Connie Mack

Mr. MACK

Mr. MACK. Mr. President, today Senator Graham and I introduce legislation that would help protect Florida from economic devastation in the event of a catastrophic windstorm or other peril. Our legislation would amend Section 501(c) of the Internal Revenue Code to grant tax-exempt status to the Florida Windstorm Underwriting Association (FWUA), the Florida Residential Property and Casualty Joint Underwriting Association (JUA) and similar state-chartered, not-for- profit insurers serving markets in which commercial insurance is not available. The FWUA and JUA are non-profit entities established by the state to provide property and casualty insurance coverage in those markets not adequately served by other insurers. In most years, Florida is not hit by a major hurricane or natural catastrophe. In those years, the FWUA and JUA take in more premiums than are paid out in claims or expenses. Since these entities are not- for-profit, state law prevents those funds from being distributed--they are instead literally saved for a severely rainy or windy day. Nonetheless, the Internal Revenue Code requires 35% of those funds to be sent to Washington as federal income taxes rather than used to fund reserves. Designating the FWUA and JUA as tax-exempt will help Florida to accumulate the necessary reserves to pay claims brought on by a catastrophe. This bill gives the two Florida catastrophe funds the same tax-exempt status that is already enjoyed by a number of not-for-profit insurance provers. State law authorizes the FWUA and the JUA to assess property insurance policyholders throughout Florida to pay for losses generated by catastrophic storms or other perils. Thus, the benefits of the tax exemption would reduce the frequency and severity of assessments levied against individual policyholders. Greater funds would be available to cover losses which otherwise would be paid for by higher assessments on Florida policyholders--cutting taxes for the approximately 5,000,000 property owners in the state of Florida. This legislation has the bipartisan support of the entire Florida Congressional delegation in addition to strong backing from Governor Jeb Bush, the State Insurance Commissioner, the Florida Senate President and Florida's House Speaker. And this change in the tax code would result in only a negligible loss of federal tax revenue, according to Joint Tax. Our legislation is extremely important to homeowners and businesses throughout the state of Florida, all of whom are subject to assessment if reserves are not sufficient to pay claims in the event of a severe hurricane or other catastrophe. With hundreds of miles of magnificent coastline, Florida remains sensitive to the perils of nature. Enactment of our legislation permits Florida to prepare for the next Hurricane Andrew while alleviating some of the economic hardship exacted on Florida property owners. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, today Senator Graham and I introduce legislation that would help protect Florida from economic devastation in the event of a catastrophic windstorm or other peril. Our legislation would amend Section 501(c) of the Internal Revenue Code to grant tax-exempt status to the Florida Windstorm Underwriting Association (FWUA), the Florida Residential Property and Casualty Joint Underwriting Association (JUA) and similar state-chartered, not-for- profit insurers serving markets in which commercial insurance is not available. The FWUA and JUA are non-profit entities established by the state to provide property and casualty insurance coverage in those markets not adequately served by other insurers. In most years, Florida is not hit by a major hurricane or natural catastrophe. In those years, the FWUA and JUA take in more premiums than are paid out in claims or expenses. Since these entities are not- for-profit, state law prevents those funds from being distributed--they are instead literally saved for a severely rainy or windy day. Nonetheless, the Internal Revenue Code requires 35% of those funds to be sent to Washington as federal income taxes rather than used to fund reserves. Designating the FWUA and JUA as tax-exempt will help Florida to accumulate the necessary reserves to pay claims brought on by a catastrophe. This bill gives the two Florida catastrophe funds the same tax-exempt status that is already enjoyed by a number of not-for-profit insurance provers. State law authorizes the FWUA and the JUA to assess property insurance policyholders throughout Florida to pay for losses generated by catastrophic storms or other perils. Thus, the benefits of the tax exemption would reduce the frequency and severity of assessments levied against individual policyholders. Greater funds would be available to cover losses which otherwise would be paid for by higher assessments on Florida policyholders--cutting taxes for the approximately 5,000,000 property owners in the state of Florida. This legislation has the bipartisan support of the entire Florida Congressional delegation in addition to strong backing from Governor Jeb Bush, the State Insurance Commissioner, the Florida Senate President and Florida's House Speaker. And this change in the tax code would result in only a negligible loss of federal tax revenue, according to Joint Tax. Our legislation is extremely important to homeowners and businesses throughout the state of Florida, all of whom are subject to assessment if reserves are not sufficient to pay claims in the event of a severe hurricane or other catastrophe. With hundreds of miles of magnificent coastline, Florida remains sensitive to the perils of nature. Enactment of our legislation permits Florida to prepare for the next Hurricane Andrew while alleviating some of the economic hardship exacted on Florida property owners. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, two years ago in the Taxpayer Relief Act of 1997, we included a provision to correct an unfair and unsound tax policy of the Clinton Administration concerning business meal deductions. The 1993 Clinton tax increases included a reduction in the percentage of business meal expenses that could be deducted, from 80 percent down to 50 percent. The Administration marketed this as an attack on the ``three martini lunch,'' but the tax increase was in fact a big blow to the wallets and pocketbooks of working class Americans whose jobs require them to be stranded far from home. Workers who are covered by federal ``hours of service'' regulations-- long-haul truckers, airline flight attendants and pilots, long distance bus drivers, some merchant mariners and railroad workers--have no choice but to eat their meals on the road. Their meal expenses are a necessary and unavoidable part of their jobs. The Clinton Administration's business meal tax increase hit these occupations hard. For the average trucker, making between $32,000 and $36,000 annually, this tax increase might be greater than $1,000 per year. This is a lot of money to these hard-working taxpayers. Congress addressed this inequity in 1997, passing a provision that would gradually raise the meal deduction percentage back to 80 percent for these workers. But a slow, gradual fix is not good enough. Today, Senator Kohl, Senator Grassley, and I are introducing a bill that would immediately restore the 80 percent deduction for truckers, flight crews, and other workers limited by the federal ``hours of service'' regulations. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, two years ago in the Taxpayer Relief Act of 1997, we included a provision to correct an unfair and unsound tax policy of the Clinton Administration concerning business meal deductions. The 1993 Clinton tax increases included a reduction in the percentage of business meal expenses that could be deducted, from 80 percent down to 50 percent. The Administration marketed this as an attack on the ``three martini lunch,'' but the tax increase was in fact a big blow to the wallets and pocketbooks of working class Americans whose jobs require them to be stranded far from home. Workers who are covered by federal ``hours of service'' regulations-- long-haul truckers, airline flight attendants and pilots, long distance bus drivers, some merchant mariners and railroad workers--have no choice but to eat their meals on the road. Their meal expenses are a necessary and unavoidable part of their jobs. The Clinton Administration's business meal tax increase hit these occupations hard. For the average trucker, making between $32,000 and $36,000 annually, this tax increase might be greater than $1,000 per year. This is a lot of money to these hard-working taxpayers. Congress addressed this inequity in 1997, passing a provision that would gradually raise the meal deduction percentage back to 80 percent for these workers. But a slow, gradual fix is not good enough. Today, Senator Kohl, Senator Grassley, and I are introducing a bill that would immediately restore the 80 percent deduction for truckers, flight crews, and other workers limited by the federal ``hours of service'' regulations. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, today Senator Bob Graham and I, along with 17 of our colleagues, are introducing legislation to modernize the tax rules that apply to real estate investment trusts (``REITs''). This legislation is designed to remove barriers in the tax laws that impose unnecessary administrative burdens and make it more difficult for REITs to compete in an evolving marketplace. Our bill is similar to a proposal included in the President's Fiscal Year 2000 budget that permits REITs to establish a new type of subsidiary called a ``taxable REIT subsidiary'' (``TRS''). As with the President's proposal, the legislation we introduce today would permit REITs to establish a TRS to provide non-customary services to their tenants and to provide services to third parties. In return for these new rules, the TRS would be subject to a number of rules designed to prevent any income from being shifted out of the taxable subsidiary to the REIT. Congress created REITs in 1960 to enable small investors to invest in real estate. The REIT provisions were modeled after the rules that applied to mutual funds. If a number of requirements are met, a corporation electing to be a REIT may deduct all dividends paid to its shareholders. One of the major requirements for REIT status is that REITs must distribute virtually all of their taxable income to their shareholders. Thus, unlike other C corporations that tend to retain most of their earnings, the income tax burden for REITs is shifted to the shareholder level. Unlike partnerships, REITs cannot pass losses through to their investors. REITs are subject to a number of rules to ensure their primary focus is real estate activities. For example, at least 75% of a REIT's assets must be comprised of rental real estate, mortgages, cash items and government securities. A REIT also must satisfy two income tests. First, at least 75% of a REIT's annual gross income must consist of real property rents, mortgage interest, gain from the sale of a real estate asset and certain other real estate-related sources. Second, at least 95% of a REIT's annual gross income must be derived from the income items from the above 75% test plus other ``passive income'' sources such as dividends and any type of interest. In addition, a REIT cannot own more than 10% of the voting securities of a non-REIT corporation, and the securities of a single non-REIT corporation cannot be worth more than 5% of the REIT's assets. Although REITs were created in 1960, they did not really become a significant part of the real estate marketplace until the 1990s--partly because the original legislation did not permit REITs to manage their own property. The Tax Reform Act of 1986 changed this, by permitting REITs to manage their own properties through the provision of ``customary services'' to tenants. The market capitalization of REITs grew from about $13 billion at the end of 1991 to over $140 billion today. The taxes generated from REITs similarly have increased, with dividends from public REITs increasing from about $1 billion in 1991 to more than $8 billion today. While REITs remain a small portion of the entire real estate sector--in the range of 10% nationally--they account for as much as half of some sectors that require immense amounts of capital, such as shopping centers. While the REIT industry has come a long way in recent years, it continues to fulfill its original mission: permitting small investors access to attractive real estate investments. Almost 90% of REIT shareholders are individuals either investing directly or through mutual funds. Although REITs have seen remarkable growth in the 1990s, their ability to meet new competitive pressures in the real estate sector is in question as a result of tax law limitations on their activities. These rules limit the ability of REITs to provide full services to their tenants and to third parties. In general, REITs may only provide services to their tenants which the IRS has determined to be ``customary'' in the business, meaning services already provided by the typical real estate company in the market. REITs may only provide real estate-related services to third parties through preferred stock subsidiaries which they can own but not control. REITs are thus prohibited from offering leading edge, full service options to their tenants and limited in the use of their expertise to serve third parties. This presents competitive problems for REITs as the real estate marketplace has evolved and property owners have sought to provide a range of services to their tenants and other customers. As a result, REITs increasingly have been unable to compete with privately-held partnerships and other more exclusive forms of ownership. Today, the rules prevent REITs from offering the same types of customer services as their competitors, even as such services are becoming more central to marketing efforts. Examples abound: (1) offering concierge services to office and apartment tenants to pick up tickets or dry cleaning, to walk pets, etc.; (2) offering a branded credit card at shopping malls, with rebates to be used as store credits at stores in the mall; (3) high speed Internet hook-ups, including enhanced telecommunications services (e.g., creating and maintaining a website) offered by a landlord's partner; (4) partnering with an office supply provider to offer reduced prices on office supplies; and (5) pick-up and delivery services at self-storage rentals. Without greater flexibility to provide competitive services to tenants and other customers, REITs will become less and less competitive with others in the real estate marketplace. REITs will have to wait for services to be deemed ``customary.'' As a practical matter, that means a REIT must wait until the IRS concludes that almost everybody else has been providing the service. If a REIT is forced to lag the market, it can be neither competitive nor provide its investors with a satisfactory return on their investment. Certainly, this is not consistent with what Congress intended when it created REITs, and when it modified the REIT rules over the years. In keeping with the Congressional mandate to provide a sensible and effective way for the average investor to benefit from ownership of income-producing real estate, REITs should be able to provide a range of services through taxable subsidiaries. The Administration's proposed Fiscal Year 2000 Budget acknowledges this problem. The Administration proposes modernizing REIT rules to permit REITs, on a limited basis, to use taxable subsidiaries to provide the services necessary to compete in the evolving real estate marketplace. The Administration proposal is a good start, but I believe additional refinements would further promote competitiveness. The legislation that we are introducing today builds upon the Administration proposal. Our bill addresses the appropriate needs of the REIT industry and its investors in a manner consistent with the underlying rationale for REITs and the requirements of the highly competitive, evolving real estate marketplace. This legislation would give greater flexibility to REITs by permitting them to establish ``taxable REIT subsidiaries'' (``TRSs'') that could provide non-customary services to tenants and services to third parties. The 5% and 10% asset tests would not apply to the TRS. REITs would continue to be subject to the 75% asset tests so the value of their TRS, together with the value of other non-real estate assets, could not exceed 25% of the total value of a REIT's assets. In addition, the REIT would have to continue to satisfy the 95% and 75% income tests, with dividends or interest from a TRS to a REIT counting towards the 95% test, but not the 75% test. Accordingly, at least 75% of a REIT's gross income would continue to consist of rents, mortgage interest, real estate capital gains and the other miscellaneous real estate-related items already listed in the Code. The income a TRS would receive from both third parties and REIT tenants would be fully subject to corporate tax. To ensure that a TRS could not inappropriately reduce its corporate tax liability by shifting income to the REIT, the bill includes a number of stringent rules that limit the relationship between the REIT and the TRS. To prevent the TRS from making excessive intra-party interest payments to its affiliated REIT, the proposal contains two safeguards. One, it would apply the current anti-earnings stripping provisions of Code section 163(j) to payments between a REIT and its TRS. This would prevent the TRS from deducting intra-party interest beyond a modest amount regulated by objective criteria in the Code. Two, a 100% excise tax would be imposed on any interest payments by a TRS to its affiliated REIT to the extent the interest rate was above a commercially-reasonable rate. Also, to be certain that a TRS could not reduce its tax obligations by deducting rents to its affiliated REIT, our legislation would retain the current rules under which any payments to a REIT by a related party would not be considered qualified rents for purposes of the REIT gross income tests. The only exception would be when a TRS rents less than 10% of a REIT-owned property and pays rents to the REIT comparable to the rents the REIT charges to its unrelated tenants at the same property. Under this exception, any rents paid to the REIT that turn out to be above comparable rents would be subject to a 100% excise tax. Under our bill, a 100% excise tax is also imposed on any rents a REIT charges its tenants that are inflated to disguise charges for services rendered to the tenant by its affiliated TRS. Limited exceptions would be made