Chuck Grassley

Mr. GRASSLEY

Mr. GRASSLEY. As Chairman of the Senate Finance Committee, I join my colleague from South Carolina in expressing concern about the way in which the Chinese currency is valued. I certainly agree that it is a serious problem that needs to be taken seriously. A fairly valued currency is in China's own long-term interests, and is key for moving to a market driven economy. I was pleased to hear that Secretary Snow was assured that interim steps are being taken and that progress in this area will continue.

Mr. GRASSLEY. Mr. President, I move to reconsider the vote.

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 President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. GRASSLEY. Mr. President, on behalf of Senator Nickles, I call up amendment No. 3040 and send a modification to the desk.

Mr. GRASSLEY. Mr. President, the press and some in this body have unfairly defined this legislation as a ``porky'' tax bill. There have been articles in all the major papers following that line of attack. One Member of the leadership on the other side said on April 20 he is worried that the sheer amount of tax breaks in the bill could end up impeding its progress. ``They've loaded this truck up and the tires are about to explode,'' he said, calling the efforts to pile sweeteners onto the bill ``haphazard.'' That Member went on and cautioned, ``any time you load it up as vigorously as they have, you create as many problems as you solve.'' Well, let's talk about the so-called ``porky'' provisions in this bill. It is a bit irritating that the complaints come from folks who say they support the bill. Every provision in the bill is the result of a joint recommendation of myself and Senator Baucus. We responded to requests from every Senator, including those who are critical of the bill. I guess I would ask anyone, including the critics a question. That question would be, ``Are you willing to throw aside the provision you asked us to put in the bill?'' Are you willing to go back to your constituents and tell them you don't think their interest has merit? I don't think I will hear any of the critics respond yes. I haven't had any takers yet and don't think I will by the time the bill's done. Let's look at the bigger picture. This bill has about $60 billion dedicated to the replacement of the FSC/ETI benefit. This bill has another $40 billion dedicated to international tax reforms to make our domestic manufacturers more competitive overseas. There is another roughly $20 billion in domestic manufacturing incentives, including the research and development tax credit. Some of that package deals with issues such as the unfair tax on bows and arrows which has a domestic job impact. There's another $8 billion dealing with the extenders, including a permanent tax credit directed at hiring hard-to-place workers. There's another $10 billion dealing with housing, rural areas, hard hit urban areas, Indian tribes, and other sectors of our economy. We're directing resources at economic development, plain and simple. Finally, there's another almost $20 billion for the bipartisan Finance Committee energy incentives package which has passed the Senate twice. All of this is offset with corporate loophole closers and measures aimed at curtailing tax shelters. The dollars involved in the much- criticized provisions are very small--perhaps less than 3 percent of the total cost of the bill. Members and the ``big city'' press need to keep their eyes on the ball: ending the euro tax and helping domestic manufacturers. Senator Daniel Patrick Moynihan responded to the New York Times regarding the 1997 bipartisan tax relief bill. The press had made much of a few narrow provisions, such as a provision to provide tax relief for parachuter trainees. There is an excise tax on air travel. The tax is meant to apply to commercial travel. Read literally, the tax applied to parachute training flights even though those flights are not commercial transportation. Senator Moynihan described the Finance Committee provisions that were designed to deal with these inequities this way: ``You will never see representative government more specific than in the Senate Finance Committee . . . It's a form of accommodation, and in between you think about the national interest, because there are things we all share.'' Like the 1997 tax relief bill, the bill before us includes a number of provisions that, at face value, may seem to be trivial. It is important to keep in mind, however, that each of these provisions was added in response to specific requests from fellow Senators who are looking out for the vital interests of their constituents. That is what representative government is all about. The Federal tax system is vast. It touches virtually every aspect of life. From birth to grave. There are excise taxes to fund our airports and highways. There is a corporate and individual income tax to fund defense and general welfare. There are payroll taxes to fund Social Security and Medicare benefits. There is an unemployment payroll tax to fund unemployment benefits. Now, when you go through this bill, you can find some provisions that involve animal manure or windmills. If you don't look beyond the superficial humor of the subject matter, you can have a lot of fun. Of course, big city papers like to make fun of these rural provisions. I always have to remind these folks that food doesn't grow in supermarkets. It grows on farms. The byproducts of those farms can give us clean energy. What's so bad about that? Part of what we hear out in the heartland is get us some insurance that jobs are coming back. Especially, they say, in the area of manufacturing. The economy is coming back. The U.S. economy, the mightiest in the history of the planet, is adding jobs at a healthy rate. The people want an insurance policy. Growing jobs in our diverse economy is not a cookie cutter exercise. This bill has general policies for the most part. Some are proactive, like the manufacturing deduction. Others are reactive, like responding to the Euro tax. Still others are particular. They may relate to small isolated communities or a single industry. When you take a look you'll find a common thread through nearly all of them: job creation. That is what this bill is all about. Creating jobs, plain and simple.

