. That is why we said you don't have to use the money this way or have to use the money that way. But in order to comply with the World Trade Organization rules, the only restriction, basically, is it has to be produced in the United States, whether the product is sold in the United States or whether it is sold overseas. That was the one restriction we had to apply to stay within the WTO rules. We also took the opportunity to address a growing concern that many American companies face, particularly the larger American companies, and that is international competition. Other countries do a pretty good job of taking care of their companies in the sense that they want to make sure their companies are competitive in the world. They do a pretty good job. So we have to ask ourselves: Americans, OK, what do we do so as not to handicap our American companies in international operations and also in a way that is fair to small business, is fair to the budget, is fair to lots of other interests in our country; that is, other considerations in addition to making sure our companies are as competitive as possible in the international arena. I don't need to tell you how globalized our economy has become. It is incredible how, each passing year, we are so much more interconnected than we were in previous years. Let me give one small example, the entrance of a good number of eastern countries into the European Union. Half of the world's population now is in a buying consumer market. That is a major change. That is a profound change. Companies worldwide, certainly American companies, are going to have to compete in that market, as well as the American market. In addition, Mr. President, as you well know, various other countries--whether it is the European Union or even China--are entering into trade agreements with other countries which give a benefit to their companies and, by definition, to the detriment of American companies. It is an extremely competitive world and becoming even more so. It is more so because of the additional markets, as I mentioned, more so because of increased advances in technology, particularly communications technology. With so much information now digitized, so much information now able to be sent over a broadband communications system, that is bringing us so much closer together. We in the committee believed that in addition to helping domestic manufacturers, as described, we should also simplify a lot of the international provisions, especially those where American companies are double taxed. The theory of our system, our worldwide system as opposed to--well, it is the same theory as other countries' territorial systems. But the theory of our system is basically avoid double taxation of American companies. If an American company does business overseas, clearly that other country--take Germany, for example--wants to tax the American company's production in Germany. But then that is an American company, so the American taxpayers have a right to think that company should pay income taxes to Uncle Sam, too. But we also want to avoid double taxation. Basically, the idea in America is to give companies a tax credit on American taxes for the amount of the taxes they paid in the other country. That is basically what we do. It is a complicated system, but it is one that by and large works pretty well. Then there are some other provisions in this bill. There are energy tax provisions; also, a minority tax credit. What is my main point? My main point is we have spent a lot of time in committee on this bill. It passed the committee 19 to 2. Frankly, the two dissenters were on the other side of the aisle. They had a different approach they thought made much more sense to them. I suggest upfront, even though the amendment has some frailties, this was never debated in the committee. It was never brought up in committee. It was for very good reason, as the Senator from Florida was engaged in another endeavor. He probably still is engaged to some degree. I very much appreciate that. He was not available and it was not his fault this amendment was not brought up. He was unable to be present. It was not brought up in the Finance Committee. It was undebated in the Finance Committee. His amendment is a huge change to the bill. It dramatically changes the bill. It changes the velocity of the bill. We have already addressed the issue generally but not all of the content of this amendment, which is drastically changing the bill. That is not an exaggeration. It is drastic. For that reason, respectfully I say to my good friend from Florida, this is not the time for the Senate to proceed with this amendment. There is a time and place, in the committee, that we should address his approach. That is, helping reduce the company payroll tax or helping employers so they do not pay quite so much in wages. We want to help people get wages but we do not want to burden the employers. Now is not the time, nor the forum. He should bring that up at a later time.

Mr. BAUCUS. Will the Senator yield me an additional 5 minutes?

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

Mr. BAUCUS. I move to lay that motion on the table. The motion to lay on the table was agreed to. Amendment No. 3112

Mr. BAUCUS. I will not consume it all.

Mr. BAUCUS. Mr. President, I yield back whatever time I can yield back. I also suggest the absence of a quorum.

Mr. BAUCUS. Madam President, will the Senator hold back for a second before making that request?

Mr. BAUCUS. I thank the Senator.

Mr. BAUCUS. Madam President, this is a good bill on which we have made a lot of progress. There are a lot of good amendments yet outstanding. It is amazing how much is in this bill that is so positive. I say to my colleagues on both sides of the aisle, it is important for us to go the extra mile, to see if there is a way to compromise. I will say that again: both sides of the aisle. Here we have the amendment offered by the Senator from Washington, and we are kind of at a little bump in the road. But this can be resolved. This is resolvable. I hope very much we are not in a situation where backs stiffen up and people dig their heels in the ground and pride becomes the overriding emotion. Rather, we are very close to resolving a very important issue. So I ask that cooler heads prevail over the evening, to sleep on it, and tomorrow morning--and/or tonight--find a way to resolve this issue; otherwise, people could see the Senate not at its best. There is an opportunity, a real opportunity, for Senators to show they can work together on both sides of the aisle on very important matters. We know none of us can have everything. We also know for things that are important and worthwhile, generally it takes some give-and-take and compromise. We are almost there. I thank the Senators for how far we have come thus far, and I urge us to work together to find a solution to these remaining amendments so we can get the bill passed very quickly. I yield the floor.