when: (1) the TRS charges the same amounts for its services to both REIT tenants and third parties; (2) rents for comparable space are the same regardless of whether the TRS provides a service to the tenant; and (3) the TRS recognizes income for its services at least equal to 150% of its direct costs of providing the service to an affiliated REIT's tenants. To discourage a REIT from allocating its expenses to its TRS (which would reduce the TRS's corporate tax obligation), the proposal would impose a 100% excise tax on any improper cost allocations between a REIT and its TRS. The Treasury Department would issue guidance on proper ways to allocate such costs. Finally, the bill proposes to eliminate the use of preferred stock subsidiaries by REITs. These subsidiaries, which have been established pursuant to IRS letter rulings since 1988, allow a REIT to provide services to third parties. While the asset test rules prevent a REIT from owning more than 10% of the voting securities of these subsidiaries, they typically own more than 95% of the value of the subsidiary. We propose to eliminate these subsidiaries by prohibiting REITs from owning more than 10% of the vote or the value in another corporation other than a TRS. REITs would be given three years to convert, tax-free, their preferred stock subsidiaries to taxable REIT subsidiaries. In addition, the bill includes some miscellaneous changes to the REIT rules that were under consideration when Congress approved a REIT simplification package a few years ago. The first provision deals with health care property. Under current law, a REIT can conduct a trade or business using property acquired through foreclosure for 90 days after it acquired such property, if it makes a ``foreclosure property'' election. After this period, the REIT can only conduct the trade or business through an independent contractor from whom the REIT does not derive any income. A health care REIT faces special challenges in using these rules when its lease of a nursing home or other health care property expires. To remedy these challenges and to ensure that care to patients remains uninterrupted, the proposal would make two technical changes to the REIT foreclosure rules. First, the foreclosure property rules would be extended to include leases that terminate (they already apply to leases that are breached). Second, for purposes of the foreclosure rules, a health care provider would not be disqualified as an independent contractor solely because the REIT receives rental income from the provider with respect to one or more other properties. For this purpose, other rules would be made to ensure that the terms of leases of other properties could not be manipulated to circumvent this rule. Another provision deals with the 95% distribution rule. From 1960 through 1980, REITs and mutual funds shared a requirement to distribute at least 90% of their taxable income. Since 1980, REITs have had to distribute 95% of their taxable income. The proposal would restore the 90% distribution requirement. Mr. President, I believe this is a major improvement in the REIT rules that preserves the original intent of Congress when it first created REITs in 1960, while permitting the industry to adapt to a changing marketplace. Most importantly, these REIT modernization rules would not expand the activities that can be conducted within the REIT, they simply give the REIT greater flexibility to establish fully- taxable subsidiaries that will enable the REIT to better serve its customers. This legislation is supported by the American Resort Development Association, the International Council of Shopping Centers, the National Apartment Association, the National Association of Real Estate Investment Trusts, the American Seniors Housing Association, the Mortgage Bankers Association of America, the National Association of Industrial and Office Properties, the National Association of Realtors, the National Multi Housing Council, and the National Realty Committee. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, today Senator Bob Graham and I, along with 17 of our colleagues, are introducing legislation to modernize the tax rules that apply to real estate investment trusts (``REITs''). This legislation is designed to remove barriers in the tax laws that impose unnecessary administrative burdens and make it more difficult for REITs to compete in an evolving marketplace. Our bill is similar to a proposal included in the President's Fiscal Year 2000 budget that permits REITs to establish a new type of subsidiary called a ``taxable REIT subsidiary'' (``TRS''). As with the President's proposal, the legislation we introduce today would permit REITs to establish a TRS to provide non-customary services to their tenants and to provide services to third parties. In return for these new rules, the TRS would be subject to a number of rules designed to prevent any income from being shifted out of the taxable subsidiary to the REIT. Congress created REITs in 1960 to enable small investors to invest in real estate. The REIT provisions were modeled after the rules that applied to mutual funds. If a number of requirements are met, a corporation electing to be a REIT may deduct all dividends paid to its shareholders. One of the major requirements for REIT status is that REITs must distribute virtually all of their taxable income to their shareholders. Thus, unlike other C corporations that tend to retain most of their earnings, the income tax burden for REITs is shifted to the shareholder level. Unlike partnerships, REITs cannot pass losses through to their investors. REITs are subject to a number of rules to ensure their primary focus is real estate activities. For example, at least 75% of a REIT's assets must be comprised of rental real estate, mortgages, cash items and government securities. A REIT also must satisfy two income tests. First, at least 75% of a REIT's annual gross income must consist of real property rents, mortgage interest, gain from the sale of a real estate asset and certain other real estate-related sources. Second, at least 95% of a REIT's annual gross income must be derived from the income items from the above 75% test plus other ``passive income'' sources such as dividends and any type of interest. In addition, a REIT cannot own more than 10% of the voting securities of a non-REIT corporation, and the securities of a single non-REIT corporation cannot be worth more than 5% of the REIT's assets. Although REITs were created in 1960, they did not really become a significant part of the real estate marketplace until the 1990s--partly because the original legislation did not permit REITs to manage their own property. The Tax Reform Act of 1986 changed this, by permitting REITs to manage their own properties through the provision of ``customary services'' to tenants. The market capitalization of REITs grew from about $13 billion at the end of 1991 to over $140 billion today. The taxes generated from REITs similarly have increased, with dividends from public REITs increasing from about $1 billion in 1991 to more than $8 billion today. While REITs remain a small portion of the entire real estate sector--in the range of 10% nationally--they account for as much as half of some sectors that require immense amounts of capital, such as shopping centers. While the REIT industry has come a long way in recent years, it continues to fulfill its original mission: permitting small investors access to attractive real estate investments. Almost 90% of REIT shareholders are individuals either investing directly or through mutual funds. Although REITs have seen remarkable growth in the 1990s, their ability to meet new competitive pressures in the real estate sector is in question as a result of tax law limitations on their activities. These rules limit the ability of REITs to provide full services to their tenants and to third parties. In general, REITs may only provide services to their tenants which the IRS has determined to be ``customary'' in the business, meaning services already provided by the typical real estate company in the market. REITs may only provide real estate-related services to third parties through preferred stock subsidiaries which they can own but not control. REITs are thus prohibited from offering leading edge, full service options to their tenants and limited in the use of their expertise to serve third parties. This presents competitive problems for REITs as the real estate marketplace has evolved and property owners have sought to provide a range of services to their tenants and other customers. As a result, REITs increasingly have been unable to compete with privately-held partnerships and other more exclusive forms of ownership. Today, the rules prevent REITs from offering the same types of customer services as their competitors, even as such services are becoming more central to marketing efforts. Examples abound: (1) offering concierge services to office and apartment tenants to pick up tickets or dry cleaning, to walk pets, etc.; (2) offering a branded credit card at shopping malls, with rebates to be used as store credits at stores in the mall; (3) high speed Internet hook-ups, including enhanced telecommunications services (e.g., creating and maintaining a website) offered by a landlord's partner; (4) partnering with an office supply provider to offer reduced