Mr. GRASSLEY. Mr. President, I ask unanimous consent that all time be yielded.

Mr. GRASSLEY. I ask for the yeas and nays.

Mr. GRASSLEY. Mr. President, I yield myself such time as I might consume. Senator Hollings asks us to take $39 billion of international reforms and put it towards more domestic manufacturing relief. I have told my colleagues so many times I shouldn't have to repeat it. But this bill is all about encouraging domestic manufacturing. The level of spending in this bill is already over three to one in favor of domestic issues. We dedicate over $75 billion to domestic manufacturing relief. FSC/ETI currently benefits manufacturing by $50 billion. Obviously, you can see this bill is a much stronger commitment to manufacturing than the old FSC/ETI bill we are replacing. We have already accelerated the phase-in of the manufacturing tax rate. That is thanks to a bipartisan amendment by Senator Bunning and Senator Stabenow. We have modified the transition rules to provide stronger relief in transition for manufacturing companies which presently get the old FSC/ETI benefits this bill replaces. I hope it is easy for my colleagues to conclude that there is very little to be gained by the amendment proposed by the Senator from South Carolina. It is time we had our rational discussion of the international reforms in this JOBS bill because we have been spending so much time on nongermane amendments. The amendment before us is not one of those nongermane amendments but it has kept us from discussing so much which is very basic with this legislation. Maybe people think there is no reason to discuss it because this bill was built from the ground up in a bipartisan way, coming out of our committee on a very overwhelming vote of 9 to 2. I think Members will be surprised to learn that some of our international tax rules actually harm the domestic operations of U.S. companies. When foreign income is brought home, the United States allows an offset against U.S. tax for any foreign taxes paid on that income. That is why it is called the foreign tax credit. Foreign tax credits ensure that we do not double tax foreign earnings. Accordingly, the foreign tax credit plays a vital role in preserving the international competitiveness of our companies. In the Tax Reform Act of 1986, Congress enacted a provision that causes foreign tax credits to expire every 5 years. That was done for a reason that is not very well justified because it is often used around here--to make that 1986 tax bill revenue neutral. Some claim this is a good rule because it forces foreign earnings to be repatriated within 5 years. But that conclusion does not comport with reality. The reason companies don't bring back foreign earnings is because of double taxation. That is what occurs with foreign tax credits expiring. I will give you an example. A U.S. company sets up new operations in Poland to serve Eastern Europe at this time when Eastern Europe is being integrated with the European Union. That happened last week. For the next 8 years in this hypothetical--quite reasonably--it takes all of the capital generated by the Polish subsidiary to expand the company's presence in Eastern Europe. At the end of 8 years, it finally has some extra cash which it can send home. What happens? It discovers the taxes it paid to Poland from years 1 through 3 are no longer eligible for the foreign tax credit because they are more than 5 years old. The Polish tax rate is 28 percent. This means if a company repatriates those early earnings, it will pay combined Polish and U.S. taxes of 63 percent. It is really almost confiscatory. That means, of course, the money is not coming home for reinvestment in the United States. We lose the benefit. If those early tax credits had not expired, the United States would actually pick up some tax revenues. The subsidiary would owe the difference between the 28-percent Polish rate and the 35-percent U.S. rate. That happens to be a gain of 7 percentage points of taxation into our U.S. Treasury from that company. To ensure that double taxation no longer occurs, our JOBS bill extends the carry-forward period for foreign tax credits from 5 years to 20 years. Twenty years is the amount of time companies have to utilize net operating losses. It is only appropriate, then, that the key mechanism for avoiding double taxation should have the same shelf life. Our JOBS bill mostly fixes problems in the foreign tax credit area. The only time a company benefits from a foreign tax credit is when it brings that money home. To repeat a very elementary point, foreign tax credits are a benefit to that company only when that company brings foreign earnings home for reinvestment. When the credit expires, this impedes capital mobility because of double taxation, and it blocks reinvestment of foreign earnings in the United States. Another example of guaranteed double taxation is our rule that only allows 90 percent of a company's AMT to be offset with foreign tax credits. This rule guarantees that the company will be double taxed on 10 percent of the alternative minimum tax. The JOBS bill allows what is common sense--a 100-percent offset. To give you a real-life example of how these two changes will help U.S. operations make investments in America and create jobs in America, the largest American manufacturer in this example of a particular automobile part is bringing dividends back from its profitable foreign operations to cover losses in