Jon Kyl

Mr. KYL

Mr. KYL. If I can conclude by saying to the Senator from California, I think the proposal she and the Senator from Texas have set forth to put this very important but very complicated discussion off and not have this debate on the bill that helps to fund our war operations in Iraq and Afghanistan is a very good proposal which I intend to support. As she knows, I welcome the opportunity to work with her and also with my good friend and colleague from Idaho, the Senator who is proposing the bill, which I would oppose but would hope to be able to work on if we have the opportunity to do that outside the kind of activity in which we are engaged on the supplemental appropriations bill. So I do support the proposal of the Senators from Texas and California and hope the body will approve it.

Mr. KYL. Under the provisions we talked about before, which would attract any number of illegal immigrants--and by the way, that is not a term I throw around negatively because they would, in fact, have to say they were illegal immigrants in order to gain entry into the United States. They would have to say they were working illegally in the United States before and now they want to come back. That is the provision of law under which they could actually come back into the United States. Based on the experience of the Senator from California with the use of illegal documentation--Social Security cards, driver's licenses, all of the other items of identification that can be counterfeited--would the Senator have a view as to whether this particular provision could be taken advantage of by those wishing to commit fraud? Of course, people already committed fraud in this country by coming here illegally and using those same fraudulent documents to gain employment in the first place. Isn't this one that would engender a lot of fraudulent applications to come back into the United States?

Mr. KYL. Will the Senator from California yield for another question?

Mr. KYL. I do not have the page. It is a section that permits former immigrants, who worked here illegally in agriculture but have since returned to their home, to return to our southern border and apply for the special status that is set up in the bill the Senator from California described earlier in order to file a preliminary application for status as temporary permanent resident if they appear in designated ports of entry with an application that ``demonstrates prior qualifying employment in the United States,'' and then could be granted admission to the United States by the Department of Homeland Security. That is question No. 1. Is that one of the areas in which additional illegal immigrants would be attracted to come into this country?

Mr. KYL. Mr. President, let me ask the Senator another question. She talked about the probability of thousands and thousands of illegal immigrants being attracted to come into the country who are not here now. The Senator from Idaho said we will have a cutoff date. Was the Senator from California, in raising that concern--which I believe to be an absolutely legitimate concern--perhaps talking about section 101(D)(1)(c) of the bill of the Senator from Idaho which actually invites former lawbreakers to return to the United States? In other words, illegal immigrants who have formerly worked in U.S. agriculture.

Mr. KYL. Mr. President, before the Senator yields, may I ask two quick questions? Will the Senator from California respond? First, the Senator from California is the ranking member on the Terrorism and Homeland Security Subcommittee of the Judiciary Committee, which I chair; is that correct?

