[Congressional Record Volume 146, Number 70 (Thursday, June 8, 2000)]
[Senate]
[Pages S4820-S4834]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. MURKOWSKI (for himself and Mr. Stevens):
  S. 2693. A bill to amend title XIX of the Social Security Act to 
provide a more equitable Federal medical assistance percentage for 
Alaska; to the Committee on Finance.


                 the alaska medicaid equity act of 2000

 Mr. MURKOWSKI. Mr. President, for more than 30 years, the 
State of Alaska was subjected to an economic inequity in the 
administration of the national Medicaid program.

  With a poverty level 25 percent above the national average, and over 
one-sixth of the state's population Medicaid-eligible, Alaska delivers 
health care to many needy children, pregnant women, disabled and 
elderly poor Americans. These people deserve quality medical care, and 
Alaska delivers.
  But three years ago, Congress recognized that the federal government 
was not paying its fair share of Alaska's Medicaid program. The one-
size-fits-all formula that is used to calculate the federal Medicaid 
match is based upon the per capita income of individual states as it 
relates to the national per capita income. Simply put, states with 
higher per capita income pay a higher percentage of Medicaid costs. 
This formula works well for states that are near national norms for 
most economic indicators. But it certainly doesn't work in the State of 
Alaska, where most economic measurements are atypical compared with 
national averages.
  The reason is fairly simple. It just costs more to live and do 
business in Alaska. Per capita income isn't a fair indicator unless it 
takes into account the cost of delivering care in that area. Somehow, 
however, the Medicaid formula forgot this.
  In 1997, when Congress recognized this issue, it adopted legislation 
that reflected the state's higher costs and increased the federal 
Medicaid match. Instead of receiving a 50-50 match rate, as the formula 
would dictate, a 59.8-40.2 percent match rate was established.
  Unfortunately, this legislation was a short term fix. It only allowed 
the formula change to remain in effect for

[[Page S4821]]

three years. As a result, unless we change the law, the formula will 
revert to the same inequitable standard that was used previously. And 
unless we extend the formula change, vital health care services to 
Alaska's neediest patients will be compromised.
  For this reason, I am introducing legislation that will extend the 
federal government's commitment to the health and well-being of 
Alaska's Medicaid beneficiaries. The ``Alaska Medicaid Equity Act of 
2000,'' which is co-sponsored by Senator Stevens, simply continues the 
spirit and intent of Congress by adjusting federal medical assistance 
percentage calculations to account for Alaska's unusually high delivery 
costs.
  Three years after we first passed this legislation, the reasons and 
justifications for the adjustment still exist. The formula is still 
fundamentally unfair to Alaska.
  Let me explain why. Alaska's per capita income is $28,523, the 17th 
highest in the country. In fact, it's right near the national average, 
which is $28,518. Although Alaska's per capita income suggests it is 
one of the richer states, it fails to take into account the high cost 
of living and the high cost of delivering health care.
  Some studies show that it costs 71 percent more to deliver health 
care in Alaska. But let's look at some real numbers. From coast to 
coast, the U.S. dollar buys more goods and services than it does in 
Alaska.
  In Portland, Oregon, it costs $66.00 to feed a family of four for one 
week. In Anchorage it costs $84.15. In Kodiak, that number jumps to 
$105.88. And out in Dillingham, that number rises to $144.57! We're 
comparing apples and oranges when we compare Alaska's per capita income 
to another state's average.
  And how about electricity? In Portland, 1000 kilowatt hours costs 
$60.88. Anchorage residents are paying $92.83. Out in Bethel, Alaska, 
residents are paying $202.68.
  When focusing solely on the delivery of health care services, the 
differences stand out even more. In Florida, a hospital room for one 
day costs, on average, $361. This is in line with lower 48 costs, which 
run between $350 and $450. In Alaska, that same room costs $748--more 
than twice as much! A physician office visit is $53 in Florida. That 
visit costs $80 in Alaska--an increase of 66%!
  You can look at virtually any good or service and see a comparable 
difference. A dollar simply doesn't buy the same thing in Alaska that 
it does in the lower 48. The numbers prove this. The federal government 
has admitted this. Federal government employees receive a salary 
adjustment in Alaska--a 25% cost of living adjustment. Military 
personnel receive a similar increase. Medicare pays higher as well. 
Even the Federal Poverty Level is adjusted to reflect the unique costs 
in Alaska. So why doesn't Medicaid?
  Our bill merely continues the commitment Congress made to Alaska's 
Medicaid population three years ago. It's fair, and it makes sense. I 
ask my colleagues to assist me in rectifying this clear inequity for 
the state of Alaska; I ask my colleagues to support this bill.
  I ask unanimous consent that the text of the bill be included in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2693

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Alaska Medicaid Equity Act 
     of 2000''.

     SEC. 2. AMENDMENT TO THE SOCIAL SECURITY ACT.

       (a) In General.--The first sentence of section 1905(b) of 
     the Social Security Act (42 U.S.C. 1396d(b)) is amended--
       (1) by striking ``and (3)'' and inserting ``(3)''; and
       (2) by striking the period and inserting ``, and (4) for 
     purposes of this title and title XXI, with respect to Alaska, 
     the State percentage used to determine the Federal medical 
     assistance percentage shall be that percentage which bears 
     the same ratio to 45 percent as the square of the adjusted 
     per capita income of Alaska (determined by dividing the 
     State's 3-year average per capita income by 1.25) bears to 
     the square of the per capita income of the 50 States.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     take effect October 1, 2000.
                                 ______
                                 
      By Mr. CONRAD (for himself, Ms. Collins, and Mr. Robb):
  S. 2696. A bill to prevent evasion of United States excise taxes on 
cigarettes, and for other purposes; to the Committee on Finance.


              gray market cigarette compliance act of 2000

  Mr. CONRAD. Mr. President, I am pleased today to join my good friends 
from Maine and Virginia, Ms. Collins and Mr. Robb, in introducing the 
Gray Market Cigarette Compliance Act of 2000. The growth in this gray 
market in cigarettes represents not only an economic threat, but a 
significant public health menace as well. This legislation will provide 
law enforcement with better and more effective tools to fight this 
dangerous intrusion into our marketplace.
  This bill concerns itself with cigarettes manufactured for overseas 
markets that nevertheless find their way into our domestic stream of 
commerce. Even if they have been manufactured in the United States, 
they are not required to comply with U.S. content disclosure and health 
labeling requirements. Thus, when they are brought back into the U.S. 
by gray market profiteers, they represent a serious public health 
concern. And because they are often sold at prices below those of 
products manufactured to comply with our tough cigarette marketing 
laws, they become more attractive and available to children.
  The gray market is unfair competition, plain and simple. Consumers 
often purchase gray market products thinking they are the same as the 
legitimate products manufactured for sale in the U.S. When gray 
marketers bring in cigarettes that are not manufactured in full 
compliance with U.S. law, they mislead unwitting consumers.
  Consumers are not the only ones affected. Gray marketers also harm 
the legitimate wholesalers and retailers who work hard and play by the 
rules by exploiting gray areas in the law in order to gain this unfair 
competitive advantage.
  It is important to stress as well the implications of the gray market 
in cigarettes for states under the tobacco Master Settlement Agreement 
(MSA). One of the major components of the MSA provides that payments to 
states are based on a formula that takes into account the annual volume 
of tobacco sold in each state. Gray market cigarettes are not counted 
under that volume adjustment formula. Therefore, to the extent that 
gray market sales displace sales of cigarettes that are counted in the 
volume adjustment, states could lose a portion of the amounts they 
would otherwise receive under the MSA.
  The Gray Market Cigarette Compliance Act will help consumers, 
retailers, wholesalers, and federal and state governments. It will 
strengthen the hand of law enforcement to combat the sale of gray 
market cigarettes and close loopholes that gray markets have been able 
to exploit. But most importantly, it will help keep cheap cigarettes 
out of the hands of children.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2696

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Gray Market Cigarette 
     Compliance Act of 2000''.

     SEC. 2. FINDINGS.

       Congress finds that additional legislation is necessary to 
     prevent evasion of United States taxes on cigarettes, to 
     ensure that the packages of all cigarettes sold or 
     distributed in the United States bear the health warnings 
     required by Federal law, to ensure compliance with applicable 
     Federal ingredient reporting requirements, and to improve the 
     enforcement of existing United States trademark laws so as to 
     prevent consumer confusion and deception. In support of this 
     finding, Congress has determined that:
       (1) Prevention of federal tax evasion.--
       (A) Cigarettes manufactured in the United States that are 
     labeled and shipped for export are not subject to the excise 
     taxes that otherwise would be payable with respect to such 
     products when removed from the premises of the manufacturer.
       (B) Enforcement difficulties are created for the 
     authorities charged with ensuring that proper taxes are paid 
     whenever export-labeled cigarettes are sold or distributed in 
     the United States.

[[Page S4822]]

       (C) The Balanced Budget Act of 1997 imposed restrictions on 
     the domestic sale or distribution of export-labeled 
     cigarettes, but such provisions have not been adequate to 
     prevent continued evasion of United States taxes on 
     cigarettes.
       (D) Enforcement of Federal cigarette tax laws will be 
     enhanced substantially if cigarettes manufactured in the 
     United States and labeled for export are not sold or 
     distributed in the United States.
       (2) Ensuring compliance with federal health warnings and 
     ingredient reporting requirements.--
       (A) Congress has required that specified warnings appear on 
     the packages of all cigarettes manufactured, packaged, or 
     imported for sale or distribution in the United States.
       (B) Congress has required that each person who 
     manufactures, packages, or imports cigarettes for sale or 
     distribution in the United States annually provide the 
     Secretary of Health and Human Services with a list of the 
     ingredients added to tobacco in the manufacture of such 
     cigarettes.
       (C) The public health objectives of the foregoing 
     requirements will be advanced by adopting additional 
     mechanisms for ensuring that these requirements are met with 
     respect to all cigarettes for sale or distribution in the 
     United States.
       (3) Enforcement of federal trademark laws.--
       (A) Cigarettes manufactured for sale abroad have 
     characteristics that differentiate them in material respects 
     from cigarettes that bear the same trademarks but that are 
     manufactured for sale in the United States.
       (B) Such material differences may include tar and nicotine 
     yields, incentive programs, and quality assurances with 
     respect to distribution and storage.
       (C) When cigarettes bearing trademarks registered in the 
     United States are manufactured for sale or distribution 
     outside the United States but are diverted or reimported for 
     sale or distribution in the United States, there is a 
     substantial risk of consumer confusion and deception. 
     Stickers and other similar devices are inadequate to prevent 
     such confusion and deception.
       (D) In order to effectuate the purposes of the United 
     States trademark laws, including the prevention of consumer 
     confusion and deception, additional legislation is necessary 
     to allow United States trademark holders to enforce fully 
     their rights against infringing cigarettes whether such 
     cigarettes were manufactured in the United States or abroad.

     SEC. 3. RESTRICTIONS ON TOBACCO PRODUCTS INTENDED FOR EXPORT.

       (a) Restrictions on Tobacco Products Intended for Export.--
     Section 5754 of the Internal Revenue Code of 1986 is amended 
     to read as follows:

     ``SEC. 5754. RESTRICTIONS ON TOBACCO PRODUCTS INTENDED FOR 
                   EXPORT.

       ``(a) Export-Labeled Tobacco Products.--Tobacco products 
     and cigarette papers and tubes manufactured in the United 
     States and labeled or shipped for exportation under this 
     chapter--
       ``(1) may be transferred to or removed from the premises of 
     a manufacturer or an export warehouse proprietor only if such 
     articles are being transferred or removed without tax in 
     accordance with section 5704;
       ``(2) except as provided in subsection (b), may be imported 
     or brought into the United States, after their exportation, 
     only if--
       ``(A) the requirements of section 4 of the Gray Market 
     Cigarette Compliance Act of 2000 are satisfied; and
       ``(B) such articles either are eligible to be released from 
     customs custody with the partial duty exemption provided in 
     section 5704(d) or are returned to the original manufacturer 
     of such article as provided in section 5704(c); and
       ``(3) may be sold or held for sale for domestic consumption 
     in the United States only if such articles are removed from 
     their export packaging and repackaged by the original 
     manufacturer or its authorized agent into new packaging that 
     does not contain the mark, label, or notice required by 
     section 5704(b) and complies with all other domestic law 
     applicable to such article.
     This section shall apply to articles labeled for export by 
     the original manufacturer even if the packaging or the 
     appearance of such packaging to the consumer of such articles 
     has been modified or altered by a person other than the 
     original manufacturer or its authorized agent so as to remove 
     or conceal or attempt to remove or conceal (including by the 
     placement of a sticker over) any mark, label, or notice 
     required by section 5704(b). For purposes of this section, 
     sections 5704(d) and 5761, and such other provisions as the 
     Secretary may specify by regulations, references to 
     exportation shall be treated as including a reference to 
     shipment to the Commonwealth of Puerto Rico.
       ``(b) Exceptions for Export-Labeled Tobacco Products for 
     Personal Use.--The restrictions of subsection (a)(2) and the 
     penalty and forfeiture provisions in section 5761(c) shall 
     not apply to personal use quantities of tobacco products and 
     cigarette papers and tubes, as defined in section 
     555(b)(8)(G) of the Tariff Act of 1930 (19 U.S.C 
     1555(b)(8)(G)).
       ``(c) Cross Reference.--Section 5761(c) contains civil 
     penalties related to violations of this section. Section 
     5762(b) contains a criminal penalty applicable to any 
     violation of this section. Section 5763(a)(3) contains 
     forfeiture provisions related to violations of this 
     section.''.
       (b) Clarification of Reimportation Rules.--Section 5704(d) 
     of the Internal Revenue Code of 1986 (relating to tobacco 
     products and cigarette papers and tubes exported and 
     returned) is amended by--
       (1) striking ``a manufacturer of'' and inserting ``the 
     original manufacturer, or its authorized agent, of such''; 
     and
       (2) inserting ``authorized by such manufacturer to receive 
     such articles'' after ``proprietor of an export warehouse''.
       (c) Conforming Amendments.--
       (1) Section 5761(e) is amended by adding at the end the 
     following: ``For an exception to the application of the 
     penalty under subsection (c), see section 5754(b).''.
       (2) Section 5763(a) of the Internal Revenue Code of 1986 is 
     amended by adding at the end the following new paragraph:
       ``(3) Export-labeled tobacco products or cigarette papers 
     or tubes.--Any tobacco product, cigarette paper, or tube that 
     was imported or brought into the United States, or is sought 
     to be imported or brought into the United States in violation 
     of section 5754(a)(2), or that is sold or being held for sale 
     in violation of section 5754(a)(3), shall be forfeited to the 
     United States. Notwithstanding any other provision of law, 
     any product forfeited to the United States pursuant to this 
     section shall be destroyed.''.
       (d) Clerical Amendment.--The item relating to section 5754 
     in the table of sections for subchapter F of chapter 52 of 
     the Internal Revenue Code of 1986 is amended to read as 
     follows:

Sec. 5754. Restrictions on tobacco products intended for export.

