Jon Kyl

Mr. KYL

Mr. KYL. Mr. President, is there an order for me to speak to the Kyl amendment at this point?

Mr. KYL. Mr. President, speaking on behalf of Senator Grassley, this is a complete substitute and therefore, obviously, will have to be opposed. It strikes all of the good work from the committee bill regarding the child credit, marriage penalty, AMT, reduction of rates for individuals and small businesses, as well as the dividend relief. We certainly appreciate the Senator's concerns about unemployment insurance and relief for the States. Obviously, we are committed to addressing the unemployment insurance issue. As everyone now knows, we have $20 billion for State aid in the bill, and therefore we will have to make a point of order. The matter is not germane to the measure now before the Senate. Therefore, I make a point of order that the pending amendment violates section 305(b)(2) of the Congressional Budget Act of 1974.

Mr. KYL. Mr. President, we added the tuition provision in the bill 2 years ago, and it is obviously supported by a broad number of people in the body. The problem is that this addition is way too expensive and comes out of the top rate reduction from the bill that is on the floor, the acceleration of the marginal income tax rate provision of the bill. Obviously, we have to oppose this particular amendment. This is a matter that could be dealt with in a different way but not by paying for it in the manner it is paid for. It is not germane. Therefore, I raise a point of order under 305(b)(2) of the Congressional Budget Act of 1974.

Mr. KYL

Mr. KYL. Mr. President, this is another amendment where we essentially voted on this concept several times, of taking money from the reduction in the tax package, in this case the top rate. Again, I would urge my colleagues to vote no.

Mr. KYL. Mr. President, again, this is another amendment which eliminates the reduction of the top income tax bracket acceleration. Therefore, I urge my colleagues to vote no.

Mr. KYL. Mr. President, this amendment will undermine our efforts to ensure that those who owe taxes will pay them. There is over $250 billion in uncollected debt. The IRS, obviously, has the primary responsibility. But over 40 States and the Department of Education use private collectors, and they must abide by the various rules that apply, including the Taxpayers' Bill of Rights and the Fair Debt Collections Act. Therefore, there is an opportunity to collect money that is owed the Treasury as a result of this provision. So striking this provision would not only be bad policy but also would, unfortunately, lose about $1 billion in revenue from the underlying bill. As a result, the reduction in revenues in excess of the levels set out in section 202 of H. Con. Res. 95, the fiscal year 2004 concurrent resolution on the budget, would raise a point of order, and I do raise a point of order under section 202 of that resolution.

Mr. KYL. Mr. President, let me speak in opposition to this amendment. There are some problems, as the distinguished Senator from North Carolina has pointed out. But this is a very big deal that affects a lot of people. It is not something we should be dealing with without the proper debate that should attend it. As a result, in addition to the fact that it is not germane, I urge my colleagues to vote against it. I make a point of order that under section 305(b)(2) of the Congressional Budget Act of 1974, the measure is not germane.

Mr. KYL. Mr. President, I suggest the absence of a quorum.

Mr. KYL. We would all like to accomplish what the distinguished Senator proposed, but under the reconciliation procedures and the balanced budget amendment we do have sunsets that we have to contend with. Whether it is 10 years or 5 years or 3 years, it is not possible to permanently adopt many of these changes we are considering. It would be nice if we could, but under our rules, obviously, we cannot. Secondly, there are times when it is important to be able to phase a program in because you cannot accomplish all of the changes within the very short period of time allotted for the first year. For example, the dividends proposal we approved earlier this evening falls into that category. While what the Senator says is laudable, as a practical matter it cannot be accomplished. I urge my colleagues to vote against his amendment.

Mr. KYL. For my colleagues, this is another amendment which takes tax cuts from the tax cut bill; therefore, I urge my colleagues to vote no.

Mr. KYL. Mr. President, I at least want to compliment the sponsors of this amendment for not having a gimmicky amendment. This is a flat out, straight assault. It simply abolishes all the tax cuts in the bill. So I do compliment my colleagues on their very straightforward approach. However, that makes the vote pretty easy. I urge my colleagues to vote this amendment down.

