Jon Kyl

Mr. KYL

Mr. KYL. Mr. President, I express my appreciation to the assistant minority leader for that request.

Mr. KYL

Mr. KYL. Could we have regular order?

Mr. KYL

Mr. KYL. Mr. President, I think we need to respond to some of what has been said here this morning because the implication is very disturbing. It is not just that some of the intelligence of the United States--and by the way, all of the other intelligence agencies around the world might not have been totally accurate--but that somebody might have been misleading us. That is the charge. That is the implication. It leads to this notion we could not trust the President to look into what might have been wrong with the intelligence, that there is a ``shadow of suspicion'' here. Well, the shadow of suspicion is being cast by our colleagues on the other side by the innuendo that is throughout the comments they have been making here this morning and that we have read elsewhere. I think that is a very bad thing. Especially when our troops are fighting abroad trying to win this war on terror, to suggest that not only is the intelligence we are gathering not entirely accurate but that there were deliberate attempts by people in the administration to mislead the American people, and to mislead the Congress, that, I think, is what is very disturbing. What are some of the strains of that? I heard one of them on the radio this morning: Well, Vice President Cheney went down to the CIA and talked to them. He must have been trying to intimidate them to come up with some preordained conclusion to sort of cook the books a little bit. There is no evidence of that whatsoever. David Kay has discounted that as a possibility. Nobody from the intelligence agencies, under questioning, has suggested that was the case. Indeed, the question is, if the Vice President had not gone down to the intelligence agencies and asked the tough questions of the CIA people, and said, are you sure you are correct about this, then our friends on the other side would be complaining the administration did not even bother to doublecheck the information. So when politics are involved, you cannot win. But I do not think we should allow these suspicions from the political side of things to dictate the kind of action we take. Another question: Secretary Powell went to the CIA. I think he spent something like 3 days with them, with these people going over and over and over the evidence, saying: Are you absolutely certain of this? And remember, before he made his presentation to the United Nations, he took some of the material out, some of the material he did not think was verifiable, that they could not nail down well enough. He wanted to make sure what he took to the United Nations was solid. The Vice President and the Secretary of State are not the only people who have been involved. We have intelligence from other countries, such as the Israelis, the British. We have the United Nations itself, and the inspectors who came back with their reports. At the end of the day, the reason why the international community passed resolutions asking for Saddam Hussein to comply with his commitment to come clean on what he had was because the whole world thought he had these weapons of mass destruction. Now, since then, we have not been able to find everything. We have found some things. But one of the things we have not found are the chemical artillery shell warheads. We thought those were going to be used against our troops. Every day the war occurred, we were briefed on the so-called red line, the point at which we thought the Iraqis were going to shoot artillery shells with chemical weapons at our troops. Our troops had to put on all the heavy equipment in order to try to fight through that if, in fact, the attack occurred, and there was some surprise when it did not occur. We had to, of course, bomb the warehouses we thought it was in. We bombed the artillery pieces. We sent millions of leaflets to the commanders saying: Don't you dare fire chemical weapons at our troops or we will take you before the criminal court when this is all done. We disrupted their command and control, and we thought that is what prevented them from firing those artillery shells. But the point is, we thought they had them. We thought they were going to be used against our troops. This was not a matter of the President or the Vice President or anybody in the administration trying to mislead anybody. Maybe the intelligence was not entirely accurate, but I urge my colleagues on both sides of the aisle, in conducting this debate, to try to do it from the higher plain, not from the suspicion that the President of the United States is trying to deliberately mislead the American people, but to acknowledge maybe there was something wrong with part of our intelligence and that is worth looking into. That is precisely what the President has said he wants to have done because obviously he is just as concerned about this as anybody else is. It is for that reason he has asked for an investigation into the intelligence to find out whether it was correct, if it wasn't, why not, and what can we do about that in the future. I urge my colleagues, in conducting this debate, let's do so from a higher plain than one in which we sow the seeds of politics and blame and suspicion, as has been done around here. We can conduct this debate on a much higher plain than that.

Mr. KYL

Mr. KYL. Mr. President, I will respond to my colleague from Illinois. First, regarding the budget deficit, and comments made earlier regarding intelligence issues, I will find it interesting to see whether those who are so concerned about the Federal budget deficit will back up their words with actions by voting against runaway spending. Alan Greenspan, head of the Federal Reserve, says the biggest problem is that Congress cannot restrain its bad spending habits. So for colleagues such as the Senator from Illinois--will they vote against the $30 billion in subsidies in the energy bill? Will they vote against twice that much in unpaid for highway funding--that is to say, unpaid for in the highway trust fund? It will be interesting to see how those who complain about the deficits actually vote when it comes to adding to the deficit. Remember that last year, when we had a whole series of votes, when the Republican majority finally got a budget passed, we had to defeat a whole series of amendments by our Democratic colleagues--we usually got 51 or 52 votes--because almost all of the members of the Democratic Caucus voted in favor of spending more money in these amendments. We defeated something like $88 billion in spending amendments offered by our Democratic colleagues. Thank goodness we did. That amounted to over a trillion dollars in savings over the 10-year period of the budget. So for my Democratic colleagues to complain about spending and budget deficits and then go on and vote for the projects that they can brag about back home, I think that at least is--shall we call it a dichotomy, in any event. What about this business of tax cuts for the wealthy? Actually, I have some statistics here which I think are interesting. It shows that the reduction of the tax rate, the top marginal rate--these are the ``wealthy'' that our Democratic colleague spoke about--actually, mostly helps small businessowners, the very people who create the bulk of the jobs in this country. You cannot have it both ways, my friends. You cannot complain on the one hand that we are cutting taxes for the people who create the jobs and then complain we are not doing anything to create jobs. That is just exactly what the tax rate reductions on the highest marginal rate accomplished. About 78 percent of that savings went to small businessowners. These are the people who pay at the top individual rate. They are subchapter S corporations or partnerships; we call them flowthrough entities, which pay at the top individual tax rate. They are small business employers. Sixty-two percent of the income tax filers in the top bracket are small businessowners, and 98 percent of the companies are small businesses. According to the Small Business Administration, 75 percent of all of the new jobs are created by small businesses, which would suggest that small businesses created over 2 million of the 2.8 million jobs added since the start of 2002. How were these small businesses able to create those jobs? They had the capital to invest to do so. How did they get the capital? We cut their marginal income tax rates. Again, they received, by far and away, over three-fourths of all the relief that went to the top filers, the small businessowners, by cutting that rate. Tax cut for the rich? No. It was for the small businessowners to create the jobs that have gotten our economy moving again. Let's recall who actually pays the taxes in this country. These are Internal Revenue figures, I might add. The top 1 percent of taxpayers pays over a third of all of the taxes. One-third of all the taxes are paid by 1 percent of our population. The top 5 percent of the taxpayers pay over half, 53.4 percent. So just the top 5 out of 100 are paying more than half of all the income taxes in the country. The top 10 percent pay about 65 percent--in other words, almost two-thirds. How much does the top 50 percent pay? Ninety-six percent. In other words, the bottom 50 percent of taxpayers in this country pay less than 4 percent of the taxes. So divide the taxpayers in this country into two parts. One of our Democratic colleagues running for President is fond of saying there are two Americas out there: the wealthy and not so wealthy. Let's take the top 50 percent and the bottom 50 percent. The top 50 percent is paying 96 percent of the taxes, and the bottom 50 percent is paying less than 4 percent of the taxes. Naturally, if we are going to give a tax cut to taxpayers, you are going to be cutting the taxes of those who are paying most of the taxes. But I wouldn't call these people all rich. As a matter of fact, if you look at the categories, the top 50 percent makes $28,528. I wouldn't call that rich. How about the top 25 percent? We ought to be getting into the rich category here: $56,000 income a year. Raising a family of four, that is not exactly a big income these days. You can get by on it, but I wouldn't call those people wealthy or ``the rich.'' I think we have to be a little bit careful. And I know my colleagues wouldn't do this, but there are those outside this Chamber who would demagog this issue saying it is all about dividing America between the wealthy and the deserving, the so-called middle class. We appreciate the fact that America is made up of every stripe of folks, and they all contribute in one way or another, but when it comes to creating jobs, it turns out if you reduce the highest marginal rate, which is what we did, what we have done is to reduce the rate for small businesses which have created the jobs that have gotten the economy going again. That is the effect of the tax relief that was recommended by President Bush and this Congress approved. I suggest we give a little credit to the President for helping to stimulate the economy, create jobs, provide economic growth that is unparalleled. We had over 8 percent growth in the third quarter last year, and 4 percent in the last quarter. The stock market is doing very well. It seems to me the message ought to be one of hope; that we have turned this recession around; that we have reduced taxes. As a result, we are creating jobs and actually things are looking pretty good. If our Democratic colleagues would like to help us keep a lid on spending, then stop voting for every amendment that spends more money. It is pretty much that simple, Mr. President.

Mr. KYL

Mr. KYL. Mr. President, if we are going to be quoting David Kay and talking about the state of our intelligence, go to the transcript and present a more fair and balanced picture than has been done today.

Mr. KYL

Mr. KYL. Mr. President, that is one of the purposes of this. To be clear, technically, a new employee would be counted, but since the benefits don't accrue for 3 to 5 years anyway, it probably would be de minimis. I urge my colleagues to support the Kyl amendment.

Mr. KYL. Mr. President, if I may correct one aspect. Theoretically, a new employee would be a new benefit, but the reality is that since the accrual or the benefit is usually a 3- to 5-year time period, new employees would not in fact be covered.

Mr. KYL. Mr. President, it is my understanding that I have 7\1/2\ minutes to speak to the amendment which I have offered.