     SEC. 4. REQUIREMENTS APPLICABLE TO CIGARETTE IMPORTS.

       (a) Definitions.--As used in this section:
       (1) Secretary.--Except as otherwise indicated, the term 
     ``Secretary'' means the Secretary of the Treasury.
       (2) Primary packaging.--The term ``primary packaging'' 
     refers to the permanent packaging inside of the innermost 
     cellophane or other transparent wrapping and labels, if any. 
     Warnings or other statements shall be deemed ``permanently 
     imprinted'' only if printed directly on such primary 
     packaging and not by way of stickers or other similar 
     devices.
       (b) Requirements for Entry of Cigarettes.--
       (1) General rule.--Except as provided in paragraph (2), 
     cigarettes (whether originally manufactured in the United 
     States or in a foreign country) may be imported or brought 
     into the United States only if--
       (A) the manufacturer of those cigarettes has timely 
     submitted, or has certified that it will timely submit to the 
     Secretary of Health and Human Services the lists of the 
     ingredients added to the tobacco in the manufacture of such 
     cigarettes as described in section 7 of the Federal Cigarette 
     Labeling and Advertising Act (15 U.S.C. 1335a);
       (B) the precise warning statements in the precise format 
     specified in section 4 of such Act (15 U.S.C. 1333) are 
     permanently imprinted on both--
       (i) the primary packaging of all those cigarettes; and
       (ii) any other pack, box, carton, or container of any kind 
     in which those cigarettes are to be offered for sale or 
     otherwise distributed to consumers;
       (C) the manufacturer or importer of those cigarettes is in 
     compliance as to those cigarettes being imported or brought 
     into the United States with a rotation plan approved by the 
     Federal Trade Commission pursuant to section 4(c) of such Act 
     (15 U.S.C. 1333(c));
       (D) those cigarettes do not bear a trademark registered in 
     the United States for cigarettes, or if those cigarettes do 
     bear a trademark registered in the United States for 
     cigarettes, the owner of such United States trademark 
     registration for cigarettes (or a person authorized to act on 
     behalf of such owner) has consented to the importation of 
     such cigarettes into the United States; and
       (E) the importer has submitted at the time of entry all of 
     the certificates described in paragraph (3).
       (2) Exemptions.--Cigarettes satisfying the conditions of 
     any of the following subparagraphs shall not be subject to 
     the requirements of paragraph (1):
       (A) Personal-use cigarettes.--Cigarettes that are imported 
     or brought into the United States in personal use quantities 
     as defined in section 555(b)(8)(G) of the Tariff Act of 1930 
     (19 U.S.C 1555(b)(8)(G)).
       (B) Cigarettes brought into the united states for 
     analysis.--Cigarettes that are imported or brought into the 
     United States solely for the purpose of analysis in 
     quantities suitable for such purpose, but only if the 
     importer submits at the time of entry a certificate signed, 
     under penalties of perjury, by the consignee (or a person 
     authorized by such consignee) providing such facts as may be 
     required by the Secretary to establish that such consignee is 
     a manufacturer of cigarettes, a Federal or State government 
     agency, a university, or is otherwise engaged in bona fide 
     research and stating that such cigarettes will be used solely 
     for analysis and will not be sold in domestic commerce in the 
     United States.
       (C) Cigarettes intended for noncommercial use, reexport, or 
     repackaging.--Cigarettes--
       (i) that are being imported or brought into the United 
     States for delivery to the original

[[Page S4823]]

     manufacturer of such cigarettes, or to a cigarette 
     manufacturer or an export warehouse authorized by such 
     original manufacturer;
       (ii) that do not bear a trademark registered in the United 
     States for cigarettes, or if those cigarettes do bear a 
     trademark registered in the United States for cigarettes, 
     cigarettes for which the owner of such United States 
     trademark registration for cigarettes (or a person authorized 
     to act on behalf of such owner) has consented to the 
     importation of such cigarettes into the United States; and
       (iii) for which the importer submits a certificate signed 
     by the manufacturer or export warehouse (or a person 
     authorized by such manufacturer or export warehouse) to which 
     such cigarettes are to be delivered (as provided in clause 
     (i)) stating, under penalties of perjury, with respect to 
     those cigarettes, that it will not distribute those 
     cigarettes into domestic commerce unless prior to such 
     distribution all steps have been taken to comply with 
     subparagraphs (A), (B), and (C) of paragraph (1), and, to the 
     extent applicable, section 5754(a)(3) of the Internal Revenue 
     Code of 1986.
     For purposes of this subsection, a trademark is registered in 
     the United States if it is registered in the Patent and 
     Trademark Office under the provisions of title I of the Act 
     of July 5, 1946 (popularly known as the Trademark Act of 
     1946), and a copy of the certificate of registration of such 
     mark has been filed with the Secretary. The Secretary shall 
     make available to interested parties a current list of the 
     marks so filed.
       (3) Customs certifications required for cigarette 
     imports.--The certificates that must be submitted by the 
     importer of cigarettes at the time of entry in order to 
     comply with paragraph (1)(E) are--
       (A) a certificate signed by the manufacturer of such 
     cigarettes or an authorized official of such manufacturer 
     stating under penalties of perjury with respect to those 
     cigarettes, that such manufacturer has timely submitted, and 
     will continue to submit timely, to the Secretary of Health 
     and Human Services the ingredient reporting information 
     required by section 7 of the Federal Cigarette Labeling and 
     Advertising Act (15 U.S.C. 1335a);
       (B) a certificate signed by such importer or an authorized 
     official of such importer stating under penalties of perjury 
     that--
       (i) the precise warning statements in the precise format 
     required by section 4 of the such Act (15 U.S.C. 1333) are 
     permanently imprinted on both--

       (I) the primary packaging of all those cigarettes; and
       (II) any other pack, box, carton, or container of any kind 
     in which those cigarettes are to be offered for sale or 
     otherwise distributed to consumers; and

       (ii) with respect to those cigarettes being imported or 
     brought into the United States, such importer has complied, 
     and will continue to comply, with a rotation plan approved by 
     the Federal Trade Commission pursuant to section 4(c) of such 
     Act (15 U.S.C. 1333(c)); and
       (C) either--
       (i) a certificate signed by such importer or an authorized 
     official of such importer stating under penalties of perjury 
     that those cigarettes and the packages containing those 
     cigarettes do not bear a trademark registered in the United 
     States for cigarettes; or
       (ii) if those cigarettes do bear a trademark registered in 
     the United States for cigarettes--

       (I) a certificate signed by the owner of such United States 
     trademark registration for cigarettes (or a person authorized 
     to act on behalf of such owner) stating under penalties of 
     perjury that such owner (or authorized person) consents to 
     the importation of such cigarettes into the United States; 
     and
       (II) a certificate signed by such importer or an authorized 
     official of such importer stating under penalties of perjury 
     that the consent referred to in clause (i) is accurate, 
     remains in effect, and has not been withdrawn.

     The Secretary may provide by regulation for the submission of 
     certifications under this subsection in electronic form if 
     prior to the entry of any cigarettes into the United States, 
     the person required to provide such certifications submits to 
     the Secretary a written statement, signed under penalties of 
     perjury, verifying the accuracy and completeness of all 
     information contained in such electronic submissions.
       (c) Enforcement.--
       (1) Civil penalty.--Any person who violates a provision of 
     subsection (b) shall, in addition to the tax and any other 
     penalty provided by law, be liable for a civil penalty for 
     each violation equal to the greater of $1,000 or 5 times the 
     amount of the tax imposed by chapter 52 of the Internal 
     Revenue Code of 1986 on all cigarettes that are the subject 
     of such violation.
       (2) Forfeitures.--Any tobacco product, cigarette papers, or 
     tube that was imported or brought into the United States or 
     is sought to be imported or brought into the United States in 
     violation of, or without meeting the requirements of, 
     subsection (b) shall be forfeited to the United States. 
     Notwithstanding any other provision of law, any product 
     forfeited to the United States pursuant to this section shall 
     be destroyed.
       (3) Cross reference.--Section 1621 of title 18, United 
     States Code, contains criminal penalties applicable to the 
     commission of perjury under this section.

     SEC. 5. PENALTIES APPLICABLE TO THE SALE OF CIGARETTES NOT IN 
                   COMPLIANCE WITH LABELING REQUIREMENTS.

       (a) Civil Penalty.--Any person who sells or holds for sale 
     for domestic consumption any cigarettes for which the precise 
     warning statements in the precise format required by section 
     4 of the Cigarette Labeling and Advertising Act (15 U.S.C. 
     1333) are not permanently imprinted on both--
       (1) the primary packaging of all those cigarettes; and
       (2) any other pack, box, carton, or container of any kind 
     in which those cigarettes are offered for sale, sold, or 
     otherwise distributed to consumers,
     shall, in addition to the tax and any other penalty provided 
     in this title, be liable for a penalty for each violation 
     equal to the greater of $1,000 or 5 times the amount of the 
     tax imposed by chapter 52 of the Internal Revenue Code of 
     1986 on all cigarettes that are the subject of such 
     violation.
       (b) Forfeitures.--Cigarettes that are sold, or are being 
     held for domestic sale, in the United States (and not for 
     export or duty-free sale) shall be forfeited to the United 
     States if the precise warning statements in the precise 
     format required by section 4 of the Federal Cigarette 
     Labeling and Advertising Act (15 U.S.C. 1333) are not 
     permanently imprinted on both--
       (1) the primary packaging of all those cigarettes; and
       (2) any other pack, box, carton, or container of any kind 
     in which those cigarettes are offered for sale, sold, or 
     otherwise distributed to consumers.
       (c) Enforcement.--The provisions of this section shall be 
     enforced by the Secretary of the Treasury through the Bureau 
     of Alcohol, Tobacco, and Firearms and such other agencies 
     within the Department of the Treasury as the Secretary may 
     determine.
       (d) Treatment of transfers.--Transfers of cigarettes that 
     meet the requirements for transfer or removal free of tax 
     under section 5704 of the Internal Revenue Code of 1986 and 
     transfers of cigarettes pursuant to section 4(b) of this Act 
     shall not be treated as sales for domestic consumption under 
     this section.
       (e) Destruction of Forfeited Articles.--Notwithstanding any 
     other provision of law, any article forfeited to the United 
     States pursuant to this section shall be destroyed.
       (f) Definitions.--For purposes of this section, the term 
     ``primary packaging'' shall refer to the permanent packaging 
     inside of the innermost cellophane or other transparent 
     wrapping and labels, if any. Warnings or other statements 
     shall be deemed ``permanently imprinted'' only if printed 
     directly on such primary packaging and not by way of stickers 
     or other similar devices.

     SEC. 6. EFFECTIVE DATES.

       (a) In General.--Except as provided in subsection (b), this 
     Act, and the amendments made by this Act, shall take effect 
     upon the date of enactment of this Act. Nothing in this 
     subsection shall be construed to affect the effective date of 
     the provisions of section 9302 of the Balanced Budget Act of 
     1997 (Public Law 105-33).
       (b) Exceptions.--The amendments to sections 5754(a)(3) and 
     5763(a)(3) of the Internal Revenue Code of 1986, and the 
     provisions of sections 4 and 5 of this Act shall take effect 
     after the date which is 60 days after the date of enactment 
     of this Act.

     SEC. 7. STUDY.

       The Director of the Bureau of Alcohol, Tobacco, and 
     Firearms shall study whether the penalties imposed under 
     sections 5761, 5762, and 5763 of the Internal Revenue Code of 
     1986 are adequate to enforce the provisions of sections 
     5704(d) and 5754 of such Code and report the results of such 
     study to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate 
     within 1 year of the date of enactment of this Act.

     SEC. 8. SEVERABILITY.

       If any provision of this section is held to be invalid as 
     it relates to any particular circumstance, such provision 
     shall remain valid under all other circumstances, and all 
     other provisions of this section shall remain in full force 
     and effect. If any provision of this section is held to be 
     invalid in its entirety, all other provisions of this section 
     shall remain in full force and effect.

     SEC. 9. SAVINGS.