Mr. KYL

Mr. KYL. Mr. President, I will address this amendment for a few minutes, and then I am going to speak on the dividends proposal that will be offered tomorrow and that hopefully the Senate will approve as one of the perfecting amendments of the legislation that passed out of the Finance Committee. The first thing I would like to do is to describe the amendment that I have just laid down. I know Senator Cornyn is coming a little bit later, and he will be talking about it, too. This amendment is known as the tobacco tax lawyers amendment. The technical name is different than that, but the gist of this amendment is that about $9 billion could be returned to the States, the clients in the tobacco litigation, from the attorneys who overcharged those clients. This legislation ensures that overcharging be recognized in law so that the States can apply for that refund. How does that work? There is an existing IRS Code provision that says if one is the trustee of a trust, and they overcharge that trust, they take too much in the way of fees out of it, they have to return those fees. The IRS will enforce that. In fact, the Secretary of the Treasury is involved in that process. We simply apply that same existing IRS Code provision to this situation where attorney's fees have been charged in excess. The common thread is a fiduciary relationship, the legal term which applies where a trustee or a lawyer to a trust or to a client has a responsibility above and beyond a mere contractual responsibility. As the court cases all attest--and I will quote a couple in a moment-- whereas a contract between two regular people is enforceable in law, with respect to a trustee or a lawyer, where you have a fiduciary responsibility to the client or to the trust, that contract is not the most important thing. The most important thing is the fiduciary responsibility, which the law will enforce, above the contracted for fee. That is what would apply in this particular case. As a result of the tobacco litigation we are all familiar with, the fees are being paid to these lawyers at the rate of about $500 million a year. That exists for 30 years until the year 2028, possibly forever if the lawyers win their argument for an inflation adjustment. Some attorneys are receiving fees--if we can believe this now--in excess of $150,000 an hour. Senators make about $150,000 a year, and there are a lot of people who think Senators are overpaid. Think about instead of earning $150,000 a year, a person earned $150,000 every hour. That is what some of the attorneys in this tobacco litigation are earning. It is unconscionable, and no contract that provides for that can be enforceable in law. It is clearly a breach of the fiduciary responsibility. Congress enacted this Tax Code provision in 1996 in response to two very famous people. I will not mention their names, but they set up a trust and then proceeded, basically, to pay themselves as trustee most of the money out of the trust. Congress said: That is not right. We do not care what the contract says. It is wrong. The IRS can tax you on that overage. That is the same provision we would use. The Congress can tax you on that overage, and I will describe in a minute how we actually describe what the overage is. I will first assure my colleagues that the money that would be returned by the tobacco lawyers is not returned to the tobacco companies. They have to pay the money. They either pay it to the lawyers or they pay it to the States. The money would be returned to the States. As I said, under the original bill that Senator Cornyn and I introduced, it is about $9 billion. That is the securitized value of this income stream of over half a billion dollars every year for 30 years, and maybe in perpetuity. So $9 billion is the reduced-to-present value of this fee award. I have a chart, which I do not think I will bother to put up on the easel, which shows what every State would get. My State, for example, would receive about $164 million, and it could use that money. Since it is based purely on population, if that is what Arizona, with a little over 5 million people, received, my colleagues can figure out what their State would receive. I will go back to describe what the tobacco settlement really did because most people are not aware of what happened in the tobacco settlement. Attorney's fees were not awarded in the tobacco settlement pursuant to contract. So for those people who say we are trying to abrogate contracts, as I said, we are not talking about contracts. We are talking about a fiduciary responsibility. In any event, in the tobacco settlement, there was not a contract. Nor were they awarded by a court, which is the other way that ordinarily attorney's fees are awarded as a result of successful litigation. So it was not awarded by a contract, and it was not awarded by a court. Instead, after the tobacco companies' initial offer to settle the litigation and that offer failed and Congress rejected a legislative settlement, which some of my colleagues will recall, the tobacco companies and the lawyers agreed to a $246 billion settlement, with a special provision for attorney's fees. So this was not between the lawyers and clients. It was between the lawyers and the other party, something about which courts always raise a red flag. That provision included a very unusual agreement by the tobacco companies to pay the fees of these lawyers who represented their opponents, the States. The fees were ostensibly set by a panel of three arbitrators, and there are some very interesting articles about how this would occur that would make your blood boil. Two of the majority were effectively chosen by the lawyers. In this agreement, the tobacco companies and lawyers agreed to immunize all fee awards from judicial review. In other words, it stipulates that it cannot be reviewed by a court. And all proceedings were concealed from the public. That is what we are talking about--a secret deal by which the tobacco companies agreed, as part of how much money they had to pay out, that they would pay these substantial fees to the lawyers. It does not take too much imagination to figure out that it was in the best interests of two parties that this arrangement exist--the lawyers and the tobacco companies. They got together and they concocted a secret deal which was never reviewed by a court, is not pursuant to a contract, and which, by the precedence of this Congress, can be limited. Now, the amendment we have proposed guarantees that none of these lawyers receives less than $20,000 an hour for their services. Is that generous enough? None of them will get less than $20,000 an hour. How much is a plumber charging these days? A hundred dollars an hour? I am not sure what it is. How much does a schoolteacher get these days? Probably not $100 an hour when you add it all up. These lawyers would be guaranteed $20,000 for every hour they put in. Some claim to have put in 10,000 hours, 20,000 hours, 30,000 hours. Add it up. They will not have to sell their yachts. As I said, there are a lot of descriptions of this, and I will put some of this in the Record at the appropriate time. I wanted to note, if anyone thinks I misspeak, in one of the articles it is noted that in the case of Michigan, for example--I will be very specific--the fee worked out to $22,500 an hour for this particular firm. These lawyers would therefore have to take a little bit of a cut. Instead of getting $22,500 an hour, they only get $20,000 an hour. Now, The Economist, a respected magazine published in Great Britain, notes that tobacco settlement ``arbitration is a mere figleaf. The money going to the lawyers was clearly part of the overall amount that the tobacco companies were willing to pay to settle the case. Whatever the lawyers get, the States do not.'' That is the bottom line. So the money has to be returned to the clients, the States, not the tobacco companies. As I said, the proposal is based on the intermediate sanction tax, an existing provision of the Tax Code that applies a punitive tax to the excessive portion of a fiduciary's fee and effectively forces the fiduciary to restore the excessive portion of the fee to the client. Our amendment applies the same tax formula to the excessive attorney's fees in the mega-lawsuits. The suit would have to be $100 million or this provision would not apply. We are talking about a very minute number of lawsuits per year; probably 15 to 20 litigations a year, at most, according to experts, would qualify. You have to exceed $100 million as part of the settlement or judgment. Let me note, because one of my colleagues said you have to have