Daniel Moynihan

Mr. MOYNIHAN

Mr. MOYNIHAN. Madam President, yesterday's Buffalo News reported the forthcoming retirement of Buffalo, NY, Common Council President George K. Arthur, after four decades of public service. Mr. Arthur, who has been Common Council President since 1983, is a distinguished public servant who has given much to the people of Buffalo. I know I speak for the people of Buffalo in offering George Arthur great thanks and congratulations. He will indeed be missed. Mr. President, I ask unanimous consent that the text of the article from the Buffalo News be printed in the Record.

Mr. MOYNIHAN

Mr. MOYNIHAN. I thank my gallant friend from Nebraska. I rise very much in support of the position he has taken and that of the distinguished chairman of the committee, the Senator from Pennsylvania. I would say by way of introduction that in the 103d Congress and then on the first day of the 104th Congress, I offered legislation that would basically break up the existing Central Intelligence Agency and return its component parts to the Department of Defense and the Department of State in the manner that the OSS, the Office of Strategic Services, was divided and parceled out with the onset of peace in 1945 and 1946, to be followed, of course, by a cold war which has persisted almost until this moment. I had hoped to encourage a debate on the role of intelligence and of secrecy in the American society. That debate has taken place. Some of the results, I think, can be seen in the nomination of this distinguished scientist and public servant to this position. It could not have been more clear than in his testimony in which he made a point, self-evident we would [[Page S6268]] suppose, but not frequently to be encountered in the pronouncements of potential DCI's. He said: Espionage does not rest comfortably in a democracy. Secrecy, which is essential to protect sources and methods, is not welcome in an open society. If our democracy is to support intelligence activities, the people must be confident that our law and rules will be respected. It may have come as a surprise--although it ought not to have--in recent months and weeks, to find how many persons there are in this country who do not have confidence that our laws and rules will be respected; who see the government in conspiratorial modes, directed against the people in ways that could be of huge consequence to Americans. I am not talking about what Richard Hofstadter referred to when he spoke of ``the paranoid style in American politics.'' I am talking about the widespread belief that the CIA was somehow involved in the assassination of President Kennedy, if we can imagine. But there it is. It is important to understand how deep this is in our society. In 1956, even before Hofstadter spoke of it; Edward A. Shils of the University of Chicago--who just passed away--that great, great, social scientist, published his book, ``The Torment of Secrecy,'' in which he wrote ``The exfoliation and intertwinement of the various patterns of belief that the world is dominated by unseen circles of conspirators, operating behind our backs, is one of the characteristic features of modern society.'' Such a belief was very much a feature of the Bolshevik society that took shape in 1917 and 1918. The conspiratorial decision to help found and fund in the United States, a Communist party, half of which would be class destiny, the discovery from the archives in Moscow that John Reed received a payment of $1.5 million in 1920. Even as soft money, that would be a very considerable sum today. In the pattern that societies go through, it is said that organizations become like one other. To an extraordinary degree we emulate the Soviet model in our own intelligence service. Unintentionally, naturally, it happens that way, but a very powerful analyses of this has just been written by Jefferson Morley in the Washington Post under the headline ``Understanding Oklahoma'' in an article entitled ``Department of Secrecy: The Invisible Bureaucracy That Unites Alienated America in Suspicion.'' Or by Douglas Turner, in an article this weekend in the Buffalo News. I spoke of these concerns in an earlier statement on the Senate floor entitled ``The Paranoid Style in American Politics,'' which I ask unanimous consent be printed in the Record along with the articles by Douglas Turner and Jefferson Morley.

Mr. MOYNIHAN. Mr. President, what we have is so much at variance with what was thought we would get. Allen Dulles was very much part of the foundation of postwar intelligence, having been in the OSS, served with great distinction in Switzerland during World War II. Peter Grose, in his new biography, ``Gentleman Spy: The Life of Allen Dulles,'' recounts the testimony Dulles gave before the Senate Armed Services Committee on April 25, 1947, as we are about to establish, passed the National Security Act of 1947 and created this small coordinating body, the Central Intelligence Agency. Personnel for a central intelligence agency, he argued, ``need not be very numerous * * *. The operation of the service must be neither flamboyant nor overshrouded with the mystery and abracadabra which the amateur detective likes to assume.'' In a lecturing tone, he tried to tell the Senators how intelligence is actually assembled. Because of its glamour and mystery, overemphasis is generally placed on what is called secret intelligence, namely the intelligence that is obtained by secret means and by secret agents. . . . In time of peace the bulk of intelligence can be obtained through overt channels, through our diplomatic and consular missions, and our military, naval and air attahces in the normal and proper course of their work. It can also be obtained through the world press, the radio, and through the many thousands of Americans, business and professional men and American residents of foreign countries, who are naturally and normally brought in touch with what is going on in those countries. A proper analysis of the intelligence obtainable by these overt, normal, and aboveboard means would supply us with over 80 percent, I should estimate, of the information required for the guidance of our national policy. Mr. President, that could not happen, did not happen. We entered upon a five-decade mode of secret analysis, analysis withheld from the scrutiny, which is the only way we can verify the truth of a hypothesis in natural science or the social sciences. The result was massive miscalculation, Nicholas Eberstadt in his wonderful new book, ``The Tyranny of Numbers,'' writes ``It is probably safe to say that the U.S. Government's attempt to describe the Soviet economy has been the largest single project in social science research ever undertaken.'' He said that, sir, in 1990, in testimony before the Committee on Foreign Relations. ``The largest single project in social science research ever undertaken,'' and it was a calamity. No one has been more forthright than Adm. Stansfield Turner in an article in Foreign Affairs about this time. He said when it came to predicting the collapse of the Soviet Union, the corporate view of the intelligence community was totally wrong. I can remember the first years of the Kennedy administration. I remember having a meeting with Walt Rostow, Chairman of the Policy Planning Council in the Department of State, in which he said of the Soviet Union, I am not one of those 6 percent forever people, but there it was, locked into the analyses. That is what the President knew. Mr. President, in Richard Reeves remarkable biography of John F. Kennedy, he records that the agency told the President that by the year 2000 the GNP of the Soviet Union would be three times that of the United States. And that is what the President knew. A person might come to him with the most reasonable arguments, as did any number of economists. The great theorists, Friedman, Hayek, Stigler, said it could not happen, it would be theoretically impossible. Important work done by Frank Holzman, at Tufts, and the Russian Research Center at Harvard said, ``No, no. That is all very well what you say professor. What I know is different.'' The consequences have been an extraordinary failure to foresee the central event of our time. A vast overdependence on military and similar outlays, that leave us perilously close to economic difficulty ourselves. I would like to close with a letter written me in 1991 by Dale W. Jorgenson, professor of economics at the Kennedy School of Government, in which he said: I believe that the importance of economic intelligence is increasing greatly with the much-discussed globalization of the U.S. economy. However the cloak-and-dagger model is even more inappropriate to our new economic situation than it was to the successful prosecution of the Cold War that has just concluded. The lessons for the future seem to me to be rather transparent. The U.S. government needs to invest a lot more in international economic assessments. * * * (I)t should reject the CIA monopoly model and try to create the kind of intellectual competition that now prevails between CBO and OMB on domestic policy, aided by Brookings, AEI [American Enterprise Institute], the Urban Institute, the Kennedy School, and many others. I ask unanimous consent the entire letter be printed in the Record at the conclusion of my remarks.

Mr. MOYNIHAN. Those are the remarks I would like to make, sir. I have the confidence that John Deutch, as a scientist, will follow them. I have the concern that the administration will not. We do know some things in social science. Mancur Olson, in his great book, ``The Rise and Decline of Nations,'' on this day, V-E Day--I was a sailor on V-E Day, so I can remember that--I can remember the Boston Common, actually-- Mancur Olson asked: Why has it come about that the two nations whose institutions were destroyed in World War II, Germany and Japan, have had the most economic success since? Whereas Britain--not really much success at all; the United States-- yes, but.'' And he came up with a simple answer. The defeat wiped out all those choke points, all those rents, all structures that enable institutions to prevent things from happening. And we are seeing it in this Government today, 5 years after the wall came down. Remember, 2 years before the wall came down the CIA stated that per capita GDP was higher in East Germany than in West Germany. I hope I take no liberty that I mentioned this once to Dr. Deutch and added ``Any taxi driver in Berlin could have told you that was not so.'' And Dr. Deutch replied, ``Any taxi driver in Washington.'' But if we cannot summon the capacity to change our institutions in our changed circumstances, there will be consequences and let nobody say they were not predictable. Mr. President, I thank the Senator from Texas for her graciousness for allowing me to speak when in fact in alternation it would have been her turn. Exhibit 1 [From the Congressional Record, Apr. 25, 1995] The Paranoid Style in American Politics Mr. Moynihan. Mr. President, As we think and, indeed, pray our way through the aftermath of the Oklahoma City bombing, asking how such a horror might have come about, and how others might be prevented, Senators could do well to step outside the chamber and look down the mall at the Washington Monument. It honors the Revolutionary general who once victorious, turned his army over to the Continental Congress and retired to his estates. Later, recalled to the highest office in the land, he served dutifully one term, then a second but then on principle not a day longer. Thus was founded the first republic, the first democracy since the age of Greece and Rome. There is no a more serene, confident, untroubled symbol of the nation in all the capital. Yet a brief glance will show that the color of the marble blocks of which the monument is constructed changes about a quarter of the way up. Thereby hangs a tale of another troubled time; not our first, just as, surely, this will not be our last. As befitted a republic, the monument was started by a private charitable group, as we would now say, the Washington National Monument Society. Contributions came in cash, but also in blocks of marble, many with interior inscriptions which visitors willing to climb the steps can see to this day. A quarter of the way up, that is. For in 1852, Pope Plus IX donated a block of marble from the temple of Concord in Rome. Instantly, the American Party, or the Know-Nothings (``I know nothing,'' was their standard reply to queries about their platform) divined a Papist Plot. An installation of the Pope's block of marble would signal the Catholic Uprising. A fevered agitation began. As recorded by Ray Allen Billington in The Protest Crusade, 1800-1860: ``One pamphlet, The Pope's Strategem: ``Rome to America!'' An Address to the Protestants of the United States, against placing the Pope's block of Marble in the Washington Monument (1852), urged Protestants to hold indignation meetings and contribute another block to be placed next to the Pope's `bearing an inscription by which all men may see that we are awake to the hypocrisy and schemes of that designing, crafty, subtle, far seeing and far reaching Power, which is ever grasping after the whole World, to sway its iron scepter, with bloodstained hands, over the millions of its inhabitants.''' One night early in March, 1854, a group of Know-Nothings broke into the storage sheds on the monument grounds and dragged the Pope's marble off towards the Potomac. Save for the occasional ``sighting'', as we have come to call such phenomena, it has never to be located since. Work on the monument stopped. Years later, in 1876, Congress appropriated funds to complete the job, which the Corps of Engineers, under the leadership of Lieutenant Colonel Thomas I. Casey did with great flourish in time for the centennial observances of 1888. Dread of Catholicism ran its course, if slowly. (Edward M. Stanton, then Secretary of War was convinced the assassination of President Lincoln was the result of a Catholic plot.) Other manias followed, all brilliantly describe in Richard Hofstadter's revelatory lecture ``the Paranoid Style in American Politics'' which he delivered as the Herbert Spencer Lecture at Oxford University within days of the assassination of John F. Kennedy. Which to this day remains a fertile source of conspiracy mongering. George Will cited Hofstadter's essay this past weekend on the television program ``This Week with David Brinkley.'' He deals with the same subject matter in a superb column in this morning's Washington Post which has this bracing conclusion. ``It is reassuring to remember that paranoiacs have always been with us, but have never defined us.'' I hope, Mr. President, as we proceed to consider legislation, if that is necessary, in response to the bombing, we would be mindful of a history in which we have often overreached, to our cost, and try to avoid such an overreaction. We have seen superb performance of the FBI. What more any nation could ask of an internal security group I cannot conceive. We have seen the effectiveness of our State troopers, of our local police forces, fire departments, instant nationwide cooperation which should reassure us rather than frighten us. I would note in closing, Mr. President, that Pope John Paul II will be visiting the United States this coming October. I ask unanimous consent that Mr. Will's column be printed in the Record.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, on the occasion of his retirement after 35 years as editor-in-chief of Commentary magazine, I would like to offer my concurrence with the sentiments expressed in this morning's New York Post, Wall Street Journal, and Washington Times honoring the career and the person of Norman Podhoretz. As a New York Post editorial notes: ``the ideas advanced in Commentary--thanks to Podhoretz's editorial gifts--make it a forum for the key policy questions confronting the Nation.'' David Brooks of the Wall Street Journal, offers a similar accolade: If there is one thing Mr. Podhoretz and his magazine have stood for all these years, it is the joy and value of ideas. Thirty-four years ago, I first appeared as a contributor to Commentary. The article, entitled ``Bosses and Reformers,'' dealt with conflict within the Democratic Party--a subject still alive and well today. Norman Podhoretz and Commentary have contributed much of value to modern political discourse. We owe them both great thanks. Mr. President, I ask unanimous consent that the full text of the above cited articles be reprinted in the Record.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, the Op-Ed page of Friday's Washington Post featured an irresistible account by Philip Geyelin, ``When I Danced With Ginger Rogers.'' The occasion was the Gridiron Club dinner of March 28, 1981. With the advent of Ronald Reagan's presidency ``Hooray for Hollywood'' was the evening's theme, and Miss Rogers its most illustrious guest. It happens I was the Democratic speaker that evening, and I had the inexpressible joy of sitting next to Miss Rogers at the head table in my white tie and tails. I took the liberty of expounding, as best I was able, Professor Joseph Reed's theory of the dramatic import of Miss Rogers' abrupt decision to dance with Astaire on that lovely day they were caught in the raid in Regents Park. She confided to me that she had to slip off to dance, that night, with Geyelin. She returned to pronounce him divine! Mr. President, I ask unanimous consent that the text of the above cited article be reprinted in the Record.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, as the senior senator from the State of New York, and as a Democrat, I rise to offer an apology to our Governor, George E. Pataki, for the inexcusable conduct of the national chair of the Democratic National Committee yesterday in Albany. As has now been reported, and not disputed, Mr. Donald L. Fowler referred to our Governor as a ``quasi-Governor''. This, he said, is self-defining. ``It means almost a governor, a governor who's not quite there, a governor who doesn't quite have it together * * *'' Later he volunteered to reporters, ``You know what `quasi' means. It means half- assed.'' In the annals of political invective, there has been yet more vulgar calumny, but in this already sufficiently raucus time, this will serve. But will not be allowed to stand. Mr. Pataki is our duly elected Governor; a person of manifest ability and quiet dignity. It defies reason that the national chair of the Democratic Party should journey to the State capital for the purpose of summoning New Yorkers to support President Clinton in the next election, whilst simultaneously insulting the person New Yorkers chose to be Governor in the last election. I am sure Mr. Fowler regrets his remarks. I await his apology. And, to say again, tender my own on behalf of the great majority of Democrats who would not wish to be associated with what has now taken place, and who will insist that it not occur again. The President's task in New York will be difficult enough; that would make it impossible.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I ask that I might be allowed to speak for up to 12 minutes on the matter which the Senator from Oklahoma indicated will be the subject of the remaining of our morning debate.

Mr. MOYNIHAN. I thank the Chair. the paranoid style in american politics

Mr. MOYNIHAN. Mr. President, seeing the distinguished Senators from Oklahoma on the floor, I know we all look to hear from them. I thank the President and yield the floor.