       The civil or criminal penalties and remedies provided by 
     this Act and any other civil or criminal penalty and remedy 
     provided by chapter 52 of the Internal Revenue Code of 1986 
     and section 4 of this Act that are applicable to any 
     violation shall not be exclusive, but shall be in addition to 
     any other remedy provided by law.
                                 ______
                                 
      By Mr. LUGAR (for himself, Mr. Gramm, and Mr. Fitzgerald):
  S. 2697. A bill to reauthorize and amend the Commodity Exchange Act 
to promote legal certainty, enhance competition, and reduce systemic 
risk in markets for futures and over-the-counter derivatives, and for 
other purposes; to the Committee on Agriculture, Nutrition, and 
Forestry.


            the commodity futures modernization act of 2000

 Mr. LUGAR. Mr. President, I rise today with Senator Gramm, 
distinguished Chairman of the Senate Banking Committee, and Senator 
Fitzgerald, distinguished Chairman of the Subcommittee on Research, 
Nutrition and General Legislation of the Senate Agriculture Committee, 
to introduce

[[Page S4824]]

legislation to reauthorize the Commodity Exchange Act (CEA), which 
lapses on September 30th of this year. The Commodity Futures 
Modernization Act of 2000 would reauthorize the Commodity Exchange Act 
(CEA) for five additional years and would reform the Commodity Exchange 
Act in three primary ways. First, it would incorporate the unanimous 
recommendations of the President's Working Group (PWG) on the proper 
legal and regulatory treatment of over-the-counter (OTC) derivatives. 
Second, it would codify the regulatory relief proposal of the Commodity 
Futures Trading Commission (CFTC) to ensure that futures exchanges are 
appropriately regulated and remain competitive. Lastly, this 
legislation would reform the Shad-Johnson jurisdictional accord, which 
banned single stock futures 18 years ago.
  Derivative instruments, both exchange-traded and over-the-counter 
(OTC), have played a significant role in our economy's current 
expansion due to their innovative nature and their risk-transferring 
attributes. According to the International Swaps and Derivatives 
Association, the global derivatives market has a notional value that 
exceeds $58 trillion and it has grown at a rate exceeding 20 percent 
since 1990. Identified by Alan Greenspan as the ``most significant 
event in finance of the past decade,'' the development of the 
derivatives market has substantially added to the productivity and 
wealth of our nation.
  Derivatives enable companies to unbundle and transfer risk to those 
entities who are willing and able to accept it. By doing so, efficiency 
is enhanced as firms are able to concentrate on their core business 
objective. A farmer can purchase a futures contract, one type of 
derivative, in order to lock in a price for his crop at harvest. 
Automobile manufacturers, whose profits earned overseas can fluctuate 
with changes in currency values, can minimize this uncertainty through 
derivatives, allowing them to focus on the business of building cars. 
Banks significantly lessen their exposure to interest rate movements by 
entering into derivatives contracts known as swaps, which enable these 
institutions to hedge their risk by exchanging variable and fixed rates 
of interests.
  Signed into law in 1974, the Commodity Exchange Act requires that 
futures contracts be traded on a regulated exchange. As a result, a 
futures contract that is traded off an exchange is illegal and 
unenforceable. When Congress enacted the CEA and the Commodity Futures 
Trading Commission (CFTC) to enforce it, this was not a concern. The 
meanings of `futures' and `exchange' were relatively apparent. 
Furthermore, the over-the-counter derivatives business was in its 
infancy. However, in the 26 years since the statute's creation, the OTC 
swaps and derivatives market, sparked by innovation and technology, has 
significantly outpaced the exchange-traded futures markets. And along 
with this expansion, the definitions of a swap and a future began to 
blur.
  In 1998, the CFTC released a concept release on OTC derivatives, 
which was perceived by many as a precursor to regulating these 
instruments as futures. Just the threat of reaching this conclusion 
could have had considerable ramifications, given the size and 
importance of the OTC market. The legal uncertainty interjected by this 
dispute jeopardized the entirety of the OTC market and threatened to 
move significant portions of the business overseas. If we were to 
lose this market, most likely to London, it would take years to bring 
it back to U.S. soil. The resulting loss of business and jobs would be 
immeasurable.

  This threat led the Treasury Department, the Federal Reserve, and the 
SEC to oppose the concept release and request that Congress enact a 
moratorium on the CFTC's ability to regulate these instruments until 
after the President's Working Group (PWG) could complete a study on the 
issue. As a result, Congress passed a six-month moratorium on the 
CFTC's ability to regulate over-the-counter derivatives. Despite 
reservations, I supported this moratorium because it brought legal 
assurance to this skittish market and it allowed the President's 
Working Group time to develop recommendations on the most appropriate 
legal treatment of OTC derivatives. In November 1999, the President's 
Working Group completed its unanimous recommendations on OTC 
derivatives and presented Congress with these findings.
  This legislation adopts much of the recommendations of the PWG 
report. Our bill contains three mechanisms for ensuring that legal 
certainty is attained and that certain transactions remain outside the 
Commodity Exchange Act. The first, the electronic trading facility 
exclusion, would exclude transactions in financial and energy 
commodities from the Act if conducted: (1) on a principal to principal 
basis; (2) between institutions or sophisticated persons with high net 
worth; and (3) on an electronic trading facility. The second would 
exclude these transactions if (1) they are conducted between 
institutions or sophisticated persons with high net worth; and (2) they 
are not on a trading facility. The third exclusion clarifies the 
Treasury Amendment language already contained in the CEA. It would 
exclude all transactions in foreign currency and government securities 
from the Act unless those transactions are futures contracts and traded 
on an organized exchange. As recommended by the PWG, the bill would 
give the CFTC jurisdiction over non-regulated off-exchange retail 
futures transactions in foreign currency. Another important 
recommendation of the PWG was to authorize futures clearing facilities 
to clear OTC derivatives in an effort to lessen systemic risk and this 
bill incorporates this finding.
  As part of this legal certainty section, our legislation also 
addresses the concern that excluding OTC derivatives from the futures 
laws will invite the SEC to regulate these products as securities. With 
Senator Gramm's leadership, this legislation would adopt language that 
would ensure that these products maintain their current regulatory 
status and remain healthy and competitive.
  The second major section of this legislation addresses regulatory 
relief. In February of this year, the CFTC issued a regulatory relief 
proposal that would provide relief to futures exchanges and their 
customers. Instead of listing specific requirements for complying with 
the CEA, the proposal would require exchanges to meet internationally 
agreed-upon core principals. The CFTC proposal creates tiers of 
regulation for exchanges based on whether the underlying commodities 
being traded are susceptible to manipulation or whether the users of 
the exchange are limited to institutional customers.
  The legislation incorporates this framework. A board of trade that is 
designated as a contract market would receive the highest level of 
regulation due to the fact that these products are susceptible to 
manipulation or are offered to retail customers. Futures on 
agricultural commodities would fall into this category. This bill also 
sets out that in lieu of contract market designation, a board of trade 
may register as a Derivatives Transaction Execution Facility (DTEF) if 
the products being offered are not susceptible to manipulation and are 
traded among institutional customers or retail customers who use large 
Futures Commission Merchants (FCMs) who are members of a clearing 
facility. Lastly, a board of trade may choose to be an Exempt Board of 
Trade (XBOT) and not be subject to the Act (except for the CFTC's anti-
manipulation authority) if the products being offered are traded among 
institutional customers only (absolutely no retail) and the instruments 
are not susceptible to manipulation. Our bill would allow a board of 
trade that is a DTEF or an XBOT to opt to trade derivatives that are 
otherwise excluded from the Act on these facilities and to the extent 
that these products are traded on these facilities, the CFTC would have 
exclusive jurisdiction over them. With this provision, the intent is to 
provide these facilities that trade derivatives with a choice--if 
regulation is beneficial, the facility may choose to be regulated. If 
not, the facility may choose to be excluded or exempted from the Act.

  The bill's last section addresses the Shad-Johnson jurisdictional 
accord. In 1982, SEC Chairman John Shad and CFTC Chairman Phil Johnson 
reached an agreement on dividing jurisdiction between the agencies for 
those products that had characteristics of both securities and futures. 
Known as the Shad-Johnson Accord, this agreement prohibited single 
stock futures and delineated jurisdiction between the SEC

[[Page S4825]]

and the CFTC on stock index futures and other options.
  Meant as a temporary agreement, many have suggested that the Shad-
Johnson accord should be repealed. The President's Working Group 
unanimously agreed that the Accord can be repealed if regulatory 
disparities are resolved between the regulation of futures and 
securities. Recently, the General Accounting Office (GAO) released a 
report that found that there is no legitimate policy reasons for 
maintaining the ban on single stock futures since they are being traded 
in foreign markets, in the OTC market, and synthetically in the options 
markets. Senator Gramm, chairman of the Senate Banking Committee, and I 
sent a letter in December requesting the CFTC and the SEC to make 
recommendations on reforming the Shad-Johnson. On March 2, the SEC and 
CFTC responded that, although progress had been made, the agencies 
could not resolve these issues before October. Disappointment with this 
answer led Senator Gramm and I to once again ask SEC Chairman Arthur 
Levitt and CFTC Chairman Bill Rainer to attempt to resolve the problems 
surrounding lifting the ban. Unfortunately, the agencies were not able 
to reach an agreement within our time-frame.
  This legislation would repeal the prohibition on single stock futures 
and narrow-based stock index futures. It would allow these products, 
termed designated futures on securities, to trade on either a CFTC-
regulated contract market or a SEC-regulated national securities 
exchange or association. The SEC would maintain its insider trading and 
antifraud enforcement authority over these products traded on a 
contract market and the CFTC would maintain its anti-manipulation 
authority, including large trader reporting, over these products traded 
on a national securities exchange or association. Margin levels on 
these products would be harmonized with the options markets. The bill 
would provide the regulators with one year after enactment to resolve 
any remaining issues.
  The goal of this legislation is to ensure that the United States 
remains a global leader in the derivatives marketplace and that these 
markets are appropriately and effectively regulated. Due to the 
shortened legislative calendar in this election year, it will be 
difficult to pass this bill without momentum and a strong base of 
support. If Congress fails to enact a bill, we will begin the debate 
again next year. However, in this technology-driven economy, a one year 
delay is an eternity. Legal uncertainty for OTC derivatives will remain 
and our futures markets will continue to lose market share due in part 
to an outdated regulatory structure. For this reason, it is imperative 
that Congress enact thoughtful legislation this year when it has a 
golden opportunity to do so.
  I ask unanimous consent that a section by section analysis of this 
bill be included in the Record immediately after my statement.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  Section-by-Section Analysis--Commodity Futures Modernization Act of 
                                  2000

       Sec. 1. Short Title and Table of Contents. The Act is 
     entitled the Commodity Futures Modernization Act of 2000
       Sec. 2. Purposes. The section lists 8 purposes for the bill 
     including reauthorizing and streamlining the Commodity 
     Exchange Act (CEA); eliminating unnecessary regulation for 
     the futures exchanges; clarifying the jurisdiction of the 
     CFTC over certain retail foreign currency transactions; 
     transforming the role of the Commodities Futures Trading 
     Commission (CFTC); providing a legislative and regulatory 
     framework for the trading of futures on securities; promoting 
     innovation and reducing systemic risk for futures and over-
     the-counter (OTC) derivatives; allowing clearing of OTC 
     derivatives and enhancing the competitive position of the 
     U.S. financial institutions and markets.
       Sec. 3. Definitions. Adds definitions to section 1(a) of 
     the CEA for the following terms: derivatives clearing 
     organizations; designated future on a security; electronic 
     trading facility; eligible contract participant; energy 
     commodity; exclusion-eligible commodity; exempted security; 
     financial commodity; financial institution, hybrid 
     instrument; national securities exchange; option organized 
     exchange; registered entity; security and trading facility.
       Sec. 4. Agreements, Contracts, and Transactions in Foreign 
     Currency, Government Securities and Certain Other 
     Commodities. Strikes 2(a)(1)(A)(ii) (the current law Treasury 
     Amendment) and replaces it with a new subsection 2(c), which 
     states that nothing in the CEA applies to transactions in 
     foreign currency, government securities and other similar 
     instruments unless these instruments are futures traded on an 
     organized exchange. The bill defines ``organized exchange'' 
     as a trading facility that either allows retail customers, 
     permits agency trades, or has a self regulatory role. 
     Subparagraph (2)(B) provides the CFTC with jurisdiction over 
     retail foreign currency transactions that are not traded on 
     an organized exchange and that are not regulated by another 
     federal regulator.
       Sec. 5. Legal Certainty for Over-the-Counter Transactions. 
     Amends section 2 of the CEA to create a new subsection 2(d), 
     which provides two exclusions from the CEA for over-the-
     counter derivatives. Section 2(d)(1) provides that nothing in 
     the CEA applies to transactions in an exclusive-eligible 
     commodity if the transaction: (1) is between eligible 
     contract participants (large, institutional entities) and (2) 
     is not executed on a trading facility. The second exclusion 
     in paragraph (d)(2) provides that nothing in the CEA shall 
     apply to a transaction in exclusion-eligible commodity if the 
     transaction: (1) is entered into on a principal to principal 
     basis between parties trading for their own accounts; (2) is 
     between eligible contract participants (large, institutional 
     entities) and (3) is executed on an electronic trading 
     facility. Paragraph (d)(3) provides that derivatives on 
     energy commodities (i.e., energy swaps) that have been 
     excluded from the CEA would be subject to anti-manipulation 
     provisions of the CEA.
       Sec. 6. Excluded Electronic Trading Facilities. Amends 
     section 2 of the CEA to create a new subsection 2(e) that 
     provides that trading instruments that are otherwise excluded 
     from the CEA on an electronic trading facility does not 
     subject the transactions to the CEA. Paragraph (c)(2) 
     states that nothing in the DEA shall prohibit a contract 
     market or derivatives transaction execution facility from 
     establishing and operating an excluded electronic trading 
     facility.
       Sec. 7. Hybrid Instruments. Amends section 2 of the CEA to 
     create a new subsection 2(f) that provides that nothing in 
     the CEA applies to a hybrid instrument that is predominantly 
     a security to mean any hybrid instrument in which (1) the 
     issuer of the instrument receives payment in full of the 
     purchase price at the time the instrument is delivered; (2) 
     the purchaser is not required to make additional payments; 
     (3) the issuer of the instrument is not subject to mark-to-
     market margining requirements; and (4) the instrument is not 
     marketed as a futures contract. Paragraph (f)(3) clarifies 
     that mark-to-market requirements do not include the 
     obligation of an issuer of a secured debt instrument to 
     increase the amount of collateral for the instrument.
       Sec. 8. Futures on Securities. Amends section 2 of the CEA 
     by adding a new subsection 2(g) that repeals the Shad Johnson 
     jurisdictional accord. The new section 2(g)(1) is a savings 
     clause to ensure that excluded OTC equity derivatives remain 
     outside the CEA and the jurisdiction of the CFTC. This 
     paragraph also prohibits the CFTC from designating a board of 
     trade as a contract market in options on securities (as in 
     current law).
       Paragraph (2) allows the trading of futures on security 
     indexes on contract markets. Gives the CETC exclusive 
     jurisdiction in regulating these futures. In order for these 
     products to be designated as a contract market, the contracts 
     must be cash settled and must not be susceptible to 
     manipulation (applies to both the price of the contract or 
     the underlying securities (or an option on such securities)).
       Paragraph (3) allows the trading of designated futures on 
     securities (defined in the bill as a contract for future 
     delivery on a single non-exempted security, an index based on 
     fewer than 5 non-exempted securities or an index in which a 
     single stock predominates by its value accounting for more 
     than 30 percent of the index's total value). The Act 
     authorizes these products to be traded on designated contract 
     markets and national securities exchanges or associations.
       Paragraph (4) provides criteria for contract market 
     designation of these products including: cash settlement; 
     real-time audit trails; insusceptibility to price 
     manipulation (both of the contract and the underlying stock 
     or an option on that stock); eligibility for listing on a 
     national securities exchange; margin requirements; conflict 
     of interest rules; and making information available to the 
     regulators.
       Paragraph (5) authorizes the SEC to enforce the securities 
     laws related to insider trading and fraud with respect to 
     designated futures on securities listed on a contract market. 
     This paragraph also requires the SEC and the CFTC, beginning 
     three years from the date of enactment, to jointly compile a 
     report on the implementation of this new authority and, 
     four years after the date of enactment, to submit the 
     report to Congress.
       Paragraph (6) authorizes the CFTC to enforce its large 
     trader reporting and other antifraud and antimanipulation 
     authorities for designated futures on securities listed on a 
     national securities exchange. It requires national securities 
     exchanges to provide the CFTC information to enforce these 
     provisions.
       Paragraph (7) provides the process for listing a designated 
     future on security on either a futures exchange or national 
     securities exchange.
       As in current law, paragraph (8) provides the Federal 
     Reserve with the authority to