its U.S. operations. Their U.S. losses, when combined with the foreign dividends to fund the U.S. operations, has created huge unused foreign tax credits with a 5-year expiration period. Because of their ongoing U.S. losses, it is unlikely these credits will be used within those 5 years. This company also has a growing alternative minimum tax because their foreign tax credits can only be offset by 95 percent of their AMT liability. The limit is creating an annual alternative minimum tax liability because the additional 10 percent of the AMT cannot be offset with the foreign taxes that have already been paid on that income. The company is guaranteed to incur double tax on foreign earnings brought back to support the U.S. operation. This may be unbelievable to anyone listening, but this is actually happening under U.S. tax laws. The company's foreign competitors in the United States are not equally hindered in the same way by the 90-percent alternative minimum tax, foreign tax credit limit. If a foreign competitor loses money, they get a 20-year U.S. net operating loss compared to the 5-year foreign tax credit carryforward. Our Tax Code, then, is harming a company that has operations in all 50 States and employs 38,000 people in 16 different manufacturing facilities. This example shows why the 20-year foreign tax credit carryforward and the repeal of the 90-percent AMT foreign tax credit limits are in this very important jobs in manufacturing bill. The current rules harm U.S. operations and we need to fix it. I also have some comments on another provision, the interest allocation provisions, to give another example of how our international rules harm U.S. operations. As I said earlier, foreign tax credits can only offset foreign income; they cannot offset income from U.S. activities. In determining the amount of foreign income, certain U.S. expenses, such as interest expense, are partially allocated to foreign income. This is used in calculating the amount of foreign tax credit a U.S. company is allowed to claim on its return. The United States arbitrarily allocates U.S. interest expense to foreign earnings, but the foreign government does not recognize that interest expense for its tax purposes. It is as if the interest expense somehow disappears into the clear air. The interest allocation rules artificially reduce the foreign tax credits that can be used, and when the credits cannot be used the credits expire. It may surprise many Senators to hear that our interest allocation rules create a competitive disadvantage for U.S. multinationals that try to expand their operations into the United States and maybe do not get expanded here. A portion of the interest expense on debt incurred to invest in the United States is allocated to foreign source income. A foreign corporation making the same U.S. investment is not impacted by these interest allocation rules. It gets to fully deduct the interest costs within the United States and thereby has a lower cost of capital than a U.S. company making that same investment. Therefore, the interest allocation rules actually work against U.S. multinational companies that invest in the United States. It has put some at a competitive disadvantage with foreign companies operating in the United States. I hope this is very clear, that this is not the right thing for the U.S. Tax Code to do to foreign manufacturers. Why should we encourage international competition in the United States against our own domestic manufacturer? We have Senators demonizing the JOBS bill international provisions. This gives me an opportunity to emphasize once again how anything gets done in the Senate--only in a bipartisan way. This is a bipartisan bill. Democrats and Republicans agree to everything in this bill, and the international provisions we agreed to were provisions that actually help U.S. job creation and help our own economic growth. I ask the Senate to support Senator Baucus and this Senator in this bipartisan bill. I hope Members will not buy the distortion. None of the international changes caused jobs to go offshore. Just the opposite. These were selected to bring the foreign money back for real investment in the United States, creating jobs in the United States, creating manufacturing jobs in the United States because this is a manufacturing bill. These changes level the playing field between the United States and foreign companies operating inside the United States. They were specifically selected because they tend to help U.S.-based manufacturers more than other sectors of our economy. The entire JOBS bill is geared towards creating jobs in manufacturing--jobs in the United States, not overseas--because American manufacturing overseas does not benefit from this bill. It is quite simple. These are the only kinds of international provisions we could ever get bipartisan agreement on because it is so obvious. It is so obvious, it came 19-2 out of our committee. We should not allow international rules to remain in place if they harm U.S. operation. Once again, we are talking about commonsense international tax reform. In fact, if anyone wants to condemn this bill, it is that maybe we do not do anything radical in this bill. We just fix problems. We fix problems with current law. We fix problems with current law that happens to be harming U.S. domestic interests. So I ask Members to vote against the amendment of the distinguished Senator from South Carolina. I yield the floor.