Mr. BAUCUS. I have no problem with that. That is my understanding.

Mr. BAUCUS. Mr. President, I ask consent all pending amendments be set aside so the Senator from Colorado can be recognized for the purpose of offering an amendment, and I also ask consent that the amendment of the Senator from South Carolina, Mr. Hollings, also be the next amendment to be in order.

Mr. BAUCUS. I ask unanimous consent that this be a 10-minute vote.

Mr. BAUCUS. Mr. President, I have a couple more points about the Graham amendment. It is advisable the Senate not adopt the amendment. His amendment would do two things. Basically, it strikes the deduction for domestic manufacturing and also strikes most of the international tax reform provisions. These are very important changes that will help Americans compete internationally. As I mentioned, the international provisions in the bill that would be stricken by the Senator's amendment are designed to reduce double taxation of American companies. We want to do as much as we can to reduce double taxation of American companies. Let me give an example. Under current law, an American corporation would have to pay more to borrow money to build a factory than foreign corporations would have to pay, even if the factory is in the United States. This is because of the way we treat interest expenses and so- called interest allocation. Essentially, we are changing the interest allocation provision so that a U.S. company with assets overseas is not penalized, so long as the borrowing is proportionate to the assets in each of the countries, which is now not the case. That is, right now, American companies are penalized even if all their borrowing in the United States is proportionate to worldwide borrowing. That is just not fair. It is something other country's companies do not have to put up with. That is one example of how our Tax Code currently puts American companies at a disadvantage compared to other countries. The JOBS bill fixes a lot of these problems so Americans can compete on a level playing field, and it brings the Tax Code in compliance for the intent to avoid double taxation. I say to my good friend from Florida and to my colleagues in the Senate, this is not the time, in my judgment, for that amendment. It has not been explored, debated, or brought up in committee. It is a huge change to a very thought through bill. It should not be approved at this time. I take a couple of minutes while we have the time to talk about some of the international provisions generally in the JOBS bill. Let me state again why I think these provisions are good policy and they help American companies. I will mention again the interest allocation provision. It is perhaps the most significant provision in the international tax title, both in terms of cost and the number of companies it would help. The interest allocation provision is one of the many in the JOBS bill that deals with foreign tax credits. Our foreign tax credit system is designed to prevent taxpayers from paying tax twice on the same income. When an American company earns money in France, the French tax that income and the United States also taxes that income. That is two levels of tax on the same income. The total tax could be, say, 75 percent or more. Without adjustments such as the foreign tax credit which is in current U.S. law, these two levels of taxation would make U.S. companies completely uncompetitive abroad. There is no question about that. Foreign tax credits, however, get the company back to a single level tax and make competition possible. Our foreign tax credit rules are not perfect and double taxation still sometimes occurs. A prime example is the interest allocation provisions in the foreign tax credit rules. Let me give you an example. Take an American company that pays $100 in foreign taxes and $100 in U.S. taxes on that same income. That American company would generally claim a $100 foreign tax credit to get back down to a single layer of tax. But if that American company happened to take out a loan in the United States to finance a project here in the United States, it might be limited to an $80 or $90 foreign tax credit--not because it paid any less in foreign taxes, but because we treat it as if it were able to deduct some of the interest on that U.S. loan to reduce its taxable foreign income, even though it could not do so. That is not right. The rules are complicated, but the effect is plain. If an American company wants to borrow money and build a plant in the United States, it faces an uphill battle. It will pay higher interest expenses than a comparable foreign company. Our interest allocation rules in current law are making it easier for its foreign competitors to build that plant. But our bill fixes that, and it fixes other problems with our foreign tax credit rules. For example, companies that pay the alternative minimum tax--the so- called AMT--currently face limits on the use of the AMT with respect to foreign tax credits. Unlike non-alternative minimum tax taxpayers, they are subjected to an artificial, completely arbitrary cap on the use of their foreign tax credits. It is 90. Arbitrarily limiting their foreign tax credits just makes these AMT taxpayers pay double. The current AMT provisions essentially, in many cases, result in double taxation. The JOBS bill fixes that, too. The JOBS bill also makes it less likely that a company's foreign tax credits will expire unused. It is another problem: The foreign tax credits expire unused, and then the U.S. company could often be placed, in effect, in a position where it is subjected to double taxation. Currently, unused foreign tax credits can be carried over for 5 years. The original purpose of this carry-forward rule was to prevent taxpayers from suffering double taxation because of timing differences between U.S. and foreign tax laws. That purpose is not being served by our current law. Any new tax laws in foreign countries have made the problem worse for American companies. The JOBS bill extends the carryforward to limit the double taxation that occurs upon the expiration of foreign tax credits; that is, we are making it less likely that a U.S. company will be subjected to double taxation. Each of these provisions simply corrects features of our international tax laws that frustrate the original purpose of those laws. Again, the original purpose was to avoid double taxation. The JOBS bill puts us back on track with the original intent of our international tax system. So, as we all know, the international provisions are a lot more complicated than I have even begun to allude to, but, very briefly, those are some of the provisions in the bill. They are corrections in the bill. They reduce double taxation, or eliminate it in many instances. It helps American companies compete with foreign companies. That means it is much more likely they will be able to keep jobs in the United States if they are able to compete more effectively. Mr. President, for that reason, I urge we do not adopt this amendment. I suggest the absence of a quorum, on behalf of the Senator from Iowa.