[[Page S4826]]

     set margin and delegate this authority. The paragraph would 
     allow the Federal Reserve to create a three member board 
     consisting of members of the CFTC, SEC and the Federal 
     Reserve to set and maintain margin levels on designated 
     futures on securities.
       Sec. 9. Protection of the Public Interest. Replaces section 
     3 of the CEA with a new section listing the responsibilities 
     of the CFTC in protecting the public interest. These include: 
     ensuring the financial integrity of all transactions subject 
     to the Act; protecting market participants from fraud and 
     manipulation; preventing market manipulation and minimizing 
     the risk of systemic failure; and promoting financial 
     innovation and fair competition.
       Sec. 10. Prohibited Transactions. Re-writes the current 
     section 4c for clarity and adds a new provision (sec. 
     4c(a)(3)(B)) to allow futures commission merchants to trade 
     futures off the floor of a futures exchange as long as the 
     board of trade allows such transactions and the FCMs report, 
     record and clear the transactions in accordance with the 
     rules of the contract market or derivatives trading execution 
     facility.
       Sec. 11. Designation of Boards of Trade as Contract 
     Markets. Strikes current law sections 5 and 5a and adds a new 
     section 5 providing for the designation of boards of trade as 
     contract markets. Subsection (b) contains criteria that 
     boards of trade must meet in order to be designated as a 
     contract market. These include establishing and enforcing 
     rules preventing market manipulation; ensuring fair and 
     equitable trading; specifying how the trade execution 
     facility operates--including any electronic matching systems; 
     ensuring the financial integrity of transactions; 
     disciplining members or market participants who violate the 
     rules; allowing for public access to the board of trade rules 
     and enabling the board of trade to obtain information in 
     order to enforce its rules. Existing contract markets are 
     grand fathered in.
       The 17 core principles that must be met to maintain 
     designation as a contract market are contained in (d) and 
     provide that the board of trade must: monitor and enforce 
     compliance with the contract market rules; list only 
     contracts that are not susceptible to manipulation; monitor 
     trading to prevent manipulation, price distortion and 
     delivery or settlement disruptions; adopt position limits for 
     speculators; adopt rules to provide for the exercise of 
     emergency authority, including the authority to liquidate 
     or transfer open positions, suspend trading and make 
     margin calls; make available the terms and conditions of 
     the contracts and the mechanisms for executing 
     transactions; publish daily information on prices, bids, 
     offers, volume, open interest, and opening and closing 
     ranges; provide a competitive, open and efficient market 
     and mechanism for executing transactions; provide for the 
     safe storage of all trade information in a readily usable 
     manner to assist in fraud prevention; provide for the 
     financial integrity of the contracts, the futures 
     commission merchants and customer funds; protect market 
     participants from abusive practices; provide for 
     alternative dispute resolutions for market participants 
     and intermediaries; establish and enforce rules regarding 
     fitness standards for those involved in market governance; 
     ensure that the governing board reflects the composition 
     of the market participants (in the case of mutually owned 
     exchanges); maintain records and make them available at 
     any time for inspection by the Attorney General; and avoid 
     taking any action that restrains trade or imposes 
     anticompetitive burdens on the markets.
       Sec. 12. Derivatives Transaction Execution Facilities. 
     Amends the CEA by adding a new section 5a authorizing a new 
     trading designation, derivatives transaction execution 
     facility (DTEF). Under (b), a board of trade may elect to 
     operate as a DTEF rather than a contract market if they meet 
     the DTEF designation requirements. A registered DTEF may 
     trade any non-designated futures contract if the commodity 
     underlying the contract has a nearly inexhaustible supply, is 
     not susceptible to manipulation and does not have a cash 
     market in commercial practice. Eligible DTEF traders include 
     authorized contract market participants and persons trading 
     through registered futures commission merchants with capital 
     of at least $20,000,000 that are members of a futures self-
     regulatory organization (SRO) and a clearing organization. 
     Boards of trade that have been designated as contract markets 
     may operate as DTEFs if they provide a separate location for 
     DTEF trading or, in the case of an electronic system, 
     identify whether the trading is on a DTEF or contract market.
       Subsection (c) provides requirements for boards of trade 
     that wish to register as DTEFs, including: establishing and 
     enforcing trading rules that will deter abuses and provide 
     market participants impartial access to the markets and 
     capture information that may be used in rule enforcement; 
     define trading procedures to be used; and provide for the 
     financial integrity of DTEF transactions.
       To maintain registration as a DTEF, the board of trade must 
     comply with 8 core principles listed in (d): maintain and 
     enforce rules; ensure orderly trading and provide trading 
     information to the CFTC; publicly disclose information 
     regarding contract terms, trading practices, and financial 
     integrity protections; provide information on prices, bids 
     and offers to market participants as well as daily 
     information in volume and open interest for the actively 
     traded contracts; establish and enforce rules regarding 
     fitness standards for those involved in DTEF governance; 
     maintain records and make them available at any time for 
     inspection by the Attorney General; and avoid taking any 
     action that restrains trade or imposes anticompetitive 
     burdens on the markets.
       Subsection (e) allows a broker-dealer or a bank in good 
     standing to act as an intermediary on behalf of its customers 
     and to receive customer funds serving as margin or security 
     for the customer's transactions. If the broker-dealer holds 
     the DTEF customer funds or accounts for more than 1 business 
     day, the broker-dealer must be a registered FCM and a member 
     of a registered futures association. The CFTC and SEC are to 
     coordinate in adopting rules to implement this subsection.
       Under (f), the CFTC may adopt regulations to allow FCMs to 
     give their customers the right to not segregate customer 
     funds for purposes of trading on the DTEF.
       Subsection (g) clarifies that a DTEF may trade derivatives 
     that otherwise would be excluded from the CEA and the CFTC 
     has exclusive jurisdiction only when these instruments are 
     traded on a DTEF.
       Sec. 13. Derivatives Clearing Organizations. Amends the CEA 
     to create a new section 5b regarding derivatives clearing 
     organizations. Under subsection (a), these clearing entities, 
     which are allowed to clear derivatives (that are not a 
     security), must register with the CFTC and meet a set of 14 
     core principals set out in subsection (d), including 
     principals on financial resources of the clearing facility, 
     participant eligibility, risk management systems, settlement 
     procedures, treatment of client funds, default rules, rule 
     enforcement, system safeguards, reporting, record keeping, 
     public information disclosure, information sharing, and 
     minimizing competitive restraints.
       Under subsection (b), a derivatives clearing organization 
     will not have to register with the CFTC if it is registered 
     with another federal financial regulator and it does not 
     clear futures. Under subsection (c), a derivatives clearing 
     organization that is exempt from registration may opt to 
     register with the CFTC. Subsection (e) provides that existing 
     clearing entities that clear futures contracts on a 
     designated contract market will be grand fathered in as a 
     derivatives clearing organization.
       Sec. 14. Common Provisions Applicable to Registered 
     Entities. Amends the CEA to create a new section 5c that 
     contains provisions affecting all registered entities 
     (contract markets, derivatives transaction execution 
     facilities and derivatives clearing organizations).
       Subsection (a) would allow the CFTC to issue or approve 
     interpretations to describe what would constitute an 
     acceptable business practice under the core principals for 
     registered entities.
       Subsection (b) would allow a registered entity to delegate 
     its self regulatory functions to a registered futures 
     association, while specifying that responsibility for 
     carrying out these functions remain with the registered 
     entity.
       Subsection (c) would enable the registered entity to trade 
     new products or adopt or amend rules by providing the CFTC a 
     written certification that the new contract or new rule or 
     amendment complies with the CEA. This subsection would allow 
     a registered entity to request that the CFTC grant prior 
     approval of a new contract, new rule or rule amendment. This 
     subsection would require the CFTC to pre-approve rule changes 
     to open agricultural contracts.
       Subsection (d) grants the CFTC the authority to informally 
     resolve potential violations of the core principals for 
     registered entities.
       Sec. 15. Exempt Boards of Trade. Amends the CEA to create a 
     new section 5d regarding exempt boards of trade. Under 
     subsections (a) and (b), futures contracts traded on an 
     exempt board of trade would be exempt from the CEA (except 
     section 2(g) regarding equity futures) if (1) participants 
     are eligible contract participants (large institutional 
     investors) and (2) the commodity underlying the futures 
     contract has an inexhaustible deliverable supply, is not 
     subject to manipulation, or has no cash market. Subsection 
     (c) subjects futures contracts traded on an exempt board of 
     trade to the anti-fraud and anti-manipulation provisions of 
     the CEA. Under subsection (d), if the CFTC finds that an 
     exempt board of trade is a significant source of price 
     discovery for the underlying commodity, the board of trade 
     shall disseminate publicly on a daily basis trading volume, 
     opening and closing price ranges, open interest, and other 
     trading data as appropriate to the market.
       Sec. 16. Suspension or Revocation of Designation as 
     Contract Market. Designates current section 5b as 5d and 
     amends it to authorize the CFTC to suspend the registration 
     of a registered entity for 180 days for any violation of the 
     CEA.
       Sec. 17. Authorization of Appropriations. Amends section 
     12(d) of the CEA by striking 2000 and reauthorizing 
     appropriations through fiscal year 2005.
       Sec. 18. Preemption. Rewrites paragraph 12(e)(2) of the CEA 
     for clarity and to conform with changes made in the bill. Re-
     states the current provisions that the CEA supercedes and 
     preempts other laws in the case of transactions conducted on 
     a registered entity or subject to regulation by the CFTC 
     (even if outside the United States), and adds that in the 
     case of excluded electronic trading facilities, and any 
     agreements, contracts or transactions that are excluded or 
     covered by a 4(c)

[[Page S4827]]

     exemption, the CEA supercedes and preempts state gaming and 
     bucket shop laws (except for the anti-fraud provisions of 
     those laws that are generally applicable).
       Sec. 19. Predispute Resolution Agreements for Institutional 
     Customers. Amends section 14 of the CEA to clarify that 
     futures commission merchants, as a condition of doing 
     business, may require customers, that are eligible contract 
     participants, to waive their right to file a reparations 
     claim with the CFTC.
       Sec. 20. Consideration of Costs and Benefits and Antitrust 
     Laws. Amends section 15 of the CEA to add a new subsection 
     (a) requiring the CFTC, before promulgating regulations and 
     issuing orders, to consider the costs and benefits of their 
     action. This does not apply to orders associated with an 
     adjudicatory or investigative process, emergency actions or 
     findings of fact regarding compliance with CFTC rules.
       Sec. 21. Contract Enforcement Between Eligible 
     Counterparties. Amends section 22 of the CEA to provide a 
     safe harbor so that transactions will not be voidable based 
     solely on the failure of the transaction to comply with the 
     terms or conditions of an exclusion or exemption from the Act 
     or CFTC regulations.
       Sec. 22. Legal Certainty for Swaps. Provides that the SEC 
     does not have jurisdiction over swap agreements. Places a one 
     year moratorium on banks being able to market swaps to the 
     retail public. Requests the President's Working Group to 
     conduct a study on the regulatory treatment of swaps offered 
     to retail customers.
       Sec. 23. Technical and Conforming Amendments. Makes 
     technical and conforming amendments throughout the CEA to 
     reflect changes made by the bill.
       Sec. 24. Effective Date. The Act takes effect on the date 
     of enactment, except section 8 (dealing with futures on 
     securities), which takes effect one year after 
     enactment.