Mr. KYL

Mr. KYL. Mr. President, as was just indicated, we are now back on the supplemental appropriations bill, which is critical to the funding of our effort to continue our activities in Iraq and Afghanistan and elsewhere around the world. One of the reasons Senator Cornyn and I want to speak for a few minutes this morning is to make the point that we very much hope our colleagues will join with us in ensuring the quick passage of this bill so we can get on with that effort and then move to other business. There has been a suggestion that amendments might be offered to the bill that do not relate to the funding of the war effort. For example, some of our colleagues have talked about offering amendments that relate to the subject of immigration. Now, that subject is one we are going to have to debate this year, and we are going to have to consider legislation very seriously later on this year, but our view is that it would be inappropriate to consider that legislation in the context of this supplemental appropriations bill. We are aware of the fact there was a provision in the House bill that related to driver's license standards and asylum, but those are matters that relate more to terrorist activities than our immigration laws, as they pertain to illegal immigration. Therefore, our view is that we would refrain from offering amendments of that kind and would hope our colleagues would as well. We would hope, by indicating what we plan to do, that our colleagues would appreciate our commitment--that is to say, Senator Cornyn and myself--to seeing that the issue of illegal immigration generally and immigration reform specifically will, in fact, be considered by the Senate a little bit later on this year. It is our intention to introduce legislation and to work through the amendment process, perhaps before that, to ensure that we are doing everything we can in the Congress to ensure our borders are secure, that we have adequate law enforcement both at the borders and in the interior of the country, and that we, therefore, create the precondition for the consideration of immigration reform, which is that we do have a commitment to enforce the law and abide by the rule of law in this country. There is one thing I think almost everybody interested in the immigration debate will agree on, and that is that we have a broken legal system right now. Employers pretend they are not employing illegal immigrants, but they know they are, and they have documents the Government has called for. The Government pretends to enforce the law, but it knows the documents, in many cases, are counterfeit. The industry will very candidly tell you they do not know what they would do without the illegal employment they have today. So they are putting pressure on some of our Members to come forward with legislation to create a legal regime for these employees and, indeed, there should be. We should get to the point where nobody in this country hires illegal immigrants anymore. To do that, we are going to have to demonstrate a couple things. The first is that we are committed to enforcing such a law, because our constituents rightly tell us: Why should we consider immigration reform--temporary worker reform, for example--if we don't think it is going to be enforced? You are not enforcing the law today. What makes us think you are going to enforce the law in the future? It is a good question. We have to be able to answer that question in the affirmative and say we are committed to enforcing the law. It begins with enforcement at the border, and it goes right on through with the rest of the law that makes it illegal to hire illegal immigrants. Those laws do need to be adequately enforced. If we could commit ourselves to do that, then I believe we could lay the foundation for successfully getting legislation to provide some kind of guest worker or temporary worker program that will both liberalize the ability of employers to bring legal immigrants into this country to work for them on a temporary basis and also deal with the 10 to 15 million--nobody knows exactly how many for sure--illegal immigrants who exist in the country today. Many of those people work hard. They come to work here. They intend only to send money back to their relatives in Central America or Mexico or wherever they came from. Many of them are, indeed, needed in our workforce. But we cannot condone a situation in which they are working illegally. So we have to come up with a structure that would permit us to take advantage of their desire to work here, but to do so in a legal construct and not to reward them with any kind of amnesty. The specifics of doing that have been discussed a little bit by the President of the United States, who laid out some principles for a guest worker program, as he calls it. What Senator Cornyn and I are here to talk about today is the fact that we are working on legislation to try to embody many of the principles the President has laid out to create a legal mechanism by which we can meet our workforce needs in this country but to do so all within the rule of law, where the law will be strictly enforced, there will be no more hiring of illegal immigrants, and therefore we remove the magnet which currently exists which draws illegal immigrants into our country because they can be employed easily. So we remove that magnet, but we do so in a way that does not reward the lawbreakers, the people who come here illegally and use illegal documentation to obtain employment and, in many cases, are creating a drain on society, and ensure they are not rewarded for their illegal behavior by amnesty, which I think most people would agree, at a minimum, means they would not be granted a path to citizenship or be able to chain migrate their family into the country ahead of those who want to do so legally; meaning, specifically, that, of course, anyone who wanted to do that could get in line in their country of origin with a worker sponsor for legal, permanent residency or green card status. If they acquired that status, then there are other things that flow from that, such as the ability to apply for citizenship. But that should only come as a result of going home, being there, and getting in line with everybody else. It certainly should not be granted to people who came here illegally and would be permitted to stay here while that status was pending. That is the kind of thing we mean by saying no amnesty. But at the end of the day, I think President Bush is right, that we have to come to grips with this problem. We have to find a way, as he said, to match willing workers with willing employers but to do so strictly in the confines of a legal regime. What Senator Cornyn and I have been working on for several weeks now is a bill we hope would embody many of those principles. It is not going to track exactly what the President has proposed. I would also say the President has not gotten real specific about several areas, and we are going to have to fill in a lot of those blanks. We will talk to our colleagues, and we will talk to the various groups that are involved in this issue to see what their ideas are about how best to make this work. But the bottom line so far as we are concerned is, if we do this, we have to be able to commit to the American people that since we now have a legal and relatively easy mechanism for filling the workforce needs here in our country, we are not going to condone any illegal employment in this country. If we establish that principle, we then help to remove that magnet which is drawing so many illegal immigrants to the United States. Just to conclude with this point. I mentioned the fact we would be introducing legislation, which we intend to do. But there are also opportunities for us to demonstrate this commitment to enforcing the law. Let me mention a few of those. In whatever way we can accomplish this, whether it be before the introduction of such legislation or in conjunction therewith, we intend to move forward. The intelligence reform bill of last year authorized 2,000 new Border Patrol agents each year for 5 years, but we do not have enough money in the budget for any more than about a tenth of that number. Currently, there are about 11,000 Border Patrol agents. A pre-9/11 study conducted by the University of Texas said we needed at least 16,000 Border Patrol agents on our southern border alone in order to secure the border. So we clearly have to fund the addition of more Border Patrol agents. Authorized in the intelligence bill as well were 800 additional Immigration and Customs Enforcement investigators, again for a 5-year period, an additional 800 Customs/Border Protection inspectors at our Nation's ports, 8,000 new detention bed spaces, and some other requirements that all follow if we are going to enforce the law. We need to fund these programs to demonstrate our commitment to the law. We also need to reimburse the States for their incarceration of illegal immigrants in prisons. The so-called SCAAP funding accomplishes that. It is the State Criminal Alien Assistance Program. But there was not any money in the budget this year, and it needs to be at least $750 million. We need to do some other work to ensure that States do not bear the costs of the Federal Government's failure to enforce the Federal law. There are a lot of things that have to be done. The point we are making is, one, this is complicated. It is big. It has to be done. It should not be attempted on a bill which we have to get passed quickly to ensure funding for our troops in Iraq and Afghanistan and elsewhere. This is a debate we can have in the future, and I am assuring our colleagues we are moving the process forward. I chair the Terrorism and Homeland Security Subcommittee of the Judiciary Committee. My colleague, John Cornyn, chairs the Immigration Subcommittee. We intend to try to move this legislation through the Judiciary Committee as a matter of regular order as soon as we can get our legislation complete. My colleague from Texas wants to make a presentation regarding this same subject.