Mr. MOYNIHAN. Mr. President, as we think and, indeed, pray our way through the aftermath of the Oklahoma City bombing, asking how such a horror might have come about, and how others might be prevented, Senators could do well to step outside the Chamber and look down The Mall at the Washington Monument. It honors the Revolutionary general who once victorious turned his army over to the Continental Congress and retired to his estates. Later, recalled to the highest office in the land, he served dutifully one term, then a second, but then on principle not a day longer. Thus was founded the first republic, the first democracy since the age of Greece and Rome. There is not a more serene, confident, untroubled symbol of the Nation in all the Capital. Yet a brief glance will show that the color of the marble blocks of which the monument is constructed changes about a quarter of the way up. Thereby hangs a tale of another troubled time; not our first, just as, surely, this will not be our last. As befitting a republic, the monument was started by a private charitable group, as we would now say, the Washington National Monument Society. Contributions came in cash, but also in blocks of marble, many with interior inscriptions which visitors willing to climb the steps can see to this day. A quarter of the way up, that is. For in 1852, Pope Pius IX donated a block of marble from the Temple of Concord in Rome. Instantly, the American Party, or the Know-Nothings--``I know nothing,'' was their standard reply to queries about their platform-- devined a Papist plot. An installation of the Pope's block of marble would signal the Catholic uprising. A fevered agitation began. As recorded by Ray 1860'': One pamphlet, ``The Pope's Strategem: `Rome to America!' An Address to the Protestants of the United States, against placing the Pope's block of Marble in the Washington Monument'' (1852), urged Protestants to hold indignation meetings and contribute another block to be placed next to the Pope's ``bearing an inscription by which all men may see that we are awake to the hypocrisy and schemes of that designing, crafty, subtle, far seeing and far reaching Power, which is ever grasping after the whole World, to sway its iron sceptre, with bloodstained hands, over the millions of its inhabitants.'' One night early in March 1854, a group of Know-Nothings broke into the storage sheds on the Monument Grounds and dragged the Pope's marble slab toward the Potomac. Save for the occasional ``sighting,'' as we have come to call such phenomena, it was never to be located since. Work on the monument stopped. Years later, in 1876, Congress appropriated funds to complete the job, which the Corps of Engineers, under the leadership of Lt. Col. Thomas I. Casey did with great flourish in time for the centennial observances of 1888. Dread of Catholicism ran its course, if slowly. Edward M. Stanton, then Secretary of War, was convinced the assassination of President Lincoln was the result of a Catholic plot. Other manias followed, all brilliantly described in Richard Rofstadter's revelatory lecture ``The Paranoid Style in American Politics'' which he delivered as the Herbert Spencer Lecture at Oxford University within days of the assassination of John F. Kennedy. Which to this day remains a fertile source of conspiracy mongering. George Will cited Hofstadter's essay this past weekend on the television program ``This Week With David Brinkley.'' He deals with the same subject matter in a superb column in this morning's Washington Post which has this bracing conclusion. It is reassuring to remember that paranoiacs have always been with us, but have never defined us. I hope, Mr. President, as we proceed to consider legislation, if that is necessary, in response to the bombing, we would be mindful of a history in which we have often overreacted, to our cost, and try to avoid such an overreaction. We have seen superb performance of the FBI. What more any nation could ask of an internal security group I cannot conceive. We have seen the effectiveness of our State troopers, of our local police forces, fire departments, instant nationwide cooperation which should reassure us rather than frighten us. I would note in closing, Mr. President, that Pope John Paul II will be visiting the United States this coming October. I ask unanimous consent that Mr. Will's column be printed in the Record.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, the Center for Naval Analyses in Alexandria, VA, annually presents the Paul H. Nitze Award in recognition of important contributions to national and international security affairs. This year's recipient of the Nitze Award is the Honorable James R. Schlesinger, who received the award on April 6, 1995. Dr. James Schlesinger is of course one of the most experienced and able public servants of our time. A distinguished economist, he served during the Nixon administration in several prominent capacities in the Bureau of the Budget, ascending to Assistant Director in 1970, when the Bureau became the Office of Management and Budget. And, as Senators are well aware, he went on to become Director of Central Intelligence and Secretary of Defense in the Nixon and Ford administrations, and Secretary of Energy under President Carter. Dr. Schlesinger has also served for many years as senior advisor at Lehman Brothers, and he is widely respected for his scholarship arising out of his long association with the Center for Strategic and International Studies at Georgetown University. On receiving the Paul H. Nitze Award, Jim Schlesinger delivered an outstanding lecture on ``American Leadership, Isolationism, and Unilateralism'' in which he points out the need for close attention to the leadership role of the United States in international affairs in the post-cold-war era. Mr. President, when a scholar and public eminence of James Schlesinger's wisdom and stature addresses himself to an issue of such significance to world affairs, I believe it is incumbent on all of us to take notice. Every Senator will benefit from a careful reading of Dr. Schlesinger's speech, and I therefore ask that it be printed in the Record. The speech follows: Some Reflections on American Leadership, Isolationism, and Unilateralism Ladies and Gentlemen: It is a special pleasure as well as an honor to have been chosen to receive the Paul H. Nitze Award. It is a special pleasure because Paul and I have been collaborating directly for almost a quarter of a century--and indirectly for even longer. I started working for Paul in the early 60's, when I was at the RAND Corporation, and he was head of International Security Affairs at the Pentagon. Years later when I was Secretary of Defense, Paul also worked for me. That clearly was the way it read on the organization chart, though, for those of you who may not be aware of this, such charts do not necessarily convey the whole of reality. Of course, it is also a great honor for reasons that must be obvious--Paul's many contributions to this nation, his keenness of intellect (not the most common characteristic among high officials), his abiding role as a senior statesman. But perhaps one of Paul's most remarkable strengths is the cool and detached view that habitually he has taken with regard to national security affairs--rising above the hubbub of controversy. That characteristic has been displayed most prominently in matters such as the Palestine crisis of 1947, the Watergate crisis, and a ``walk in the woods''. Paul has displayed not only staying power, but (to avert to an issue that first brought us together) great throwweight in national security affairs. So it is a distinct honor as well as a personal pleasure to have been selected for this year's Nitze Award. As most of us will recall, Paul Nitze was one of the principal authors of NSC-68, which, in the aftermath of World War II, charted that transformed role for the United States in international affairs--of leadership and continuous engagement. In a sense, the intellectual underpinnings of NSC-68 guided American policy for more than 40 years. But we all realize the era of NSC-68 is now over. It ended, rather abruptly, with the demise of the Soviet Union. Of course, it was Soviet misbehavior in the postwar world that formed the national consensus which gave sustenance to the design that underlay NSC-68. It manifested itself in the Greek-Turkish aid program, the Marshall Plan, the NATO Alliance--and, shortly later, the response to aggression in the Korean peninsula and the U.S.-Japan Security Treaty. Yet, with the fall of the Soviet Union, this nation has been stripped both of guideposts to our foreign policy and of the national consensus that underpins that policy. Both the uncertainties and the challenges are substantial. This nation is deeply enmeshed in world affairs. For better or worse, it is the leading world power. No longer is it free, as it felt itself to be through much of its history, to stand aloof, to isolate itself from political events abroad. Yet, the clear guidelines that marked those past period of engagement are now lacking. For this reason I want to spend some time this evening reflecting on American leadership, on isolationism, and on unilateralism. In his inaugural Nitze Award lecture, Sir Michael Howard looked back in time to review lessons from the Cold War Period. I seek to look forward--to what comes next. Of late, one may have noticed the demands for ``American leadership'' and the charges of ``isolationist'' that have reverberated across the political landscape. That the charge of ``isolationist'' is so widely used as a political epithet reveals that the notion that America can stand aloof has little resonance with the American public. The public fully accepts that its economic ties, its political interests, even its residual vulnerability in an era of nuclear weapons, preclude a wholesale American withdrawal from international affairs. Moreover, even if we could stand aside, the voice of conscience insists that it would not be right for America to be indifferent to political travail, particularly when it affects long-time allies of the United States. By contrast to these rejected charges of isolationism, the image of American leadership has a grand resonance. Unhappy events overseas, whether or not there is any serious American interest, are regularly blamed on the ``failure of American leadership''. Everybody seems to urge American leadership. Americans like to flatter themselves with the notion that this country is the ``sole surviving superpower''--and expect action to make those unhappy events go away--so long as it does not cost us very much. Our European allies--sometimes rightly, sometimes wrongly--have demanded: Where is American leadership? (Of late that cry has diminished in intensity, as European expectations regarding American leadership have faded.) Our Asian associates have resented our continuous preaching, yet all are concerned that an erosion over time of American power in the Pacific will allow an instability from which until now they have been protected. Preachers, teachers, editorial writers, if not little children in the street, seem to presuppose American leadership--but fundamentally treat it as a panacea--as a ready antidote for most, if not all, of the world's problems. Thus, the real issue comes down, not to withdrawal or isolation--those are epithets--but to when, where, and how we choose to intervene. In part the charge of isolation really comes down to a suspicion of unilateral moves by the United States on the international scene. For those who embrace multilateralism and who prefer to work through international bodies, the charge of isolationist comes readily as a riposte to those who do not agree with them. But multilateralism can readily be a cover for inaction. It can also be, and frequently is, a vehicle for ineffective action. Of course, those who instinctively prefer to work through international bodies are frequently right that their opponents are short sighted or even blindly chauvinistic. But their actions are scarcely isolationist. Rightly or wrongly, they are regularly intended to achieve international objectives. But such unilateralist impulses may be equally flawed or ineffective. The Clinton Administration has chided its foes for being isolationists. It is perhaps merely the most recent assertion of ``assertive multilaterialism''. Their critics, in turn, have responded in kind. The Administration may fervently believe in the collaboration among nations, yet it has shown a distinct proclivity to become embroiled in quarrels with individual nations, sometimes including old allies, over issues which are either only remotely our business or over which our influence is modest. Endangering ties with those that have been reliable allies, along with ineffectual, if irritating, advocacy of policies over which our influence is slight runs the risk of weakening the ties between ourselves and other nations--in effect isolating the United States. In terms of its accolades to international engagement, the Administration is clearly beyond criticism. It is only those specific actions that the Administration takes, which properly comes out and which understandably alarms its critics. Irrespective of the good intentions, such actions may weaken the international position of the United States. Thus, the question is not one of isolation or withdrawal. The question is where, when, and on what terms does the United States become engaged. What is our foreign policy to be--now that the conceptually easy task of containment has come to an end. It is perhaps unnecessary to remind this audience that such questions are antecedent to the issue of shaping our military forces. The shaping of those forces depends upon the role that the United States wishes to play in the world--and the circumstances under which those forces may become engaged. ii Thus, we seek a new paradigm for an effective foreign policy. We seek, in effect, a successor to NSC-68. But it is not easy to come by. Some of the difficulty in finding that new paradigm is inherent. It is probably unavoidable that we flounder to some degree at historic turning points. We did so after World War II. It was not until 1947-1948 that we began to find our bearings--and to do that we had the indispensable help of Joseph Stalin. Now the international scene is vastly more complex and yet there is much less direct danger to the United States. Though there are numerous eruptions on the international scene, there is little to concentrate the mind. In every such eruption, somewhere someone will call on the United States to do something. ``Concentrating the mind'' is indispensable to some degree. It is better that we recognize that simple fact rather than having reality thrust upon us. No nation can do everything; we would be wise not to aspire to do so. I can recall over 40 years ago listening to a debate at Harvard regarding the resolution of one of our seemingly perennial steel strikes--during which John Dunlop, later Secretary of Labor, commented: ``It is important for a democracy not too frequently to demonstrate its own ineffectiveness''. I have never forgotten that injunction. But what is true for domestic policy is even more true for foreign policy. Becoming engaged in numerous disputes, particularly if one lacks public backing, is the high road to ineffectiveness. Perhaps it is obvious to say that the problem is especially difficult for the United States, which, as a world power, might find its attention drawn in any one of many directions--and for which public backing is a sometime thing and must be carefully fostered. In the past and for other great powers, the choice of foreign policy tendered to be far simpler. For most it was geographically determined. There likely would be an historic enemy. For, say, France or Germany, there was little uncertainty as to who one's foe might be and where one must be prepared to fight. To be sure, for Britain, whose imperial interests were more far-flung, the problem was broader: to protect communications with the empire and to prevent any single power from dominating the Continent. Yet for the United States today, our interests are even more diverse, and the challenge of being a world power has grown since the era of European dominance. Moreover, the task was far easier in another respect. Given what was seen as clear national interests, the unquestioned rule for the European powers stressed the priority to be assigned to foreign policy. The phrase from Bismarckian German puts it simply: das Primat der Aussenpolitik--the primacy of foreign policy. Yet, the primacy was far easier to establish in a dynastic regime. Even in the case of England, the problem was not insuperable--in light of its clearly defined foreign policy, the preservation of the balance of power, and a continued willingness of the British public to defer to a strong governing class. But here in the United States we now show signs of turning das Primat der policy to be determined by domestic politics. In any democracy that is a continuing temptation; it is particularly a problem in the United States where the vicissitudes of public opinion can so easily determine public policy. And, particularly is this so in the absence of an overriding fear (as with the Soviet Union) or an overriding anger as with Japan or Spain in an earlier era (Remember Pearl Harbor, Remember the Maine). In sustaining public support, it is frequently helpful if the anger has focused on a weak foe (Mexico, Spain, or Grenada) for then one can count on public exultation in a ``glorious little war''. When, however, there is no clear and formidable foe and when only a few Middle Eastern countries seem to generate public anger, it is difficult to sustain a priority in foreign policy (as George Bush belatedly discovered). It is thus seductively easy to accept the primary of domestic politics. In addition to the absence of a clear focus and the existence of diverse areas of potential responsibility for the United States, which alone is a world power, there is a further problem. There are too many distractions, most of them transitory in nature. It is difficult to concentrate on those issues that might represent ``permanent interests'', given the worldwide domain of television with a power, if not an agenda, that exceeds that of ``yellow journalism'' in the past. Rather than permanent interests, we experience sudden passionate interest in the Bosnians, the Kurds, the Rwandans, the flight of Haitian or Cuban refugees, then the Kurds again that lasts a few weeks or months at most--until the story pales, the public tires of it, and then moves on. Surely that complicates the task of selecting those interests and issues to which we should adhere. It makes the challenge of sustaining support for long term interests, as opposed to momentary distractions, immensely difficult. Need I add that these factors also make immensely difficult the task of force planning. There is uncertainty as to what our foreign policy may be. Consequently, there is an uncertainty as to where we might fight. Choosing two major regional conflicts as ``representative'' is hardly an ideal solution--reminding us of the locale of past conflicts rather than of the likely future conflicts. Moreover, under these circumstances there are genuine conflicts regarding specific foreign objectives. With respect to our Asian policies, for example, the DOD's International Security Affairs opines: ``the United States remains dedicated to strengthening alliances and friendships''. Yet, this scarcely describes the motives that guide the actions of the U.S. Trade Representative, who is predisposed to confrontations with the same Asian states--by implicitly, if not explicitly, threatening to weaken those alliances and friendships. In U.S. policy there is a growing mixture of economic rivalry and alliance reassurance. Perhaps this is unavoidable, yet clearly it undercuts any joint planning with those allies on whom we should be able to count. iii I have now devoted some time to explaining why in this postwar world the inherent difficulties for this nation shaping its foreign policy have grown. Now let me turn to analyzing how our own actions have been compounding those difficulties inherent in this altered world--and have seemed to undercut that role of world leader which we ostensibly cherish. But first I must portray the general behavior and the style necessary to sustain the role of world leader. One does not require any special knowledge or erudition to understand these requirements; they should be obvious to any long time observer of politics. First, to be accepted as a leader, a nation must be seen not to be acting primarily for its own account. It must understand and take into account the interests of its followers. It must also be seen to be genuinely interested in international affairs--rather than blindly follow the dictates of its own domestic politics. AND it must focus on matters of real consequence. Second, it must be reasonably consistent. Changes in policy should be few in number--and taken for what are seen as valid reasons. One must be steadfast. A great power does not lightly enter into commitments, but when it does so it must be with the serious intent of carrying them out. In brief those who wish to retain a position of leadership must avoid capriciousness. Otherwise one's credibility rapidly diminishes, and one's influence fades with almost equal rapidity. Of late the United States has failed to observe these obvious rules. While we flatter ourselves as the world's sole remaining superpower, we seem to be amazed that our influence seems to be shrinking. To be sure, some such shrinkage is inherent in the change of circumstances. With the demise of the Soviet threat, other nations, previously dependent upon the United States for protection, are now less dependent and so less inclined to defer to our wishes. But the erosion of our influence proceeds more rapidly than required by the circumstances. If we are to arrest that decline, we must understand the causes. If a nation is to lead, it must seem to be genuinely concerned about international affairs--and not driven primarily by domestic pressures. Nonetheless, in recent years our policies being driven by domestic constituencies appear to be the rule rather than the exception. In Northern Ireland, in Haiti, in respect to Cuba or Haitian refugees, in much of the Middle East, our policies seem to be driven by domestic pressures--and we appear largely indifferent regarding the international repercussions. A hungerstrike and pressures from the Black Caucus brought a shift in our policies toward Haiti. A senior official backgrounds to the press that: ``No one will get to the right of us on Iran''. The President's National Security Advisor reveals that the United States will attempt once again to tighten sanctions on Libya by persuading our European partners to cease buying Libyan oil. This revelation occurs, not in a regular diplomatic forum, but in a meeting with the families of the victims of Pan Am 108. Disappointed as they may have been, Europeans were not really surprised that the United States did not regard Bosnia as primarily our business. (Especially was this so in light of the European Union's having previously told us that Europe would handle Bosnia, and there was no need for our intervention.) They were, however, non-plussed that we would regard the affairs of Northern Ireland as primarily our business. Northern Ireland is, after all, a province of the United Kingdom, part of its sovereign territory. For us to butt in (no other expression seems suitable!) for domestic political reasons appeared both ignorant and bumptious. Such behavior is scarcely consistent with the solidarity of NATO, let alone the ``special relationship''. I cannot overstate the dismay of other Europeans regarding our treatment of the British. The general reaction is: If the Americans will behave this way to their most intimate partner, what can the rest of us expect? The diplomat's word for this episode is: ``disappointment''. This Administration is explicitly vulnerable to the conservative charge that it is soft--most notably soft on Saddam Hussein. For this reason it seeks, with ever lessening support and growing desperation to maintain the sanctions on Iraq that were adopted in 1990. Three of the five permanent members of the Security Council have now introduced a resolution to terminate those sanctions. Even Iraq's neighbors regard our policy as no longer productive, though they are reluctant to say so to our highest officials. If the United States is seen primarily for domestic political reasons to be stretching out sanctions believed to be unproductive, if not unjust, how ready will others again be to follow American leadership in imposing sanctions? The answer is clear. A willingness to put domestic pressures in front of international considerations will undermine the very multilateral mechanisms that the Administration believes ideal for abiding international stability. Indeed, with respect to Libya, Iran, and Iraq, rather than achieving its declared goal isolating those countries, our diplomacy tends to isolate the United States itself. The effect of these altogether too many cases of putting domestic politics first is to obscure those instances in which the Administration has rightly focused our policies on the longer term interests both of this nation and of international stability--most notably our relations with Russia and the spread of nuclear weapons. Other nations doubt that we understand their interests, let alone take them into adequate account. When the United States proclaims that providing (6000 thermal megawatts of) light water reactors to North Korea is the best remedy for curbing North Korea's drive to acquire nuclear weapons, it makes it somewhat difficult, to say the least, to persuade the Russians that providing light water reactors in Iran creates an open road to nuclear spread. To be effective, even with respect to common long-term interests, a leader needs to maintain its credibility. The problem goes well beyond the Administration. One can think of many advantages of divided government--invetting domestic proposals. However, I myself can think of virtually no advantages in divided government with respect to international affairs. It weakens the voice of any Administration--and it undermines the credibility of American diplomacy. This Congress now seems inclined to inflict on the Clinton Administration's policies regarding Bosnia and regarding Russian aid the same kind of cavalier treatment with which its Democratic predecessor treated President Bush's policies toward China after Tiananmen Square. Whatever the merits or defects of our policy on the so-called Mexican bail out or toward Iran, Congressional intervention does not seem likely to improve them. Our policies have been changeable rather than consistent. Our commitments do not appear to be reliable. Our policies appear excessively driven by domestic constituencies. The result is that the call for American leadership is diminishing in strength. Increasingly American leadership appears to be a problem rather than a solution. We are tempting fate. Some years ago Paul Nitze suggested that ``other nations can be expected to coalesce to cut us down to size''. Unless we are prepared to deflect our own domestic pressures, to take international considerations primarily into account, to understand the differing interests of other nations, and to pursue worthy long-term, common interests, we shall regrettably accelerate that process. Writing in 1950 in his splendid work, ``American Diplomacy,'' George Kennan observed: ``history does not forgive us our national mistakes because they are explicable in terms of our domestic politics''. He also states: ``A nation which excuses its own failures by the same sacred untouchableness of disaster''. With the end of the totalitarian threat, with the remarkably changed international circumstances, the danger to the United States has visibly receded, and there is little likelihood of a ``complete disaster''. Nonetheless, despite the lessened danger, the possibility remains of cumulative small setbacks and the erosion of our position. We may ignore such possibilities--and it is unlikely to be fatal. Still the rules are quite simple. To be a leader, a nation must sustain its credibility. Ladies and Gentlemen, you have been more than patient. I must draw to a close--and must also offer a few conclusions. During the Cold War the stakes were immense: the preservation of the Western democracies and, if I may say so, the substantial preservation of Western Civilization itself of which the United States was the security mainstay. (I say this despite the probable assault of the multiculturalists.) But with the end of the cohesion and menace of the Soviet empire, the stakes have now shrunken. The United States, the world's most powerful nation, is in a sense free to be capricious, to be irresponsible. Yet, it will not soon fall into direct and serious danger. Nonetheless, there are restraints--and there are prospective consequences of our actions. The price of capriciousness will inevitably be a loss of credibility--and of our position of leadership. While the United States is a powerful country, it is not all-powerful. At the close of the Nineteenth Century, Secretary of State Richard Olney could declaim during the Venezuelan dispute with Great Britain that the United States' ``word was fiat on this continent''. Whatever we may wish, it is not fiat around the world. To pretend otherwise will make us look foolish. The focus of our foreign policy concern, as Paul Nitze has said, should be ``what kind of relations among the leading powers''. We must be cautious about involving ourselves in matters of lesser consequences. We should be restrained in word as well as deed. The United States is not obliged to comment on everything. Meddling in issues in which our interests are only tangentially involved, nagging others about their defects, real or imaginary, may make us feel good for the moment. It is not the road to successful or long-term leadership. To provide long-term leadership, other nations must understand that we do not speak casually or loosely. When we do choose to make a commitment, other nations need to know that we can and probably will live up to it. Always remember: leadership is not an inheritance; it must be earned anew, each decade, each year.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, spring has arrived here in Washington, the Grounds of the Capitol are looking their best and we welcome the change. Unfortunately, spring in Bosnia is not a welcome event. Spring in Bosnia means the cease-fires of winter melt away and the war will resume with all its ferocity. I have taken this floor many times to decry the ethnic cleansing that continues in Bosnia and to urge our Government, and the U.N. Security Council, to act more responsibly in addressing this terrible tragedy. It comes as no surprise that those affected by our inaction are astonished at our apparent indifference, and chastise us for failing to uphold basic moral and legal norms. On Wednesday, the Washington Post printed a portion of a statement by Vinko Cardinal Puljic, archbishop of Sarajevo. While the United States, along with the U.N. Security Council and NATO sit on our hands, we cannot also cover our ears. The archbishop of Sarajevo knows of what he speaks. The Senate would do well to listen. I ask that the article be printed in the Record. The article follows: [From the Washington Post, Apr. 5, 1995] For the Record (By Vinko Cardinal Puljic) I, like so many in Bosnia-Herzegovina, am astonished and bewildered . . . at the international community's indifferent, half-hearted, inconsistent and ineffectual response to aggression and ``ethnic cleansing.'' Not only has [it] not acted decisively, it has even contributed to the ethnic division of Bosnia and has legitimized aggression by failing to uphold basic moral and legal norms. If the principles of peace and international justice are buried in the soil of the Balkans, Western civilization will be threatened. . . . I am convinced that there are moral means to thwart immoral aggression. The international community must have the will to use the means available to it to protect threatened populations, to encourage demilitarization and to establish other conditions necessary for progress toward peace. The solution cannot be simply to give up and withdraw. If the United Nations and the international community do not now have effective means to respond to the humanitarian crisis in Bosnia and elsewhere-- and it is clear that they do not--then nations have the responsibility to take the steps necessary to develop more effective international structures. This is not a religious conflict, but some would misuse religion in support of ethnic division and extreme nationalism. Therefore, as a religious leader, I believe I have a special responsibility to stand beside those who are victims of injustice and aggression, regardless of their religious, ethnic or national identity. I also believe that, even though a just peace seems far off, religious and other leaders must not wait for an end to war to begin the daunting task of reconciling deeply divided communities.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, on behalf of myself and Senator D'Amato, I introduce the Environmental Finance Act of 1995. This bill will make permanent the Environmental Protection Agency's Environmental Financial Advisory Board. As my colleagues are well aware, Congress has appropriated billions of dollars in the last 20 years for environmental improvements. While great progress has been made, much remains to be done. Over the last several years the EPA has produced significant data showing a shortfall between the need for environmental infrastructure and the resources available to meet that need. Environmental problems are some of the more compelling, complex, and controversial issues confronting the more than 83,000 local governments in the United States. Government officials are increasingly held liable for violations of environmental statutes, and have to finance environmental requirements imposed from Washington. Reporting requirements are increasing not only in frequency but in technical difficulty. With this burden now falling heavily on State and local governments, new means to pay for environmental services and infrastructure must be found. This is imperative if we are to maintain and build upon the significant environmental gains made thus far. In 1989, the Environmental Financial Advisory Board [EFAB] was created for the reasons I have just described. Over the last 4 years, the EFAB has provided advice and analysis to the EPA on how to pay for environmental protection and leverage public and private resources. The EFAB was initially a committee of the National Advisory Council for Environmental Technology Policy, and in 1991 it became an independent advisory board consistent with the requirements of the Federal Advisory Committee Act. The EFAB has been assigned the role of providing advice on environmental financing. Its objectives include the following: Reducing the cost of financing environmental facilities and discouraging pollution; creating incentives to increase private investment in the provision of environmental services; removing or reducing constraints on private involvement in environmental financing; identifying approaches specifically targeted to small community financing; assessing government strategies for implementing public-private partnerships; and reviewing governmental principles of accounting and disclosure standards for their effect on environmental programs. The EFAB charter terminated on February 25, 1993. I am greatly pleased that EPA has initiated a renewal of the EFAB charter. It is, indeed, the intention of this legislation to help the EPA by creating in statute this most worthy program. Former EPA Administrator William K. Reilly testified before the House Appropriations Committee in 1991 and expressed his hope that the EFAB would eventually become for the financing field what the Science Advisory Board has become to the field of environmental science. I share his determination. Mr. President, my legislation also will establish Environmental Finance Centers at universities throughout the country. This legislation will establish environmental finance centers in each of the 10 Federal regions. These permanent centers will be effective vehicles for the promotion of innovative financing techniques. Currently, two pilot environmental finance centers at the Universities of New Mexico and Maryland promote new financing options by providing training to State and local officials, distributing publications, giving technical assistance targeted to local needs, and hosting meetings and workshops for State and local officials. These centers will work in conjunction with the EFAB to help States build their capacity to protect the environment. The Environmental Finance Centers are initially to be partially funded through Federal grants, with the goal that they eventually will become self-sufficient. In my own State, Syracuse University's Maxwell School of Citizenship and Public Affairs, drawing on the talents Syracuse's Schools of Engineering and Law, and the State University of New York's School of Forestry, is the EPA's Region II Environmental Finance Center. The Maxwell School ranks among the country's finest institutions; its applied research centers in public finance, metropolitan studies, and technology and information policy are ranked among the nation's top three such centers. The Metropolitan Studies Program is a national leader in examining a broad range of issues involving regional economic development and public finance in the United States. The Maxwell School has established a Center for Environmental Policy and Administration in which analysis of environmental issues, such as those envisioned for the EFAB and the regional Environmental Finance Centers, will play a major role. In addition, the Syracuse Law School is establishing an environmental law center that will complement the Finance Center. Mr. President, I ask that the text of the bill be printed in the Record.