Orrin Hatch

Mr. HATCH

Mr. HATCH. I thank my colleague and yield 1 minute to the Senator from Colorado.

Mr. HATCH. Mr. President, contrary to Senators Reid, Dorgan and Conrad's contention, exempting Social Security would severely impair the program. Let me say once again, an exemption would open up a loophole in the amendment and siphon-off revenues from the trust funds. Placing the trust funds off-budget will harm the Social Security Program. In essence, we would have two budgets, one based on sound principles of solvency, and the other, the Social Security budget, which is not. One budget will be required to be in balance unless a supermajority votes to allow a deficit, the other--the Social Security budget--would be raided and bloated with unrelated pork projects. This will mean the end of Social Security as we know it, turning it into the least secure of all Government accounts. Congress could pass legislation to fund any number of programs off- budget, through the Social Security trust funds. The budget could be balanced simply by shifting programs into the Social Security trust funds. The immediate effect of the loophole is that the trust funds would grow--as projected--but only until 2002, the date the BBA requires that the budget be balanced. Thereafter, however, the trust funds would stop growing as all annual surplus funds would be reallocated to pay for programs that have been redesignated as Social Security. So instead of growing, from 2002 to 2019, the year the trust funds are estimated to stop growing, the system will become stagnant in 2002. The result of the loophole will be the depletion of the trust fund years early. Exemption of the trust funds from the BBA, ironically, will hasten the system's difficulties. Congress has generally been increasing the web of services provided by Social Security. Consider what will happen when politicians are faced with the choice between the pressures of budget integrity and the procrastinating appeal of a Social Security loophole. The only other possible use for Social Security surpluses would be for the Government to pay down our staggering national debt. If projects aren't redesignated, Social Security as discussed earlier, thereby consuming accumulated Social Security surpluses, surplus proceeds would be used in the only possible manner that would avoid section 1's prohibition on outlays exceeding receipts: to make debt repayments. This sounds wonderful, but in fact creates a dangerous mechanism for the Congress to continue deficit spending. By paying down the debt, the Congress would provide itself a debt cushion--that is, a gap between the statutorily limited debt ceiling and the actual paid down debt. Congress could therefore use this gap to deficit spend, from Social Security, while avoiding the three-fifths vote required in section 2 of the BBA to raise the debt ceiling. This is because the accumulated Social Security surpluses would maintain the gap between the actual debt and the debt ceiling. Such a spending device completely frustrates the purposes for which I have introduced the balanced budget amendment. Also, let us not forget about the troubling future for Social Security. The Social Security Board of Trustees estimates that by the year 2070, Social Security is expected to run an annual $7 trillion deficit. If we include Social Security in our balanced budget calculations, we will be able to prepare for and budget these massive shortfalls. Under the Feinstein proposal, we will not be including this deficit in our budgetary planning. As a result, under any proposal to exempt Social Security from Senate Joint Resolution 1, in order to raise revenue and increase the debt ceiling sufficient to cover the expected Social Security shortfalls in the next century, we will have to dramatically increase taxes or cut spending in other important programs, or face an annual three-fifths vote fiscal crisis to avoid financial default by raising the already staggering $5.5 trillion debt ceiling. FICA taxes have grown significantly over time. There is no reason why this increase would not be accelerated under this loophole. Nor is there any reason why new Social Security taxes could not be added, such as a Social Security income tax or a Social Security value added tax. As this process continues, the loophole created by this exemption could easily swallow both the spending and the taxing protections of the BBA. By allowing Congress to redesignate other spending as Social Security, this loophole would make it easy to balance the budget on paper without changing anything except accounting methods. According to Wall Street analyst David Malpass, who recently testified before the Judiciary Committee, Financial markets would react negatively to a budget concept that ignores Social Security. By passing a balanced budget amendment that excludes Social Security, Congress would game the system, saying, in effect, that it does not intend to balance the consolidated unitary Federal budget. For Malpass and other market analysts, this would be a decidedly negative signal for financial markets, leading to higher interest rates. This probable gamesmanship is exactly what must be avoided. The way to avoid it is to reject this risky exemption gimmick. The best way to protect retirees and future generations is to adopt a clean strong balanced budget amendment, free of loopholes. It is the best way to save our financial situation and protect Social Security. I yield 1 minute to the distinguished Senator from Minnesota.