Mr. KYL

Mr. KYL. Mr. President, the 108th Congress began the necessary process, as part of the American Jobs Creation Act, of rationalizing the way the United States taxes the foreign income of U.S.-based companies, thereby helping U.S. employers to be more competitive in international markets. There was one provision, however, that passed both the Senate and the House but that was dropped out of the conference report at the eleventh hour for reasons that were unrelated to the merits of the provision. That provision extended the general rule of tax deferral to dividends, interest, rents and royalties that are paid out in the ordinary course of active business activities by one foreign affiliate of a U.S. company to another affiliate in another country. Today, I am introducing legislation to make this important change. The United States taxes U.S. companies on their worldwide income, but the general rule is that foreign subsidiary income is not taxed by the United States until the subsidiary earnings are brought back to the U.S. parent, usually in the form of a dividend. Subpart F of the Internal Revenue Code sets forth a number of exceptions to this general rule. Subpart F imposes current tax on subsidiary earnings generally when that income is passive in nature. One such exception taxes the U.S. parent when a subsidiary receives dividends, interest, rents or royalties from another subsidiary that is located in a different country. If the two subsidiaries are in the same country, however, current taxation does not apply. The proposal I am introducing today would extend this ``same- country'' treatment to payments between related foreign subsidiaries that are located in different countries. This proposal is identical to the one that passed the Senate last year. Today's global economy is significantly different from the environment that existed when the subpart F rules were first introduced in 1962. As the global economy has changed, the traditional model for operating a global business has changed as well. In today's world, it makes no sense to impose a tax penalty when a company wants to fund the operations of a subsidiary in one country from the active business earnings of a subsidiary in a second country. For example, to operate efficiently, a U.S.-based manufacturer will probably establish specialized manufacturing sites, distribution hubs, and service centers. As a result, multiple related-party entities may be required to fulfill a specific customer order. U.S. tax law today inappropriately increases the cost for these foreign subsidiaries to serve their customers in a very competitive business environment by imposing current tax on these related-party payments, even though the income remains deployed in the foreign market. Further, financial institutions have established foreign subsidiaries with headquarters in a financial center, such as London, and branches in multiple countries in the same geographic region. This permits an efficient ``hub and spoke'' form of regional operation; however, this efficient business model may make it difficult for the same country exception under current law to be met for payments of dividends and interest. Under the existing rules, American companies are at a real and significant competitive disadvantage as compared to foreign-based companies. By creating current U.S. taxation of active business income when subsidiaries make cross-border payments, U.S.-based multinationals are penalized for responding to market or investment opportunities by redeploying active foreign earnings among foreign businesses conducted through multiple subsidiaries. To remove this impediment, subpart F should be amended to provide a general exception for interaffiliate payments of dividends, interest, rents or royalties that are generated from an active business. The right answer is to apply ``look-through'' treatment to payments of dividends, interest, rents and royalties between subsidiaries. If the underlying earnings would not have been subject to subpart F, the payments should not be subpart F income. Look-through treatment for payments of dividends, interest, rents and royalties should be permitted as long as the payments are made out of active business, non- subpart F, income. ``Look-through'' principles are already well- developed for other purposes of the Internal Revenue Code. For example, a look-through approach to the characterization of foreign income is used for purposes of calculating foreign tax credits. A consistent application of look-through principles would simplify the interaction between subpart F and the foreign tax credit rules. If we want to keep U.S.-based multinational companies--who employ millions of workers here at home--headquartered in the United States, we must modernize our tax rules so that our companies can be competitive around the globe I urge my colleagues to cosponsor this legislation to make a modest change in the law that will enhance the position of U.S.-based employers trying to succeed in competitive foreign markets.

