Robert Packwood

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, I ask unanimous consent that the Committee on Foreign Relations be authorized to meet during the session of the Senate on Friday, May 19, 1995, at 11 a.m.

Mr. PACKWOOD. Mr. President, I ask unanimous consent that the Subcommittee on Education, Arts and Humanities of the Committee on Labor and Human Resources be authorized to meet for a hearing on the role of business in vocational education, during the session of the Senate on Friday, May 19, 1995, at 9:30 a.m.

Mr. PACKWOOD

Mr. PACKWOOD. If the Senator will yield, I talked to Senator Lautenberg, and will have a unanimous-consent request between the two of us.

Mr. PACKWOOD. I talked to the Senator from New Jersey. He agreed I would go next. I do not know how much time I will take. I am handling the floor for Senator Domenici now. I ask unanimous consent that when I am finished Senator Lautenberg be recognized.

Mr. PACKWOOD. Mr. President, I almost do not know where to start. There are so much misimpressions, half truths, bad statistics that you do not know whether to start at the very beginning and shoot down two or three and then try to do something sequentially. So I will start as follows first. Let us define some things we talk about. The word ``cut.'' Only in Washington, DC, in my experience in any municipal body that I know of, not in the State legislature when I served there, the term ``cut'' meant spending less than we spent last year. If we spend $1,000 on the fire department this year, and we spent $900 the next year, that was a $100 cut. And all of the budgeting that we did, when I served in the State legislature, was based upon what we spent last year, what we are going to spend next year, and in almost all cases it was up from what we had spent last year. I think that is probably true of most cities and counties. But in Washington, DC, we define ``cut'' differently. We say if we spent $1,000 on the fire department this year, and we had planned to spend $1,200 on the fire department next year -- ``planned''--but we are in a budget, so we are only that a $100 increase. We call it a $100 cut. We never spent $1,200 on the fire department. We never spent more than $1,000 in our lives. Yet, my good friends from across the aisle in the Democratic Party are talking about Medicare cuts. Mr. President, there are no cuts. I want to explain how we got to the situation we are in, the financial bind that we are in. In 1965, we enacted Medicare. We estimated that the hospital part of Medicare--now first let me define what I mean by the hospital part. We on the inside refer to part A of Medicare as hospitals, part B as doctors. We estimated in 1965 that in 1990 we would spend $9 billion on hospitals. That was our estimates, 25 years out. Actually, in 1990, we spent $67 billion. Were we off. We were off by a factor of close to 700 to 800 percent; just missed it. Or, take a look at the first full year of Medicare spending, in 1967. The first year we spent on everything, hospitals, and doctors, $3.2 billion. This year we are going to spend $178 billion. How did we miss so badly? Here is what happened initially. We started down the road on a cost- plus basis, a term from World War II. We were in a bind. Japan had bombed Pearl Harbor, Germany was succeeding in running rampant all over Europe. We got into the war. And the war was our priority. We argue today about defense spending. Defense spending today may be around 4 percent of our total gross domestic product, around 21 or 22 percent of our budget. To put it in perspective, at the height of World War II, 1944 and 1945, defense spending was 40--4-0--percent of our entire gross domestic product and 90 percent of the Federal budget. We were a war machine. And we were not too worried about costs. When all of a sudden you are asking the General Motors plant to shift in 6 months from making Chevrolets to making tanks and they had been used to working a dayshift only, you say you want them to work three shifts a day and you want them to work Saturdays and Sundays and get this done-- and hang the costs--we need the tanks. We saw it in Oregon in the shipyards. Henry Kaiser, great industrialist, put up in a short period of time three immense shipyards in the Portland metropolitan area and at the zenith of the war was employing 30 percent of the adult labor force, and toward the end of the war was turning out in one of the yards what were known as baby flat tops. It is a small aircraft carrier. They were turning out one aircraft carrier every 7 days. Today we spend 3 or 4 years building aircraft carriers. How can you do it in 7 days? You can do it in 7 days--and hang the costs--it does not matter. The priority is the war. This in essence is what happened with Medicare. We had no restraint on cost. We reimbursed doctors, and we reimbursed hospitals based upon their costs. It would be as if you were to say to a trucker, will you truck my load of tomatoes from California to New York, and I will reimburse you your costs. The trucker loads up his truck with tomatoes and he takes off. He needs more gas. He comes to the gas station. No point in stopping at the self-service station and saving 15 cents a gallon. He will have somebody fill it up for him, 15 cents more a gallon. Add it on to the cost. No point in staying at Motel 6 at $25 a night when you can stay at the Hilton and add it on to costs. Pretty soon, hauling the load of tomatoes across the country gets to be very, very costly. And finally the shipper says, ``Listen, your costs are too high. What I am going to do, I will give you $100 a day, $150 a day. You figure out how to make it. You don't want to haul it for that, I will find somebody else.'' We live with all that when we travel in our States. We are given a limited amount of money we can spend. Per diem it is called. We can spend it on a hotel or spend it on meals or spend it on things that we are allowed to spend it on but you cannot go over a certain amount and you cannot have three expensive meals a day and stay in a reasonable hotel and stay within a reasonable amount. You learn to have a modest breakfast and a light lunch, or you learn you can do just as well at the hamburger stand as the Hilton Hotel and live within it. Hospitals never had to do that. For the longest period of time, we reimbursed them on their costs. Now, what goes into the cost of a hospital? It is not just the doctor. It is not just the anesthesiologist that gives you gas, whatever he gives you when they are operating. Everything goes into it--all of their labor costs, all of their meal costs. You have an executive dining room for doctors with gold-plated handles on the toilets. It is all part of their cost. The hospital would estimate what their cost was per day, per patient. By the time you add all of their costs together, whether that is a parking lot, whether that is janitorial fees, you add it all together, and kind of figure a per day cost and you say to Medicare, well, it cost $500 a day to run our hospital. That is our costs. And there was no limit, there was no limit on doctors early on. Doctors would perform a service. My cost was $100. Send it in. We reimbursed them. Finally, it is no wonder that Medicare costs exploded beyond belief, when you are reimbursed with no restraint. So we started about 10 years ago attempting to restrain payment for costs. We set up a variety of commissions. We would say to a doctor we are only going to give you so much money for an appendicitis operation, so much money for a cataract operation. But we discovered that the delivery of medical service was amazing, and--Senator Moynihan has used a wonderful term--that ``demand would rise to supply.'' So long as you had doctors that would perform cataract operations, you ended up doing more cataract operations than you would otherwise do. So normally you thought this year there is going to be 100,000 cataract operations and we are only going to reimburse the doctors $100 an operation, and you think if we hold it to $100 an operation, then we will save money. But the next year you end up doing 200,000 cataract operations. You do not save money. So that did not work very well. And there was no real competition. So, let us get to the use of this word managed care, health maintenance organizations, preferred providers. They are all variations on a theme. A health maintenance organization is basically an organization that says we are going to attempt to restrain your and our health costs by having you receive most of your health services in our organization. On the west coast, we are very familiar with it. We first saw it heavily again in the Kaiser operation. It started in California--Henry Kaiser was from California--and in Oregon because at the same time that Mr. Kaiser built the three shipyards in Portland and at the zenith of World War II was employing 30 percent of the adult labor force, he also had a health plan for all of those 30,000 workers plus their dependents. By the time you counted husband, wife, a couple kids and you were employing 30,000, 30 percent of the adult labor force, you are covering an immense portion of the population, and this was the opportunity for a managed type of care. This was the Kaiser health plan. You used the Kaiser doctors and the Kaiser clinic. And Kaiser was able to restrain costs by managing care much more than what we called fee-for-service doctors or fee-for-service hospitals. Back in the early days of the Kaiser organization it was very suspect. Its doctors were not allowed to join the local medical societies. There was actually a lawsuit brought against one of the Washington Kaiser doctors who had just put a sign over the entrance to the Kaiser clinic about Kaiser Permanente, a good health plan, or something like that, who was sued for advertising. I mean it was ridiculous. The fee-for-service doctors hated Kaiser. Kaiser was an early entree into managed care, but they managed to hold their costs down. I can recall in the late 1950's I was a labor lawyer in a law firm, large law firm in Portland. I was the low man on the totem pole in the labor law division. And even in those days some of the employers in Oregon, some of the big ones, some of the small ones, contracted with Kaiser for their health services. As I recall, the plans were then $30, $40 a month. If you were an employee and you did not want to use Kaiser, you could opt out. I