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I rise today to introduce legislation designed to address a problem that has come to light recently concerning the ability of U.S. citizens to avoid taxes by abandoning their citizenship. We should not countenance the evasion of taxes by those who renounce their citizenship. The Senate should act to address this problem expeditiously, and the bill that I introduce today will, I hope, represent significant progress towards that end. It is a revision of provision passed by the Senate Finance Committee recently, and responds to some of the criticisms that have been raised concerning the original proposal. A genuine abuse exists in this area. Although the current tax code contains provisions, dating back to 1966, designed to address tax- motivated relinquishment of citizenship, these provisions have proven difficult to enforce and are easily evaded. One international tax expert described avoiding them as child's play. Individuals with substantial wealth can, by renouncing U.S. citizenship, avoid paying taxes on gains that accrued during the period that they acquired their wealth and were afforded the myriad advantages of U.S. citizenship. Moreover, even after renunciation, these individuals can maintain substantial connections with the United States, such as keeping a residence and residing in the United States for up to 120 days a year without incurring U.S. tax obligations. Indeed, reports indicate that certain wealthy individuals have renounced their U.S. citizenship and avoided their tax obligations while still maintaining their families and homes in the United States, being careful merely to avoid being present in this country for more than 120 days each year. Meanwhile, the rest of Americans who remain citizens pay taxes on their gains when assets are sold or when an estate tax becomes due at death. It was this Senator who made the first proposal in the Senate to deal with the expatriation tax abuse. On February 6, the President announced a proposal to address the problem in his fiscal year 1996 budget submission. Three weeks ago, on March 15, during Finance Committee consideration of the bill to restore the health insurance deduction for the self-employed, I offered a modified version of the administration's expatriation tax provisions as an amendment to the bill. My amendment would have substituted the expatriation proposal for the repeal of minority broadcast tax preferences as a funding source for the bill. The amendment failed when every Republican member of the Committee voted against it. Subsequently, Senator Bradley offered the expatriation provision as a free-standing amendment, with the $3.6 billion in revenue that it raised to be dedicated to deficit reduction. Senator Bradley's amendment passed by voice vote. That is how the expatriation tax provision was added to the bill that came before the Senate. After the Finance Committee reported the bill, but before full Senate action and conference with the House, the Finance Committee held a hearing to further review the issues raised by the expatiation provision. Tax legislation routinely gets polished in its technical aspects as it moves through floor action and conference. At the Finance hearing, we heard criticisms of some technical aspects in the operation of the provision, as well as testimony raising the issue of whether the provision comported with article 12 of the International Covenant on Civil and Political Rights, which the United States ratified in 1992. Section 2 of article 12 states: ``Everyone shall be free to leave any country, including his own.'' Robert F. Turner, a professor of international law at the U.S. Naval War College, argued that the expatriation provision was problematic under the Covenant. The State Department's legal experts disagreed, as did two other outside experts whose letters were before the Committee. I refer to Professor Paul B. Stephan III, a specialist in both international law and tax law at the University of Virginia School of Law; and Mr. Stephen E. Shay, who served as International Tax Counsel at Treasury under the Reagan administration. Mr. President, earlier in the day when I addressed this matter I asked that the materials to which I am presently referring be inserted in the record following my remarks. These materials, and others mentioned in this statement, can be found there. Although there was considerable support for the legality of the provision, I thought it best to proceed with caution in these circumstances. These are matters of human rights under international law, on which we have rightly lectured others, and involve out solemn obligations under treaties. I sought the views of other experts. Letters concluding that the expatriation provision did not raise any problems under international law were received from Prof. Detlev Vagts of Harvard Law School and Prof. Andreas F. Lowenfeld of New York University School of Law. The State Department issued a lengthier analysis upholding the legality of the provision, and the American Law Division of the Congressional Research Service reached a like conclusion. However, there were dissenting views, most notably Prof. Hurst Hannum of the Fletcher School of Law and Diplomacy at Tufts University, who first wrote to me on March 24. This is where things stood when the House-Senate conference met on March 28. The weight of authority appeared to be on the side of legality under international law, but there was some question, and the bill had to move at great speed. As my colleagues well know, the legislation restoring the self-employeds' health insurance deduction for calendar year 1994 needed to be passed and signed into law well in advance of this year's April 17 tax filing deadline, so that the self- employed would have time to prepare and file their 1994 tax returns. The decision regarding the expatriation provision had to be made without further opportunity of deliberation. I opted not to risk making the wrong decision with respect to international law and human rights. The decision to drop the expatriation tax provision from the final conference version of the bill has been the subject of much debate over the last week. I certainly don't presume to speak for the other conferees. But for myself I repeat as I have said on two occasions on this floor over the past week: we should proceed with care when we are dealing with human rights issues, particularly when the group involved is a despised group--that is, millionaires who renounce their citizenship for money. As the Senator who first proposed the expatriation tax provision, I will see this matter through to a conclusion. We are getting more clarity on the human rights issue, and it appears that a consensus is developing to the [[Page S5444]] effect that the provision does not conflict with our obligations under international law. In particular. it is worth noting that Professor Hannum, who first wrote me on March 24 expressing his concern that that expatriation provision was a problem under international law, has, after receiving additional and more specific information about the expatriation tax, now written a second letter of March 31 stating that he is convinced that neither its intention nor its effect would violate present U.S. obligations under international law. This is the growing consensus, although it is not unanimous. As for criticisms of the technical difficulties of the original proposal, I believe they can be satisfied. Indeed, I would venture that if some of those criticizing the provision's technical aspects had put even half as much effort into devising solutions as in highlighting shortcomings, we would already be much further along toward a satisfactory statute. One final point of utmost importance. As we take the time to write this law carefully, billionaires are not slipping through some loophole and escaping tax by renouncing their citizenship. The President announced the original proposal on February 6, and made it effective for taxpayers who initiate a renunciation of citizenship on or after that date. This was an entirely appropriate way to put an end to an abusive practice under current law. Both the proposal that I initiated, and the one that was ultimately adopted by the Finance Committee, also used February 6, 1995, as the effective date of the new provision preventing tax evasion through expatriation. The House conferees had proposed slipping the effective date to March 15, 1995--the date of Senate Finance Committee action on the provision. The two chairmen of the tax-writing committees ultimately--and wisely--resisted that overture, and have issued a joint statement giving notice that February 6 may be the effective date of any legislation affecting the tax treatment of those who relinquish citizenship. Given the potential for abuse under current law, I believe that February 6 must be the effective date for a new rule. In any event, given the President's announcement in the budget, the Finance Committee action, and the joint statement of the two chairmen of the tax-writing committees, individuals who are contemplating renunciation of their U.S. citizenship are on fair notice of the February 6, 1995, effective date. To repeat, as the Senator who first offered the proposal to end the expatriation tax abuse, I will do everything I can to see that this matter gets resolved. We will do it this session. Fundamental justice to all taxpaying Americans requires no less. In an effort to advance that goal, I am today introducing legislation embodying a revised expatriation tax proposal. I do so in the interest of ensuring that the issues that have been raised are addressed satisfactorily, and in a timely manner. This bill represents a serious effort to address the criticisms that have been raised, and I believe it represents a major step forward. It will provide an opportunity for comment and further review. In addition, I anticipate that the Joint Committee on Taxation will include an analysis of this bill in its comprehensive study of the subject of expatriation that the Committee staff has been directed to present to the chairmen of the tax-writing committees. Mr. President, we will end this abuse, and promptly, but in a careful and orderly way, as we should do in matters of this importance. Mr. President, I ask unanimous consent that the text of the bill and additional material be printed in the Record.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, as for criticism of the technical difficulties of the original proposal, I believe some of those criticizing the provision's technical aspects had put even half as much effort into devising solutions as in highlighting shortcomings, we would already be much further along toward a satisfactory statute. One final point, of utmost importance. As we take the time to write this law carefully, billionaires are not slipping through some loophole and escaping tax by renouncing their citizenship. The President announced the original proposal on February 6, and made it effective for taxpayers who initiate a renunciation of citizenship on or after that date. This was an entirely appropriate way to put an end to an abusive practice under current law. Both the proposal that I initiated, and the one that was ultimately adopted by the Finance Committee, also used February 6, 1995, as the effective date of the new provision preventing tax evasion through expatriation. The House conferees had proposed slipping the effective date to March 15, 1995--the date of Senate Finance Committee action on the provision. The two chairman of the tax-writing committees ultimately--and wisely--resisted that overture, and have issued a joint statement giving notice that February 6 ``may'' be the effective date of any legislation affecting the tax treatment of those who relinquish citizenship. Given the potential for abuse under current law, I believe that February 6 must be the effective date for a new rule. In any event, given the President's announcement in the budget, the Finance Committee action, and the joint statement of the two chairman of the tax-writing committees, individuals who are contemplating renunciation of their U.S. citizenship are on fair notice of the February 6, 1995, effective date. To repeat, as the Senator who first offered the proposal to end the expatriation tax abuse, I will do everything I can to see that this matter gets resolved. We will do it this session. Fundamental justice to all taxpaying Americans requires no less. In an effort to advance that goal, I will shortly introduce legislation embodying a revised expatriation tax proposal. I do so in the interest of ensuring that the issues that have been raised are addressed satisfactorily, and in a timely manner. This revised proposal represents a serious effort to address the criticisms that have been raised, and I believe it will be a major step forward. Mr. President, we will end this abuse, and promptly, but in a careful and orderly way, as we should do in matters of this importance. Exhibit 1.--International Law and the ``Exit Tax'': Does Section 203 of the Tax Compliance Act of 1995 Violate the ``Right to Emigrate'' Recognized in the U.N. Covenant on Civil and Political Rights and Other U.S. and International Legal Instruments? (By Robert F. Turner) Mr. Chairman, it is an honor and a pleasure to appear before the subcommittee this morning to explore the human rights ramifications of the so-called ``exit tax'' contained in Title II of H.R. 981, the ``Tax Compliance Act of 1995.''\1\ \1\Footnotes at end of article. --------------------------------------------------------------------------- Before turning to the merits of the issue, I would like to make three caveats in connection with my appearance here today. First of all, I am testifying in my personal capacity as a scholar interested in the subject of International Law; and, although I currently occupy the Charles H. Stockton Chair of International Law at the Naval War College while on leave of absence from the University of Virginia's Center for National Security Law, my appearance is unconnected with either of those relationships. Any similarities between the views I express and those of the War College, the Navy, the University of Virginia, or any other institution or organization, is purely coincidental. Secondly, I want to stress the start that I have absolutely no expertise on the substantive issue of tax law. I will therefore have to pass on any questions you might wish to raise predicated upon such a knowledge. Finally, since my invitation to testify was not extended until late Friday afternoon (four days ago)--and because of prior commitments and travel requirements, I had less than one day to work seriously on my testimony--my prepared statement is not as detailed as I might otherwise have preferred. The basic human rights issue is, of course, not new to me--ironically, I believe I first looked at the ``right of emigration'' professionally more than two decades ago when the Jackson-Vanik Amendment came before the Senate while I was on the staff of Senator Robert P. Griffin of Michigan--and I don't believe the pressures of time have prevented me from accurately setting forth the basic legal rules by which this statutory provision should be judged. I have not had a great deal of time for serious analysis, however; and while I venture some very tentative conclusions, I suspect that each of you will be able to apply the legal rules to the proposed new statute at least as well as I have been able to do in the limited time available. Candidly, I have gone back and forth on the issue--I don't find it to be a clear cut case. Thus, I do not appear before you this morning for the purpose of either supporting or opposing the so-called ``exit tax'' provision of the tax bill. I do believe that upholding the rule of law is important, and I do believe that this provision may raise a sufficiently serious question under International Law that it warrants additional consideration before making a final decision on Section 201. To that end, I commend you for scheduling this hearing. Even if in the end you conclude that the provision does not, in reality, violate the Nation's solemn human rights treaty commitments, if there is even a colorable claim to the contrary that might be raised to undermine future US efforts to enforce human rights laws, it might be wise to avoid even the appearance of violating these laws. In the end it may come down to balancing the importance of the tax code provision against the potential harm that might result if we are perceived as having violated these important rules of international human rights law. As an aside, I also have a professional interest in issues of US Constitutional Law--indeed, I have testified before at least half-a-dozen congressional committees on issues of Constitutional Law in the past few years--and I have the impression that this provision may also raise issues in that area.\2\ However, considerations of time, and my understanding of the scope of my invitation this morning, led me to refrain from examining those issues in sufficient depth to make a meaningful contribution today on that issue. the growth of a legal right to emigrate Today the right of citizens to renounce their citizenship and leave their own country is almost universally recognized as a fundamental civil right, but its widespread recognition as creating international obligations is of relatively recent origin. The origin of the right can arguably be traced back nearly 2500 years, to the famous Dialogues of Plato, in which Socrates says to Crito: [H]aving brought you into the world, and nurtured and educated you, and given you and every other citizen a share in every good which we had to give, we further proclaim to any Athenian by the liberty which we allow him, that if he does not like us when he has become of age and has been the ways of the city, and made our acquaintance, he may go where he pleases and take his goods with him. None of . . . [our] laws will forbid him or interfere with him. Any one who does not like us and the city, and who wants to emigrate to a colony or to any other city, may go where he likes, retaining his property.\3\ The 42nd paragraph of the original 1215 version of the Magna Carta issued by King John at Runnymede guaranteed the right of ``any one to go out from our kingdom, and to return, safely and securely, by land and by water, saving their fidelity to us''; but this ``right to travel'' was omitted from the forty-six subsequent versions--including the one issued by Henry III in 1225 usually associated with the term ``Magna Carta''--on the grounds that such a right seemed ``weighty and doubtful.''\4\ Nor, for that matter, is it clear that the right to ``travel'' included a right to emigrate--a right far more easily sustained now that people have changed from ``subjects'' of the King to ``citizens'' of the State. In 1791, the French Declaration of the Rights of Man affirmed the right ``to come and to go'' from the State as a ``natural'' right.\5\ By 1868 the U.S. Congress was on record by statute that: [T]he right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness. . . . Therefore, . . . any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is declared inconsistent with the fundamental principles of this government.\6\ More recently, Section 349(a) of the Immigration and Nationality Act recognizes a right of every citizen to relinquish US citizenship.\7\ Just a decade ago, the US Court of Appeals for the Ninth Circuit observed that ``expatriation has long been recognized as a right of United States citizens,'' and noted that ``the Supreme Court [has] placed the right of voluntary expatriation solidly on a constitutional footing.''\8\ The proposed ``exit tax,'' of course, does not expressly challenge this well-established right to emigrate--it merely provides that a few very wealthy citizens will be forced to pay a 35% tax on appreciated assets should they wish to exercise this constitutional address is whether such a tax would bring the United States into noncompliance with any binding rules of International Law. I am not sufficiently versed on issues of tax law to answer that question with any real confidence, but perhaps I can be of assistance by at least summarizing the existing international law binding upon the United States concerning the human right to emigrate. international law and constraints on the right to emigrate Mr. Chairman, perhaps it would be most helpful if I began by briefly setting forth the status of the right to emigrate under International Law. I will first consider the relevant conventional (treaty) law binding upon the United States, followed by a look at some ``nonbinding'' international documents which may shed light on these issues, and finally I will discuss the very important area of customary international law (which, under the Statute of the International Court of Justice, is considered as equal in authority to conventional law\9\). conventional international law The effort to codify international human rights law is of quite recent origin, essentially coming in the wake of World War II and the establishment of the United Nations. Article 55 of the UN Charter establishes as a goal the promotion of ``universal respect for, and observance of, human rights and fundamental freedoms for all without distinction as to race, sex, language, or religion.'' In Article 56, ``All Members pledge[d] themselves to take joint and separate action in co- operation with the Organization for the achievement of the purposes set forth in Article 55.'' An important first step was the unanimous adoption (with eight abstentions, including the Soviet Union and several other Communist States) on 10 November 1948 of the ``Universal Declaration of Human Rights'' as a UN General Assembly Resolution. Such resolutions do not have legal effect,\10\ and the Declaration was clearly viewed as aspirational at the time--indeed, the United States delegate expressly stated that the resolution ``is not and does not purport to be a statement of law or of legal obligation.''\11\ However, there is a very strong consensus today that the Declaration is legally binding by virtue of reflecting customary international law. It will be discussed below under customary law. the international covenant on civil and political rights In an effort to follow up the Declaration with a series of binding treaties, in 1966 the United Nations General Assembly unanimously approved the International Covenant on Civil and Political Rights, which entered into force on 23 March 1976. The following year, it was signed by the Carter Administration and on 23 February 1978, it was submitted to the Senate for its advice and consent. In 1991, President Bush asked the Senate to consider the treaty, and hearings were held late that year in the Foreign Relations Committee, which recommended approval of the treaty by a unanimous vote (19-0). On 2 April 1992, the Senate consented to the ratification of the treaty with a variety of proposed reservations, understandings, and declarations\12\; and the instrument of ratification was deposited with the United Nations on 8 June of that year with the recommended additions--none of which apply directly to the issue at hand.\13\ The United States thus joined more than 100 other States in assuming a solemn international legal obligation to abide by the terms of the Covenant. It is perhaps worth noting that the unanimous report of the Foreign Relations Committee on this treaty categorized the ``rights enumerated in the Covenant'' as being ``the cornerstone of a democratic society.''\14\ The Covenant was designed to be a legally-binding international treaty setting forth ``inalienable rights'' which were ``derive[d] from the inherent dignity of the human person.''\15\ Article 12 of the Covenant provides: Article 12 1. Everyone lawfully within the territory of a State shall, within that territory, have the right to liberty of movement and freedom to choose his residence. 2. Everyone shall be free to leave any country, including his own. 3. The above mentioned rights shall not be subject to any restrictions except those which are provided by law, are necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others, and are consistent with the other rights recognized in the present Covenant. 4. No one shall be arbitrarily deprived of the right to enter his own country. [Italic emphasis added.]\16\ The American Society of International Law commissioned an excellent study of The Movement of Persons Across Borders, edited by two of the nation's foremost scholars in this area (Professors Louis B. Sohn and Thomas Buergenthal), which provides important background on the interpretation of the Article 12 of the Covenant. Among other things, the authors note that one of the reasons Article 12 was written was that, ``[n]otwithstanding Article 13(2) of the . . . [Declaration], some countries prevent their nationals from leaving, prescribe unreasonable conditions such as exacting taxes or confiscating property . . . [emphasis added]''\17\ While Article 12 embodies a ``fundamental right,'' it is not an ``absolute right'' in the sense that a State may not legitimately place some reasonable restrictions by law on the right of emigration. In addition to preventing individuals accused of serious crimes from leaving,\18\ for example, it is clear that a State may require a citizen to pay any normal tax obligations or other public debts.\19\ However, people who wish to emigrate may not lawfully be required to surrender their ``personal property,'' and ``Property or the proceeds thereof which cannot be taken out of the country shall remain vested in the departing owner, who shall be free to dispose of such property or proceeds within the country.''\20\ It seems to me that a key issue with respect to the proposed US ``exit tax'' is whether or not it represents a normal tax obligation applicable to all citizens irrespective of their wish to emigrate. To the extent that it constitutes a special requirement on individuals because of their desire to emigrate, then the Government would presumably have the burden under the Covenant of establishing that the law is ``necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others. . . .''\21\ It may be relevant that efforts were made during the drafting of Article 12 to broaden this list of permissible exceptions to include such concepts as promoting a State's ``general welfare'' and ``economic and social well-being,'' and these were rejected as being ``too far-reaching.''\22\ Restrictions on freedom of movement were only to be permitted in ``exceptional'' circumstances.\23\ Professor Louis Henkin, of Columbia Law School, has noted that: The Covenant . . . is not to be read like a technical commercial instrument, but ``as an instrument of constitutional dimension which elevates the protection of the individual to a fundamental principle of international public policy.'' Rights are to be read broadly, and limitations on rights should be read narrowly, to accord with that design.\24\ This view is widely shared by other experts in the field.\25\ Discussing Article 12 in a lengthy 1987 article in the Hofsta Law Review, a group of four attorneys from the New York firm of White & Case concluded: Although it is accepted that there may be restrictions imposed on the right to emigrate, these restrictions are of an exceptional character and must be strictly and narrowly construed. The right to emigrate is primary; the restrictions on that right are subordinate and may not be so construed as to destroy the right itself.\26\ For the record, the United States is now also to the International Convention on the Elimination of All Forms of Racial Discrimination, which prohibits barring freedom of movement (and many other enumerated rights) on the basis of ``race, colour, or national or ethnic origin''\27\--however, this treaty does not appear to be relevant to the issue at hand. There are several other international conventions which guarantee the right to emigrate, including regional agreements underlying the European, African, and Inter- American human rights systems. However, the United States is not a Party to these, so in the interest of time I have not addressed their specifics. (While they do serve as evidence of customary legal obligations, in this area the statutory language of the Jackson-Vanik Amendment [discussed infra] assures that the United States is bound by customary law in this area.) other international instruments of relevance As already noted, the Universal Declaration of Human Rights was intended to be aspirational and not legally binding upon the 48 States that voted to approve it. Because it reflects customary law, it will be discussed under that heading--but it also stands as an important non-treaty human rights document. Another very important international document clearly not intended to create binding legal rights was the Final Act of the Conference on Security and Cooperation in Europe (Helsinki Accords), which expressly incorporated the Declaration.\28\ Time has precluded me from addressing these types of instruments further, but they are probably not critical to a resolution of the issue. customary international law Perhaps the most important written source of customary international law\29\ is the Universal Declaration of Human Rights, approved as a UN General Assembly Resolution on 10 November 1948 and already noted above. The Declaration provides: Article 13 1. Everyone has the right to freedom of movement and residence within the borders of each State. 2. Everyone has the right to leave any country, including his own, and to return to his country.\30\ During the debate on the Jackson-Vanik Amendment in 1974 (discussed infra), this document was occasionally portrayed as an international treaty designed to create legal rights.\31\ In reality, its only ``legal'' value is as evidence of binding customary law. This may be important background for the discussion which follows, because the Soviet Union voted against Article 13 during the drafting process and did not vote in favor of the Declaration itself in the General Assembly. With a few exceptions, which are not relevant to the issue at hand,\32\ rules of International Law are established by the consent of States. This can be done explicitly by ratifying a treaty or other international agreement, or the development of a consistent and general practice accepted as law. But--again, with some exceptions\33\--a State is not considered bound by customary legal rules against which it clearly protested during formation. Thus, it is at least arguable\34\ that the Soviet Union was not bound by the Declaration as customary law in 1974. The 1974 Jackson-Vanik Amendment Mr. Chairman, it may be worth noting this Committee, and the United States Congress, have played a prominent role in the affirmation of customary international law governing the right of citizens to emigrate without having to pay burdensome special taxes. I believe that Chairman Packwood, Majority Leader Dole, and Senator Roth are the only current members of the Finance Committee who served in the Senate during the Ninety-Third Congress, so it may be useful to review the history of the ``Jackson-Vanik'' Amendment--also known as the ``Freedom of Emigration'' Amendment\35\--briefly at this time. I remember it reasonably clearly, for, as I mentioned, I was serving at the time on the staff of Senator Bob Griffin and I followed the Amendment closely. As reported out of this committee, Section 402 of the Trade Act of 1974 (H.R. 10710) included the House-passed ``Vanik Amendment''\36\ which prohibited the President from granting ``nondiscriminatory tariff treatment'' to any ``non-market economy country'' which ``imposes more than a nominal tax, levy, fine, fee or other charge on any citizen as a consequence of the desire of such citizen to emigrate to the country of his choice.''\37\ In its accompanying report, this Committee referred to the ``right to emigrate'' as a ``basic human right. . . .''\38\ When the trade bill reached the Senate floor in mid- December 1974, this provision was strengthened by the enactment of the famous ``Jackson Amendment'' (with the final language affirming the right of emigration thus widely referred to as the ``Jackson-Vanik Amendment''). Although strongly opposed by the Ford Administration as an impediment to detente with the Soviet Union, and Jackson Amendment was introduced in the Senate with 78 co-sponsors.\39\ Significantly, it received a unanimous vote after a lengthy (if entirely one-sided) floor debate.\40\ The three current members of this Committee who served in the Senate at the time were co-sponsors of the Jackson Amendment\41\ and voted for its passage.\42\ In testimony before this committee, the legendary Hans J. Morgenthau, at the time Leonard Davis Distinguished Professor of Political Science at the City University of New York, characterized the right of emigration as ``one of the tests of civilized government.''\43\ Senator Dole termed it a ``fundamental freedom,'' and described the Soviet requirement that citizens seeking to emigrate first pay a ``diploma tax'' to reimburse the State for its investment in their education as being in conflict with ``America's traditional concern for the rights of individuals.''\44\ Addressing the Senate following passage of his amendment, Senator Jackson noted that the ``fundamental human right to emigrate'' was guaranteed ``in the Universal Declaration of Human Rights which was adopted unanimously 26 years ago this week.''\45\ As enacted into law (19 U.S.C.A. Sec. 2432), the provision provides in part: Sec. 2432. Freedom of emigration in East- West trade. . . . (a) To assure the continued dedication of the United States to fundamental human rights, and notwithstanding any other provision of law, on or after . . . January 3, 1995, products from any nonmarket economy country shall not be eligible to receive nondiscriminatory treatment (most-favored-nation treatment), such country shall not participate in any program of the Government of the United States which extends credits or credit guarantees or investment guarantees, directly, or indirectly, and the President of the United States shall not conclude any commercial agreement with any such country, during the period beginning with the date on which the President determines that such country-- (1) denies its citizens the right or opportunity to emigrate; (2) imposes more than a nominal tax on emigration or on the visas or other documents required for emigration, for any purpose or cause whatsoever, or (3) imposes more than a nominal tax, levy, fine, fee, or other charge on any citizen as a consequence of the desire of such citizen to emigrate to the country of his choice, and ending on the date on which the President determines that such country is no longer in violation of paragraph (1), (2), or (3).\46\ Even if you conclude that the proposed exit tax is not in conflict with the terms of the Covenant on Civil and Political Rights, it strikes me that--given in particular this Committee's and the Senate's unanimous support for the Jackson-Vanik Amendment--careful consideration ought to be given to whether this proposal complies with that standard as well. reconciling the proposed us ``exit tax'' with jackson-vanik Subjectively, of course, all of us can presumably agree that there is a substantial difference in the motivation behind the proposed US ``exit tax'' and the impediments placed in the path of Soviet Jews (and others) in the early 1970s designed clearly to discourage emigration (especially by dissident Jews to Israel). The United States understandably does not wish to lose the substantial sums in tax revenues which the Treasury Department projects could be lost if especially wealthy US citizens elect to renounce their citizenship and emigrate to foreign points. While one might normally view this as a ``political'' problem for Congress to factor in to the drafting of the tax laws--how to extract maximum tax revenues from the wealthy without exceeding the point that the ``geese that lay the golden eggs'' will fly off to find a more hospitable environment in which to do business\47\--there are obvious political attractions to the exit tax approach. Presumably few constituents will be directly affected by this legislation (and ``soaking the rich'' is not all that unpopular with many Americans of more ordinary means in these troubled times), and in order to be subject to the special ``tax'' an individual will have to renounce his or her American citizenship--in the process surrendering their right to vote in any case. One can see how this might have appeared to be a virtually cost-free (from a political standpoint) way to raise a couple of billion additional dollars over the next five or six years.\48\ From the standpoint of International Law, however, it may be more difficult to make the distinction between the old Soviet practice of charging a special ``diploma tax'' to compel citizens who wish to emigrate to compensate the State for its investment in their education, and the proposed US ``exit tax'' designed to compel citizens who wish to emigrate to compensate the State for income taxes they would likely eventually owe if they remained citizens. (It would not be illegal under these rules of International Law for the United States to tax unrealized capital gains annually, or for the Soviets to charge a fee for providing an education--the legal issue arises when people who seek to emigrate are treated less favorably than others because of their decision to exercise their legal right to emigrate.) To be sure, we can probably agree that the old Soviet regime was made up of ``bad guys,'' and our own government is much ``nicer.'' Even as many of us search around for professional assistance in reducing our own tax liabilities, it is probably true that most Americans have a visceral antipathy for ``tax dodgers.'' Nor do many of us identify very closely with individuals who would voluntarily renounce their American citizenship as a means of reducing tax liability. While it may be in part that our relatively more limited liability makes their decision difficult to comprehend, I like to think that most of us view our status as American citizens as among our most cherished rights. Many of us still recall Sir Walter Scott's moving words, as we read them in high school in Hale's ``A Man Without a Country'': Breathes there the man, with soul so dead, Who never to himself hath said, This is my own, my native land! Whose heart hath ne'er within him burn'd As home his footsteps he hath turn'd from wandering on a foreign strand! If such there breathe, go, mark him well; For him no Minstrel raptures swell; High though his titles, proud his name, Boundless his wealth as a wish can claim; Despite those titles, power, and pelf, the wretch, concentered all in self, Living, shall forfeit fair renown, And, doubly dying, shall go down to the vile dust, from whence he sprung, Unwept, unhonor'd, and unsung.\49\ I suspect that the outcry from your constituents over the proposed exit tax--even if it is perceived as nothing more than an effort to ``stick it to rich expatriates''--is not likely to be very considerable. congress may by statute violate international law Perhaps I should make one additional point. The United States belongs to the dualist school and views municipal and international law as being separate, if often interrelated,\50\ legal systems. United States courts will thus first attempt to reconcile the language of apparently inconsistent statutes and treaties, but if that proves unreasonable, they will apply the ``later in time'' doctrine (lex posterior derogat priori) and give legal effect to the instrument of most recent date.\51\ The theory underlying this policy is that treaties and statutes have a co-equal standing as ``supreme law of the land,''\52\ and the lawmaking authority--be it the two chambers of the Legislative Branch acting with the approval (or over the veto) of the Executive,\53\ or the Executive acting with the consent of two-thirds of those Senators present and voting\54\--is presumed to know the existing law when it acts and to intend the logical consequences of its actions. Thus, if the Congress enacts the provision in question and it is subsequently challenged as contrary to the nation's solemn treaty commitments, American courts will not strike down the statute because of the treaty. Similarly, while some scholars quarrel with the rationale,\55\ the oft-cited 1900 Supreme Court case of The Paquete Habana held that customary international law (``the customs and usages of civilized nations'') is part of US law ``where there is no treaty and no controlling executive or legislative act or judicial decision. . . .''\56\ Furthermore, while the recently ratified Covenant clearly creates a solemn legal obligation upon the United States under International Law, it is not self-executing\57\ and thus will not be implemented by US courts in the absence of independent legislative authority.\58\ has the legal power to relieve the United States from its solemn treaty obligations under International Law. On the contrary, no such right exists (unless the relevant treaty provides for termination by act of a national legislature), and if the Congress elects to approve a statute that is contrary to the Covenant it will make the United States a lawbreaker. To be sure, Congress in the past has on occasion enacted legislation which placed the Nation in such a status.\59\ Such a decision has consequences, however. Not only might other treaty Parties have available meaningful remedies under International Law,\60\ but violations of International Law by the United States contributes to a lack of respect for the rule of law in general and greatly undermines the ability of the United States to pressure other States to comply with such rules. Thus, in particular when the issue involves solemn undertakings in the area of international human rights, one would hope that legislators would be careful to avoid even the appearance of breaching provisions of a treaty. Conclusion Mr. Chairman, as I indicated when I began, I did not come here this morning with the intention of taking a definitive position on this legislation on the merit. Because the invitation to take part in the hearing came with such short notice, I have not been able to analyze the issue to the extent I might have wished. The comments which follow are offered with more than a little hesitation and uncertainty. I have primarily tried to set forth the basic international legal rules in my testimony, and I suspect that honorable men and women might reach different conclusions when applying those rules to this bill. I came into the hearing with some reservations, but it may be that after I have heard other perspectives I will be less concerned about the compatibility of the ``exit tax'' with Article 12 of the Universal Covenant on Civil and Political Rights. Even if that occurs, however, it still leaves us with the perhaps more difficult problem of reconciling this tax with the spirit and language of the 1974 Jackson-Vanik Amendment. I'm not going to pre-judge that issue for you, either, other than to say that I personally find it somewhat more troubling. If this were merely a statute providing that citizens must ``pay their lawful taxes'' before they may renounce their citizenship and move to a foreign State they find more attractive, I think it could pass legal muster with little difficult.