Mr. KYL. Let me point out what we are doing here and then explain the very modest amendment I have offered which would not undermine the pension guarantee for employees. The basic problem we have is that the Treasury note that was used to calculate the payments that companies make to the fund to guarantee pensions for their employees is no longer being issued, so some substitute had to be found. The underlying bill uses the 30-year Treasury note as that substitute. I think everybody agrees that needs to be done on a temporary basis. There was a deficit created in the pension fund because companies were not paying in the appropriate amount during the period of time that the Treasury note was not being issued. As a result, the fund accrued a deficit. It is over $11 billion. So companies are being asked to pay in a deficit reduction contribution to make sure that the fund has the money that is required to ensure that employees will receive their benefits. Ironically, it is the proponents of the amendment that are undercutting the fund because what they are saying is not everybody will have to pay their fair share into the fund to guarantee payments to employees; that for a couple of steel companies and a couple of airlines, they will not have to make the full deficit reduction contribution. Instead, in the first year, they only have to pay 20 percent of what is required. In the second year, they would only pay 40 percent of what is required. That, obviously, is going to mean, for those companies, they are not paying in what they should be to ensure that their employees are fully covered. All my amendment does is say that given the fact that in this situation an employer is not paying in the full amount, the pension guaranty board should not be on the hook for benefits that are accrued just during this period of time. So what we say is that if a business takes advantage of this special rule, and if it fails during the 2-year period that this is in effect or 2 years thereafter, then all of the benefits that accrued during that period of time would not be guaranteed by the board. In other words, the corporation would have to hold harmless the pension guaranty board. If we don't do this, then the prediction that the board members who are in charge made in their recent letter would potentially come true. The Pension Benefit Guaranty Corporation has three board members: The Secretary of Treasury, the Secretary of Commerce, and the Secretary of Labor. They wrote a letter to Leader Frist on January 22 and this is among the things they said: We believe that H.R. 3108 would best protect pensions and pensioners if passed free of any provisions to alter the Deficit Reduction Contribution rules. The underlying amendment does, in fact, alter the deficit reduction contribution rules. Specifically, it would be irresponsible to amend the interest rate bill with any additional provisions that would significantly further exacerbate systemic pension plan underfunding. Obviously, if you don't require all of the companies to pay in their fair share, you are, in fact, undermining the fund. They conclude by saying: If H.R. 3108 were amended to do so, we as the PBGC board would recommend that the President veto the legislation. My point in mentioning this is to note that it may be that the amount of money we are talking about would not be interpreted as significantly underfunding. That would be the hope because if it would be, then I don't think any of us would be happy. But what I would suggest is that as a way of ensuring that the impact is minimized, my amendment should be adopted. It is very minimal. It simply says for those companies, if any, that choose to take advantage of this special waiver from the deficit reduction contribution, if they fail during this 2-year waiver period, then only the benefits that are accrued during that period would not be covered. That is to say, they would have to hold harmless the pension guaranty board for that amount of money. The reason is obvious: They are not paying in. They should not receive the benefit of the guarantee. If they want to receive the benefit of the guarantee for those benefits, then pay in their fair share. Obviously, they are totally covered for all of the benefits accrued up to that date because they paid in up to that date. So we are basically saying: If you choose as a corporation to take advantage of this waiver and not pay in what everybody else has to pay in, you should be on the hook for that amount of money. You should not ask the taxpayers or your rivals in business, your competitors, or the board to try to make up that difference. The reality is, we are not talking about a great deal of money. The principle is important and would help to make this underlying amendment a little bit more palatable to some of us on this side and to the administration. I yield to the Senator from Oklahoma.

Mr. KYL

Mr. KYL. Mr. President, I ask unanimous consent that the resolution be agreed to, the preamble be agreed to, the motion to reconsider be laid upon the table, and that any statements relating to the matter be printed in the Record.

Mr. KYL. Mr. President, I ask unanimous consent that the Senate proceed to the immediate consideration of S. Res. 291, which was submitted earlier today.

Mr. KYL

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

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

Mr. KYL. Mr. President, I have an amendment No. 2236 at the desk.

Mr. KYL. Mr. President, I will describe the amendment briefly, the reason for the amendment, and set the stage here. Of course, the pending business is H.R. 3108, a bill the House passed, dealing with the requirements for businesses to pay into the pension fund to ensure that all of the promises they have made to their employees about pension benefits being there will in fact exist when the time comes. What has happened is some Senators have offered an amendment to that bill which would provide what we call deficit reduction contribution relief. Deficit reductions are the amounts of money the companies are supposed to pay into the fund to ensure the fund will be able to compensate any employees on the pension that has been promised to them. We have had a deficit in that pension over the last few years because of the way the amounts due were calculated. That is being fixed. But in the meantime there has to be some kind of makeup payment to account for the deficit that has been created. This deficit reduction contribution will do that. The problem is some specific industries are seeking relief from that so they don't have to pay in as much money. They are asking in effect for a waiver of the requirement that they pay this money into the pension fund so their employees will be able to collect when the time comes. Their argument is they don't have enough money. That should be our first clue that there is a problem. If they don't have enough money to pay their employees what they are due, we probably should not dig the hole any deeper by allowing them to continue to make promises and not pay into the fund what is necessary for them eventually to pay to their employees. Some of the Senators have decided what we are going to do is grant a 2-year partial waiver just to certain airlines and two steel companies. One of the airlines, it is said, cannot afford to pay the premium that would be required, or the bond payment that would be required, if they sought a general waiver from the Treasury Department, which you can do. If you are having trouble making your payments, you can go to the Secretary of the Treasury and meet certain requirements and say I would like to have a general waiver. That could be granted. This company apparently doesn't even have the money to pay for the bond that would be required in order to seek that relief. But they are asking us to believe if we will just bail them out for 2 years, everything will be fine; they will have enough money, and the Government won't have to make up any of the difference. The concern I and others have expressed is this partial waiver is going to result in the Government letting these companies off the hook, paying less money into the fund than is necessary, and a couple years from now, if they don't make it financially, it is the taxpayers who will be on the hook for that difference because we have not had them pay the full amount. In fact, they are only going to have to pay 20 percent of their obligation next year and only 40 percent the year after that. So it is a 2-year waiver of almost the entire amount. I would say this ought to be of concern to us. I don't think it is a good idea to grant this waiver, and the three key people in the Bush administration who sit on the board that oversees this have said they would recommend a veto to the President if this deficit reduction contribution amendment causes any greater strain on the board to make payments. What I have done is offer one amendment, and this is the second amendment, both of which will reduce that strain just a little bit, hopefully enough so the Bush administration will not veto this legislation, should it end up passing. I urge colleagues, those who agree with me that this whole deficit reduction contribution waiver is not a good idea and those who think it is a good idea but might be a little bit concerned the administration might veto the bill over that provision, to support my amendments because they are designed to close the loophole a little bit so that at least the companies that are taking advantage of this 2-year waiver cannot take unfair or undue advantage of it. Let me describe what the amendment specifically does. The amendment, which I have just offered, provides that a company which seeks to take advantage of this special waiver, where you would only have to pay 20 percent next year and 40 percent the year later, then would not, at the end of the 2-year period, also then be able to go to the Secretary of the Treasury and say: Now we want a general waiver. The law currently provides for a general waiver, and if you want a general waiver, you can apply for it. This special waiver that is being granted is designed to be a substitute for the general waiver, not where you would add one on top of the other. I think it is a perfectly reasonable request. I would ask, if anybody is against this, why? Is it because, after the 2-year special waiver, they then want to seek a general waiver? The question then would be, if that is the case, why don't you seek a general waiver right now? I think it is a perfectly legitimate amendment. It obviously doesn't upset the whole process. The deficit reduction contribution amendment that has been offered will still be permitted to go forward, but what I would call a little bit of a loophole would be closed so the company that gets this 2-year holiday date from making their full DRC payments would not then afterward also be able to apply for a general waiver under the provisions of law that already permits that to be done. It is very simple. By the way, just a word about the general waiver. You can apply to the Treasury Department for any or all of the normal required contributions to the pension fund, and the only part of the contribution Treasury cannot waive is an amortization payment of a previous funding waiver, which makes sense. To receive a waiver, a company must show there is substantial business hardship, which these companies all allege; that it is temporary, and they make that point: We are going to be healthy in 2 years, they say. Good. And it is reasonable to expect the plan cannot continue unless the waiver is granted. In other words, if they can't continue to pay into the pension fund unless a waiver is granted, as I say, a bond can be required of the Secretary to show their good faith. I think it is a perfectly sound amendment. Those people who don't like the DRC waiver, like myself, and those who do should support the amendment. For those who do like the waiver, it doesn't hurt the companies they are seeking to help, and it might actually prevent the bill from being vetoed by the President. Let me tell you what I have in this regard. I understand my colleague from Illinois, Senator Fitzgerald, has already submitted into the Record this letter, so I will not do it, but I would like to make reference to the letter, dated January 22, 2004. It is on the letterhead of the Pension Benefit Guaranty Corporation, which is the Federal entity that guarantees Federal pensions. It is to Leader Bill Frist, and it is signed by Elaine Chao, the Chairman of the Board of Directors, John Snow, director, and Don Evans, director. You might also recall that Elaine