do not even [[Page S6975]] think there was an additional fee for opting out. The thing that intrigued me was that, on a voluntary basis, most of the employees in these companies used Kaiser. Kaiser was very good about coming over with sort of a little mobile van, medical truck for lack of a better term, and they would try to do some primitive exams, what we call annual physicals today, but they were doing them in a mobile van. And I cannot even remember what they looked for in those days, but they were trying to screen, they were trying to catch, they were trying to prevent, because they knew full well prevention was cheaper than hospitalization. I well remember their testimony before the Oregon Legislature saying that it was not the hospital operations per se that were cheaper. What Kaiser said was, ``We are better at not hospitalizing as many people, because we catch the diseases earlier in our program''. So we had this history of managed care in Oregon. The term is HMO, health maintenance organization. You also have something called a preferred provider organization. This is a variant on the managed care theme in which, an insurance company, like Blue Cross/Blue Shield, says we will write an insurance policy covering you but you must use our list of doctors. And they will have a list of 100 or 200 or 500 doctors. And so long as you use those doctors--it is a very wide choice--they have agreed with the doctors they are going to pay them a certain price for certain things and no more, and the doctors agree to that and the patients are referred to those doctors. And the preferred provider organization type of managed care, called PPO, worked out pretty well, too. Both of them, HMO's and PPO's, are managed care. Both of them save money over what we call a fee-for- service style of health care. The problem is in most parts of the country they are not used to managed care. I will give you some rough statistics, and I have picked these statistics because they are the States of the principal sponsors of this amendment. In Oregon--and this is Medicare coverage in health maintenance organizations, not the entire population--in the Portland area, we are now slightly in excess of 50 percent of the Medicare patients in managed care. Throughout the State, it is 30 percent managed care, but increasing rapidly. Managed care obviously starts in the urban areas first and then moves out into rural areas gradually. But I wish to put it in perspective by comparison to several other States. For Medicare managed care enrollment, Oregon is 30 percent, Massachusetts is 6 percent, New Jersey is 2 percent, South Dakota is zero, and West Virginia is 2 percent. So in essence the States represented by the principal sponsors of this amendment have no experience of any substance, of any overwhelming consequence, in Medicare managed care. For managed care enrollment for the whole Portland population, not just Medicare beneficiaries, but everybody, Portland has 64 percent enrollment. Bear in mind, people do not have to go into managed care. On Medicare especially you do not have to go into managed care. It is voluntary. If you want to keep the normal Medicare system you have now and be treated that way, that is fine. Why would people go in there? They go in for a very simple reason. The managed care providers provide more benefits than Medicare. I will read you across the list. Here is the ``Shopping for Health Care'' and it lists six major companies in Oregon that sell Medicare managed care policies to Oregonians. Let us just take prescription drugs. Medicare does not provide prescription drugs. In First Choice--that is the name of one of the HMO Oregon plans-- discounts available. Preferred Choice, part of HMO Oregon, but in a different area, discounts available. Good Health Plan, discounts available with the basic plan and in the plan plus it pays 50 percent for prescription drugs up to $100 a month. For Kaiser Permanente, it pays 70 percent of prescription costs up to $50 maximum per prescription. On PACC, it has discounts available. Now you come to SelectCare. They do not cover drugs. They are like Medicare. And then on Secure Horizons it is discounts available, mail order and walk-in. You have a variety of different choices. And all of these companies compete with each other. And you talk about the number of doctors that are available? First Choice has 500 primary care and 1,200 doctors including specialists that you can choose from. That is a reasonably adequate supply of doctors to choose from. Preferred Choice has 300 primary care doctors, 1,000 including specialists. And you go on, and there is none that has less than 400 that you can choose from. So you are not hard pressed to get the care you want. And why do people go there, in addition to getting better service, better service than they are getting in Medicare? Again, they do not have to go there. They can keep the usual fee-for-service Medicare service. Another reason is that they are used to it, if you have gone there all of your life. Here is what happened. The Kaiser shipyards closed at end of World War II. The Kaiser health plan was so popular that when they sold the company and the shipyards closed, Kaiser continued on with its health plan, in essence opened it up to the public. And, clearly, by the midfifties to the late fifties it was a very significant provider of health care in Oregon, this managed care plan. Today, it is growing in leaps and bounds. I am doing this from memory, but I do not think I am off 5 percent. Blue Cross/Blue Shield is our biggest carrier. In 1984, Blue Cross/Blue Shield had zero in managed care. Today, as I recall--that was 1984--10 years later, they are at about 65 percent. By the end of 1998, they plan to be at 90 percent in managed care. Now, what is the effect of all this? Here is the essence of the difference. The difference is because of this long, long experience with managed care--which no other State has. There are a couple that are close, but most of them have managed care in the zero to 5 percent, 5 to 10 percent. Oregon continues to increase managed care. By the end of this century, I would wager that counting both Medicare and the non-Medicare population, Oregon will have 90 percent managed care. Because of this long history of managed care, Oregon has been able to restrain its costs and give options in terms of plans and doctors that absolutely beats the medical costs of any other State. We are the lowest per capita cost State in the Union. And it is not because we are a low-income State. We are about in the middle; sometimes we are above the middle, sometimes we are below in terms of income of our citizens and other prices. But we are not a poverty State in the normal sense of the word. But our per capita health care costs are the lowest in the country. I will give you a comparison. Now this is for Medicare per capita costs. In Oregon, the average Medicare per capita cost is $3,300 a year. We are at the top. The bottom is Louisiana, at $5,400 a year-- same kind of operations, same kind of doctors, same kind of anesthesiologists, same kind of hospitals, $2,100 a year difference per Medicare enrollee. Louisiana has almost no managed care. Let us just split that difference. Let us assume you do not get everybody down to Oregon's Medicare per capita cost of $3,300, where you have a $2,100 difference. Let us just assume you could save $1,000 a year. The savings is $40 billion a year in the Nation. That is $280 billion over 7 years. That exceeds the savings that we're trying to get in this bill. Can it be done? You bet it can be done. It is being done. Will it all happen next year, like that? No it does not happen next year, like that. But if we start moving toward managed care, we will soon find that instead of States being at 2 or 3 percent, they will reach 10 or 20 or 30 percent. Of course, you do not increase in quantum leaps of 10 or 20 or 50 percent per year. But, whether you start from zero or 5 percent managed care coverage, you can get to 50 percent pretty quickly because you will find that once people have managed care, they will choose managed care voluntarily because of better service. Let us assume that we cannot save $280 billion a year over 7 years. Let us [[Page S6976]] say it takes time to move toward managed care all over the country, so we save half as much, $140 billion. Nobody is getting less service. Everybody is getting the choices they want, and they can stay in Medicare fee-for-service plans, if they want. But let us say you save $140 billion. Now let's take a look at Medicare Part A and Medicare Part B and how we pay for each. Here, again, I want to emphasize the difference. Part A is hospitals; part B is doctors. Part A is paid for out of your payroll tax. You pay 1.45 percent and your employer pays 1.45 percent. And then we recently increased the taxes on Social Security from 50 to 85 percent on the upper earning income Social Security recipients and we took that 35 percent and we put it into this part A hospital trust fund. And this trust fund owns some bonds and they had a slight surplus for awhile. They get interest on the bonds. So you have these different sources of payments coming into the part A hospital trust fund. Part B is doctor services. From the very start, it was funded different than part A. From the time Medicare was adopted onward, we said the patient will pay part. We said that the Federal Government will pay part out of the general funds, not out of our payroll tax, out of the general funds, everyone's taxes. We put up about $45 billion a year out of the Federal Government General Treasury for that. When we started out, it was agreed that the patient would pay 50 percent and the Federal Government would pay 50 percent. Had we held to that, Part B would be in good shape now. But it gradually dwindled down 45 percent, 40 percent, 35 percent, until it finally got as low as 25 percent and was causing a tremendous drain on the Treasury. So now it is set at 31 percent. However, the 31 percent expires and it is due to go down to 25 percent. Bear in mind, originally it was intended to be 50 percent. If we did nothing but hold the part B percentage that the Medicare recipient pays to its current 31 percent, same percent it is now, instead of letting it drop to 25 percent, that picks up $61 billion over 7 years; that is, if you could keep it where it is. (Mr. KYL assumed the chair.)