  Mr. GRAMM. Mr. President, today I join with Senator Lugar, chairman 
of the Senate Agriculture Committee, to introduce the Commodity Futures 
Modernization Act of 2000. The formal purpose of this legislation is to 
reauthorize the Commodity Exchange Act, the legal authority for the 
Commodity Futures Trading Commission. As important as that is, this 
legislation does far more.
  This is a landmark bill, that addresses four chief goals that Senator 
Lugar and I set out to achieve when we first began discussing this 
legislation. First of all, this bill would repeal the so-called Shad-
Johnson Accord, the 18-year-old temporary prohibition on the trading of 
futures based on individual stocks. Second, the bill eliminates the 
legal uncertainly that today hangs as an ominous cloud over the $7 
trillion financial swaps markets. Third, the bill addresses the need to 
harmonize the treatment of margins among the futures, stock, and 
options markets. Fourth, the bill provides important and necessary 
regulatory relief to the futures and securities markets.
  One of the most notable aspects of this bill is that it brings 
together the chairmen of the two committees with jurisdiction over 
these issues, the Agriculture Committee and the Banking Committee. To 
start out with such cooperation speaks well, I believe, for the 
prospects for this legislation. While the Commodity Exchange Act is 
clearly within the jurisdiction of the Agriculture Committee, stocks, 
options, and swaps are within the jurisdiction of the Banking 
Committee.
  The next step for this bill will be joint hearings of our two 
committees to consider it. Few bills are in a perfected form when first 
introduced, and I fully expect that additional changes will be made to 
this one before it becomes law. For example, I hope to see additional 
measures of regulatory relief for the securities markets included.
  But this bill is a fine beginning, introduced in the best way. We 
bring together two committees that could choose to argue over turf but 
instead are choosing to cooperate to make changes in law that are 
needed to ensure that our financial market places continue to lead the 
world. At the same time, we will be providing the widest choice of 
investment opportunities for American businesses and families.
                                 ______
                                 
      By Mr. MOYNIHAN (for himself, Mr. Kerry, Mr. Rockefeller, Ms. 
        Snowe, Mr. Allard, Mr. Baucus, Mr. Breaux, Mr. Brownback, Mr. 
        Bryan, Mr. Bunning, Mr. Burns, Mr. Daschle, Mr. Hollings, Mr. 
        Hutchinson, Mr. Johnson, Mr. Kennedy, Mr. Kerrey, Ms. Landrieu, 
        Mrs. Lincoln, Ms. Mikulski, Mr. Reid, Mr. Robb, Mr. Roberts, 
        Mr. Schumer, Mr. Thurmond, Mr. Enzi, Mrs. Boxer, and Mr. 
        DeWine):
  S. 2698. A bill to amend the Internal Revenue Code of 1986 to provide 
an incentive to ensure that all Americans gain timely and equitable 
access to the Internet over current and future generations of broadband 
capability; to the Committee on Finance.


                 broadband internet access act of 2000

  Mr. MOYNIHAN. Mr. President, today, joined by my colleagues Senators 
Kerry, Rockefeller, Snowe, Allard, Baucus, Breaux, Brownback, Bryan, 
Bunning, Burns, Daschle, Durbin, Enzi, Hollings, Hutchinson, Johnson, 
Kennedy, Kerrey, Landrieu, Lincoln, Mikulski, Reid, Robb, Roberts, 
Schumer, and Thurmond, I am introducing the Broadband Internet Access 
Act of 2000. This legislation provides a tax incentive to stimulate 
rapid deployment of high-speed communication services to residential, 
rural, and low-income areas.
  A term of art often used for high-speed communication service is 
``broadband.'' The term is a remnant from the era of analog systems. It 
refers to the size of spectral bandwidth over which signals can be 
transmitted. Even though it is not essential to have wide spectra in 
the digital world to transmit vast amounts of data, ``broadband'' 
remains in our digital society's lexicon for high-speed communication 
or throughput.
  In common use, broadband connotes fast Internet access, and that is 
certainly part of the goal of this legislation. The grander goal, 
however, extends beyond simply expediting traditional Internet use. It 
is to deliver, in the near future, a wide array of voice, video, and 
data communication services, at extremely fast speeds, to all 
Americans.
  The Broadband Internet Access Act of 2000 provides graduated tax 
credits for deployment of high-speed communications to residential and 
rural communities. It gives a 10-percent credit for the deployment of 
at least 1.5 million bits per second downstream and 200,000 bits per 
second upstream to all subscribers--residential, business, and 
institutions--in rural and low income areas. This is essentially 
``current generation'' broadband. The bill gives a 20-percent credit 
for the deployment of at least 22 million bits per second downstream 
and 10 million bits per second upstream to all subscribers in rural and 
low income areas, and to all residential customers in other areas. This 
is what we are calling ``next generation'' broadband.
  The bill does not dictate the technological means by which these 
broadband services are to be delivered. Today, the possibilities 
include telephone lines, cable modems, fiber optics, terrestrial 
wireless, and satellite wireless. In the future there may be others. 
Whether high-speed communications are delivered by electrons or by 
photons, with wires or without wires, by copper or by glass, by 
terrestrial or by extraterrestrial means, is immaterial. With a 
temporary tax credit, it is economically feasible to push national 
communication capabilities forward by ten or perhaps twenty years. The 
bill permits a variety of technological approaches to make under-served 
areas more economically attractive to broadband providers. Yesterday we 
had electronics. Today we have photonics. Tomorrow we will have some 
``future-onics.''
  Mr. President, as I stand before you today, the streets of 
Washington, D.C. and of many other major cities in this country are 
being torn-up to lay cables for high-speed communication. Line-of-sight 
communication ``dishes'' are being installed on office buildings 
permitting business-to-business voice, video, and data transmissions. 
The problem is, market forces are driving deployment of high-speed 
communication capabilities almost exclusively to urban businesses and 
wealthy households. Low-income families, exurban communities, rural 
businesses, and rural families are relegated to the back of the queue. 
The bill gives private industry economic incentives to accelerate high-
speed communication capabilities to Americans who are at the end-of-
the-line.
  Why is this important? Let me offer examples of this technology's 
power and importance. I start with two historical cases.
  During the 1950's the National Institute of Mental Health funded a 
1,278-

[[Page S4828]]

mile closed-circuit telephone system between seven state hospitals in 
Nebraska, Iowa, North Dakota, and South Dakota. Health care providers 
at the hospitals held weekly teleconferencing lectures via this system. 
By 1961, the system included both audio and video, and psychiatrists 
successfully used it to care for patients under a program called 
``telepsychiatry.''
  At about the same time, radiologists in Montreal had a coaxial cable 
laid between two hospitals three miles apart, thus connecting them for 
audio and video communications. Doctors were regularly transmitting 
radiographic images to each other to consult on difficult cases and to 
conduct educational conferences.
  As a result of these two projects, patients were treated by 
physicians who were, in some cases, hundreds of miles away. The medical 
profession was able to share information and ideas, which improved 
healthcare in this country and Canada.
  Unfortunately, such ``telemedicine'' links are very few, even though 
our ability to transmit data has increased. Why? Because there is no 
nationwide high-speed data-transfer infrastructure. Instead, the 
standard business Internet speed in rural areas is 56,000 bits per 
second. What can be done at that speed? Printed matter can be sent and 
received reasonably quickly. But photographs or graphics, require long 
waits, and then often with poor image quality. More advanced uses, such 
as video conferencing, are out of the question. At faster Internet 
speeds of, say, 200,000 to 300,000 bits per second, information can be 
sent much faster. Photographs and graphics leap to the screen, instead 
of crawling. Video conferencing also is possible, although jittery 
images and low image resolution make it impractical. Music and movies 
can be downloaded slowly to a compact disk.
  At higher data transfer speeds--about 1.5 million bits per second--
the amount and quality of information that can be transmitted becomes 
quite good. Very good video conferencing is possible. Two or more 
people in different places can see and talk to each other as if in the 
same room, at a crisp image resolution and without image jitter.
  And at even higher speeds, extraordinarily rich images of movement, 
color, and detail can be transmitted as if one were looking at them in 
person. Complex medical images can be sent and received. At twenty 
million bits per second, a digitized mammography image can be 
transmitted in about fifteen seconds, and a standard chest x-ray in 
about four seconds.
  Twenty million bits per second is about 360 times faster than the 
fastest speeds available on a conventional modem attached to a Plain 
Old Telephone Service, or, as I am told, POTS. Is it really possible to 
do this? Indeed, it is. The technology exists now. Over ordinary copper 
wire, some of our communication companies are now offering data speeds 
of 26 million bits per second.
  Imagine the tremendous personal and economic benefits our nation will 
reap with universal high-speed communication access, including 
telemedicine; telecommuting; distance learning at all education levels; 
electronic commerce in low-income and rural communities; digital 
photography; and entertainment video. As a result, we will enjoy 
greater educational opportunities, greater geographic freedom, 
increased wealth in low-income areas, and even decreased urban 
congestion.
  So if the benefits are so great and the capability exists, why are 
these technologies not widely available? Simple economics. It is much 
more lucrative to provide services to business customers. Although a 
few affluent individuals in urban areas have high speed Internet 
access, the great majority of Americans are limited to extremely slow 
communication or to none at all.
  That is why it is appropriate for government to step in at this time 
and provide an incentive to stimulate deployment of high-speed 
communication service to residential areas and small businesses, 
especially in rural and low-income areas of the country. Our country 
has a proud history of supporting critical services in rural and under-
served communities.
  Three major examples are utilities, interstate highways, and the 
airline industries.
  The Rural Utilities Service is a federal credit agency within the 
Department of Agriculture that helps rural areas finance electric, 
telecommunications, water, and waste water projects. Its lending 
creates public-private partnerships to finance the construction of 
infrastructure in rural areas. Working in partnership with rural 
telephone cooperatives and companies, the Department of Agriculture 
helped boost the number of rural Americans with telephone service from 
38 percent in 1950 to more than 95 percent in 1999.
  The federal government funded 90 to 100 percent of the cost of 
building the interstate highway system. The Federal Aid Highway Act of 
1956 initiated a nationwide program that aimed to be completed within 
20 years. The bulk of the program was completed within this time 
period, although full implementation was not achieved until the early 
1990s.
  In the 1930s, the airline industry--much like today's Internet start-
ups--was operating at a loss. Believing airline service to be both 
unique and necessary, the federal government stepped-in with an airmail 
subsidy in 1938, and this federal funding made the industry instantly 
profitable. The airline industry then flourished, and the subsidy was 
removed in the mid 1950s.
  In a 1979 speech titled, ``Technology and Human Freedom,'' I stated, 
``I believe that government can and should seek to advance technology--
as a condition of social progress.'' I still believe that. In 1979, I 
went on to say, ``In my view, only a person of what St. Augustine would 
have termed `indomitable ignorance' could deny that technology has 
greatly enhanced human freedom. . . . Freedom is choice, and technology 
vastly enhances choice. . . . The relation between technology and 
democracy is intimate. . . . Experimentation, variety, optimism: these 
are the ingredients of both technology and democracy.''
  In 1978, the late Mancur Olson, an esteemed economist, cautioned that 
the very liberty of societies such as ours may be the source of 
developments that make innovation considerably more difficult. We 
should guard against the prospect of our government retarding 
technology as Professor Olson hypothesized. The bill I introduce today 
encourages technology, and extends its range to those residential and 
business areas it otherwise would not reach until much later.
  We need this legislation now to maintain our technological 
leadership. As the press has recently reported, Sweden, Japan, 
Singapore, and Canada are deploying broadband at levels higher than 
those called for in this bill. We cannot afford to fall behind in this 
critical area. History indicates that, if we do not act aggressively, 
it will take a very long time to deploy broadband services on a 
widespread basis. The first regular, sustained commercial telephone 
services were offered in 1876, but it took more than 90 years to make 
the service available to 90 percent of residences in the United States. 
It would be deplorable if it takes even half as long to bring existing 
broadband technology to the same number of Americans.
  If the Internet is the information superhighway, broadband 
communication is the information super sonic transport. I want to 
encourage the communications industry to accelerate deployment of the 
this super sonic transport to every community in the country.
  I want to thank my colleagues for their support and collaboration on 
this bill. Senator John Kerry and his staff have been involved in every 
aspect of this legislation, and we could not have formulated the bill 
without their detailed knowledge of the communications industry. And 
Senators Rockefeller and Snowe recently introduced a similar bill 
focusing on the deployment of broadband in rural areas, and the 
legislation we introduce today incorporates and expands upon their 
work.
  This bill is meant to be a proposal. As we consider this measure, 
Congress may decide to modify it. Moreover, we have not yet received a 
revenue estimate on the bill, and if it proves to be too expensive, we 
will have to scale it back. It is time, however, to focus on this 
issue. Let us begin the discussion of how we can provide the stimulus 
necessary to ensure the availability of high-speed communication to 
every

[[Page S4829]]

American. I urge the Senate to support this important legislation.
  Mr. President, I ask unanimous consent that a copy of the bill and 
letters of support from a number of organizations appear in the Record. 

  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 2698

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Broadband Internet Access 
     Act of 2000''.

     SEC. 2. FINDINGS AND PURPOSE.

       (a) Findings.--The Congress finds the following:
       (1) The Internet has been the single greatest contributor 
     to the unprecedented economic expansion experienced by the 
     United States over the last 8 years.
       (2) Increasing the speed that Americans can access the 
     Internet is necessary to ensure the continued expansion.
       (3) Today, most residential Internet users, especially 
     those located in low income and rural areas, are extremely 
     limited in the type of information they can send and receive 
     over the Internet because their means of access is limited to 
     ``narrowband'' communications media, typically conventional 
     phone lines at a maximum speed of 56,000 bits per second.
       (4) Similarly, small businesses in low income and rural 
     areas are also deprived of full information access because of 
     their dependence on narrowband facilities.
       (5) By contrast, many residential users located in higher 
     income urban and suburban areas and urban business users can 
     access the Internet from a variety of carriers at current 
     generation broadband speeds in excess of 1,500,000 bits per 
     second, giving them a choice among carriers and high-speed 
     access to a wide array of audio and data applications.
       (6) The result is a growing disparity in the speed of 
     access to the Internet and the opportunities it creates 
     between subscribers located in low income and rural areas and 
     subscribers located in higher income urban and suburban 
     areas.
       (7) At the same time, experts project that, under current 
     financial and regulatory conditions, the facilities needed to 
     transmit next generation broadband services over the Internet 
     to residential users at speeds in excess of 10,000,000 bits 
     per second will not be as ubiquitously available as is 
     telephone service until sometime between the years 2030 and 
     2040.
       (8) Experts also believe that, under current financial and 
     regulatory conditions, the disparity in access will be 
     exacerbated with the deployment of next generation broadband 
     capability.
       (9) The disparity in current broadband access to the 
     Internet, the slow pace of deployment of next generation 
     broadband capability, and the projected disparity in access 
     to such capability will likely prove detrimental to the on-
     going economic expansion.
       (10) It is, therefore, appropriate for Congress to take 
     action to narrow the current and future disparity in the 
     level of broadband access to the Internet, and to accelerate 
     deployment of next generation broadband capability.
       (b) Purpose.--The purpose of this Act is to accelerate 
     deployment of current generation broadband access to the 
     Internet for users located in certain low income and rural 
     areas and to accelerate deployment of next generation 
     broadband access for all Americans.