Mr. KYL

Mr. KYL. Mr. President, the 108th Congress began the necessary process, as part of the American Jobs Creation Act, of rationalizing the way the United States taxes the foreign income of U.S.-based companies, thereby helping U.S. employers to be more competitive in international markets. There was one provision, however, that passed both the Senate and the House but that was dropped out of the conference report at the eleventh hour for reasons that were unrelated to the merits of the provision. That provision extended the general rule of tax deferral to dividends, interest, rents and royalties that are paid out in the ordinary course of active business activities by one foreign affiliate of a U.S. company to another affiliate in another country. Today, I am introducing legislation to make this important change. The United States taxes U.S. companies on their worldwide income, but the general rule is that foreign subsidiary income is not taxed by the United States until the subsidiary earnings are brought back to the U.S. parent, usually in the form of a dividend. Subpart F of the Internal Revenue Code sets forth a number of exceptions to this general rule. Subpart F imposes current tax on subsidiary earnings generally when that income is passive in nature. One such exception taxes the U.S. parent when a subsidiary receives dividends, interest, rents or royalties from another subsidiary that is located in a different country. If the two subsidiaries are in the same country, however, current taxation does not apply. The proposal I am introducing today would extend this ``same- country'' treatment to payments between related foreign subsidiaries that are located in different countries. This proposal is identical to the one that passed the Senate last year. Today's global economy is significantly different from the environment that existed when the subpart F rules were first introduced in 1962. As the global economy has changed, the traditional model for operating a global business has changed as well. In today's world, it makes no sense to impose a tax penalty when a company wants to fund the operations of a subsidiary in one country from the active business earnings of a subsidiary in a second country. For example, to operate efficiently, a U.S.-based manufacturer will probably establish specialized manufacturing sites, distribution hubs, and service centers. As a result, multiple related-party entities may be required to fulfill a specific customer order. U.S. tax law today inappropriately increases the cost for these foreign subsidiaries to serve their customers in a very competitive business environment by imposing current tax on these related-party payments, even though the income remains deployed in the foreign market. Further, financial institutions have established foreign subsidiaries with headquarters in a financial center, such as London, and branches in multiple countries in the same geographic region. This permits an efficient ``hub and spoke'' form of regional operation; however, this efficient business model may make it difficult for the same country exception under current law to be met for payments of dividends and interest. Under the existing rules, American companies are at a real and significant competitive disadvantage as compared to foreign-based companies. By creating current U.S. taxation of active business income when subsidiaries make cross-border payments, U.S.-based multinationals are penalized for responding to market or investment opportunities by redeploying active foreign earnings among foreign businesses conducted through multiple subsidiaries. To remove this impediment, subpart F should be amended to provide a general exception for interaffiliate payments of dividends, interest, rents or royalties that are generated from an active business. The right answer is to apply ``look-through'' treatment to payments of dividends, interest, rents and royalties between subsidiaries. If the underlying earnings would not have been subject to subpart F, the payments should not be subpart F income. Look-through treatment for payments of dividends, interest, rents and royalties should be permitted as long as the payments are made out of active business, non- subpart F, income. ``Look-through'' principles are already well- developed for other purposes of the Internal Revenue Code. For example, a look-through approach to the characterization of foreign income is used for purposes of calculating foreign tax credits. A consistent application of look-through principles would simplify the interaction between subpart F and the foreign tax credit rules. If we want to keep U.S.-based multinational companies--who employ millions of workers here at home--headquartered in the United States, we must modernize our tax rules so that our companies can be competitive around the globe I urge my colleagues to cosponsor this legislation to make a modest change in the law that will enhance the position of U.S.-based employers trying to succeed in competitive foreign markets.

