Joseph Lieberman

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, today, Senator Specter and I are introducing legislation to create a Department of National Homeland Security. One month ago, America suffered devastating attacks at the hands of terrorists with whom we are now at war. Our Nation has struggled to adjust to the realization that our citizens are vulnerable to hostile acts on the part of adversaries whose methods are as fanatical as their goals. The legislation we are introducing is intended to provide Americans with the assurance they need to return to their daily routines without fear of further attack, and so confound the terrorists, whose aim was to disrupt our lives and break our spirit. Shortly after the attacks, the Senate Governmental Affairs Committee held a hearing to explore how government could better organize itself to defend against such threats. Former Senators Gary Hart and Warren Rudman, co-chairs of the U.S. Commission on National Security/21st Century, offered compelling testimony in favor of creating a homeland security agency. The legislation we are introducing today is based largely on the Commission's recommendation. It will create a cabinet-level Department of National Homeland Security. This Department would bring the Federal Emergency Management Agency, the Customs Service, the Border Patrol, the Coast Guard, and certain offices responsible for critical infrastructure protection under a single administrative umbrella. The Department will be headed by a Secretary, who will be appointed by the President and confirmed by the Senate, and who will be a statutory member of the National Security Council. The Secretary will be accountable to the Congress and the American people. Like other cabinet members, the Secretary for Homeland Security would enjoy executive control over personnel and programs, and have all-important budget authority over his department's spending priorities. The Secretary for Homeland Security would have the rank and power to ensure that the security of our homeland remains high on our national agenda, and that all necessary resources are made available toward that end. The new Department would be organized into three functional directorates that would be responsible for ``3 Ps": prevention, protection, and preparation for response. The Coast Guard, Customs Service, and Border Patrol would comprise the ``prevention'' directorate, responsible for securing our borders and making sure that potentially harmful persons or materials never make it onto American soil. Each of these organizations is now on the front line of our nation's efforts to prevent future acts of terrorism; however, they are not working together as well as they should, a problem exacerbated by the fact that homeland security is not among their parent agencies' primary missions. They require additional resources, but they also need to be under a single Secretary, who can direct their efforts jointly to fulfill a shared homeland defense mission. The Critical Infrastructure Assurance Office and the Information Infrastructure Protection Institute, both of the Commerce Department, and the National Infrastructure Protection Center, now located in the FBI, would serve as the nucleus of the ``protection'' directorate, with the difficult task of working to help safeguard our transportation networks, power grids, water supply, cybersystems and other essential systems from attacks or other threats. These offices share essentially the same mission, and it makes sense that they are placed under a single Department and Secretary, so that they operate in unison. Finally, FEMA and the FBI's National Domestic Preparedness Office would form the core of the ``preparation'' directorate, which would conduct the planning and mitigation measures necessary to prepare for disasters as well as to operate the crisis and recovery response machinery when emergencies do occur. Importantly, by building this directorate around FEMA, we will ensure that much of the Homeland Defense Department's organizational infrastructure will be focused towards working effectively with State and local governments, which are clearly key players in homeland defense. In short, this legislation is meant to structure homeland defense in a way that makes sense operationally, but also in terms of maximizing funding priorities, interagency cooperation, and bureaucratic clout. In proposing this legislation, we know well that there are other ideas and proposals under consideration, and we look forward to working with our House and Senate colleagues, as well as the President, to arrive at what is best for the American people. The President has appointed Governor Tom Ridge to head a the new Office of Homeland Security in the White House, to coordinate strategy across the 40-plus government agencies that now have important roles to play in the fight against terrorism. This is clearly a critical function. I absolutely agree that there must be better coordination across the agencies, including intelligence and law-enforcement functions, which are central to preventing acts of terror at home. My fear is that it is not enough to improve coordination and cooperation across the existing array of federal agencies and programs. I am convinced that protecting our homeland requires nothing less than the establishment of a robust, cabinet-level Department, and led by a Secretary who has executive control over key agencies, full authority over his organization's budget, the ability to deploy personnel and resources, and the capacity to make and implement decisions immediately. I am proud to have Senator Specter as a principal cosponsor of this legislation. I am pleased to note that similar legislation has been offered in the House by Rep. Mac Thornberry, Rep. Ellen Tauscher, and others, who deserve our thanks for drafting this legislation well before the events of September 11, 2001. We look forward to working with them and other interested Members of Congress, as well as the Administration, to ensure that our government is effectively organized to defend the American people at home. I ask unanimous consent that the text of the bill be printed in the Record.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise today to join Senators Conrad and Domenici to introduce the Second Chance Homes Promotion Act of 2001. This legislation will promote the expansion of Second Chance Homes for parenting teenagers and provide needed resources for this innovative and accomplished program. The United States has the highest rate of teen pregnancy and births in the Western industrialized world. This costs the country at least $7 billion annually. Four in 10 young women become pregnant at least once before they reach the age of 20, nearly one million a year. Teen mothers are less likely to complete high school, and more likely to end up on welfare. The children of teenage mothers have lower birth weights, are more likely to perform poorly in school, and are at greater risk of abuse and neglect. But we know we can do something about this. Second Chance Homes are an essential tool to improve the life chances of these teenagers. In the 1996 welfare reform legislation, I worked to develop the concept of Second Chance Homes as an alternative for minor teen parents required by that law to live at home or under adult supervision. Welfare reform required states to provide or assist teen mothers in locating a second chance home, maternity home, or other supportive living arrangement if they cannot live at home because of abuse, neglect or other reasons. Since 1996, these homes have produced notable and promising results: fewer second pregnancies, slightly higher adoption rates, less child abuse, better maternal and child health, dramatically increased school completion rates, higher employment rates, reduced welfare dependency. Clearly these are successes we want to replicate. Currently only six States have networks of Second Chance Homes. This bill will provide resources to expand the number of Second Chance Homes across the country to continue these encouraging trends and assist these young mothers to the brightest future they can have.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise today to join Senators Conrad and Domenici to introduce the Second Chance Homes Promotion Act of 2001. This legislation will promote the expansion of Second Chance Homes for parenting teenagers and provide needed resources for this innovative and accomplished program. The United States has the highest rate of teen pregnancy and births in the Western industrialized world. This costs the country at least $7 billion annually. Four in 10 young women become pregnant at least once before they reach the age of 20, nearly one million a year. Teen mothers are less likely to complete high school, and more likely to end up on welfare. The children of teenage mothers have lower birth weights, are more likely to perform poorly in school, and are at greater risk of abuse and neglect. But we know we can do something about this. Second Chance Homes are an essential tool to improve the life chances of these teenagers. In the 1996 welfare reform legislation, I worked to develop the concept of Second Chance Homes as an alternative for minor teen parents required by that law to live at home or under adult supervision. Welfare reform required states to provide or assist teen mothers in locating a second chance home, maternity home, or other supportive living arrangement if they cannot live at home because of abuse, neglect or other reasons. Since 1996, these homes have produced notable and promising results: fewer second pregnancies, slightly higher adoption rates, less child abuse, better maternal and child health, dramatically increased school completion rates, higher employment rates, reduced welfare dependency. Clearly these are successes we want to replicate. Currently only six States have networks of Second Chance Homes. This bill will provide resources to expand the number of Second Chance Homes across the country to continue these encouraging trends and assist these young mothers to the brightest future they can have.