     SEC. 3. BROADBAND CREDIT.

       (a) In General.--Subpart E of part IV of chapter 1 of the 
     Internal Revenue Code of 1986 (relating to rules for 
     computing investment credit) is amended by inserting after 
     section 48 the following new section:

     ``SEC. 48A. BROADBAND CREDIT.

       ``(a) General Rule.--For purposes of section 46, the 
     broadband credit for any taxable year is the sum of--
       ``(1) the current generation broadband credit, plus
       ``(2) the next generation broadband credit.
       ``(b) Current Generation Broadband Credit; Next Generation 
     Broadband Credit.--For purposes of this section--
       ``(1) Current generation broadband credit.--The current 
     generation broadband credit for any taxable year is equal to 
     10 percent of the qualified expenditures incurred with 
     respect to qualified equipment offering current generation 
     broadband services to rural subscribers or underserved 
     subscribers and taken into account with respect to such 
     taxable year.
       ``(2) Next generation broadband credit.--The next 
     generation broadband credit for any taxable year is equal to 
     20 percent of the qualified expenditures incurred with 
     respect to qualified equipment offering next generation 
     broadband services to all rural subscribers, all underserved 
     subscribers, or any other residential subscribers and taken 
     into account with respect to such taxable year.
       ``(c) When Expenditures Taken Into Account.--For purposes 
     of this section--
       ``(1) In general.--Qualified expenditures with respect to 
     qualified equipment shall be taken into account with respect 
     to the first taxable year in which current generation 
     broadband services or next generation broadband services are 
     offered by the taxpayer through such equipment to 
     subscribers.
       ``(2) Offer of services.--For purposes of paragraph (1), 
     the offer of current generation broadband services or next 
     generation broadband services through qualified equipment 
     occurs when such class of service is purchased by and 
     provided to at least 10 percent of the subscribers described 
     in subsection (b) which such equipment is capable of serving 
     through the legal or contractual area access rights or 
     obligations of the taxpayer.
       ``(d) Special Allocation Rules.--
       ``(1) Current generation broadband services.--For purposes 
     of determining the current generation broadband credit under 
     subsection (a)(1), if the qualified equipment is capable of 
     serving both the subscribers described under subsection 
     (b)(1) and other subscribers, the qualified expenditures 
     shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of the total 
     potential subscriber populations within the rural areas and 
     the underserved areas which the equipment is capable of 
     serving, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving.
       ``(2) Next generation broadband services.--For purposes of 
     determining the next generation broadband credit under 
     subsection (a)(2), if the qualified equipment is capable of 
     serving both the subscribers described under subsection 
     (b)(2) and other subscribers, the qualified expenditures 
     shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of--
       ``(i) the total potential subscriber populations within the 
     rural areas and underserved areas, plus
       ``(ii) the total potential subscriber population of the 
     area consisting only of residential subscribers not described 
     in clause (i),
     which the equipment is capable of serving, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Antenna.--The term `antenna' means any device used to 
     transmit or receive signals through the electromagnetic 
     spectrum, including satellite equipment.
       ``(2) Cable operator.--The term `cable operator' has the 
     meaning given such term by section 602(5) of the 
     Communications Act of 1934 (47 U.S.C. 522(5)).
       ``(3) Commercial mobile service carrier.--The term 
     `commercial mobile service carrier' means any person 
     authorized to provide commercial mobile radio service as 
     defined in section 20.3 of title 47, Code of Federal 
     Regulations.
       ``(4) Current generation broadband service.--The term 
     `current generation broadband service' means the transmission 
     of signals at a rate of at least 1,500,000 bits per second to 
     the subscriber and at least 200,000 bits per second from the 
     subscriber.
       ``(5) Next generation broadband service.--The term `next 
     generation broadband service' means the transmission of 
     signals at a rate of at least 22,000,000 bits per second to 
     the subscriber and at least 10,000,000 bits per second from 
     the subscriber.
       ``(6) Nonresidential subscriber.--The term `nonresidential 
     subscriber' means a person or entity who purchases broadband 
     services which are delivered to the permanent place of 
     business of such person or entity.
       ``(7) Open video system operator.--The term `open video 
     system operator' means any person authorized to provide 
     service under section 653 of the Communications Act of 1934 
     (47 U.S.C. 573).
       ``(8) Other wireless carrier.--The term `other wireless 
     carrier' means any person (other than a telecommunications 
     carrier, commercial mobile service carrier, cable operator, 
     open video system operator, or satellite carrier) providing 
     current generation broadband services or next generation 
     broadband service to subscribers through the radio 
     transmission of energy.
       ``(9) Packet switching.--The term `packet switching' means 
     controlling or routing the path of a digitized transmission 
     signal which is assembled into packets or cells.
       ``(10) Qualified equipment.--
       ``(A) In general.--The term `qualified equipment' means 
     equipment capable of providing current generation broadband 
     services or next generation broadband services at any time to 
     each subscriber who is utilizing such services.
       ``(B) Only certain investment taken into account.--Except 
     as provided in subparagraph (C), equipment shall be taken 
     into account under subparagraph (A) only to the extent it--
       ``(i) extends from the last point of switching to the 
     outside of the unit, building, dwelling, or office owned or 
     leased by a subscriber in the case of a telecommunications 
     carrier,
       ``(ii) extends from the customer side of the mobile 
     telephone switching office to a transmission/receive antenna 
     (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a commercial mobile service carrier,
       ``(iii) extends from the customer side of the headend to 
     the outside of the unit, building, dwelling, or office owned 
     or leased by a subscriber in the case of a cable operator or 
     open video system operator, or
       ``(iv) extends from a transmission/receive antenna 
     (including such antenna) which transmits and receives signals 
     to or from

[[Page S4830]]

     multiple subscribers to a transmission/receive antenna 
     (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a satellite carrier or other wireless carrier, 
     unless such other wireless carrier is also a 
     telecommunications carrier.
       ``(C) Packet switching equipment.--Packet switching 
     equipment, regardless of location, shall be taken into 
     account under subparagraph (A) only if it is deployed in 
     connection with equipment described in subparagraph (B) and 
     it is uniquely designed to perform the function of packet 
     switching for current generation broadband services or next 
     generation broadband services, but only if such packet 
     switching is the last in a series of such functions performed 
     in the transmission of a signal to a subscriber or the first 
     in a series of such functions performed in the transmission 
     of a signal from a subscriber.
       ``(11) Qualified expenditure.--
       ``(A) In general.--The term `qualified expenditure' means 
     any amount chargeable to capital account with respect to the 
     purchase and installation of qualified equipment (including 
     any upgrades thereto) for which depreciation is allowable 
     under section 168.
       ``(B) Certain satellite expenditures excluded.--Such term 
     shall not include any expenditure with respect to the 
     launching of any satellite equipment.
       ``(12) Residential subscriber.--The term `residential 
     subscriber' means an individual who purchases broadband 
     services which are delivered to such individual's dwelling.
       ``(13) Rural subscriber.--
       ``(A) In general.--The term `rural subscriber' means a 
     residential subscriber residing in a dwelling located in a 
     rural area or nonresidential subscriber maintaining a 
     permanent place of business located in a rural area.
       ``(B) Rural area.--The term `rural area' means any census 
     tract which--
       ``(i) is not within 10 miles of any incorporated or census 
     designated place containing more than 25,000 people, and
       ``(ii) is not within a county or county equivalent which 
     has an overall population density of more than 500 people per 
     square mile of land.
       ``(14) Satellite carrier.--The term `satellite carrier' 
     means any person using the facilities of a satellite or 
     satellite service licensed by the Federal Communications 
     Commission and operating in the Fixed-Satellite Service under 
     part 25 of title 47 of the Code of Federal Regulations or the 
     Direct Broadcast Satellite Service under part 100 of title 47 
     of such Code to establish and operate a channel of 
     communications for point-to-multipoint distribution of 
     signals, and owning or leasing a capacity or service on a 
     satellite in order to provide such point-to-multipoint 
     distribution.
       ``(15) Subscriber.--The term `subscriber' means a person 
     who purchases current generation broadband services or next 
     generation broadband services.
       ``(16) Telecommunications carrier.--The term 
     `telecommunications carrier' has the meaning given such term 
     by section 3(44) of the Communications Act of 1934 (47 U.S.C. 
     153 (44)), but--
       ``(A) includes all members of an affiliated group of which 
     a telecommunications carrier is a member, and
       ``(B) does not include a commercial mobile service carrier.
       ``(17) Total potential subscriber population.--The term 
     `total potential subscriber population' means, with respect 
     to any area and based on the most recent census data, the 
     total number of potential residential subscribers residing in 
     dwellings located in such area and potential nonresidential 
     subscribers maintaining permanent places of business located 
     in such area.
       ``(18) Underserved subscriber.--
       ``(A) In general.--The term `underserved subscriber' means 
     a residential subscriber residing in a dwelling located in an 
     underserved area or nonresidential subscriber maintaining a 
     permanent place of business located in an underserved area.
       ``(B) Underserved area.--The term `underserved area' means 
     any census tract--
       ``(i) the poverty level of which is at least 30 percent 
     (based on the most recent census data),
       ``(ii) the median family income of which does not exceed--

       ``(I) in the case of a census tract located in a 
     metropolitan statistical area, 70 percent of the greater of 
     the metropolitan area median family income or the statewide 
     median family income, and
       ``(II) in the case of a census tract located in a 
     nonmetropolitan statistical area, 70 percent of the 
     nonmetropolitan statewide median family income, or

       ``(iii) which is located in an empowerment zone or 
     enterprise community designated under section 1391.
       ``(f) Designation of Census Tracts.--The Secretary shall, 
     not later than 90 days after the date of the enactment of 
     this section, designate and publish those census tracts 
     meeting the criteria described in paragraphs (13)(B) and 
     (18)(B) of subsection (e), and such tracts shall remain so 
     designated for the period ending with the termination date 
     described in subsection (g).
       ``(g) Termination.--This section shall not apply to 
     expenditures incurred after December 31, 2005.''
       (b) Credit To Be Part of Investment Credit.--Section 46 of 
     the Internal Revenue Code of 1986 (relating to the amount of 
     investment credit) is amended by striking ``and'' at the end 
     of paragraph (2), by striking the period at the end of 
     paragraph (3) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(4) the broadband credit.''
       (c) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 501(c)(12)(B) of the Internal Revenue 
     Code of 1986 (relating to list of exempt organizations) is 
     amended by striking ``or'' at the end of clause (iii), by 
     striking the period at the end of clause (iv) and inserting 
     ``, or'', and by adding at the end the following new clause:
       ``(v) from sources not described in subparagraph (A), but 
     only to the extent such income does not in any year exceed an 
     amount equal to the credit for qualified expenditures which 
     would be determined under section 48A for such year if the 
     mutual or cooperative telephone company was not exempt from 
     taxation.''
       (d) Conforming Amendment.--The table of sections for 
     subpart E of part IV of subchapter A of chapter 1 of the 
     Internal Revenue Code of 1986 is amended by inserting after 
     the item relating to section 48 the following new item:

  ``Sec. 48A. Broadband credit.''
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to expenditures 
     incurred after December 31, 2000.
       (2) Special rule.--The amendments made by subsection (c) 
     shall apply to amounts received after December 31, 2000.

     SEC. 4. REGULATORY MATTERS.

       No Federal or State agency or instrumentality shall adopt 
     regulations or ratemaking procedures that would have the 
     effect of confiscating any credit or portion thereof allowed 
     under section 48A of the Internal Revenue Code of 1986 (as 
     added by section 3) or otherwise subverting the purpose of 
     this Act.

     SEC. 5. STUDY AND REPORT.

       (a) Sense of Congress.--It is the sense of Congress that in 
     order to maintain competitive neutrality, the credit allowed 
     under section 48A of the Internal Revenue Code of 1986 (as 
     added by section 3) should be administered in such a manner 
     so as to ensure that each class of carrier receives the same 
     level of financial incentive to deploy current generation 
     broadband services and next generation broadband services.
       (b) Study and Report.--The Secretary of the Treasury shall, 
     within 180 days after the effective date of section 3, study 
     the impact of the credit allowed under section 48A of the 
     Internal Revenue Code of 1986 (as added by section 3) on the 
     relative competitiveness of potential classes of carriers of 
     current generation broadband services and next generation 
     broadband services, and shall report to Congress the findings 
     of such study, together with any legislative or regulatory 
     proposals determined to be necessary to ensure that the 
     purposes of such credit can be furthered without impacting 
     competitive neutrality among such classes of carriers.
                                  ____



                                                 MCI WorldCom,

                                     Washington, DC, June 8, 2000.
     Hon. Daniel Patrick Moynihan,
     Senate Finance Committee,
     Washington, DC.
       Dear Senator Moynihan: Thank you for your leadership in 
     advancing the deployment of broadband technology to rural and 
     underserved areas of the country. WorldCom, a leading 
     Internet backbone provider, believes broadband technology 
     will improve the quality of life for millions of Americans 
     and assist in maintaining this country's leadership in the 
     worldwide information technology marketplace. Your support of 
     our efforts to modernize communications infrastructure dates 
     at least to the Tax Reform Act of 1986, when you supported 
     legislation designed to enhance advanced telecommunications 
     investment.
       Electronic commerce and its Internet medium is a thriving 
     environment. More jobs, more gross domestic product, and more 
     wealth have been created by the Internet than any other 
     single innovation in recent memory. Electronic commerce 
     continues to grow apace, creating increased need for 
     continuing development and deployment of communications 
     technology.
       Your proposal, Senator Moynihan, is designed to support 
     that deployment and development at an advanced level. It is 
     designed not only to accelerate deployment of existing 
     technology, but also to encourage development and deployment 
     of next generation broadband technologies as well. 
     Acceleration is important. Persons needing distance education 
     cannot wait while job opportunities pass them by; businesses 
     facing competitive pressure cannot wait to engage in the 
     latest Internet based inventory planning; rural residents 
     with a great idea for a new dot.com need high speed 
     connectivity now; and persons suffering from serious disease 
     far from the right medical experts cannot wait for a 
     telemedicine connection.
       WorldCom appreciates your effort to support this critical 
     technology and supports your efforts through the Broadband 
     Internet Access Act of 2000. While we would like to see a 
     proposal broader than the ``last mile'', your bill initiates 
     this all-important process.
           Sincerely,
                                               Catherine R. Sloan,
                                        Chief Legislative Counsel.