Mr. KYL

Mr. KYL. Mr. President, for the next 70 minutes, as soon as Senator Dorgan is done with his preliminary comments, we will conduct this debate on the subject of Social Security. I invite those who are watching C-SPAN, as well as our colleagues, to tune in here because this may be one of the few real debates that we have until this subject actually is taken up on the floor of the Senate. Finally, the subjects are chosen by mutual agreement, and we hope to have more of these debates this year and the following year, conducted roughly in this same kind of format so we can engage on other subjects as well. I yield to the Senator from North Dakota.

Mr. KYL. Mr. President, let me make a couple of comments and then I will yield to Senator Dorgan a couple of minutes as respective chairmen of the policy committees of both parties to describe what is going to happen briefly. Sometimes, people watching C-SPAN will see a lone Senator giving a speech on the floor of the Senate and that passes for debate, and they ask, Where is the debate? Where is the joinder of the issues with one side asking the other a question and one side responding to the other's questions? As a result of the fact that we don't have enough of that real debate in the Senate, what Senator Dorgan and I and our respective parties have agreed to is to conduct real debate, such as high school or college debates that many are familiar with, where there is a set time--in this case, 70 minutes--and each of four speakers, two on the Republican side and two on the Democratic side, have a few minutes, in this case 6 minutes, to make a presentation. Then when those presentations are over, each will ask the other questions. They will take a minute to ask the question with 2 minutes to respond; then, when the questions are over, there will be a brief summing up period of time. That can allow the positions of the parties to be articulated well and yet permit an exchange of rebuttal and surrebuttal, which actually enables the parties to question each other, to challenge each other's premises and then to respond; in effect, conduct a real debate. The exact time limits are known to the parties. At this time, I ask unanimous consent, without reading the agreement which has been agreed to by both parties respecting the relative time and order of presentation, that the agreement be deemed read and agreed to, and that it be deemed self-executing in the event that either Senator Dorgan or I should not be on the floor for purposes of yielding time.

Mr. KYL

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

Mr. KYL

Mr. KYL. Mr. President, if there is no further business to come before the Senate, I ask unanimous consent that the Senate stand in adjournment following the scheduled debate with respect to Social Security.

Mr. KYL

Mr. KYL. Mr. President, I further ask unanimous consent that immediately following the vote tomorrow morning, the Senate stand in recess until 12 noon so that the Senate may proceed as a body to the House Chamber for a joint meeting to hear an address by Ukrainian President Yushchenko.

Mr. KYL. Mr. President, on behalf of the leader, I ask unanimous consent that when the Senate completes its business today, the Senate stand in adjournment until 9:30 a.m. on Wednesday, April 6. I further ask that following the prayer and pledge, the morning hour be deemed expired, the Journal of proceedings be approved to date, the time for the two leaders be reserved, and the Senate then resume consideration of calendar No. 48, S. 600, the State Department authorization bill, provided that the time until 10 a.m. be equally divided between the chairman and ranking member, provided further that at 10 a.m. the Senate proceed to the vote in relation to Biden amendment No. 286 as provided under the previous order.