Mr. LIEBERMAN

Mr. LIEBERMAN. Madam President, I rise today to express my strong opposition to the attempt to add energy legislation to the Defense authorization bill. This debate comes at a moment of historic challenge. We are a nation poised for battle against a shadowy enemy that has as its aim the destruction of America and all that we stand for. Our President has prepared us for a sustained military campaign, and at this time there can be no higher priority than to pass this critical legislation to support our armed services and the men and women who we will send into this war to, literally, defend our freedom. In that context, the amendment is an unnecessary and divisive distraction from that high purpose, which ultimately will do little to strengthen our national security. My friend from Oklahoma is right to be concerned about our national energy policy. In fact, I believe we must take a fresh look at our policies in light of the terrible events of September 11. In particular, we must look at the vulnerability of our energy infrastructure to terrorist attack, and refocus our energy policy to ensure that we address our weaknesses. On that point, let me quote from a recent letter from a former Director of the CIA, a former Chairman of the Joint Chiefs of Staff, and the former National Security Adviser to President Reagan: Our refineries, pipelines and electrical grid are highly vulnerable to conventional military, nuclear and terrorist attacks. Disbursed, renewable and domestic supplies of fuels and electricity, such as energy produced naturally from wind, solar, geothermal, incremental hydro, and agricultural biomass, address those challenges. The authors of the letter continue by stating that we must limit our vulnerabilities and increase our energy independence by passing, among other things, a Renewable Portfolio Standard. The energy proposal under consideration, however, does not include this innovative measure, or many of the other steps we can and must take to protect and enhance the security of energy infrastructure because it was drafted long before the terrible events of September 11 forced us to rethink our positions. Just as problematic, these amendments would open the priceless Arctic National Wildlife Refuge for oil production. In the view of many, myself included, opening the refuge to drilling is not just bad environmental policy, it is bad energy policy and would do next to nothing to reduce our dependence on foreign oil. In fact, as we have repeatedly pointed out, the refuge would not provide a drop of oil for at least a decade. This 10-year figure is a conservative estimate that was made by the Department of Interior under President Reagan, and proof positive that ANWR is not the answer or even an answer to our current crisis, let alone our long-term needs. What this proposal would do, however, is severely threaten a national environmental treasure, which is the last thing the American people would expect us to do at this moment of crisis. In times such as these, many of us found solace in nature, including many people at the heart of these horrific terrorist attacks. The New York times reported in the days following the attacks that Manhattan citizens were flocking to a garden in lower Manhattan to seek comfort, to grieve, and to connect with each other in sharing our grief. In my view, we need to know that vast natural areas such as the Arctic refuge exist as we cope with the events of the past month. Nature reminds us of the eternal rhythms of life of which we are a part and which will endure over time. Ensuring an enduring refuge in the Arctic, no matter how uncertain other parts of our life may seem right now, provides us solace and perspective in these trying times. This crisis has reawakened us to the importance of protecting our values, and I believe that the Arctic wilderness has a place on that list. The time to debate the merits of energy policy is not today, and not as an amendment to the Defense authorization bill. Debating the merits of these, and other, provisions will take time, time we do not have now. There will be deep divisions and much disagreement. As Senator Murkowski said just last week, consideration of energy legislation on the defense bill is ``inappropriate.'' ``[T]here is a place for the consideration of domestic energy development. . . . That belongs in the energy bill where it should be debated by all individual members.'' We should leave this Arctic refuge debate for another day and focus with intensity on the task at hand: supporting and strengthening our Armed Forces. This is not the time for the distraction and division that this amendment would create.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, it is with great regret that I am come to the floor today to discuss Senator Inhofe's amendment to this legislation. We are a nation poised for battle against a shadowy enemy that has as its aim the destruction of America and all that we stand for. Our President has prepared us for a sustained military campaign. At this time, there can be no higher priority than to pass this critically important legislation to support our armed services and the men and women who we will send into this battle to defend our freedom. Let us join together as Americans to provide our military with the funds they need, unencumbered by the distractions of debates better argued on another day. Senator Inhofe is right to be concerned about our national energy policy. I think all of us in this Chamber share with the American people a sense of concern that we lack a comprehensive national energy plan for the future; one that combines the promises of new technologies and conservation with the important contribution of traditional fossil fuels in a responsible, efficient and clean manner. But the time to debate the merits of the energy policy proposed by the White House and passed by our colleagues in the House is not today, and certainly not as an amendment to the defense authorization bill. We are talking about a debate of a 500-page, $40 billion energy package. The Joint Tax Committee has estimated that it will give $33.5 billion in tax breaks to industry over the next ten years. We cannot afford to be that fiscally irresponsible as we take on the new challenges of our war on terrorism. More controversially, Senator Inhofe's amendment would open the Arctic National Wildlife Refuge for oil production. In the view of many, myself included, opening the refuge is not just bad environmental policy, it is bad energy policy and would do little to reduce our dependence on foreign oil. Most importantly, the refuge would not provide a drop of oil for at least a decade. This 10-year figure is a conservative estimate that was made by the Department of Interior under President Bush's father. Hopefully, our current crisis will have passed ten years from now. Debating the merits of these, and other, provisions will take time. There will be deep divisions and much disagreement. As Senator Murkowski said just last week, consideration of energy legislation on the defense bill is ``inappropriate. [T]here is a place for the consideration of domestic energy development. . . . That belongs in the energy bill where it should be debated by all individual members.'' The security of our energy supply is an essential question as we enter this phase in our history, and we will have that debate. But this is not the time nor place. We have just lost nearly seven thousand of our citizens to terrible attacks, and the Senate must put its differences aside. Now is the time for unity of purpose. Let us leave this debate for another day and focus with moon-shot intensity on the task at hand: supporting our armed forces. We cannot afford the distraction that this amendment would create.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise to discuss an amendment to the Fiscal Year 2002 National Defense Authorization Act which will serve to assist our military in their continuing transformation into a more efficient fighting force, ready to meet the threats of the 21st century. It amends the National Technology Transfer Act of 1995 in order that the Federal Government can use appropriated funds for personnel to participate in meetings to set technical standards for products, manufacturing processes, and management practices of interest to the military. Specifically, it eliminates an obscure technical restriction established by an 89-year-old statute so that the Federal Government will be able to cover the expenses of those employees participating in standards activities critical to the Department. The amendment is consistent with previous act of Congress, Department of Defense policy and Governmentwide policy to support efforts to replace Government-unique standards wherever possible with standards developed jointly with the private sector and other interested parties. There are major Federal savings and national security improvements that can result from this participation. I am proud to be joined by Senator Santorum in this effort. I thank my colleagues' for their support for this technical amendment.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise today in recognition of a military unit whose gallant service to our Nation extends over a century and a half. The First Engineer Battalion, tracing its intrepid lineage to 1846, is the oldest Engineer Battalion in the United States Army. Having served in both the Mexican War and Civil War, they continued their valorous service to our great Nation through the Spanish American War, in Cuba, and in the Philippine Insurrection. The First Engineer Battalion was reorganized and expanded in World War I to form the First Engineer Regiment, assigned to the First Division, fighting in every major engagement in France. They were cited by the French Government with the French Fourragere and two Croix De Guerres. Taking part in North African landings and invasions of Sicily and Normandy during World War II, they were awarded three Presidential Unit Citations, two additional Croix De Guerres with Palm, the Medaille Militaire, and the Belgian Fourragere. Earning eight campaign streamers, they distinguished themselves across two continents. They again were called to Southeast Asia in support of the ``Big Red One'' being awarded three Meritorious Unit Commendations, Vietnamese Cross of Gallantry with Palm, and Vietnamese Civil Action Honor Medal. Deploying to Germany as part of REFORGER exercises and to Southwest Asia as part of Desert Shield and Desert Storm they where again lauded for their actions and awarded the Valorous Unit Citation. We cannot take lightly their dauntless and meritorious service to our Nation. Nor can we forget the valiant actions of those who served in building the necessary infrastructure for our troops under the most adverse and hazardous conditions. For over two-thirds of our Nation's history, their accomplishments, both individually and collectively, were pivotal not only to a successful combat effort, but to establishing and maintaining the legacy of which the Combat Engineers may be justifiably proud. I join in expressing the respect, admiration, and grateful appreciation of our Nation as they gather for their annual reunion in Ashville, NC, later this month.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise to support this resolution. Yesterday was a terrible day of terror. Today to me seems even worse. Yesterday, perhaps because the acts of war that were carried out against our people were so horrific, we responded. We moved forward. But it all seemed unreal. Today when I awoke, it seemed painfully real. It reminded me of terrible days in my personal life when I have experienced a loss of a loved one. You cope, and then you wake up with the reality and the pain is deeper. We all feel that today, and we can only imagine, therefore, how deep and pervasive is the pain of those many families whose lives have been devastated by the acts of terror that were carried out yesterday. I pray that God will be with them and the souls of their loved ones who are gone, that they will find comfort in good memories and strength from their faith in God. I have been very proud to be a Member of the Senate over these last few days. And it continues today, as I listen to the statements we have heard in this Chamber which should leave no doubt of our resolve nor our unity in holding accountable those who attacked us yesterday and sought to destroy our Nation. Today we are filled with the deepest feelings of anger and outrage. We want retaliation, and we will have it. We will not rest until we know who perpetrated these evils, and we will then respond with the full force of the righteous might that President Roosevelt summoned in 1941. We must be careful not to mistake swift punishment for lasting peace. We are at war. That is true. But this war is dramatically different from the one we engaged in after Pearl Harbor. In this struggle, vengeance is not victory. Retaliation for yesterday's atrocities is only the end of the beginning of what should be our response, not the beginning of the end of that response. If, in fact, as this resolution says, we are acknowledging that we are in a war against terrorism, then we must understand that this war is not against a single known enemy but a broad and elusive threat from the forces of terror. And if we are to win this war, if we are to protect our security and freedom, we must adapt both offensively and defensively to the true nature of this threat and commit ourselves to a long and difficult struggle. We have several challenges ahead of us. First, of course, we must identify and punish the perpetrators. We must also honestly then assess our vulnerability here at home and then take swift and strong action to fortify the security of our critical national infrastructure from attack and to improve the ability of national and State and local authorities to respond to such attacks. We must consider with renewed purpose the proposals that have been made to create a new agency with responsibility for defense of our homeland, for the decades of security that our two oceans have given us are over. Our enemies can strike at us with terrorism, with cyberattacks, or with ballistic missiles. We must raise our guard here at home to those attacks. We have been warned by many experts that the threats we will face in the 21st century would be different and more diffuse than those we had faced over the last half century. That is why we have embarked on a path of transforming our military and other Government agencies to better prepare to wage and defend this new warfare. We must now move, after yesterday, with far greater urgency, for our enemies will not wait. They will not delay. They will continue to work with single-minded determination to find our points of weakness and strike at them. We must match and exceed their focus and determination. In doing so, we must not work and fight alone. This is not just our war. This is a war against democracy itself. In defending against those attacks, the world's other democratic nations must join together with us. I am grateful for the decision by the North Atlantic Council today to find the acts of yesterday essentially acts, under article 5, acts of war against us which are acts of war against all of them. If we are truly involved in a war against terrorism, then our allies in Europe and elsewhere must come to our side as we came to theirs in World War II and not tolerate and deal with and maintain normal relations of commerce or diplomacy with nations that harbor terrorists. We must convince them that they will either be allies of allies or allies of our enemies. History rarely offers respite to victors. We won a magnificent triumph in the cold war. After World War II, we were once again at the pinnacle of power. But, once again, we face a new form of tyranny. I am confident that we can and will rise to defeat this new challenge just as we defeated the communism that rose to face us after World War II. Our love of liberty has not diminished, nor has our common sense of purpose in protecting it. Succeed we can and succeed we must. The lives of our people, the security of our society, and the strength of our democracy depend on it. I yield the floor.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I am pleased to rise to join my colleague, Senator McCain, in advocating an economy-wide cap-and-trade system to control our emissions of greenhouse gases. I have been extremely troubled by the failure of our government to engage on this crucial issue. Last Monday, 180 nations agreed to take historic action against global warming by agreeing to the Kyoto Protocol. One did not. We are the one. I believe this failure abdicates the United States' position as a leader in environmental affairs and places U.S. industry at risk. We now have general scientific agreement that climate change is a problem we must face. Early this year, the United Nation's Intergovernmental Panel on Climate Change released its Third Assessment Report on global warming. According to this panel of expert scientists, unless we find ways to stop global warming, the Earth's average temperature can be expected to rise between 2.5 and 10.4 degrees Fahrenheit during the next century. Such a large, rapid rise in temperature will profoundly alter the Earth's landscape in very practical terms. Sea levels could swell up to 35 feet, potentially submerging millions of homes and coastal property under our present-day oceans. Precipitation could become more erratic, leading to droughts that would aggravate the task of feeding the world's population. Diseases such as malaria and dengue fever could spread at an accelerated pace. Severe weather disturbances and storms triggered by climatic phenomena, such as El Nino, could become more routine. As the IPCC report reminds us, this threat is being driven by our own behavior. Let me quote the scientists directly, ``There is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities.'' There is no doubt that human-induced emissions are warming the planet. After receiving the IPCC's dire report, the White House requested and received a second opinion from the National Academy of Sciences. The NAS confirmed the findings of the IPCC. Let me quote: The IPCC's conclusion that most of the observed warming of the last 50 years is likely to have been due to the increase in greenhouse gas concentrations accurately reflects the current thinking of the scientific community on this issue . . . . Despite the uncertainties, there is general agreement that the observed warming is real and particularly strong within the past twenty years. By going forward with the Kyoto Protocol even without the United States, the world has taken a giant stride forward in response to this pressing problem. That agreement will create a worldwide market in greenhouse gas reductions, using market forces to drive environmental gains. Unfortunately, because the United States did not participate, U.S. interests were virtually ignored in crafting the final deal. In the end, I believe that not just our environment but our economy will suffer as a result. For example, let's say a multinational corporation is faced with the need to invest in new, more efficient technology, and has the choice of installing it in the United States or overseas. Under the Kyoto Protocol, the corporation will be able to receive valuable credits for making those efficiency gains--and therefore reducing its greenhouse gas emissions. Those credits will be worth cold, hard cash in the world market that will be established under the treaty. In contrast, the United States currently has no system by which the company will gain credit for the gains. The result will be that more efficient, more competitive technology will be driven overseas. The agreement in Bonn also has probably made millions of dollars in U.S. investment worthless. A number of our large corporations have invested heavily in forest conservation on the assumption that they would receive credit for these forests' ability to pull carbon out of the atmosphere. In Bonn, however--without the U.S. at the table--credit for forest conservation was written out of the agreement. After the agreement at Bonn, it will take a lot of work to convince the other nations of the world to reopen the negotiations to U.S. participation. We can begin by creating a credible domestic system that can work in parallel with the Kyoto Protocol so the United States remains in tune with the remainder of the world as we move forward. Such an approach must move beyond our laudable but inadequate voluntary efforts. As we saw with the Rio Treaty, which former President Bush supported and the Senate ratified in 1992, voluntary programs unfortunately do not work. Instead, Senator McCain and I believe that we need a set of standards requiring action. We need an economy-wide cap and trade approach. In contrast to the current international agreement, such a system will take the interests of the United States into account. I also believe having such a system in place will much better enable us to negotiate an acceptable international agreement with the Kyoto participants when the U.S. does come back to the table. If we do not have our own domestic cap-and-trade system, our companies will be years behind the rest of the world in operating within the system and therefore disadvantaged when we join an international agreement. The bona-fides of a cap and trade approach are impressive. I was involved in the drafting of the cap-and-trade program in the Clean Air Act to reduce acid rain--one of the most successful environmental programs on the books. Recent reports from the CBO and the Resources for the Future espoused such an approach. Progressive companies such as British Petroleum have greatly reduced their greenhouse emissions by using their own internal cap-and-trade markets. And no less authority than the Wall Street Journal has endorsed such an approach to address our climate problems, stating that the Bush Administration should ``propose a domestic cap-and-trade program for carbon dioxide that could, of course, be easily expanded to Canada and Mexico.'' It would be a giant step forward if the Bush Administration would make such a proposal to the next international meeting on climate change in Marrakesh, Morocco during October. If we adopt a cap and trade system, we will create a market by which corporations will receive valuable credits for efficient investments. We also will create a market by which corporations can receive credit for the laudable investments they have made to date. And we will unleash the power of that market to drive the United States back into its leadership position in the international effort to avoid the worst effects of one of the most serious environmental problems the world community has ever faced. I look forward to working with Senator McCain when we return in September as we meet with environmentalists and representatives of the various sectors of our economy who are currently generating greenhouse gases. We will ask them to help us fashion a cap and trade system that will work. Together we can and will meet this historic test and protect our children and grandchildren, and all who follow on the Earth, from the real dangers of an overheated planet. Mr. President, I ask unanimous consent to print the Wall Street Journal editorials in the Record.

