[Congressional Record Volume 142, Number 117 (Friday, August 2, 1996)]
[Senate]
[Pages S9541-S9548]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
A VICTORY FOR WORKING AMERICANS
Mr. KERRY. Mr. President, today--finally--we are raising the minimum
wage and putting families first. We have won a major victory for every
American who values work and believes in fairness. It is a victory for
common sense over ideology, for bipartisanship over saber rattling.
It is a victory for 290,000 hard-working families in Massachusetts
who are playing by the rules and struggling to make ends meet--who have
fallen behind in the last 20 years and now have a chance to do better,
to keep up, and give their children a chance at a decent life. It is a
victory for the millions of Americans who were trying to make a living
and raise a family on $4.25 an hour and now will get $1800 more a
year--enough to buy groceries for 7 months.
Raising the minimum wage is a work force enhancement program and a
family protection program for an investment of 90 cents an hour--a move
which will strengthen the fabric of the American community and narrow
the widening gap in the workforce.
For the first time in years, we are giving workers a raise. This is a
down payment on our commitment to make sure that everyone in this
economy can participate--that everyone can earn more, learn more,
provide more for their families, and be part of an economy that works
for families--that values the dignity of work for those at the bottom
as well as the top.
Mr. President, raising the minimum wage is, in fact, the most basic
welfare reform measure we could enact. It helps make work pay for those
who will be returning to the workforce. It will allow working mothers
who come off welfare to have a fighting chance to put food on the table
for their children and still find enough to pay the rent.
In the last few months we have heard a lot of talk from many of my
Republican colleagues that welfare recipients need to learn the dignity
of work, and we would agree with them and we have passed a welfare
reform package incorporating that concept. But I also believe that the
dignity of a liveable minimum wage is that, as a society, we believe
that if you are willing to work hard, you deserve the dignity of
earning enough to at least pull yourself out of poverty and put food on
the table and a roof over your children's heads.
Mr. President, this is the beginning of a new era of worker fairness,
of giving a raise to those who need it most, and taking one more step
toward relieving the insecurities of the American worker. There is no
greater gift to a young mother who is trying to make ends meet, trying
to pay the rent, buy food, pay child care, pay for health care, and
save for the future than to say to her that we know how difficult the
struggle is and we, as a nation, as a Congress, as a people are willing
to do what we can to help.
Today, Mr. President, with this vote to increase the minimum wage and
give workers a raise, we have sent a message to America that we have
rejected the extreme, hard line policies of the ideological warriors
who believe that the bottom line is the only line, and that if those at
the top earn more then those at the bottom will be better off. We have
sent a message, instead, that we are, indeed, a common sense, pro-
family community that believes in fairness and in a fair wage for a
day's work. And we have sent a message that we believe that if you
increase the intrinsic value of work you decrease the emotional cost of
welfare, and the emotional toll that hopelessness and fear take on hard
working mothers and families.
Mr. President, we have done the right thing. Some have fought it.
Some have argued vehemently against it. Some have found arguments to
try to stop it. But in the end, we have struck an important blow for
fairness, for work, for families; and in so doing we have brought two
words back into the lexicon of the 104th Congress and they are
``compassion'' and ``community''. Increasing the minimum wage means
that we understand that we are all in this together and that we care.
That, Mr. President, is a victory for the principles for which I have
fought during my tenure here, and for which I will continue to fight in
the future.
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Mr. LAUTENBERG. Mr. President, I rise to speak in support of the
increase in the minimum wage.
Mr. President, 5 years is a long time to go without a raise. Senators
and Representatives do not go that long. Nor do corporate executives,
or even most average working people.
And neither should those who earn the minimum wage.
Mr. President, the increase in the minimum wage that we will pass
today will be the first raise in 5 years for close to 12 million
American workers. It's about time.
Mr. President, there's a lot of mythology about just who these
minimum wage workers are.
Contrary to those prevailing myths, Mr. President, most minimum wage
workers are not rich suburban teenagers who take a job for extra
spending money.
The fact is--two-thirds of minimum wage workers are adults; 58
percent are women; 40 percent are the sole breadwinners for their
families; and of the 25 percent that are teenagers, over half come from
families with below-average income.
Mr. President, fundamental fairness dictates that a person who gets
up every day, goes to work, 40 hours a week, 52 weeks a year, should
earn a living wage.
And yet, a minimum wage worker who works 40-hours per week, every
single week of the year, doesn't even earn enough to reach the poverty
line. That's wrong. And we have an obligation to do something about it.
Mr. President, the minimum wage increase in this bill will lift
300,000 American families out of poverty. And that includes 100,000
children.
Mr. President, an increase in the minimum wage to $5.15 per hour
means an increase in income of $1,800 per year for about 10 million
workers.
That's enough to pay for 7 months of groceries, or 4 months of rent,
or even 1 year of tuition at a 2-year college.
It's tremendously important for millions of American families.
In my home State of New Jersey, the minimum wage is currently $5.05
an hour, above the national minimum, and only 10 cents below this new
minimum of $5.15.
In my State, this wage increase will amount to $4 per week for a
minimum wage worker. You might think that a 10-cent-an-hour raise
wouldn't be a big deal. Well, you would be wrong.
In communities and families all over New Jersey, and around this
country, even such a small increase in income could mean the difference
between caring for children, and having them go hungry.
Four dollars buys 2 more gallons of milk, or 2 more loaves of bread,
or 8 more boxes of spaghetti.
To millions of American families, even just a few dollars more per
week is a lot of money.
Mr. President, people who work hard and play by the rules should be
able to provide for themselves, and their families.
The best way to encourage and honor the work ethic so important to
our economic future is to ensure that even those at the bottom earn a
living wage.
So, Mr. President, I urge my colleagues to support working Americans
and to support this bill. It's the right thing to do. And it's long
overdue.
Mr. HARKIN. Mr. President, I supported the health insurance
conference agreement. I want to speak a few minutes about some of the
very good and some very problematic provisions in this agreement. I
want to congratulate Senator Kennedy and Senator Kassebaum and others
for their hard work and perseverance.