contingent fees in the big complicated cases, that is very true, lawyers will take tough cases on a contingent fee. In the early stages of this litigation, it was tough litigation, that is true. So sometimes lawyers will take a third, sometimes even 40 percent. I have seen fees as high as 50 percent of the settlements. What have experts and courts said about that? Courts have made clear that fee agreements based primarily on the size of the recovery tend to become unreasonable when judgments reach the $100 million mark, which is the mark we use here. As one court stated: In much smaller cases, a fee award of 33 percent does not present the danger of providing the plaintiff counsel with the windfall that would accompany a mega fund settlement of $100 million or upwards, but it is quite different when the figure hits the really big time. Whereas the Third Circuit Court notes: Courts have generally decreased the percentage awarded for attorney fees as the amount recovered increases and $100 million seems to be the informal marker of a very large settlement. It is one of the reasons we chose the $100 million mark. The logic of avoiding judgment-based awards in the very largest lawsuits is straightforward: It is not 150 times more difficult to prepare, try, and settle a $150 million case than it is to try a $1 million case, but the application of a percentage comparable to that in a smaller case may yield an award 150 times greater. Another said: There is considerable merit to disallowing standard percentage awards as the size of the recovery fund increases. In many cases the increase in the recovery is merely a factor in the size of the class and has no direct relationship to the efforts of counsel. That certainly was the case in the tobacco litigation. Before the trial lawyers or some of their allies say this is a Republican lawyer-bashing amendment, I say two things. First, I am a lawyer. I am not trying to bash any lawyers. A guaranteed fee of $20,000 an hour would be considered extraordinarily generous by the standards of most of my colleagues. Second, the fee formula used in this situation allows attorneys to receive up to 500 percent of what courts usually determine as reasonable hourly rates but not less than $20,000 an hour. So you take what a court determines as a reasonable rate, add 500 percent--no one can contend that is unfair--and that is the standard used in this typical type of case. Before you say this is Republican lawyer bashing, this came from probably the most liberal court in the country, the Florida Supreme Court, which in a specific case tried to determine what would be a fair fee in a situation like this. What it said was that the maximum multiplier that it thought was appropriate was this multiplier of 5, or 500 percent. Here is what the court said: We set the maximum multiplier available in this common-fund category of cases at 5. . . . [A] multiplier which increases fees to five times the accepted hourly rate is sufficient to alleviate the contingency risk factor involved and attract high level counsel to common fund cases while producing a fee that remains within the bounds of reasonableness. We emphasize that 5 percent is a maximum multiplier. I take this as the most liberal of standards, the reasonable attorney's fees, plus 500 percent, and then say, but we will guarantee you that you do not get anything less than $20,000 an hour if it turns out not to satisfy that. I challenge any of my colleagues, if you vote against this amendment, you are going to have to justify paying lawyers $20,000 an hour rather than returning that money to the States. The original of the bill Senator Cornyn and I filed has this provision effectively from June of last year. To avoid any question that it is retroactive, we made it effective on the effective day of the act, so it is only prospective. There is one more thing I want to summarize. This act does not alter the considered fee award standards of any jurisdiction in the country. Rather, it is intended to enforce those standards and to correct the occasional extreme outlier. What we are doing is enforcing the court- imposed law relating to fiduciary responsibilities. Let me quote a couple of these courts. This is from the Illinois Supreme Court: A fiduciary relationship exists as a matter of law between attorney and client. The New Jersey Supreme Court: An attorney's freedom to contract with a client is subject to the constraints of ethical considerations. The Massachusetts Appeals Court: While freedom of contract is the guiding principle underlying contract law, contractual freedom is muted in the lawyer-client and lawyer-lawyer context. That comes from a law professor, Joseph Perillo. Here is another court: [A]n attorney is only entitled to fees which are fair and just and which adequately compensate him for his services. This is true no matter what fee is specified in the contract, because an attorney, as a fiduciary, cannot bind his client to pay a greater compensation for his services than the attorney would have the right to demand if no contract had been made. Therefore, as a matter of public policy, reasonableness is an implied term in every contract for attorney's fees. As I noted before, in this case, in the tobacco litigation, you don't have a contract between the client and the attorney. The contract is between the attorney and the opposing parties, the tobacco companies, which make it even more suspect. Again, as I said, this does not change the substantive law. It simply enforces preexisting fiduciary standards that bind every attorney in every State. I urge my colleagues when we vote on this amendment tomorrow to just consider the alternative. These lawyers are all going to get a ton of money, hundreds of millions of dollars, guaranteed $20,000 per hour that they work. Most of them worked, they claim, thousands of hours on this case. But we are able to return somewhere, depending upon how the payment for this amendment is done, between $6.5 billion and $9 billion to the States. The States could use this money at this time. The tobacco companies have to pay the money one way or the other. After compensating lawyers on the basis of a reasonable attorney fee plus 500 percent, but at a minimum at least $20,000 an hour, the remainder would be returned to the States. I submit this is a responsible thing for us to do. The final comments I would like to make relate to the amendment that will be offered tomorrow relating to the dividend section of this bill. The proposal is to join the President in finally bringing to an end the pernicious practice of taxing dividends in this country twice, which puts us at a competitive disadvantage with our trading partners, which is unfair in anybody's book, which drives corporations to fund their investment by debt rather than equity investment, which reduces the transparency of corporations because they do not have to account to shareholders, and which diminishes the value of stock because the shareholders are going to have to pay a tax on the dividends even after the corporation has already done so. Those are the reasons President Bush understood that this double taxation of dividends had to be addressed in this tax bill. The beauty of his proposal is that when combined with two of the other provisions of the act, the acceleration of the write-off for small business and, most important, the acceleration of the reductions in the marginal income tax rates, we will produce in this country 1.4 million jobs next year, and we could produce half a million jobs this year. The proposal that is going to be offered tomorrow is ingenious in that it puts the bulk of this relief right up front where it will do good for the economy right now; and, second, it sends an unmistakable message to the stock market that we mean business about reducing the tax to zero. What the proposal does is, for this current tax year, before we could put this all in effect, it gives all of the dividend holders a 50- percent deduction on their dividends. So for this tax year we are in right now they can write off half of what they would otherwise have to pay, and starting next year, 2004, and going into 2005 and 2006, in other words for 3 straight years, the tax rate for them goes to zero on these dividends. It is repealed. It is gone. I challenge anybody at the end of that period of time to suggest at that point we try to reinstate the double taxation of dividends. It is not going to happen. So the message to the stock market, when the vote occurs tomorrow and you have seen that the Senate is willing to follow the President and repeal the double taxation of dividends, the message is