Mr. HATCH. Mr. President, I yield 1 minute to the distinguished Senator from Texas.

Mr. HATCH. I thank my colleague from Texas. I yield 1 minute to the distinguished Senator from Oklahoma.

Mr. HATCH. Mr. President, I yield 1 minute to the distinguished Senator from Nebraska.

Mr. HATCH. Mr. President, I yield 1 minute to the distinguished Senator from Alabama.

Mr. HATCH. Mr. President, I yield a minute to the Senator from Vermont.

Mr. HATCH. Mr. President, I yield 1 minute to the Senator from Tennessee. (Mr. KEMPTHORNE assumed the chair.)

Mr. HATCH. Mr. President, the balanced budget amendment is necessary to limit the Federal Government's power to mortgage America's future. It can protect the liberties of the American people for six primary reasons: No. 1, our families: Passing the balanced budget amendment will improve the economic health and stability of all American families. No. 2, our children's future: Passing the balanced budget amendment is a very clear-cut vote for our children's economic freedom, instead of their enslavement, which is what we have been doing to them. No. 3, retirement security: It will protect Social Security, and it will stabilize the economy, which will benefit both current and future retirees. No. 4, economic strength: The stabilizing effect the balanced budget amendment will have on the economy is clear. No. 5, integrity: It will bring immediate credibility to our current budget negotiations, and it will restore a measure of integrity to our Government. No. 6, the last reason is this stack of 28 unbalanced budgets. The last 28 years of our country's life have had unbalanced budgets. We need a constitutional amendment to stop this pile from growing. Some have stated that all we need is the will to balance the budget. Well, these 28 budgets are a testament to the fact that our will just won't do it. It is that simple and that clear. I have to tell you, one of my favorite quotes is this: ``A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess from the Public Treasury. From that moment on, the majority always votes for the candidates promising the most benefits to the Public Treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.'' The average age of the world's greatest civilizations has been 200 years. Ours is just a little bit over 200 years, and we are following that pattern of mortgaging our future, of voting largess for ourselves and the Public Treasury, and of not being able to put fiscal sanity into our house to make it a house of order. All we have is, it seems to me, the same old timeworn, wornout approaches toward the budget that we have heard for all of these 28 years. It is time to do something about it. I yield a minute to the distinguished Senator from Idaho. (Mr. ENZI assumed the chair.)

Mr. HATCH. Mr. President, I yield 1 minute to the Senator from Arkansas.

Mr. HATCH

Mr. HATCH. I yield 6 minutes to the distinguished Senator from Oklahoma.

Mr. HATCH. Will the Senator yield on my time?

Mr. HATCH. Is that why you want a capital budget? I guess it is so you can continue what you have been doing. Sure. So you can continue to just spend, and just call it a capital budget. My gosh. It suddenly dawned on me. I was starting to think maybe a capital budget was a good thing. But there is no bond rating system to restrain the Federal Government, as is the case in the States. We make the money. We print it ourselves. We do whatever we want to. I guess we could just continue business as it is, and just call it a capital budget. Put all of these things that we should have to pay for into a capital budget, and say, ``We balanced the budget.'' Just continue the same system. That is what we are talking about. Mr. LEAHY addressed the Chair.

Mr. HATCH. The only gimmicks I have seen are the gimmicks of these amendments that are really filed for one purpose and that is to cover what really is a very difficult vote, voting against the balanced budget amendment. I yield 4 minutes to the distinguished Senator from Tennessee.

Mr. HATCH. I thank my colleague for his excellent statement, Mr. President. I yield 6 minutes to the distinguished Senator from Virginia. And I want to personally thank him and express my gratitude for the good leadership and hard work he has shown in trying to pass this amendment.