A number of the provisions of this bill follow the framework of a
proposal I put forth in the last Congress. In 1994, I offered what I
called a downpayment plan that would have made health insurance
affordable for every child in America, provided for increased
portability and other insurance reforms, full tax deductibility of
health insurance costs for the self-employed and a clampdown on health
care fraud, waste, and abuse. I am pleased that provisions similar to
several of these items are included in this conference report.
I am very pleased that this legislation prohibits group and
individual health plans from establishing eligibility, continuation, or
enrollment requirements based on genetic information. I offered an
amendment on this issue during committee consideration of S. 1028 and
am pleased that it is included in the conference bill.
I believe this is a very important provision that will become even
more important as the availability and use of genetic tests grows in
the coming years. Genetic information should be used to help people
stay healthy and should not be used to put a person at a disadvantage
when it comes to health insurance.
While this legislation still leaves serious flaws in our health care
system, it represents an important step toward reforming health care
and injecting some fairness and common sense into the system.
The portability provision in the bill would provide some much-needed
relief for many Americans. Provisions to gradually raise the percentage
of health insurance costs that farmers and other self-employed can
deduct from their taxes from 30 to 80 percent over the next 10 years,
would provide greater relief, if not equity, with larger businesses.
Mr. President, the portability provisions in the bill are
particularly important. Americans should not have to worry about facing
preexisting condition exclusions if they get sick, change jobs, or lose
their job.
This health insurance bill will provide many American families with
added security and choices.
The provisions in the legislation related to preexisting conditions
are important and add some common sense to the current health insurance
market. The bill limits the ability of insurers to impose exclusions
for preexisting conditions. Under the legislation, no such exclusion
can last for more than 12 months. Once someone has been covered for 12
months, no new exclusions can be imposed as long as there is no gap in
coverage--even if someone changes jobs, loses their job, or changes
insurance companies.
The preexisting condition provisions will help real people who have
already experienced an illness and want to switch insurers or change
jobs
For example, a father from Iowa City called my office about his
daughter who has a chronic health condition and will graduate from
college this spring. He was worried that when she graduates and is no
longer covered under his health insurance policy she will not be able
to find insurance coverage for her chronic health condition.
Because the Health Insurance Reform Act would require insurers to
credit prior insurance coverage, his daughter can move to another
health insurance plan without being denied coverage for her preexisting
condition.
The portability provision in the bill will help with so-called job
lock. Workers who want to change jobs for higher wages or advance their
careers often have to pass up opportunities because it might mean
losing health coverage. These provisions will provide greater security
for Americans currently covered under group health plans.
I've heard form Iowans who have had to pass up new job offers or
forgo starting their own small business because they or someone in
their family has a preexisting condition. Workers with a sick child are
forced to pass up career opportunities because their new insurance may
not cover a preexisting condition for 6 months or more.
These families have played by the rules and have been continuously
insured--they deserve to know that if they pay their insurance premiums
for years, they cannot be denied coverage or be subjected to a new
exclusion for a preexisting condition because they change jobs.
But, I do want to express my concern about some of the comments that
are being made on both sides of the aisle about this bill.
In today's edition of the Washington Post, House Speaker Newt
Gingrich is quoted as saying ``it means guaranteed health insurance for
everyone who's in the system.''
Mr. President, this bill is an important step forward, but it in no
way means guaranteed health insurance for people now in the system. We
should not overpromise or oversell this bill. American workers still
face the possibility that their employer will reduce their health
insurance or drop coverage altogether.
Workers still face the possibility that coverage for their children
will be dropped. In fact, the number of children covered by employment-
based
[[Page S9543]]
health insurance has been decreasing and over 9 million children have
no health insurance.
If you lose your job you still face the high costs of health
insurance--certainly many people who have just lost their job can't
afford health insurance premiums. If you get sick, lose your job, and
can't afford health insurance premiums you are still out of luck under
this bill.
And, Mr. President, today if a worker switches jobs their next
employer may or may not offer health care coverage. The bill before us
today does not change this situation. Companies can also continue to
eliminate health care coverage for retirees.
So, Mr. President, this bill does not guarantee health insurance. It
is an important step forward and it should be passed.
We should not let the perfect be the enemy of the good, but we also
shouldn't lead Americans to believe it does more than it really does.
While there are many positive things in this bill that merit its
enactment, Mr. President, there are several provisions that I believe
would substantially undermine our efforts to combat fraud, waste, and
abuse in Medicare and other health programs. Our two lead agencies in
combating health care fraud and abuse, the Department of Justice and
the office of inspector general of the Department of Health and Human
services, have also raised serious concerns with different provisions
in this conference report.
First, the conference agreement includes language from the House bill
that significantly raises the burden of proof on the Government to
prove fraud and impose civil monetary penalties. Let me read from a
letter that June Gibbs Brown, HHS inspector general wrote to me
recently about this provision.
I ask unanimous consent that the relevant portion of the letter be
included at this point.
Letter from June Gibbs Brown, Inspector General
September 29, 1995.
Hon. Tom Harkin,
U.S. Senate, Washington, DC.
Re H.R. 2389: ``Safeguarding Medicare Integrity Act of 1995''
Dear Senator Harkin: You requested our views regarding the
newly introduced H.R. 2389, which we understand may be
considered in the deliberations concerning the ``Medicare
Preservation Act.'' We strongly support the expressed
objective of H.R. 2389 of reducing the fraud and abuse which
plagues the Medicare program. The proposed legislation
contains some meritorious provisions. However, if enacted,
certain major provisions of H.R. 2389 would cripple the
efforts of law enforcement agencies to control health care
fraud and abuse in the Medicare program and to bring
wrongdoers to justice.
The General Accounting Office estimates the loss to
Medicare from fraud and abuse at 10 percent of total Medicare
expenditures, or about $18 billion. We recommend two steps to
decrease this problem: strengthen the relevant legal
authorities, and increase the funding for law enforcement
efforts. Some worthy concepts have been included in H.R.