Mr. PACKWOOD. Do you know what would happen if you were to go back to the 50 percent that was agreed upon? You would pick up $173 billion in the next 7 years. Now, nobody is talking about that, but if we did that, all we would be doing is keeping Medicare as it was intended when it was passed. Now let us halve the difference. Let us say you were to go up to 35 or 36 percent and you pick up somewhere between the current $61 billion and the $173 billion. I will take a guess at $80 to $90 billion. You add the $140 billion you saved on managed care and you are now at $230 billion. We are now at $256 billion. This is done without any decline in service. This is done with better service--because people in managed care are getting better service or they would not be joining it--than they get from Medicare. They get prescription drugs in most cases, if they want to choose the plan that has it. No wonder they join. It is just that these plans do not have a lot of enrollees or do not exist in some States and they could in most States if we encouraged it. And every one of these plans has to offer the basic Medicare services. You cannot go below it. You can offer more, like prescription drugs, but you cannot offer less. I can picture the savings that we would make if we allowed these plans to offer less if they wanted. Let us say you are a wealthy retiree, and for the life of me, I do not understand why we do not income relate some of these benefits--let us take this part B that I am talking about, where you are paying a certain percentage. You are paying about 31 percent and the Federal Government is paying 69 percent of the premium. It is the same 31 percent regardless of your income. It is the same dollar amount whether the only income you have is $10,000 a year from Social Security or whether you are J. Paul Getty's heirs. They pay the same amount of money you do. There is no reason why somebody who has $50,000, $100,000, $150,000 in retirement income, other than Social Security--and by retirement income of $100,000, you have to have assets of about $2 million--there is no reason why they could not pay a bigger share of their premium. Because you know what you have now, you have some poor devil working in a mill--if the poor devil has not been put out by the Endangered Species Act--that is making $25,000 a year and paying his taxes into the general fund to support someone who has $100,000 a year in income, and these taxes in the general fund have to pick up 69 percent of that fellow's premium. It is not fair. We ought to means test it. We ought to pick up more money doing that. We have to say to the rich: ``You have to pay more of your benefits. You can afford it.'' Can we do it? You bet we can do it. We are often compared to Germany and Canada. People say, ``Well, they have single payer.'' Germany does not have single payer. Single payer is where the Government collects all the money and pays all the bills. Anybody who thinks when the Government collects all the money and pays all the bills it is getting efficiency is dealing with a different government than I have dealt with over my life. We will be compared to Germany or Canada and they say, ``Their health costs are much lower than ours.'' It is no wonder. For years they have not reimbursed on a cost basis the way we do. With managed care, can we get our costs under control? You bet we can. Can we do it without cutting services and benefits? We have proven you can do it. I am going to emphasize again, Mr. President, in the Portland area, over 50 percent of the people on Medicare have chosen these private insurance plans rather than straight Medicare. None of them have to. It is totally voluntary. The Medicare payment goes to the insurance company and their insurance company gives them these benefits in a Medicare managed care plan. It is cheaper and better than the present Medicare system, or otherwise people would not leave the fee-for-service system. As I say, I will predict by the end of this century, 5 years from now, that all of Oregon--maybe the Portland metropolitan area, with the rural areas slightly behind--Portland will be roughly 90 percent for all of its health care coverage in managed care and Medicare will be someplace, in the Portland area, 70 and 80 percent managed care coverage. So the answer is, yes, we can do it. Therefore, when people say the Republicans want to cut Medicare, first--here it is. This year, we are spending $178 billion on Medicare. What the Republicans are suggesting in the budget resolution is that we spend as follows on Medicare over the years: 1996, $187 billion; 1997, $197 billion; 1998, $213 billion; 1999, $227 billion; 2000, $244 billion; 2001, $262 billion; 2002, $283 billion. Mr. President, by anybody's definition, that is not a cut, that is an increase every year. Is it as much as we would otherwise spend if we did not have any restraint? It is less than we would spend if we did not have any restraint. It is about $367 billion more than we are spending now if you add up the years. So I am going to say, in conclusion, that this can be done. But one thing I want to say--I do not want to say ``in conclusion.'' I have a couple more facts. One is there has been an argument about the Medicare trust fund--this is part A--in bankruptcy. Is it bankrupt? It clearly is. Here is what has happened. On average--I am averaging these off, and I will average it to the nearest thousand--on average, a one-wage- earner family with a spouse will pay in over their lifetime of earnings into Medicare, about $60,000. That counts your payroll tax, your employer's payroll tax, part B premiums and income taxes of yours devoted to Medicare part B and any interest that is paid on the accumulated money until you retire. You have husband, wife, one of them working, the other not, paying about $60,000. On average they will collect in benefits about $185,000, roughly $125,000 more than they pay in, on average. Well, it is obvious you cannot run on that basis very long. What happened in 1992 with Medicare? The Medicare trust fund for hospitals started to pay out more money [[Page S6977]] than it took in in taxes. It did have some extra sources of revenue. It held some bonds. It did have a surplus. It held some Government bonds and interest was paid on the bonds, so they collected that money. They did have a few people that belonged to the Railway Retirement System, and they paid taxes into it and got some coverage. It was a relatively small amount. Then, finally, a year or so ago, we took the cap, as we call it, off of wages. We used to limit the amount of tax that you had to pay on Medicare to a certain fixed amount. It was the same amount as Social Security, and you paid it up to a certain amount of money. Finally, we took the cap off and said you are going to pay this Medicare tax on everything you make, $200,000, $300,000, $400,000, pay it. So all of this went into the fund, but by 1992, we are paying out more than we are taking in in taxes. Next year, 1996, we will pay out more in total than we take in from all sources, and next year onward--interest on the bonds and everything else--from next year forward, the only way that Medicare keeps its head above water is it is going to liquidate the bonds, it is going to sell the bonds. I am not talking about interest on the bonds. Medicare is going to take its bonds to the Treasurer of the United States and say, ``Here, we have a $100 bond. We held it in our surplus. Give us $100.'' By the year 2002, the bonds will be gone. There will be nothing left in the trust fund, and we are already paying out more money than we take in in taxes. By everybody's estimate--liberal, conservative, Congressional Budget Office, Social Security trustees' report--everybody says that to meet the short-range test of financial adequacy, just 10 years, we are about $145 billion to $165 billion short. There are three ways you can make it up. You can raise taxes. That is basically the Democrat's answer and has been their answer ever since Medicare has been short of funds--raise taxes. You can cut benefits, and here I use the word ``cut'' in the exact sense, and this is what the Democrats accuse us of doing. We are not talking about cutting benefits. We are talking about a combination of managed care and payment on part B premiums, and we can save the trust fund. At the same time that you save it--that is a budget savings, I am not trying to cover that up--but whether or not we have a surplus in our budget or a deficit in our budget, the trust fund for Medicare is short and will be gone in 7 years. So that we ought to save, in any event. And if in the savings it helps on our budget problem in addition, so much the better. That is nothing to be ashamed of. What does this amendment do? I love this. This amendment takes what they call the reserve--that is a misnomer, as that assumes you have money. If we pass the balanced budget, it is a three-step process. We will be debating this particular resolution for the next 4 or 5 days. If we adopt this budget resolution, it is a broad outline of the money to be saved. It does not specifically say here is where you save money in Medicare, or here is where you save money in defense, or here is where you save money in education. It is a broad outline of we would like to save x amount of dollars in Medicaid or in defense. This resolution is then parceled up and given to the committees of jurisdiction in Congress. The Armed Services Committee will get the defense portion and they will have to live within the totals. My committee, the Finance Committee, which I chair, will get Medicare and Medicaid and welfare and earned-income tax credit, and we will have to live within the totals. We all give our recommendations back to the Budget Committee in a certain time and say here is how we have met the totals. Then we put that into a big process called reconciliation and that bill is brought to the floor and voted on. The second part is passing this budget. That is the real vote. That is where the real outlines are reduced to specifics. That is the second part. The third part is, will the President sign it? Because he can veto it. But it will be balanced, and that will be the third part. If, at the end of this process--I have been here 25 years, and the last time I saw a balanced budget was in 1969, and that was by accident; we did not plan a balanced budget. But the economy was a bit better than we thought it was going to be, and when the economy is better, revenues come in better and, by accident, we collected more money than we thought, and we did not have time to spend it, so we had a slight surplus. That was in 1969. Well, if everything works right in this budget process, if there is no phony budgeting--and so far, there has been none--and, interestingly, the press, who does not like some of our priorities, has not criticized this budget as being unreal. Always, in the past, the press has talked about blue smoke and mirrors, and moving the pea around under the shell. They have said this is a real budget and they are starting to say to the Democrats, ``Where is your real budget?'' Let's assume that all of the committees report back to the Budget Committee and it is all put into this reconciliation package and it passes and the President signs it. Then, the Congressional Budget Office, which is a group of professionals that advise us, they work for us and advise us as to the economic effects of what we have done, have said that there will be an additional, over 7 years, beyond the balance, a $170 billion surplus. They have said this will be the case if everything else is in place at the end of this process, which is going to be, my guess is, October or November. What do the Democrats want to do now? That reminds me. It has been 25 years since I have seen a balanced budget. And I will believe it when I see it. I will believe it when this process is over. But if, by chance, we make it and if the Congressional Budget Office says there is $170 billion extra, what do the Democrats want to do? Spend it. The Democrats say, do not try to reform Medicare, or do not try to get Medicare enrollees into managed care, do not try to get veterans service for less money. Spend it. That has been the answer to our problems for too long. You may have heard the Democratic leader say today that these tax cuts are going to go to the wealthy and the Republicans can give their fat cat friends tax cuts. There is no tax cut in this budget resolution that we are talking about. There is in the House's. That is not the budget resolution that we are talking about. In this Senate budget resolution, there is no tax cut for the rich, the poor, not for anybody. We are reserving the decision as to what to do when we get to the end of this process if we have a $170 billion surplus. If I had any druthers about it, my preference would be to pay off part of the past debt with any surplus. Lord knows, that is not going to be a popular idea, I am sure, if we have this money. So we may get into a debate at that time as to whether or not, with this $170 billion extra over 7 years, whether we should spend it or give it back to the taxpayers. If we give it back to the taxpayers, we will debate who should get it, what is the best form of tax, and should we have a capital gains tax and a $500 tax credit, and should you limit it to people who make over $100,000 a year so the rich do not get it? That is a debate for another time. There is nothing in this budget resolution that says there is going to be any tax cut. I would be the happiest guy around if next November we have done everything we say we are going to do and the Congressional Budget Office comes to us and says we have $170 billion extra. I have not done tumbling since I was 10 years old at the YMCA. But if we do that, I will do a back flip on this floor. So I suggest that we simply get on with this debate. We are going to have ample time again. If this resolution is adopted, we are going to have ample time to debate the nature of the Medicaid restraints in growth and the nature of the Medicare restraints in growth. Do not worry; there is not going to be any debate about cuts. We will have a debate about whether we should encourage people to move toward managed care in Medicare. There will another debate--and it is going to be an [[Page S6978]] interesting debate--about whether we should say that some plans on Medicare can be allowed to sell a policy if it provides less than the current Medicare benefits if a senior wants to buy it? I will give an example. You do it with normal insurance all the time with a homeowner's policy or a car policy, where you have a $250, or $500, or $1,000 deductible. It depends upon the loss you are willing to bear. The more you are willing to bear, the less your policy costs. Should we consider selling a policy or allowing a policy to be sold that says: Mr. or Ms. Medicare recipient, we will guarantee to pay all of your medical expenses over $3,000 a year if you will pay all of your medical expenses up to $3,000 a year? My hunch is that a fair number of people will buy that kind of a policy voluntarily. Somebody else might want a policy that pays all of their expenses over $100 a year. We could allow that to be sold, too. There was the wonderful idea you heard Senator Gregg from New Hampshire talk about. If we say the average Medicare cost now throughout the country--and Oregon is way lower than average--is $5,000 a year, and we are going to give you a voucher and the voucher is worth $5,000. You can go out and buy health insurance with it. You can shop around in Oregon with different plans. I will bet if every Medicare recipient had a voucher, you would have 12 or 15 plans all competing with each other. If you said: I feel pretty healthy and I have retirement income of $25,000, $30,000 a year, so I will take a chance and buy that policy that I pay the first $3,000, and Medicare and my company that I buy it from pays everything above $3,000. Let us say that policy--I am guessing that a policy like that would not cost $5,000 a year; it probably would cost $3,500, maybe $3,000 a year. Let us say $3,000. So you have saved $2,000 out of what we are otherwise paying for Medicare. If we say if you buy that kind of a policy, you can keep $1,500, and give us $500 back, you bet we would save a lot of money. There are so many options, so many varieties, so much diversity and competition that helps deliver good service in this country that we have proven works. So let us get on with the debate, and about 3 or 4 months from now, we will have the debate over the specific Medicare and Medicaid programs that we will suggest to meet these totals. Will they be cuts? Absolutely not. They will be increases from what we are spending now. Will we give people more choice than they have now? You bet. Will a person be able to shop for delivery systems that give a variety of services? I hope so. That is a debate for another time. It is not the debate for today. I yield the floor.