\61\ But I'm not sure that's the situation. You understand the tax system for better than I do, and I will defer to your expertise in the final analysis. As I stressed at the beginning, I am not even arguably an authority on the tax code; but it is my initial impression that the proposed ``exit tax'' is designed to impose an immediate and substantial financial burden upon citizens--on the specific and expressed grounds that they have elected to renounce their citizenship and emigrate--and that this is a burden that would not be imposed upon otherwise identically situated citizens who elected to remain American citizens (and did not elect to sell or dispose of their property or take other action that would realize capital gains liability). If that is true, in all candor, I think I would want my money ``upon front'' if I were asked to argue before an international tribunal that the proposed US exit tax complies with the spirit of the Jackson-Vanik Amendment--which no less an authority that the United States Congress argued reflected the minimal requirements of International Law two decades ago. (I think I would base my Jackson-Vanik case upon the technicality that the United States is not covered because it does not have a ``non-market economy''--but the underlying rule of customary international law is not so qualified and could not be evaded by that consideration. Trying to argue that international human rights standards have declined since 1974 would clearly not pass the ``straight face'' test.) I have not had time to research the issue, but my recollection is that in the recent past, Congress--or at least many members of Congress--have pressured the Executive to apply the Jackson-Vanik principle to trade with the People's Republic of China. Certainly many members continue to feel passionately about human rights issues, and to urge the President to identify and put pressure on other States who fail to comply with fundamental treaty norms in this important area. Unless someone can do a better job that I have in distinguishing an exit tax targeted at ``rich Americans'' from one aimed at ``educated Jews,'' however, you may find as a practical matter that you will need to make a choice between enacting this provision and attempting in the years ahead to uphold the Jackson-Vanik Amendment and similar human rights norms. If this provision is enacted into law, I believe the odds are good that future US protests calling upon China, Iraq (which last month imposed an exit tax of its own to curtain the flow of capital), Iran, and other flagrant human rights violators to comply with the provisions of the Covenant on Civil and Political Rights will receive in reply a reference to American ``violations'' of Article 12. Mr. Chairman, that concludes my prepared statement. I will be happy to attempt to answer any questions you or your colleagues might have. footnotes \1\Inter alia, this provision would amend the Internal Revenue Code by adding this language: If any United States citizen relinquishes his citizenship during a taxable year, all property held by such citizen at the time immediately before such relinquishment shall be treated as sold at such time for its fair market value and any gain or loss shall be taken into account for such taxable year. That the ``exit'' is designed to affect a relatively small portion of the population is clear from the fact that the first $600,000 of gross income is excluded from this provision. According to the State Department 697 US citizens expatriated in 1993 and 858 the following year. ``It is not yet known how many of these former citizens, if any, will be subjected to tax under section 877.'' Joint Committee on Taxation, Description of Revenue Provisions Contained in the President's Fiscal Year 1996 Budget Proposal 17 n.6 (Feb. 17, 1995). The fact that the Treasury Department anticipates more than $2 billion in additional revenues from this provision by FY 2000 suggests either that many expatriates will be covered or that the few covered will be hit with rather substantial additional tax bills under this provision. See infra, note 48. \2\See, e.g., Eisner v. Macomber, 252 U.S. 189, 214-15 (1920). \3\The Dialogues of Plato 217 (7 Britanica Great Books of the Western World, 1952). See also, Jeffrey Barist et al., Who May Leave, 15 Hofstral L. Rev. 381, 384 (1987). \4\By coincidence, I discussed this issue in my prepared testimony before the Senate Judiciary Committee Subcommittee on the Constitution on 5 October 1994 (page 2-3 of original text), which has not yet, to my knowledge, been published. \5\Id. at 4, and Barist et al., Who May Leave, 15 Hofstral L. Rev. at 384. \6\Expatriation Act of 1868, 15 Stat. 223 (1868). \7\8 U.S.C. Sec. 1481, quoted in 87 Am. J. Int'l L. 601 (1993). \8\Richards v. Secretary of State, 752 F.2d 1413 at 1422 (1985). \9\Statute of the International Court of Justice, Art. 38. While customary law may over time replace a rule established by treaty, and the general goal is to ascertain the most recent expression of the consent of the parties (thus a more recent customary practice accepted as law (opinio juris) may prevail over a prior treaty), it is probably accurate to observe that, where a relevant treaty exists between the parties to a dispute, the terms of the treaty will provide at least the starting point for resolution of the dispute. However, the principle that ``the specific prevails over the general'' (lex specialis derogat generali) may well lead to a narrow customary practice prevailing over a more general treaty obligation. \10\However, a UNGA resolution expressing legal principles approved by an overwhelming vote of Member States may serve as powerful evidence of the existence of a legally-binding international custom. \11\19 Dep't State Bull. 751 (1948). \12\Report of the Senate Committee on Foreign Relations on the International Covenant on Civil and Political Rights, reprinted in 31 Int'l Leg. Mats. 645 (1992). \13\A possible exception is the first Declaration specifying that the Covenant is Non-Self-Executing. Id. at 651. \14\Report of the Senate Committee on Foreign Relations on the International Covenant on Civil and Political Rights, supra at 649 (p. 3 of OT). \15\Preamble, 6 Int'l Leg. Mats. 368 (1967). \16\Art. 12, id. at 372. \17\The Movement of Persons Across Borders 76 (Louis B. Sohn & Thomas Buergenthal, eds. \18\Id. at 79. \19\Id. at 82. \20\Id. at 81, quoting Article 6 of the 1989 Strasbourg Declaration on the Right to Leave and Return (prepared by a group of international experts under the auspices of the International Institute of Human Rights). \21\International Covenant on Civil and Political Rights, Art. 12. \22\Barist et al., Who May Leave, 15 Hofstra L. Rev. at 389. \23\Id. at 389, 394. \24\The International Bill of Rights: The Covenant on Civil and Political Rights 24 (Louis Henkin, ed. 1981), quoted in Barist et al., Who May Leave, 15 Hofstra L. Rev. at 395. \25\Barist et al., Who May Leave, 15 Hofstra L. Rev. at 396. \26\Id. at 406. \27\660 U.N.T. S. 194. \28\14 Intl'L Leg. Mats. 1292 (1975). \29\To constitute binding international customary law, a rule must reflect ``a general practice'' that has been ``accepted as law'' (opinio juris). See Statute of the International Court of Justice, Art. 38 (1)(b). \30\UNGA Res. 217 A (III), 3 UNGAOR 71, UN Doc. A/810 (10 Nov. 1948). \31\Note to follow. \32\Some rules of International Law are of such fundamental importance that they are considered ``peremptory norms'' (jus cogens) and bind all States irrespective of consent. A thorough discussion of this issue is precluded by the short time available to prepare this testimony. Some human rights principles have this status--it is doubtful that this is one of them. The issue is of only academic interest given the strong statement of the right to emigrate as constituting binding International Law contained in the Jackson-Vanik Amendment to the 1974 Trade Act (discussed below). Thus, the United States could hardly protest that it is not bound by this rule and claim to have protested against its creation. \33\Jus congens rules (discussed supra) bind all States, and newly-formed States are bound by all rules of customary law in existence when they are created. \34\In reality, a strong case can be made that the Soviet Union was bound by this provision of the Declaration in 1974. Among other things, abstention in the General Assembly does not constitute an adequate ``protest'' to protect against being bound (although it does not constitute ``consent'' either). The following year the issue was arguably resolved when Moscow signed the Helsinki Accords (which, as discussed supra, incorporated the text of the Declaration.) While the Helsinki Accords were not designed to be legally binding in themselves, Moscow's acceptance of the principles of the Declaration would undercut any Soviet claim that it objected to these principles as customary law. \35\See, e.g., Senate Report No. 93-1298 (Committee on Finance), reprinted in 4 U.S. Code Congressional & Admin. News 7338 (93d Cong., 2d Sess., 1974) (hereinafter cited as Finance Committee Report). \36\This amendment, introduced by Representative Charles Vanik, was approved on the House floor on 11 December 1974 by a vote of 319-80. See 120 Cong. Rec. 39782 (1974). \37\Finance Committee Report at 7213. \38\Id. at 7338. \40\Id. 39806. The final vote was 88-0, with 12 Senators absent. All but two or three of the absent Senators were co- sponsors of the amendment. \41\Id. at 39782. \42\Id. at 39806 \43\120 Cong. Rec. 39787. \44\Id. at 39802. \45\Id. at 39806. \46\Trade Act of 1974, 19 U.S.C.A. Sec. 2432 (emphasis added). \47\While I claim no special expertise on matters of finance or tax policy, I was impressed with Forbes magazine editor James W. Michaels' observation that ``It's not that legislators sympathize with rich tax dodgers. It's that they realize it's time to worry less about soaking the rich and more about changing the tax code to make the country more hospitable to the capital that produces jobs and economic growth.'' James W. Michaels, ``You can't take it (all) with you,'' Forbes, 13 March 1995, p. 10. \48\The Treasury Department estimates that this provision will produce $2.2 billion in additional tax revenues between FY 1995 and FY 2000. Department of the Treasury, General Explanations of the Administration's Revenue Proposals 17 (Feb. 1995). \49\Sir Walter Scott, The Lay of the Last Minstrel, canto VI, st. 1. \50\As will be discussed, treaties are a part of the ``supreme law of the land'' and customary international law ``is part of our law'' too. The monist school views international law to be superior to municipal law in a single legal system. \51\See, e.g., Whitney v. Robertson, 124 U.S. 190 (1888). \52\US Const. Art. VII \53\Id. Art. I, Sec. 7. \54\Id. Art. II, Sec. 2. \55\See, e.g., Louis Henkin, The Constitution and United States Sovereignty, 100 HARV. L. REV. 853 (1987). \56\Note to follow. \57\For a discussion by Chief Justice Marshall of the distinction between self-executing and non-self-executing treaties, see Foster and Elam v. Neilson, 27 U.S. (2 Pet.) 253 (1829). \58\Note to follow. \59\This sometimes occurs inadvertently when legislation is considered by members who are simply unaware of a conflicting treaty provision (as may be the case in this Committee's approval of the statute being considered in this hearing), but it also occurs occasionally even after the conflict with a treaty has been identified. An example of this that comes readily to mind was S-961, the ``Magnuson Fisheries and Conservation Act,'' passed around 1976. See the minority views of my former employer, Senator Robert P. Griffin, included in the Foreign Relations Committee's report on this bill for a discussion of this problem. \60\These may range from judicial settlement to reciprocal breach or simply the ``horizontal enforcement'' of retorsionary behavior to pressure our Country to observe its solemn international legal obligations (pacta sunt servanda). \61\The Department of State, for example, has warned that ``Persons considering renunciation [of US citizenship] should also be aware that the fact that they have renounced U.S. nationality may have no effect whatsoever on their U.S. tax or military service obligations.'' 87 AM. J. INT'L L. 602 (1993). Prepared Statement of Jamison S. Borek Thank you Mr. Chairman and Members of the Committee. I am here today to address the question whether section 5 of H.R. 831 as reported by the Senate Committee on Finance raises legal questions concerning international human rights. The proposal in section 5 would effectively require payment of taxes by U.S. citizens on gains, if they have such gains, if they elect to renounce U.S. citizenship, by treating this as equivalent to a realization of gains (or losses) by sale. The proposal would only apply to gains in excess of $600,000; it would not apply to U.S. real property owned directly, nor to certain pension plans. It has been suggested by some that this proposal would violate the right to leave the territory of a state (including one's country of nationality) or the right to change one's citizenship as recognized in international human rights law. In our view, however, this tax proposal does not conflict with these or any other international human rights. Section 5 is not an ``exit tax''. It does not apply to the act of emigration and is wholly unrelated to travel. Rather, it applies at the time an individual renounces U.S. citizenship. Based on past experience, the proposal is most likely to affect U.S. citizens who have already departed from the United States. It is well established, nonetheless, that a state could impose economic controls in connection with departure as long as such controls do not result in a de facto denial of an individual's right to emigrate. Similarly, a claim of violation of the right to renounce citizenship could only be made where that right is effectively denied. There is no international law right to avoid taxes by changing citizenship. Section 5 would impose taxes comparable to those which U.S. citizens would have to pay were they in the United States. It is a bona fide means of collecting taxes on gains which have already accrued. It is not a pretext to keep people from leaving, and it is not so burdensome as effectively to preclude change of nationality or emigration. It applies only to gains, and only when these gains are in excess of $600,000. In short, it is the view of the Department of State that this proposal does not raise any significant question of interference with international human rights. I hope that this information is helpful to the Committee. University of Virginia, Charlottesville, VA; March 20, 1995. Leslie B. Samuels, Assistant Secretary of the Treasury for Tax Policy, U.S. Department of the Treasury. Dear Mr. Samuels: I have been asked to offer an opinion as to whether the Administration's proposal to treat the renunciation of U.S. citizenship as a realization event with respect to wealthy taxpayers presents any problems under international law, particularly in light of the position the United States has taken in the past with respect to the freedom to emigrate. As I find myself in the unusual position of being a specialist in international law, U.S.-Soviet relations, and federal taxation, I am happy to do so. The Jackson-Vanik Amendment to the Trade Act of 1974 and the 1975 Helsinki Accords both express a strong U.S. stand in favor of the freedom of people of emigrate free of more than ``a nominal tax,'' 19 U.S.C. Sec. 2432(a)(2), and there is substantial authority for the proposition that the international law of human rights incorporates the obligation to refrain from erecting such impediments to emigration. But it is critical to recognize the distinction between the right to travel, on the one hand, and the right to change one's citizenship status, on the other. Emigration necessarily involves the former, but not necessarily the latter. The human rights concerns that dominated our encounters with the Soviet Union and other totalitarian regimes during the 1970s and 1980s were based on violations of the right to travel. Those governments treated their borders as the perimeter of a prison and their citizens as prisoners. The so-called education tax that the Soviet Union threatened to impose on emigrants, which inspired the above cited language in the Jackson-Vanik Amendment, was triggered by a request to travel abroad, not by an attempt to renounce Soviet citizenship. Whether the communist regimes also made it difficult to surrender citizenship was a matter of indifference to us. Indeed, many authorities believed that the Soviet Union and other governments violated international law by making it too easy to lose one's citizenship, as they did when they imposed involuntary loss of citizenship as a form of punishment for political dissent (e.g., the case of Aleksandr Solzhenitsyn). The Administration's proposal, as I understand it, has absolutely no effect on the right of a citizen to travel abroad. It is triggered only by a change of citizenship status, not by the crossing of the country's borders. The reason for this distinction is clear when one considers how U.S. tax rules operate. Whether a citizen resides within or without the United States, the obligation to pay tax on appreciation of assets remains the same. Any gain realized and recognized during life will result in an income tax. Any unrealized appreciation that remains at death will not be subject to an income tax, but instead will subject the decedent to the estate tax. To be sure, the federal estate tax is not an exact substitute for an income tax at death on unrealized appreciation, both because only wealthy persons (those with assets in excess of $600,000, assuming no taxable gifts during life) are subject to the estate tax, and because the taxable estate includes both realized and unrealized appreciation. But I am not alone in having pointed out that the estate and gift tax, in practice, serve as a reasonable approximation for the income tax that could be levied on unrealized appreciation at death. All of the above turns on citizenship, not on residence. A U.S. citizen who resides abroad will have to include in his tax base any gain realized from the disposition of an asset, see Cook v. Tait, 265 U.S. 47 (1924), will pay a federal gift tax on any taxable gift during his life, no matter where the asset is located, and will include all of his worldwide assets in his taxable estate at death. By contrast, a citizen who severs the bond of citizenship and does not continue to reside in the United States will pay neither income, gift, nor estate tax (except as U.S.-sourced income and, for the estate and gift tax, transfers of certain property sourced to the United States). The change of citizenship status, not of residence, is what matters for U.S. tax law. Current law recognizes the significance of change sin citizenship by subjecting nonresident aliens who lose U.S. citizenship for tax avoidance reasons to a special alternative income tax, see Internal Revenue Code Section 877. Section 2107 imposes a similar result with respect to the estate tax, and 2501(a)(3) with respect to the gift tax. What the Administration proposal would do, as I understand it, is replace the unworkable tax avoidance standard of Sections 877, 2107 and 2501(a)(3) with a per se rule that applies to any person with sufficient assets to make future estate taxation a probability. An analogous provision is Section 367 of the Code, which denies nonrecognition treatment in certain corporate reorganizations if the recipient of appreciated property is a foreign corporation. I never have heard the argument that the latter provision imposes an impermissible burden on the right of a domestic corporation to export its capital. In summary, the international law of human rights is concerned with restrictions on the right to leave one's country, not those on the right to renounce one's citizenship. To the extent human rights law deals with citizenship status, it addresses involuntary denials of citizenship, not burdens triggered by the renunciation of citizenship. Furthermore, the proposed measure is not a tax on the export of capital as such, but rather a logical part of a comprehensive scheme to ensure that all appreciation of capital owned by a U.S. citizen eventually will be subject to a U.S. tax, whether income, gift, or estate. For these reasons, it is inconceivable to me that the Administration's proposal could be seen as violating international human rights law. To be sure, there are few positions with respect to customary international law that jurists. Last Saturday, while passing through Pittsburgh's airport, I ran into my former student, Bob Turner, who informed me of his intention to testify before the Senate Finance Committee to the effect that the proposal did raise problems under international law. As I told him at the time, I found his arguments unconvincing. However, I am responsible only for Bob's education in Soviet law, not in international or tax law. I hope this letter is useful. Please feel free to make whatever use of it you wish. Sincerely, Paul B. Stephan III. One International Place, Boston, MA, March 20, 1995. Hon. Bob Packwood, Chairman, Committee on Finance, U.S. Senate, Washington, DC. Hon. Daniel P. Moynihan, U.S. Senate, Washington, DC. Dear Chairman Packwood and Senator Moynihan: I would like to comment on the provisions of Section 5 of H.R. 831 as reported by the Committee on Finance (the ``Committee Bill''). I am a partner in the law firm Ropes & Gray in Boston, where I practice international tax law on behalf of U.S. and non-U.S. corporate and individual clients. Prior to joining Ropes & Gray, I served as International Tax Counsel to the U.S. Treasury Department. Altogether, I served in the Treasury Department for five years during the Reagan Administration. Although I am Vice Chairman of the American Bar Association Section of Taxation's Committee on Foreign Activities of U.S. Taxpayers and an active member of several other bar and professional associations, my comments are not made as a representative of Ropes & Gray or any of its clients, the American Bar Association Tax Section or any of the other bar or professional associations of which I am a member. My comments are directed exclusively to tax policy aspects of the proposal in the Committee Bill to amend the Internal Revenue Code of 1986, as amended, by adding proposed Section 877A.\1\ Subject to certain technical comments referred to below, I strongly support enactment of proposed Section 877A. \1\Footnotes at end of letter. --------------------------------------------------------------------------- Description of Current Law The United States exercises personal jurisdiction to tax individuals by taxing the worldwide income of U.S. citizens (whether or not resident or domiciled in the United States) and residents.\2\ A U.S. taxpayer may elect to credit foreign income taxes against his U.S. tax, subject to a limitation that applies with respect to categories of foreign source income to restrict the credit to the amount of U.S. tax paid with respect to income in that category. The United States asserts a source-based tax on nonresident aliens.\3\ Nonresident aliens are taxed on the gross amount of U.S.-source interest, dividends, rents, and other fixed or determinable income at a flat rate of 30 percent (or a lower treaty rate). This tax generally is collected by withholding. A nonresident alien is taxed at regular graduated rates on income that is effectively connected with a U.S. trade or business, less deductions that are properly allocable to the effectively connected income. A nonresident alien individual is allowed a foreign tax credit under Section 906 only for foreign taxes paid with respect to income effectively connected with a U.S. trade or business. Under current law, the only income tax provision governing a change from citizenship to non-citizenship status is Section 877, first enacted in 1966. Under Section 877, a U.S. citizen who relinquishes his U.S. citizenship with a principal purpose to avoid Federal income tax is taxed either as a nonresident alien or under an alternative taxing method, whichever yields the greater tax, for 10 years after expatriation. For purposes of determining the tax under the alternative method, gains on the sale of property located in the United States and stocks and securities issued by U.S. persons are treated as U.S.-source income, taxable at rates applicable to U.S. citizens.\4\ Whether tax avoidance is a principal purpose for the expatriation is determined by all of the relevant facts and circumstances. If the I.R.S. establishes that it is reasonable to believe that the loss of U.S. citizenship would result in a substantial reduction in the taxpayer's income taxes for the year (taking account of U.S. and foreign taxes), the burden of proving that the loss of citizenship did not have tax avoidance as one of its principal purposes is on the taxpayer. This presumption is rebuttable.\5\ A foreign tax credit is not allowed for foreign taxes on income that is deemed to be U.S.-source income under the alternative method. The effect of the source rules generally is to transform foreign income that would not be effectively connected income into U.S. gross income. Because Section 877(c) does not cause the income to be effectively connected income, the Section 906 foreign tax credit will not apply. Any foreign taxes imposed on the income re-sourced under Section 877(c) therefore would give rise to double taxation. The so-called savings clause found in most modern income tax treaties generally provides that the United States may tax its citizens and residents as though the treaty had not come into effect.\6\ Although the I.R.S. has published a revenue ruling taking the position that the savings clause preserved U.S. taxation of former citizens taxable under Section 877,\7\ the Tax Court held in Crow v. Commissioner, 85 T.C. 376 (1985), that the savings clause of the 1942 United States-Canada Income Tax Convention did not apply to a former citizen who, it was assumed for purposes of deciding petitioner's motion for summary judgment, expatriated to Canada for a principal purpose of avoiding United States tax. The Court found that, properly interpreted, the Convention prohibited the United States from taxing the taxpayer's capital gain from the sale of stock under Section 877. Based on the Crow decision, it is doubtful whether the United States may tax a treaty resident under Section 877 on income that a treaty reserves for taxation by the country of residence unless the treaty specifically preserves the U.S. right to tax a Section 877 expatriate. Current U.S. treaty policy is to cover Section 877 expatriates under the savings clause to permit the United States to tax income or gains of a Section 877 expatriate who is resident in the treaty partner country notwithstanding other articles of the treaty.\8\ Even where the savings clause covers taxation of an expatriate under Section 877, the coverage may be less than complete.\9\ It does not appear that treaties remedy the failure of the domestic law foreign tax credit mechanism to avoid double taxation under Section 877. For example, the 1980 Convention between the United States and Canada allows the United States to impose tax on gains from the sale of stock in a U.S. company realized by a Section 877 expatriate who is resident in Canada.\10\ Canada also would be allowed to tax the gains.\11\ For purposes of applying the foreign tax credit provisions of the Convention, the gains from the sale of stock would be treated as Canadian-source income,\12\ however, the United States does not commit to allow a credit for the Canadian tax.\13\ Deficiencies of Current Law The reason for enactment of Section 877 in 1966 was that the elimination of graduated rates with respect to non- effectively connected income of a nonresident alien could encourage some individuals to surrender their U.S. citizenship and move abroad. The 89th Congress did not have any experience as to whether the other changes in taxation of nonresident aliens made by the Foreign Investors Tax Act of 1966 would induce expatriations and chose to employ a tax avoidance purpose condition to the application of Section 877. The facts of the Furstenberg case, in which the Tax Court found that the taxpayer's expatriation did not have tax avoidance as a principal purpose, illustrate why a tax avoidance purpose standard is ill-advised. To satisfy a commitment made before her marriage to her new husband, Mrs. Furstenberg renounced her U.S. citizenship immediately after her honeymoon on December 23, 1975. As a result of the Tax Court's decision that Section 877 did not apply, it appears that Mrs. Furstenberg paid no U.S. tax on as much as $9.8 million of capital gains from selling securities owned at the time of her expatriation in the two years following her expatriation. There is ample precedent for a U.S. claim to tax appreciated assets at a time when the asset will no longer be subject to U.S. personal taxing jurisdiction. Under sections 367 and 1491, the United States overrides otherwise applicable nonrecognition rules in order to tax transfers of appreciated assets to foreign entities. It is accepted that this principle should apply in circumstances where there is no actual transfer of an asset, for example, upon the termination of an election by a foreign corporation to be treated as a domestic corporation under section 1504(d) or when a foreign trust ceases to be a grantor trust with a U.S. grantor. Amendments in 1984 to sections 367 and 1492 deleted exceptions to taxation of such outbound transfers where the taxpayer could establish that the transfer did not have as one of its principal purposes the avoidance of Federal income taxes. The principal purpose test similarly should be deleted from Section 877.\14\ A second difficulty with current Section 877 relates to the assertion of U.S. taxing jurisdiction after the taxpayer has renounced U.S. citizenship. At that point, the taxpayer may be resident in another taxing jurisdiction that may rightfully feel that it has the primary right to tax gains of a resident from the sale of tangible property (other than real estate in another country) and intangible property. It is not surprising that there may be disagreement as to which country should be considered to have the primary right to tax. A tax imposed at the time of expatriation, however, would accurately delineate gains properly subject to U.S. taxing jurisdiction. This would improve the position of the United States if it asks treaty partners to increase a taxpayer's basis in property taxed by the United States on expatriation for purposes of taxation by the treaty partner. If taxation at the time of expatiation is adopted, I would urge the Treasury to take such a position in treaty negotiations. A third problem with current Section 877 is that it is easily avoided. I quote from a 1993 article published in Tax Notes International: ``Even for those nonresident former U.S. citizens with substantial U.S. assets and income, there are techniques that can greatly reduce the impact of the anti-abuse rules by income and assets or by deferring income and taxable transfers until after the 10-year period under the anti-abuse rules has expired. For example, consider the plight of a tax-motivated former U.S. citizen living abroad and owning a portfolio of U.S. stocks and bonds. Without taking any measures, such a person would be subject to U.S. income tax on interest, dividends and capital gain from the portfolio and would be subject to a U.S. estate and gift tax on taxable transfer of assets in the portfolio. Such an individual could, however, transfer the portfolio to a foreign corporation that is not engaged in a U.S. trade or business with drastically more favorable results. For income tax purposes, the foreign corporation would itself be taxed in the same manner as an NRA who had never been a U.S. citizen (i.e., gross U.S.-source dividends would be subject to a flat 30-percent-or-lower withholding tax, certain types of U.S.-source interest would be subject to a similar flat withholding tax while other types of U.S.-source interest would be exempt under the portfolio interest or other exemptions and capital gains would be exempt from tax unless real estate related). While a sale of stock in the foreign corporation by the former U.S. citizen would be treated as taxable U.S.-source income under the anti-abuse rule, as sale of the U.S. stocks and securities in the portfolio by the foreign corporation would not. Moreover, dividends by the foreign corporation to its shareholders would be foreign-source, and therefore free from U.S. tax, even if the foreign corporation's earnings out of which it pays the dividends are U.S.-source interest, dividends, and capital gains.'' (Footnotes omitted.)\15\ In light of the increasing sophistication of taxpayers, it is not surprising that the easy pickings of tax-motivated expatriation are too tempting for some to resist. Based on informal discussions with the State Department, and Staff of the Joint Committee on Taxation has reported that 697 citizens expatriated in 1993 and 858 in 1994.\16\ There is evidence that some of these expatriations will result in substantial revenue loss as a result of the infirmities of current Section 877. It is time to amend the law to address current realities. description of proposed section 877a Under the Committee Bill, a U.S. citizen who relinquishes U.S. citizenship generally would be treated as having sold all of his or her property at fair market value immediately prior to relinquishing citizenship and gain or loss from the deemed sale would be subject to U.S. income tax. In addition, the deferral of tax or income recognition (e.g., due to the installment method) would terminate on the date of the deemed sale and the deferred tax would be due and payable on that date. Generally property interests that would be included in the individual's gross estate under the Federal estate tax if such individual were to die on the day of the deemed sale, plus certain trust interests that are not otherwise included in the gross estate, would be taxed on the expatriation date. The first $600,000 of net gain recognized on the deemed sale would be exempt from tax. If a taxpayer were determined to hold an interest in a trust for purposes of Section 877A, the trust would be treated as though it sold the taxpayer's share of assets of the trust and the proceeds were distributed to the taxpayer and recontributed to the trust. U.S. real property interests, which remain subject to U.S. taxing jurisdiction in the hands of nonresident aliens, generally would be excepted from the proposal.\17\ Certain interests in qualified retirement plans and, subject to a limit of $500,000, interests in foreign pension plans (as provided in regulations) also would be excepted from the deemed sale rule. A U.S. citizen would be treated as having relinquished his citizenship on the earlier of (i) the date he renounces citizenship before a diplomatic or consular officer, (ii) the date he provides to the State department a signed statement of voluntary relinquishment of citizenship confirming an act of expatriation under the Immigration and Nationality Act, (iii) the date that the U.S. Department of State issues a certificate of loss of nationality, or (iv) the date a court cancels a naturalized citizen's certificate of naturalization. The tax would be due on the 90th day after the expatriation date. The Internal Revenue Service would be authorized to allow a taxpayer to defer payment of the tax for up to 10 years under section 6161 as through the tax were an estate tax imposed by chapter 11. The Committee Bill's Section 877A would be effective for U.S. citizens who relinquish their U.S. citizenship on or after February 6, 1995. No tax would be due before 90 days after enactment. analysis of proposed section 877a The Committee Bill meets the three objections to current law Section 877 described above. It deletes the tax avoidance purpose test. It imposes tax on gain determined as of the date a taxpayer relinquishes citizenship and thereby properly measures the gain subject to U.S. personal taxing jurisdiction. As a consequence of these changes it will be more administrable and not subject to easy avoidance. The Committee Bill also reflects several significant improvements over the text released in the original version of H.R. 981. The definition of when a taxpayer relinquishes citizenship has been modified to relate to the earliest of several substantive acts that manifest an intent to voluntarily relinquish citizenship. This should adequately protect taxpayers who have relied on current law. The I.R.S. authority to extend the time to make payment of the tax is expanded to permit deferral of up to 10 years under rules that are commonly used in the estate tax context. These changes are welcome. I suggest another modification to the Committee Bill. I recommend that an alien that becomes a naturalized citizen take a ``fresh start'' fair market basis in his or her assets for purposes of Section 877A. The measuring date for this purpose should be the earliest of (i) the date the alien becomes a naturalized citizen, (ii) the date the alien becomes a resident alien, and (iii) the date the asset is ``effectively connected'' with a U.S. trade or business of the alien. This measure is important to support the position that the U.S. claim to tax is truly related to its personal or source taxing jurisdiction. I reserve comment on certain technical aspects of the proposal and would be pleased to work with the Committee staff on the details of final legislation. In particular, I do not comment, without further study, on the approach taken by the Committee Bill to interests in trusts or to the interaction of Section 877A with estate and gift tax rules. Finally, I respectfully disagree with certain initial criticisms of H.R. 981 in comments prepared by other individual members of the American Bar Association. The weight of scholarship rejects the view that realization is or should be constitutionally required to tax gains. Since, in my experience, Congress, and this Committee, exercises an appropriate skepticism regarding professorial musings, perhaps the more relevant precedent is that Congress has enacted at least two provisions that tax gains before they are realized. Section 1256 was added to the Code in 1981 and provides that certain regulated futures and foreign currency contracts are marked-to-market on the last day of a taxpayer's taxable year and gain or loss recognized.\18\ Section 475, enacted in 1993, requires securities dealers to mark-to-market securities held in inventory on the last day of the taxable year and recognize gain or loss. Moreover, fairness to taxpayers as well as the Government's revenue interests may require that such mark-to-market treatment be expanded to a broader range of circumstances. It would be extremely unwise for this Committee to adopt the holding of Eisner v. Macomber\19\ in a way that could be viewed as imposing a constitutionally-based realization requirement. I also would not in any way equate the imposition by the United States, in 1995, of a tax on its fair share of the appreciation in assets owned by U.S. persons during their period of U.S. citizenship to an exit tax imposed on Jewish and politically motivated emigrants from the Union of Soviet Socialist Republics during the State-sponsored repression of the Brezhnev era. A tax that excludes the first $600,000 of gain can hardly be viewed as a barrier to emigration. Conclusion The Committee's proposed Section 877A is an improvement over current law, is sound international tax policy and deserves the strong support of your Committee. Please do not hesitate to contact me if I may be of assistance to the Committee. Sincerely, Stephen E. Shay. footnotes \1\Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended and as proposed to be amended by the Committee Bill. \2\Taxation on the basis of citizenship is different from the practice of most countries, which is to tax individuals on the basis of residence. The Supreme Court, however, has upheld the constitutionality of taxing a nonresident citizen. Cook v. Tait, 265 U.S. 47 (1924). \3\A nonresident alien individual is an individual who is neither a U.S. citizen nor a resident alien. Generally, an alien individual is a resident alien for U.S. tax purposes under Section 7701(b) if he or she (1) is a lawful permanent resident of the United States (i.e. holds a green card), or (2) satisfies the ``substantial presence'' test as a result of being physically present in the United States for a prescribed amount of time. \4\These same taxing rules also are applied under Section 7701(b)(10) in the case of a resident alien individual who is resident in the United States for three consecutive years, then ceases to be a resident, and subsequently becomes a resident within three years after the close of the initial residency period. This anti-abuse rule protects the U.S. tax base from erosion by a resident alien who transfer residence from the United States for a limited period of time in order to sell a highly appreciated asset and then resumes his or her U.S. residence. \5\See, e.g., Furstenbert v. Commissioner, 83 T.C. 755 (1985). \6\See U.S. Department of the Treasury, Proposed Model Convention Between the United States and ________ for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion, Art. 1(3) (1981), reprinted in 1 Tax Treaties (CCH) para.208 (1994) (hereinafter ``U.S. Model Treaty''). An important exception to the saving clause is the obligation of a contracting state to give double tax relief for taxes imposed by the source country. The savings clause implements the U.S. policy that tax treaties generally are not intended to affect U.S. taxation of U.S. citizens or residents. American Law Institute, Federal Income Tax Project: International Aspects of United States Income Taxation (Proposals of the American Law Institute on United States Income Tax Treaties); 229, N. 606 (1992). \7\Rev. Rul. 79-152, 1979-1 C.B. 237 (holding that a liquidating distribution would be taxable to a Section 877 expatriate that acquired residence in a treaty country even though the treaty did not preserve U.S. right to tax under Section 877). Proposed Model Convention Between the United States and

