[Congressional Record Volume 148, Number 77 (Wednesday, June 12, 2002)]
[House]
[Pages H3507-H3512]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              INTEGRITY AND HONESTY IN THE CORPORATE WORLD

  The SPEAKER pro tempore (Mr. Keller). Under the Speaker's announced 
policy of January 3, 2001, the gentleman from Michigan (Mr. Hoekstra) 
is recognized for half the time remaining until midnight, or 
approximately 20 minutes.
  Mr. HOEKSTRA. Mr. Speaker, last night I came to the floor, and I 
talked about an issue that I have a passion for. It is about integrity 
and honesty in the corporate and business world.

                              {time}  2320

  I talked a little bit about some of the revelations that have gone on 
in the last few months, really beginning with the scandal at Enron, 
Arthur Andersen and those types of things. And I want to talk a little 
bit more about that tonight because the stories in the papers today 
just keep building on this issue.
  Today, USA Today: ``Stock Markets Sink to New Lows for 02.'' The 
bottom line is that this lack of integrity and this breaking of the 
public trust by corporate business and business leaders has had a real 
and a dramatic impact

[[Page H3508]]

in our economy. The public is losing faith and trust in our 
corporations because of these many examples.
  Why is this? Let us go back and take a look at what our system is 
based on. I have quoted a former boss of mine at Herman Miller 
Corporation who has written a number of books talking about leadership. 
One of his latest books, ``Leading Without Power,'' Max De Pree, a 
Fortune 500 CEO, wrote about the importance of people having trust and 
confidence in the American economic system in order for it to work. He 
states: ``When you stop to think about it, it is astounding that 
anything as complex as the trading of stocks, bonds, commodities and 
futures ultimately depends on trust, a value, not a statute, not an SEC 
regulation, not even a government mandate. The system works on trust.''
  Where are we today? Again, USA Today, front page of their money 
section, the top headline is'' ``Wait for Verdict Raises Fear of Hung 
Jury,'' but here is a story that really just builds on exactly what I 
was talking about last night, and actually they say it much better than 
I do. Their cover story on their money section is ``How did Business 
get so Darn Dirty? Experts blame greed. Reforms come slowly.''

       Double dealing Wall Street analysts. Sleazy accounting. 
     Cooking the books to goose corporate profits. Bogus stock 
     trades. Greed and corruption have always lingered at the 
     edges of corporate America, from Civil War profiteers to 
     inside-trading scandals of the '80's. Yet the new millennium 
     has ushered in a wave of fraud, corporate malfeasance, 
     investment scams, ethical lapses and conflicts of interest 
     unprecedented in scope.''

  The end result: a lack of public trust, shareholders, customers and 
employees feeling devastating financial consequences, and stock markets 
sink to new lows for 2002.

       The fallout is a prime reason stocks continue to flounder. 
     And despite calls among politicians, regulators, and Wall 
     Street for sweeping reforms, little is being done to change 
     rules for corporate conduct.

  That has to change.
  What are some of the examples out there as to why the American public 
is losing their confidence in the corporate business world? Here are 
some examples: Baltimore currency trader John Rusnak indicted for bank 
fraud for allegedly hiding nearly $700 million in losses. Alan Bond, 
former regular on ``Wall Street Week'' with Louis Rukeyser, convicted 
Monday of defrauding clients of $56 million.

       There is a nuttiness that we're seeing. Boost performance 
     by any means. The temptation to cash in grabbed lots of 
     people.

  Here is an interesting one: Dennis Kozlowski, think about it. Here is 
a guy that over 3 years made over $300 million as compensation as Tyco 
CEO, forced out over an indictment for tax evasion. $300 million, over 
$100 million a year, and the guy appears to be unwilling to pay sales 
tax. Let the rest of the American people pay sales taxes, because $300 
million, $100 million a year, I just cannot afford to pay sales taxes.
  The question to this individual, Mr. Kozlowski, if this is an 
accurate portrayal, when is enough enough or when does it simply become 
greed?