Mr. BAUCUS

Mr. BAUCUS. Mr. President, I rise today with great pride to honor a group of distinguished Montanans. Alyson Mike and Thomas Andres, Montana's 2004 Milken Educator Award recipients deserve recognition for their outstanding work and service to our State and to the children they teach every day. Public service is the most noble thing a person can do. Whether it is service to one's church, community or government, there is nothing more honorable. Alyson and Thomas are at the top of a lengthy list of quality teachers in Montana to stand among their fellow American teachers to receive this national award. The Milken Educator Award provides public recognition and a $25,000 honorarium to teachers, principals and other educators who have a proven record of excellence in education. Alyson, a natural science teacher at East Valley Middle School, and Thomas, a science teacher at St. Labre Catholic Indian School, both have strong records of excellence. In fact, I was recently honored to recognize Alyson as Montana's 2004 Teacher of the Year. In Montana, there is little difference between our schools and our communities. This award highlights the great quality of teachers we have in Montana and spotlights the good things happening in our schools. Alyson and Thomas are two of Montana's high quality teachers that are helping to shape our State's future. They are creating an environment that encourages learning, instilling a curiosity and a desire to learn--all of which will produce a more educated workforce. A better educated work force will spur job creation and translate into a stronger economy with more good-paying jobs. The best way to ensure Montana's future is through a well-educated work force. We in Montana are very fortunate to be able to claim teachers like Alyson Mike and Thomas Andres as our very own. They are playing a vital role in our State's future. I commend Alyson and Thomas for all they have done and I am confident they will continue to serve their students well. I would also like to recognize Polson High School as Montana's 2004 winner of the `We the People' Competition. By winning the State competition, nineteen of our State's brightest government students and their teacher qualified to represent Montana in the National Civics Competition on the United States Constitution. The names of the 19 students who are receiving this honor are as follows: Charlie Cooper, Chance Dupuis, Sky Fredrickson, Ashley Gilchrist, Kasey Harwood, Rosanna Ho, Chad Hunsucker, Bonnie Klein, Brandon McCurdy, Kdee Meidinger, Zach Morrow, Candace Myers, Andrew Ofstad, Kiel Rafter, Chris Rossmith, Kai Smith, Kate Taylor, and Christine Woidtke. Pat Danley is the teacher whose expertise, guidance, and encouragement that helped these students receive this honor. Pat Danley is a veteran government and political science teacher at Polson High School. I commend Pat on his ability to prepare these students for this competition. These students have demonstrated a strong understanding of the U.S. Constitution and the Bill of Rights. Here in Congress, I think we can all recognize the value of fostering civic competence and responsibility. These students are Montana's future leaders, and I am proud to recognize their accomplishment.

Mr. BAUCUS

Mr. BAUCUS. That is correct. But, again, the payments--that is, the trade adjustment assistance payments--would only be prospective.

Mr. BAUCUS. Isn't it true that under this basic law and also this amendment, benefits only accrue prospectively; that is, no benefits accrue retroactively? That is, the only retroactive application is as to whether somebody qualifies, but the actual benefits only accrue prospectively. So it is not accurate to say there is a lump sum that is paid to a worker because of past employment.

Mr. BAUCUS. Mr. President, will the Senator yield for a question?

Mr. BAUCUS. Mr. President, according to the agreement, I think that will be good. That is fine.

Mr. BAUCUS. Mr. President, I ask unanimous consent that the Wyden amendment be modified with the text I send to the desk.

Mr. BAUCUS. Reserving the right to object--of course I will not--I thank all Senators for going the extra mile to help work out this agreement. We are taking steps. We are proceeding. I think we will get this bill passed this year.

Mr. BAUCUS. No.

Mr. BAUCUS. Mr. President, how much is remaining?

Mr. BAUCUS. Mr. President, we will find it.

Mr. BAUCUS. The Senator has 5 minutes on this side and 5 minutes on the majority side, a total of 10.

Mr. BAUCUS

Mr. BAUCUS. Mr. President, I ask unanimous consent that Sara Hagigh of Senator Lieberman's office be granted the privilege of the floor during consideration of the JOBS bill.