Chao is Secretary of the Department of Labor; John Snow is Secretary of the Treasury; and Don Evans, of course, is Secretary of Commerce. These three important members of the Cabinet are the three board members of the PBGC or the Pension Benefit Guaranty Corporation. What they said in their letter to Senator Frist, among other things, is this: The PBGC reported a record single-employer program deficit of $11.2 billion through the end of 2003-- One of my colleagues earlier said there was a $20 billion surplus in their fund. This letter from the directors notes an $11.2 billion deficit. They point out: three times larger than any previously recorded deficit. Last year, the General Accounting Office added the PBGC's single- employer pension program to its ``high risk'' federal program list. In addition, the PBGC remains exposed to $85 billion in pension underfunding in single-employee plans sponsored by financially weak employers. The PBGC also reported the first multi-employer program deficit in two decades. What this means is that the PBGC, which is the guarantor of employers' pensions, is in very bad financial condition--a $11.2 billion deficit. It is in the high-risk category of Federal programs. That means that if we add to the risk by reducing the amount that employers pay into the fund, then we are increasing the risk that taxpayers will have to bail these companies out because the fund will not have enough money to make the payments. It is a little surprising to me that people who ordinarily like to present themselves as on the side of employees would be taking the sides of the employers here saying: Let's let them off the hook so they don't have to pay as much into this fund for the pensions of their employees. The fund exists for the employees, and I would like to be sure there is enough money in those funds to ensure the employees are paid. But when we relieve the companies of paying their full obligation, we are creating a risk that the employees are not going to be paid. The answer of the bill sponsors is: We will have the Government pick up that risk. After all, that is the job of the Pension Benefit Guaranty Corporation. The directors of the Corporation are saying: We are in financial trouble. We don't have enough money to do this. So guess who is going to have to make up the difference. You guessed it: our constituents, the taxpayers. Haven't we heard a great deal recently about the fact the Federal Government is spending too much taxpayer money and we have to start reining in how much we spend? Right now we are committing to spend a whole lot more because the board that backs up the pension funds is in a deficit situation. The companies that are seeking relief say they don't have enough money to cover the obligations to which they have committed. That leaves only one party to make up the difference: the taxpayer. And that means either they pay for it in taxes that we collect or we have to go out and borrow it. Nobody likes the size of the deficit. Mr. President, I say to my colleagues, those of you who are supporting this bill and this amendment--not my amendment but the underlying amendment--are guaranteeing that we are going to have a bigger deficit, more taxpayer funding of an obligation that corporations took on because the corporations don't have the money to do it themselves. This amendment is asking that we relieve them of the full 100 percent of what they are supposed to pay in; that for 1 year, they only pay in 20 percent, and for the other year they only pay 40 percent of this makeup payment, this deficit reduction payment that is required to make up the full amount. We are doing it because they are pleading that they don't have enough money. My observation is, when you are in a hole, the first thing you do to get out of it is to stop digging. Today's edition of the Washington Post makes the same point. I understand Senator Fitzgerald also put this in the Record. But let me quote a couple lines from this editorial called ``Pension Perniciousness'' from the Washington Post today. They point out: Not for the first time, Congress has muscled up to an important problem, taken a good long look at it and resolved to make it worse. The problem is the vast hole in the nation's corporate pension schemes, and the perverse rules that helped create them. Then it talks about the bill that has been introduced by our colleagues ``to reward the hole diggers with what amounts to a $16 billion loan from taxpayers.'' That is why I say we are already in a hole. This old rancher friend of mine from Apache County said, if you are in a hole, the first thing to do to get out is to stop digging. We are digging the hole even deeper because instead of the companies trying to fill this hole, we are going to have a deeper hole with greater taxpayer exposure as a result. They point out in the Washington Post editorial: To pay for these future benefits-- That are promised to employees-- employers are supposed to put sufficient money into a pension fund; the problem is they often don't. The gap between money put aside and money needed in the underfunded pension plans comes to an enormous $350 billion. When companies go bust, the Pension Benefit Guaranty Corp., the Government-backed entity that insures pensions, gets saddled with plans that are in deficit. As a result, the PBGC itself has a deficit of $11.2 billion, which taxpayers may have to plug eventually. And then, down toward the end of the editorial, they say this: There is, as Congress is demonstrating, no political constituency for fixing this problem. Weak companies with underfunded pensions lobby lawmakers for permission to continue their imprudence; labor leaders from those same firms lobby lawmakers in the same direction; nobody is on the other side. In the deal currently being cooked up, a group of hard-pressed companies led by the steel industry and the airlines will be given a special break for two years; if any of these firms goes bust in the meantime, the public will end up shouldering the deficits, which is why the congressional measure amounts to a taxpayer loan. In the letter to leader Frist from the Pension Benefit Guaranty Corporation directors, the three Secretaries I mentioned earlier, are these two points. I quote now: Pension underfunding threatens workers and retirees, who depend on the defined benefit pension system to be predictable and reliable. If the Congress urges firms to underfund their pensions by substantially weakening funding requirements, retirees could face pension cuts when a firm terminates its defined benefit pension plan. We believe that H.R. 3108 would best protect pensions and pensioners if passed free of any provisions to alter the Deficit Reduction Contribution rules--DRC rules. Specifically, it would be irresponsible to amend the interest rate bill with any additional provisions that would significantly further exacerbate systemic pension plan underfunding. If H.R. 3108 were amended to do so, we as the PBGC board would recommend that the President veto the legislation. By the way, they note that the Office of Management and Budget has advised that this letter is consistent with the administration's program. What you have here is a pretty firm warning from the key Secretaries in the Bush administration, the people who sit as directors on the board here of the Pension Benefit Guaranty Corporation, that if the underlying amendment that is proposed here passes, and it significantly ``further exacerbates the systemic pension plan underfunding''--which I think it is hard to argue would not occur--they would recommend a veto of this legislation. The two amendments I have offered--the one I offered Friday which would hold the PBGC harmless for obligations incurred after this, that would be incurred during the time of and for 2 years after this DRC waiver plan, and the amendment I offered today which simply provides that a company that takes advantage of this DRC waiver not be able to apply also for a general waiver--these two amendments should make the DRC amendment slightly less onerous. It may be enough for the administration, then, to decide to allow the amendment to go forward and not recommend a veto. But I am afraid if my two amendments--both of which I think one could argue are not harmful to the companies but they might be just enough for the administration to conclude that it is willing to allow these to go to the President without a recommended veto--don't pass, one of two things will happen: Either the President will veto the legislation or, if he doesn't, the taxpayers are going to be required to make up a fairly large amount of money when these companies decide they can't make it in the long run. I hope my colleagues will give consideration to this. It is my understanding that perhaps, after the lunches tomorrow, somewhere in the 2:45 timeframe, we may have a vote on these two amendments. We will have about a half-hour to discuss the two amendments, so anybody who has missed the discussion, the robust debate we are engaged in here, will have an opportunity to at least hear both sides of the argument and then we will vote on these at 2:45 tomorrow. Again, I reiterate, I can argue that the DRC waiver that is being proposed here by the Senator from Iowa, the Senator from Montana, the Senator from New Hampshire, and the Senator from Massachusetts greatly jeopardizes the financial stability of the PBGC; the granting of a 2- year waiver of most of the payment obligations into the fund is a bad idea. I think a lot of our colleagues agree to that. What I am saying is, even if you don't agree with that, if you support the two steel companies or the two airlines--I think there are two or three airlines that want to take advantage of this--if those are your constituents and you need to support them here, you need to try to give them some relief so they don't have to pay as much money in over the next 2 years--I understand why you would have to do that. But I would argue, A, don't saddle everybody else with that and, B, if you really want it to go into law, it would be important to make sure the President doesn't veto this legislation. Three Secretaries have already given you a pretty good idea this is what they are going to recommend if this DRC waiver is actually adopted by the Senate tomorrow. What I am suggesting is that you can ameliorate the effect of that just a little bit by adopting these two amendments. One would ensure that, as I said about the amendment today, there are not going to be any additional waivers granted. The waiver you get for 2 years is it; You don't add a general waiver behind that. I think that is consistent with the intent of the authors here. I certainly hope they will be willing to support that. And, second, the Pension Benefit Guaranty Board would be held harmless for obligations that were incurred once a company began to take advantage of the special waiver provisions. That is only fair. I hope my colleagues will support both of these amendments. Take a look at the Washington Post editorial of today. Certainly take a look at the letter from Secretaries Chao, Evans, and Snow, and consider whether a very slight amendment to the underlying amendment would not be appropriate in order to preserve the intention of what they are trying to achieve. I appreciate the earlier comments from my colleague from Illinois, Senator Fitzgerald. I think he hit the nail right on the head. I note one of the airlines seeking to take advantage of this has reported a huge amount of cash on hand, over a couple of billion dollars of cash on hand. Yet it is saying it doesn't have enough money to make these modest payments into this fund. It seems to me either that corporation could apply for a general waiver, which it could get today, or it can afford to make the payments into the fund. It should not be up to the taxpayers of this country to be bailing out a company in that kind of position. I urge my colleagues to think very carefully. We have just been home talking to our constituents, talking about their concerns about deficits, about the role the taxpayers are going to have to pay funding new spending of the Congress. Yet the very first thing we do this year out of the box is take on an additional liability that will, in fact, add to the debt if we have to make up the payments to the Pension Benefit Guaranty Corporation because companies that took advantage of this special waiver decided they could no longer remain in existence or went bankrupt. I hope my colleagues will support these two amendments. I will discuss them again tomorrow right after the lunches. At this time I suggest the absence of a quorum.