Mr. PACKWOOD. I am going to yield, in about 30 seconds, to the Senator from Tennessee for 15 minutes, but I want to say one thing in rebuttal. You will notice the Senator from New Jersey kept talking about these tax cuts for the rich. There are no tax cuts in the resolution we are considering--not for the rich, not for the poor, not for the middle income, not for Congress, not for veterans, not for Medicare beneficiaries, not for anybody. That is a decision we may or may not consider when this resolution is adopted. We may have tax cuts, and we may not have tax cuts. They love arguing over the House budget resolution which does have tax cuts, and not this resolution which has no tax cuts in it at all. I yield 15 minutes to the Senator from Tennessee.

Mr. PACKWOOD. Mr. President, I ask unanimous consent that for the duration of consideration of the budget resolution, Kinka Gerke, my congressional fellow who is handling the issue for me, be allowed the privilege of the floor.

Mr. PACKWOOD. I thank the Chair.

Mr. PACKWOOD. Mr. President, he and I agree. He does seem to say there are no tax cuts. He says, ``Well, there is a reference to them. There is a discussion about them. I am discussing them. There is a possibility at the end of this process, if there is $170 billion, that we might have tax cuts. I am not sure who they might be for, or I am not sure what geographic area they will cover, or income groups they will cover. But at least he and I both agree there is nothing we are debating today that says there has to be any tax cut. With that, I would like to yield 15 minutes to the Senator from Tennessee.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, let me make a few comments on the so- called Medicare Select policies and explain first what they are. Medicare does not cover all medical expenses. So a popular policy that is sold in this country is called MediGap. You can buy it. It is voluntary. You do not have to buy it. You can buy it. It basically fills in the holes that Medicare does not cover. There are different kinds of MediGap policies. You can get some that are more expansive and with more coverage than others and they cost a bit more. But I emphasize they are voluntary. Medicare Select is a particular form of MediGap policy. It is one of the most popular policies that are around. It is about 40 percent less expensive than other policies. It exists now in 15 States. You have to have Federal permission to sell it. The authority to issue these policies expires on June 30 of this year. The House has passed a bill--let me check my figures--I think 408 to 14, to extend Medicare Select to the rest of the Nation. This is hardly a partisan issue with that kind of a vote. And if we, frankly, get a vote on it in the Senate, it is going to pass probably 80-20 or 90-10, unless I am mistaken. So do not let anybody be of the impression this a Republican-Democrat issue. This has overwhelming support. The National Association of Insurance Commissioners is one group that supports it, and they monitor complaints about insurance policies throughout the Nation. There are about 500,000 people enrolled in just these 15 States in Medicare Select, and of those 500,000 policies, in 1994, all of the insurance commissioners in those 15 States had 9 complaints--9--in comparison with 967 complaints against other types of MediGap policies, nonselect MediGap policies. We passed this in the Senate 5 years ago. We were awaiting a report. The report was due in January. It is not going to be out until next January now. It is late. It is not going to come. And again, Medicare Select has overwhelming support. I am going to read just a list of the groups that support expanding this to the 50 States: The American Group Practice Association, the American Hospital Association, the American Managed Care and Review Association, the Association of Public Pension and Welfare Plans, Blue Cross and Blue Shield Association, California Association of Hospitals and Health Systems, the Federation of American Health Systems, the Group Health Association of America, the Health Insurance Association of America, the Medical Group Management Association, the National Association of Insurance Commissioners, the National Conference of State Legislatures, and the National Governors' Association. Now, Mr. President, you are not going to get a much better group than that in terms of breadth and philosophical support. Our problem is that this apparently is going to face an objection to coming up and apparently a filibuster. I have no question but what the filibuster is going to be broken and going to be broken overwhelmingly. We will get the 60 votes. But one of the problems the leader faces, of course, is that once we are on to a bill and once cloture has been invoked, you cannot go to anything else. You can pull it down. And he would like to get onto the budget bill. I say again, this is the middle of May. The authority for these programs runs out next month. This Congress goes on recess in about 10 days. And so unless we act now, these people who like these policies, to which there is almost no complaint, will be faced with rising premiums because they cannot be sold to anyone else. So I hope that the leader will be successful in bringing this bill up, that we would have a short debate. I will be happy to agree to a time limit on amendments or a time limit on the bill and get to final passage. I will emphasize again it passed 408 to 14 in the House of Representatives. I thank the Chair. Mr. CHAFEE addressed the Chair.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, on rollcall vote 159 I voted ``no.'' It was my intention to vote ``yea.'' I ask unanimous consent I be permitted to change my vote. This will in no way change the outcome of the vote.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, I am pleased to join with my colleagues as an original cosponsor of the Endangered Species Act Reform Amendments of 1995. This bill is the result of several years' work. The bill represents the culmination of a broad, grassroots effort to bring balance to the Endangered Species Act. This coalition consists of miners, ranchers, loggers, refiners, manufacturers, the fisheries industry, and organized labor. There are problems with the current Endangered Species Act. The Endangered Species Act is an act that has gone awry. It is wreaking havoc on our communities and economies, particularly in the Pacific Northwest, but increasingly nationwide. It is devastating entire regions and industries. In the Pacific Northwest alone, since the spotted owl was listed as threatened in 1990, millions of acres of Federal timberland and thousands of private acres have been set aside. It takes about 1,300 acres for a pair of owls to breed, so we are told. We have set aside thousands and thousands and thousands of acres in hopes of the owl being saved. No guarantee it will, no guarantee it will not, but a tremendous damper on legitimate economic activity. It has impacted tens of thousands of human beings and hundreds of rural communities. The estimates on job losses range from a low of 35,000 to a high of 150,000 in the Pacific Northwest. I was here when the act was originally passed, and I remember what our intention was. We were thinking ``a'' project: a dam, a road, a canal versus a species. When you read the debate, when the original Endangered Species Act was passed, I do not recall the word ``ecosystem'' being mentioned in the debate. None of us was thinking of an entire section of the country being affected by one species. Yet this act is now being used as a tool by environmental groups to further their agenda of locking up not only all public land but much private land as well. I want to emphasize again, this act applies to private land. For a long time I think people thought this was a public land issue in the West, that while it might limit the activities of the U.S. Forest Service or the Bureau of Land Management or the U.S. Park Service, it did not affect private land. It does. It affects your right in ownership. It can diminish the value of your land in every sense. The Government can take your property under the current Endangered Species Act and not pay you. Private property owners are increasingly losing the right to use their property as they intended. Let us look at the economic cost of the Endangered Species Act. Edward O. Wilson, a renowned entomologist, has observed that there may be something million have been named. How many billions of dollars are we willing to spend attempting to save insects, bacteria, fungi--that we have never heard of, never identified, for which there may be little or no chance of recovery. Yet in the effort, we will cause dislocation and hardship for thousands and thousands of people. The social impacts are no less devastating. Professor Lee, Robert Lee, at the University of Washington in Seattle in the College of Forestry Resources, has an interesting background: an undergraduate degree from the University of California in sociology and then a graduate degree in forestry. He has done extensive work on the social trauma that affects timber towns. He points to the destruction of families, long-lasting social fallout. He can identify it, pinpoint it. He points out that, if you are going to go ahead and apply the Endangered Species Act and close the mill in this town--and it does not take a very big mill if you have a town of 2000 and you have a mill that employs 150 people--that mill is in essence the backbone of the town. If you close it, he says he can guarantee that you will see an increase in suicides, homicides, divorce, juvenile delinquency, drug abuse, spousal and child abuse. He is not saying that in this town this is all going to happen. What he is saying is when you take a 45- or 50-year-old mill worker who married his childhood sweetheart in high school, lived in town all of his life, his children are in the school, he is making $25,000, $26,000, or $28,000 in the mill, it is the only job he is trained for, and the only principal occupation in town is the mill. It is closed. His mother is still alive and he does not want to leave the town. You take away his livelihood. The Federal Government takes away his livelihood. Professor Lee says you can bank on it, as sure as we are here, that you are going to have the increases that I talked about in the suicides, homicides, the abuses, the divorces, and alcoholism. It is understandable when you think about it. A 45- or 50-year-old is not likely retrained, does not want to move from town, has lived there all of his life. Those things are as likely to happen as you and I being in this Chamber today. It is ironic that for years we considered the needs of humans as though nothing else mattered. During that period, probably a long period in our country when we developed this country, from approximately 1800 to 1960, we