Mr. MOYNIHAN. Mr. President, this is where things stood when the House-Senate conference met on March 28. The weight of authority appeared to be on the side of legality under international law, but there was some question, and the bill had to move at great speed. As my colleagues well know, the legislation restoring the self-employeds' health insurance deduction, for calendar year 1994, needed to be passed and signed into law well in advance of this year's April 17 tax filing deadline, so that the self-employed would have time to prepare and file their 1994 tax returns. The decision regarding the expatriation provision had to be made without further opportunity of deliberation. I opted not to risk making the wrong decision with respect to international law and human rights. The decision to drop the expatriation tax provision from the final conference version of the bill has been the subject of much debate over the last week. I certainly don't presume to speak for the other conferees. But for myself I repeat as I have said on two occasions on this floor over the past week: We should proceed with care when we are dealing with human rights issues, particularly when the group involved is a despised group--that is, millionaires who renounce their citizenship for money. As the Senator who first proposed the expatriation tax provision, I will see this matter through to a conclusion. We are getting more clarity on the human rights issue, and it appears that a consensus is developing to the effect that the provision does not conflict with our obligations under international law. In particular, it is worth noting that Professor Hannum, who first wrote me on March 24 expressing his concern that the expatriation provision was a problem under international law, has, after receiving additional and more specific information about the expatriation tax, now written a second letter of March 31 stating that he is ``convinced that neither its intention nor its effect would violate present U.S. obligations under international law.'' This is the growing consensus, although it is not unanimous. Mr. President, I would further ask unanimous consent that Professor Hannum's March 31 letter be printed in the Record at the conclusion of my remarks.