Mr. LIEBERMAN. Mr. President, I also am pleased to rise to join my friend and colleague from Arizona, Senator McCain, in making this call for consideration of the development of an economy-wide cap-and-trade system to control our emissions of greenhouse gases. Senator McCain and I have been discussing the need to develop such legislation for some time, and upon our return from recess, we plan to discuss with leaders from each sector of our economy to discuss what commitments they can make to curb our growing problem of global warming without seriously harming our economy. At this point, I invite Senator McCain to comment on his views on the subject.

Mr. LIEBERMAN

Mr. LIEBERMAN. Madam President, today Senator Jeffords, Senator Snowe, and I are introducing the Renewable Energy Act of 2001. This is a landmark bill as it sets a national goal of fueling 20 percent of our electricity generation with renewable energy sources by the year 2020. For our long-term energy policy, setting such a goal is important. In addition to supporting traditional hydrocarbon fuel sources, we must also invest in those sources, like solar, wind, geothermal, and biomass, that will not eventually run dry. Such investments will also significantly lessen our vulnerability to our foreign energy suppliers. Furthermore, nations such as Japan and Denmark have already made great strides in advancing renewable technologies and it is in our economic interest to be able to compete on the international market. While some of the details of the bill need ongoing evaluation and tuning, we should view this bill as stating a goal, not as the detailed road map on how to get there. For example, the definition of renewables needs further attention and expansion. But I believe the Renewable Energy Act sets laudable goals to aspire to and makes a useful statement about our national priorities as we approach the energy debate.

Mr. LIEBERMAN. Madam President, today I am introducing a second proposal with regard to the perverse impact of the Alternative Minimum Tax, AMT, on Incentive Stock Options, ISOs. I previously introduced a bill, S. 1142, addressing this issue going forward and today I am introducing a bill to provide relief to the victims of this perverse tax who filed returns and paid taxes this past April. As I will explain, they were hit by the tax equivalent of the perfect storm. The argument for reform of the AMT as applied to ISOs is overwhelming. An employee who receives ISOs is taxed on the phantom paper gains the tax code deems to exist when he or she exercises an option, and is required to pay the AMT tax on these ``gains'' even if the ``gains'' do not, in fact, exist. This means the taxpayer may have no gains, no profits or assets, with which to pay the AMT and might even have to borrow funds to pay the tax, go into default on his or her AMT liability, or even declare bankruptcy. This Kafkaesque situation is unfair. It is not fair to impose tax on ``income'' or ``gains'' unless the income or gains exist. With the AMT tax on ISOs, it is not relevant if the ``gains'' exist in a financial sense. That they exist on paper is sufficient to trigger the tax. In terms of providing relief to taxpayers hit with the AMT on ISOs in their filing for 2000 taxes, let me make a series of points. First, there have been victims of the AMT/ISO tax going back before 2000. But, there were an unprecedented number of victims this last year due to a convergence of events. Over the last decade, more and more companies have adopted broad- based stock option plans where all or almost all employees are granted ISOs, rather than only senior management. In addition, the internet and telecommunications boom spawned an unprecedented number of start-up companies over the last few years. These start-ups overwhelmingly favor the use of ISOs as a means of attracting and motivating employees, and many of these companies grant options to most, if not all of their employees. Then, as we all know, the stock market, especially the technology- driven NASDAQ, posted record highs in the spring of 2000, and then collapsed over the next 12 months, astounding even seasoned professionals. Many of the high-flying technology companies saw their stock value drop 80 percent to 90 percent during this period. As a result, the relatively unknown AMT caught many employees by surprise. Other employees were aware of the AMT but thought they could claim a full credit for the AMT once they sold the stock acquired by exercise of ISOs. Some were unable to sell before year-end, in order to eliminate the AMT hit, by trading restrictions. Others were naive in thinking that the value of the shares they held would rebound in 2001, in time to sell the stock and pay their AMT liability for 2000. In short, in tax year 2000 we saw the tax equivalent of the perfect storm. Second, the imposition of AMT on individuals discourages the very behavior that Congress wanted to encourage with the creation of ISOs. In 1984, the Senate Finance Committee noted the goal of ISOs to ``encourage employee ownership of the stock on an employer's business'' by allowing for ``the deferral of tax until an employee disposes of the stock received through the exercise of an employee stock option''. To encourage individuals to hold shares with the promise of capital gains tax rates is the goal, but it is a goal that is defeated when the AMT is imposed at the time they exercise an option even if the ``gains'' are never realized. The taxpayers who held their shares and realized gain are the ones who deserve relief. They fell into a trap which the tax code created through its perverse and confusing structure. Third, the trap was one that many of these employees did not understand. They rightly assumed that the AMT was directed at taxing the wealthy and could not possibly affect them. This is a case where the complexity of the tax and the contradictory incentives it provides for ISOs lured the victims into the trap. Fourth, we are likely to see a major debate on AMT reform, but this is a broader debate about the fundamentals of the tax code, not a tax trap like we have with ISOs. An increasing number of taxpayers find themselves paying the AMT because they have large state tax deductions or large numbers of personal exemptions. The AMT is likely to snare 1.5 million taxpayers this year and nearly 36 million by 2010. The AMT they may pay may be infuriating, but it would normally not substantially increase their overall tax liability. The AMT paid because of ISOs can be hundreds of thousands or even millions of dollars and can be devastating. It can cause a tax liability that is many times the taxpayer's total income. This is a problem that needs to be addressed not, now when we finally take up broad-based AMT reform. Let me be clear about the cost and budget implications of my bill. The Joint Tax Committee on Taxation has found that my proposal would reduce government tax revenues by $1.3 billion over ten years. This is substantially less expensive than the cost of my earlier bill, which was estimated to cost $12.412 billion over ten years. I will not propose to enact my bill unless this sum is financed and will have no impact on the Federal budget. The budget situation we face will not make it easy to enact these reforms. The massive tax cut of $1.3 trillion was financed from the surpluses. We are now finding that it was, as I and others feared, way too large and leaves us no room to take up additional tax measures. In fact, just last week we saw reports of a memo leaked where Republicans predicting that the Congressional Budget Office deficit/budget updates in August would find that we have zero available surplus beyond the Social Security and Medicare trust funds in fiscal year 2002 and that Congress may have to dip into those trust funds by nearly $41 billion in fiscal year 2003. If this is true, it would leave no additional non- trust fund surplus dollars available for other uses, such as growth tax incentives, fixing the ISO/AMT problem, education, energy or defense, in fiscal year 2002. The fiscal year 2002 budget resolution bars Congress from spending any money in either the Social Security or Medicare Part A trust funds for any purpose other than Medicare or Social Security. I recount this here because it means that we must find a revenue or spending offset to finance our ISO/AMT proposal, or any other growth tax incentive. We cannot use the surplus. This raises a substantial barrier to enactment of this proposal and it is a barrier that we could have easily avoided had we enacted a tax cut we could afford. I am pleased that today Rep. Richard Neal, Tom Davis, Zoe Lofgren, and Jerry Weller are introducing the same bill in the other body. Earlier, Representative Lofgren introduced H.R. 1487, a bipartisan bill that has given a great deal of visibility to this issue. I look forward to working with my distinguished House colleagues to remedy this inequity in the tax code, both for victims in 2000 and going forward. Finally, let me note that I have proposed in S. 1134 to provide a special capital gains tax rate, in fact to set a zero tax rate, for stock purchased by employees in stock option plans, by investors in Initial Public Offerings, and similar purchases of company treasury stock. This zero rate would be effective, however, only if the shares are held for at least three years, so the AMT gamble with ISOs would be even more dramatic. During the first year of that holding period, the AMT would have to be paid and during the remaining period the value of the stock could well dive from the exercise price creating an even more invidious trap. We need to fix the ISO/AMT problem so that capital gains incentives for entrepreneurs will work as intended and provide the boost to economic growth. We need also to focus on the victims of the 2000 perfect storm. I ask that two documents be printed at this point in the Record, an explanation of my bill and a comparison of incentive and nonstatutory stock options. Both have been prepared by professionals with accounting firms. Incentive Stock Options and the Alternative Minimum Tax--An Explanation of the Lieberman-Neal-Davis-Lofgren-Weller Proposal Issue: The difference between the exercise price and the fair market value at the time of exercise, the ``spread'', of stock obtained with an incentive stock option, ``ISO'', is a tax preference for purposes of the individual alternative minimum tax, ``AMT''. If the ISO preference causes a taxpayer to pay the AMT for the year of exercise, there may be a tax credit carryforward that is available to offset regular tax in a future year. However, if the stock declines significantly in value between the date of exercise and the date of its sale, there may not be sufficient regular income in any future year to utilize the AMT credit. As a result, a taxpayer may pay significant permanent AMT for what was intended to be only a ``timing'' preference. This problem is particularly acute for individuals who exercised incentive stock options in 2000, prior to the significant decline in the stock values of many companies. Example: In January, 2000, a sales manager for Silicon Valley Company exercises options for 15,000 shares of stock with an exercise price of $5 per share, the fair market of the stock when the options were granted in 1997. At the date of exercise, the stock is trading at $125 per share. The spread gives rise to an AMT tax preference of $1.8 million and generates a net AMT liability for 2000 of approximately $500,000.00, over and above the manager's tax liability on her $60,000 annual salary. Since ISO stock retained for at least a year from the date of exercise is eligible for capital gains treatment, manager does not immediately sell her ISO shares. In April 2001, the company and the stock market have setbacks and the stock again trades at $5 per share. Under current law, the amount of AMT credit that the manager can use annually is limited to approximately $5,000, her expected regular tax over her AMT tax. As a result, it would take roughly 100 years for the AMT credits to be fully utilized. Lieberman/Neal/Davis/Lofgren/Weller Proposal: Limits the amount of the AMT preference resulting from the exercise of an incentive stock option in 2000 to an amount based on the fair market value of the stock as of April 15, 2001, or, if such stock is sold or exchanged on or before that date, to the amount realized on such sale or exchange. Example: Under the same facts as above, a sales manager who acquired stock through the exercise of an incentive stock option would use the $5 per share April 15, 2001 fair market value of the stock to calculate the AMT preference amount. If the manager has already filed her 2000 tax return, she would file an amended return for the 2000 tax year to reflect the revised AMT preference amount of $0.00, the revised April 15, 2001 fair market value of $5.00 per share equals the original $5.00 per share exercise price. Comparison of Incentive and Nonstatutory Stock Options The following is a broad overview of the basic tax concepts that apply to U.S. taxpayers who receive stock options granted by U.S. companies, for services rendered. It does not address the tax consequences for non-U.S. taxpayers or the company issuing the options. This outline assumes that the stock received upon exercise is not restricted within the meaning of IRC section 83. If there are restrictions on the stock received upon exercise, the tax consequences will differ significantly from that described in this outline. Terms Grant Date--This is the date the stock options are granted to you by the company. This date generally is reset if the terms of the stock option are changed; e.g. exercise price is lowered. Exercise Price--This is the price you have to pay to purchase a share of stock under the terms of the option agreement. Vesting Date--This is the date that you earn the right to exercise your options. For example, your shares may vest over four years, starting after one year. In this case, on each anniversary of the grant date you earn the right to exercise one fourth of your options. Exercise Date--This is the day you exercise your stock options by paying the exercise price to purchase the shares in which you are vested. Fair Market Value--This is the true value of the stock at any given date, usually determined by the price at which the stock is trading for on an established exchange. For a private company, the fair market value should be determined by an independent third party appraisal. If the company does not have an outside appraisal performed, the Board should establish the value using appropriate methods and current information. Spread on Exercise Date--This is the difference between the exercise price (what you pay for the stock) and the fair market value (what the stock is worth) at the time you exercise your stock options. This is often referred to as the bargain element. Sale Date--This is the day you sell the shares of stock you had previously purchased on the exercise date. Spread on Sale Date--This is the difference between the exercise price (what you paid for the stock) and the fair market value (what the stock is worth) on the day you sell your shares. Incentive Stock Options (ISOs)--These are stock options that qualify for special tax treatment by meeting a number of special rules, the details of which are not included in this memo. One of the key requirements is that the exercise price is at least equal to the fair market value at the date of grant. ISOs are contrasted with Nonstatutory Stock Options in the following table. Nonstatutory Stock Options (NSOs; also referred to as NQOs, as in nonqualified)--These are stock options that do not meet all the rules for ISOs. They are less tax favored, but generally more flexible.