moved west. We gave no thought to limitation of resources because we thought the resources were unlimited. I am old enough to remember in the Pacific Northwest within the last 30 to 35 years when the electric companies advertised: ``Use more electricity. The more you use, the less per unit you will pay. Have an all-electric house, electric furnace, electric air conditioning.'' The theme was, we will never be able to use all of the electricity we generate. If we ever have to have more, we will build another dam. Or, as we got into the seventies, we will build nuclear plants. But it was use, use, use. As we moved across the West, the pioneers came over those mountains and they looked at valleys and mountains of timber, timber, and more timber. It is understandable why they thought that those resources could never be used up. These resources were plentiful. The pioneers were not malicious people; they were not greedy; they were not selfish. But they saw the land and thought it was good and right to develop it. Mr. President, if 100 years ago, 150 years ago, we had on the books, only two laws, the Endangered Species Act and the Wetlands legislation, we would not have developed the West. Every railroad you see, once you get across the Great Plains, is built on rivers and fill. We never would have cleared the valleys, never would have cut the trees and pried out the rocks and farmed it. You would have been prohibited from doing it by just those two acts. But as people moved west, they saw nothing wrong with clearing the land. As a matter of fact, the native Americans, and the early settlers, when they were there saw nothing wrong with burning the trees. They did this not for any kind of malicious intent; they burned for ecological reasons. I doubt if you could do that today. Things changed. I understand why. You had the century and a half of moving west. You developed the resources, harnessed the rivers, and plowed the land. There was not much thought about the environment, and certainly not much thought at all about endangered species. Then along came Rachel Carson's book, Silent Spring, which I like to say is the pivot upon which the environmental movement started. Basically, the book dealt with agricultural pesticides and runoffs and the damage these were doing. But from that moment forward, you could see the pendulum, which had swung for 160 years toward development and exploitation of the resources, swing in the other direction. Now the pendulum has swung completely the other way. I do not level this charge at everybody who is a member of the Sierra Club or the Wilderness Society. By far, most of them are very reasonable, decent people. But they are accusing unjustifiably a group of people who are excellent stewards of the land, people who living on the land and taking care of the land and replenishing the land. The irresponsible utilization of natural resources is wrong. But I do not know anybody who is a farmer who wants to misuse and abuse his or her land and not have the option of passing it along to their children. I do not know of anyone--if they used to exist, I do not know them now-- in the timber industry who wants to cut and run. Everyone I know in the timber industry who is in the industry wants to cut and plant and grow, and cut and plant and grow forever on an intelligent, sustained-yield practice of forestry. There is only one group where I have seen a danger. And it is not their fault, and I do not blame them. You are a little woodlot owner. You have 60 or 70 acres of land. You are not Weyerhauser. You are not a commercial timber company. But you have 60 or 70 acres of land. You have been managing it well, and you cut a bit, and you plant a bit. You will use some of it to educate your kids, and maybe some of it to help their families, and maybe some of it for retirement. You are faced now with the possibility, under the Endangered Species Act, that you may be prohibited from cutting on your land at all. Right at the moment, you are not cutting and had not intended to cut. Do you know what you are thinking to yourself? ``I had better do it now. I had better cut and run and get out while I can still get my money to educate my kids and do some of the other things I had planned to do, because maybe in 5 years, the Endangered Species Act will not let me cut at all.'' This is a person who is willing to and had planned to cut and plant land that will be in the family for generations. These are the kinds of unintended consequences we face because of this act. Under the Endangered Species Act, we have to remember that we must balance both species and humans. But here is the problem with the present act. I want to phrase this carefully. This is the present act. When you are determining whether or not a species is threatened or endangered--those are the two classifications under the act--you are to use the best scientific evidence, and nobody quarrels with that. Realizing science can be wrong, you may recall that science said if we built the Tellico Dam, the snail darter would disappear. We went through a long battle on the Tellico Dam. Finally, the Endangered Species Committee--the God Squad, as we call it--said if we built the dam, the snail darter would disappear and that was to be the end of it. Congress overruled the Endangered Species Committee and said finish the dam, build the dam. We do not care if the snail darter disappears. The dam is all but done. We just have not dropped the gate. Go ahead with it. We were told we would run the risk of the snail darter disappearing. The best scientific evidence said it would disappear. What happened? We dropped the gate, the reservoir filled up, and the snail darter exists in all of the streams that flow into the reservoir. Science was absolutely wrong. This is no excuse not to use science, but science is not perfect. I have no quarrel with listing a species as threatened or endangered and using the best science that we know. I would like there to be good scientific peer review, and I would like a chance to appeal to the courts should you have a really horrendously bad decision. But Now you come to the issue of whether or not you are going to have a recovery plan to try to save the species. And here, only the species counts. If you cannot come up with a recovery plan under the present law, if you cannot come up with a recovery plan that will save the species, or, to put it the other way around, if every recovery plan that you can think of by the best scientific evidence will lead to the extinction of the species, then nothing else counts. People do not count. Revenues to counties do not count. Whether or not the schools have enough money to keep going does not count. Nothing counts but the species, and that is where this act is not balanced. So, Mr. President, I am glad to join a number of my fellow Senators in introducing amendments to the Endangered Species Act. We think these amendments are a balance. We are not getting rid of the act. We are not getting rid of science. As a matter of fact, we are asking for stronger science, for better science, for better review. But this act finally allows people to be considered as much as bugs. And that has been the failing of the present law. I hope the Senate will favorably consider this. I am proud to join as a cosponsor. I am pleased to join with my colleagues as an original cosponsor of the Endangered Species Act Reform Amendments of 1995. This bill is the result of several years' work. The bill represents the culmination of broad grassroots efforts to bring balance to the Endangered Species Act. This broad grassroots coalition consists of miners, ranchers, loggers, farmers, manufacturers, the fisheries industry, and organized labor. problems with current endangered species act The Endangered Species Act is an act gone awry. The act is wreaking havoc on our communities and economies, particularly in the Pacific Northwest, but increasingly nationwide. The act is devastating entire industries and regions. In the Pacific Northwest alone, since the spotted owl was listed as threatened in 1990, millions of acres of Federal timberland and thousands of private acres have been set aside for owls. The act has impacted tens of thousands of human beings and hundreds of rural communities. Estimates of the number of jobs lost as a result of the listing range anywhere from 35,000 to 150,000. The act was originally intended to ensure the survival of species that were threatened by site-specific projects, such as roads, dams, and sewer systems The act is now being used as a tool by environmental groups to further their agenda of locking up not only all public land, but private land as well. Private property owners are increasingly losing the right to use their property as they intended. economic costs of esa Edward O. Wilson, a renowned entomologist at Harvard observes that there may be something on the order of 100 million species. Yet only 1.4 million have been named. How many billions of dollars are we willing to spend attempting to save: fungi, insects, and bacteria we've never heard of, and species for which there may be little or no chance of recovery in any case. social costs of esa While the economic costs of protecting species is great, the social impacts are no less devastating. Robert Lee, sociologist with the University of Washington College of Forest Resources, has done extensive research on the social trauma afflicting timber towns. He points to the destruction of families and long-lasting social fallout in the form of suicide, homicide, divorce, juvenile delinquency, drug abuse, and spousal and child abuse. It is ironic that for years we considered the needs of humans as though nothing else mattered. Now, under the Endangered Species Act, we are considering the needs of fish, wildlife, and plants as though nothing else matters. Both policies are short-sighted and flawed. current efforts We need a process which not only protects plants and animals, but one which recognizes legitimate human needs as well. That is why, in the last Congress, I joined with Senators Gorton, Shelby and others in introducing legislation to bring balance to the Endangered Species Act. This year, with even stronger bipartisan support, we have again introduced legislation to require that the economic and social impacts of Federal efforts to protect species be fully considered. summary of bill Our bill contains several components essential to meaningful reform. The bill reforms the process by which species are listed as threatened or endangered: Requires independent scientific peer review of the science; Requires better data collection. Provides for broader participation by affected States and the public; Requires judicial review of listing decisions; In place of intensive Federal management, the bill includes incentives to encourage private landowners to protect species, such as: Encouraging the exchange of private land for Federal land to provide habitat for affected species; and Establishing a Federal cost-share program for any direct costs imposed on a private person. Our bill requires the Secretary to set a ``conservation objective,'' ranging from full recovery of the species to solely protecting the species from actions which would directly injure or kill the species. In other words, the Secretary could decide to allow a species to go extinct. Our bill requires that economic and social impacts are fully considered in the development of conservation measures. Our bill changes the statutory definition of ``harm'' and ``take'' to mean the actual injury or killing of a member of a species. ``Harm'' will no longer apply to the modification of a species' habitat as the courts have broadly interpreted current law. Our bill minimizes the impacts to private property. conclusion It is not our goal to abandon our national commitment to the protection of endangered species; however, we cannot protect every imaginable species. We can do a better job of balancing jobs and economic opportunity with species protection. While this bill does not go as far as I would like, it will begin the debate which is long overdue. I suggest the absence of a quorum.