that you can finally begin to see the light at the end of the tunnel with respect to the recovery. What do economists tell us? One economist, a very prominent economist, told us at a dinner the other night that he could expect to see at least a 20-percent increase in the value of stock as a result of this. The average of the economists we have talked to is closer to 10 percent. But take 10 percent. I think we would all like to see a return of that much value in our stock portfolio. This exists whether or not we are holding stock that issues dividends because of the general value of the market, or increased value of the market that would result from this. Obviously, those taxpayers who receive dividends from their corporate holdings would receive a direct benefit in the reduction of their liability for taxes, in addition to the increase in the value of their stock. Obviously, this is going to be very good tax policy. It puts us in a better competitive position. Do you know that the United States has the second worst tax rate on dividends in the entire world of economically developed countries? Only Japan has a slightly higher rate. And every other country in the economically developed world has a lower tax rate on dividends than we do. No wonder we are having a problem right now. But another point I would like to make with regard to this whole issue is that dividends obviously work in two good ways. By putting money back in taxpayers' pockets, they can do with those dividends whatever they like. The distinguished Senator from Florida who was speaking a moment ago talked about the need for consumers to have more money in their pockets. This is a way for consumers, and specifically senior citizens, to get more money in their pockets. There are about 10 million seniors who would receive relief under this proposal, just under $1,000 a year in terms of the average value they would receive. This is money in their pocket. This is money with which they can do one of two things: They can either spend it or they can invest it. In either case they are helping the economy. For those who think we need to have people who can spend more, they can spend more. For those who think we need more investment, obviously some seniors invest some part of their income. I would like to make a point in response to the Senator from Florida because he referred to my beloved home State of Arizona and showed a photograph of some airplanes sitting out on a tarmac, airplanes that were mothballed. If you come out to Tucson, AZ, you will see a very interesting sight. There are literally hundreds if not thousands of these airplanes. Most of them are military, but there are some commercial airplanes as well. The point he was trying to make was this is a consumer-driven recession and therefore we need to put money in the pockets of consumers. The two big things we do here is accelerate the marginal income tax rate--that puts money in the pockets of consumers--and don't double tax dividends so the people who invest in stocks have that money to spend. Even for those who believe this is a consumer-driven recession, which it is not, what the President has proposed, and what we will be voting on tomorrow, helps put money in the pockets of consumers. But there is a fundamental misunderstanding, if you look at airplanes and say, therefore, because people are not flying as much, this is a consumer-driven recession. There are two problems: First, regarding 9/ 11, the airline industry is almost unique among the businesses in this country. The airline industry and associated industries went into a nose dive that they still haven't recovered from because the traveling public has not traveled as much after 9/11. But the airlines will tell you a second factor has contributed to their bad financial situation. In addition to the fact that some people do not travel as much as a result of 9/11, and we have increased security costs placed upon them, the biggest single factor, they will tell you, is they have lost the business traveling public. The business travelers who buy the first class or business class tickets and fly a lot are not flying as much. Why? Because the corporations are trying to save money. Why? Because they can't get enough money to invest in their businesses. Why? Because there is a capital asset deficit. This recession, the first of the 21st century, is the first nonconsumer recession. It is a capital asset deficit recession. It is a recession that understands that investment income is what is lacking. Over the last 2 or 3 years, we have seen, by the count of some economists, almost $10 trillion sucked out of the stock values of this country. Something has to be done to put back that value. The way you put it back is by creating more investment opportunities. Most of the economists we have talked to said the single best thing you can do to add to that investment opportunity is to repeal this double taxation of dividends. My colleague, Senator Voinovich from Ohio, quoted Alan Greenspan a while ago, who said if you are going to do something like this, get rid of the double taxation of dividends. That will help spur investment. He also said to Congress, stop spending so much money. This chart on my left demonstrates the situation here. Last year, consumer spending didn't go down. Those of you who have refinanced your home or tried to buy a car at 0 percent interest know people are still buying. Consumer spending went up 3.4 percent last year, and it was up the year before as well. This green line shows consumer spending continues to go up. From 1999 to 2002, you can see that consumer spending is increasing. It hasn't fallen off. What has fallen off? The gross private investment is what has fallen off--the investment in our businesses in the United States. After reaching the peak just after the year 2000, we all know what happened. We read the paper and see what is happening to the stock market. You can see investment in the market has plummeted, and it hasn't come back very much. It will come back if we give people the means to invest and the incentive to invest because they are not going to have their profits from their investment in corporations taxed after the corporation has already paid the tax. This is clearly a capital asset problem and not a consumer spending problem, as has been alleged by so many of those on the other side of the aisle. Finally, I want to say this: My colleague from Florida said, ``The President's handling of the economy''--the end of the quote, but the gist is the President's handling of the economy is why we are in the bad economic situation. Under current circumstances, would that the President could handle the economy. But as all economists know, fortunately 250-plus million people drive the economy in this free market country of ours. They make millions of decisions every day. The President doesn't run the economy in the United States of America. He has very little that he can do to change the economic situation in the country except try to lead by persuasion. He is trying very hard to do that. The other thing he can do is to propose to the Congress that we try to do things he thinks will help the economy and he has done that. But my colleague who spoke these words a moment ago wants to deny him the ability to put his plan in effect. On the one hand, they complain he is not doing anything to handle the economy, and on the other hand, they are going to disagree with whatever he proposes to do. Of course, we know the truth. He doesn't handle the economy. But he has some influence over the direction we go by getting his best advisers together and trying to figure out how we can create the most jobs and produce economic recovery. He has done that. Most of the Republicans in this body have agreed his proposal is the best way for us to create jobs. Therefore, tomorrow what will be offered is very close to what he proposed. With this dividend, this elimination of the double taxation of dividends, we will be able to go a long way toward giving the President the plan he has asked for--not so that he can handle the economy, but so we as leaders can help lead the country toward at least some degree of recovery in this year of 2003. As I said before, some people say the President's reelection depends on whether the economy is strong or not. I don't think he would be proposing something which he thinks won't work. He is proposing something which he believes will work, and we believe it will work. That is why I hope my colleagues will support the proposal that will be offered tomorrow in support of the President's program to eliminate the double taxation of dividends.