Mr. LIEBERMAN

Mr. LIEBERMAN. Madam President, I rise in strong support of the amendment to the pending measure offered by my distinguished colleague, Senator Boxer, that would prevent the administration from delaying implementation of the EPA arsenic standards issued on January 22, or from weakening those standards in any fashion. I am pleased that a similar amendment was adopted by the House last week by a vote of 218 to 189. One of the most important responsibilities of government is to protect our citizens from threats to their health, safety or to their environment. Over the past two decades, the American public has reached agreement that government cannot and should not be the answer to every problem that arises. But the public also agrees it is our duty to defend the citizenry when it cannot defend itself and to protect America's environment when it is threatened, because we are its stewards and trustees for all who will follow us as Americans. The fact is, environmental protection has been one of the most effective government programs of recent decades. Although the public wholeheartedly supports a sensible, balanced approach to the environment, it is becoming increasingly clear that the Bush administration does not. As you know, last January, the Environmental Protection Agency issued a new regulation that would reduce the acceptable level of arsenic in drinking water from 50 parts per billion to 10 parts per billion. The announcement was greeted with relief and appreciation by those of us who thought the regulation long overdue. However, acting with seeming disregard for science and regulatory procedure, the Bush administration almost immediately announced that implementation of the regulation would be delayed, citing the need for further review. Like many of my colleagues, and I would venture to say most Americans, I was puzzled and dismayed by the decision. What disturbed me about the decision was the administration's willingness to ignore 25 years of comment, study, and debate, including a scientific review by our premier science organization, the National Academy of Sciences. For this regulation was not feverishly put together in some back room at EPA or the White House in the closing days of the outgoing administration, as some have charged. To the contrary, it was the product of a quarter century of public and scientific input, involving stakeholder consultations, peer review, and basic scientific research. The chronology of this regulation is clear and illustrates the legitimacy of the process by which the arsenic standard was developed. As early as 1962, the Public Health Service had recognized the toxicity of arsenic and recommended a 10 ppb standard. In 1986 Congress directed EPA to update the arsenic standard, but EPA delayed action pending further study. Ten years later, as part of the 1996 Safe Drinking Water Act, Congress again directed EPA to take action, giving EPA a more than generous 6 years to develop an arsenic standard. In June of 2000, after exhaustive review, EPA proposed an arsenic rule--a standard of 5 parts per billion. And finally, last January, the agency issued its long- awaited final regulation--ultimately settling on a standard of 10 ppb. EPA's regulation was clearly based on a National Academy of Sciences report that found that drinking water containing 50 parts per billion of arsenic ``could easily'' cause a 1 percent risk of cancer. The NAS also found that children are particularly susceptible to arsenic poisoning and recommended that the standard should be reduced ``as promptly as possible.'' This administration's decision to delay implementation runs counter to the best scientific judgement available to us. To put things in context, the current U.S. arsenic standard is equivalent to the standard employed by developing countries like Bangladesh and China, which may not have the financial and technical resources to adopt stronger standards. In contrast, industrialized countries like Australia or the European Union nations have adopted a 7 ppb and 10 ppb standard, respectively. As the richest, most technologically advanced nation in the world, I would expect that we would lead the world in clean water standards. Beyond this decision to reconsider the new arsenic standards, I share the concerns of many citizens about what appears to be a disturbing pattern on the part of the Administration's regulatory policies. President Bush and his team have presided over the repeal, delay, or weakening of rules and regulations that would otherwise benefit the American people, ranging from rules to protect wilderness areas in our national forests from roadbuilding to regulations governing the toxic effects of mining on federal lands. I have spoken out against this emerging pattern of ``government by repeal.'' And I have questioned the process by which the decisions to rollback, weaken or delay these regulations, including the arsenic regulation, were reached. As Chairman of the Governmental Affairs Committee, I have been conducting an in-depth examination of the decisionmaking process on several rules. I want to know who the agencies consulted or relied on in making their decisions and what process the agencies went through to make their hasty decisions. Despite initial resistance, I am pleased that we have made progress in protecting Congress's right to oversee the activities of the Executive Branch. I commend Senator Boxer for her leadership on this matter. I join her in urging our colleagues to support this measure.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I am delighted to join with Senators Kennedy, Specter, Jeffords and many other colleagues as an original cosponsor of this important legislation, the Employment Non- Discrimination Act of 2001. By guaranteeing that American workers cannot lose their jobs simply because of their sexual orientation, this bill would extend the bedrock American values of fairness and equality to a group of our fellow citizens who too often have been denied the benefit of those most basic values. Two hundred and twenty-five years ago this month, Thomas Jefferson laid out a vision of America as dedicated to the simple idea that all of us are created equal, endowed by our Creator with the inalienable rights to life, liberty and the pursuit of happiness. As Jefferson knew, our society did not in his time live up to that ideal, but since his time, we have been trying to. In succeeding generations, we have worked ever harder to ensure that our society removes unjustified barriers to individual achievement and that we judge each other solely on our merits and not on characteristics that are irrelevant to the task at hand. We are still far from perfect, but we have made much progress, especially over the past few decades, guaranteeing equality and fairness to an increasing number of groups that traditionally have not had the benefits of those values and of those protections. To African- Americans, to women, to disabled Americans, to religious minorities and to others we have extended a legally enforceable guarantee that, with respect to their ability to earn a living at least, they will be treated on their merits and not on characteristics unrelated to their ability to do their jobs. It is time to extend that guarantee to gay men and lesbians, who too often have been denied the most basic of rights: the right to obtain and maintain a job. A collection of one national survey and twenty city and State surveys found that as many as 44 percent of gay, lesbian and bisexual workers faced job discrimination in the workplace at some time in their careers. Other studies have reported even greater discrimination, as much as 68 percent of gay men and lesbians reporting employment discrimination. The fear in which these workers live was clear from a survey of gay men and lesbians in Philadelphia. Over three-quarters told those conducting the survey that they sometimes or always hide their orientation at work out of fear of discrimination. The toll this discrimination takes extends far beyond its effect on the individuals who live without full employment opportunities. It also takes an unacceptable toll on America's definition of itself as a land of equality and opportunity, as a place where we judge each other on our merits, and as a country that teaches its children that anyone can succeed here as long as they are willing to do their job and work hard. This bill provides for equality and fairness, that and no more. It says only what we already have said for women, for people of color and for others: that you are entitled to have your ability to earn a living depend only on your ability to do the job and nothing else. This bill would bring our Nation one large step closer to realizing the vision that Thomas Jefferson so eloquently expressed 225 years ago when he wrote that all of us have a right to life, liberty and the pursuit of happiness. I urge my colleagues to join me in supporting this important legislation.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I am delighted to join with Senators Kennedy, Specter, Jeffords and many other colleagues as an original cosponsor of this important legislation, the Employment Non- Discrimination Act of 2001. By guaranteeing that American workers cannot lose their jobs simply because of their sexual orientation, this bill would extend the bedrock American values of fairness and equality to a group of our fellow citizens who too often have been denied the benefit of those most basic values. Two hundred and twenty-five years ago this month, Thomas Jefferson laid out a vision of America as dedicated to the simple idea that all of us are created equal, endowed by our Creator with the inalienable rights to life, liberty and the pursuit of happiness. As Jefferson knew, our society did not in his time live up to that ideal, but since his time, we have been trying to. In succeeding generations, we have worked ever harder to ensure that our society removes unjustified barriers to individual achievement and that we judge each other solely on our merits and not on characteristics that are irrelevant to the task at hand. We are still far from perfect, but we have made much progress, especially over the past few decades, guaranteeing equality and fairness to an increasing number of groups that traditionally have not had the benefits of those values and of those protections. To African- Americans, to women, to disabled Americans, to religious minorities and to others we have extended a legally enforceable guarantee that, with respect to their ability to earn a living at least, they will be treated on their merits and not on characteristics unrelated to their ability to do their jobs. It is time to extend that guarantee to gay men and lesbians, who too often have been denied the most basic of rights: the right to obtain and maintain a job. A collection of one national survey and twenty city and State surveys found that as many as 44 percent of gay, lesbian and bisexual workers faced job discrimination in the workplace at some time in their careers. Other studies have reported even greater discrimination, as much as 68 percent of gay men and lesbians reporting employment discrimination. The fear in which these workers live was clear from a survey of gay men and lesbians in Philadelphia. Over three-quarters told those conducting the survey that they sometimes or always hide their orientation at work out of fear of discrimination. The toll this discrimination takes extends far beyond its effect on the individuals who live without full employment opportunities. It also takes an unacceptable toll on America's definition of itself as a land of equality and opportunity, as a place where we judge each other on our merits, and as a country that teaches its children that anyone can succeed here as long as they are willing to do their job and work hard. This bill provides for equality and fairness, that and no more. It says only what we already have said for women, for people of color and for others: that you are entitled to have your ability to earn a living depend only on your ability to do the job and nothing else. This bill would bring our Nation one large step closer to realizing the vision that Thomas Jefferson so eloquently expressed 225 years ago when he wrote that all of us have a right to life, liberty and the pursuit of happiness. I urge my colleagues to join me in supporting this important legislation.