prices on office supplies; and (5) pick-up and delivery services at self-storage rentals. Without greater flexibility to provide competitive services to tenants and other customers, REITs will become less and less competitive with others in the real estate marketplace. REITs will have to wait for services to be deemed ``customary.'' As a practical matter, that means a REIT must wait until the IRS concludes that almost everybody else has been providing the service. If a REIT is forced to lag the market, it can be neither competitive nor provide its investors with a satisfactory return on their investment. Certainly, this is not consistent with what Congress intended when it created REITs, and when it modified the REIT rules over the years. In keeping with the Congressional mandate to provide a sensible and effective way for the average investor to benefit from ownership of income-producing real estate, REITs should be able to provide a range of services through taxable subsidiaries. The Administration's proposed Fiscal Year 2000 Budget acknowledges this problem. The Administration proposes modernizing REIT rules to permit REITs, on a limited basis, to use taxable subsidiaries to provide the services necessary to compete in the evolving real estate marketplace. The Administration proposal is a good start, but I believe additional refinements would further promote competitiveness. The legislation that we are introducing today builds upon the Administration proposal. Our bill addresses the appropriate needs of the REIT industry and its investors in a manner consistent with the underlying rationale for REITs and the requirements of the highly competitive, evolving real estate marketplace. This legislation would give greater flexibility to REITs by permitting them to establish ``taxable REIT subsidiaries'' (``TRSs'') that could provide non-customary services to tenants and services to third parties. The 5% and 10% asset tests would not apply to the TRS. REITs would continue to be subject to the 75% asset tests so the value of their TRS, together with the value of other non-real estate assets, could not exceed 25% of the total value of a REIT's assets. In addition, the REIT would have to continue to satisfy the 95% and 75% income tests, with dividends or interest from a TRS to a REIT counting towards the 95% test, but not the 75% test. Accordingly, at least 75% of a REIT's gross income would continue to consist of rents, mortgage interest, real estate capital gains and the other miscellaneous real estate-related items already listed in the Code. The income a TRS would receive from both third parties and REIT tenants would be fully subject to corporate tax. To ensure that a TRS could not inappropriately reduce its corporate tax liability by shifting income to the REIT, the bill includes a number of stringent rules that limit the relationship between the REIT and the TRS. To prevent the TRS from making excessive intra-party interest payments to its affiliated REIT, the proposal contains two safeguards. One, it would apply the current anti-earnings stripping provisions of Code section 163(j) to payments between a REIT and its TRS. This would prevent the TRS from deducting intra-party interest beyond a modest amount regulated by objective criteria in the Code. Two, a 100% excise tax would be imposed on any interest payments by a TRS to its affiliated REIT to the extent the interest rate was above a commercially-reasonable rate. Also, to be certain that a TRS could not reduce its tax obligations by deducting rents to its affiliated REIT, our legislation would retain the current rules under which any payments to a REIT by a related party would not be considered qualified rents for purposes of the REIT gross income tests. The only exception would be when a TRS rents less than 10% of a REIT-owned property and pays rents to the REIT comparable to the rents the REIT charges to its unrelated tenants at the same property. Under this exception, any rents paid to the REIT that turn out to be above comparable rents would be subject to a 100% excise tax. Under our bill, a 100% excise tax is also imposed on any rents a REIT charges its tenants that are inflated to disguise charges for services rendered to the tenant by its affiliated TRS. Limited exceptions would be made when: (1) the TRS charges the same amounts for its services to both REIT tenants and third parties; (2) rents for comparable space are the same regardless of whether the TRS provides a service to the tenant; and (3) the TRS recognizes income for its services at least equal to 150% of its direct costs of providing the service to an affiliated REIT's tenants. To discourage a REIT from allocating its expenses to its TRS (which would reduce the TRS's corporate tax obligation), the proposal would impose a 100% excise tax on any improper cost allocations between a REIT and its TRS. The Treasury Department would issue guidance on proper ways to allocate such costs. Finally, the bill proposes to eliminate the use of preferred stock subsidiaries by REITs. These subsidiaries, which have been established pursuant to IRS letter rulings since 1988, allow a REIT to provide services to third parties. While the asset test rules prevent a REIT from owning more than 10% of the voting securities of these subsidiaries, they typically own more than 95% of the value of the subsidiary. We propose to eliminate these subsidiaries by prohibiting REITs from owning more than 10% of the vote or the value in another corporation other than a TRS. REITs would be given three years to convert, tax-free, their preferred stock subsidiaries to taxable REIT subsidiaries. In addition, the bill includes some miscellaneous changes to the REIT rules that were under consideration when Congress approved a REIT simplification package a few years ago. The first provision deals with health care property. Under current law, a REIT can conduct a trade or business using property acquired through foreclosure for 90 days after it acquired such property, if it makes a ``foreclosure property'' election. After this period, the REIT can only conduct the trade or business through an independent contractor from whom the REIT does not derive any income. A health care REIT faces special challenges in using these rules when its lease of a nursing home or other health care property expires. To remedy these challenges and to ensure that care to patients remains uninterrupted, the proposal would make two technical changes to the REIT foreclosure rules. First, the foreclosure property rules would be extended to include leases that terminate (they already apply to leases that are breached). Second, for purposes of the foreclosure rules, a health care provider would not be disqualified as an independent contractor solely because the REIT receives rental income from the provider with respect to one or more other properties. For this purpose, other rules would be made to ensure that the terms of leases of other properties could not be manipulated to circumvent this rule. Another provision deals with the 95% distribution rule. From 1960 through 1980, REITs and mutual funds shared a requirement to distribute at least 90% of their taxable income. Since 1980, REITs have had to distribute 95% of their taxable income. The proposal would restore the 90% distribution requirement. Mr. President, I believe this is a major improvement in the REIT rules that preserves the original intent of Congress when it first created REITs in 1960, while permitting the industry to adapt to a changing marketplace. Most importantly, these REIT modernization rules would not expand the activities that can be conducted within the REIT, they simply give the REIT greater flexibility to establish fully- taxable subsidiaries that will enable the REIT to better serve its customers. This legislation is supported by the American Resort Development Association, the International Council of Shopping Centers, the National Apartment Association, the National Association of Real Estate Investment Trusts, the American Seniors Housing Association, the Mortgage Bankers Association of America, the National Association of Industrial and Office Properties, the National Association of Realtors, the National Multi Housing Council, and the National Realty Committee. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, I rise today to introduce the Affordable Housing Opportunity Act of 1999. My colleague from my home state, Bob Graham, my colleague from Pennsylvania, Senator Santorum, and 42 other members of the Senate join me as original cosponsors of this effort to make sure that the Low Income Housing Tax Credit is not undercut by the effects of inflation. The Low Income Housing Tax Credit is one federal housing program that works. It works to produce affordable rental housing by allowing states to distribute tax credits to those who invest in apartments for low income families. It works because it is decentralized, it is market- oriented, and it relies on the private sector. The Low Income Housing Tax Credit works because it is based on sound economics. This is in stark contrast to the alternative government approach to the problem of a scarcity of privately owned, affordable housing units, the approach of rent control. Under rent control, owners are restricted in the price they can charge for their apartments. Since this dramatically reduces the return on their investment in housing, potential owners of rental units take their money elsewhere. The result, confirmed in a study of rent control in California in the early 1990s, is that rent control actually reduces the number of rental units available for low income families. There is a better way. The Low Income Housing Tax Credit is that way. Under this program, tax credits are allocated by states and their localities to investors in low income housing. In return for agreeing to charge low rents for the units produced, the investors receive a tax credit that makes up for the financial risk of the investment. Instead of mandating low rents, the program provides an incentive for property owners to charge low rents. And, as Adam Smith would have predicted, this incentive does the job. Since 1987, state agencies have allocated over $3 billion in Housing Credits to help finance nearly one million apartments for low income families, including 70,000 apartments in 1997. In my own state of Florida, the Credit is responsible for helping finance over 52,000 apartments for low income families, including 3,300 apartments in 1997. The demand for Housing Credits nationwide currently outstrips supply by more than three to one. Despite the success of the Housing Credit in meeting affordable rental housing needs, the apartments it helps finance can barely keep pace with the nearly 100,000 low cost apartments which are demolished, abandoned, or converted to market rents each year. This is because the credit has been set at an annual amount of $1.25 per resident of each state, since its creation in 1986. To make up for the loss in value of the credit due to inflation, we propose to increase this amount to $1.75 per resident and to index the amount for future inflation. It has been estimated that this will increase the stock of critically needed low income apartments by 27,000 each year. There has long existed in this body a dedication to affordable housing, an interest that knows no party lines. One of the major, early proponents of federally supported affordable housing was Senator Robert A. Taft of Ohio, known in his day as Mr. Republican, whose monument chimes regularly just a few hundred yards from here. With this strong, bipartisan pedigree, I have no hesitation in asking my colleagues on both sides of the aisle to join me to enact this proposal--which is similar to one contained in the President's budget and is supported by the nation's governors and mayors and the affordable housing community--to ensure the continued vitality of a program that works. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, I rise today to introduce the Affordable Housing Opportunity Act of 1999. My colleague from my home state, Bob Graham, my colleague from Pennsylvania, Senator Santorum, and 42 other members of the Senate join me as original cosponsors of this effort to make sure that the Low Income Housing Tax Credit is not undercut by the effects of inflation. The Low Income Housing Tax Credit is one federal housing program that works. It works to produce affordable rental housing by allowing states to distribute tax credits to those who invest in apartments for low income families. It works because it is decentralized, it is market- oriented, and it relies on the private sector. The Low Income Housing Tax Credit works because it is based on sound economics. This is in stark contrast to the alternative government approach to the problem of a scarcity of privately owned, affordable housing units, the approach of rent control. Under rent control, owners are restricted in the price they can charge for their apartments. Since this dramatically reduces the return on their investment in housing, potential owners of rental units take their money elsewhere. The result, confirmed in a study of rent control in California in the early 1990s, is that rent control actually reduces the number of rental units available for low income families. There is a better way. The Low Income Housing Tax Credit is that way. Under this program, tax credits are allocated by states and their localities to investors in low income housing. In return for agreeing to charge low rents for the units produced, the investors receive a tax credit that makes up for the financial risk of the investment. Instead of mandating low rents, the program provides an incentive for property owners to charge low rents. And, as Adam Smith would have predicted, this incentive does the job. Since 1987, state agencies have allocated over $3 billion in Housing Credits to help finance nearly one million apartments for low income families, including 70,000 apartments in 1997. In my own state of Florida, the Credit is responsible for helping finance over 52,000 apartments for low income families, including 3,300 apartments in 1997. The demand for Housing Credits nationwide currently outstrips supply by more than three to one. Despite the success of the Housing Credit in meeting affordable rental housing needs, the apartments it helps finance can barely keep pace with the nearly 100,000 low cost apartments which are demolished, abandoned, or converted to market rents each year. This is because the credit has been set at an annual amount of $1.25 per resident of each state, since its creation in 1986. To make up for the loss in value of the credit due to inflation, we propose to increase this amount to $1.75 per resident and to index the amount for future inflation. It has been estimated that this will increase the stock of critically needed low income apartments by 27,000 each year. There has long existed in this body a dedication to affordable housing, an interest that knows no party lines. One of the major, early proponents of federally supported affordable housing was Senator Robert A. Taft of Ohio, known in his day as Mr. Republican, whose monument chimes regularly just a few hundred yards from here. With this strong, bipartisan pedigree, I have no hesitation in asking my colleagues on both sides of the aisle to join me to enact this proposal--which is similar to one contained in the President's budget and is supported by the nation's governors and mayors and the affordable housing community--to ensure the continued vitality of a program that works. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, I am here today because finally, Tax Freedom Day has arrived--the day the average American has earned enough income to cover his or her Federal, State and local taxes for the year. Only today--after one-third of the year has already passed--have our working men and women earned enough money to pay their taxes for the year! This is truly amazing, and it is also truly wrong. Tax Freedom Day has moved successively later into the year for the past 7 years, as the Federal Government seeks to claim a larger and larger portion of the American family income. Since 1993, Federal tax revenues have grown 52 percent faster than personal income growth. And last year alone, Federal revenues grew 80 percent faster than personal income. Florida's Tax Freedom Day is even later--Floridians will not finish earning enough to pay their taxes for the year until Friday, May 14. They also shoulder the 5th heaviest total tax burden in the country. In 1999, Federal, State and local governments are projected to collect an average of $10,298 in tax revenue for every person in the country. This year, the Federal Government will collect more tax revenue as a share of GDP--that is 20.7 percent--than at any time since 1944. This is the highest level in peacetime history. If that isn't enough to put the high Federal tax take into perspective, let me share with you a few examples of just how much taxes impede our freedom every day of the year. I brought with me a daily tax clock to illustrate just how many different times we are taxed in ways we may not even realize. Think about the different things you do in the course of your average day. Planning your family's summer vacation? Forty percent of the cost of an airline ticket is taxes! When you drive to and from work today, 54 percent of the price of a gallon of gasoline is taxes. Did you call your mother on Mother's Day? Fifty percent of the cost of your phone bill is due to taxes. Taxes infringe on our freedom--our freedom to work, our freedom to invest and our freedom to provide for our families. It is more apparent than ever that the mammoth Federal Government we have created will never be satisfied--if there is money to be had, the Federal Government will take it. That is why it is more important than ever to provide tax relief to our families. We have a balanced budget, and soon we will be working with a Federal surplus. If the Federal Government has its way, this overpayment of taxes by the American people will be spent in Washington on new Federal programs. We need to give the American people their money back. I have proposed a tax plan which will do just that by, No. 1, providing tax relief for all American income taxpayers, No. 2, encouraging economic growth and, No. 3, ensuring U.S. technological leadership in the 21st century. We need to ensure the United States keeps its status as an economic powerhouse in the next millennium. The Federal Government's role in ensuring this happens is to cut taxes and get out of the way to give the American people the freedom to pursue their own dream--not Washington's.