Mr. MOYNIHAN. Mr. President, although there was considerable support for the legality of the provision, I thought it best to proceed with caution in these circumstances. These are matters of human rights under international law, on which we have rightly lectured others, and involve our solemn obligations under treaties. I sought the views of other experts. Letters concluding that the expatriation provision did not raise any problems under international law were received from Prof. Detlev Vagts of Harvard Law School and Prof. Andreas F. Lowenfeld of New York University School of Law. The State Department issued a lengthier analysis upholding the legality of the provision, and the American Law Division of the Congressional Research Service reached a like conclusion. However, there were dissenting views, most notably Prof. Hurst Hannum of the Fletcher School of Law and Diplomacy at Tufts University, who first wrote to me on March 24. Mr. President, I ask unanimous consent that the letters of Professors Vaghts, Lowenfeld, and Hannum, and the memoranda from the American Law Division of CRS and the Department of State, be printed in the Record at the conclusion of my remarks.

Mr. MOYNIHAN. Mr. President, I wish to speak to the matter raised by the distinguished Senator from Massachusetts. We should not countenance the evasion of taxes by those who renounce their citizenship. The Senate should act to address this problem expeditiously. A genuine abuse exists. Although the current Tax Code contains provisions, dating back to 1966, designed to address tax-motivated relinquishment of citizenship, these provisions have proven difficult to enforce and are easily evaded. One international tax expert described avoiding them as ``child's play.'' Individuals with substantial wealth can, by renouncing U.S. citizenship, avoid paying taxes on gains that accrued during the period that they acquired their wealth and were afforded the myriad advantages of U.S. citizenship. Moreover, even after renunciation, these individuals can maintain substantial connections with the United States, such as keeping a residence and residing in the United States for up to 120 days a year without incurring U.S. tax obligations. Indeed, reports indicate that certain wealthy individuals have renounced their U.S. citizenship and avoided their tax obligations while still maintaining their families and homes in the United States, being careful merely to avoid being present in this country for more than 120 days each year. Meanwhile, the rest of Americans who remain citizens pay taxes on their gains when assets are sold or when an estate tax becomes due at death. It was this Senator who made the first proposal in the Senate to deal with the expatriation tax abuse. On February 6, the President announced a proposal to address the problem in his fiscal year 1996 budget submission. Three weeks ago, on March 15, during Finance Committee consideration of the bill to restore the health insurance deduction for the self-employed, I offered a modified version of the administration's expatriation tax provision as an amendment to the bill. My amendment would have substituted the expatriation proposal for the repeal of minority broadcast tax preferences as a funding source for the bill. The amendment failed when every Republican member of the Committee voted against it. Subsequently, Senator Bradley offered the expatriation provision as a freestanding amendment, with the $3.6 billion in revenue that it raised to be dedicated to deficit reduction. Senator Bradley's amendment passed by voice vote. That is how the expatriation tax provision was added to the bill that came before the Senate. After the Finance Committee reported the bill, but before full Senate action and conference with the House, the Finance Committee held a hearing to further review the issues raised by the expatriation provision. Tax legislation routinely gets polished in its technical aspects as it moves through floor action and conference. At the Finance hearing, we heard criticisms of some technical aspects in the operation of the provision, as well as testimony raising the issue of whether the provision comported with article 12 of the International Covenant on Civil and Political Rights, which the United States ratified in 1992. Section 2 of article 12 states: ``Everyone shall be free to leave any country, including his own.'' Robert F. Turner, a professor of international law at the U.S. Naval War College, argued that the expatriation provision was problematic under the covenant. The State Department's legal experts disagreed, as did two other outside experts whose letters were before the committee. I refer to Prof. Paul B. Stephan III, a specialist in both international law and tax law at the University of Virginia School of Law; and Mr. Stephen E. Shay, who served as International Tax Counsel at Treasury under the Reagan administration. Mr. President, I ask unanimous consent that the written testimony of Professor Turner, the written testimony of the Department of State, and the letters of Professor Stephan and Mr. Shay be printed in the Record at the conclusion of my remarks.