Mr. KYL

Mr. KYL. Mr. President, I ask unanimous consent the President of the Senate be authorized to appoint a committee on the part of the Senate to join with a like committee on the part of the House of Representatives to escort His Excellency Viktor Yushchenko, President of Ukraine, into the House Chamber for the joint meeting tomorrow.

Mr. KYL

Mr. KYL. Mr. President, I thank the Senator from California for helping, again, to lead this effort to get adequate reimbursement to the States for the incarceration of illegal immigrants. In the past, the amount of reimbursement had been roughly one-third of their costs. That is not enough, but at least it helped to defray the expenses of the States in housing these people who were convicted of crimes and who were ultimately the responsibility of the Federal Government. In the last couple of years, the amount of money has gone down to the point that, as the Senator said, last year it was about 17 cents on the dollar. That is absolutely unacceptable. If the Federal Government cannot do what is necessary to control the border and prevent illegal immigration, at least it can help the States defray some part of their cost in incarcerating the people who come here and commit crimes. Surely we can authorize a program that could reimburse the States again at the level of approximately one-third of their costs. That will be our goal. That is why I am very proud to, again, work with Senator Feinstein to try to get adequate reimbursement to the States for this program. I fully support her effort. I compliment her for her leadership, and I hope my colleagues will join in accepting this sense-of-the-Senate resolution.

Mr. KYL

Mr. KYL. Mr. President, it has come to my attention that persons outside of the Senate have told Senators that I do not oppose S. 147, the latest incarnation of a bill that would create a tribal government for Native Hawaiians. This is untrue; it is probably being said because I agreed that the issue could be brought to the Senate floor for a vote. I continue to believe that this bill is profoundly unconstitutional and poses serious moral and political problems. I oppose this bill, and urge my colleagues to do so. I ask unanimous consent that the following three news columns by Bruce Fein, constitutional scholar and former Reagan administration Justice Department official, be printed in the Record.

Mr. KYL

Mr. KYL. Mr. President, let me respond to two other issues that have been raised by the proponents of the Feingold amendment. One was that these are the same rules we had back in the 1990s. The fact is, though, they didn't work the same way. In the 1990s, Congress passed spending increases, and we also passed some tax cuts. The result of that under the rule was we were supposed to sequester or to spread those spending increases and tax cuts out over the remainder of the budget at the end of the year. But it turned out that at the end of each year we passed a bill that said forget about it, and the President signed that into law. The fact is, while the rule was in place, we violated that rule. We cannot say this is the same rule we have had forever. Second, my colleagues, particularly the chairman of the Finance Committee, made the point that there are a lot of things people on both sides of the aisle would like to accomplish this year that they will not be able to do if the Feingold amendment is agreed to. We are not going to be able to do the leasehold improvement depreciation, by the way, which is a great idea. The Senator from North Dakota sponsored the bill, S. 621, to make the 15-year life for qualified leasehold improvements permanent. I cosponsored that bill. We are not going to be able to accomplish that, if this pay-go rule is adopted. There are other things we wouldn't be able to do, such as the R&D tax cut. The cost of that is $7 billion over 5 years. In fact, to extend the R&D tax credit for 1 year, just through 2006, is almost $7 billion. There are simply not enough loopholes to close or revenue to generate in order to pay for that. The small business spending, so-called section 179 spending, allows small businesses to elect to deduct all or part of the cost of certain qualifying property in the year that it is placed in service instead of over a specified recovery period. This immediate extension has been critical to supporting economic growth and job creation by small businesses. They will not be able to do it. By the way, the cost of that is over $10 billion over 5 years. The AMT relief we talked about before, there is enough within the budget to do some relief on AMT if we want to do it. Most of us would like to do that. We wouldn't be able to do it under the pay-go rule. The State sales tax deduction that the chairman of the Finance Committee mentioned, the line deduction for college tuition costs, the welfare-to-work and work opportunity tax credit--if you want to do those things this year, you have to vote against the Feingold pay-go amendment because we wouldn't be able to do that. Not only is it important to keep the economic growth going by ensuring that we don't suffer the worst tax increase in the history of this country, if we are going to continue some of these tax policies that all of us would like to see extended, we are not going to be able to do it if we adopt the Feingold amendment. I encourage my colleagues to appreciate that every one of us wants to ensure that we have the smallest deficit possible. Under this budget and under the President's budget, we are going to cut the deficit in half within 5 years. The chart I showed a moment ago demonstrates that. Those are the budget figures. Those are not made up. Those are the CBO numbers. As a result, if we stay on this path, we are going to achieve deficit reduction. Part of the reason for that is because we assume the tax cuts are permanent. We assume they will continue to generate job creation, economic growth, more wealth in this country which, when taxed even at the lower rates than currently exist, produces more revenue. I hope my colleagues will not get into this notion that somehow all of the money belongs to the Government and if we are ever going to give it back to the people, we have to have 60 votes to do that instead of a mere majority vote. The reason we let people keep more of their money in the way of tax cuts is because we understand not only is that the right thing to do, but it is the most important thing for the economy. We cannot have a rule around here that you can never have a tax cut, you always have to make the money up some other way, so you never can change the amount of taxes paid by the American public. We have put in place a rule that would be grossly unfair as well as unwise in terms of economic recovery and, as I said, unwise in wanting more revenue to be collected by the Federal Government because a smaller economy produces less revenue to be taxed. I urge my colleagues to vote against the Feingold amendment. I yield back any time that remains on this side.