Mr. KYL

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

Mr. KYL. Mr. President, I have a second-degree amendment at the desk.

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

Mr. KYL. Mr. President, let me describe briefly what the background of this amendment is and what the amendment will do--the effect of the amendment is actually quite simple--and then I will discuss the reasons for it. As you are aware, the background of this legislation is the House- passed bill, H.R. 3108. An amendment to that bill has been offered by the chairman of the Finance Committee, the ranking member, and others that would make some corrections to the House bill, H.R. 3108 and, among other things, provide for a partial waiver of some payments that otherwise would be made into the fund that helps to guarantee the pension benefits of employees. We are aware of the fact that the Federal Government has undertaken a responsibility for ensuring that pensions which are funded by employers will actually be there when the employees need to collect on those pensions. But in some cases, corporations run out of money, go bankrupt, go out of business, or otherwise can't meet these obligations. In that situation, the Federal Government has to step in and has agreed to do so under certain terms through the Pension Benefit Guaranty Corporation. As a result, we have an obligation to ensure that the funding for these contingent liabilities is secure. Part of the way we do that is to ensure that the employers that make the obligations to their employees pay in enough money to be able to pay for the benefits they have promised. The problem is that some of these corporations are not in very good shape. As a result, there is a fear that they are not going to be able to make the contributions they need to make in order to pay the benefits to their employees when the time comes. As a result of this concern, what we have done is to say these corporations need to make some catchup payments to ensure the money will be there. This is necessary in part because of a technical problem in the way that the funding was fixed based upon a U.S. Government security that is no longer issued, as a result, we are having to substitute a different basis for the payment which will be a blended corporate bond rate, a technicality, but that is going to be the basis for a couple of years of contributions for corporations until another method is devised. In the meantime, corporations whose pensions are underfunded are being required to make up some of these contributions, and it is called the deficit reduction contribution, or the DRC, to reduce the deficit that has been created and that we need to make up if the money is going to be there for the employees when it comes time to collect their pensions. This deficit reduction contribution, according to the amendment offered by Senators Grassley, Baucus, Gregg, and Kennedy, as I understand it, would apply to those entities that are 90-percent funded or less. In other words, where the plan does not fund its benefits at 100 percent, can't pay 100 percent, it can only pay 90 percent or perhaps even less. So for those entities that are in this kind of financial shape, they are going to have to make a deficit reduction contribution, a special catchup contribution. Under the amendment, they are going to actually be given a waiver of part of this contribution. The idea is that they can't afford to make the full contribution; therefore, we are only going to make them pay part of it. In fact, we are going to waive 80 percent under the amendment--80 percent of this obligation--in the first year and 60 percent of the obligation in the second year. That means they are only making 20 percent in the first year and 40 percent in the second year of the obligation they have. These are corporations that are in difficult financial condition right now and cannot pay the full 100 cents on the dollar that their employees would be entitled to when those employees attempt to collect their pensions. We clearly have a difficult situation here. The purpose of the amendment, obviously, is to have them pay something in and try to stay economically viable in the meantime. The concern, of course, of the Pension Benefit Guaranty Corporation and others is that all we are doing is digging the hole deeper or, in effect, throwing bad money after good is another way of putting it. What we are doing is giving companies that might well fail a chance to incur further obligations, not pay for those obligations, and then put the taxpayers at risk for the additional obligations incurred during this 2-year period of time. That is the risk. That is the concern we have. Clearly, if that transpired, there would be several losers. In the first place, this partial waiver would be harmful to the workers themselves because they jeopardize the expected pension benefits, especially for those workers who are supposed to receive larger pensions than the Pension Benefit Guaranty Corporation will actually guarantee. One category of people is airline pilots, for example. So companies should be required, in my view, to fund their pension promises to their employees. They should not be excused from these promises because, in effect, what they are doing is making bargains that are easy to make with unions and with others, promising to make payments, and then saying: We are sorry, we can't make them, but we would like to have the Federal Government bail us out. The Pension Benefit Guaranty Corporation right now estimates $400 billion in unfunded liabilities. That is a lot of money to be backing up. Last year their deficit was $11.2 billion. The amount of the waiver we are talking about is about $16 billion in benefits. So according to the relief that is being granted by this partial deficit reduction contribution waiver, the PBGC, or the Pension Benefit Guaranty Corporation, would lose about $16 billion worth of funding relief. That is money that obviously may be required at some future date but will not be there because we are not asking these companies to pay in that amount of money. Another loser: We think it is unfair to the healthy plans, to those corporations and employees who have actually been part of businesses that have paid attention to their economics, have ensured they are putting enough money into their pensions to fund the benefits that their employees are due. If the underfunded plan fails to pay the amount they are supposed to and the insurance premiums then go up, the healthy plans are the ones that end up paying that difference. I believe it is unfair to excuse these companies that have made the promises and then not require them to go ahead and pay that money and fulfill their promises. It is also unfair to competitors. Stop and think about an airline, for example. I feel this may well be the situation because the waiver is granted to certain airline companies that need it, allegedly, and to a couple of steel companies. It is a very selected kind of waiver. The competitors of the airlines--the airlines that have been trying to watch their pennies and not overcommit themselves in their pensions-- will be at a disadvantage. They have made their commitments to employees. They have paid the money into their pension plans to make sure they can pay those commitments to employees, and now their competitors, that maybe have overpromised or are now going to be underfunding, will be able to take that difference and apply it to other aspects of their business to compete with the airlines that have done a good job. There is nothing that says they cannot take the difference and undercut the other airlines in terms of their fare structure. That could easily happen, and there is nothing we have here that precludes that from happening. That is a very big concern I have. We should not be playing favorites, one company against another, in a particular business, and the airline business is certainly one in which this might apply. In effect, it is a backdoor bailout for some companies, those who have not been able to fund the benefits they have promised to their employees. It seems to me, therefore, another potential loser are the competitors of the airlines we would actually be benefiting here. Finally, it is a big loss to the American taxpayer if the taxpayer ends up on the hook for these deficits. As I said, the PBGC reported a deficit of $11.2 billion in its single-employer insurance plan for fiscal year 2003, which is a record deficit. Even though it estimates it will have assets sufficient to meet obligations for the foreseeable future, the PBGC estimates the sum total of all the single-employer pension plan underfunding amounts to about $400 billion, and it is Congress, meaning Congress on behalf of all U.S. taxpayers, who will be held responsible to bail out the Pension Guaranty Board rather than to allow the entire insurance system to collapse. In my view, these waivers are the wrong thing to do for the employees, for the competitors, for the system, and certainly for the American taxpayer. Companies that habitually underfund plans should not be bailed out at the expense of others. I think the primary reason we are even thinking about doing this is because at least one of the companies that would be eligible simply cannot post the security or the bond that is required to obtain a general funding waiver from the Treasury Department. Let me make a point that in the law there is already an ability of these companies to seek a waiver. It is the general waiver authority that can be sought from the Treasury Department. To do that, you have to prove some things. You have to post a bond and you have to prove some things to the Department of the Treasury. Why can't these companies go through that process? Why do they need special relief from the Congress to bail them out? Is it too much to ask that they just follow the current law and apply for the regular waiver as they have the right to do today? It seems to me that would be the appropriate way to handle this. We have the amendment before us, and the reason I have offered this second-degree amendment is at least in one small way it limits the liability of the taxpayers should things go wrong. That is the purpose for this amendment. Now what is it? It is called a hold-harmless provision. What it says is the PBGC, the guaranty board, would be held harmless for any benefit accruals that occurred during the waiver period--the waiver period is 2 years--or that occur 2 years after that. If a plan fails during this DRC waiver period, or within 2 years after the waiver period, then the PBGC would only have to fund the benefits that accrued up to the time the waiver was claimed. It would not have to finance any benefits that accrued after the waiver was claimed. If you stop to think about it, this makes very good sense. It is obviously important to protect the going businesses, the healthy plans, and the taxpayers with this kind of hold harmless. One of the big dangers with this waiver of these companies that are not funding their pensions adequately is these plans claiming the waiver are going to fail, anyway. The whole point of doing this for them is they are very close to failing, and the argument made on their behalf is they are about to fail. You do not want them to fail, do you? You do not want the Government to have to make good on all of these pension guarantees. Let's keep going for a little while longer, and if we waive the pension benefit they have to pay in, the amount of the contribution they have to pay in, then maybe they can stay in business a little longer. Well, maybe they can; maybe they cannot. That is a big gamble we are taking. What we are saying in the legislation is, all right, we will try to help keep you afloat for another couple of years, but if you fail during that period of time or within 2 years of that period of time, we should not be on the hook. We are doing our part to bail you out, but we are not going to pay all of your past benefits, all of the benefits that have accrued to date, plus the benefits you accrue from now forward by virtue of the fact that we have put in the money, or conversely we have granted a waiver to you so you can stay in business during this period of time. We would in effect be saying we will help you stay afloat to incur new benefits that then we are going to pay for, and it would be unfair for the taxpayers to be on the hook for that. So this hold-harmless provision would mitigate this potential. It would limit the drains on the healthy plans. It would limit the amount of the money the taxpayers would be on the hook for, and I think it is eminently fair. It seems to me to be impossible for these companies to argue that not only should they have this special benefit nobody else has, that gives them an advantage over their competitors, that keeps them in business a little while longer, not only should they have that and put at risk for the American taxpayers that they are going to have to get bailed out, but also during this period of time that they are trying to get back on their feet charge the taxpayers with the new benefits that are accrued during that period of time. That is what the hold harmless is designed to try to protect against. We will take care of the benefits you have incurred up to now, but nothing incurred from now forward during this 4-year window of time. That seems to be eminently reasonable to me, and what I hope is that even though this will not be voted on until probably next Tuesday, my colleagues could take a look at this, consider whether it is worth supporting, and perhaps we could--I will not even call a rollcall vote if Members are willing to support the amendment and we can prevail on it, but I do insist we get this passed. There is another amendment I will file, but I do not intend to send to the desk at this time, that I think would further strengthen the situation so it is not quite as big a potential drain on the taxpayers. It has to do with the fact that I think it totally reasonable to ask these companies if they are going to ask for this waiver today that that be it, that they not be asking for any more waivers in the future. The other idea I have that I will perhaps offer later is a plan that accepts this DRC funding waiver we are offering in the original amendment would then not be able to apply for a general funding waiver for 2 years after the waiver period ends. Otherwise, all we are doing is essentially postponing the inevitable. If they intend to file for a general waiver after 2 years, they can clearly file for a general waiver today. If they think they can prove the case that they need to get that general waiver from the Department of the Treasury in 2 years, then they could do it today. In effect, under the manager's amendment, they have a 2-year holiday for making their full DRC payments, which are designed to bring their plans into full funding. I believe it would be inappropriate to allow a plan that claims this 2-year DRC waiver at the end of that period to then seek the general waiver for 2 more years, and would note the fact that the companies that apply to the Treasury for this have to show there is a substantial business hardship--they ought to be able to show that--that it is temporary. If it is not temporary, then I do not know why we are throwing taxpayer money at the problem in the first place. It is reasonable to expect the plan cannot continue unless the waiver is granted. That is in effect what at least one of these companies has been telling Members of Congress that they have to have this relief or else they are not going to be able to stay in business. At that point then the Secretary of the Treasury can demand of them some security, some kind of bond, and grant this waiver. I do not know why that general authority in the statute today is not adequate to take care of this problem and why we have to grant this specific waiver. It seems to me if we grant this specific waiver, then it is not unfair to ask them to commit to us that they are not going to seek additional waivers after that. But, again, that is something that I think makes sense. I may offer that amendment later. But the amendment that I do offer, which I think is eminently reasonable and which I cannot imagine my colleagues would not support, is simply an amendment that would hold the taxpayers harmless for events that occurred during the period of time this specific waiver is in effect, and for a period of 2 years after that. I conclude by saying I think we are on a bit of a slippery slope with this entire approach. It was entirely appropriate for the House of Representatives to focus on the need for some kind of temporary substitute formula for contributions because the old formula clearly couldn't work anymore. The Government was no longer issuing the securities on which the formula was based. There were different choices we could have made. I thought the Treasury Department had the best solution, but that solution would have required the companies to pay in more money than they were willing to pay in. That probably is the most fiscally sound. But what was decided on as a compromise was this temporary corporate bond rate. I do not think that is enough to assure the corporation pension benefits will be secure, but that is what is before us. By itself, I would be willing to support that for a couple of years. But what I am not willing to support is this waiver of the payment for just two companies in one business, steel, and certain airlines that say they need it and for some reason don't want to go the general waiver route. I think this is entirely too generous. But if we are going to do that, then I say at least let's ask for a ``hold harmless'' during the period of the waiver and for a period of 2 years afterward so at least we, the taxpayers, are not liable for new benefits accrued during this period of time that we are trying to help these companies out. That, I think, is the least we could expect. I hope we will have a chance to visit a little bit more on this with colleagues when they are here on Tuesday or perhaps on Monday morning, and we can have a vote at that time. Therefore, for the time being, that is the extent of my discussion on this particular amendment. Mr. President, seeing no other Member here, I suggest the absence of a quorum.