Mr. MACK

Mr. MACK. Mr. President, today I am pleased to join my colleague John Breaux in sponsoring the Medicare Psychiatric Hospital Prospective payment System Act of 1999. This legislation will ensure the continuance of available impatient psychiatric care by reforming how Medicare pays for services in free- standing psychiatric hospitals and psychiatric units of general hospitals. It will establish a prospective payment system (PPS) Currently psychiatric hospitals are the only institutional providers of care under Medicare not scheduled to move to a PPS system. The Balanced Budget Act of 1997 (BBA) made major changes in the way psychiatric hospitals are paid. It reduced incentive payments and imposed a limit on what will be paid. The result of this was that many of these providers were hit by a big cut in the first year with no transition period to adjust to the reductions. It is important that these cuts not be continued because patient care may be put at risk. A recent study found that 84% of psychiatric hospitals had payment reductions due to BBA. The average margin went from minus 3% to negative 8.7%. This legislation proposes to transition psychiatric inpatient providers to a PPS which will allow these institutions to be able to plan and adjust for the future and insure their ability to provide quality care. The proposal also provides a measure of financial relief by limiting payment reductions to no more than 5% in the next two years. This relief will then be paid back in a few years under PPS. After the third year, PPS will be in effect and per diem rates can be adjusted downward by the Secretary of Health and Human Services to pay back savings temporarily lost through the limitation of initial payment reductions. The goal is for the bill to be budget neutral over five years and fully comply with the BBA. The most important feature of this legislation is that it moves psychiatric facilities out of a cost based system and into a system where they will be paid prospectively, like most other Medicare Providers, and can manage their finances effectively to provide high quality psychiatric care. I urge my colleagues to join me in co-sponsoring this important piece of legislation. Mr. President, I ask unanimous consent that a copy of the legislation be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, today I am pleased to join my colleague John Breaux in sponsoring the Medicare Psychiatric Hospital Prospective payment System Act of 1999. This legislation will ensure the continuance of available impatient psychiatric care by reforming how Medicare pays for services in free- standing psychiatric hospitals and psychiatric units of general hospitals. It will establish a prospective payment system (PPS) Currently psychiatric hospitals are the only institutional providers of care under Medicare not scheduled to move to a PPS system. The Balanced Budget Act of 1997 (BBA) made major changes in the way psychiatric hospitals are paid. It reduced incentive payments and imposed a limit on what will be paid. The result of this was that many of these providers were hit by a big cut in the first year with no transition period to adjust to the reductions. It is important that these cuts not be continued because patient care may be put at risk. A recent study found that 84% of psychiatric hospitals had payment reductions due to BBA. The average margin went from minus 3% to negative 8.7%. This legislation proposes to transition psychiatric inpatient providers to a PPS which will allow these institutions to be able to plan and adjust for the future and insure their ability to provide quality care. The proposal also provides a measure of financial relief by limiting payment reductions to no more than 5% in the next two years. This relief will then be paid back in a few years under PPS. After the third year, PPS will be in effect and per diem rates can be adjusted downward by the Secretary of Health and Human Services to pay back savings temporarily lost through the limitation of initial payment reductions. The goal is for the bill to be budget neutral over five years and fully comply with the BBA. The most important feature of this legislation is that it moves psychiatric facilities out of a cost based system and into a system where they will be paid prospectively, like most other Medicare Providers, and can manage their finances effectively to provide high quality psychiatric care. I urge my colleagues to join me in co-sponsoring this important piece of legislation. Mr. President, I ask unanimous consent that a copy of the legislation be printed in the Record.

Mr. MACK

Mr. MACK. Mr. President, I thank Senator Gramm for providing this time to me to make a statement with regard to a tax cut proposal that I have. Mr. President, my job as chairman of the Joint Economic Committee is to help Congress stay focused on the right policies to keep the U.S. economy energized. What that comes down to is finding ways to make sure Washington does less of what today it does most--tax, spend, and regulate--in order to let the American people do more of what they do best--which is to build, create and innovate. With that in mind, I instructed the JEC staff to focus on creating a tax plan that would accomplish three goals: first, provide tax relief for all American income taxpayers; second, promote even stronger economic growth; and third, ensure continued technological leadership in the 21st century. The plan I would like to talk about today accomplishes these three goals, and does so within the parameters of the on-budget surplus as estimated in this year's budget resolution. It does not use one penny from the Social Security surplus. As Ronald Reagan once said, when he was defining a taxpayer--``that's someone who works for the Federal Government but doesn't have to take a civil service examination.'' This comment really gets to the heart of how the size and scope of the Federal Government affects the way we live our lives. Americans are spending more and more time working to give more and more of their hard-earned dollars in taxes every year to the Federal Government. According to the non-partisan Tax Foundation, the average dual-income family will work until May 11 this year to pay their federal state and local taxes. So, as of today, the average American family has not even finished working to pay off their taxes for 1999. This year, the Federal Government will collect more tax revenue as a share of GDP than at any time since 1944. This is the highest level in peacetime history--20.7 percent of GDP consumed by the Federal Government. Since 1993, federal tax revenues have grown 52 percent faster than personal income growth. Last year alone, federal revenues grew 80 percent faster than personal income. We have a balanced budget in 1999 and we've got balanced budgets as far as the eye can see. Soon, we'll have a federal surplus as far as the eye can see. Our challenge now is to deal with that surplus. And, I think it's easy to see what will happen to this overpayment by the American taxpayer--if we leave it in Washington's hands. There will be numerous new government programs and they will be paid for by the Federal surplus. We have to change the terms of debate--and we have to do it now before the surplus is spent. First, let's not forget that the American economy does not exist to feed the Federal budget. Now that the budget is balanced, we have to get our priorities straight. To begin with: there is no such thing as ``public money.'' Every dollar of the Federal surplus was paid into the U.S. Treasury by American taxpayers. If we have a persistent surplus, we have to give the money back. For years, my fellow Republicans and I argued that it was wrong for the Government to spend more than it took in. We were right. But now, it is equally wrong for the Government to take in more than it spends. Yes, we should cut taxes so that people can keep more of what they earn. Yes, we should cut taxes because lower taxes spur economic growth. But the real rationale for lowering taxes--the reason tax cuts are an article of faith in the Republican Party--is that high taxes trespass on our freedom--our freedom to work, our freedom to invest, our freedom to support our families. So in my mind, it is not a matter of if we cut, but how much, and how can we maximize the pro-growth impact of whatever tax cuts we decide to enact. With these thoughts in mind, I would like to focus on what they Joint Economic Committee staff has come up with as a way to give the American income taxpayer meaningful tax relief, promote savings and economic growth, and ensure the United States remains a technological leader in the 21st century. And, Mr. President, I would like to elaborate on how this plan will accomplish each of these goals. The first goal is tax cuts for all American income taxpayers. Under this plan we would double the standard deduction to $14,400 for married filers and raise the standard deduction for single filers to $7,200. Increasing the standard deduction would provide much-needed relief to all low-income taxpayers. Moreover, this provision would significantly reduce the much-discussed marriage penalty and simplify the Tax Code. Nearly three- quarters of all taxpayers use the standard deduction and would benefit from this increase. In addition, our plan would repeal the 1993 Clinton tax increase on Social Security benefits. In 1993, President Clinton imposed this tax increase on the elderly's benefits because he said it was needed to eliminate the budget deficit. Since there is no longer a deficit, we no longer need this tax. It is time to repeal this unnecessary surcharge on Social Security recipients. The second goal is economic growth. The U.S. economy is enjoying unprecedented prosperity. In fact, our economy has grown for more than 16 years with only 9 months of recession. That is the longest period with only 9 months of recession since at least the 1850s! But while my Washington colleagues and I may be able to take pride in the performance of the economy, we really cannot take credit. The credit for the strength of our economy belongs to the American people--because the strength of our economy is a tribute to every American who uses his or her freedom to turn work into reward. To every individual who turns energy into a business plan--an idea into a new product. These are the heroes of the American economy--the entrepreneurs and innovators who are creating economic growth, generating trillions in new wealth and reordering the global economy. We must provide pro- growth tax cuts that will ensure the continued strength of our economy and allow our entrepreneurs and innovators to flourish. My plan would provide pro-growth tax cuts that would spur economic growth in four ways: by cutting capital gains tax rates 25 percent to 7.5 percent and 15 percent and indexing them for inflation; by cutting dividend taxes to 7.5 percent and 15 percent, making them uniform with capital gains tax rates; by repealing estate and gift taxes; and by indexing the individual AMT exemption amount. Lowering capital gains tax rates will stimulate greater investment and keep the economy humming. Indexing capital gains for inflation will end the Government's unfair practice of taxing people on phantom gains due to inflation. Currently, people earning dividends face among the highest tax rates in the Tax Code--as high as 60 percent--because they are double-taxed. Many investors, particularly the elderly, count on their dividends as a major source of income during their retirement years. Therefore, this change would have a significant, positive impact on their standard of living. Furthermore, the Tax Code would no longer encourage companies to hold onto locked-in earnings that investors could use more wisely. By making the dividend and capital gains rate uniform, this plan eliminates the current bias against dividend income, making investing a more level playing field. Another major problem with the Tax Code concerns the alternative minimum tax, AMT. The AMT was designed to ensure that all taxpayers paid their fair share of taxes, but in recent years it has become an additional tax burden on middle income taxpayers for whom it was never intended. Since the AMT exemption amount was never indexed for inflation, each year more and more taxpayers are subject to it. My plan would stop this AMT creep by indexing the exemption amount for inflation, and relieve the unintended consequences of this counterproductive tax that undermines other tax relief already provided in the Tax Code. My plan also calls for the elimination of the estate and gift tax, sometimes referred to as the death tax. Death and taxes may be inevitable, but they should never be simultaneous. Death taxes are among the worst provisions in the Tax Code, imposing tax rates as high as 55 percent. After paying taxes all your life--surely people shouldn't have to pay even more taxes upon their death. That is just not fair, and this tax should be abolished. The third goal is to maintain U.S. technological leadership in the 21st century. Last, but definitely not least, my plan recognizes the importance of the technology industry to the success and continued growth of the U.S. economy. We need to maintain policies that give the strongest possible support to innovation, and my plan seeks to do this in two ways: by making the research and development tax credit permanent, and by raising the capital expensing limit from $25,000 to $500,000, indexed for inflation. Studies have shown that the R&D tax credit creates $2 of research and development for every one dollar of credit. It more than pays for itself, and we need to quit playing games with it. Our current practice--extending it one year at a time, letting it expire and then bringing it back to life--is completely counterproductive. No company can plan and invest for the long-term against a policy that changes every 12 months. This inefficiency impedes innovation and will make it more difficult for the United States to maintain its technological edge in the 21st century. Especially in high technology industries, rapid innovations are rendering equipment obsolete within a year. We are all familiar with this phenomenon regarding computers. But, the same problems arise with medical, telecommunications and other high-tech equipment. Under current law, companies are required to spread these costs over time periods of five or more years. Under my plan, the capital expensing limit would be raised from $25,000 to $500,000 so companies would be able to keep pace with ever-changing technology. This will particularly stimulate investment in small firms. Mr. President, to sum up my tax plan, it would provide $140 billion in tax relief over the next 5 years and $755 billion over 10 years-- well within the estimated $800 billion surplus in this year's budget proposal. I think it is important to take a minute to look at who would benefit from the majority of the cuts I discussed today. In the context of my plan, I think it's important to stress that over one-half of the tax relief associated with the individual tax cuts would flow to households earning less than $75,000 a year. In addition, nearly one-third of my tax plan would go to people with incomes under $50,000, who currently pay 22 percent of taxes. So, in addition to providing cuts for economic growth and ensuring the U.S. remains a technological leader, my plan provides substantial relief for all American income taxpayers, and simplifies our burdensome Tax Code. Mr. President, we are living in a new economy. And right now, the world is playing America's game. We can out-perform, out-produce, out- compete, and out-create anyone in the world. We need to ensure the United States keeps its status as an economic powerhouse in the 21st century. The Federal Government's role in ensuring this happens is to get out of the way and give the American people freedom--the freedom to work, the freedom to invest, the freedom to support our families, and the freedom to continue strengthening our economy. Our plan does just that--cuts taxes and gets the Government out of the way to give the American people the freedom to pursue their own dream--not Washington's. Mr. President, I yield the floor.