Mr. KYL. Mr. President, let me make a couple of comments, and then I think the other side will want to close the debate. I will reserve just a couple of minutes, if anyone else would like to speak on our side. I think there is an important point that needs to be made. When we talk about pay-go, outside the Senate people might wonder what in the heck that means. On the spending side, when we increase spending, that means we also have to find a way to offset that. We have to find a revenue source or we have to cut spending somewhere else. So the net is the same. Just like in your household budget, you are going to spend money in one area, and you have to reduce the spending in another area so you can get back to even. That makes a lot of sense. But paying on the tax cut side is totally different. Who pays to make up the lost revenue to the Federal Government? Taxpayers. So it is real easy for Senators to say, well, the taxpayers have to pay more money. But that is not right. It is their money. It is not ours. The Federal Government doesn't own any of that money. When we make a deliberate decision to reduce taxes, our point is to let people keep more of their own money. It is not to have some new rule come in here and say, but however much you let people keep, you have to take from them some other way because the Government needs all of that money. We are talking about the budget deficit. According to the Congressional Budget Office, which is the entity that does the scoring around here, under the assumptions of this budget, the green line is the deficit. You see it going from 2005, 3.2 percent of our gross domestic product, down to 2.8, 2.2, and 1.8. In less than 5 years, we cut the budget deficit in half. Those are under the assumptions that include the tax cuts that we passed in 2001 and 2003. We are going to reduce the deficit with the tax cuts in place. What our colleagues on the other side are saying is, No, we have to let those tax cuts expire, creating the biggest tax increase in the history of this country because otherwise it won't be fair to the Federal Government. My concern is that we be fair to the taxpayers of this country. This budget assumes the tax cuts we want to continue, and that is the right way for us to budget. That is what the budget assumes, that is why we should adopt the budget, and that is why we should reject the amendment that has been offered by the Senator from Wisconsin. I reserve the remainder of the time.

Mr. KYL. Mr. President, I yield 15 minutes to the Senator from Mississippi.

Mr. KYL. Mr. President, how much time do both sides have?

Mr. KYL. Mr. President, I yield the chairman of the Finance Committee another 5 minutes, if that is sufficient.

Mr. KYL. Mr. President, I yield 10 minutes to the chairman of the Finance Committee, the Senator from Iowa.