Mr. LIEBERMAN

Mr. LIEBERMAN. As a Senator reviewing a President's nominee, exercising the constitutional advice and consent responsibility we have been given, I always try not to consider whether I would have chosen this nominee because it is not my choice to make. However, it is my responsibility to consider whether the nominee would appropriately fulfill the responsibilities of this office; whether I have sufficient confidence that the nominee would do so to vote to confirm him. Where we are dealing, as we are here, with what I have described as the protective role of government, where people's safety and health and the protection of the environment is on the line, I approach my responsibility with an extra measure of caution because the consequences of confirming a nominee who lacks sufficient commitment to protecting the public health and safety through protective regulations are real and serious to our people and to our principles. Dr. Graham, in the meetings I have had with him, appears to me to be an honorable man. I just disagree with his record and worry he will not adequately, if nominated, fulfill the responsibilities of this office. So taking all of those factors into account, I have reached the conclusion that I cannot and will not support the nomination of Dr. Graham to be the Director of OIRA. I yield the floor.

Mr. LIEBERMAN. Mr. President, I thank my friend from Tennessee for his graciousness and fairness. I yield myself up to 15 minutes from the time I have under the prevailing order. Mr. President, the nomination of John Graham to administer the Office of Information and Regulatory Affairs, known as OIRA, is an important nomination, although the office is little known. I say that because the office, though little known, has a far reach throughout our Government. It particularly has a significant effect on a role of Government that is critically important and cherished by the public. That is the protective role. This responsibility, when applied to the environment or the health and safety of consumers and workers, is worth a vigorous defense. It is a role which the public wants and expects the Government to play. I fear it is a role from which the present administration seems to be pulling away. It is in that context I view this nomination. With that in mind, I have weighed Dr. Graham's nomination carefully. I have reviewed his history and his extensive record of advocacy and published materials. I listened carefully to his testimony before the Governmental Affairs Committee. I did so, inclined, as I usually am, to give the benefit of the doubt to the President's nominees. In this case, my doubts remained so persistent and the nominee's record on issues that are at the heart of the purpose of the office for which he has been nominated are so troubling that I remain unconvinced that he will be able to appropriately fulfill the responsibilities for which he has been nominated. I fear in fact, he might--not with bad intentions but with good intentions, his own--contribute to the weakening of Government's protective role in matters of the environment, health, and safety. That is why I have decided to oppose Dr. Graham's nomination. Let me speak first about the protective role of Government. Among the most essential duties that Government has is to shield our citizens from dangers from which they cannot protect themselves. We think of this most obviously in terms of our national security or of enforcement of the law at home against those who violate the law and commit crimes. But the protective function also includes protecting people from breathing polluted air, drinking toxic water, eating contaminated food, working under hazardous conditions, being exposed to unsafe consumer products, and falling prey to consumer fraud. That is not big government; that is responsible, protective government. It is one of the most broad and supportive roles that Government plays. OIRA, this office which Dr. Graham has been nominated to direct, is the gatekeeper, if you will, of Government's protective role. OIRA reviews major rules proposed by agencies and assesses information on risk, cost, benefits, and alternatives before the regulations can go forward. Then if the Administrator of OIRA finds an agency's proposed rule unacceptable, they return the rule to the agency for further consideration. That is considerable power. This nominee would continue the traditional role but charter a further, more ambitious role by declaring that he intends to involve himself more in the front end of the regulatory process, I assume. That is what he said before our committee. I assume by this he meant he will take part in setting priorities in working with agencies on regulations even before they have formalized and finalized their own ideas to protect the public. So his views on regulation are critically important, even more important because of this stated desire he has to be involved in the front end of the process. It also means he could call upon the agencies to conduct time-consuming and resource-intensive research and analysis before they actually start developing protections needed under our environmental statutes. Some others have referred to this as paralysis by analysis; in other words, paralyzing the intention, stifling the intention of various agencies of our Government to issue regulations which protect the environment, public health, safety, consumers, by demanding so much analysis that the regulations are ultimately delayed so long they are stifled. OIRA, looking back, was implicated during earlier administrations in some abuses that both compromised the protective role of Government and undermined OIRA's own credibility. There was a history of OIRA reviewing regulations in secret, without disclosure of meetings or context with interested parties. Rules to protect health, safety, and the environment would languish at OIRA, literally, for years. I am not making that up. Regulations would be stymied literally for years with no explanation. Then OIRA would return them to the agencies with many required changes, essentially overruling the expert judgment of the agencies, which not only compromised the health and safety of the public which was unprotected by those regulations for all that time but also frustrated the will of Congress which enacted the laws that were being implemented by those regulations. To be fair, of course, it is too soon to say whether similar problems will occur at OIRA during the Bush administration, and Dr. Graham himself expressed a desire to uphold the transparency of decisionmaking at OIRA. However, the potential for abuse remains. That is particularly so for delaying the process, with question after question, while the public remains unprotected. Let me turn directly to Dr. Graham's record. In the hearing on his nomination, Dr. Graham acknowledged, for instance, his opposition to the assumptions underlying our landmark environmental laws --that every American has a ``right'' to drink safe water and breathe clean air. Indeed, Dr. Graham has devoted a good part of his career to arguing that those laws mis-allocate society's resources, suggesting we should focus more on cost-benefit principles, which take into consideration, I think, one view of the bottom line, but may sacrifice peoples' right to a clean and healthy environment and a fuller understanding of the bottom-line costs involved when people are left unprotected. Dr. Graham has written generally, for example, that the private sector should not be required to spend as much money as it does on programs to control toxic pollution, that he believes, on average, are less cost-effective than medical or injury-prevention efforts, where presumably more money should be spent. But why force us to make such a choice when both are necessary for the public interest? Dr. Graham has said society's resources might be better spent on bicycle helmets or violence prevention programs than on reducing children's exposure to pesticide residues or on cutting back toxic pollution from oil refineries. This is the kind of result that his very theoretical and I would say, respectfully, impractical, cost-benefit analysis produces. Bicycle helmets save lives, and violence is bad for our society. But the problem is that Dr. Graham's provocative theorizing fails to answer the question of how to protect the health of, for instance, the family that lives next to the oil refinery or in the neighborhood. His rational priority setting may be so rational that it becomes, to those who don't make it past the cost-benefit analysis, cruel or inhumane, although I know that it is not his intention. Dr. Graham sought to allay concerns by explaining that his provocative views were asserted as a university professor, and that in administering OIRA he would enforce environmental and other laws as written. I appreciate his assurances. But for me, his long-standing opinions and advocacy that matters of economy and efficiency supersede the environmental and public health rights of the citizenry still leave me unsettled and make him an unlikely nominee to lead OIRA. Dr. Graham's writings and statements are controversial in their own right, but they are all the more so in light of the actions the Bush Administration has already taken with regard to protective regulations. It began with the so-called Card memo--written by the President's Chief of Staff, Andrew Card--which delayed a number of protective regulations issued by the Clinton administration. The Card memo was followed by a series of troubling decisions--to reject the new standard for arsenic in drinking water; to propose lifting the rules protecting groundwater against the threat of toxic waste from ``hard-rock'' mining operations on public lands; to reconsider the rules safeguarding pristine areas of our national forests; and to weaken the energy-efficiency standard for central air conditioners. So his views are disconcerting. In the context of this administration and the direction in which it has gone, they are absolutely alarming. We have received statements from several respected organizations opposing this nomination. I do at this time want to read a partial list of those because they are impressive: the Wilderness Society, the League of Conservation Voters, the Sierra Club, the National Resources Defense Council, Public Citizen, National Environmental Trust, OMB Watch, AFL-CIO, American Federation of State, County and Municipal Employees, American Rivers, Center for Science and the Public Interest, Defenders of Wildlife, Earthjustice Legal Defense Fund, Friends of the Earth, Greenpeace, Mineral Policy Center, Physicians for Social Responsibility, Southern Utah Wilderness Alliance, the United Auto Workers, the United Food and Commercial Workers International Union, The United States Public Interest Research Group. We have received, Members of this body, letters from many of these organizations and others urging us to oppose this nomination. We have also received letters against the nomination from over 30 department heads and faculty members at medical and public health schools across the United States, from numerous other scholars in the fields of law, economics, science, and business, and from former heads of Federal departments and agencies that have been referred to earlier in this debate. I ask unanimous consent that these various letters of opposition to Dr. Graham's nomiantion be printed in the Record.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I announce that the Committee on Governmental Affairs will meet on Tuesday, July 17, 2001, at 2:30 p.m. for a hearing to examine ``Expanding Flexible Personnel Systems Governmentwide.'' committee on energy and natural resources