  You just go on. Software provider MicroStrategy, trading at $333 per 
share. Today, it is trading at $1.15. The CEO, Michael Saylor, and 
other executives later paid $350,000 in fines to settle SEC allegations 
of accounting fraud and paid $10 million to settle shareholder 
lawsuits.
  I am not sure exactly what the CEO walked away with, but I would 
guess that he walked away with a lot more than the $350,000 that he 
paid in fines.
  Enron executives sold millions. The real tragedy and the real shame 
here in America is that as these executives lead their companies down a 
road of shady dealings, activities to deceive and hide the true 
viability of their business from their customers, their shareholders 
and their employees, it seems that for some of these as their employees 
and shareholders face financial ruin, for these few executives it has 
come to mean a golden parachute. In this kind of world, lower standards 
prevail. Honor and trust continue to falter elsewhere, but they are 
really faltering in the business community.
  I want to just highlight one other example. This is from our State of 
Michigan. This impacts and shows how again individuals, shareholders 
and employees get hurt when leadership breaks the public trust.

       CMS Energy shares drop. Suspect trades help drag Detroit-
     based firm's stock down more than 35 percent since January.
       CMS Energy Corporation's stock fell 10 percent Tuesday 
     after its former accounting firm said its opinions on the 
     energy company's financial results for the last 2 years can't 
     be relied on.

  Excuse me? It can't be relied on.
  Here is something that I find really ironic: ``Last month CMS fired 
Andersen because of the accounting firm's link to the Enron Corporation 
scandal.'' What is the problem with CMS? CMS simultaneously sold power 
to and bought electricity from other energy companies to artificially 
boost the volume of its deals. CMS, this is like the pot calling the 
kettle black. They are doing bogus sales to boost the volume, deceive 
their employees, their shareholders and their customers; and at the 
same time they are firing Arthur Andersen because of the accounting 
firm's link to the Enron Corporation scandal.
  And here is now a response from an analyst. They have engaged in 
bogus trades, their auditing company says we cannot really support the 
opinions for the last 2 years on our audits, and here is one analyst's 
response: ``The market is overreacting to Andersen's statement. People 
are really fidgety these days.''
  No kidding. What would you think they would be? Let us see, they have 
invested a ton of money, the stock is down 35 percent, the auditors are 
saying, the last 2 years of financial statements, we can't vouch for 
those anymore. And, by the way, the company has admitted that it has 
engaged in a bunch of bogus trades to inflate the health and the 
vitality of its business. And people are fidgety.
  They have a right to be fidgety. The leaders of this company broke 
the public trust. The auditors did not do their job and people are 
fidgety. I would guess so. Because their stock has dropped by 35 
percent, and my guess is that the executives of this company are going 
to walk away with a bundle of money.
  Just a few more examples. This is what happens when the companies go 
down, employees and shareholders and customers are hurt. What happens 
to the executives? Enron, Ken Lay. Ken Lay is doing all right. He sold 
$1.8 million shares for $101 million. Jeff Skilling, he sold 1.1 
million shares for $66.9 million. They sold those shares for around $50 
to $60 a share. Rebecca Mark. She only walked away with about $80 
million. She sold her shares at about $60 a share. Robert Belfer, he is 
a director. He only made $51 million.

                              {time}  2330

  He sold 1 million shares for $51 million, $51 a share. If any of you 
want to buy Enron, I bought some a while back. I just wanted to see how 
these people explained their behavior to their shareholders. I think I 
bought 50 shares. I did not pay $51. I did not pay $60. I did not pay 
$70. I paid exactly what you can do if you call your broker, unless 
maybe the stock has doubled. I bought it for about 20 cents a share. If 
I made a good investment, you may have to pay 40 cents a share. I am 
not sure what happened to the stock price. But these guys walked away 
with a bundle of money.
  Mr. Kozlowski, the individual from Tyco, $100 million a year was not 
enough. He did not want to pay sales tax. Under Mr. Kozlowski's 
leadership, quote, unquote, Tyco lost $86 billion in market value. 
According to Reuters, ``A pattern of lucrative payouts to board members 
and top executives at the troubled manufacturer raises questions about 
whether they had incentives to keep tabs on the spending of disgraced 
former chairman Dennis Kozlowski. The question is now whether he will 
receive less than $135 million in a severance package than if he had 
been fired.''
  Mr. Kozlowski has been indicted and the question is whether it will 
trigger a wider probe into Tyco.
  CEO, Lucent Technologies. Mr. McGinn, former CEO, will receive $5.5 
million in cash. They are going to pay off a personal loan of $4.3 
million. His performance at Lucent, the Securities and Exchange 
Commission is investigating possible fraudulent accounting practices 
while Lucent employees are suing the company for a breach of fiduciary 
responsibility by inappropriately allowing employees to add company 
stock to their retirement plans.