Mr. MACK

Mr. MACK. Thank you, Mr. President. And I thank Senator Gramm for yielding me time. This was an issue that I did not expect to be drawn into as far as the debate was concerned. But as I have listened to it, and as I have observed my colleagues over the last several days, as the lobbying on both sides of this issue has been going on, and seeing people move back and forth, I have become concerned about how people are making decisions. Finally, we have gotten down to the crux of the matter here, and that is, at least in my opinion, how monetary policy in the United States is going to be carried out. I believe it is so important that we focus on the issue of monetary policy, because one of the underlying strengths, one of the major factors in the economic growth that we have experienced for almost 16 years is the role of the Federal Reserve, a Federal Reserve that has been committed to price stability. To do something that will weaken the influence of the Federal Reserve with respect to monetary policy would be a tragic mistake. Here is my reasoning as to how this will come about. The Treasury is selling their idea to Members that all we really want to do is give the bankers a choice--that seems to be a fair and reasonable thing to do-- let them decide. I was in the banking business. This is really not a choice. You are saying to the bankers, you make a choice about where you are going to put this. They know where the cost of capital is the cheapest, and the cost of capital is going to be the cheapest in an operating subsidiary. Why is the operating subsidiary going to be the cheapest cost to them? Because there is a subsidy attached to the bank, and so the bankers naturally will go to where their costs are the cheapest. They will, in fact, put these new powers into an operating subsidiary. Having done that, there is no longer a need for them to be involved in a holding company. The holding company is the vehicle, if you will, that allows the Federal Reserve to carry out its monetary policy. The second thing that is going to occur is by voting for the use of an operating subsidiary, you are really saying you want the taxpayers to expand the subsidy that goes into the banking industry or into the financial services industry. That is an individual decision that people can make. But I think it is wrong to try to approach this question about whether I am for the bankers or whether I am not for the bankers. This is an issue about whether you want to have a monetary policy that is of value to this country. I ask Members to consider what has happened in this country in these past 16 years as far as growth is concerned. The foundation of that growth has been the commitment that this Federal Reserve, and Alan Greenspan in particular, has had to the objective of price stability. We have finally reached the point where we have attained price stability, and we are talking about tinkering around with legislation that could lessen the influence of the Federal Reserve. As Senator Domenici indicated earlier, as you lessen that influence, you are going to increase the influence in the executive branch over the banking industry and monetary policy in this country. That would be a tragedy. I ask my colleagues who may be wavering on this issue, this is not a choice between Secretary Rubin or Alan Greenspan or commercial banks. This is a decision about monetary policy in this country and who should, in fact, have control of it. I ask you to support the position outlined by the chairman of the Banking Committee, Senator Gramm. I yield the floor.

Mr. MACK. I move to lay that motion on the table. The motion to lay on the table was agreed to. Mr. WELLSTONE addressed the Chair.

Mr. MACK

Mr. MACK. I thank the Chair. Mr. President, I thank Senator Gramm for yielding me the time. I have a comment or two with respect to the process that we have gone through in putting this legislation together. I commend Senator Gramm. I can't think of a time in my now 17 years in the Congress where I have had a chairman of a committee that has spent as much time with the other members of the committee, walking through a particular piece of legislation, each aspect of it, making sure that each of us was prepared and educated on the various issues. There are some difficult issues that face us--the whole issue of CRA, unitary thrifts, the mixing of banking and commerce, the issue of operating subsidiaries versus affiliates, all of them complicated. I can remember not too many years ago when there was this sense in America that the model which should be followed was the Japanese banking system that people looked at and said, we ought to look at Japan, the dynamic economy they were producing in the late 1980s. I think about how much things have changed in those 10 years.

Mr. MACK. I will be glad to yield for a moment.