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, the 1995 annual reports of the trustees on the status of the two Medicare trust funds, released on April 3, 1995, raise serious concerns about future financial viability of the Medicare Program. The trustees conclude that the Federal hospital insurance trust fund--called Medicare part A: First, has taken in less in Medicare payroll taxes than it has paid out in Medicare benefits every year since 1992; Second, starts having to liquidate assets next year, 1996; and Third, will run out of money by the year 2002. The status of the supplemental medical insurance trust fund--called Medicare part B--is not much better. The trustees ``note with great concern the past and projected rapid growth in the cost of the program.'' Four Cabinet members of this administration are trustees of the Medicare trust funds--the Secretary of the Treasury, the Secretary of Labor, the Secretary of Health and Human Services, and the Commissioner of the Social Security Administration. These Cabinet members all signed the 1995 trustee report, agreeing with the conclusions that the Medicare trust fund is in serious financial trouble. But this administration refuses to become engaged in proposing any solutions. Repeatedly, the President and his Cabinet members have said they are waiting for the Republicans' budget resolution before they offer any suggestions to save Medicare. In my memory, this is the first time an administration has so completely refused to be a part of the budget process. The administration claims to have done its part because it submitted its 1996 budget to the Congress. However, the President's 1996 budget leaves Medicare virtually untouched. Medicare proposals in that budget do not even do enough to delay Medicare insolvency for 1 year. The financial problems of the Medicare Program are real. They exist regardless of whether or not there is a budget resolution, or the content of a budget resolution. We simply cannot avoid addressing this issue, and the sooner the better. Today, I am introducing a bill requiring the trustees of the Medicare trust funds to report back to Congress by June 30, 1995, with their recommendations for the specific program legislation to deal with Medicare's financial condition that they call for in their 1995 annual reports on the Medicare trust funds. This is an urgent responsibility of this administration and they must come forward with initiatives so that we can preserve the Medicare Program, not only for future generations, but for our current senior population. I ask unanimous consent that the bill be printed in the Congressional Record.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, recent news reports suggest that corporate taxpayers may be attempting to dispose of stock of other corporations through stock redemption transactions that are the economic equivalent of sales. The transactions are structured so that the redeemed corporate shareholder apparently expects to take the position that the transaction qualifies for the corporate dividends received deduction and therefore substantially avoids the payment of full tax on the gain that would apply to a sales transaction. For example, it has been reported that Seagram Co. intends to take the position that the corporate dividends received deduction will eliminate tax on significant distributions received from DuPont Co. in a redemption of almost all the DuPont stock held by Seagram, coupled with the issuance of certain rights to reacquire DuPont stock. (See, e.g. Landro and Shapiro, Hollywood Shuffle, Wall Street Journal, April 7, 1995; Sloan, For Seagram and DuPont, a Tax Deal that No One Wants to Brandy About, Washington Post, April 11, 1995; Sheppard, Can Seagram Bail Out of DuPont without Capital Gain Tax, Tax Notes Today, 95 TNT 75-4, April 10, 1995.) Moreover, it is reported that investment bankers and other advisors are actively marketing this potential transaction. Today we introduce legislation intended to curtail the use of such transactions immediately. We believe the approach adopted in the bill is the correct approach, given the incentives under present law for corporations to structure transactions in an attempt to obtain the benefits of the dividends received deduction. We welcome comments on the bill and recognize that additional or alternative legislative changes may also be appropriate. However, it is anticipated that any legislative change that is enacted would apply to transactions after May 3, 1995. No inference is intended that any transaction of the type described in the proposed legislation would in fact produce the results apparently sought by the taxpayers under present law. The bill does not address and does not modify present law regarding whether a transaction would otherwise be eligible for the dividends received deduction, nor is it intended to restrict the IRS or Treasury Department from issuing guidance regarding these or other issues. The bill is directed at corporate shareholders because it is believed that the existence of the dividends received deduction under present law creates incentives for corporate taxpayers to report transactions selectively as dividends or sales. No inference is intended that any transaction characterized as a sale under the bill necessarily would be so characterized if the shareholder were an individual. Description of the Bill Under the bill, except as provided in regulations, any non pro rata redemption or partial liquidation distribution to a corporate shareholder that is otherwise eligible for the dividends received deduction under section 243, 244, or 245 of the Code would be treated as a sale of the stock redeemed. The bill applies to dividends to 80- percent shareholders that would qualify for the 100-percent dividends received deduction as well as to other transactions qualifying for a lesser dividends received deduction. It is not intended to apply to dividends that are eliminated between members of affiliated groups filing consolidated returns. However, it is expected that the Treasury Department will consider whether any changes to the consolidated return regulations would be necessary to prevent avoidance of the purposes of the bill. The bill would replace the present-law provision (sec. 1059(e)(1)) that requires a corporate shareholder to reduce basis--but not recognize immediate gain--in the case of certain non pro rata redemptions or partial liquidation distributions. It is intended that the bill apply to all non pro rata redemptions except to the extent provided by regulations. The bill retains the existing Treasury Department regulatory authority, contained in section 1059(g) of present law, to issue regulations, including regulations that provide for the application of the provision in the case of stock dividends, stock splits, reorganizations, and other similar transactions and in the case of stock held by pass through entities. Thus, the Treasury Department can issue regulations to bill. It is expected that recapitalizations or other transactions that could accomplish results similar to any non pro rata redemption or partial liquidation will also be subject to the provisions of the bill as appropriate. It is also expected that redemptions of shares held by a partnership will be subject to the provision to the extent there are corporate partners. There are concerns that taxpayers might seek to structure transactions to take advantage of sale treatment and inappropriately recognize losses. It is expected that the Treasury Department will by regulations address these and other concerns, including by denying losses in appropriate cases or providing rules for the allocation of basis. It is anticipated that the private tax bar and other tax experts will provide input concerning the proposed legislation before its enactment. It is hoped that this process will identify any problems with the proposed legislation and potential improvements. Comment is encouraged in particular with respect to the loss disallowance provision, including whether the loss disallowance should be mandatory. Comment is also encouraged as to whether additional transition should be provided for existing rights to redeem contained in the terms of outstanding stock or otherwise. Effective Date The bill would be effective for redemptions occurring after May 3, 1995, unless pursuant to the terms of a written binding contract in effect on May 3, 1995 or pursuant to the terms of a tender offer outstanding on May 3, 1995. No inference is intended regarding the tax treatment of any transaction within the scope of the bill. For example, no inference is intended that any transaction within the scope of the bill would otherwise be treated as a sale or exchange under the provisions of present law. At the same time, no inference is intended that any distribution to an individual shareholder that would be within the scope of the bill if made to a corporation should be treated as a sale or exchange to that individual because of the existence of the bill.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, on rollcall vote No. 139 I voted ``yea.'' It was my intention to vote ``no.'' Therefore, I ask unanimous consent that I be permitted to change my vote. This will in no way change the outcome of the vote.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, I ask unanimous consent that the Subcommittee on Consumer Affairs, Foreign Commerce and Tourism of the Committee on Commerce, Science, and Transportation be authorized to meet Monday, April 3, 1995, at 9:30 a.m. on S. 565, the Product Liability Fairness Act of 1995.