[[Page H3509]]

  WorldCom. Mr. Ebbers will receive $1.5 million a year for life. His 
performance, WorldCom is being investigated by the SEC for possible 
fraudulent accounting practices. Its credit rating has been reduced to 
junk status and has been removed from the Standard & Poors 500 index. 
Good job. Congratulations under your $1.5 million per year.
  It is a disgrace. I hope that the business community steps up, 
because the bottom line is that millions of American businesses who 
practice honesty and really do lead with integrity and maintain the 
public trust and recognize that it is a public trust, will most likely 
pay the penalty for the failed leadership of these executives. These 
people walked away with golden parachutes, and many of them left their 
companies in shambles and left their employees' and shareholders' 
financial conditions in shambles. They walked away with a golden 
parachute. Their legacy to American business is this Congress and the 
business community is now going to have to face a mandate and a 
multitude of new business regulation.
  The problem is, let us not forget that in the end, this is about 
integrity, it is about trust, it is about common sense, and it is about 
decency, all leadership qualities that cannot be legislated, and in 
many cases leadership qualities that were expected of these 
individuals, because they hold the public trust and they walked away 
from it.
  I yield to my colleague from Colorado.
  Mr. SCHAFFER. I appreciate the gentleman yielding.
  Mr. Speaker, I have heard my colleague from Michigan now speak two 
nights in a row on this very topic, and I want to commend him, because 
it is late here tonight. I was in my office and I heard the gentleman 
begin on the subject, and I ran over here to join him and to encourage 
him on this topic.
  I do not care how late it is, and I do not care how many times we 
have to hear it, but this is something that we need to speak about more 
often. Let me be a little critical of our own party, if I can. We are 
Republicans, we are conservatives. We share a passion for free market 
capitalism together. You know, this is a subject on which Republicans 
ought to be vocal, as the gentleman has been, and we ought to see more 
of us from our side of the aisle here.
  I will tell you why, because these individuals in corporate society 
in America who are betraying their investors, betraying the employees 
of these companies and trying to get away with outright theft, are 
threatening our very existence as Americans. They are threatening our 
way of life and traditions of free market economics, driving what 
historically and traditionally has been the most powerful economic 
force on the planet, and that is the United States of America.
  Mr. HOEKSTRA. The gentleman and I have talked about this. I 
appreciate my colleague's support. What we have said is in some ways 
these people are accomplishing, these business leaders, because of 
their failure to exercise true leadership, are accomplishing what the 
terrorists could not.
  We bounced back after September 11, believing that we could rebuild 
America, and we are. They put the final piece back on the front of the 
Pentagon, I think, this week. We are strong and we are going to 
overcome that and are going to know we can move forward in the face of 
this terrorist attack. But people are questioning the strength of our 
system, and stocks are down, not because of the terrorist attack on 
September 11, but because of the scandals in the business community.