Mr. MACK. It is a dramatic change, and here we are. We have been talking about this legislation for all those years and we haven't made the modifications we needed to make. I hope we will be successful this time. I rise in support of the underlying bill and in opposition to the Sarbanes substitute. We all know that legislation to overhaul the bank regulatory structure is long overdue, and I join many of my colleagues in thanking the chairman for his hard work in writing this bill and bringing it to the floor. I will begin by quoting the words of the Senate Banking Committee report, which I believe presents a strong case for financial modernization. It states: The argument for legislation to rationalize our financial structure is strong. Regulatory and court decisions have eliminated many of the barriers between commercial and investment banking. The barriers separating commercial banks from investment banks have been perforated in both directions. Finally, changes in the technology and practice of financial intermediation have rendered the restrictions of Glass-Steagall increasingly ineffective and obsolete. There is nothing particularly remarkable about that language, Mr. President. In fact, those same arguments will be made by many of my colleagues here today. But what is remarkable about the statement I just read is that it comes from a committee report on banking legislation in 1991. Just as I believed those words to be significant 8 years ago, I believe them to be even more so today. Unfortunately, there was no overhaul of our banking system in 1991. And despite much hard work and a clear need for action, there has been none since. We are long overdue for this debate and I am pleased the Senate is addressing this important issue. Freedom and free enterprise have allowed our corporate and financial institutions to respond to changing times and to adapt to a changing financial environment. But this ability has reached its limits within the confines of present law. For our financial institutions to continue to grow, to compete, and to evolve, we must give them a new legislative climate in which to operate. That is the purpose of the bill before us today. Mr. President, our banking system is truly a model for the world. Emerging economies from Asia to Africa to Central Europe look to the United States for the blueprint and technical expertise to build an effective financial infrastructure. This is happening because we have found a remarkable balance between community banks and global institutions, between the regulators and the regulated, between the States and the Federal Government, and between ordinary people and the money they need to finance their hopes and dreams. In recent years, we have witnessed a wave of high-profile mergers, as institutions across the sectors hope to create ``synergy'' from offering a broad range of financial products to an expanding global customer base. For their part, many smaller, community-based institutions are using the new regulatory authorities to offer their customers one-stop shopping for individual financial needs--from ordinary retail banking to insurance products and securities instruments. All of this is very important to the continued financial well-being of our Nation and to the global competitiveness of our financial services industry. However, the expansions I speak of are not taking place with the approval of the Congress and are not occurring through any action on our part to change the law. Rather, these things are happening because--as the 1991 report mentioned--court decisions and the broadened interpretations of present law by the banking regulators have allowed them to take place in an ad hoc manner. In order to access the right to affiliate with other sectors, financial companies have to jump over increasingly complicated regulatory hurdles in order to adapt and survive. It is high time Congress weighed in on this important trend. It is high time we cleared the way for these affiliations and repealed the underlying web of Depression-era restrictions on our banking industry. That is what we accomplish in the bill before us today, Mr. President. This legislation allows companies to diversify holdings by lifting the prohibitions on affiliations among banks, insurance companies, and securities firms, thus allowing them to compete fully in a free-market environment. If Congress fails to act, we will once again limit the potential of our financial sector and we will continue to impose needless and unnecessary regulatory burdens on individual financial institutions. The other body is moving with its own legislation. The Senate needs to act now to ensure that our financial sector is on solid footing for the new century. The bill before us repeals the Depression-era Glass-Steagall law prohibiting affiliations between commercial and investment banks. It allows banks and insurance companies to affiliate under the same corporate umbrella. It contains provisions outlining the appropriate regulation of bank sales of insurance, and it allows banks with assets of less than $1 billion to engage in a broader range of financial services through operating subsidiaries. Of course, Mr. President, the relationships between these entities are carefully constructed to ensure institutional safety and soundness and that the taxpayer-insured deposits of retail banking institutions are protected. The structure provided for in this legislation will end the ad hoc expansion and administration of our banking sector and provide the industry with a clear roadmap for the 21st century. In my view, it will lead to greater stability, enhanced safety and soundness, and improved choices for customers and consumers. So I urge my colleagues to support passage of this important bill and defeat the Sarbanes substitute. With that, I yield the floor. Mr. LOTT addressed the Chair.

Mr. MACK

Mr. MACK. Mr. President, I thank Senator Gramm and the other Members on the floor for this time. I will be brief. I have spoken on this issue throughout my time in the Senate serving on the Banking Committee which now is into its 11th year. I also make these comments from the perspective of an individual who was president of a small bank in southwest Florida for 5 years out of a 16-year banking career. One would think, listening to the comments that have been made by the distinguished Senator from Maryland, that we were proposing to repeal CRA. We are not proposing that at all. There may be Members who want to do that, but that is not what the issue is about. The issue is about regulatory overkill. This little bank that I was president of had about $60 million in assets--very small bank--in a community that was developed, one of these Florida developments, that began in the late 1950s. To suggest that this small community bank in a very well-defined and confined market was not providing resources to that market is just absurd. If we did not lend money into that market, we would, in fact, have gone broke. So all I am suggesting is the amendment being proposed here is being sold as if we were trying to repeal CRA. The information I have is with the committee position: Only 2.8 percent of the total assets of the banking industry in America are affected by this carve-out, 2.8 percent. There were 16,000 banks audited over a 9-year period and only three of those banks--I am talking about small banks now--only three of those banks were found to be significantly out of compliance. Small banks in America need some regulatory relief. That is all we are suggesting here. Again, my experience was this little bank of $60 million in assets had to assign one individual whose job it was to put pins into a map in our market showing where we had made real estate loans. That is all we had to do. But I had to assign one person to do that. She had to put programs into effect in the bank to make sure we were complying with lending to our community. It was the only place we could have loaned. So the idea that we needed to have the Community Reinvestment Act for my bank and for small community banks is absurd. I ask my colleagues to reject the amendment and to support the committee position. I yield the remainder of my time.

Mr. MACK

Mr. MACK. Not yet. We have not used our time yet.

Mr. MACK. Mr. President, I understand I have now 6 minutes.

Mr. MACK. It is my intention then to use 3 of those minutes and then to yield to my colleague, Senator Graham, for the balance of the 3 minutes.

Mr. MACK. Mr. President, let me, first of all, thank Senator Dodd for his vote for this resolution. I respect immensely his viewpoint and what he has stated over all these years, but I respectfully disagree with him. Again, I will just point out, all we are suggesting here is that the least America can do is to say we ought to ask the United Nations to condemn Fidel Castro for his human rights violations. That is not an extreme position to take, to ask the world body to condemn Fidel Castro for human rights violations. The reason we are doing this is because I think it is appropriate to respond to the impression that has been created over these last several months after the Pope visited Cuba. There has been this kind of love affair that Cuba has changed, that the world is now going to open up. The Senator said a moment ago, if Cuba would open up, if we would open up, we could come together. Clearly, what has happened since the Pope's visit, Fidel Castro has arrested more dissidents than he has released following the Pope's visit. He has instituted new laws which restrict the freedom of speech, even more restrictive than in previous years. He arrested 15 people trying to celebrate the birthday of Martin Luther King this year, and just this month he arrested and sentenced four prominent activists for writing about the basic rights of the Cuban people. Mr. President, it seems to me that this country, a country that has been willing to stand up in defense of human rights, basic human rights all over the globe, is doing the right thing. I ask my colleagues in the Senate to support this resolution. I yield back my time and yield the floor to Senator Graham.

Mr. MACK. Mr. President, I ask for the yeas and nays on the resolution.

Mr. MACK

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

Mr. MACK

Mr. MACK. Mr. President, I ask unanimous consent that S. Res. 57 be discharged from the Foreign Relations Committee and, further, that the Senate now proceed to its immediate consideration.