Mr. KYL. I ask unanimous consent that this amendment be designated the Kyl-Cornyn amendment and that Senators Alexander and Ensign be listed as original cosponsors.

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

Mr. KYL. Mr. President, I send amendment No. 575 to the desk and ask for its immediate consideration.

Mr. KYL. I ask unanimous consent that the pending business be set aside for the purpose of offering an amendment.

Mr. KYL

Mr. KYL. Mr. President, this will be the beginning of the debate on the legislation the Senate will be considering this week on an economic growth and jobs package. The legislation that came out of the Senate Finance Committee will be debated, as will other proposals and amendments. That will all be laid down a little bit later, but actually we will begin the conversation right now. I will begin by noting something rather political, and that is that over the weekend talk shows I noticed a lot of pundits talking about what was good for the economy and what was good for the President. It got me thinking a little bit about the difference between some of our colleagues on the Democratic side and most of us on the Republican side who support the President's proposals for economic growth and job creation. The point is this: Those pundits were saying if the economy is in pretty good shape next year, the President should have a pretty good chance of being reelected, but if the economy is not good, then it will be more difficult for the President to be reelected. That is not exactly rocket science, but it makes the point that many of us on this side have been making: The President would not propose a package for economic growth and job creation he did not think was not going to work. The whole point of his package is to help get the economy growing, to create jobs so people will be in the mood to reelect him President. Obviously he wants to do good for the country, for the people of this country, for the senior citizens, for the economy at large, for American families. If he can get reelected, that would be a good thing. My point is that the President is not proposing something he thinks is going to be bad for the economy, because that would be the worst possible thing for him to do in terms of his reelection possibilities. So it stands to reason that he really believes what he is proposing will work, and so do I. So do the majority of us. We would not be proposing this if it was not obvious to us that the best way to get the economy moving again, the best way for economic growth and job creation, is to reduce taxes in those areas of the economy which would provide the best economic growth with that tax relief. We know, for example, that one of the best ways to get reinvestment is for people to have more of their money to invest, obviously. The best way for them to have more money is not to pay so much to Uncle Sam in taxes. That is what tax relief is all about. Two years ago, we passed the tax relief President Bush suggested, but we phased it in over time. What the President is now proposing is, let's accelerate those tax reductions, those marginal rate income tax reductions, so they take effect immediately. If, as the President said, it is a good idea to do it in 2 years, it is an even better idea to do it now when we need that money in our pockets to invest so our businesses can create jobs and help with economic growth. The first point of the President's plan is to take those tax breaks on the income tax marginal rates for each of the brackets we were reducing, and reduce them this year rather than waiting 2 years from now. It makes great economic sense. It will help families, it will help small businesses, and it will enable those businesses to take that money that is being saved and invest it in new jobs and in new business. The second feature of the President's plan is to eliminate something very unfair in the current Tax Code. As a matter of fact, the United States is second only to Japan in having the worst possible tax policy on corporate dividends. Only one country in the world taxes dividends more than the United States: Japan. Every other country in the world that has developed economies has a much lower tax rate on dividends. So we have put ourselves at a competitive disadvantage with all of these other countries in the world. The reason we have such a disadvantage is because we do not just have one tax on corporate dividends; we repeat the tax. We tax the corporation the first time around when the income is earned, and as soon as they pay the dividends out to the shareholders, we tax it again. So it is a double taxation. No wonder our rate is so high. It is 70 percent. As I said, only one country in the world, Japan, which is having huge economic difficulties at the current time, has a worse tax rate on dividends than we do. So the President logically says, let's get rid of that double taxation. The way he chose to do it was to repeal the tax on the dividends that are earned by American citizens, investors. The corporation still pays the tax, but it is not taxed the second time around. There are many advantages to doing it that way: First, it really helps the senior citizens in this country who derive a lot of their income from this dividend income. Secondly, it really helps to spur economic growth because not only will the dividends then be used for reinvestment into business, but it also helps the stock market generally by infusing capital back into the stock market. The economists we have talked to all make the point that it is not just the corporations that choose to issue dividends that will benefit from this, and their taxpayers, but it is all of the stocks because of the general increase in the value of equities. I think we have seen that in the way the market has responded to the President's proposal. A third side benefit of this elimination of the double tax of dividends is the impact it will have on corporate governance. We all know the problem that was revealed over the course of the last couple of years about certain corporations, not corporations that were paying dividends but corporations that were putting money into the hands of their executives, in some cases in a very bad way. Fortunately, the President cracked down hard on them, as did the Congress, with the Sarbanes-Oxley legislation. The idea is to create transparency, to let the stockholders know what is going on in corporations, and to give them an incentive not to create more debt but to finance their expansion through equity; that is to say, through offering stock to the public, which the public then buys, the money then enabling the corporation to invest in expansion of the business, hiring more people, for example, rather than going to the bank to borrow the money to do that. Today, our Tax Code gives the incentive to go borrow because corporations get to deduct the interest on the money they borrow. That is the way corporations treat that when they pay the income tax. We need to give them at least an equal incentive and perhaps a greater incentive to finance their corporate expansion not through borrowing but, rather, through the issuance of stock, which then Americans can acquire. What is one way to