  Mr. SCHAFFER. I do not think that the magnitude of this tragedy can 
be overestimated. It is quite serious. The gentleman is right, there 
are many people in this Congress and in this country who have rebelled 
against capitalism for years and years, who think our capitalist way of 
life in America ought to be thrown out; that we ought to, I guess, go 
the way of some of the socialist nations of Europe and perhaps even the 
communist nations in experiments that have been tried and failed around 
the country.
  We, as conservatives, free-market-oriented legislators, we vigorously 
defend and put our political capital on the line in the notion of free 
markets. It has served this country well. It has led us to a point of 
prosperity in this Nation that was beyond imagination for our 
forefathers and those who have been the pioneers before us here in 
America and those who have served prior to us here in Congress fighting 
to preserve free market capitalism in the country.
  These individuals who are cheating and lying and resorting to 
deception and betrayal, I will tell you what, they are the scumbags of 
American industry. I am fed up with it. I think Republicans ought to be 
leading the charge to try to suggest that American industry ought to 
really rise up to try to police itself, because it is these few bad 
actors who are trying to get away with stealing millions, sometimes 
billions of dollars, that give the entire business community just a 
black eye that is very damaging. It threatens investor confidence.
  I think this is a point at which investors and consumers ought to 
really rally the cause, not to look to government for solutions, though 
I think there are some places where we have a legitimate role to play, 
but this needs to be policed where it matters the most, and that is 
with Americans themselves, free Americans who understand the importance 
and power of a free market system and the importance of capitalism and 
believe very firmly in it.
  Failure to address it at the serious level it warrants really 
empowers those who want to destroy capitalism from a bureaucratic 
perspective. We fought too hard to come here to Congress to allow that 
to happen.
  So I want to commend the gentleman for raising this issue. These 
organizations, Tyco, CMS Energy, Enron, Lucent and others you 
mentioned, there are board members elected by stockholders. Their job 
is to make sure the stockholders' interests are protected, not those 
few privileged that end up running away selling what is the moral 
equivalent, I suppose, of sweets on the Titanic. It is their job to 
make sure that American industry is preserved at a level of integrity 
that Americans deserve and Americans have come to expect.
  I would suggest maybe one other thing. What business schools are 
producing these individuals, these scoundrels trying to get away with 
these kinds of crimes? Where do they come from? Those business schools 
and colleges ought to be held accountable as well, not only for 
producing these scumbags, but also for perhaps suggesting, maybe 
telling Congress as to what kinds of changes in the curriculum they are 
making to improve the quality of business ethics within their colleges 
and universities.

                              {time}  2340

  Maybe we ought to hold them accountable, bring them here in front of 
hearings, in front of Congress and ask them to provide some solutions 
so that the captains of industry of the future perhaps have a little 
higher integrity than these few bad actors are demonstrating.
  The SPEAKER pro tempore (Mr. Keller). The gentleman from Michigan 
(Mr. Hoekstra) is recognized for the balance of the time until 
midnight.
  Mr. HOEKSTRA. Mr. Speaker, I thank the Chair, and I thank my 
colleague for joining me.
  I just want to close on this issue, because I know we want to talk 
about another issue that the gentleman and I both have a passion for 
but, like I said, I really thank the gentleman for being down here. 
This is an issue that Republicans need to take head on. We recognize 
how important this private sector is; we also recognize how fragile it 
is. Our system is based on trust. And when these folks break the trust 
and they walk away with millions or billions and are not held 
accountable, they weaken the entire system, and we are going to need to 
put in place, and I hope it happens in the private sector because we 
really cannot do it very effectively through Congress; but the boards 
of directors need to stand up and recognize their accountability to the 
shareholders, to their customers, to their employees; not to their 
colleagues on the board and not to senior management. They have to get 
a renewed appreciation for their role, and I think it is our job to 
point out what is going on here.
  Mr. SCHAFFER. Mr. Speaker, if I could amplify that, I want to be 
frank

[[Page H3510]]