Mr. KYL

Mr. KYL. Mr. President, today I discuss the energy conference report, and begin by commending the Chairman of the Senate Energy and Natural Resources Committee for his tireless work to pull together such a comprehensive measure. The energy conference report attempts to improve our Nation's energy supply and reliability, and for that it should be praised. Unfortunately, it also contains numerous provisions that will distort competitive markets for energy through subsidies, tax breaks, special projects, mandates and, last but not least, outlandish amounts of Federal spending. Mr. President, I have been particularly interested in the provisions in the electricity title that are designed to restructure our electricity markets. Some of my colleagues have been tempted to move immediately to completely unregulated electricity markets; others favored imposing a more stringent regulatory regime as a result of problems in California. Representing Arizona, I was well aware of the problems stemming from the California energy crisis, but cannot agree with those who say the solution is to return to a command-and-control regulatory structure. I continue to believe that the most efficient way to allocate resources is through competitive markets. The chairman has done an admirable job of trying to encourage competitive markets while making sure that consumers continue to pay the lowest possible price for energy resources. There are several provisions in this bill that hit the right balance for our electricity policy. The legislation repeals the Public Utility Holding Company Act of 1935. As we all know, our energy markets have evolved significantly since the era of the Great Depression. State regulators are smarter, more well-equipped, and able to protect consumers from the ills that gave rise to the Public Utility Holding Company Act of 1935 nearly 70 years ago. I am also pleased that the conference report has found the right balance with respect to delineating the jurisdictional reach of the Federal Energy Regulatory Commission, FERC. As a Senator from the West, I've been frustrated by FERC's effort to impose a mandatory ``Government knows best'' one-size-fits all standard electric market design, or SMD, on all regions of the Nation. This proposal has drawn severe criticism from the West and other regions of the country, as being unworkable and potentially disruptive to the functioning of our vital electricity infrastructure, all to the detriment of consumers. This criticism comes from a broad spectrum including State regulators, industry representatives and consumer groups, all of whom express concerns about the inflexibility of the SMD requirements, the untested nature of many of them in regions without a history of RTO operations, and the potential cost burdens on electricity consumers. Normally, one would have expected an agency like FERC to respond to such comments at a minimum by delaying its SMD proposal, or proposing a more measured approach, both in scope and mandatory application. Instead, FERC has indicated it will proceed with the fundamentals of SMD. As a result, Congress has been forced to take the unprecedented step of mandating a pause in SMD, through 2006, to enable those involved in this critical industry to assess how to proceed. It is unfortunate that Congress must, in effect, admonish a Federal agency in this way; but we have an obligation to see that an agency Congress created proceeds in the deliberate and thoughtful manner that the issue demands. I hope that FERC follows both the spirit and the letter of this law. The Senate will be watching to make sure that FERC does not move forward on SMD by changing its name to WMP, or using a different legal basis, such as just and reasonable rates, rather than discrimination. Change your agenda, FERC. Don't waste our time by forcing us to save the electrical industry from your zeal to regulate, whether with a standards of conduct rulemaking, a supply margin assessment test, or a yet to be designed mistake. For example, the standards of conduct rule, as proposed during the SMD development period, represents a direct attack on the internal organization of vertically integrated utilities. Before the proposed rule is finalized, it must be amended to eliminate elements that parallel the SMD proposal. The assertion of jurisdiction over retail sales of vertically integrated utilities is clearly within the scope of SMD. We understand that FERC has and will continue to have matters before it that may also involve issues raised in the SMD NOPR. We have proposed savings provisions in the bill that are intended to permit FERC to resolve those issues when they arise. However, the savings provisions do not detract from the clear mandate that FERC not act prior to the end of 2006 on SMD or any rule or order of general application within the scope of the proposed SMD rulemaking. I have often expressed my concern with what some industry officials have termed a jurisdictional reach by the Federal Energy Regulatory Commission into the delivery of power to retail customers. The service obligation amendment that I worked on with the chairman has been included in this package, and I believe it provides a commonsense way to promote competitive markets while preserving the reliability that retail electric consumers expect and deserve. In its actions governing access to transmission systems, FERC has not adequately ensured that the native load customers, for whom the system was constructed, can rely on the system to keep the lights on. The bill adds a new section 217 to the Federal Power Act to ensure that native load customers' rights to the system, including load growth, are protected. It is also worth noting that the conference report expands jurisdiction over those stakeholders in electric markets that were previously unregulated by the FERC. The FERC-lite provision that addresses the Federal Energy Regulatory Commission's efforts to provide open access over all transmission facilities in the U.S. again, in my mind, strikes the right balance. It requires FERC to ensure that transmission owners--whether they are municipal utilities, power marketing administrations, or electric cooperatives--deliver power at terms that are not discriminatory or preferential. However, this provision is limited and does not give FERC the ability to begin regulating the rate-setting activities of these organizations. If FERC finds fault with the transmission rates of such an organization, the bill provides that FERC will remand the rates to the local rate-setting body for reconsideration. FERC-lite does not confer further authority to FERC over public power systems. FERC cannot order structural or organizational changes in an unregulated transmitting utility to comply with this section. For example, if an integrated utility providing a bundled retail service operates transmission distribution and retail sales out of a single operational office, the commission cannot require functional separation of transmission operations from retail sales operations. I would also like to mention the new refund authority provision in the bill. I understand that the purpose of the new section 206(e) of the Federal Power Act is to permit FERC to order refunds where a governmental entity voluntarily enters the wholesale market and acts egregiously. Section 206(e) gives FERC authority to order refunds where a governmental entity voluntarily enters a FERC-regulated market, makes short-term wholesale sales and violates FERC's substantive rules of general applicability governing other sellers into that market. Section 206(e) provides a means to correct market abuse; it is not meant to be a back door to full FERC jurisdiction over governmental entities. The chairman should also be commended for what is not in this bill. I note that there are some who wanted to include a renewable portfolio standard. I commend the chairman and the Chairman of the Budget Committee for convincing fellow conferees that a renewable portfolio standard would be costly and yield few benefits. I am also pleased that the chairman saw the wisdom of not including a climate-change provision. Gratifying, as well, is that the conference report has not pursued a command-and-control approach with respect to regional transmission organizations, or RTOs. I believe the best approach, which is captured in this conference report, is for FERC to provide incentives to encourage membership in RTOs and independent system operators. As lawmakers, we need to be sensitive to the policy changes we propose and how the laws we draft will affect Wall Street and the markets, and we must make sure we promote the investments that are needed. This is a prime example of how the conference report has sought to advance policies to which the investment community can respond favorably. Related to the need to give clear signals to the investment community, I believe that the participant-funding provisions have placed FERC in the appropriate role of providing incentives to invest in transmission infrastructure. As a member of the Energy Committee, I have heard countless hours of testimony on the Nation's transmission grid being woefully underfunded, and the urgent need for significant upgrades to meet energy demands in the future. The provision on participant funding address this need and gives FERC the appropriate instructions to adapt methodologies for particular regions. As I have said, some important provisions of this conference agreement have much to recommend them. Still, I find the bill's many tax subsidies--most in the form of tax credits--to be irresponsible, unnecessary, and inefficient. There are just too many of them to permit me, in good conscience, to vote for this bill. My overarching concern has to do with the use of tax credits by the government. The Federal Government uses tax credits to induce individuals or businesses to engage in favored activities. This can distort the market and cause individuals or businesses to undertake unproductive economic activity that they might not have done absent the inducement. Tax credits are really appropriations that are run through the Internal Revenue Code, the Code, and are a way to give Federal subsidies, disguised as tax cuts, to favored constituencies. It is something we should do sparingly--very sparingly. While tax credits can be effective in encouraging activities we consider laudable for one reason or another, I believe that, as stewards of the taxpayers' money, we must only support those credits that provide broad benefit to all taxpayers and that are worth the revenue they will cost the Federal Treasury. I do not believe that any of the tax credits in the conference agreement meet these tests. Let me highlight three particular provisions. The conference agreement extends and expands the credit provided in section 45 of the Code. This credit is available on a per- kilowatt-hour basis for energy produced from wind, solar, closed-loop biomass, open-loop biomass, geothermal, small irrigation, and municipal solid waste. I believe that the credit for wind energy should have sunset several years ago. Wind energy has been provided this credit since 1992 and if it is not competitive after a decade of taxpayer subsidies, it will never be competitive. In 2001, the wind industry was in fact touting its great success and competitiveness with other forms of energy, but here we are extending the wind credit for 3 more years. All of the credits I just mentioned, except wind and closed-loop biomass, are eligible for the credit for the first time in this bill. I wager that we will still be paying for the ``temporary'' advantage being given to these new energy forms a decade from now. Let me point out that it's good that the conference agreement calls for a study of the section 45 credits. If we are going to spend more than $3 billion on these credits, we should at least know whether they are having a positive effect and whether these forms of energy will ever be able to survive without a taxpayer subsidy. A 2002 Cato Institute study suggests that section 45 is not worth the expense; some economists estimate that the cost is double the benefit. Another of the credits provided in the agreement is the tax credit for biodiesel fuel. In addition to questions I have about the need for this credit, I have heard concerns from companies located in Arizona that this credit might have unintended results, including affecting market prices for tallow and glycerin, which are byproducts of biodiesel production. I strongly encourage the Finance Committee staff to closely monitor whether and how the biodiesel credit affects the market prices for these products. Finally, the conference agreement provides tax credits for the purchase of a new qualified fuel cell, hybrid, or alternative fuel motor vehicles. I have grave concerns about this provision and I refer my colleagues to Arizona's disastrous experience with its alternative fuel vehicle tax incentives. The program could have cost Arizona half a billion dollars--11 percent of the State's budget--if it had not been repealed. When proposed, the cost of the program was projected to be only between $3 million and $10 million--less than 10 percent of its true cost. The Joint Committee on Taxation estimates that the provision in this conference agreement will cost $2.23 billion over 10 years. While I appreciate that the Finance Committee incorporated several changes to reflect lessons learned from Arizona's experience, I seriously doubt we can be confident about the revenue estimate for these provisions of the conference agreement. That's why I am particularly disturbed that it deletes a requirement that was in the Senate bill for a study of the credits. Such a study could have given Congress important information about how much the credits are costing, how effective they are at encouraging the purchase of alternative fuel vehicles, and how long the credits will be needed. Beyond the issue of tax credits, I would also like to say a word or two about the tax provisions that were included in this legislation that I believe have merit. These generally have to do with assigning more realistic depreciation recovery periods to various energy-related investments. For example, the agreement assigns a 7-year life to natural gas gathering pipelines and a 15-year life to natural gas distribution lines. I strongly believe that the Code requires a great many investments to be depreciated over too long a time period, so I am pleased the agreement begins addressing this problem. Next, I want to discuss an issue that I had hoped would be addressed in the conference report that will accompany the agreement, but that was not included. I had hoped that one aspect of the transmission issue would be addressed in the conference with some simple report language. That issue has to do with the electricity supplied in the evolving marketplace by publicly owned utilities. Unfortunately, the conference report does not address this issue and I raise it now as something I hope the Treasury Department will address. A significant goal of this bill is to foster open access to the greatest extent possible. However, in recognition of the limitations imposed by section 141 of the Code, the electricity title provides that States and municipalities may not be ordered to provide transmission services in a manner which would result in any bonds ceasing to be treated as obligations the interest on which is excluded from gross income. As my colleagues may know, the applicable Treasury regulations are flexible in applying section 141 where transmission facilities are operated by an independent transmission operator, ITO, approved by FERC. The Treasury regulations, however, are significantly less flexible for other open access transmission where the facilities are not operated by an ITO. In addition, the conferees are aware that final regulations relating to the allocation of private business use to facilities and portions thereof financed with funds other than tax- exempt bond proceeds prior to allocating such private business use to tax-exempt bond proceeeds--the ``Equity First'' rules--have not been issued, although an advance notice of proposed rulemaking has been issued. Accordingly, in recognition of the purposes of the act, I would ask the Treasury Department to strongly consider: (1) Amending the regulations or providing other general guidance relating to the use of transmission for open access to provide the same degree of broad flexibility whether or not the facilities are operated by an ITO, and (2) issuing proposed and final regulations relating to Equity First for output facilities as expeditiously as possible, taking into account the public comments submitted. Fleixible guidance on both these points would greatly assist the Nation's publicly owned utilities in contributing to the reliability in the electricity grid that this bill seeks to implement. Now for ethanol. The ethanol provisions of the conference report are truly remarkable. They mandate that Americans use 5 billion gallons of ethanol annually by 2012. We use 1.7 billion gallons now. For what purpose, I ask, does Congress so egregiously manipulate the national market for vehicle fuel? No proof exists that the ethanol mandate will make our air cleaner. In fact, in Arizona, the State Department of Environmental Quality has found that more ethanol use will degrade air quality, which will probably force areas in Arizona out of attainment with the Clean Air Act. Arizonans will suffer. Furthermore, according to the Energy Information Administration, this mandate--costing between $6.7 and $8 billion a year--will force Americans to pay more for gasoline. Nor is an ethanol mandate needed to keep the ethanol industry alive. That industry already receives a hefty amount of Federal largesse. CRS estimates that the ethanol and corn industries have gotten more than $29 billion in subsidies since 1996. Yet, this bill not only mandates that we more than double our ethanol use, but provides even more subsidies for the industry--as much as $26 billion over the next 5 years. Professor David Pimentel, of the College of Agriculture and Life Sciences at Cornell, has studied ethanol. He is a true expert on the ``corn-to-car'' fuel process. His verdict, in a recent study: ``Abusing our precious croplands to grow corn for an energy-inefficient process that yields low-grade automobile fuel amounts to unsustainable, subsidized food burning.'' It isn't efficient. The fuel is low-grade. And what is more, Congress, by going in for ``unsustainable, subsidized food burning,'' will impede the natural innovation in clean fuels that would occur with a competitive market, free of the Government's manipulation. These ethanol provisions, alone, dictate that I vote against the bill. So, in conclusion, while this bill includes several meritorious provisions, especially those negotiated by Chairman Domenici, I must vote against it because of the $24 billion in tax subsidies and the bill's irresponsible manipulation of the energy markets through an ethanol mandate.