do that? By ensuring that if they pay dividends on that stock, the purchasers of the stock are not going to have to pay a tax on the dividends they receive. It is a way of providing an incentive for the corporations to finance their expansion that way. For all of these reasons, the economists we have talked to are pretty clear that eliminating the double taxation on dividends would provide a real spurt in investment in business, would enable the businesses to expand, would create something like 500,000 jobs this year, 1.4 million jobs next year. That is real job creation. There are those on the other side who say that is impossible. There are not going to be that many jobs created. The economy is not going to get better with the President's proposal. I go back to my first point. The President has a very personal reason in mind, as well as the good of the country, when he talks about a program that will really improve the economy. He wants to be reelected. He would not be doing this if he thought it would be bad for the economy. There is a misperception by some that this recession we are in right now is a recession that should be dealt with not by allowing businesses to have more money to reinvest to create jobs; that is to say, it is not a capital deficit problem but, rather, it is a matter of consumer spending. If only we would give more money to people, they would spend it and that would make everything better, create more demand for products, they would buy more, and so on. That just does not happen to be true. Here are the statistics. Consumer spending has been going up. It went up 3.1 percent in the year 2002, 2.5 percent the year before that; disposable personal income has increased, up 4.3 percent last year. The problem is not disposable personal income; it is not consumer spending that has been going on. We know from personal experience, people have been able to refinance their homes, they have been able to buy cars at zero percent interest. There are a lot of factors we are personally aware of that confirm it is not a matter of consumer spending but, rather, a capital asset problem. Businesses cannot get the money to expand. What happened? We all know what happened in the stock market in the last several years. According to some people, $10 trillion in value in stocks has essentially disappeared, evaporated. The stocks were way up here, and now they are down here. What is the difference? It is $10 trillion in value, in assets, in money that corporations do not have anymore. They do not have that value, and therefore they cannot go to the bank and borrow. They cannot sell their stock for a good price; people are not buying. And the question is how do you get more capital assets into the business sector, which is the sector which provides the jobs. Whether it be small business or big business, it is the same; it is a capital asset deficit, not a consumer spending problem. I will emulate my good friend from North Dakota, the master of charts. He has a chart for everything. I will produce a big chart, but I will now show the small version that will make the point. The upper line is the line increasing, and that is consumer spending. It shows that from 1999, the first year up to the current time, consumer spending has continued to increase. It went up 3.1 percent last year. We do not have a demand problem, a consumer spending problem in this country; we have a capital asset problem. Here is what has happened with capital assets. Here is the big stock boom. With everyone investing in the stock markets, the corporations had a lot of value. And here is what happened to the stock. We all know what happened. A lot of that value was taken out as the market plunged. That is what this line shows. It hit the bottom and is just barely beginning to move up. This is what we have to make up. This is the area we need to improve. It is the area of providing more capital to our businesses so they can expand and create more jobs. Again, how do you do that? They basically have two ways. They can try to borrow the money--not good policy, but besides that, they do not have the leverage to do that these days because the Federal institutions are looking at them and asking: How exactly are you going to repay us? How will you do something good with this money? We are not convinced yet that the value is there that they want to lend the money at a reasonable rate. Or they can go to the public and say: Here is some more stock; would you please buy it. In the past, the public said: We are not sure we want to invest anymore in the stock market because you are not doing that well. So along comes the President's plan. He says: We will accelerate depreciation for small business, we will end the double taxation of dividends, and we will accelerate the marginal income tax relief we passed 2 years ago. Just like that, we have created an opportunity for people to take the money they have saved, put it into the stock market, put it into businesses, or put it into small businesses that are not publicly traded and create those jobs. That is the genius of the President's program. It is nothing new. The same concept has been used before in tax relief that has been provided to investors who turn around and reinvest that in the businesses that create the jobs. The problem is this recession is not like the old recessions, and that is why I understand those who are stuck in the last century in looking at this as a consumer or demand recession. This is the first 21st century recession, the first high-tech recession, and it is the first capital asset deficit recession. It is not a consumer recession. That is why it does not do any good, as the Democrat leader's plan essentially does, to just drop money out of an airplane and say: Here is money, consumers; go ahead and spend it on something. That is not the problem. That is not going to help. What we need is for those businesses to acquire capital so they can expand, create jobs, and therefore the economy can grow and we can all benefit. There are those who want to demagog the issue, and I would never accuse colleagues on the other side of the aisle of this, but I have seen folks on TV say that is giving money to the rich, to the elite. First of all, over half of the American people today are investors. Senior citizens, in particular, are very large investors, and a significant amount of the tax relief the President is proposing would go to our seniors. As a matter of fact, under the President's jobs and economic growth plan, 13 million elderly taxpayers would receive an annual tax cut of $1,384 this year. One of every two senior filers receives dividend income, and as a group seniors receive half of all the taxable dividends paid to shareholders. So elimination of the double taxation of dividends provides average relief of $991 for the more than 9 million seniors who include dividend income on their tax return in the year 2003. That is a real benefit to the seniors in our society. It is a real benefit to the American taxpayer at large. I will have more to say on this subject later. I appreciate my colleague from Wyoming allowing me to open this debate, and I look forward to hearing from my colleagues on the subject.