[[Page S4831]]

     
                                  ____
                                                Bell Atlantic,

                                     Washington, DC, June 5, 2000.
     Re: Broadband Internet Access Act of 2000

     Hon. Daniel Patrick Moynihan,
     Russell Senate Office Building,
     Washington, DC.
       Dear Senator Moynihan: Congratulations on your leadership 
     in developing and introducing the ``Broadband Internet Access 
     Act of 2000.'' I am writing to provide you with Bell 
     Atlantic's support and views regarding this important tax 
     legislation.
       As you know, Bell Atlantic is a leader in the deployment of 
     broadband capability, particularly in the state of New York. 
     As such, we are extremely familiar with the regulatory and 
     financial hurdles associated with deploying broadband to all 
     our business and residential customers. We believe that rapid 
     deployment of this capability will provide the basis for 
     sustained long-run economic growth in the economy. Our 
     experience with the Internet has taught us that the 
     convergence of communications and computing yields tremendous 
     benefits for the economy in terms of productivity growth.
       Unfortunately, other carriers and we face tremendous 
     government hurdles as we roll out this capability. These 
     hurdles arise from the unintended adverse effects of 
     regulation on investment that, in turn, increase the degree 
     of financial uncertainty associated with such investments. In 
     other words, we face a regulatory problem and a financial 
     problem in deploying broadband capability to our customers. 
     The Broadband Internet Access Act helps to overcome these 
     problems by encouraging Bell Atlantic and other carriers 
     through financial incentives to proceed with these 
     investments. More importantly, the targeted nature of the 
     incentives will help us reach customers in rural areas and 
     low-income areas that are otherwise difficult to serve 
     because of the high cost of deployment and other factors.
       The bill does not address the overwhelming regulatory 
     issues, which Bell Atlantic continues to face. We encourage 
     you to support legislation to address these problems as well 
     as the financial issues that are addressed in the Broadband 
     Act.
       We encourage you to enact the Broadband Internet Access Act 
     this year. We appreciate your leadership on this important 
     issue.
           Sincerely,

                                              Thomas J. Tauke,

                                           Senior Vice President--
     Government Relations.
                                  ____



                                                         NTCA,

                                      Arlington, VA, June 5, 2000.

     Re Broadband Internet Access Act of 2000.

     Hon. Daniel Patrick Moynihan,
     Ranking Minority Member, Senate Committee on Finance, 
         Washington, DC.
       Dear Senator Moynihan: During the course of the past year, 
     the term ``digital divide'' has quickly become the buzzword 
     of choice among policymakers. Coined ostensibly to describe 
     the absence of communications availability to certain 
     segments of the nation's population, the term has been 
     twisted to imply the issue of communications ``haves'' and 
     ``have-nots'' is merely a rural vs. urban matter.
       NTCA has vigorously moved to redirect the discussion to 
     fully recognize the achievements of small rural incumbent 
     local exchange carriers (ILECs) in deploying advanced 
     communications infrastructure and services. The facts bear 
     witness to the success of small rural ILECs in stepping up to 
     what we feel is better described as the ``Digital 
     Challenge.'' Recent surveys show that in many cases, markets 
     served by such entities are more technologically advanced 
     than their larger, urban counterparts. Likewise, they are 
     significantly more advanced than the rural markets served by 
     the nation's large ILECs. Other reports show that urban areas 
     in general are not the ``digital Mecca'' many would have us 
     believe. The reality is that the markets of the nation's 
     small rural ILECs are anything but communications technology 
     wastelands as many are portraying them to be.
       Nevertheless, there remains a substantial amount of costly 
     work to be done for all markets to be fully advanced service-
     capable. For this reason, we commend your effort, vis-a-vis 
     the Broadband Internet Access Act of 2000, to further 
     stimulate deployment of broadband services by granting tax 
     credits to telecommunications providers deploying advanced 
     technologies. Furthermore, we sincerely appreciate your 
     effort to recognize the special circumstances, with regard to 
     tax credits, of the nation's rural telecommunications 
     cooperatives by the inclusion of the Special Rule for Mutual 
     or Cooperative Telephone Companies.
       In addition, there are several existing tools such as the 
     universal service support program that, if allowed to 
     function appropriately, could help offset the tremendous 
     costs associated with the deployment of advanced services. We 
     continue to work with several of your colleagues to advance 
     legislation that will ensure the universal service program is 
     allowed to function as the Congress envisioned in helping 
     lead the deployment of new communications technologies and 
     services.
       It must be reiterated that small rural ILECs have long led 
     the way in meeting the Digitial Challenge by deploying new 
     technologies--not just to their most profitable customers, 
     but to every individual within their market that wishes to 
     receive service. With your assistance, the rural ILEC 
     industry will continue to maintain its unparalleled record of 
     service.
           Sincerely,

                                           Shirley Bloomfield,

                                        Vice President, Government
     Affairs & Association Services.
                                  ____

                                                  Bristol Bay Area


                                           Health Corporation,

                                     Dillingham, AK, May 31, 2000.

     Re Broadband Internet Access Act of 2000.

     Hon. Patrick Daniel Moynihan,
     Ranking Minority Member, Committee on Finance, U.S. Senate, 
         Washington, DC.
       Dear Senator Moynihan: We are writing to indicate our 
     support for your continued effort to pass the Broadband 
     Internet Access Act of 2000. If passed, this legislation 
     could significantly improve access of millions of Americans 
     to the Internet and its valuable resources, including 
     residents of rural Alaska communities.
       We provide health care services to 34 remote Alaska 
     communities, most of which can only be reached by small 
     airplane. The availability of affordable advanced 
     telecommunications including telemedicine and improved 
     Internet access would be beneficial in providing health 
     education to villagers; would help reduce feelings of 
     isolation of health care providers, teachers and other 
     professionals; and provide access to health care resources 
     for everyone. It would also provide faster and less expensive 
     access to all communication mediums.
       We believe that remote, rural areas such as those that make 
     up a large part of Alaska need and deserve the availability 
     of affordable high-speed Internet services like urban 
     communities currently enjoy. Without this availability, rural 
     communities will continue to be left behind and 
     technologically outdated as the rest of the U.S. moves 
     forward.
       Thank you for the opportunity to comment on this important 
     legislation. Please contact me at (907) 842-5201 if I can be 
     of further assistance.
           Sincerely,
                                                  Robert J. Clark,
     President/CEO.
                                  ____

                                             Georgetown University


                                               Medical Center,

                                                     May 25, 2000.

     Re Broadband Internet Access Act of 2000.

     Hon. Patrick Daniel Moynihan,
     Ranking Minority Member, Committee on Finance, U.S. Senate, 
         Washington, DC.
       Dear Senator Moynihan: We are writing to encourage you in 
     your effort to pass the Broadband Internet Access Act of 
     2000. If passed, this important legislation could 
     significantly improve the way millions of Americans gain 
     access to health information and receive health care.
       For many years the Imaging Sciences and Information Systems 
     (ISIS) Center at Georgetown University has been a successful 
     innovator of technologies that are used to improve the 
     quality and lower the cost of health care. This contribution, 
     however, accounts for only two-thirds of the receipt for 
     successful health care reform in America. The third element, 
     improved access to health services, has been one of the most 
     challenging, especially to health care providers and 
     consumers in rural America.
       Access to quality health care cannot be improved through 
     development of more efficient technologies, alone. We, and 
     with us many of our colleagues throughout America, believe 
     financial incentives are necessary to correct current 
     regulatory and market insufficiencies that inhibit assess to 
     emerging health services that increasingly rely on 
     telecommunications and Internet connectivity to reach 
     consumers. The creation of these incentives is outside the 
     purview of the health sector and that is why we look to you 
     and your Senate colleagues. You can help remedy the economic 
     conditions that contribute to the growing ``digital divide'', 
     that made second class citizens out of underserved people 
     throughout the country.
       Specifically, we look to you for a remedy that will improve 
     access and availability of telephone, cable, fiber optic, 
     terrestrial, wireless, and satellite telecommunications 
     services at bandwidth capacities sufficient to carry high 
     resolution images, video and voice over the Internet, 
     increasingly the preferred mode of delivery. We believe your 
     proposed legislation addressed these problems through its 10% 
     tax credit for deployment of ``last-mile'' current generation 
     broadband capability to rural and underserved areas, and its 
     20% credit for ``next generation'' service.
       Therefore we applaud your sponsorship of the Broadband 
     Internet Access Act of 2000. We appreciate your vision and 
     look to you and your colleagues in the Senate to rapidly pass 
     this important legislation so that we can move on to a next 
     generation of health care with improved quality, cost and 
     access.
       Thank you for an opportunity to express our support for 
     your initiative. If you need any additional information, 
     please call us at 202-687-7955 or at 
     M[email protected].
           Sincerely,
     Dukwoo Ro, PhD,
       Associate Professor.
     Seong K. Mun, PhD,
       Professor, Director of ISIS Center.

[[Page S4832]]

     
                                  ____
                                            United States Distance


                                         Learning Association,

                                      Watertown, MA, May 19, 2000.

     Re Broadband Internet Access Act of 2000.

     Hon. Daniel Patrick Moynihan,
     U.S. Senate,
     Washington, DC.
       Dear Senator Moynihan:
       The United States Distance Learning Association supports 
     the Broadband Internet Access Act of 2000 to be introduced by 
     you.
       As Executive Director of the association I want to assure 
     you that our association applauds the initiative. The 
     Congress of the United States has the opportunity to help 
     deliver long needed Telecommunication Services to all 
     Americans. This act will serve two purposes--increasing 
     bandwidth availability and decreasing the well-documented 
     Digital Divide.
           Sincerely,
                                               Dr. John G. Flores,
                                               Executive Director.


                                         Corning Incorporated,

                                        Corning, NY, May 19, 2000.
     Hon. Daniel Patrick Moynihan,
     Ranking Minority Member, Committee on Finance, U.S. Senate, 
         Washington, DC.
       Dear Senator Moynihan: I am writing to endorse with 
     enthusiasm the Broadband Internet Access Act of 2000 and to 
     congratulate you for your leadership for introducing this 
     important legislation.
       As you may know, Corning is a leader in optical 
     communications systems. As such, we have great confidence in 
     the benefits that deployment of broadband to all Americans 
     can confer on the economy and society as a whole. As Alan 
     Greenspan has said many times, the Internet has contributed 
     significantly to the on-going economic expansion. The rapid 
     deployment of broadband access can extend the benefits of the 
     Internet well into the future.
       Unfortunately, broadband is being deployed very slowly in 
     this country. Two specific problems have arisen. First, 
     subscribers in rural and underserved low-income areas are 
     unlikely to gain access to the current generation broadband 
     capability any time soon, giving rise to a ``digital divide'' 
     between information haves and have-nots. Secondly, the 
     deployment of next generation broadband capability will take 
     30 to 40 years in the current regulatory and financial 
     environment. We think America can do better for its citizens 
     by immediate enactment of the Broadband Internet Access Act 
     of 2000.
       We believe your legislation addresses these problems 
     through its 10% tax credit for deployment of last-mile 
     current generation broadband capability to rural and 
     underserved areas, and its 20% credit of next generation 
     technology more generally. These incentives will correct 
     current regulatory and market failures that are inhibiting 
     the investment. Moreover, the credits are temporary, lasting 
     only five years, a sufficient time to kick-start the 
     deployment of the technology and to reduce costs in this very 
     dynamic sector.
       It is important to note that broadband infrastructure is a 
     common good. As such, we believe that a well-designed 
     initiative such as the Broadband Internet Access Act can cost 
     effectively enhance the national welfare.
       Again, I congratulate you for taking the leadership and for 
     developing a creative initiative that will benefit the 
     country for decades to come.
           All the best,
     Roger Ackerman.
                                  ____

                                             Association for Local


                                  Telecommunications Services,

                                     Washington, DC, June 7, 2000.
     Senator Daniel Patrick Moynihan,
     U.S. Senate,
     Washington, DC.
       Dear Senator Moynihan: The Association for Local 
     Telecommunications Services (ALTS) thanks you for your 
     leadership in drafting legislation to create financial 
     incentives for telecommunications companies to offer high-
     speed Internet broadband services. The legislation that you 
     introduce today will help companies expand their businesses 
     into rural and urban communities and will also provide them 
     with incentives to offer broadband service at even higher 
     speeds.
       We are especially grateful of your continuing efforts to 
     support competitive telecommunications companies in local 
     markets. While competitors have made enormous progress in 
     rolling out advanced telecommunications services to consumers 
     across the country, many markets remain uneconomic to serve. 
     Your legislation will help to accelerate the deployment of 
     these broadband services in rural, inner city and other 
     underserved areas. We have seen that the best way to 
     encourage deployment of advanced broadband technologies is to 
     encourage competition for local telecommunications services. 
     ALTS believes your legislation will provide significant 
     financial incentives to competitive companies to roll out 
     high speed broadband services for every consumer who wants to 
     receive the service.
       Your legislation is a realistic effort to close the 
     ``digital divide'' between rural and urban communities and to 
     ensure that all Americans have the fastest and best 
     telecommunications service in the world. We look forward to 
     continuing to work with you on this legislation in the coming 
     weeks.
       Thank you again for your support of competition and the 
     rapid deployment of advanced, broadband services to all 
     Americans.
           Sincerely yours,
                                             John Windhausen, Jr.,
     President.
                                  ____

                                                   Queens College,


                                      Department of Economics,

                                       New York, NY, June 1, 2000.