Mr. KYL

Mr. KYL. Mr. President, the majority leader, Senator Frist, joins me in this explanation of why the conference agreement on the Medicare Prescription Drug and Modernization Act of 2003 does not allow increased importation of drugs from outside the United States. Our explanation provides important background information on this largely misunderstood issue that is vital to the health and safety of Americans. Under current law, the Federal Food, Drug, and Cosmetic Act establishes a system under which prescription drugs must be approved by the FDA and properly labeled, packaged, tested, stored, and distributed pursuant to FDA regulatory requirements. This is the finest and most effective system in the world for ensuring drug safety, effectiveness, and quality. To protect American consumers by ensuring the integrity of this system, the law generally prohibits the importation of prescription drugs. Section 801(a) of the Act prohibits importation of drugs that are unapproved, adulterated, or misbranded. Virtually all prescription drugs manufactured overseas for distribution in foreign countries fail one or more of these standards and, therefore, cannot legally be imported into the United States. It is important to note in this regard that just because a drug is manufactured in a facility that is subject to FDA inspection does not mean that the drug meets FDA approval or other requirements. Different countries have different manufacturing, testing, labeling, packaging, and other requirements from those imposed by the FDA, and in fact the composition of the drug product itself may vary from country to country. Manufacturers may use a single facility to manufacture a drug for several different countries, but they must vary their processes to ensure that each drug lot will satisfy the requirements of the intended destination country. Some drugs available overseas are manufactured in the United States and then exported. Section 801(d) of the Act prohibits the importation--sometimes called reimportation--of these drugs. Congress added section 801(d) through the Prescription Drug Marketing Act in 1988 to close a loophole under which counterfeit and substandard drugs were being brought into this country. There is an exception to this prohibition for the original manufacturer, who is part of the U.S. system and subject at all times to FDA authority and oversight. The manufacturer's own importation of drugs that have never been outside its control is comparable to shipments between its manufacturing plants and warehouses within the United States, and is completely different from the importation of drugs that have been placed into the wholesale and retail distribution systems of foreign countries, where they are no longer subject to FDA jurisdiction. In 2000, Congress authorized an additional exception to section 801(d) in the Medicine Equity and Drug Safety Act. This law added a new section 804 under which pharmacists and wholesalers would be permitted to import drugs from a list of designated countries, including Canada and the countries of the European Union. In order to protect American consumers, Congress provided that section 804 would not become effective until the Secretary of Health and Human Services demonstrates to Congress that its implementation will ``pose no additional risk to the public's health and safety'' and will ``result in a significant reduction in the cost of covered products to the American consumer.'' Secretary Shalala and Secretary Thompson both concluded that they could not make this demonstration. FDA has a written policy under which it permits an individual to import a small quantity of a prescription drug for personal use, but only if the drug is not available in the United States. This policy is intended to allow seriously ill patients to obtain unapproved drugs to treat potentially life-threatening and similar conditions for which adequate treatment is unavailable in the United States. It does not apply to importation of drugs that are approved in the United States or to any commercial activities, such as Internet or print advertising or importation by persons other than individual patients. Moreover, even importation within the four corners of this policy remains technically illegal; the policy represents only a reasonable and limited exercise of FDA's enforcement discretion in the interest of individual patient treatment. A final, and important, legal requirement is that a prescription drug can only be dispensed to the patient based on a valid prescription. Otherwise, the drug is misbranded and cannot be imported, or shipped domestically. There is extensive evidence documenting the fact that many foreign interest sites ship drugs without requiring any prescription at all, or with an invalid prescription based on a perfunctory questionnaire and without any genuine medical examination-- co-signing of prescriptions by foreign physicians who have no relationship with the patient does not meet the legal requirements and presents serious risks, as both U.S. and foreign authorities have made clear. These activities put patients at risk by taking the licensed healthcare professional out of the process for deciding whether to initiate or continue treatment. Prescription drugs are classified as such because they cannot safely be used by laypersons without proper professional oversight. Drug importation commonly violates this basic safeguard. Despite the existing prohibitions on drug importation, the volume of importation activity is growing as foreign pharmacies and domestic storefront facilitators advertise for business, and state and local governments and others explore ways to direct American consumers to foreign sources for their needed medicines. All of these activities are illegal, and they pose threats to our health and safety. According to the FDA, imported drugs are too often unapproved, contaminated, counterfeit, and contain different ingredients from those required under agency regulations. These are not mere theoretical concerns. A recent series of spot inspections conducted jointly by the FDA and the U.S. Bureau of Customs and Border Protection found that 88 percent of more than 1,000 examined drug packages contained unapproved drugs and that they could pose ``clear safety problems.'' These included an unapproved blood thinner that could cause life-threatening bleeding; unapproved epilepsy, thyroid, and diabetes drugs that could cause life-threatening side effects; drugs that have been withdrawn from the U.S. market because of safety concerns; animal drugs not approved for human use; drugs with dangerous interactions; drugs improperly packaged in sandwich bags and tissue paper; and controlled substances. In another case involving a Web site purporting to ship FDA-approved drugs from Canada, a patient received an unapproved seizure medicine manufactured in India. In another case involving a U.S. storefront operation, the Web site shipped unrefrigerated insulin, which can degrade without changing its appearance and thereby put insulin-dependent diabetic patients at risk. Other examples abound, including deaths from overdoses of drugs obtained from foreign Internet sites, as documented in a recent press report of a year-long investigation into illegal drug importation, counterfeiting, and distribution. Another recent study also concludes that drug importation increases the risk of terrorism against the United States. Huge volumes of packages, only a miniscule fraction of which can be inspected, present an inviting target for the deliberate introduction of contaminants and poisons. Last year, in the Public Health Security and Bioterrorism Preparedness and Response Act, Congress gave the FDA substantial new powers to protect the safety of the food supply against terrorist threats. FDA has been implementing this law through new rules requiring advance notice of food importations and similar measures. Imported drugs present comparable threats, yet there is neither an analogous set of prior-notice requirements nor adequate inspection resources to enforce existing legal standards. Proponents of loosening the existing standards for drug importation have argued that we can rely on the Canadian drug regulatory system to ensure the safety of drugs exported from that country to the United States. This is simply wrong. Section 37 of the Canadian Food and Drug Act provides that it does not apply to exports. In a recent letter, the Canadian government made clear that it ``has never stated that it would be responsible for the safety and quality of prescription drugs exported from Canada into the United States.'' Health Canada also has described its concerns with cross-border Internet pharmacy sales as relating to the health of Canadians themselves as it should be. While we have no doubt that the Canadian system works for Canadians, FDA Commissioner McClellan has made clear that purchases of drugs by Americans from Canada present entirely different concerns: Buying between the U.S. and Canadian systems is not the same thing as buying within each system. The U.S. and Canada do not have integrated systems for taking timely action to protect consumers in the event of a safety problem involving an illegally imported drug in the U.S. Protections to assure the appropriateness of a prescription, such as requirements for physician contact and monitoring, may differ. And each country has only limited resources to devote to their existing systems for assuring drug safety for their own populations, let alone to assuring the safety of an expanded scope and volume of drug imports. For example, Ontario, Canada's largest province . . . , has exactly one investigator tasked with policing all pharmacy operations there. . . In addition, as also documented by the FDA many drugs purporting to come from Canada actually were manufactured in Third World countries and either transshipped through Canada or shipped directly from those countries to the United States, in either case without any oversight from Canadian health officials. Such transshipment is becoming increasingly common, with Canadian sites now obtaining their products from countries such as Bulgaria, Argentina, and Pakistan for sale into the United States. Importation supporters also have suggested that anticounterfeiting technologies can be used to assure the safety of imported drugs. This, too, is a false promise. Optical anticounterfeiting measures are used in our paper currency, yet they have proven inadequate. Even the new $20 bill, which incorporates multiple anticounterfeiting measures, is being counterfeited less than a month after its introduction. Counterfeit drugs, of course, present far greater concerns. The FDA is exploring anticounterfeiting technologies for drugs but, as Commissioner McClellan has made clear, ``there isn't any magic bullet available today,'' and these technologies are ``no substitute for a comprehensive, multi-part system for assuring the safety of the actual drug product.'' Moreover, even the ineffective anticounterfeiting technologies that are available would be very expensive, raising drug costs by an estimated $2 billion in the first year alone. Finally, the question of legal liability for adulterated or counterfeit drugs remains unresolved. American companies should not be held legally responsible for drugs they did not manufacture, or that were adulterated after leaving their control or that they manufactured to comply with foreign country requirements rather than for sale in the United States. The U.S. Government should not be held legally responsible for drugs that it did not actually test and approve, or that were adulterated after the approval process was complete and the drugs were no longer subject to FDA oversight. In short, drug importation presents a wide range of serious safety concerns. We cannot meet these challenges merely by writing prohibitions into the law. The law already requires that drugs be FDA- approved, yet it is abundantly clear that unapproved and other violative products are streaming across our borders every day. Changes in the law to relax the current prohibitions on importation will only increase this cross-border traffic and, in the absence of new legal protections and new resources to effectively to enforce them, increase the threat to the American public. The United States has every right under our international agreements to enforce legitimate regulatory requirements relating to the health and safety of our citizens. There is no question that the drug importation provisions of the Federal Food, Drug, and Cosmetic Act meet this standard. Canada and other foreign countries impose price controls on pharmaceuticals as part of their high-tax social welfare systems. No reasonable concept of free trade requires that our country open its borders to drugs whose prices are kept artificially low under these systems. In fact, a leading scholar and supporter of free trade rights, Professor Richard Epstein of the University of Chicago Law School, has described drug importation as ``a perversion of the basic principle of free trade.'' Pharmaceutical price controls are a trade issue that must be urgently addressed by our government so that foreign countries and their citizens bear a fair share of research and development costs for new medicines. Price and access controls imposed by foreign countries constitute trade barriers within the meaning of our existing trade laws, and we urge the administration to use the full extent of its authority in bilateral and multilateral negotiations to remove these barriers for the benefit of all Americans. In fact, the legislation we consider today requires the U.S. Trade Representative to develop a strategy for negotiating the elimination of price controls and requires timely Congressional briefings on the subject. Drug coverage, particularly for Medicare beneficiaries as established by this bill, is the most important step we can take to ensure access. For those without coverage, drug importation imposes only great risks and offers little or nothing in the way of savings. There is no evidence to suggest that drug importation actually will save money for American consumers. As the FDA has stated, ``it is likely that the intended cost-savings for consumers would be absorbed by fees charged by exporters, pharmacists, wholesalers, and testing labs.'' This is confirmed by the European experience with parallel importation, which demonstrates that the only real beneficiaries are middlemen in the distribution chain, not the ultimate consumers. Recent experience in Canada also makes clear that Canadians will act to protect the integrity and availability of drug supplies for their own citizens if these are threatened by importation, which will lead to higher prices for imported drugs--as well as increased transshipment from third-world drug supply sources, as discussed above. In any event, claims of enormous cross-border price differentials are widely exaggerated because they do not reflect intelligent comparative shopping or appropriate adjustments for currency and standard-of-living differences. Surveys of legitimate American pharmacy Internet sites and retailers show that substantial discounts can be obtained right here in the United States, with full confidence in product safety, quality, and integrity. The myriad of questions and concerns we have raised here explain why, rather than allow importation of drugs, this legislation calls for a comprehensive study of the risks and benefits of importing drugs and of how trade negotiations can be used to begin bringing down price controls, so that Americans and everyone else in the developed world share fairly in the costs of drug research and development.