Mr. HATCH. How much time does the distinguished Senator from New Mexico need? We are running out of time on this side, but I think the distinguished chairman of the Budget Committee deserves to take whatever he wants to.

Mr. HATCH. All right, I yield 8 minutes to the distinguished Senator.

Mr. HATCH. Will the Senator yield?

Mr. HATCH. The President himself, in his budget, says by the fourth and fifth year, 75 percent of the savings or cuts, whatever, have to be obtained in the 2 years after he leaves office.

Mr. HATCH. I was going to ask you, you said 98. He was off by that much?

Mr. HATCH. He himself admitted to 75 percent.

Mr. HATCH. Am I correct in my understanding? I was led to believe there was only a $49 billion deficit in the fifth year of the President's budget; in other words, it wasn't balanced by $49 billion. If I heard the distinguished Senator correctly, that is now up to $70 billion, according to the Congressional Budget Office?

Mr. HATCH. I don't know when I have heard a better speech on the balanced budget amendment than the Senator from New Mexico has just given, or a better set of arguments for it.

Mr. HATCH. I yield 30 seconds.

Mr. HATCH

Mr. HATCH. Mr. President, I rise today to introduce the Software Export Equity Act. I am pleased to be joined in this bipartisan effort by my colleagues on the Senate Finance Committee, Senators Max Baucus, Don Nickles, John Breaux, as well as Patty Murray, Slade Gorton, Dianne Feinstein, and Barbara Boxer. Identical legislation has been introduced in the House by Representative Jennifer Dunn and a strong bipartisan group of her House colleagues. This bill highlights an issue that I have mentioned many times in the Finance Committee. Currently, the section of the Internal Revenue Code outlining what qualifies for foreign sales corporation [FSC] treatment and tax benefits is unclear and has left out software that is exported overseas. Our bill would clarify the treatment of software. What is a foreign sales corporation? It is a corporate entity established by Congress to help facilitate the export of American made goods to foreign markets. The FSC rules allow a corporation a tax benefit on a portion of its earnings generated by the sale or lease of export property. It is consistent with sound U.S. policy to promote U.S. exports. When the foreign sales corporation statute was enacted in 1971, the computer software industry was relatively new. The original FSC statute was drafted with the intent that only U.S. job-creating property manufactured or produced in the United States and sold or leased outside the United States qualifies for export benefits. The FSC rules are designed to assist U.S. exporters in competing with products made in other countries that have more favorable rules for taxing exports. Mr. President, it is in our best interests to encourage the export of American goods and services. The United States is currently the world leader in software development, employing approximately 2 million people in software development jobs. As this industry continues to grow, much of the expansion of the industry is due to the growth of exports. However, as the software industry has grown in response to global markets, the tax laws have not kept up. Currently, the statute allows films, tapes, records or similar reproductions to qualify for FSC benefits. However, because of a narrow interpretation of the FSC rules, software does not generally receive this export incentive. Let me provide an example that I have shared before with my colleagues on the Finance Committee. Suppose you have two CD-ROM's--one containing a musical recording, the other containing dictionary software with musical recordings included. The two look the same and are very similar except for the software. If the you export a master CD-ROM of the musical recording to another country for reproduction, the export qualifies for FSC benefits. However, if you export a master copy of the software CD-ROM with a license to make additional copies, you will be denied FSC benefits. This is simply wrong and unfair. In an age where many computer products are multipurpose--with music and software--this makes no sense. Now this problem is not beyond repair. The Treasury Department does not believe that it has the authority to issue regulations to correct this problem. However, they support the legislative fix I am introducing today. The FSC statute must be clarified to allow exported software with the right to reproduce to receive fair and equitable treatment. Mr. President, this problem hits home in my State of Utah. There are a number of software manufacturers in Utah that have developed a worldwide presence. Watching musical and other intangible items receive FSC treatment while highly sophisticated software is left out, is simply discouraging for these sometimes small software companies. This legislation corrects this inequity and reestablishes our commitment to promoting American competitiveness. I am please to introduce the Software Export Equity Act today. I urge all of my colleagues to support this bipartisan effort and cosponsor this bill. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.