2389, and we support them. For example, we support:
``a voluntary disclosure program, which allows corporations
to blow the whistle on themselves if upper management finds
wrongdoing has occurred, with carefully defined relief for
the corporation from qui tam suits under the False Claims Act
(but not waiver by the Secretary of sanctions);
``minimum periods of exclusion (mostly parallel with
periods of exclusion currently in regulations) with respect
to existing exclusion authorities from Medicare and Medicaid;
and
``increases in the maximum penalty amounts which may be
imposed under the civil monetary penalty laws regarding
health care fraud.''
As stated above, however, H.R. 2389 contains several
provisions which would seriously erode our ability to control
Medicare fraud and abuse, including most notably: making the
civil monetary penalty and anti-kickback laws considerably
more lenient, the unprecedented creation of an advisory
opinion mechanism on intent-based status, and a trust fund
concept which would fund only private contractors (not law
enforcement). Our specific comments on these matters follow.
making civil monetary penalties for fraudulent claims more lenient by
relieving providers of the duty to use reasonable diligence to ensure
their claims are true and accurate
Background: The existing civil monetary penalty (CMP)
provisions regarding false claims were enacted by Congress in
the 1980's as an administrative remedy, with cases tried by
administrative law judges with appeals to Federal court. In
choosing the ``knows or should know'' standard for the mental
element of the offense, Congress chose a standard which is
well defined in the Restatement of Torts, Second, Section
12. The term ``should know'' places a duty on health care
providers to use ``reasonable diligence'' to ensure that
claims submitted to Medicare are true and accurate. The
reason this standard was chosen was that the Medicare
system is heavily reliant on the honesty and good faith of
providers in submitting their claims. The overwhelming
majority of claims are never audited or investigated.
Note that the ``should know'' standard does not impose
liability for honest mistakes. If the provider exercises
reasonable diligence and still makes a mistake, the provider
is not liable. No administrative complaint or decision issued
by the Department of Health and Human Services (HHS) has
found an honest mistake to be the basis for CMP sanction.
H.R. 2389 Proposal: Section 201 would redefine the term
``should know'' in a manner which does away with the duty on
providers to exercise reasonable diligence to submit true and
accurate claims. Under this definition, providers would only
be liable if they act with ``deliberate ignorance'' of false
claims or if they act with ``reckless disregard'' of false
claims. In an era when there is great concern about fraud and
abuse of the Medicare program, it would not be appropriate to
relieve providers of the duty to use ``reasonable diligence''
to ensure that their claims are true and accurate.
In addition, the bill treats the CMP authority currently
provided to the Secretary in an inconsistent manner. On one
hand, it proposes an increase in the amounts of most CMPs
which may be imposed under the Social Security Act. Yet, it
would significantly curtail enforcement of these sanction
authorities by raising the level of culpability which must be
proven by the Government in order to impose CMPs. It would be
far preferable not to make any changes to the CMP statutes at
this time.
MAKING THE ANTI-KICKBACK STATUTE MORE LENIENT BY REQUIRING THE
GOVERNMENT TO PROVE THAT ``THE SIGNIFICANT'' INTENT OF THE DEFENDANT
WAS UNLAWFUL
Background: The anti-kickback statute makes it a criminal
offense knowingly and willfully (intentionally) to offer or
receive anything of value in exchange for the referral of
Medicare or Medicaid business. The statute is designed to
ensure that medical decisions are not influenced by financial
rewards from third parties. Kickbacks result in more Medicare
services being ordered than otherwise, and law enforcement
experts agree that unlawful kickbacks are very common and
constitute a serious problem in the Medicare and Medicaid
programs.
The two biggest health care fraud cases in history were
largely based on unlawful kickbacks. In 1994, National
Medical Enterprises, a chain of psychiatric hospitals, paid
$379 million for giving kickbacks for patient referrals, and
other improprieties. In 1995, Caremark, Inc. paid $161
million for giving kickbacks to physicians who ordered very
expensive Caremark home infusion products.
Most kickbacks have sophisticated disguises, like
consultation arrangements, returns on investments, etc. These
disguises are hard for the Government to penetrate. Proving a
kickback case is difficult. There is no record of trivial
cases being prosecuted under this statute.
Let me repeat, the IG says this provision will ``significantly
curtail enforcement of these sanctions.'' Mr. President, this provision
has no business in this conference report and flies in the face of the
bill's section title ``Preventing Health Care Fraud and Abuse.''
Along with other exemptions provided in the bill, this change will
cost taxpayers $200 million, according to the Congressional Budget
Office [CBO].
The conference agreement also includes a provision from the House
bill requiring the IG to provide advisory opinions to the public on the
Medicare anti-kickback statute. The Attorney General and the HHS
strongly oppose this provision. In fact, the Attorney General in a June
6, 1996 to then Majority Leader Dole and Speaker Gingrich said:
This is an unprecedented and unwise requirement that would
severely undermine our law enforcement efforts relating to
health care fraud. The HHS IG said in her letter to me that
similar provisions would ``severely hamper the Government's
ability to prosecute health care fraud.''
She goes on to say:
Even with appropriate written caveats, defense counsel will
hold up a stack of advisory opinions before the jury and
claim that the defendant read them and honestly believed
(however irrationally) that he or she was not violating the
law. The prosecution would have to disprove this defense
beyond a reasonable doubt. This will seriously affect the
likelihood of conviction of those offering kickbacks.
Mr. President, I strongly support the concept of providing the public
and health care providers guidance on complying with Medicare law. The
government does issue advisory opinions and other guidance and it
should be provided the resources to do more. But law enforcement should
not be forced to
[[Page S9544]]
issue information that it feels will undermine compliance with anti-
kickback laws.
The Attorney General and IG have said that these requirements are so
damaging to their ability to prosecute fraud because they would require
law enforcement to issue opinions on intent based statutes. Because of
the inherently subjective nature of intent, they believe it would be
impossible for them to determine intent based solely upon a written
submission from the requestor. They point out that it does not make
sense for a requestor to ask the Government to determine the
requestor's own intent.