Mr. PACKWOOD. Mr. President, I ask unanimous consent that the Subcommittee on Taxation and IRS Oversight of the Finance Committee be permitted to meet Monday, April 3, 1995, beginning at 9:30 a.m. in room SD-215, to conduct a hearing on the research and experimentation [R&E] tax credit.

Mr. PACKWOOD

Mr. PACKWOOD. I thank the Chair. It was almost 25 years ago that I traveled around the country with my good friend, the senior Senator from Massachusetts. I was then on the Labor and Public Welfare Committee. He was, I believe, chairman of the Health Subcommittee. We were doing health hearings around the country going to hospitals, holding hearings. There is no question that his compassion for the poor is unrivaled in this body. Sometimes, however, that compassion is confused by the volume of his oratory and the velocity of his statistics. Volume and velocity are not necessarily accuracy. He uses the word ``cut, cut, cut.'' Only in this Government--not in any State government that I know--only in this Government do we use the word ``cut'' as follows: cut means we are going to spend less than we thought we were going to spend in the future, even though it is more than we are spending now. That is a cut. This would be a cut, to an average layperson. I am making $1,000 a month. I think I am worth $1,200 a month. I go to the boss and say, I am worth $1,200. And the boss says I don't have $1,200. I will give you $1,100. You do not tell your wife you got cut $200; you got $100 raise. It is not as much as you hoped but more than you are getting. I defy you to ask any average normal citizen in this country to define ``cut'' the way we define it. Having said that, we will take a look at the quantity of money we now spend. The Federal Government--and we hate to be cavalier about this but I will round it off--the Federal Government this year will spend about $1.5 trillion--``t,'' trillion, $1.5 trillion. If we were to spend $1.5 trillion a year for the next 7 years--and the reason I pick that is the year 2002 we are hoping to get to a balanced budget--we would spend about $11 trillion. We are planning to spend under current law, if we do not change the current law at all, we do not add anything like long-term care to Medicare, we do not add anything more to AmeriCorps or Head Start, over the next 7 years instead of spending $11 trillion, as we would spend if we spent the same amount every year, we would spend $15 trillion. That is if we do not change the laws. And we would still have the perpetual deficits. In order to balance the budget by the year 2002, instead of $15 trillion spent over the next 7 years, we need to spend about $14 trillion. I want to emphasize, again, we are spending roughly $1.5 trillion now. If we continue to spend it over 7 years, we would spend about $11 trillion. To balance the budget, we can do it and spend $14 trillion. That is not a cut from what we are now spending--Social Security is not going to go down, Medicare is not going to go down, Medicaid will not go down, education will not go down, food for the poor will not go down. They are all going to go up, not down. The reason that people use the word ``cut'' is because they have a vested interest in the program. Often, they are bureaucrats who administer it and aggrandizement and biggering is good for bureaucracy. The more you can bigger, the better. So we have come with this concept only, really, in the last 20 years, of what a cut is: Spending less than we were otherwise going to spend but more than we are spending now. Unfortunately, the press has picked it up. They say Republicans plan to cut--whatever it is. So let me give an example. Let us take some of the programs that my good friend from Massachusetts has. Let us take Head Start and let us say we were going to spend $500--$100 a year on it over the next, let us say, 5 years: $500; and let us say we were going to spend $100 a year on school lunches for the next 5 years: another $500; and $100 on child care per year. So over 5 years, you have $500 we would spend on Head Start, $500 on school lunches, and $500 on child care. That is $1,500 we would spend over the next 5 years. Let us say, however, that the current law--no change in the current law, we do not have to vote for anything--would say that on these programs we will spend $200 a year. So over 5 years, instead of spending $500, we would spend $1,000 on each program. So on the three programs, instead of spending $1,500, we spend $3,000. Now let us say the Republicans come forth and say, ``We think, over the next 5 years on those three programs, instead of $1,500 that we are now spending if you were to flatten it out, we think we should spend $2,500; not $3,000, $2,500.'' The argument would be made we have cut the programs $500. We have not cut the programs. We have increased the spending $1,000. It just is not as much as advocates of each of those programs would like. And we, everyone in this body, knows we are faced with this. In comes a group whose principal purpose is education. It can often be conservative Republicans, let us say it is the National Association of School Boards. Except in very big towns, my experience has been that school board members are often Republicans, somewhat conservative, and they want to balance the budget. But they are on the school board, so in they come and say, ``Yes, I am for the balanced budget amendment, I am for balancing the budget, but education is a special problem and you must increase spending for education. If we have to balance the budget, you should take it from someplace else.'' They leave. In the next week comes the National Association of Hospital Boards of Directors. These are almost invariably Republicans, also. They are the town's charity. They give money to the hospital. In they come, and they understand the fastest growing program we have is health and they want to balance the budget. But they say, ``You have to understand that health is in a special category. If the budget must be balanced, take it out of education.'' They leave. In comes the National Association of the Chiefs of Police, and to them the most critical problem facing this country is crime and the budgets for their police department. These people are normally reasonably conservative, also. Probably if they had to vote on a balanced budget amendment, they would vote four or five to one for a balanced budget. But fighting crime is unique and different and, ``If there is not enough money for everything, we should take it out of education and health so that we have it for crime.'' None of these people are malevolent. Each of these people sees the world through their eyes. Each of them sees it through the programs that they administer or are committed to--and are committed to out of perfect decency. Yet, if you do not see the world as they see it, if you say, ``Listen, somehow instead of spending $3,000''--we are now spending on the average only $1,500 --``we have to cut it to $2,500,'' which is really a $1,000 increase, but in order to pare down the increase by $500, we have to take a little bit off of the increase in education and a little bit off the increase in health and a little bit off the increase in crime prevention--each one of them is mad at you because you did not see the world as they saw it. I want to emphasize, again, when we finally get the welfare reform bill on the floor, when we finally get the entire budget bill on the floor--if we ever get it on the floor--and if we have a budget that gets us to a balance in 7 years, spending will be up for health, up for education. It may be down in defense. It will be up for child care. It will be up for almost every social program we know. Aha, but the opponents are going to say, we cannot guarantee that because you are going to block grant it. By block granting, we simply mean we are going to give to the States some of these programs, with some money, and tell them to administer it. Let me take the example I have used, these three: Head Start, school lunch, and child care. As I say, we are now spending $100 each year, $300 a year on the three of them; over 5 years, that is $1,500. But if we did not make any change in the law over those 5 years, we would spend $3,000. So let us say we say to the States we will make you a deal. We think you are closer to the people than we are. We think you know your problems better than we do. The problems of Oregon may not be the problems of New York. Certainly, the problems of Newport, OR, are not the problems of New York City. We are going to give to the States for these three programs $2,500 over 5 years, and say to the States, ``You spend it as you want on these three programs: Head Start, school lunch, and child care.'' But we do not say in each case how much they have to spend on each of those programs. They just have to spend the aggregate $2,500 on those three programs. The States that are stable, with relatively lower divorce rates, with only one person in the household working, may not have the same child care problems that an urban area with illegitimate birth rates of 50 or 60 or 70 percent and no man around in the household, they may have a different problem about child care. It may not be as critical as it is when you are trying to get a woman off welfare, get her a job, and she has a child and the child is 1 or 2 years of age, and she is 19 and not quite out of high school--dropped out. She needs child care. Maybe that State says, ``We are going to have to spend more on child care than even what the Federal Government might have planned to have spent on that particular program. But we will spend a little bit less on Head Start or a little bit less--not less than we are spending, less than was planned to be spent.'' So the argument will be made, if you give these programs to the States, there is no guarantee that they will have the compassion and the knowledge and the interest to take care of Head Start and school lunch and child care the way a compassionate Federal Government would. Not only that we understand the problems better, the argument goes, so we have to have programs that have a myriad of Federal regulations that go with them--not only do we understand them better, we are more compassionate. State legislators do not care about children, they do not care about nutrition, they do not care about Head Start. Governors are callous, backward people who have no concern that their children are well educated and well fed. That is just baloney. We know it. For us to say at the Federal level that the Governors and the State legislatures do not care about these problems is outrageous. They care as much as we do, and they are closer to the problem than we are. So let us get over this argument about cut, cut, cut. Are there going to be reductions in spending from what we would otherwise spend if we are going to balance the budget? Yes. Will those be reductions from what we are now spending? No. Will they be somewhat less than the most wild-eyed, zealous partisan of these particular programs that they would like spent on their programs? Perhaps. We are going to have to ask everybody in this country to share in the reduction of the increase--not a cut --a reduction of the increase. This battle we are going to have at another time. I mention this only because my good friend from Massachusetts has talked about this expatriate tax provision in the bill that is currently before us which would allow the self-employed in this country to take a 25-percent deduction for health insurance which they purchase, and 30 percent starting in this year, and has said we have cut out the tax on the wealthy and we favor the wealthy at the expense of the poor at the very same time that we are cutting Head Start, and AmeriCorps. I say again we are not cutting. He likes to use the term. But we are not cutting. At the same time we are reducing the increase, we are cutting the tax on the malevolent rich who flee their country to avoid taxation. First, in this country, if you leave it for purposes of avoiding taxation, we can tax you for 10 years. My good friend from Massachusetts has said, yes. But for 10 years. You can leave this country and you have what we call unrealized capital gains. Perhaps the price of a stock goes up. The value goes up but you have not sold it, and you do not sell it for 10 years. That is an unusual situation. It is very unusual for somebody to leave and not touch their assets for a decade. But if they leave this country now to avoid taxation, we can tax them for 10 years. I will tell you what happened with this expatriate tax provision. I am frank to admit it was mostly my error in moving too rapidly. The House bill did not have this provision in it at all. We were doing what we call the markup on this bill, and Senator Bradley offered the provision to tax the expatriates. We had relatively little discussion about it. We adopted it without even a rollcall vote; no hearings; did not really grasp the significance of what we might be doing. We have done this before in this body. I remember John Williams, who was a Senator from Delaware, Senator Roth's predecessor, who served here 24 years, and he and I overlapped by 2 years. I was elected in 1968 he retired in 1970. But he used a wonderful expression once in which he said, ``We make more mistakes in haste than we lose opportunities in delay.'' I will give you one mistake we made. This tax provision that we put in the Senate bill only applies to American citizens. We have any number of people who come to this country from Cuba, Italy, Poland, Germany, and they are legal immigrants. They work here. They pay their taxes here. They are good citizens. They participate in life while they are here. But at the end of 30 or 40 years of work, and they have been very successful and have made a fair amount of money, they choose to go back home. The tug of the home country is there for people. So they go. They never became an American citizen. They are here legally. There is no complaint about that. They paid their taxes; no complaint about that. This bill does not apply to them. They never became an American citizen. But take the same person from Poland, or Germany, or Cuba who comes here, becomes an American citizen, is they are taxed. We did not know that. It just did not occur to us. I will give you another example. This is at variance of many naturalized citizens; some who fled Cuba or were forced out of Cuba when Castro seized control; in many respects confiscated much of their property. You had engineers and doctors coming here in 1960, 1961, 1962 and went to work in the most menial of occupations here because they had been driven out of their home land and had not yet passed licensure exams here, and had no money here. And over 30 years they have become very successful. They are the leading citizens in the movement to free Cuba of its dictatorial control. They will one day be successful. Some of them have become citizens, some not. My hunch will be when Cuba is free many of them will want to return home. That does not mean they are bad Americans, although in some cases they have not taken out citizenship. But it means they want to go back to their country when it is freed. Are we going to tax them? Are they leaving for tax reasons? Are they leaving for patriotic reasons? Our bill taxes them no matter what. How many occasions have we had where citizens all over this world have had to flee their country and go into exile for 5, 10, 15 years because of a repressive government at home and they could not return until that government became free? And then they go home. How are they to be taxed? We did not consider it. I will give you another example. A wealthy father sets up a trust for his grandson. The grandson marries a foreigner, perhaps met the foreigner when the grandson was a student overseas or in the military overseas and takes out citizenship in that country. The grandfather is still alive. The trust is revocable. Is the grandson, when he leaves this country, taxed on what we would call the corpus, the amount of that trust, even though he has not gotten it and may not get it? We do not know. We did not consider that problem. Nobody raised that problem. I will give you another example. A person works here all their life. They are very successful. The employer for whom they work has been putting aside money in their pension plan. Finally, the accumulated pension plan with the interest and everything on it is significant and the person is to get x amount of dollars a month from the time they retire. He retires at 60, and goes back home. It is an American citizen. I think the way this is drawn that corpus, that amount in the pension plan, is taxed immediately. I think. I am not sure. Then I think the payments are taxed also when you get your pension. Did we intend that or did we not intend that? I am not sure what we intended. I say this only to attempt to ameliorate the argument that this was done at the behest of or because of the rich in this country; this was adopted in haste and we did not grasp its full consequences. In addition, it was not in the House bill and the House with a vote on the floor before we went to conference with them instructed their conferees not to accept this provision. So the chairman of the Ways and Means Committee and I have jointly put out a release saying we want the Joint Tax Committee, which is the professional group that so well advises the House and the Senate, to study this problem, give us a report by June 1. We will have hearings on it. There will be legislation enacted. And the effective date of it will be February 6 of this year so people cannot now get under the deadline in an attempt to flee the country at the moment before the law is in effect. So the problem will be taken care of. But it will be taken care of in a responsible way. I say again, in this case, in my judgment we did not act irresponsibly. We did not act malevolently. We just did not grasp the consequences of what we were doing. So I hope that the debate and the discussion would not be one of rancor and class warfare, that we are excusing the rich, and in order to do that we must eliminate programs for the poor. That is not the debate over this issue. It is a debate over equal protection of the laws, and under the equal protection of the laws everyone in this country is to be treated equally--the poor, and the rich, and you do not suffer a particular penalty solely because you are rich. A penalty that may--I emphasize ``may'' because we do not know--be unwise, may be unfair, may in some cases violate international treaties that we have agreed to. We are not sure. I hope we can adopt very soon the conference report that we are discussing so that roughly 3.2 million self-employed working Americans in this country will know whether or not they can take a 25-percent deduction for health insurance premiums that they buy for themselves. They are not employed. Their employer is not paying for this. They pay for it. The longer we delay, the tougher it is going to be for them to know whether or not they can make this tax deduction, which is now going to have to be filed in just 12 more days. So I thank the Chair. I hope we can conclude this debate not in a tax on the poor or a tax on the rich or an argument that the provision is a tradeoff so we have to cut programs for the poor. It is not that. And when this whole debate on spending and welfare and block grants is over, I hope it will be very clear to America that no one is cutting programs for the poor. The question is are we willing to somewhat restrain the increases so that we might achieve a balanced budget, so that those very children we are talking about now do not face the possibility of bankruptcy of this Nation or the bankruptcy of the Social Security System or the bankruptcy of Medicare--and that is only 6 or 7 years away--so that they do not have to face that and pay for it because we refused to have the courage or the wisdom or the foresight to attempt to modestly reduce the increase in spending sufficiently to give them a balanced budget. I thank the Chair.