Mr. KYL

Mr. KYL. Mr. President, we are now on this historic piece of legislation. I want to begin a discussion of that shortly. But since the majority leader discussed the subject of asbestos legislation, and the chairman of the Judiciary Committee, who has been largely responsible for moving that legislation as far as it has come to date, is here and wishes to make a couple of comments, I would like to yield a couple of minutes to the distinguished Senator from Utah and then regain the floor to discuss the Medicare bill.

Mr. KYL. Mr. President, this is a historic day. Obviously, when one goes back to 1965 and thinks about the creation of Medicare, a lot has changed since then. We are here today to begin debating in the Senate a bill which passed early this morning in the House of Representatives, has long been advocated by President Bush, and which many people have worked on for a very long time, to try to modernize our Medicare system which, after 35 years, we recognize in this new 21st century needs to be changed to some extent. For example, during that period of time, prescription drugs have become a major component--indeed, in many cases the first component--of treatment for ailments, disease, and afflictions of people. Mr. President, 35 years ago prescription drugs were used to alleviate symptoms of pain and occasionally to treat conditions, but more intrusive methods were the order of the day at that time. The Medicare program for seniors reflects the conditions then by covering hospital stays and physician benefits, but not outpatient prescription drugs. The prescription drugs which have over the last 35 years become a key, if not the key, component of medical treatment have not been a part of Medicare because they were not as key in 1965. So we know we need to add prescription drug coverage for our seniors and for those who are disabled and who qualify for Medicare. There are other changes we know, also, that would help to strengthen Medicare, to ensure that as we proceed to provide Medicare to the baby boom generation, we will be able to do so with the highest quality of care possible, at prices that both they and the American people can afford and, as I say, which really encompasses the new concepts of modern medicine in this treatment. So the question was how we would develop a system to provide prescription drugs as a component of Medicare. There were several different options, but the option that has been finally settled upon is one which I can support, and as someone who actually advocated a somewhat different approach, I would like to speak to those primarily who, like me, were not particularly pleased with the initial direction in which this legislation proceeded, to talk about why, at the end of the day, it is the best we can do under these circumstances and I think under any foreseeable circumstances of the near future, and therefore why it is important to move forward with this legislation. It is momentous, it is huge in terms of the amount of money we are talking about, a commitment over the next 10 years of $400 billion. That was the amount that Congress agreed to with the adoption of our budget and the crafting of this legislation. We resolved that this money would be set aside to provide this prescription drug benefit and make changes in Medicare to ensure the benefits of Medicare would be available to everyone in a quality way during the 21st century. Let me discuss first of all some disappointments I have with the bill because these have been discussed by others and I want them to know I am very cognizant of the concerns that have been expressed. I served on the conference committee that crafted this legislation and I spent literally hundreds of hours working with colleagues through these issues. Some of the battles we fought, I helped to prevail on, others we did not prevail on. But it is the nature of compromise between the two bodies and between the two parties, especially when the Senate is almost equally divided that no one is going to get everything they think is best. Let me first of all talk about the approach that was taken here and why in some respects I think we made some wrong turns, but how we have tried to recognize that and to ameliorate the effects of those wrong turns as much as we could. There was a sense in this country, because there are many people who could not afford all of the prescription drugs they need in their treatment, that the Medicare plan had to be modified to ensure they could have access to those drugs at a reasonable cost. That was an approach that many Members thought would best utilize the funding available, to provide the maximum amount of benefit to those who most needed it. Somewhere along the way, a major decision was made which fundamentally altered that concept. It was a decision that was strongly favored by the AARP, for example, a group which I am very pleased to say is in support of this legislation and has taken a strong role in educating America about the benefits of this legislation. That decision was to make the benefit of prescription drugs universal; that is to say, to make it available to all Medicare-eligible people, not simply to try to help those who needed the help the most. The first result of that was it significantly reduced the amount of money we could make available to those who need it the most because, obviously, if you provide a universal benefit, you are providing it to everyone who qualifies for Medicare basically equally to those who do not need the benefit, because they have more money, as well as those who do need the benefit. Once that decision was made, it reduced the amount of money we could allocate to help those who needed the help the most. I regret that. We could have structured a plan that would have more targeted the benefits where they were needed the most. In addition, we created some other problems. One of the problems is, employers who provide prescription drug retiree benefits will have less incentive to do that in the future because the Government will do so if they do not. Many will argue, why should we spend our money, our corporate funds, to support the prescription drug retiree benefits that we have done in the past when, if we stop that coverage, the Government will pick it up? The result of that was we had to allocate over $70 billion of this money to be paid to these business plans, union plans, and even government plans, that provided retiree health care benefits with drug coverage. We had to provide that money to them to enable them to continue providing the coverage. Some call it a subsidy. It is a fair term, I suppose. But one might say we are paying them three fourths of what it would cost the Government, to provide this particular benefit. So from the Government's point of view, we are saving money because if these company plans did not continue the coverage, the Government would have to pick up 100 percent of the cost. Nevertheless, it took a chunk of the money out of the program to pay for benefits that are already being paid for by somebody else, thus further reducing the amount of money we could allocate to those that need the care the most. So those are just two examples of problems created by this initial decision. The original idea of many Members was that we should provide more choices to seniors. Many Members came to that conclusion because Federal Government employees such as Members of Congress have a lot more choices in our drug coverage. We are entitled to enroll in something called the Federal Employees Health Benefits Program, or FEHBP, and we have a lot of health insurance options. These insurance options are integrated health-care plans. They provide all of our care, from hospitals to doctors as well as prescription drugs. A lot of Federal employees, 10 million strong, like those kind of plans. Many are PPOs, preferred provider organizations, where you go to any one of the doctors on a list who has signed up with that organization, or you can even go out-of-network, you can go to a different doctor, and that is still OK. This was the concept the President originally announced and it is a concept I strongly supported because it would maximize choices. At the same time, we recognize that a lot of people would still want to maintain what they currently have, what we call traditional fee-for- service Medicare, and simply add a drug benefit on top of that. We did not want to take that choice away. So the concept was to have basically two choices: Stay in traditional Medicare with the new drug benefit, or sign up with one of these new insurance programs, a PPO or what we call today Medicare+Choice, which is predominantly HMOs. That choice has been created in this legislation. The choice is a good choice. I regret, however, that I don't think we have given the health insurance option a good enough chance to attract very many beneficiaries. There are efforts in the bill to do that, but I think we put too many restrictions on the PPOs, in particular, to expect they will be very successful. For one thing, we strongly regulate how much they can be paid. As a matter of fact, their payment rates are directly tied to what we pay in regular fee-for-service Medicare. That is price control. Congress and the administration set the prices that can be paid under the traditional Medicare Program. We were trying to get away from that heavy price control with this new insurance option. Unfortunately, in an effort to make sure we could keep the costs ratcheted down and compare those costs to what we are paying for traditional Medicare, there is a direct relationship between what we pay in traditional Medicare and what will be paid on the private health insurance side. It is not really like regular private insurance. This is very highly regulated, controlled price, controlled private insurance as the alternative to fee-for-service Medicare. I think it is less likely those PPOs are going to succeed as a result of that. Nevertheless, we at least, for the first time, have the concept of private health insurance as an option to traditional fee- for-service Medicare for all beneficiaries. Senator Nickles, in particular, and I worked strongly to increase the flexibility that the insurance option could provide so there could be literally dozens of products out there like the FEHBP for Federal employees, and people could decide what was best for them. Again, unfortunately, that flexibility has been greatly limited in this legislation, primarily because of concerns by the Congressional Budget Office that if very much flexibility were provided, the cost of the program could exceed the $400 billion. As a result, the options that are offered by these private plans will be very limited. For example, as you will hear others get into the details of the legislation, especially the drug benefit--and my colleague, the Senator from Iowa, the chairman of the Finance Committee, Mr. Grassley, is in the Chamber. I know he will go into great detail about precisely how this works. When that occurs, and you see how this benefit is going to be provided, one of the things you will see is that even though there is a very generous benefit--the Government will pay 75 percent of your drug costs up to $2,250, after a $250 deductible; so it will pay about $1,500 worth of drug benefits--at that point, then, the individual is going to be responsible for a little under $3,000 worth of drug benefits, before the catastrophic coverage of 95 percent Government- paid kicks in. Some people refer to this as a donut hole. Obviously, with $400 billion allocated to the problem, we are not going to be able the pay all of everybody's drug costs. There is not enough money in the Federal budget for us to do that. As a result, you can only cover what that amount of money will cover. Well, it is hoped that the private sector insurance option will provide different ways of ensuring against that donut hole, ensuring against that out-of-pocket expense that individuals will have to pay. But, unfortunately, that cannot be done under this legislation. The threshold can be raised, but the out-of-pocket amount still has to remain the same. As a result, there is a limitation on the insurance product that can be offered. Again, Senator Nickles and I had hoped there would be a lot more flexibility. I am hoping in the future we can loosen this up so these health insurance options can act like regular insurance options. Another point: If you go to an insurance company today, a preferred provider organization, and you would like to get treatment from a different doctor who is not in their network, you can go to that different doctor. The plan will only pay an agreed-upon amount, and then you are billed for the difference between that and the physician's reasonable and customary fee. That is standard practice today. That cannot be done under the way this legislation is written. That has to be fixed as well. Right now there is a price cap on that, and, therefore, it will discourage people from going out of the network, which will discourage people from signing up with PPOs in the first place. These issues will have to be addressed later because we did not give sufficient flexibility to the insurance company alternative in this current bill. Again, I am speaking primarily to those who, like me, approach this with the idea that we could provide coverage similar to FEHBP coverage that the President originally articulated as the goal, and as someone who did not win all of the battles in this negotiation, but who still believes that at the end of the day, this is the best we are going to do, either now or any time in the future, that I can predict, given the politics, given the closeness of the Democrat- Republican split in the Senate and in the House of Representatives and the various other factors that influenced the decisions that we made. Let me talk a little bit more about the drug benefit. Seniors today buy Medigap insurance, and that provides them a certain degree of drug coverage. It is regulated by the Government, but I think a lot of seniors believe they have pretty good drug coverage because of the Medigap insurance they have. The reality is, they are paying a lot of money for not that great of coverage. They pay almost as much money in premiums as the amount of coverage they receive. So it is not completely dollar for dollar, but it is not the kind of insurance that ordinarily we would think of. As a result, the drug benefit that we provide here will be more substantial for the amount of money that is paid. But I do fear a lot of people will see the drug benefit we provide here as less than they are able to obtain today through their Medigap insurance, and it is going to be incumbent upon all of us to explain to people how this drug benefit will work. Again, it calls for us to try to loosen up the way the private insurance market can provide the drug coverage to meet seniors' objectives, not all of which are precisely the same. Therefore, in order to convince them there are good alternatives to what they have today, since they are not going to be able to purchase the new drug benefit through the means of Medigap insurance anymore--that will be done through a different mechanism--it is going to be important for us, I think, to provide them the maximum type of flexibility and choices, something, again, that