The Congressional Budget Office has scored this advisory opinion
provision as costing taxpayers $280 million over the next 7 years. They
recognize the obvious, that this provision will result in fewer
successful prosecutions of health care fraud.
Mr. President, there are a number of provisions in the conference
agreement that would, taken alone, improve our fight against Medicare
fraud, waste, and abuse--provisions I have long advocated. The bill
creates a mandatory source of funding for the IG, the FBI, and other
law enforcement agencies.
Their efforts return many times their costs in savings. In order to
make this change significant, though, we can't simply eliminate
existing discretionary funding for these activities in the
appropriations bill.
The bill also requires some steps to be taken to encourage and assist
Medicare beneficiaries in identifying and reporting fraud and abuse.
Significant additional steps are needed to assure that seniors really
have the tools they need to fully participate in this important effort.
So, Mr. President, this bill is a mixed bag. I will support it
because it provides important new protections to working Americans and
tax relief for farmers and the self-employed. However, I will actively
work to have the provisions which hamper our efforts to combat health
care fraud and abuse removed from the books.
AID TO SMALL BUSINESSES
Mr. KERRY. Mr. President, this is a good day for hard-working
Americans and small business owners across the Commonwealth of
Massachusetts. The final passage of the Small Business Job Protection
Act will stoke the engine of job growth in this country and will help
further the current economic expansion.
Just 2 days ago, we learned that, in the second quarter of 1996, our
national economy posted a robust 4.2 percent growth rate. This buoyant
growth figure is just the latest indication that the Clinton economic
plan which the Congress passed in 1993 without one single Republican
vote is benefiting hard-working Americans. We have unprecedented low
interest rates and subdued inflation and unemployment levels. In fact,
the Clinton plan has created more than 10 million jobs since its
enactment.
Mr. President, the Clinton plan reduced the deficit from a record-
high $290 billion in 1992 to a projected $117 billion this year. That
is a 60-percent reduction of the deficit in 4 years, Mr. President. But
some Members on the other side of the aisle seem to forget that deficit
reduction is, in and of itself, not an economic policy. Cutting
wasteful spending in order to keep interest rates low whole protecting
programs and services which stimulate growth and create jobs is an
economic policy. It is an economic plan. It is, in fact, the core of
the Clinton plan, and I am pleased to have helped shape this plan.
Just 2 weeks ago, the Chairman of the Federal Reserve, Alan Greenspan
told me that our economy has not looked this sanguine in 3 years. But I
reminded him during our Banking Committee hearing that all Americans
have not yet felt the benefits of the Clinton plan. Accordingly, I
introduced the American Family Income and Economic Security Act this
year. Several provisions of my 20-point plan will become law when the
President signs the conference report before us.
One of these provisions is raising the minimum wage to $5.15 per
hour, which I will address in a separate statement later this
afternoon.
Two other provisions of my bill which are echoed in the Small
Business Job Protection Act are the extension of the credit for
research and experimentation and the deduction for employer-provided
educational assistance.
This bill will extend the R&E Tax Credit, sometimes called the
Research and Development Tax Credit, until May 1997. Mr. President, for
years, I have fought to make this credit permanent; it is one of the
most important tax provisions for our high-technology, high-wage, job-
crating industries, many of which are found in my home State. I am
disappointed this bill does not make the credit permanent or
retroactive; however, I am pleased the Congress is once again
acknowledging the significance of the credit.
The bill will also extend the exclusion, up to $5,250, for employer-
provided educational assistance through May 1997. This provision gives
many Americans an opportunity to further their education while working.
It allows them to upgrade their skills in order to survive and compete
in the changing global economy.
These provisions are the logical complements to the Clinton economic
plan. They will help more working Americans to enjoy the benefits of
the current robust economic growth. I will continue to fight for other
provisions of my American Family Income and Economic Security, like
allowing more Americans to save for their retirement through IRA's,
safeguarding pension plans from corporate raiders, reducing capital
gains tax rates for investors in targeted, high-technology industries,
furthering training programs and expanding stock option programs.
Mr. President, there is one last provision of the small business job
protection bill of which I am extremely proud. For almost 8 years,
hard-working owners of fishing vessels in New Bedford, MA, have been
subject to an Internal Revenue Service ruling that would have resulted
in approximately $11 million in penalties. This situation arose from an
IRS misinterpretation of the Tax Code as applied to crewmembers on
small fishing vessels. The IRS' interpretation and assessment nearly
devastated the fishing families in southeastern Massachusetts--a region
struggling with the departure of the textile industry and the demise of
the fishery. I am pleased that this bill includes a correction to this
wrong-headed interpretation. This action is providing relief for four
fishing vessels in New Bedford--F/V Edgartown, F/V Nordic Pride, F/V
Lady J, F/V Steel--by rendering moot a court action against them.
Life on the seas requires fishermen to be ruggedly independent
individuals. Fishing boat operations reflect this independence in that
they are fundamentally small business operations with crews that
typically vary from trip to trip, with each crewmember acting as a free
agent. Recognizing that there was a unique worker arrangement on
fishing vessels, Congress amended the Tax Code in 1976 to clarify the
employment status of crewmembers as self-employed and required the
self-employed crewmembers to be compensated solely with a share of the
catch.
It is common practice on fishing boats around the country to provide
a small cash payment called a pers to the cook, first mate and engineer
in recognition of additional duties they perform at sea. These pers
represent only 1 to 5 percent of the total compensation which amounts
to approximately $500 annually on a $30,000 income.
This bill will allow the pers payments--which are essentially
calculated as a share of the catch--without jeopardizing the self-
employment status of crewmembers. Let me emphasize, Mr. President, that
the boat owners believed they complied with the new tax laws and
regulations, and in fact they did comply with the law as Congress
intended it to be applied to small fishing vessels.
With my colleagues from Massachusetts, Senator Kennedy and
Congressman Frank, I tried to remedy this situation for 7 years. We
appealed to the Treasury Department and the Internal Revenue Service,
and introduced legislation that was vetoed twice by President Bush.