Mr. MOYNIHAN

Mr. MOYNIHAN. I move to lay that motion on the table. The motion to lay on the table was agreed to.

Mr MOYNIHAN

Mr MOYNIHAN. Mr. President, Howard J. Hubbard, Bishop of Albany, recently presented his views on welfare reform in the diocesan newspaper, the Evangelist. The bishop served for 4 years as chaplain at Community Maternity Services, a diocesan program for pregnant teens and their children, so his statement is based on practical experience. Having worked with many welfare mothers at CMS, he refers to a number of them by name in his reflections. Bishop Hubbard has been in the trenches, as they say, so I believe my colleagues would do well to examine his views on the subject. Mr. President, I ask that Bishop Hubbard's column be printed in the Record. The column follows: His Experiences Give Bishop Ideas on Welfare Reform (By Bishop Howard J. Hubbard) The present debate over welfare reform is very complex. Most everyone agrees that the current system isn't working. There seems to be a consensus as well that a major focus of attention must be the growing number of women, especially teenagers, having children out of wedlock. Teenage pregnancy is a national crisis. Teens and their children are in danger of failing to develop to their full potential; and too often, they become dependent, rather than contributing, members of society. Adolescents who have children are still children themselves. In the past decade, teen pregnancy in particular and child care in general have become key elements of our national agenda. Teenage sexual activity and childbearing have increased in recent years, and a growing proportion of births to teenagers takes place outside of marriage: In 1989, more than one million U.S. babies were born to unwed women; Almost 350,000 of those babies were born to women under the age of 20; Nearly three-fourths of American children growing up in single-parent families experience poverty for some period during their first ten years; Becoming a parent as a teenager increases the chances that a mother will not complete high school, that she will fare poorly in the job market, and that she and her children will live in poverty. thought and emotions On the rational level, policymakers are seeking to address the aspects of the welfare system which foster dependency and contribute to a permanent underclass where lack of family stability, child abuse, drug usage and inferior education perpetuate the vicious cycle of poverty. On the emotional level, however, there is the cry of frustrated citizens who feel that they are bearing the brunt of a system out of control. That mentality--which is so often heard on the talk shows or reflected in letters to the editor--was captured in caricature form by Saundra Smokes in her Jan. 29 column in the Albany Times Union: ``Get those baby-making, lazy welfare mothers out of here and let them take their school-lunch- eating, government-dependent children with them. Put them in orphanages, put them anywhere, just get them out of here.'' meeting the women As one who served as chaplain for four years at Community Maternity Services (CMS), our diocesan program for pregnant teens and their newborn children, I think it is important to get beyond the stereotypes. Then we can reflect carefully upon who these women are and what motivates their behavior before arriving at solutions. Let me share a few snapshots of the young women I came to know at CMS: Sharelle was in a series of foster homes (her mother was 15 when she had Sharelle) and is now living on her own with her infant son. She dropped out of school, and her only hope is to meet someone who will support them. Gail represents the young girls who had abortions in the past year. She made no plans for future sexual overtures and carried within her a gnawing need to bring the baby back. Pregnant again a year later, she thought maybe this was God's way of letting her repent. She thought her penance was to be a perfect mother to this child. Tammi was an unpopular and unattractive teen who was unhappy with herself. She would respond to any attention from any of the young men of her acquaintance. She felt terribly lonely the morning after. Amy, almost 16, has been dating Joe, 18, for a year Amy's parents have not talked to her about sexuality; much of what she has learned has come from afternoon soaps. By the time Amy and Joe had promised each other it wouldn't happen again, she was pregnant. Cheryl was active in CYO, played her guitar at Mass and was the pride of her family. She fell madly in love with Tom. They occasionally agreed to intercourse because ``love gives all'' and because ``maybe virginity is selfish.'' She prayed that soon she would be able to talk her boyfriend out of this; but before she could, she was pregnant. While those young women come from a variety of economic and social backgrounds, they all show the same characteristics: lack of self-esteem, poor and no communication with parents, and a desire to escape their present situation by pursuing the type of happiness and fulfillment that MTV or the soaps promise. solutions There is no simple or single solution to their situations. Each woman differs in terms of specific barriers she faces and resources she should have available to promote her self- sufficiency and to guide her to social and economic independence. But, based upon my years of experience with these young women and so many others in similar straits, as well as documented research, I believe that any program of welfare reform designed to address their needs constructively must take into account several factors: 1. Welfare programs are not among the primary reasons for the rising number of out-of-wedlock births. Greg Duncan and Jean Yeung, in a comprehensive report titled ``The Extent and Consequence of Welfare Dependents,'' conclude that ``most research examining the effects of higher welfare benefit levels on out-of-wedlock childbearing finds that benefit levels have no significant effect on the likelihood that black women and girls will have children outside of marriage, and no significant effect, or only a small effect, on the likelihood that whites will have such births. We strongly urge the rejection of any proposal that would eliminate the safety net for poor children born outside of marriage. Such policies do more harm than good.'' In the short term, that means that more, not less, in assistance may be the appropriate and most effective approach in dealing with these women. 2. Policies and programs of intervention with mothers and their children must be cognizant of and sensitive to the unique circumstance and diverse needs each faces. For example, there is a difference between the 19-year-old who has two years of college credits and needs some assistance in caring for her one-year-old son as she seeks employment or job training, and the 17-year-old who is a high school dropout and who has a learning disability as does her two-year-old child. Therefore, public policies and programs to assist single- parent mothers must be tailored to fit specific needs, and will require appropriate goals and realistic individualized time frames for achieving such. 3. The major goal in working with pregnant women, especially adolescents, is to educate for the purpose of reducing teen pregnancies, and to facilitate movement to maturity, independence and non-repetitive behavior (which would include personal support, daycare and adoption options, etc.). Those goals can best be accomplished, through building parenting skills, connecting families with resources in the communities where they live, and promoting a partnership with parents for the full and healthy development of their children. 4. Quality, affordable and accessible daycare and health care as well as ongoing education or job training are prerequisites for success. 5. There must be a strong moral component in any program for single mothers as well as a values-laden dimension which promotes marriage, family life, caring, truth-telling, the goodness of sexuality, and the importance of its discipline and the value of schooling and work. 6. There must be a pragmatic component which addresses handling finances, child care, house management, cooking, shopping, responsible decision-making and personal relationships. 7. Where possible, birth fathers must be part of the program, which should include a focus on their rights and responsibilities, especially their responsibility for supporting their child, at a minimum financially. church's role For all this is work, there cannot be hidden agendas on the part of government, families, social agencies and the teenagers involved. Rather, there must be a forthright presentation of issues and interactive responses that are proactive. The Church--through the efforts of Catholic Charities-- stands ready to participate in such a program of welfare reform. To do less is to try to address a complex and multi- casusal problem by settling for a massive and unwieldy system that, in the long run, falls painfully short of its goals.