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise to support the amendment offered by my friend from Arizona. I do so because I think this amendment makes two very important points. Those are points that have strength and with which I want to identify whether or not this amendment has any possibility of passing. The two points are these: First, that we are not spending enough on our national security; second, Congress has recently adopted and the President has signed a tax cut package that will make it increasingly difficult for us in the months and years ahead to find the resources to meet the needs of our defense systems and structures and forces. Those are the two critical points. We have in recent years tried in Congress, and succeeded on a bipartisan basis, to significantly increase the recommended budget levels to sustain real growth in our defense spending. Beginning in the mid 1980s and going through about 2 or 3 years ago, every year spending on defense dropped in real dollars. That was a peace dividend, people said. In fact, when you look at the constriction of spending in the Federal Government over the last decade or so, most of it comes at the expense of defense; some of it obviously justified by the end of the cold war. At the end of the cold war, America emerged in a very different world as the one superpower with extraordinary responsibilities for maintaining the peace in our own interest and the world's interest around the world. As I say, we began to turn that around. In real dollars we began to increase defense spending 2 or 3 years ago. Continuing this support must be a priority. We have to provide for immediate needs in the fiscal year 2001 supplemental and to commit to funding levels to maintain current readiness, as well as to modernize and transform our forces in the coming defense budget. I am deeply concerned that if we do not, we may jeopardize our capacity to defend our interests here and abroad. I have heard what my friend from Arizona has said. I couldn't agree with him more about the statements made last year that ``help is on the way.'' In some sense, it appears that the check may have been lost in the mail because although there are increases in defense in this supplemental appropriations and in the budget President Bush has recommended, they are inadequate to the needs of our defense. That is where I hope we in this body and Members of Congress, the other body, will join together on a bipartisan basis to give the Department of Defense the funds it needs to protect us. The defense supplemental for fiscal year 2001, as has been said, is $5.6 billion, which, as I understand it, is about half of the amount that the service chiefs asked for. Although the fiscal year 2002 budget request from the administration is an increase, again, I don't think it is enough to meet our national security needs. For instance, by my calculation, both procurement and research and development for the Army are less than that appropriated last year. Navy procurement is lower by almost $2 billion than last year. As Admiral Clark, the Chief of Naval Operations, testified at the Armed Services Committee today, we are now a 314-ship Navy and on a course to head to 240 ships. It wasn't so long ago that we thought we needed 600 to protect us in the waters of the world. We are not meeting the needs of the Navy. Air Force research and development, the investments in the ideas and technologies that will maintain our dominance in a high-technology world are lower in this budget than they were last year. It is all that which brings me to join with Senator McCain in this amendment to make a statement not only about the short-term needs of the military this year, which respectfully are inadequately met in this supplemental appropriations bill, but also to raise an alarm about the inadequate funding in the budget submitted for fiscal year 2002 and about the ever more difficult problems we will face in the years ahead as a result of the national resources that have been squandered in the adoption of a tax bill that gives most to the few and leaves little for the broad national needs of our Nation. This amendment adds $847.8 million to the amount requested by the President, a reasonable amount, mostly targeted toward short-term needs in the personnel and operation and maintenance accounts that must be fixed within the next 3 months. This is not extra, surplusage. This money will be put immediately to critical national security uses, including $1 million to remove additional sailors and marines from food stamps--a national disgrace--and for the protection of our forces in the Arabian Gulf. To do this, this measure includes offsets. So it is, in that sense, balanced. I realize that every dollar has an advocate and every cut here will pain someone. In fact, some of them pain me. Senator McCain has chosen some programs that I have supported and identified with. But the point is that there is a larger interest here, and that is that the short- term military needs of our country are a higher priority now. I believe the short-term military needs are a higher priority now. But this, of course, is more than an issue of short-term spending. It is also a question of long-held values and responsibilities. One of the most fundamental responsibilities we have under the Constitution is to provide for the common defense of our Nation. To fulfill that obligation, I am convinced we will have to significantly increase defense spending over the next decade. This amendment is a small, but significant, step in that direction; immediately, it is a large statement of what is to come. I hope that together we will meet our obligations to our men and women in uniform and, therefore, meet our responsibility to provide for the common defense. I thank the Chair and yield the floor.