Today, I am pleased that this issue will be resolved as soon as
President Clinton signs this bill.
Mr. President, this has been a long and difficult struggle to provide
relief for the fishing families of New Bedford. Like the hard-working
people of southeastern Massachusetts, small business owners and
American workers will enjoy the benefits of this bill. I am
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pleased that the Senate will speak with a strong bipartisan voice to
raise the minimum wage, to provide tax incentives for small businesses
and, especially, to assist the families of New Bedford, MA.
I yield the floor.
employer securities in erisa plans
Mr. BREAUX. Mr. President, I rise today to address the full Senate
and the distinguished chairman of our Finance Committee, Senator Roth.
On June 5, I suggested to the Finance Committee that it adopt a
provision that would permit subchapter S corporations to sponsor
ESOP's, or employee stock ownership plans.
When the precise language of my proposal was published as section
1316 of H.R. 3448, I was disappointed to read that some of the special
tax benefits that currently are available with respect to ESOP's would
not be available in the case of an ESOP that acquires and holds
subchapter S corporation stock.
I would like to note that the provision in the bill before us related
to employer securities and sub S ERISA plans is not to take effect
until January 1, 1998. Between now and then, I will review how we can
make it possible for subchapter S corporations to avail themselves of
the special ESOP tax benefits, which will encourage greater use of this
provision.
After this review, I hope to be able to offer reasonable alterations
to H.R. 3448 that will expand our policy of promoting employee
ownership through ESOPs.
Mr. ROTH. Mr. President, I appreciate the comments of the Senator
from Louisiana and look forward to reviewing any thinking he may have
for future legislation on this matter.
discrimination under new irs section 936
Mr. GRAMS. Mr. President, I am very concerned about regulations that
were just issued by the IRS in May regarding the section 936 possession
tax credit. These new regulations cast aside regulatory rules upon
which companies have relied for many years permitting arm's length
pricing in the purchase of components. The new regulations produce the
discriminatory result that an arm's length third-party price can be
used to value outbound sales of components but not inbound purchases of
components by the possession company for purposes of the section 936
calculation. I believe that a fair and workable solution can be
developed to address these concerns and would ask the Senator to join
me in encouraging the Treasury Department to seek such a solution.
Mr. ROTH. I believe this is an area that Treasury and the IRS need to
revisit. I join the Senator from Minnesota in encouraging them to do
so.
Mr. HATCH. Mr. President, I rise today to describe why the repeal of
Internal Revenue Code section 956A, which is included in the Small
Business Tax Relief bill, is important to both U.S. businesses and
American workers.
In his remarks 2 days ago, the distinguished senator from North
Dakota insisted on referring to the repeal of 956A as opening a tax
loophole. This is simply not true. Rather, what the repeal does is
loosen a noose that has been strangling the competitiveness of many of
our U.S. businesses.
How many of my colleagues would stand up and say, ``Yes, I would like
to hamper the competitiveness of U.S. businesses abroad by imposing tax
restrictions on them unequal to any restriction imposed on their
competitors.'' Or, how many of my colleagues would say that they are in
favor of discouraging U.S. firms from increasing employment at home by
taking advantage of business opportunities abroad. Yet, in essence,
this is the effect of not repealing section 956A.
I don't believe there is even one Senator in this Chamber who wants
to go home in August and brag about putting U.S. companies at a
competitive disadvantage. I don't believe there is even one Senator who
wants to go home and brag about eliminating jobs for U.S. workers. Yet,
this is exactly what section 956A does.
Mr. President, let me briefly discuss the history of section 956A.
Until 1993, when President Clinton signed the largest tax increase in
the history of this Nation, the U.S. generally did not tax the active
income earned by a U.S. corporation's foreign subsidiaries until that
income was actually repatriated to the U.S. parent. This tax deferral
enabled U.S. companies with foreign affiliates to compete on a
reasonably level playing field with foreign competitors. This is
because no other industrial nation's tax law forces a parent
corporation to pay taxes on income earned by a subsidiary until that
money is sent home to the parent.
However, in 1993, the Clinton administration proposed and Congress
enacted a limitation on this tax deferral. The provision, now known as
section 956A, forces the parent corporation to pay tax on a portion of
its foreign subsidiary corporation's active income to the extent it has
an excessive accumulation of passive assets.
Mr. President, this new restriction did not close a tax loophole.
Instead, 956A closed doors of opportunity for U.S. business and
hindered employment and investment growth. As I mentioned, section 956A
has no counterpart in the tax laws of our foreign competitors. Hence,
it effectively places an undue burden on U.S.-owned companies abroad--a
burden that our competitors do not have.
There are some who want us to believe that the enactment of section
956A would discourage U.S. companies from moving jobs overseas. Mr.
President, this is just not true. In fact, the provision has resulted
in just the opposite effect--it encourages U.S. companies to employ
more overseas workers.
Let me explain. As I stated before, section 956A subjects excessive
passive assets to U.S. tax before profits are repatriated to the United
States. This provision has actually created an unintended incentive for
companies to invest in hard assets, such as manufacturing facilities,
outside the United States. Doing so enables the subsidiary to increase
its hard assets and thus lower the ratio of it passive assets to total
assets, which effectively lowers the tax. Manufacturing facilities,
unlike passive assets, require workers, almost always hired from the
host nation. Thus, the perverse effect of section 956A is to provide an
incentive for U.S. multinational companies to invest in jobs overseas
for non-U.S. workers.
Contrary to what some contend, U.S. companies generally do not invest
abroad simply to take advantage of lower labor costs. In fact, most
foreign investments by U.S. companies are in countries where labor
costs are often higher than in the United States. In 1993, two-thirds
of the assets and sales of U.S.-controlled foreign corporations were in
seven primary locations: Germany, France, Japan, United Kingdom,
Netherlands, Canada, and Switzerland. The average annual compensation
paid to foreign workers in these countries was 15 percent higher than
the average paid to workers in the United States by the parent
corporations.