Mr. KYL

Mr. KYL. Mr. President, I yield back the remainder of my time on both the amendment and on the bill itself.

Mr. KYL. Mr. President, the proponents of the bill urge our colleagues to vote against the Feinstein amendment. And from our perspective, I think we are ready to have that vote. I ask Senator Feinstein if she is ready, as well?

Mr. KYL. If I could respond to the last point. The matter about which the court has some degree of discretion is in the way it weighs the affidavit presentation relative to the underlying predicate for the warrant, the activities that are being engaged in, the purchase of the ticket, the presence of box cutters, all that information. The court weighs all that. It is presented in the affidavit, and the court makes a decision. It is enough or it is not enough. To some extent, you can say that is discretion. It is really applying the evidence to the probable cause test, weighing it and determining whether the evidence meets the case. In any event, that is where the court has some leeway to decide. Where the court does not have any leeway is to something that is either a fact or it is not. That is, Does this person qualify or not? That is to say, is the person an appropriate subject for the warrant or not? If you were asserting, for example, that the individual was a member of the Baader-Meinhoff gang, there would have to be evidence in the affidavit that is clear enough for the court to reach that conclusion or the court would say, sorry, this person does not qualify for a FISA warrant. I cannot find enough evidence in here that he is a member of the Baader-Meinhoff gang or a spy for the Soviet Union. But with respect to whether this person is a non-United States person, that is something that will either be fairly true or not. It is either going to be true or not. The court is either going to be faced with a situation where the evidence is overwhelmingly clear in the affidavit and the United States attorney says it is very clear this person is not a United States citizen, here is the evidence we have, and the court will say, I agree. Or the court will say, all you have done is assert that the person is a non-United States citizen. I don't have any basis to know that or not. Where is your evidence to know that he is a non-U.S. citizen? So I am not going to grant the warrant. But that is the basis on which the court is going to make that judgment. The court is not going to say there is a provision here that says I can presume that this individual is an agent of a foreign power and therefore I can have some leeway here to decide whether or not the warrant lies against this individual. The Government is either going to assert that the person is an agent of a foreign power or not. If the Government is saying no, we don't think this person is working for some foreign power, we think he is working on his own or at least we don't have any evidence to suggest he is anything other than an international terrorist traveling all around the world training and picking up different things and so on, but he is a dangerous guy and here is the reason we believe he is dangerous, a presumption at this point doesn't get you anywhere. The court has no direction to go in. If you say there is a presumption that he is an agent of a foreign power and the Government is not trying to prove he is acting for a foreign power, what has this definition gained us? There are situations in which the Government simply isn't going to allege that the person is an agent of a foreign power; it is only going to allege that he is a lone wolf, but look at all the bad things he has done or is doing. If they are sufficient to grant a warrant, if there is probable cause there, the court can do it. If the court says it is not quite sufficient yet, get some more information, then he will deny the warrant.

Mr. KYL. There are two things the court will have to determine. First, that this is a warrant that should be issued, that there is probable cause the underlying crime is being committed or activities engaged in for the preparation of a crime. And second, it lies against a particular kind of person we are talking about. In regular title III court you do not have the second requirement, but in FISA court you have to prove the person is either an agent of a foreign power or foreign intelligence organization, and we are adding this third criteria. So the court has to make a 100 percent determination in both of those matters. If the court cannot find any evidence in the affidavit that the individual is not a United States citizen, for example, the court would have no discretion and have to deny the warrant. But if the court found part of the warrant was satisfied, this person is clearly a non- United States citizen, then, number two is satisfied; go back to number one, which is the question, Do we have probable cause to believe the person is engaging in the kind of activities that the statute discusses here. That is not necessarily a matter of discretion so much as it is a matter of a court weighing the affidavit presentation and determining whether it is sufficient to meet the probable cause standard.

Mr. KYL. If I could, the Senator from California has been talking about discretion, and I guess I begin by asking a question. Does the Senator intend the presumption language would apply both to the definition of the individual as an agent of a foreign power and relative to the activities in which the individual is allegedly engaging?