we are going to have to address in the future because it is too restricted in the bill as we have it written today. There are other items--and I do not want to dwell on the negative-- but just to cite two or three others to show areas in which we could have done better. Today, we reimburse physicians and hospitals in a very irrational way. It is very tightly controlled. It is price controls. We never get it right. We tend to want to save costs, so we do not reimburse them enough, and then hospitals begin to shut down, doctors begin to get out of Medicare, and we realize we have made a horrible mistake. So then we ratchet the payments back up, and it is a very herky, jerky way of reimbursing the very people we rely upon to provide the critical health care that we want. As a result, we have tried to figure out ways to make this more rational. Well, the best example is in the case of oncologists, doctors who provide us drugs to treat cancer. The oncologists are not reimbursed at anywhere near what it costs them to provide this service for us. As a result, what they have to do is to buy the drugs for the chemo part of chemotherapy, and they mark up the value of those drugs, sell them to the patient, and that is how they get reimbursed for what they do. Of course, people have said: Well, it is a huge markup. They are making a lot of money off these drugs. And it is true that there is a huge markup. It is not a rational way of reimbursing them. So what we tried to do was to go back and fix the basic formula, called the practice expense formula, to figure out how much it really costs those doctors to stay in business to provide this all-critical care for cancer patients, and we begin to re-adjust that formula so it will pay them more, and, at the same time reducing the markup they get on the drugs so they would not have to be paid out of that pot of money, in effect. Well, we got about halfway there, but we still have more work to do on that particular formula. So it is just an example of how the Medicare system served seniors well, but there are clearly things in it that need to be fixed if we are going to continue to provide high- quality care and to ensure that we have physicians and hospitals that can stay in business to take care of us. Cardiothoracic surgeons are another group. The very best of these surgeons go into the operating room with their own team. This is life and death. They have teams that work together for years. They have had a lot of experience in doing what they do. But they do not get reimbursed for their team members, their nurses, and so on. What they have to do is pay for that out of their own pocket. You can obviously see, at a certain point, they are not going to be able to provide the high-quality care. What they have to do is basically go into the hospital and take whoever the hospital has at that time. They do not work together as a team, and they provide about half as many people as some of these surgeons need in order to provide the highest quality cardiac care. Here is another area in which we could have provided at least a demonstration project or two to figure out how best to reimburse these cardiothoracic surgeons. We failed to do so in this legislation. We need to do that in the future. Cost containment was another matter. We wanted, given the fact this legislation could explode in cost, to have something in this bill that would ensure that the costs would be controlled. There is a section in here that purports to do that, but it is largely illusory. It basically says, at a certain point in time we have to get together and make some recommendations. The President has to send some recommendations down to us. We do not have to act on them, of course. And it is really very hard to change the rules of the Senate to force us to act on something like this. So I just want to let my conservative friends know that, no, there is not good cost containment in this legislation. But I would also ask them to think about one other thing; and that is, there is no free lunch. If you want high-quality health care, you are going to have to be willing to pay something for it. I think sometimes conservatives look at one side of that ledger but not the other. We have to do everything we can to ensure that taxpayers can afford this expense. But we also do not want to be penny-wise and pound-foolish when it comes to providing quality health care for our seniors and for others who are on Medicare. Indeed, for those who say we are going to control the costs in this legislation, I would say that the means of doing so that are in the bill are primarily price controls by the Government, which have been demonstrated not to work very well, and I think we can expect that the younger generation is going to bear the full brunt of this expense. It is a $400 billion expense over 10 years. It is not taken out of any kind of payroll tax or other kind of payment by the beneficiary for that segment of what we are providing. It is going to be paid for out of the pockets of people who are working to earn a living and pay for their kids' education. We have to stop and evaluate whether, with a lot of seniors who are well enough off to afford drug coverage, it is fair to ask their kids, who are struggling at this point to make a living, to bear more of the burden. There is well over $100 billion of this, probably about $150 billion, in premiums and copays and deductibles that will go toward the benefit we are providing here that is worth $400 billion. But let us not forget that the $400 billion money is being paid by taxpayers. So cost containment is important, and it will boil down to the discipline that we in the House and Senate and the President can exercise in keeping the right balance between cost containment and providing high-quality care. I have stressed the negatives to try to establish a point. I didn't get my way negotiating this legislation despite hundreds of hours of work in the conference committee. Nobody got 100 percent of what they wanted. For those conservatives who are disappointed because of the kind of things I have been talking about here or the lack thereof that shows we really missed a historic opportunity to make the bill better, I would like now to address why I think, nevertheless, they should support the legislation. It boils down to the fact that it is extraordinarily difficult with something this big and this complicated and important to so many people, with every Senator and every Representative having a very big stake in trying to get it right, to reach the kind of compromise that is going to make any particular group happy. I note there was a scathing op-ed piece against one of the Democratic Members who was substantially involved in these negotiations, criticizing him for not representing his point of view well. I can't tell you how wrong the writer of that piece was. From my perspective, that distinguished Senator got far more than I did out of this. He won more of the battles than I did. I think one should be a little bit careful about simply putting the ideology out there and saying, because one side didn't get everything it wanted, therefore it is a bad bill. The reality is that under the circumstances we face today, I think it would be impossible to put together a bill that would provide drug benefits for our seniors that would do it any better than what we have done here. Why do I say that? Some people say, let's let this bill fail and we will come back and simply provide a drug benefit to those who need it the most. I think we have gone too far for that. Groups such as AARP are not going to support that. Their support is very important for a program such as this. I don't think a lot of Senators would support that. So even though that might have been how I would have liked to have started this process, I don't think that is going to pass. Do we let 2 or 3 more years elapse without providing a drug benefit? I don't think that is an alternative. So I would challenge anybody who says this bill isn't perfect to demonstrate to me how they could cobble together a majority to provide an important drug benefit and still achieve all of the objectives they want to achieve and get it passed. We do need to include prescription drugs in Medicare. They haven't been included, and we all know this is the preferred method for treatment by most physicians for many illnesses and diseases today. We also need to ensure that those who don't have coverage can get it. The options we provide in this bill at least get us part way down that road. Importantly, we will be reducing the costs of prescription drugs both to third party payers, whether it be the Government or the employers, as well as the seniors for the part they have to pay. How is this done? There are a variety of mechanisms in the bill. One of them is the fact that the Government and the private plans will be buying in bulk. Everybody can understand that concept. You can buy for a lower cost if you buy in bulk. Another is that there are a lot of incentives to use fewer drugs, to use generic drugs, drugs that are based on a formulary that more specifically fits the particular patient's need, and not to have a lot of extra drugs sitting around in the drug cabinet. Almost all of us have extra drugs sitting around, which is probably not a very healthy thing. It is a costly thing as well. There are a lot of incentives built in this legislation that should permit us to reduce the cost of drugs both for the third party payers as well as for the seniors themselves for the portion they are going to have to take care of. Another important thing in this legislation is that we at least go a little way toward rationalizing the system of paying the doctors and the hospitals and other health care providers that have not been adequately reimbursed. There were large cuts in store for hospitals and doctors. Those cuts are no longer in place. In fact, there are very modest increases for physicians and hospitals: A 1.5 percent increase for the physicians, instead of the 4.5 percent cut that was going to take place starting January 1 if we did not act. At least there is modest support for those that we really count on when the chips are down to take care of us. As I said, if we defeat this bill now, I don't see how we can come back and provide these things, how we can get consensus to do it anytime in the near future. Another important item is the health savings accounts provision. Many of us have believed for a long time this could really provide a long- term way for people to build up the savings they can apply toward health care for insurance and out-of-pocket expenses so that they won't need to rely as much on Medicare when they get to be eligible for Medicare. We know one of the reasons we have high-priced drugs is that Americans have to bear almost the full burden of the cost of production of drugs since other countries, such as our friends to the south and north, have price controls on how much they can reimburse the drug companies for their prescription drugs. This is unfair trade. It puts all of the burden, a cost shift, on the American consumer. This bill provides instruction to our Trade Representative to come up with a way to deal with those other countries to get them to share more of the burden of the expense of producing these important drugs for us. We also include the affluence testing of the Medicare Part B premium for those at the very wealthy end of the spectrum; a senior who makes over $80,000 a year, for example. I think it is not too much to ask them to pay a little bit more in their Medicare premium for the coverage they receive. We index the Part B deductible so we don't have to come back every 10 years and have Congress pass a law. This will basically keep up with the cost of inflation. We also include a change for so-called 340B hospitals. These 340B hospitals are public safety net hospitals, and we enable them to purchase their inpatient drugs cheaper than they can purchase them today. I introduced legislation earlier on this subject, and I am pleased we have that provision included here. Then finally a provision that is important to those States such as the border States--Arizona, Texas, California, and others--that are required under Federal law to provide treatment to illegal immigrants because of the law called EMTALA, the Emergency Medical Treatment and Active Labor Act, that says no emergency room can turn away a patient whether that patient can pay or not. Because emergency rooms now are faced with treating illegal immigrants under this requirement and because the Federal Government has not been able to enforce the law to prevent those people from coming into the country illegally in the first instance, we believed it was important for the Federal Government to at least help these hospitals defray some of the expenses they are incurring, which in some cases are so severe, it is forcing hospitals to consider closing down and certainly shutting down emergency room care. That can't be. American citizens should not suffer because of a law that requires that we provide care to illegal immigrants. We can at least reimburse those hospitals for a portion of the cost they bear. This bill provides $250 million a year for 4 years to provide that kind of reimbursement. There are a lot of positives in the bill. There is a lot more I know the chairman of the Finance Committee will discuss in more detail. What I want to do is discuss it from the standpoint of somebody who has been critical, who has constantly said: We can do better. We are missing opportunities. We ought to do this in a way that is more flexible, that looks more like the FEHBP. I didn't win a lot of those battles, but we have an opportunity to at least implement a plan that we have a possibility of making better over time as people see the advantages of the concepts we have put in the legislation. We have the knowledge that at least in the foreseeable future, because we are adequately reimbursing those people upon whom we rely for care, that we are going to have that care provided to us in a quality way and that our seniors will not suffer because we didn't consider it important enough to provide for them the very best. Without this legislation, they will continue to pay more than they should for prescription drugs. They won't receive as much in the way of prescription drug coverage or care. And that will be a shame at a time when this country has the capability of providing that kind of care. Notwithstanding all of the concerns I have noted, the challenges we need to face in the future, we should support the legislation. I chair the Health Care Subcommittee of the Finance Committee in the Senate. I intend to have hearings next year into areas that may need improvement. I look forward to working with my colleagues to improve this historic legislation as we move forward. We owe our senior citizens no less.

Mr. KYL. Mr. President, might I suggest that during the time I am speaking, those who would like to speak in conjunction with the Senator from Nevada begin to work up a schedule. I would be happy to propound a unanimous consent request when that is concluded to reflect the agreement, at least for the next several hours, if that could be done.

Mr. KYL. I will be happy to yield to the Senator from Nevada.