U.S. foreign businesses are almost always established in order to
better service foreign customers, to have a local presence, to avoid
excessive transportation costs, or to develop natural resources in the
geographic locations where they are found. In other words, decisions of
where to invest are made for solid business reasons--not for tax
avoidance. Many foreign countries insist that contracts be made only
with local entities.
It is also important to note that these U.S. subsidiary corporations
seldom take jobs away from the United States, but actually supplement
domestic production and increase U.S. jobs. U.S.-owned foreign
corporations are large purchasers of exports from their affiliated
companies in the United States. According to the U.S. Department of
Commerce, 40 percent of U.S. multinational corporations' exports are
sold to U.S. affiliates overseas.
For every one billion U.S. dollars in manufactured exports, over
14,000 manufacturing jobs are created in the United States. Employment
growth between 1987 and 1992 at U.S. plants that started or continued
exporting during that time was 17 to 18 percent greater than at
comparable plants that did not export.
These statistics clearly indicate that expanding U.S. business
overseas increases growth back home, including employment growth. We
cannot ignore the global economy we are living in by discouraging U.S.
companies from expanding to other countries.
Repeal of section 956A doesn't benefit just a handful of large
corporations, as has been suggested. Small businesses must invest
overseas also. In today's
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world, any business that doesn't recognize the necessity to go global
is in jeopardy of losing out to foreign competition. In fact, many
small Utah businesses are having great success in exporting and are
finding a need to invest outside the U.S. to establish a global
presence. Does this mean we are losing jobs in Utah? Hardly. Rather,
such international growth has further fueled my State's employment
boom.
Finally, Mr. President, let me emphasize that repealing 956A will
give no special treatment to U.S. businesses with foreign affiliates.
In fact, the tax treatment of U.S. businesses after the repeal of 956A
will be the same as the tax treatment received by a U.S. individual who
holds shares in a company and defers U.S. tax on the earnings of the
company until the company actually pays the dividend to the
shareholder.
Until 1993, our tax law has always taxed the active profits of
American-owned companies abroad when those earnings were sent to the
U.S. company through dividend, transfer payment, or other means. Let me
reiterate that repeal of section 956A does not change this basic
concept of the Internal Revenue Code. Rather, it restores the
traditional treatment that was changed by the misguided 1993 provision.
I am proud to say that I stand for creating employment for American
workers. I stand for increasing our exports and developing foreign
markets, and I stand for repealing section 956A to remove the
strangling provisions it places on U.S. businesses trying to compete on
a level playing ground with foreign competitors.
Ms. MOSELEY-BRAUN. Mr. President, I rise in support of the Small
Business Job Protection Act, particularly its minimum wage provisions.
I would like to commend Chairman Roth and members of the Finance
Committee who worked in a bipartisan fashion to put together a very
comprehensive bill that helps small businesses invest, grow and create
new jobs.
I am particularly proud to have succeeded in including a large number
of provisions in the Small Business Job Protection Act that I, along
with my colleagues, worked very hard to place in the bill and retain in
conference. These provisions will help to change peoples lives by
creating pension equity, providing educational assistance, preventing
job loss, moving people from welfare to work, encouraging research and
development and giving assistance to first-time farmers.
One of my primary focuses during this Congress has been to identify
and resolve the current pension laws that are and have been inequitable
toward women throughout history. As a result of this effort, earlier
this year, I introduced the ``Women's Pension Equity Act of 1996.''
This bill begins to assist millions of women retain pension benefits
earned during many years of marriage. Today, I want to thank Chairman
Roth for including in this small business tax legislation two of the
most important provisions from my women's pension bill, provisions
which received broad bipartisan support. One requires the Department of
Treasury to create model language for spousal consent with respect to
survivor annuities for widows. The second requires the Department of
Treasury to create model language for Qualified Domestic Relations
Order forms used to divide pensions during divorce.
Pension retention--issues associated with holding onto earned pension
rights--are important safeguards against ``retirement surprise.''
Pensions are often the most valuable financial asset a couple owns--
earned together during their many years of marriage. Unfortunately, it
is now all too easy for a woman to unknowingly compromise her right to
a share of her spouse's pension benefits in case of widowhood or
divorce. If she reads ``lifetime annuity'' to mean her lifetime and
signs the forms waiving survivor benefits, she loses her pension if her
spouse dies. In case of divorce, if both spouses do not sign a complete
QDRO form, she loses her right to any pension benefits, even if the
marriage lasted fifty years. The provisions adopted in this bill will
make it more likely that women will be able to protect their rights and
retain their pensions.
Additionally, I am an original cosponsor of the Spousal IRA Equity
legislation. This provision will allow a deductible IRA contribution of
up to $2,000 per year to be made by each spouse including homemakers.
Currently, a spouse who works outside the home is allowed to make tax-
free contributions to an Individual Retirement Account up to $2,000
annually. However, the spouse that works in the home is only allowed to
contribute $250 annually. This Congress has agreed for the first time
to right this wrong and provide fairness for women who work both
outside of and in the home.
I regret the deletion by the conference committee of safeguards
against the taxation of non-physical compensatory damages. That
provision is inequitable because it makes a distinction between
physical and non-physical compensatory damages. Under this bill,
victims of sex discrimination, race discrimination, and emotional
distress would be required to pay taxes on any damages they receive
while, on the other hand, victims of battery will not be taxed. Not
only is this provision bad tax policy but it is discriminatory, and
will make it more difficult for victims of these crimes to achieve
justice. I hope the Congress will revisit this issue and correct this
injustice.
Despite my displeasure with this particular provision, this is a good
bill. The bill increases investment by small businesses and creates
incentives for businesses to move people from welfare to work. It
creates a new tax credit, called the Work Opportunity Tax Credit, which
replaces the old targeted jobs tax credit program. The Work Opportunity
Tax Credit encourages employers to hire people from populations
suffering from high unemployment, who are on government assistance or
who have limited education. I am just delighted that the conference
bill includes a provision I authored, along with my Colleagues Senators
Baucus and Hatch, that will help expand the pool of eligible employees
by adding a category for indigent 18- 24-year-olds. Adding this
category encourages employers to hire young people who are all too
often overlooked, promotes self-sufficiency and prevents our young
people from returning to the welfare system. The Work Opportunity Tax
Credit will enable employers to access the credit after an employee has
worked 400 hours, thereby providing additional incentives for job
training.