and open and honest with respect to the political realities of this. 
Republicans and conservatives around the country cannot afford to stand 
by and abandon the field to our friends on the left on this topic. We 
cannot stand silent and allow those who are the advocates, the 
Democrats in America, the liberals in America, the advocates of greater 
government control, greater bureaucracy, a government-managed economy; 
we cannot allow those advocates to somehow gain the upper hand in 
controlling America's economy predicated upon the crimes of just a few. 
These are very, very serious incidents that have occurred throughout 
the country, and we need to take the moral high ground as the 
Republican Party.
  I would really urge all of our colleagues to come duplicate this 
Special Order and hold their own, to hold more hearings here in 
Congress. I think we desperately need that. I would encourage our 
friends throughout the country who care about these issues and who 
believe a conservative viewpoint in America is essential and is 
superior of that of the left, to write letters, to get on radio talk 
shows, to be as forceful and vocal as they possibly can within the 
political context of America.
  This is an issue that conservatives ought to resolve. We owe this as 
our legacy to the country and our philosophy and our belief to take the 
moral high ground and to manage this situation in a way that corrects 
these atrocities and brings us back to what is expected and customary 
in American society in business. Because our failure to be forceful and 
vocal will abandon the floor to the wrong people who, in the end, have 
a much more dangerous and pernicious agenda for America's economy and 
America's industry, and that is, quite frankly, government control.
  Mr. HOEKSTRA. Mr. Speaker, that is exactly right. If corporate 
America does not step up and deal with these abuses, or if we do not 
stand up here on the floor of the House and highlight these abuses and 
push the business community to come up with solutions through the 
private sector, the end result will be massive new government 
regulations, which will not have much of an impact, except putting many 
more costs on our businesses, driving away jobs, driving away 
creativity and productivity. This is about honesty, decency, and it is 
about the survival of the free market system, the capitalistic system, 
based on trust and us standing up and acknowledging that this is based 
on trust, it is not based on government regulation, and we need to move 
forward and we need to put pressure on the business sector to step up 
and deal with this.
  I have been absolutely amazed. I came out of the business community. 
I worked for a Fortune 500 company. But I have been amazed by the 
deafening silence of the business community speaking out on these kinds 
of issues. I mean think about it. Companies that are involved in bogus 
trades, auditing companies that do not audit, sales that are not there, 
profits that are not there, excessive salaries, and the rest of the 
business community has basically been quiet. As this one analyst said, 
well, people are fidgety. Yes, because for many of our constituents, 
for many of my constituents who work at CMS probably have some kind of 
a profit-sharing plan or have some of the retirement put into CMS 
stock. Since January 1, the stock is down 35 percent.
  Yes, those people are fidgety, because their company had bogus sales, 
the company deceived their employees, got them to invest in that stock 
on a false premise, and they have now lost 35 percent. Yes, I would be 
fidgety too, because these are people who are near retirement, some of 
them maybe are on retirement, and they have looked at their nest egg 
just kind of shrink and evaporate, and now people are saying, well, 
they are just fidgety, they are overreacting. No, they are reacting 
exactly the way we would expect them to act, when the leadership of 
their company has failed them and lied to them and when the leadership 
of their company walks away with millions and they have lost 35 
percent. That is not right.
  Mr. SCHAFFER. Mr. Speaker, when it is predicated on fraud, when it is 
predicated on deliberate acts of deceit, those people who committed 
those crimes ought to be in jail and they ought to serve a long, long 
time before they ever see the light of day again. I firmly believe 
that.
  Not only that, I just want to reiterate what I said before. Who is 
producing these clowns? What business schools are they coming from? Let 
us find out what business schools, what college professors train people 
to believe that they can lie and cheat and steal here in America and 
somehow live in lavish houses and get away with it.
  The message needs to be sent that anybody who trains these kinds of 
clowns needs to be exposed right along with the perpetrators. The 
perpetrators need to go to jail. My goodness, we ought to have a review 
of the curriculum in business schools to find out what kinds of ethics 
classes that they are exposing American students to, because it is not 
good enough, and we just have to bring this to an end as quickly as 
possible. It will destroy American society as we know it. This is a 
huge threat. The magnitude of this just cannot be overestimated and 
overstated.
  Mr. HOEKSTRA. Mr. Speaker, it is kind of interesting, when I come 
back and we do our next Special Order on this topic, I will bring along 
a copy of an op-ed piece written by Jack Colson, because that is 
exactly the question that he asked, which is who is training these 
clowns? Because the message that clearly is being taught in many of our 
business schools, it is okay, as long as you do not get caught. No 
harm, no foul. I sell you $1 billion worth of energy, you sell me $1 
billion back, immediately after that, we are now both a $1 billion 
company. If we do it twice, we are each a $2 billion company. If we do 
it 4 times, we are a big company now. We have not created any profit, 
we have not created anything, and no harm, no foul, but we have now 
just presented to the American public that we are both a $4 billion 
company.
  That is what these folks did, and for one of these companies, it was 
80 percent of one of their division's volume, bogus trades, just 
trading it back and forth and 2 companies saying, wow, look how big we 
are.
  Somewhere in the business schools, they said, well, as long as you 
are not breaking any laws, it is okay. Game the system, and do not 
worry whether it is really not right, but game the system and you are 
okay as long as you do not get caught. And the bottom line is, for many 
of these people, it has gotten to be an issue of greed.
  This head of the TYCO, and I have a passion about this TYCO company. 
They came into my district a few years ago and they bought a nice 
little small company, 400, 500 employees, and they said, we are going 
to keep it the same, we are going to keep it the same, we are going to 
keep it the same. They finished the sale and the next day, they locked 
the doors. Now we know what kind of man was running that company. He 
did not care about the employees, because he let them go the day after. 
He did not care about the business. He walked away with $334 million, 
and the biggest insult of all was when it came to paying sales tax, he 
said, I am not going to pay sales tax, because you know what I can do? 
I can buy something through the company, I can buy it in New York City, 
but if I ship it to Connecticut or somewhere else and then they can 
ship it back to me in New York because I shipped it to Connecticut, I 
do not have to pay any sales tax.