Mr. KYL. Mr. President, I ask the Presiding Officer to let me know when I have spoken for 5 minutes. I would appreciate that. This amendment should be opposed primarily because there is a big difference between requiring offsets for spending increases and requiring offsets for tax cuts. They have dramatically different effects on economic growth. The goal here should be a strong private sector economy. Let's go back to basic principles. Money does not belong to the Government, so we should not be concerned about how much a particular policy ``costs'' the Government. Money belongs to the people and when allowed to work in the private sector economy it can become a powerful engine for economic growth and job creation and a better standard of living and productivity for all Americans. And one more thing: it could really help the Federal Government because the more wealth that is produced, the more that is taxed, and the more revenues go to the Federal Government as taxes. So a growing, vibrant economy not only helps us all as individuals and families, it helps the Federal Government, too, because there is more economic growth and revenue and wealth to tax. The key here is to keep economic growth going strong. We are also concerned about the size of the deficit, and that is why we have the so-called pay-go rule for spending. If we are going to raise spending in one area, what the budget says, and correctly so, in another area is we need to reduce it someplace else because we need to net it out at an even amount. We don't want to go above the spending level in the budget that the President and the Budget Committee have set. That makes sense. But with respect to tax cuts, what is the purpose of a tax cut? The purpose of a tax cut is to ensure that we can continue to sustain economic growth, to create jobs, basically to provide more capital to be invested into businesses which can hire more people, can produce more goods, which can create more revenue. And again, what happens with that growing economy--revenue increases to the Treasury. The purpose of the tax cut is to keep all of that going. Suppose you had a pay-go rule that said you have to ``pay'' for tax cuts by giving the Federal Government an equivalent amount of money that you are reducing as a result of the tax cuts; in other words, that somehow the money belongs to the Federal Government, and if you are going to let people keep more of their own money somehow that has to be made up to the Federal Government. That makes no sense at all. That is basically robbing Peter to pay Paul by taking money out of one pocket and putting it into another pocket-- basically saying if we reduce taxes in the private sector in order to stimulate economic growth, somehow we have to go back in that private sector and pull an equivalent amount of money out to give it to the Federal Government to make up the difference. It makes no sense at all. All you have do in that case is reduce the amount of money in the private sector, producing revenue by reducing the amount that goes to the Federal Government in revenues. This has been demonstrated. As a matter of fact, since the tax cut of 2003, if you judge the year from 2003 to 2004 in the same period, we saw an increase in revenues to the Treasury from taxes of 10.5 percent compared to the same time in 2003. The aftertax revenues to the Government were more than before we cut the tax rates. How could that be? In economic theory--we know this to be true--take the case of capital gains taxes. Since both dividends and capital gains tax reductions are presumed to be included in this budget cut, we know that when the tax rates on capital gains were high, people didn't sell their assets. They didn't turn them over because they would have to pay a big tax. As soon as we reduced the tax rate on capital gains, it had an unlocking effect in the economy, and then people were willing to sell their assets because they did not have to pay nearly as much taxes on the gains. Conversely, it is also true that the higher the rate, the less economic activity. There was a direct relationship between reducing the taxes and increased revenue to the Treasury. The Nobel Prize economist, Dr. Edward Prescot, who teaches at Arizona State University, got his Nobel Prize for pointing out the same being true with respect to individual income tax rates. It is not true that the higher the income tax rate, the more revenue you bring in. Suppose you had a 100-percent tax rate on your income. How many people would work? You are working the entire amount of time for the Federal Government. The highest possible income tax rate produces the least possible income tax revenue. Instead, what you need is a rate at which people would feel they can continue to work and make enough money for themselves so it is worthwhile to continue to work. But at a certain point, you are taxing that next dollar earned at a point at which people will no longer work. That is what has happened to the European economy. Their higher tax rates over there have resulted in less work, less productivity, less income to their treasury as a result of their taxes. Pay-go works perfectly fine for the increases in spending that need to be offset, but it doesn't work at all--in fact, it is counterproductive--with respect to reductions in taxes, which is what we are trying to preserve by the budget by the reconciliation construction. I reserve the remainder of the time on this side.