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

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

Mr. PACKWOOD. Mr. President, I believe we are ready to vote. the question occurs on agreeing to the conference report. So the conference report was agreed to. Mr. DOLE addressed the Chair.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, I would like to express my deep concern about S. 395, and other similar legislation which would permit the exportation of Alaskan North Slope crude oil. Lifting the ban would cause severe economic strain in Oregon and Washington, and could raise the Nation's gas prices as well as jeopardize national security. In 1973, Congress passed legislation authorizing construction of the Trans-Alaska Pipeline System. As part of the agreement, we required that none of the Alaska North Slope crude be exported unless the President and Congress found that it was in the national interest to do so. In imposing this restriction, we made sure that no individual oil company would decide that their interest in profit was more important than the national interest to preserve our economy and our national security. Congress is being asked, by the sponsors of S. 395, to lift the restriction. Mr. President, I understand the potential for significant economic benefits for both Alaska, and the oil industry, if this ban were lifted. The economics are simple to follow. Alaska receives money from oil produced in the State based upon the wellhead price. The wellhead price is figured at a price less transportation. Thus, the lower the transportation cost, the more money Alaska will receive. If the oil can be transported to Korea, as it can without the restriction, cheaper than it can be transported to the United States, exports will generate more revenue for Alaska. My primary concern is that, while lifting the export restriction will enhance Alaska's oil-rich economy, this comes at the expense of thousands of lost American jobs and a weakened domestic tanker fleet, all with particular impact in my home State. Passage of the 1973 export restriction on Alaskan North Slope oil ensured that U.S. repaired vessels would be carrying U.S. crude oil. In 1976, realizing the increase in the demand for large repair facilities, citizens of Portland invested $84 million in a shipyard expansion program to handle the repair needs for the Alaskan north Slope very large crude carriers. Today, 60 percent of Portland's current ship repair work comes from these tankers. The 1973 restriction reassured Portland that there was a market out there for shipbuilding repair, and Portlanders took a big risk in providing this market. Today, between 500 to 800 family wage jobs in Portland have been directly supported by the repair needs of these large crude oil tankers, on top of another 1,000 jobs that are indirectly connected to the port's tanker repair activities. S. 395 does have a provision which makes it mandatory that any tanker used to export Alaskan oil would be U.S. owned and operated. And according to U.S. maritime law, any U.S. flagged vessel seeking repairs overseas would be assessed an ad valorem penalty of 50 percent of the repair cost. While this sounds as though U.S. ships would have a disincentive to seek overseas repairs, this simply will not happen. Not only are loopholes available where virtually any tanker can seek an exemption from the 50 percent assessment penalty, but because the U.S. ship repair industry is faced with strict labor laws, environmental compliance laws, minimum wage standards, and labor union demands, it is still more cost effective, even with the penalty, to seek repairs overseas in markets where no strict compliances exist. In addition, according to the new shipbuilding agreement being prepared by the Organization of Economic Cooperation and Development, we may even lose the right to assess an ad valorem 50 percent penalty. Nevertheless, with or without penalty, S. 395 serves to increase the incentive to repair ships in foreign yards by making it possible for ships to take revenue-producing cargoes of Alaskan North Slope oil to the Far East prior to undergoing repair. This incentive to seek repairs overseas will not only cause serious environmental risks, but will virtually destroy the ship repair industry in Portland, as well as the rest of the entire west coast. As many as 10,000 maritime and there is no true disincentive to seek repairs in foreign ports by U.S. tankers. As a result, we will witness the demise of the U.S. tanker repair industry in Oregon. Furthermore, lifting the restriction could increase our vulnerability to outside influence on U.S. foreign policy. Our Nation may become more exposed to foreign pressures, particularly from the volatile Middle Eastern nations. This poses a great danger to our ability to successfully maintain our independence in global politics. Mr. President, in conclusion, there is no doubt that lifting this export restriction will hurt the American merchant fleet. It is going to hurt the ship repair yards on the west coast, it is going to raise the cost of crude oil to the United States, it is going to threaten our national security, and it is going to cost thousands and thousands of American jobs, particularly in Oregon. I do not find this to be in the national interest, and I am confident that my colleagues will concur.

Mr. PACKWOOD

Mr. PACKWOOD. Mr. President, I ask unanimous consent that the Committee on Agriculture, Nutrition, and Forestry be allowed to meet during the session of the Senate on Friday, March 31, at 9:30 a.m., in SR-332, to discuss agricultural credit in the new century.

Mr. PACKWOOD

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