Job training and educational assistance by employers is essential to
create a strong work force. That is why I am so pleased that I was able
to work with Senators Roth and Moynihan to enable employers to provide
educational assistance to their employees without including the costs
associated with such assistance in their gross income. This exclusion
ended December 31, 1994 and is retroactively reinstated in this bill.
However, the program only applies to undergraduate study until January
1, 1998 and it troubles me that the House would not agree to extend the
benefit to employees who are in graduate school past June 1996.
Employer-provided educational assistance on a graduate level helps our
national competitiveness, and I hope that we will revisit the
limitations of this bill.
The investments we make today in education and research will
determine our global competitiveness in the future. That is why I am
happy that this bill extends the Research and Experiment Tax Credit
through May 31, 1997 however, I believe it should have been
retroactively reinstated in this bill and hope that it will be made
permanent in the future. If government does not encourage research and
development, it will have a negative impact on our international
competitiveness and our national security. The R & E tax credit has
demonstrated its efficacy, and it should be continued with sufficient
certainty to encourage long term planning and investment in this area.
A tax credit for nonconventional fuels is yet another investment that
will help develop new sources of coal and methods to recycle biomass
that will increase our technological advancement. The section 29 tax
credit is important for recovering and managing landfill gas such as
methane. In so doing, it helps to improve the quality of life around
landfills, reduce smog, and alleviate global warming. With this tax
credit, landfill gas has become a practical fuel for use in
conventional electrical generating equipment. However, the extension of
the credit will be less effective as it relates to coal because an
additional year is needed to
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get plants up and running given the complexity in converting coal into
synthetic fuels. I hope we will revisit the effective date of the
``placed in service'' deadline.
The effective date was changed in the conference agreement for the
repeal of the fifty percent interest income exclusion for financial
institution loans to Employee Stock Ownership Plans [ESOPs]. In the
original legislation, the House wanted to retroactively repeal the
fifty percent interest income exclusion for ESOPs using October 13,
1995 as the effective date. As you may assume, that early effective
date would have a devastating impact on companies that had reasonably
relied upon the current laws and acted to establish an employee stock
ownership plan. I am quite pleased that the conference agreement
included today as an effective date. Although I am pleased that today
will be the effective date for repealing this provision, I wish that we
did not have to repeal the fifty percent interest income exclusion for
Employee Stock Ownership Plans at all because they are good for
business and good for employees. When an employee owns part of the
company, their investment is greater, their work product is better and
their loyalty will last longer, this bill only makes it harder for this
to occur.
Not only does this bill help small businesses but it also helps
first- time farm buyers. As a cosponsor of the Aggie Bond bill, I am
thrilled that it is included in this conference agreement. Provisions
of the aggie bond legislation helps to insure Illinois farmers and
farmers all over the nation are given assistance in maximizing their
participation in the first-time farm buyer program. This provision
allows the purchase of farms from related parties and increases the
maximum-size requirements for first-time farmer industrial development
bonds.
Not only does this bill help farmers and small businesses but it also
helps low wage workers with an increase in the minimum wage. Raising
the minimum wage is about allowing people to realize the American
Dream. It is about valuing hard work and providing people with the
opportunity to provide for their families.
For the millions of American's who support themselves and their
families on $4.25 an hour, the current minimum wage is not enough to
raise them out of poverty. The ninety cent increase we are voting for
today will make a difference to the ten million Americans that earn the
minimum wage.
In Illinois, over 10 percent of the workforce, or 545,647 people,
earns the minimum wage. The majority of the people earning the minimum
wage--two-thirds--are adults, many are parents. Working 40 hours a
week, 52 weeks a year, a person earning the minimum wage currently
earns only $8,840. The poverty rate for a family of four is $15,600.
In light of our recent vote on ending the welfare safety net for
children, I would like to point out that close to 60 percent of those
earning minimum wage are women. These are women who are taking
responsibility for themselves and their children. They go to work every
single day, and still the minimum wage does not provide them with a
living wage on which to raise their families. This increase in the
minimum wage will make a difference to these women.
Increasing the minimum wage by 90 cents over the next year is the
right thing to do. It has been almost five years since the minimum wage
was last increased. As I'm sure anybody who has gone to the grocery
store or the doctor's office lately can tell you, in the last five
years prices have increased, but wages have stayed the same. The report
on our economy issued yesterday confirms this fact: wage growth was at
0.08 percent, while our economy grew at an annual rate of 4.2 percent.
Increasing the minimum wage will raise wages, not lose jobs. Last
year a group of respected economists, including three Nobel prize
winners, concluded that an increase in the minimum wage to $5.15 an
hour will have positive effects on the labor market, workers, and the
economy. Paying a living wage does not mean that jobs will be lost.
Workers are our greatest resource. We should recognize the
contributions of our workers. Our country is founded on the belief that
hard work is the foundation of success--this is the American Dream.
Congress should encourage, not discourage, effort and perseverance. A
minimum wage should provide a living wage for those who are working day
in and day out to provide for themselves and their families. Family
values and the American Dream are ideas we like to talk about, but
today we can actually make them more real for millions of Americans.
Although it is not perfect, this is a good bill. Women, children, and
working people will all benefit, and it will help promote job-creation,
and economic growth. I want to commend my colleagues on the Finance
Committee, particularly Chairman Roth and the ranking Democratic
member, Senator Moynihan, who have worked hard to produce a bipartisan
bill that promotes growth and stability among small businesses.
I urge my colleagues to join with me in supporting the final passage
of what is generally a common sense, people oriented, bipartisan bill.
Mr. CRAIG. Mr. President, I rise in opposition to the conference
report on H.R. 3448.