     Re The Broadband Internet Access Act of 2000.

     Hon. Daniel Patrick Moynihan,
     Ranking Minority Leader, Committee on Finance, U.S. Senate, 
         Washington, DC.
       Dear Senator Moynihan: I am aware that you and other 
     Senators are co-sponsors of ``The Broadband Internet Access 
     Act of 2000,'' a bill that is intended to alleviate the 
     disparity in high-speed access to the Internet. Preliminary 
     research undertaken by Florence Kwan and myself shows that 
     discrepancies in high-speed access do exist at this time. 
     Further, the study demonstrates the need for policy-makers to 
     examine the degree to which all members of society have high-
     speed access to the Internet.
       The study was based upon a sampling of residential lines in 
     the United States. The results suggest that income and 
     population density are significant predictors of access to 
     cable-modem or DSL service. High-speed access is less likely 
     to be available to Americans in rural and low-income 
     neighborhoods. As preliminary research, the study underscores 
     the need for further research that is comprehensive in scope 
     and that can serve as the basis for regulatory policy.
       I commend your efforts to address an issue that is critical 
     to the ability of all Americans to be part of the Information 
     Society and to participate in our system of democracy.
           Very truly yours,
                                                      David Gabel,
                                                        Professor.

  Mr. KERRY. Mr. President, I am very pleased to join Senator Moynihan 
in introducing the Broadband Internet Access Act of 2000. I commend the 
Senator from New York for his leadership on this issue, and I look 
forward to working with Senator Moynihan, Senator Rockefeller and 
others in this critical effort to ensure the rapid deployment of high-
speed telecommunications services to all Americans.
  Mr. President, throughout the course of history, prosperity has 
flowed to those economies that had ready access to avenues of commerce. 
Throughout the middle ages and up until the mid-19th century, that 
meant ready proximity to a waterway. The great cities of Italy, England 
and France all lay on oceans or rivers. In North America, the early 
trading points on or near the Atlantic thrived and became New York, 
Boston, Philadelphia and Baltimore. Throughout this time, the primary 
way to ship goods was over water, and economies prospered along oceans 
or major inland waterways because of the paramount importance of access 
to commerce. With the industrial revolution came the advent of the 
railroad and this new way of getting goods to market. If your town was 
fortunate to be along one of many rail lines, then good economic times 
often lay ahead. If your town was not along the railroad, then you were 
at a serious economic disadvantage. We read today about the ``ghost 
towns'' of the old West--these were the towns left behind because the 
railroad passed them by. And even then, one hundred seventy years ago, 
we know that Americans did all they could to connect themselves to the 
networks--waterways, railroads--that delivered goods to market: along 
the Panhandle, the entire town of Ivanhoe, Oklahoma literally uprooted 
itself--picked up the church, the school, the buildings--and moved 
across the Texas border to be closer to the railroad lines.
  In many ways, that is precisely the challenge facing thousands of 
communities across the nation today: communities are rushing and 
hurrying--and too many are struggling and finding it enormously 
difficult--to get connected to the networks on which we conduct 
business in the New Economy. And, Mr. President, unless we are willing 
to countenance thousands of ghost towns across the landscape of the 
21st century--ghost towns of inner city and rural America--we must work 
together to empower every community to meet that challenge.
  Mr. President, today, the major product in the United States is 
information. The ability to send and receive vast amounts of 
information, quickly and efficiently, often determines the success or 
failure of a company in our new information age. For this reason, 
companies are locating where they have high-speed access to this new 
avenue of commerce, and they are shying away from areas where such 
excess is either prohibitively expensive or unavailable. High-speed 
access is also

[[Page S4833]]

providing new opportunities in terms of educating our children and 
caring for the sick. However, those opportunities are available only to 
those communities with efficient and affordable access to high-speed 
lines.
  Herein lies the problem. As would be expected, telecommunications 
companies are deploying advanced networks initially in areas where 
there are lots of attractive consumers, but are often taking their time 
to build-out elsewhere, such as in low-income urban and rural areas. 
That's why a downtown business consumer has a myriad of choices for 
high-speed access. And most residential consumers living in reasonable 
well-off urban and suburban areas also have a choice. However, many, 
many regions of our country still have little or no ability to obtain 
high-speed access to the Internet.

  According to the Massachusetts Technology Collaborative, of the 351 
towns in Massachusetts, only 164 are wired to receive high-speed DSL 
Internet service, and only 145 are wired to receive high-speed cable 
modem service. Significantly, 151 towns have no DSL or cable modem 
option, only 56 kilobit dial-up Internet service. Moreover, this 
situation is not expected to change anytime soon. The Legg Mason 
Precursor groups estimates that even three or fours years down the 
road, half of America will have either one or zero broadband providers 
to choose from.
  We need to address this problem in order to ensure that no area is 
left behind--to ensure that all Americans are able to benefit from our 
new high-tech economy. Many telecommunications companies legitimately 
argue that deploying in certain areas makes little sense because the 
opportunity to recoup the investment is so small. It's time we listened 
and offered an economic incentive to change the equation. To this end, 
our bill establishes a generous 10 percent tax credit to all companies 
willing to deploy and offer 1.5 megabit high-speed Internet service in 
rural and low-income urban areas. We are advocating such an approach 
because we have heard from industry that this will provide a needed 
incentive to deploy in areas that are presently neglected. 
Significantly, this credit is open to all companies be they telephone 
or cable, wireline or wireless, MMDS or satellite. The bill is 
concerned only with encouraging widespread deployment, and is 
absolutely technology neutral.
  Mr. President, our legislation addresses not only the digital divide 
that exists today, but also looks to the future and to the next 
generation of high-speed services. The next generation of advanced 
services will require substantially higher transmission speeds like 4 
megabits for one channel of standard television, 20 megabits for one 
channel of HDTV, and 10 to 100 megabits for Ethernet data. These 
transmission speeds can only be achieved with more advanced technology 
such as fiber optics, very high speed digital subscriber line, 50-home-
node cable modems, and next-generation wireless.
  The services available at such speeds will truly revolutionize and 
improve our daily lives. However, according to economists from the 
American Enterprise Institute, at the current rate of deployment, such 
advanced technology will not achieve universal penetration until 
somewhere between 2030 and 2040. Furthermore, such delay may seriously 
undermine our global leadership in technology. Indeed, according to a 
recent report in the Wall Street Journal, the Japanese company NTT will 
start bringing optical fiber lines directly to homes in Tokyo and Osaka 
by the end of this year. Such networks will have capabilities of up to 
10 megabits downstream--several times faster than most of the high-
speed services offered today in America.
  Such Internet capability will transform American life in ways we can 
only imagine today. Children can download educational video in real 
time on nearly any subject. Adults can train for new jobs from their 
homes. Complex medical images such as MRIs and x-rays that today take 
several minutes to download can be transmitted in a matter of seconds. 
Telecommuting, business teleconferencing and personal communication 
will all rise to new levels.
  To accelerate the roll-out of such next-generation systems in the US, 
we propose to establish a 20 percent tax credit for companies that 
deploy systems capable of providing 22 megabit downstream/10 megabit 
upstream service to residential consumers everywhere and business 
consumers in low-income urban and rural areas. Such bits speeds will 
allow for different users in a home to simultaneously watch 3 different 
channels of digital television and utilize high-speed Ethernet-
comparable Internet access.
  Mr. President, this measure is intended to begin the debate in the 
Senate on how best to address the growing digital divide and to 
accelerate the deployment of next-generation technologies across our 
nation. I want to thank Senator Moynihan for his extraordinary 
leadership on this issue and his staff for their continued hard work in 
crafting this bill. I also wish to commend Senators Rockefeller and 
Snowe for their work on tax credit legislation which we incorporate and 
expand on in this bill. Finally, I wish to extend my gratitude to all 
the members of industry who worked with us over these past few months 
in crafting this bill. Clearly, this is a very complex topic and we are 
continuing to work to find the right solution. I look forward to 
continuing our partnership and to passing meaningful legislation this 
year.
  The challenge today is extraordinary--its implications absolutely 
unmistakable for our country. Too often we talk about a digital divide 
in the United States as if it were unchangeable, as if it were a simple 
fact of life in this nation that some communities will be empowered by 
technology while others will be left behind. But this is a false 
choice--and we ought to be doing everything in our power as policy 
makers, working harmoniously with industry, to offer a new choice: 
every community connected to the new technology, every citizen provided 
with the tools to make the most of their own talents in the New 
Economy.
  Mr. President, The Broadband Internet Access Act of 2000 is not a 
panacea for every challenge before us in the New Economy; significant 
questions of education reform workforce development, and technology 
training must be resolved and reinvented before mere access to 
technology will allow full participation for every citizen in the 
Information Age. But Mr. President, I ask that--as we work in a 
bipartisan way to address those other vital areas of public policy-- we 
remember the lessons of our nation's economic history and take this 
absolutely critical first step towards meeting the most basic needs of 
any community--a connection to the New Economy.
  Mr. BAUCUS. Mr. President, I am very pleased today to join with 
Senator Moynihan in introducing the Broadband Internet Access Act of 
2000. This legislation provides a tax incentive to stimulate rapid 
deployment of high-speed communication services to residential, rural, 
and low-income areas.
  Although our nation continues to experience a period of unprecedented 
economic growth, it is important to remember that this growth is not 
shared evenly throughout the country. My State, Montana, is 
unfortunately an example of areas in which the economy continues to lag 
behind the rest of the nation. Montana is ranked last in per-capita 
earned income and first in the number of people holding multiple jobs. 
Our children and grandchildren are constantly faced with a difficult 
dilemma--will they be able to find jobs in Montana, where they can 
continue to enjoy living in ``the last great place'', or will they be 
forced to move elsewhere just to be able to earn a decent wage. More 
and more of them are choosing to leave, costing Montana some of her 
best and brightest young people, and along with them much of our hope 
for the future.
  One of the keys to turning our State's economy around is to make sure 
the appropriate infrastructure is in place so that we can attract the 
kinds of businesses that will provide jobs for ourselves and our 
children. I have worked for years as ranking Member of the Environment 
and Public Works Committee to ensure that Montana and other rural 
states receive our fair share of highway construction funds, so that 
the transportation infrastructure of our great State can support 
economic growth.
  But today's economy is not just about bricks and mortar. Technology 
is

[[Page S4834]]

transforming traditional ways of doing business, as it is creating 
entirely new forms of business that never existed before. And high-
speed Internet access is the key to advancing technological growth.
  The Broadband Internet Access Act of 2000 provides graduated tax 
credits for deployment of high-speed communications to residential and 
rural communities. It gives a 10 percent credit for the deployment of 
at least 1.5 million bits per second downstream and 200,000 bits per 
second upstream to all subscribers--residential, business, and 
institutions--in rural and low income areas. This is what we call the 
``current generation'' broadband. The bill also gives a 20 percent 
credit for the deployment of at least 22 million bits per second 
downstream and 10 million bits per second upstream to all subscribers 
in rural and low income areas, and to all residential customers in 
other areas. This is what we are calling ``next generation'' broadband.
  Mr. President, as we look around us today and see the many streets 
that are being torn-up to lay cables for high-speed communication, and 
the communication dishes that are constantly ``sprouting'' from our 
buildings, we may wonder why we need a tax credit to advance an 
industry that is already growing by leaps and bounds. The reason, 
again, is that this growth is most extensive in selected areas. Market 
forces are driving deployment of high-speed communication capabilities 
almost exclusively to urban businesses and wealthy households. Rural 
businesses and rural families like those in Montana again find 
themselves at the back of the line. And by the time our turn comes for 
this technology, the rest of the country will already be well into the 
next technological generation. The Digital Divide, which is already a 
wedge between our citizens, will be perpetuated and grow into a chasm.
  This bill is designed to even the playing field. By giving private 
industry economic incentives to accelerate high-speed communication 
capabilities to Americans who are at the end of the line, we will help 
people like my constituents in Montana share in our nation's economic 
growth.
  As a member of the Senate Broadband Caucus, which was established to 
develop solutions to the problem of bringing high-speed Internet access 
to rural and underserved areas, I have worked hard on initiatives which 
would help rural areas bridge the Digital Divide. These initiatives 
include: the Rural Broadband Enhancement Act, which provides $5 billion 
in low interest loans for broadband development; the Rural Telework Act 
of 2000, to provide grants to develop National Centers for Distance 
Working which would provide access to technology and training for rural 
residents; the Universal Service Support Act, which lifts the cap on 
the universal service support fund for rural telecommunications 
providers; and the amendment I offered to the Rural Television Bill, to 
give consideration to projects which offer high speed Internet access 
in addition to television programming.
  I believe these initiatives, along with the Broadband Internet Access 
Act we are introducing today, will go a long way toward finally 
bridging the growing Digital Divide and help rural areas grow and 
flourish. With this legislation, I hope to create an economic 
environment that will make sure Montana's children and grandchildren 
will no longer have to sacrifice enjoying the beauty of the ``last 
great place'' in order to earn a living wage.
                                 ______
                                 
      By Mrs. FEINSTEIN:
  S. 2699. A bill to strengthen the authority of the Federal Government 
to protect individuals from certain acts and practices in the sale and 
purchase of social security numbers and social security account 
numbers, and for other purposes; to the Committee on Finance.

                          ____________________