Mr. GRASSLEY. Mr. President, I say to the Senator, if you do not have any more time, then I will yield back my time and we can then vote.

Mr. GRASSLEY. Is that OK?

Mr. GRASSLEY. Mr. President, I yield back all time on this side.

Mr. GRASSLEY. Mr. President, I move to reconsider the vote.

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

Mr. GRASSLEY. Mr. President, I ask unanimous consent to call up amendment No. 3133 and ask for its immediate consideration.

Mr. GRASSLEY. Mr. President, I ask unanimous consent, notwithstanding the adoption of amendment No. 3143, that the modification which is at the desk be agreed to.

Mr. GRASSLEY. I ask for consideration of the amendment.

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the reading of the amendment be dispensed with.

Mr. GRASSLEY. Mr. President, I ask unanimous consent that further reading of the amendment be dispensed with.

Mr. GRASSLEY. Mr. President, I think this is going pretty well now. We expect a vote around 6:30. I suggest the absence of a quorum.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I ask unanimous consent the substitute amendment at the desk be agreed to, the committee-reported substitute as amended be agreed to, the bill as amended be read a third time and passed, the motions to reconsider be laid upon the table en bloc, and that any statements be printed in the Record.

Mr. GRASSLEY. Mr. President, I ask unanimous consent the Senate proceed to the immediate consideration of Calendar No. 295, S. 622.

Mr. GRASSLEY. Mr. President, today, I come to the floor to talk about a bill of great significance to me. The Family Opportunity Act is a bill that I first introduced with Senator Kennedy in the 106th Congress. This bill promotes family, work, and opportunity. Every day, across the country, thousands of families struggle to obtain affordable and appropriate health care coverage for children with special health care needs, including children with conditions such as autism, mental retardation, cerebral palsy, developmental delays, or mental illness. Over the course of the last three Congresses, this bill has enjoyed strong bipartisan support. Low and middle income parents who have employer sponsored family health care coverage and children with disabilities often find that their private insurance does not adequately cover the array of services that are critical to their child's well-being, such as mental health services, personal care services, durable medical equipment, special nutritional supplements, and respite care. Because Medicaid, our Nation's health care program for low-income individuals, offers the type of comprehensive care that best meets the needs of children with disabilities, it can become a lifeline on which many parents depend. Yet, Medicaid is a safety net program and one must be impoverished in order to be eligible. This presents a terrible choice for many low and middle income families who have a child with special health care needs: they must choose between work or impoverishment. Or, in the worst cases, parents consider the devastating choice of relinquishing custody for an out-of-home placement so their child can obtain services they so desperately need. The Family Opportunity Act helps families to address the needs of children with disabilities. Some Members of the Senate have voiced concerns over the years about the cost of this bill and the expansion of the Medicaid program. Senator Nickles and I have had many long discussions about the goals of this legislation. I greatly respect his position and I appreciate the thoughtful and productive debate that I have been able to have with him. This bill would never have gotten to this point without his help and I whole-heartedly thank him for his willingness to work through his concerns with me. The Family Opportunity Act will cover families up to 250 percent of the Federal poverty level. This is less than coverage up to 600 percent of the Federal poverty level in my original bill. Senator Nickles and I have worked over the years to reach this compromise. At Senator Nickles request, language has been added to this bill that clearly conveys the intention of Senator Kennedy and me that States who choose the FOA optional eligibility category will receive Medicaid match and not S-CHIP match for children covered under the Family Opportunity Act. The legislation before us allows States the option of having families eligible for FOA pay up to 7.5 percent of their income for their premium. These family contributions are affordable and help to insure that children with disabilities have the access that they need. Senator Nickles expressed to me another concern. While States will have the option to cover families above 250 percent of the Federal poverty level with 100 percent State dollars, States need to decide how they want to spend their dollars. They should also be aware that it is not the role of the Federal Government to help them when times are financially tough. Last May, the Congress provided States with $20 billion in State fiscal relief. Ten billion went directly to Medicaid to address the rising costs in Medicaid. Over 60 percent of the spending in Medicaid is for optional services. The Family Opportunity Act is an optional service, and as much as I want States to take up this Medicaid option for children with disabilities, I want to let States know that they need to be responsible when expanding their Medicaid programs in good and bad budget times. Senator Nickles and I have reached a good and fair compromise and I thank him for traveling this long road with me. As he can tell you, the Family Opportunity Act is one of my highest priorities. Over the past 4 years, I have worked closely with Senator Kennedy and Representative Pete Sessions to advance this important legislation on behalf of thousands of families who need our help. I thank them both for their efforts along with the thousands of children and families who have been tireless advocates for this legislation.

Mr. GRASSLEY

Mr. GRASSLEY. Madam President, I ask unanimous consent that the Senate now proceed to a period of morning business with Senators permitted to speak for up to 10 minutes each.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the Subcommittee on Strategic Forces of the Committee on Armed Services be authorized to meet during the session of the Senate on Wednesday, May 5, 2004, at 11:30 a.m., in closed session to mark up the strategic forces programs and provisions contained in the Department of Defense Authorization Act for fiscal year 2005.

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the Subcommittee on Science, Technology, and Space be authorized to meet on Wednesday, May 5, 2004, at 2:30 p.m., on Space Shuttle and the Future of Space Launch Vehicles.