Mr. LIEBERMAN. Mr. President, I will vote for the Hollings amendment and wish to explain my reasoning. The amendment focuses on the consequences of the massive tax cut, namely that we are facing a Hobson's choice--either raid the Social Security and Medicare HI trust funds or forgo needed spending on defense, education and other priorities. This is a choice that will bedevil us for years to come until we come to our senses regarding a tax cut we can afford. The Hollings amendment seeks to avoid this Hobson's choice by rescinding a portion of the excessive tax cut. I would prefer that he rescinded aspects of the tax cut other than the rebates. I was an early advocate of rebates to help us with the current economic slowdown. I was disappointed in the rebate that was finally adopted in the tax bill because it is not being paid to tens of millions who filed tax returns, but I still support rebates. If we don't face reality regarding the tax cut, however, we will be faced again and again with the Hobson's choice regarding the trust funds. We have urgent priorities to modernize our defense establishment and to fund the education reform initiative, both issues where I have expended considerable effort over the years. The problem we will face is that so much of the government's revenue base has now been spent that any national priority that requires more support, like defense or education, will have to be shelved or funded at the expense of the trust fund surpluses. As Chairman Conrad has explained, the President's budget plan means we may well raid these trust funds this year even if we do not go forward with these urgent priorities. We won't know for sure until the new budget estimates are provided in August and at the end of the fiscal year, but we may spend down these trust funds even if we do not exceed the budget resolution limits. I applaud Senator Hollings for raising this issue, and for seeking to avoid this Hobson's choice. While this amendment affects rebates that I support, it brings needed attention to the overall box the Administration has placed us in and the difficult choices we will have to make. This amendment attempts to avoid our dipping into the trust fund surpluses. There are other ways to accomplish the same goal and I will be exploring them as we struggle with the consequences of the tax bill, the need to defend the trust funds and fund urgent defense and education reforms. This is a Hobson's choice we did not have to face and that is why I voted against the tax bill and will vote for the Hollings amendment.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise to speak about the McCain- Edwards-Kennedy Patients' Bill of Rights. It has been 4 years since the first managed care reform bill was introduced in Congress. After years of unyielding and unproductive debate, we came together this week to find common ground for the common good, and pass a bill that will significantly improve the quality of medical treatment for millions of American families. We have worked very hard to get to this day, and with the unfailing commitment of my colleagues on both sides, we have produced a bill that I am very proud to support. This bill does more than just provide new assurances to patients. It will provide a whole new framework for the delivery of health care in this country, helping to transform our managed care system from one in which health plans are immune for the life and death decisions they make every day to a more fair and accountable system for America's families. The purpose of this legislation has broad--and I emphasize broad-- bipartisan support. According to a CBS news poll from 6/20/01, 90 percent of Americans support a Patients' Bill of Rights. Two years ago, 68 Republicans in the House of Representatives voted for the Norwood-Dingell Patients' Bill of Rights legislation that allowed patients to sue HMOs if they are denied a medical benefit that they need. The Ganske-Dingell bill in the House of Representatives currently has strong support from both Democrats and Republicans. I urge my colleagues in the House to take up the Ganske-Dingell Patients' Bill of Rights and pass it without delay so that we can send a bill to the president for signature. We need to enact a patients' bill of rights now. Every day that goes by, nearly 50,000 American people with private insurance have benefits delayed or denied by their health plans. These critical decisions made by health plans impact thousands of families at times of great stress and worry. Our most fundamental well-being depends on our health. Anyone who has had a sick family member can tell you of the anxiety they experience during a medical emergency or prolonged illness. It is our obligation and within our ability to make it easier for these families. This bill will do just that. Opponents of this legislation express concern that if this bill is signed into law, we will see a flood of lawsuits. I would like to point out that in the 4 years since Texas enacted legislation allowing patients to hold their health insurer liable for denying care, there have been very few lawsuits filed. Four million people in Texas are covered by that State's patient protection law. Only 17 lawsuits have been filed. The appeals process in this bill is fair and binding. With a strong and swift appeals process, patients should be able to receive the care they need, when they need it. The need for recourse in court should be minimal. It was never the intent of this legislation to encourage more lawsuits. The sole purpose for this bill is to deliver health care to the people who need it. I remain hopeful that as it is the case in Texas, there will be very few lawsuits once this bill becomes law. Rather, under this Patients' Bill of Rights, patients will get the care they need and deserve with less delay and less dispute. No longer will a cancer patient have to worry about access to clinical trials for new treatments. No longer will a family with a sick child have to worry about access to a pediatric specialist. No longer will a pregnant woman have to worry about switching doctors mid-pregnancy if her doctor is dropped from a plan. Doctors will be able to prescribe the care they feel is necessary without feeling pressured to make cost-efficient decisions. And managed care companies will be held responsible when their denials of care threaten the lives of patients. In sum, under this legislation, our health care system will better reflect and respect our values, putting patients first and the power to make medical decisions back in the hands of doctors and other health care professionals. We can all be proud of this outcome and the path we followed to get here. The Senate worked through a lot of complicated issues and problems, reconciled legitimate policy differences, and reached principled compromise where we could. The result is real reform, and a bill of rights that is right for America.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, I rise today to commend the authorities of Serbia for, at long last, handing over Slobodan Milosevic to the International Criminal Tribunal. It is ironic, and perhaps fitting, that his arrest and transfer to the international court took place on June 28--one of the most noted dates in Serb history, when in 1389 the Serbs were defeated at the battle of Kosovo Polje, ushering in a period of Ottoman Turkish rule. It is my hope that future generations of Serbs will remember June 28, 2001 with the same sense of historic importance and as the beginning of true and long-lasting democracy and respect for the rule of law. Mr. Milosevic has been charged by an independent, impartial, international criminal tribunal with crimes against humanity and violations of the laws or customs of war against the ethnic Albanian population of Kosovo. And according to the Prosecutor of the Tribunal, we can expect more indictments against him for earlier crimes in Croatia and Bosnia. His extradition to the Hague is historic, if long overdue. As a former head of state, there were many who believed that he would never be made to answer for the charges against him. That this day finally came underscores the commitment of the international community to investigating and prosecuting individuals for war crimes. And it sets an important precedent in international law; namely, that the Geneva Conventions and their Protocols will be upheld and enforced regardless of one's position or influence. The message in all of this is clear and inspiring: with patience and perseverance, democracy and the rule of law will prevail. Serbian Prime Minister Djindjic deserves praise for his leadership on this issue and for recognizing that if Serbia wants to join the democratic family of nations, then it must uphold and respect the rule of law. Many others have contributed their efforts over the years leading up to this historic day and deserve mention: former Secretary of State Madeleine Albright, U.S. Ambassador-at-large for War Crimes, David Scheffer, and ICTY Prosecutors Justice Louise Arbour and Carla Del Ponte, to name just a few. The wars that tore apart the former Yugoslavia--and which threaten Macedonia today--were largely, although not exclusively, of Mr. Milosevic's doing. He fomented extreme ethnic nationalism and unleashed his army and special police forces on the civilian populations of Croatia, Bosnia and Kosovo. Millions of people were driven from their homes and more than a quarter of a million are believed to have died. For his policies he earned himself the name, ``the Butcher of Belgrade.'' His victims deserve accountability and his former citizens deserve to know what was done in their name. It must be stressed that the Serb people are not on trial; only Mr. Milosevic. The United States seeks friendship and partnership with all of the people of the former Yugoslavia. Our presence and contributions at the donor's conference are evidence of our intentions. Yet while we welcome yesterday's developments, we must also not forget that 26 accused remain on the run, most of them in Bosnia and Serbia. I call on the accused to turn themselves over to the jurisdiction of the Tribunal to answer the charges against them without further delay. It is the honorable thing to do. But failing this, the local authorities must take swift and decisive action, if necessary with the support of international peacekeeping troops, to deliver these fugitives from justice to the court in the Hague. There will never be long-lasting peace and stability in the region so long as these individuals remain on the run. The fact that they have evaded justice for so long--in the case of Radovan Karadzic and Ratko Mladic it's already six year--makes a mockery of justice and it must end.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, today I am reintroducing a proposal with regard to the perverse impact of the Alternative Minimum Tax, AMT, on Incentive Stock Options, ISOs. I previously introduced this proposal on April 30, 2001, as Section 5 of S. 798, the Productivity, Opportunity, and Prosperity Act of 2001. I am reintroducing this proposal as a separate bill to highlight the importance of this issue. Incentive stock options and the AMT did not exist when Franz Kafka's ``The Castle'' was published in 1926. The book describes the relentless but futile efforts of the protagonist, K., to gain recognition from the mysterious authorities ruling from their castle a village where K. wants to establish himself. The world he inhabits is both absurd and real. Kafka's characters are trapped, and punished or threatened with punishment before they even have offended the authorities. The AMT/ISO interaction would be one that Kafka would appreciate. In the case of ISOs an employee who receives ISOs as an incentive can be taxed on the phantom paper gains the tax code deems to exist when he or she exercises an option, and be required to pay the AMT tax on these ``gains'' even if the ``gains'' do not, in fact, exist when the tax is paid. This means the taxpayer may have no gains, no profits or assets, with which to pay the AMT and might even have to borrow funds to pay the tax or even go into default on his or her AMT liability. This Kafkaesque situation is unfair. It is not fair to impose tax on ``income'' or ``gains'' unless the income or gains exist. With the AMT tax on ISOs, it is not relevant if the ``gains'' exist in a financial sense. That they exist on paper is sufficient to trigger the tax. This situation is also inconsistent with many well-established Federal Government policies. For example, our country favors stock options as an incentive for hard-working and productive employees of entrepreneurial companies. In most cases, entrepreneurs take enormous risks, receive less compensation than employees working for established companies, and have no company-sponsored pension plan. In addition, our country favors employee-ownership of firms. This ownership gives these employees a huge stake in the success of the company and motivates them to dedicate themselves to the firm's success. Finally, our country also favors long-term investments that generate growth. We know that growth is most likely to arise when entrepreneurs take risks over the long- term and build fundamental value for their companies and shareholders and owners. The policy favoring long-term investments is reflected in the fact that capital gains incentives are available only if an investment is held for at least one year. An investment sold before the end of this ``holding period'' receives no capital gains benefit. The application of the AMT to ISOs is inconsistent with all three of these public policies. Let me explain the difference between ISOs and NSOs. Incentive stock options are sanctioned by the Internal Revenue code. Under current law the employee pays no tax when he or she exercises the option and buys the company's shares at the stock option price. The company receives no tax deduction on the spread, the difference between the option price and the market price of the stock. If the employee holds the stock for two years after the grant of the option and one year after the exercise of the option, he or she pays the capital gains tax on the difference between the exercise and sale price on the sale of the stock. The tax payment is deferred until the stock is sold and the tax is paid on the real gains that are realized from the sale. NSOs are stock options that do not satisfy the tax code requirements for ISOs. They are ``non-qualifying stock options'' or NSOs. With NSOs the employee is taxed immediately when the option is exercised on the spread between the grant and exercised price. This forces an employee to sell stock as soon as he or she exercise their options so that they can pay the tax on the spread. This is a zero sum game for the employee, selling the stock he or she has just bought to pay a tax on the spread. Even worse, because the stock is not ``held'' for one year, this tax is paid at the ordinary income tax rates, not the preferential capital gains tax rates. The company receives a business expense deduction on the spread. If this were the whole story, it is clear that companies would tend to offer ISOs rather than NSOs to their employees. Employees would be encouraged to hold their shares for at least a year after the option is exercised, which helps to bind them to the company. They would then qualify for capital gains tax rates on the realized gains. The problem is that ISOs come with a major liability, the application of the Alternative Minimum Tax, AMT, to the spread at the time of exercise. This tax is due to be paid even if the stock is held for the required period and even if the stock is eventually sold at a fraction of its value at the time the option is exercised. This tax at the time of exercise is inconsistent with the rule that applies to all other capital gains transactions, where the tax is paid when the gains are ``realized,'' when the investment is sold with gains or losses. This tax at the time of exercise defeats the purpose of ISOs, forces employees to sell their stock, to pay the AMT tax, before the end of the holding period, and pay ordinary income tax rates. The difference between ordinary income tax rates and capital gains tax rates can be 15 percent or more. The AMT tax is imposed on the spread at the time the option is exercised and it is irrelevant if the stock price at the time when the AMT tax is paid or when the stock is sold is a fraction of this price. The ``gains'' at the time of exercise are what count, not real gains in a financial sense when the investment is finally sold. The application of the AMT at the time of exercise to ISOs is a major disincentive for companies to offer ISOs to their employees. The purpose of the ISO law when it was enacted by Congress back in 1981 was to encourage long-term holdings of the stock. This purpose is defeated by the AMT application at the time of exercise. Even if firms could educate their employees about the AMT liability, the fact that this tax is imposed at the time of exercise on phantom gains would remain a major disincentive for them to offer ISOs. The risks are too great that the employee will have no real gains with which to pay the tax, that employee will have to sell stock immediately at ordinary income tax rates to make sure that funds are available to pay the tax when it is due, or take the risk of holding the stock. My understanding is that the firms that are most likely to grant ISOs are those firms that have no ability to use the corporate deduction that is available for NSOs. These are small firms with no tax liability for which the deduction is simply a tax loss carryforward with no current year value. With these firms the ISO held out the possibility of the employees receiving capital gains tax treatment of their gains. It is particularly sad that it is these firms and these employees which are feeling the brunt of the AMT/ISO problem. The application of the AMT to ISOs is strange because long-term holdings of stock, as required by the ISO law, are classic capital gains transactions and we do not apply the AMT to the tax benefit conferred by the capital gains tax. Under the AMT only ``tax preference items'' enumerated in the AMT are included when the AMT calculation is made. The capital gains differential, the difference between the ordinary tax rate on income and the lower capital gains rate, is a tax benefit but that differential is not included in the AMT. Given all the problems we are now seeing with the AMT the capital gains differential should not be included as a preference item. But, by an accident of history, the AMT is still applied to ISOs. This makes no sense and it is an anomaly in the tax code. When the Congress restored the capital gains differential, and did not include it as an AMT tax preference item, we should have enacted a conforming amendment regarding the AMT and ISOs. We didn't, and we should do so now. With the AMT applied to ISOs, taxpayers are caught in a Catch-22 situation. If they hold the stock for the required year, they can qualify for capital gains treatment on the eventual sale of the stock. But, in doing so they are taking a huge risk that the AMT tax bill will exceed the value of the stock when the AMT is paid. If the tax is too large, they may have to sell their stock before the capital gains holding period has run and pay ordinary income tax rates on any gains. This is a form of lottery that serves no public policy. The AMT was created to ensure the rich cannot use tax shelters to avoid paying their ``fair share.'' Taxpayers are supposed to calculate both their regular tax and the AMT bill, then pay whichever is higher. The AMT is likely to snare 1.5 million taxpayers this year and nearly 36 million by 2010. But the case with ISOs is one where the taxpayers may never see the ``gains,'' and noneless owe a tax on them. Whatever the merits might be for the AMT for taxpayers with real gains, they have no bearing on taxpayers who may never see the gains. It is simply unfair to impose a tax on gains that exist only on paper. If the employee does realize gains, they should and will pay tax on them, but only if and when the gains are realized. Of course, with the recent huge drop in values for some stocks, many entrepreneurs are now being hit with immense AMT tax bills on the paper gains on stocks that are now worth a fraction of the price at the time of exercise. At a townhall meeting held in California by Representative Lofgren and Representative Bob Matsui, Kathy Swartz, a Mountain View woman, six months pregnant and soon to sell her ``dream house'' because she and her husband Karl owe $2.4 million in AMT, asked, ``How many victims do you need before you say it's horrible?'' We are talking about taxpayers who in fact owe five- to seven-figure tax bills on gains they never realized. My bill would change those tax rules so that the AMT no longer applies to ISOs and no tax is owed at the time when the entrepreneur exercises the option. This change would eliminate the unfair taxation of paper gains on ISOs. This would encourage long-term holdings of stock, not immediate sale of the stock as a hedge against AMT tax liability. It would do nothing to exempt entrepreneurs from paying tax on their real gains when they eventually sell the stock. My bill would solve this problem going forward. It would not, as drafted, provide relief to the taxpayers who already have been hit with AMT taxes on phantom gains. There is a bipartisan group in the House and Senate focusing on this group of taxpayers. This group has a strong claim for relief based on the inherent unfairness of the AMT as applied to ISOs. The unfairness of this law leads me to call for reform going forward should be remedied for current, as well as future taxpayers. Let me be clear about the cost and budget implications of my bill. The Joint Tax Committee on Taxation has found that my proposal would reduce government tax revenues by $12.412 billion over ten years. I am puzzled by this estimate, but there is no way for me to appeal it. The JTC does not provide explanations for its estimates, but I would assume that this estimate is based on the likelihood that there would be fewer tax payments at the time options are exercised as firms move from NSOs to ISOs, those employees with ISOs would not be paying the AMT, and there will be more employees who hold the stock and pay capital gains tax rates. Offsetting this, there will be fewer companies taking the deduction for NSOs. The revenue loss year-by-year is as follows: --$1.821 billion (2002), -- $1.126 (2003), --$858 (2004), --$825 (2005), --$941 (2006), --$1.106 (2007), --$1.341 (2009), --$1.620 (2010), and $1.910 (2011). The loss during the 2002-2006 period is --$5.494 billion. I will not propose to enact my bill unless this sum is financed and will have no impact on the Federal budget. I am pleased that Rep. Zoe Lofgren (D-CA) has introduced legislation on AMT/ISO in the other body (H.R. 1487). Her bill has attracted a bipartisan group of cosponsors. I look forward to working with her and other Members to remedy this inequity in the tax code and to do so with regard to current as well as future taxpayers. Let me note that I have proposed in S. 798 to provide a special capital gains tax rate, in fact to set a zero tax rate, for stock purchased by employees in stock option plans, by investors in Initial Public Offerings, and similar purchases of company treasury stock. This zero rate would be effective, however, only if the shares are held for at least three years, so the AMT gamble would be even more dramatic. During the first year of that holding period, the AMT would have to be paid and during the remaining period the value of the stock could well dive from the exercise price creating an even more invidious trap. Kafka ``The Castle'' should remain as magnificent fiction. We have no place for taxes on phantom income and paper gains. Our taxpayers should be able to communicate effectively with the castle, not be caught in a bureaucratic nightmare that makes no sense and serves no policy.

Mr. LIEBERMAN. Mr. President, I rise to introduce a bill that will re-authorize a small but highly effective program, the Emergency Food and Shelter Program, or EFS for short. The EFS program, which is administered by the Federal Emergency Management Agency, supplements community efforts to meet the needs of the homeless and hungry in all fifty States. I am very pleased that my colleagues on the Committee on Governmental Affairs, Senators Collins, Levin, Durbin, and Akaka, are joining me as original co-sponsors of this legislation. Our committee has jurisdiction over the EFS program, and it is my hope that together we can generate even more bipartisan support for a program that makes a real difference with its tiny budget. The EFS program is a great help not only to the Nation's homeless population but also to working people who are trying to feed and shelter their families at entry-level wages. Services supplemented by the EFS funding, such as food banks and emergency rent/utility assistance programs, are especially helpful to families with big responsibilities but small paychecks. One of the things that distinguishes the EFS program is the extent to which it relies on non-profit organizations. Local boards in counties, parishes, and municipalities across the country advertise the availability of funds, decide on non-profit and local government agencies to be funded, and monitor the recipient agencies. The local boards, like the program's National Board, are made up of charitable organizations including the National Council of Churches, the United Jewish Communities, Catholic Charities, USA, the Salvation Army, and the American Red Cross. By relying on community participation, the program keeps administrative overhead to an unusually low amount, less than 3 percent. The EFS program has operated without authorization since 1994 but has been sustained by annual appropriations. The proposed bill will re- authorize the program for the next three years. It will also authorize modest funding increases over the amounts appropriated in recent years. A similar bill introduced by Senator Thompson and me in the last Congress, S. 1516, passed the Senate by Unanimous Consent. In summary, FEMA's Emergency Food and Shelter Program is a highly efficient example of the government relying on the country's non-profit organizations to help people in innovative ways. The EFS program aids the homeless and the hungry in a majority of the Nation's counties and in all fifty States, and I ask my colleagues to support this program and our re-authorizing legislation. I ask unanimous consent that the text of the bill be printed in the Record.