Mr. MOYNIHAN

Mr. MOYNIHAN. No, sir, you do not.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I would simply like to state for the Record the fact that the Committee on Finance, in dealing with the provisions on the payment of tax by persons who expatriate, was confronted by mixed assessments of the legality of such an action. The International Covenant on Civil and Political Rights, which the United States ratified in 1992, article 12, section 2 states: ``Everyone shall be free to leave any country, including his own.'' The question is whether there is a restriction on this right. The point here is that present law provides that any taxpayer that renounces his or her citizenship for tax avoidance purposes is subject to the current tax on gains on U.S. assets for 10 years. This has been the law for roughly 30 years, but it has not been enforced. It probably has not been enforceable. Regulations have never been issued. And we mean to do, we mean to do. The President proposed this on February 6 in his budget, and what we will do in the end will be applied as of February 6. There will be no windows, no provisions of that kind. Just that the record might show that we have been trying to be orderly and have had some sense of due process here, on 24 March, I received a letter from Hurst Hannum, associate professor of international law at the Fletcher School of Law and Diplomacy, of whose eminence I need hardly to remind the Senate, in which he wrote to express his serious concern over the proposed exit tax and the issue which he had addressed in his 1987 book, ``The Right to Leave and Return in International Law and Practice.'' We responded to him with information he wanted further on the matter. He writes on March 31 to say: As I noted then, what appeared to be the imposition of a tax solely on the ground that a person was renouncing his or her citizenship could interfere with the right . . . [under article 12 of the Covenant]. He says, ``I am gratified that the human rights issues related to this bill have become a subject of serious debate.'' I said on Friday--it was commented on in our hearing--when we are dealing with civil rights issues, human rights issues, we must never be more careful than when the group involved is a despised group. I very much regret that the daily talking points of the Democratic Policy Committee today said what Democrats believe--``We believe that education for our children should not be cut.'' Fine, I so agree. ``Especially while billionaire Benedict Arnolds are allowed to escape taxation.'' They are not going to escape taxation. I am not sure they are Benedict Arnolds. They are people making decisions that they have a right to make under international law, and the United States has the right to collect taxes from them, under our law. We now have a letter from Professor Hannum that says: In sum, imposition of a nondiscriminatory tax on accrued income at the time citizenship is renounced, in a manner consistent with the way in which that same income would be treated at the time of death, does not appear to me to violate either the internationally protected right to emigrate or the (somewhat less well protected) right to a nationality. Mr. President, I ask that the letters be printed in the Record, and I yield the floor.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, I do not wish to speak at length but I want to make two points. The first is that the Finance Committee fully intends to close this loophole, if that is the way it is to be described, to collect these taxes that are being avoided. But we would wish to do so and we will do so as of the date the Treasury, in the budget, the executive branch, proposed doing so as part of the President's budget: February 6. But I would like to say something that may not be wholly welcome here. And the Senator from Oregon will recognize it. When we held hearings on this matter, professors of law and professors of international law came to us and they said: Have a little care in what you are doing. Prof. Robert F. Turner, who is the Charles H. Stockton Professor of International Law at the U.S. Naval War College, gave us a paper called, ``International Law and the Exit Tax. Does section 203 of the Tax Compliance Act of 1995 violate the right to immigrate, recognized in the U.N. Covenant on Civil and Political Rights and other U.S. and international instruments?'' You may recall, Mr. President, that the U.S. Assistant Secretary Shattuck and the Assistant Attorney General have been in the United Nations just this week talking about our compliance with this law. The Senator from Oregon will recall the observation that human rights and legal rights are most to be attended to when the group involved is despised. That is the test. Nobody much likes a billionaire who renounces his or her citizenship for money. But if there are rights involved they are rights, and we ought to be careful how we proceed. That is the test, not whether these people are popular or whether they are not popular. We are going to proceed in that way. We are going to have a report. I offered this on behalf of the Democratic Members as a part of a general package, this provision. When it failed, as things do, in a committee divided, the Senator from New Jersey offered it as a freestanding provision, just to raise money for deficit reduction. It passed. It will pass again. I just wanted to say that, sir. I yield the floor.

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, today is a day of independence. Today, the Social Security Administration becomes an independent agency of the U.S. Government. This is an event of historic importance for Social Security and for the Nation. We have increased the stature of the Social Security Administration, strengthened its leadership, and established a bipartisan advisory board. I am proud to have sponsored the legislation, the Social Security Administration Reform Act of 1994, that brought about these changes, for they were sorely needed. Public confidence in the Social Security system has declined to the point where a recent survey of 18- to 34-year-olds revealed that 46 percent of respondents believed in UFO's, while only 28 percent believed their Social Security will be there when they retire. Mr. President, there is no greater authority on Social Security in the Nation's Capital, or indeed anywhere in the United States, than my distinguished friend Robert J. Myers. Bob Myers came to Washington in 1934 and was quite literally present at the creation of Social Security. He served as Chief Actuary of the Social Security Administration from 1947 to 1970, and as Deputy Commissioner from 1981 to 1982, after which he became Executive Director of the National Commission on Social Security Reform. Bob Myers is a familiar figure to members of the Committee on Finance, where he is a frequent witness on Social Security matters, and he is well known to many other Members of the Senate and House of Representatives. When it comes to Social Security, he is an institution unto himself. And so when an expert of Bob Myers' vast knowledge and experience speaks out on this subject, we had all better listen closely. I invoke Robert Myers on this day--Social Security independence day-- because he has just written an outstanding commentary in response to a recent Time magazine article entitled ``The Case for Killing Social Security.'' The cover of the March 20 issue of Time depicts a Social Security card torn into pieces. The lengthy Time article argues that in the next two decades, Social Security will ``be lurching into its final crisis.'' Well, Mr. President, the ``case for killing Social Security'' is weak indeed, and Bob Myers has demonstrated this as only he can. His paper makes clear that, far from being close to demise, the Social Security system will remain solvent with only minor adjustments. Yes, reasonable, measured changes will need to be made in order to assure solvency over the long term. But Congress and various administrations have never shirked from this bipartisan responsibility in the past, and we will not do so in the future. Social Security is not at risk, and we need to say so--as Bob Myers has done with great clarity. Mr. President, I ask that the text of the commentary by Robert J. Myers be printed in the Record. The commentary follows: Commentary on Time Magazine's Cover Story on the Social Security Program (By Robert J. Myers) The cover of Time, the Weekly Newsmagazine, for March 20 was captioned ``The Case for Killing Social Security.'' The contents featured a nine-page article going into detail as to why the program should be drastically changed, even eliminated, by moving to an entirely different system based on individual savings accounts. Unfortunately, the article involves many half truths, errors, and omissions of pertinent facts and is not well balanced. The general thrust of this article is well shown by its introductory sentence--``You know a government program is in trouble when it's less credible than a flying saucer.'' The basis of this remark is from the results of an opinion survey of persons aged 18-34 made by the Third Millennium. This showed that 46% of the respondents believed that UFO's exist, while only 28% thought that Social Security will still exist by the time that they retire. A very knowledgeable senator has made the comment about this so-called analysis of the financial sovlevency of the Social Security program that those who believe in the existence of UFO's are ``dopey''. Accordingly, their views on such a complex matter as the long-range viability of the Social Security program cannot be taken too seriously. Or their views as to UFO's may be considered as an attempt to be funny--under the theory ``ask a silly question, expect a silly answer.'' The article then states that, in about 20 years, Social Security ``will be lurching into its final crisis'' and will ``collapse altogether''. It immediately contradicts this ``certainty'' by saying that this can be avoided by benefit reductions or tax increases, although asserting that these would have to be ``stunning'' and ``huge''. The article fails to recognize that the program is not--and has not, in the past, been--unchangeable. Further, such changes (which, admittedly, are very likely needed) do not involve great gradual small ones. The Social Security program is not--and was never intended to be--one that is of an unchangeable, contractual nature. Rather, it can be--and has been--adjusted from time to time to reflect changing demographic, economic, and social conditions. Next, the article asserts that, beginning now, some retirees are getting a ``bad deal'', because the value of their benefits (taking into account interest) will be less than ``the sum of their lifetime contributions, plus interest.'' And, further, it is stated that this deplorable situation will get much worse as time goes by. Unfairly, it is not pointed out that by ``contributions'' is meant both the employer and employee contributions. Economists will generally say that employees really pay the employer contribution, because it is part of total remuneration. I assert that, while this may be true in the aggregate, it is not necessarily the case on an individual- by-individual basis. Many private employee benefit plans (such as defined-benefit pension plans and health benefits plans) do not give each employee benefit protection financed by the employer that has a cost as a percentage of salary which is the same for all employees. For example, health benefits plans have a higher value relative to salary for low earners than for high earners, because for persons of a given age and family composition, the value of the benefits in the dollars is the same. Even more importantly, Social Security is not--and never was intended to be--a system involving complete individual equity, under which each participant would get exactly his or her money's-worth in benefit protection, no more and no less. Rather, it is intended to contain elements of both social adequacy and individual equity. Under the social adequacy principle, relatively large benefits in relation to contributions are paid to several categories: participants who were beyond the normal entry age into the labor market when they were first covered (a common practice in private pension plans); lower-paid workers; and workers with dependents. The individual-equity principle is present in that, for a particular category of workers, the larger the earnings on which contributions are paid, the larger will be the benefit amount, even though not proportionately so. The money's-worth situation under Social Security is far less extreme than is the situation for school taxes. Such taxes are paid, directly or indirectly, without regard to whether the payer has children currently, or has had children, or will have children. Moreover, the amount of the taxes bears no relationship to the possible ``benefit'' protection. Following this incomplete, even inaccurate, money's-worth discussion, the article goes on to state that, ``almost unanimously'', scholars and policy analysts believe that the Social Security program is doomed and is ``ripe for retirement'' now. This unsupported statement is outrageous! Scores of scholars and policy analysts (including those persons who have a good knowledge of the structure and history of the Social Security program) do not hold this view, and only a handful of persons who are qualified by their knowledge and experience would support it. I am confident that, if a survey on this matter were made among actuaries (who are the ``social engineers'' in the general pension area), no such ``dooms-day view'' would be overwhelmingly held, or even supported by many. These ``experts'' whom the article has found proclaim that the present Social Security program should be replaced by a two-tier system--a public-assistance needs-tested safety net under a mandatory private savings plan involving complete individual equity. Ignored in this proposal are several important matters. One is the huge general-revenues cost of the safety net, whose costs would have to be met indirectly by the higher-paid persons, who would think only that they are getting their money's-worth from the mandatory savings plan. Further, there would be great disincentives for saving by lower-income (and even middle-income) persons, because they would get little more by doing so than they would by utilizing the safety net only. And, still further, fraud and abuse would abound as persons would be tempted to hide income or transfer assets to their children and receive the income back ``under the table.'' Moreover, the proposed ``simple solution'' fails to recognize the problem of providing adequate disability and survivor benefits for persons who have such an event occur at the young or middle ages. In such cases, the mandatory savings will not have built up to a high level and thus will not ``purchase'' adequate benefits. Next, the article proclaims that the Social Security trust fund (another display of ignorance because there are two trust funds--one for retirement and survivor benefits and the other for disability benefits) is an ``empty cookie jar,'' because ``the Treasury has already raided it for hundreds of billions.'' This is patently false! The bonds and notes held by the trust funds are just as valid as any government securities held by banks, insurance companies, mutual funds, you, and me. They pay an equitable rate of interest and are part of the recorded National Debt. Certainly, the money that went for them (the excess of income over outgo of the trust funds) was spent. But the same thing is done by the Treasury with the proceeds of any bonds which it sells to the public--or, for that matter the same as a corporation does when it sells its bonds, or a savings bank does with your deposit (it ``spends'' the money by lending it to somebody else). The article then bemoans the problem, some 20-25 years hence, when under present law, the bonds will begin to have to be redeemed in mass. To do so, such action as raising income taxes or floating new loans from the public will be necessary. But this is no different than what has to be done when government obligations held by the general public come due. And it is most important to note that, if the trust funds had not had the money to purchase the bonds in the beginning, the general public would have had to have done so, and there would still be the same problem of redeeming the bonds at some time. Further, if changes in the Social Security program are made in the next few years--as I believe that they should be--this situation of a dismantling of huge trust-fund balances would not occur. In fact, if Senator Moynihan's proposal, made about five years ago, to slightly lower contribution rates now and slightly raise ones many years hence--thus returning to pay-as-you-go financing--were adopted, this problem would not occur. And further, the true magnitude of our horrendous general-budget deficits would be apparent. A minor error, and yet one that clearly displays the ineptitude of the article, is the statement that maximum Social Security payroll taxes ``have already multiplied 10 times since 1950.'' Such tax in 1950 was $90 (3% of $3,000) and is $7,588.80 in 1995 (12.4% of $61,200). The correct ``multiplying factor'' is thus 84.3, not a mere 10! The next cry of ``doom and gloom'' in the article is that, some 35 years from now, if nothing is done in the meanwhile, the trust funds will be exhausted, and the Social Security tax rate will have to be increased to 17%. This is reasonably correct (although I would have said 16% initially and 17% some years later) under the conditions stated. However, such conditions are most unreasonable! Congress, which almost always acts reasonably and responsibly (although not always promptly enough!), will undoubtedly act well in advance of such a cataclysmic event. True, an increase of about 4% in the combined employer-employee tax rate in a single year might ``devastate the economy'', as the article claims. But what should be done--and likely will be done--is to transition in some benefit cost reductions (like an increase in the Normal Retirement Age, so as to recognize increased longevity) and some contribution rate increases (like 1% each on employers and employees, in steps over a period of years). This would have little, if any, adverse effect on the economy. Next, the writers of the article had the temerity to wander into the actuarial field by quoting figures as to the probability of a new-born baby reaching age 65 (better would have been the higher probability for a person entering the labor force at age 20) and the expectation of life at age 65, for both 1940 and 1990. Not surprisingly, most of their figures are in error, as shown below: ------------------------------------------------------------------------ Percent surviving Expectation of to age 65 life at age 65