                              {time}  2350

  And it is kind of like, when is enough enough? It was $334 million. 
If he worked 7 days a week, 24 hours a day, he made about $10,000 an 
hour every waking hour. By January 1, at 6 o'clock in the morning, he 
had made $60,000 already, much more than most Americans will make in a 
year, and probably within the first 2 weeks of a year would have made 
more money than most Americans would make in a lifetime, and it appears 
that he was unwilling to pay a sales tax. It is kind of like, whoa. And 
that is the leadership of our, at least in this case, of one of our 
major corporations. He is leaving the company in ruins. The market lost 
$86 billion.
  We ought to talk about the other issue that the gentleman and I both 
have a passion for, which is education. The gentleman and I both serve 
on the

[[Page H3511]]

Committee on Education and the Workforce. We have spent a lot of time 
going around America taking a look at what works.
  We have analyzed the bureaucracy here in Washington, recognizing that 
in many cases the Department of Education could not give us a clean set 
of books. That has now improved with the Bush administration. They are 
on track to give us a clean audit, we hope, this year.
  But we have a system that funds about $40 billion through the 
Washington bureaucracy, and what the gentleman and I are advocating for 
is a system that allows people to directly invest in their schools at 
home through an education tax credit based on what many of the States 
have done. It is really a unique and an exciting way to get more money 
into all of our schools for all of our kids, where the decisions to 
contribute and where the decisions as to how that money will be spent 
are made by people at the local level.
  Maybe the gentleman just wants to expand a little on that.
  Mr. SCHAFFER. Mr. Speaker, I thank the gentleman for yielding. The 
education tax credit proposal, in my mind, is one of the most exciting 
reforms we have seen here in Congress here in a long, long time. Its 
appeal is that it fosters school choice and more flexibility, really a 
market approach to American education, and it does so in a way that 
appeals more broadly across the political spectrum here in Washington 
and among the traditional education organizations than anything we have 
seen before.
  It is better than vouchers because it is not a voucher at all. It 
does not represent the kind of strategy vouchers represent, but at the 
same time, it does promote school choice by focusing on students rather 
than institutions, and it is nondiscriminatory in its treatment of 
American school children. It is more fair than what we do today with 
conventional public education. It is far more fair than what would be 
proposed with something like vouchers, for example.
  Here is how it works. It starts with the premise and the reality that 
every American is going to send a certain amount of cash, assuming they 
are taxpayers, to Washington, D.C.
  Mr. HOEKSTRA. And assuming they are not trying to evade their taxes.
  Mr. SCHAFFER. That is right. And the benefit in our bill, let me just 
start with the dollar amounts and some of the specifics, it is a $250 
benefit to every individual taxpayer in the country.
  Well, $250 is a certain dollar amount that every American is going to 
send to Washington under the current law. What we want to do is take 
$250 of people's current tax obligation and give them a choice on how 
to spend it. They can continue to send it to Washington, as they do 
today, or if the bill passes, they would have a choice to continue to 
do that or to send $250 to a local school of their choice, a public 
school in the neighborhood, or maybe a scholarship organization that 
provides scholarship funds to low-income students so they can attend 
the school of their choice.
  In order to actually increase the amount of money invested in 
education in America, this tax credit is a 50 percent credit. We will 
give $250 back from the government if they will send that plus another 
$250, $500 total, to a school. That is the proposal.
  It works very simply. If you make a $500 investment, total, to a 
public school or a private school, or a scholarship fund so kids can go 
to private schools, we will change the Tax Code so you will get $250 of 
it back out of the tax bill. It is a beautiful proposal. Six States are 
using it today. It has made a remarkable difference in the education 
opportunity for poor children in those States, and we want to do it for 
the country.
  Mr. HOEKSTRA. Mr. Speaker, as the gentleman indicated, there are six 
States that are using some type of variation of this, whether it is 
Arizona, Minnesota, Pennsylvania, I think Florida, and they are all 
working on some type of plan like this.
  But the exciting thing here, this is kind of like a voluntary 
decision by people at the local level that says I want to put more 
money into my local school, and they have the option of doing it. It 
builds that trust between a local parent, a local constituent, and 
their local school system.