Mr. LIEBERMAN

Mr. LIEBERMAN. Mr. President, today I am reintroducing a proposal with regard to the perverse impact of the Alternative Minimum Tax, AMT, on Incentive Stock Options, ISOs. I previously introduced this proposal on April 30, 2001, as Section 5 of S. 798, the Productivity, Opportunity, and Prosperity Act of 2001. I am reintroducing this proposal as a separate bill to highlight the importance of this issue. Incentive stock options and the AMT did not exist when Franz Kafka's ``The Castle'' was published in 1926. The book describes the relentless but futile efforts of the protagonist, K., to gain recognition from the mysterious authorities ruling from their castle a village where K. wants to establish himself. The world he inhabits is both absurd and real. Kafka's characters are trapped, and punished or threatened with punishment before they even have offended the authorities. The AMT/ISO interaction would be one that Kafka would appreciate. In the case of ISOs an employee who receives ISOs as an incentive can be taxed on the phantom paper gains the tax code deems to exist when he or she exercises an option, and be required to pay the AMT tax on these ``gains'' even if the ``gains'' do not, in fact, exist when the tax is paid. This means the taxpayer may have no gains, no profits or assets, with which to pay the AMT and might even have to borrow funds to pay the tax or even go into default on his or her AMT liability. This Kafkaesque situation is unfair. It is not fair to impose tax on ``income'' or ``gains'' unless the income or gains exist. With the AMT tax on ISOs, it is not relevant if the ``gains'' exist in a financial sense. That they exist on paper is sufficient to trigger the tax. This situation is also inconsistent with many well-established Federal Government policies. For example, our country favors stock options as an incentive for hard-working and productive employees of entrepreneurial companies. In most cases, entrepreneurs take enormous risks, receive less compensation than employees working for established companies, and have no company-sponsored pension plan. In addition, our country favors employee-ownership of firms. This ownership gives these employees a huge stake in the success of the company and motivates them to dedicate themselves to the firm's success. Finally, our country also favors long-term investments that generate growth. We know that growth is most likely to arise when entrepreneurs take risks over the long- term and build fundamental value for their companies and shareholders and owners. The policy favoring long-term investments is reflected in the fact that capital gains incentives are available only if an investment is held for at least one year. An investment sold before the end of this ``holding period'' receives no capital gains benefit. The application of the AMT to ISOs is inconsistent with all three of these public policies. Let me explain the difference between ISOs and NSOs. Incentive stock options are sanctioned by the Internal Revenue code. Under current law the employee pays no tax when he or she exercises the option and buys the company's shares at the stock option price. The company receives no tax deduction on the spread, the difference between the option price and the market price of the stock. If the employee holds the stock for two years after the grant of the option and one year after the exercise of the option, he or she pays the capital gains tax on the difference between the exercise and sale price on the sale of the stock. The tax payment is deferred until the stock is sold and the tax is paid on the real gains that are realized from the sale. NSOs are stock options that do not satisfy the tax code requirements for ISOs. They are ``non-qualifying stock options'' or NSOs. With NSOs the employee is taxed immediately when the option is exercised on the spread between the grant and exercised price. This forces an employee to sell stock as soon as he or she exercise their options so that they can pay the tax on the spread. This is a zero sum game for the employee, selling the stock he or she has just bought to pay a tax on the spread. Even worse, because the stock is not ``held'' for one year, this tax is paid at the ordinary income tax rates, not the preferential capital gains tax rates. The company receives a business expense deduction on the spread. If this were the whole story, it is clear that companies would tend to offer ISOs rather than NSOs to their employees. Employees would be encouraged to hold their shares for at least a year after the option is exercised, which helps to bind them to the company. They would then qualify for capital gains tax rates on the realized gains. The problem is that ISOs come with a major liability, the application of the Alternative Minimum Tax, AMT, to the spread at the time of exercise. This tax is due to be paid even if the stock is held for the required period and even if the stock is eventually sold at a fraction of its value at the time the option is exercised. This tax at the time of exercise is inconsistent with the rule that applies to all other capital gains transactions, where the tax is paid when the gains are ``realized,'' when the investment is sold with gains or losses. This tax at the time of exercise defeats the purpose of ISOs, forces employees to sell their stock, to pay the AMT tax, before the end of the holding period, and pay ordinary income tax rates. The difference between ordinary income tax rates and capital gains tax rates can be 15 percent or more. The AMT tax is imposed on the spread at the time the option is exercised and it is irrelevant if the stock price at the time when the AMT tax is paid or when the stock is sold is a fraction of this price. The ``gains'' at the time of exercise are what count, not real gains in a financial sense when the investment is finally sold. The application of the AMT at the time of exercise to ISOs is a major disincentive for companies to offer ISOs to their employees. The purpose of the ISO law when it was enacted by Congress back in 1981 was to encourage long-term holdings of the stock. This purpose is defeated by the AMT application at the time of exercise. Even if firms could educate their employees about the AMT liability, the fact that this tax is imposed at the time of exercise on phantom gains would remain a major disincentive for them to offer ISOs. The risks are too great that the employee will have no real gains with which to pay the tax, that employee will have to sell stock immediately at ordinary income tax rates to make sure that funds are available to pay the tax when it is due, or take the risk of holding the stock. My understanding is that the firms that are most likely to grant ISOs are those firms that have no ability to use the corporate deduction that is available for NSOs. These are small firms with no tax liability for which the deduction is simply a tax loss carryforward with no current year value. With these firms the ISO held out the possibility of the employees receiving capital gains tax treatment of their gains. It is particularly sad that it is these firms and these employees which are feeling the brunt of the AMT/ISO problem. The application of the AMT to ISOs is strange because long-term holdings of stock, as required by the ISO law, are classic capital gains transactions and we do not apply the AMT to the tax benefit conferred by the capital gains tax. Under the AMT only ``tax preference items'' enumerated in the AMT are included when the AMT calculation is made. The capital gains differential, the difference between the ordinary tax rate on income and the lower capital gains rate, is a tax benefit but that differential is not included in the AMT. Given all the problems we are now seeing with the AMT the capital gains differential should not be included as a preference item. But, by an accident of history, the AMT is still applied to ISOs. This makes no sense and it is an anomaly in the tax code. When the Congress restored the capital gains differential, and did not include it as an AMT tax preference item, we should have enacted a conforming amendment regarding the AMT and ISOs. We didn't, and we should do so now. With the AMT applied to ISOs, taxpayers are caught in a Catch-22 situation. If they hold the stock for the required year, they can qualify for capital gains treatment on the eventual sale of the stock. But, in doing so they are taking a huge risk that the AMT tax bill will exceed the value of the stock when the AMT is paid. If the tax is too large, they may have to sell their stock before the capital gains holding period has run and pay ordinary income tax rates on any gains. This is a form of lottery that serves no public policy. The AMT was created to ensure the rich cannot use tax shelters to avoid paying their ``fair share.'' Taxpayers are supposed to calculate both their regular tax and the AMT bill, then pay whichever is higher. The AMT is likely to snare 1.5 million taxpayers this year and nearly 36 million by 2010. But the case with ISOs is one where the taxpayers may never see the ``gains,'' and noneless owe a tax on them. Whatever the merits might be for the AMT for taxpayers with real gains, they have no bearing on taxpayers who may never see the gains. It is simply unfair to impose a tax on gains that exist only on paper. If the employee does realize gains, they should and will pay tax on them, but only if and when the gains are realized. Of course, with the recent huge drop in values for some stocks, many entrepreneurs are now being hit with immense AMT tax bills on the paper gains on stocks that are now worth a fraction of the price at the time of exercise. At a townhall meeting held in California by Representative Lofgren and Representative Bob Matsui, Kathy Swartz, a Mountain View woman, six months pregnant and soon to sell her ``dream house'' because she and her husband Karl owe $2.4 million in AMT, asked, ``How many victims do you need before you say it's horrible?'' We are talking about taxpayers who in fact owe five- to seven-figure tax bills on gains they never realized. My bill would change those tax rules so that the AMT no longer applies to ISOs and no tax is owed at the time when the entrepreneur exercises the option. This change would eliminate the unfair taxation of paper gains on ISOs. This would encourage long-term holdings of stock, not immediate sale of the stock as a hedge against AMT tax liability. It would do nothing to exempt entrepreneurs from paying tax on their real gains when they eventually sell the stock. My bill would solve this problem going forward. It would not, as drafted, provide relief to the taxpayers who already have been hit with AMT taxes on phantom gains. There is a bipartisan group in the House and Senate focusing on this group of taxpayers. This group has a strong claim for relief based on the inherent unfairness of the AMT as applied to ISOs. The unfairness of this law leads me to call for reform going forward should be remedied for current, as well as future taxpayers. Let me be clear about the cost and budget implications of my bill. The Joint Tax Committee on Taxation has found that my proposal would reduce government tax revenues by $12.412 billion over ten years. I am puzzled by this estimate, but there is no way for me to appeal it. The JTC does not provide explanations for its estimates, but I would assume that this estimate is based on the likelihood that there would be fewer tax payments at the time options are exercised as firms move from NSOs to ISOs, those employees with ISOs would not be paying the AMT, and there will be more employees who hold the stock and pay capital gains tax rates. Offsetting this, there will be fewer companies taking the deduction for NSOs. The revenue loss year-by-year is as follows: --$1.821 billion (2002), -- $1.126 (2003), --$858 (2004), --$825 (2005), --$941 (2006), --$1.106 (2007), --$1.341 (2009), --$1.620 (2010), and $1.910 (2011). The loss during the 2002-2006 period is --$5.494 billion. I will not propose to enact my bill unless this sum is financed and will have no impact on the Federal budget. I am pleased that Rep. Zoe Lofgren (D-CA) has introduced legislation on AMT/ISO in the other body (H.R. 1487). Her bill has attracted a bipartisan group of cosponsors. I look forward to working with her and other Members to remedy this inequity in the tax code and to do so with regard to current as well as future taxpayers. Let me note that I have proposed in S. 798 to provide a special capital gains tax rate, in fact to set a zero tax rate, for stock purchased by employees in stock option plans, by investors in Initial Public Offerings, and similar purchases of company treasury stock. This zero rate would be effective, however, only if the shares are held for at least three years, so the AMT gamble would be even more dramatic. During the first year of that holding period, the AMT would have to be paid and during the remaining period the value of the stock could well dive from the exercise price creating an even more invidious trap. Kafka ``The Castle'' should remain as magnificent fiction. We have no place for taxes on phantom income and paper gains. Our taxpayers should be able to communicate effectively with the castle, not be caught in a bureaucratic nightmare that makes no sense and serves no policy.