Mr. KYL. Mr. President, first let me address Senator Feingold. He is correct about the misstatement I made this morning. I do recall making this statement that the Feinstein amendment would apply generally to the section of law rather than just S. 113. The Senator from Wisconsin is correct. What I said was in error. It does not detract from my primary argument, but that is correct, and I appreciate him pointing that out. I wish to respond to the three primary arguments we have heard. First of all, Senator Leahy primarily was making the point that we should see if the Patriot Act is working before we make the changes that Senator Schumer and I and others are trying to make. First, I note that the vote in the Judiciary Committee was 16 to 0. It was unanimous. I appreciate the bipartisan support from people such as Senator Leahy and would note that we have had that kind of bipartisan support from the very day that Senator--in fact, 2 years ago it was Schumer-Kyl, now it is Kyl-Schumer, for obvious reasons. Secondly, this has nothing to do with the PATRIOT Act. The FISA law was put into effect in 1978, I believe it was. So this is a law that has been in effect for a long time. The problem with it is that a significant change has occurred on the international stage. As has been pointed out, the law was originally intended to deal with Soviet spies, foreign powers, or international terrorist organizations such as the Red Brigade, the Baader-Meinhof gang and people like that. In that day, it was a tight-knit group of people who actually worked as a terrorist organization. But today, as the testimony before the Intelligence Committee went into in detail, it is now a worldwide Islamic jihadist movement. It is about a cause rather than an organization. The FBI Director, whose testimony I read this morning, went into a great deal about how, therefore, the people who work in this international cause are very different from the old members of the gangs or the Soviet spy network, and to try to pigeon hole a FISA warrant against these individual people into the provisions of the law as it was originally drafted is really not possible. That is why the FBI would not go after a warrant for Zacarias Moussaoui. It is why Agent Rowley was very upset about it. But at the end of the day, headquarters was probably right not to try to make out the case that Zacarias Moussaoui was somehow connected to an international terrorist organization. They found some tenuous connections with some Chechen rebels but at the stage that the warrant was corrected they could never tie it into an international terrorist organization. We now know subsequent to the issuance of the warrant that there were some ties to al-Qaida, but he may be a good example of the lone-wolf terrorist. So that is why times have changed. The law has to change to keep up with this. Otherwise, we would not be suggesting this rather modest change in the law. The people against whom we are now directing our surveillance with respect to international terrorism are a very different group of people. Much of the time they do not act in concert and sometimes they enact as lone wolves. That gets me to the next point. As I understand it, Senator Feingold's primary argument is that we should have this kind of surveillance against agents of foreign powers, but that we should not have it against lone wolves. Of course, the Feinstein amendment provides a presumption that the lone wolf is an agent of a foreign power. That is not our point. We are not trying to prove the lone wolf is an agent of a foreign power. I do not want to have a presumption in there that presumes something that we are not even alleging. Sometimes our U.S. Government is going to say, we do not have any reason to believe this person is connected to an international terrorist organization or a foreign power, country. We are not alleging that. We are alleging that he is a person engaged in or about to engage in a terrorist action, we have probable cause to believe that. That standard remains the same and, therefore, we want to, what, prosecute him? No, get a warrant to see what else he is doing. So this amendment does not match up with what we are trying to do. We are not trying to prove that they are agents of a foreign power. We are providing the court with evidence that a non-U.S. person is engaging in or about to engage in activities involving terrorism against the United States and, therefore, the court is warranted in allowing us to investigate it further. We do not want the presumption because in many cases that is not what we are trying to prove. The important point is a point I would like to make in response to Senator Feingold and that is that there still has to be international terrorism involved. It is not as if we are going after people because we do not like their nationality or something of that sort. We are dealing with a very sophisticated court that is not a kangaroo court; it is the FISA court, and they have not turned down warrants because the Justice Department has been very careful to make sure they have all the evidence that is needed. I will tell my great friend Senator Feinstein and just make a footnote--I said it this morning but I will say it again--I cannot remember a time that she and I disagreed on a matter involving intelligence or law enforcement activities. It just does not happen except this one time. I guess the exception proves the rule. There is nobody in the Senate with whom I have enjoyed working more on these matters. Witness the fact that Senator Feinstein and I have been the chairman and ranking member alternately of the Terrorism, Technology, and Homeland Security Subcommittee of the Judiciary Committee ever since I came to the Senate. It has been a wonderful relationship, and there is nobody in this body that I admire more. So I want to answer this question very specifically, because if I understood one of her arguments, it was that we have changed the probable cause standard, and we have absolutely not done that. In fact, in response, I think to a suggestion of one of our Democratic colleagues, we had the language exactly tracked in the statute, and I will read it precisely. This is in 50 United States Code, section 1801, the definitions section under foreign power. I will not read the whole thing, but No. 4 is ``a group engaged in international terrorism or activities in preparation therefor.'' Then, under ``agent of foreign power''--and, remember, this is where we have the definition of a non-U.S. person. We had the third category. We tracked the language precisely--``engages in international terrorism or activities in preparation therefor.'' It is the exact same language. So the probable cause standard remains identical. In very simple terms, this is what the U.S. attorney would have to say: Judge, here is my affidavit and what it says is that Joe Blow is a non-U.S. citizen. Here is the documentation for that, and here are the activities that we have probable cause to believe he is engaging in. So it is the probable cause standard. What would satisfy that test? Let me be very precise in the order that I present this. Under this section of definitions--and our bill is the same as S. 2568, which the Justice Department was referring to when it made this comment, someone who is involved in terrorist acts: That transcend national boundaries in terms of the means by which they are accomplished, the persons they appear intended to coerce or intimidate, or the locale in which their perpetrators operate or seek asylum. This is quoting from 50 United States Code, section 1801(c)(3): As a result, a FISA warrant would still be limited to collecting foreign intelligence for the international responsibilities of the United States, and the duties of the Federal Government to the States in matters involving foreign terrorism. That is quoting from a court case that interpreted the provision. Therefore, according to the Justice Department, the same interests and considerations that support the constitutionality of FISA as it now stands would provide the constitutional justification for S. 2568, which is the predecessor to S. 113, which is the bill before us. So the definition is the same, the probable cause standard is the same, and the nexus to international terrorism is the same. None of that changes. The only thing that changes is that we add non-U.S. person so you can get to the lone wolf and do not have to either assert that the person is involved with an international terrorist organization or foreign power or presume that the individual is, because that person may well not be. Finally, Senator Feinstein made the point that under proper circumstances, S. 113 would allow the search of a solo international terrorist and the answer is, yes, that is exactly what it would allow. And especially with today's weapons, which allow even a solo terrorist to be able to cause enormous destruction, the FBI should be able to monitor such a terrorist if it can convince the court that probable cause exists that would otherwise be the standard in any kind of FISA warrant request. I think those are the answers to the allegations that have been made in support of the Feinstein amendment. I think it gets right down to what Senator Feingold said, which is that there is simply disagreement about whether the lone wolf should be the subject of this statute. Obviously, if the amendment were to be adopted, we have our purpose, which is to add the third category.

Mr. KYL

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

Mr. KYL

Mr. KYL. Mr. President, this morning I noted in detail the provisions of this amendment, why I supported the amendment and why I thought it was a good thing, and therefore any reference to further discussion on it can be made to the comments I made on it this morning.