This title of this bill is supposed to be the ``Small Business Job
Protection Act of 1996''.
Title I, the tax title, is consistent with that spirit. It would make
the Tax Code a little fairer, improve economic and employment
opportunities, and provide some necessary tax relief.
But the problem remains that, in passing this bill as a whole, we
would be driving the economy with one foot on the gas and the other on
the brake.
The Senate had the chance to tip this bill in favor of creating more
and better jobs and providing necessary relief for small businesses.
Unfortunately, on a close vote, this body defeated the amendment
offered by the Chairman of the Small Business Committee, the Senator
from Missouri [Mr. Bond]. That amendment would have protected small,
vulnerable employers from a one-size-fits-all mandate increasing the
federal minimum wage.
The Democrat Party had two years, during which it controlled the
White House and the Congress, to increase the minimum wage. They never
moved a bill out of committee. They never offered an amendment on the
floor. They waited until this year to strike. I just have to suspect
there were some political motivations involved, and some crocodile
tears shed over the workers they say they want to help.
I commend those who have labored long and hard to take a legislative
lemon and turn it into lemonade. I am sorry I cannot, in good
conscience, vote for the resulting bill.
All too often, Congresses and Presidents have taken a perceived
problem, put it under a microscope, and tried to address it with a one-
size-fits-all federal mandate. The result often has been government by
anecdote. Unintended consequences and innocent bystanders have not
always been taken into account in the rush to adopt a ``feel-good''
solution.
That risk of unintended consequences is definitely present in the
bill before us today.
We feel for those Americans who are working hard at making ends meet.
It is easy and it is tempting to look at a $4.25 an hour minimum wage
and say, let's just mandate an increase in that wage. But that is the
wrong answer. That approach will hurt the very persons it is meant to
help--the working poor and entry-level employees.
Common sense, the laws of economics, and experience all tell us this.
We've all heard the numbers. The commonly accepted figure is that a
stand-alone increase in the minimum wage from $4.25 an hour to $5.15--a
21 percent increase--would result in the loss of at least 621,000 jobs.
In Idaho, it would destroy 3,200 jobs.
I don't know how many of those jobs might be saved with the tax
provisions in this bill, but it's obvious that many small employers
will fall through the cracks. These are the businesses who will have
little or no opportunity to use the tax relief provisions elsewhere in
this bill.
These are employers who have taken pride in creating jobs and
opportunities for those who need them, and who take pride in serving
their customers at affordable prices.
I've heard from many small businesses in Idaho who are concerned
about this bill. They are already calculating whether they will have to
lay
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off employees because of this bill. Restaurants are already having new
menus printed up with higher prices. Jobs will not be available for
young and entry-level workers, because some employers simply will no
longer be able to afford them when the government arbitrarily raises
the price of their labor.
Some have suggested that the economic impact of such an increase is
``negligible.'' But it's not negligible for each American who loses his
or her job as a result. In many cases, the job lost would be the most
important one that person will ever have--his or her first job.
In recent years, small businesses have created every net new job in
this country. They take the risks of hiring and training new workers.
They do not have the economies of scale of large businesses and suffer
a disproportionate impact from government regulation. They tend to be
labor-intensive. If you drive up the costs of their labor, they will be
forced to create fewer jobs.
In fact, 77 percent of the economists who responded to a survey of
the American Economics Association agreed that, by itself, a higher
mandated minimum wage would have a negative impact on employment.
Obviously, that negative impact is going to fall on workers at or
near the minimum wage, and especially those who are the least-skilled
and need an entry-level job the most.
Realistically, the federal minimum wage today already is a training
wage. The average minimum wage worker is earning $6.06 an hour after
one year.
In most work places, at every level of compensation, it is common for
a new employee to be paid more after a few months. That is because
there is almost always a learning curve, during which the employer is
investing time, energy, and money in training and acclimating the new
employee. The opportunity wage in this amendment simply reflects that
reality of labor economics.
Mr. President, I do want to emphasize that I support the tax title of
this bill. I particularly want to express my support and appreciation
for several of these provisions, including:
The Shelby-Craig adoption tax credit; enactment of this credit is
compassionate, pro-family, pro-children, and long overdue; increasing
the availability of Individual Retirement Accounts for spouses working
in the home as homemakers; revising and extending the Work Opportunity
Tax Credit, which will help employers hire and retain disadvantaged
employees; restoring and extending the tax exclusion for employer-
provided educational assistance; making S corporation rules more
flexible; providing fairer treatment for dues paid to agricultural or
horticultural organizations; improving depreciation and expensing rules
for small businesses.
I also commend the conferees for accepting the House's provision
restoring and making permanent the exclusion from FUTA--the Federal
Unemployment Tax--for labor performed by a temporary, legal, immigrant
agricultural worker. Such employees are ineligible for FUTA benefits
that are financed by this tax. Therefore, this tax is imposed on
employers for no reason, except that the previous exclusion simply
expired.
I have supported these provisions consistently in the past and
commend the Finance Committee for including them in this bill.
I do want to express one note of concern. This bill would extend the
Research and Experimentation Tax Credit, but with an early sunset--May
31, 1997--and without making it available for investments made after it
last expired and before July 1, 1996.
The R and E Credit is one of those ``extenders'' that keep expiring
and keep getting renewed. As a matter of fairness, most, if not all, of
these extenders simply should be made permanent, or at least extended
for a longer period of time. Several times in the past, these
provisions have been renewed retroactively, but that is not the case of
the R and E Credit this year.
This stop-and-start approach to tax law undoes much of the good
intended by these tax incentive provisions. We need to provide
taxpayers with greater predictability in the Tax Code if we want to be
effective in helping them invest and create jobs.
Overall, the tax title provisions in this bill are valuable and
beneficial. I commend the Chairman and Members of the Finance Committee
for their work.
We should be passing laws that boost the economy, increase
opportunity and create jobs. We can and should do better than passing a
bill that gives with one hand and takes away with the other. Therefore,
although there are good provisions in this bill, I must cast a nay vote
today.
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