  If the school system can come up with a compelling need that says, 
hey, in Michigan we get money on a formula basis, and some of my school 
districts have some special needs, and they are saying, the money we 
are getting from Lansing just is not enough, and they have no 
alternative way to get some additional dollars, under this plan, they 
could go to the constituents in Holland and say, you know, we really 
want to keep this school open. This is in one of our target 
neighborhoods. We really think it is important. We know that this is 
not the most efficient way to run the school, but this is not 
necessarily always about efficiency. We want the best results. We think 
the best result is by leaving this school open. Are you willing to 
contribute a little bit to our school system to make that happen?
  Under this system, there is an incentive for people to contribute and 
help build their school system to be one of the best school systems in 
the State, if not the country.
  Mr. SCHAFFER. The current education funding formula at the Federal 
level is a very rigid, bureaucratic structure.
  Mr. HOEKSTRA. It is very much that way at the State level.
  Mr. SCHAFFER. This chart to my right explains how Federal education 
funds get from a taxpayer to a student here at the bottom. It is 
funneled through all of these different agencies: The U.S. Treasury 
Department, the Congress, the U.S. Department of Education. Those 
dollars are distributed through the States, through State legislators, 
the politicians, the State board of education, the school district, the 
politicians and to the school. By the time the dollar makes it through 
this rigid process, there is scarcely 60 cents left of every dollar. 
What we are proposing is bypassing this nonsense and getting the money 
directly to children through a choice mechanism and more of a free 
market approach to schools.
  Mr. HOEKSTRA. Mr. Speaker, I want to really reinforce the point my 
colleague made, which is that this system shrinks the taxpayers' 
dollar; that when we put a dollar at the top of that funnel, by the 
time it gets down to the student, that dollar has shrunk from $1 to 
something like 65 cents.
  In the education tax credit model, with the tax credit model, we 
actually grow the dollar. The person puts in $2, but it only costs, or 
the reduction in Federal income taxes is only $1, so we actually grow 
it. So if we invest $1 there, we end up with 60 cents in the classroom. 
If we invest $1 here, we end up with $2 directly going to the student 
in local communities with, in this case, the local school board 
deciding how this money is going to be spent. In that case----
  Mr. SCHAFFER. There are about 10 different steps.
  Mr. HOEKSTRA. There are about 10 different steps, and a Washington 
bureaucrat telling us how to spend the money. Quite often when we go 
through that process they tell us what to do and it is going to cost $2 
million, $3 million, but they do not give all the money to do it. This 
is a much more efficient and a much more effective system.
  As the gentleman and I point out consistently, we are not talking 
about doing away with that system. We would love to reform it, to make 
it more efficient, but we recognize that there is a lot of built-in 
support for that system. It is going to stay. We are going to keep 
increasing funding.
  What we are trying to do is to develop a complementary, a companion 
system that allows for more local control and local flexibility in 
terms of raising and spending money.
  Mr. SCHAFFER. And we are going to start out small with the proposal 
just to prove that it works first, before we move further.
  As we draw to a close here in the next couple of minutes, I just want 
to commend our President. President George W. Bush laid out a very bold 
and ambitious plan for American schools. He campaigned on it, and once 
he got elected it was the first order of business of his 
administration. His goal was to and is to improve American education 
and reduce the achievement gap that exists between underserved 
children, poor children, minority children, and those who are of more 
robust financial means.

[[Page H3512]]

  He proposed accomplishing this through accountability, through more 
school choice, and through flexibility, and I regret to say that the 
Congress really denied the President two of those three objectives in 
the education bill that the President proposed. All we passed was the 
accountability, or the national testing provisions. The President is 
committed to continue fighting and moving forward on the school choice 
components of his education vision.
  This tax credit proposal is really the next step in accomplishing 
that for the President, so I am grateful for his passion and commitment 
to these children in America. I am grateful for his commitment to the 
education tax credit proposal that we have developed. I am grateful for 
our Speaker and our majority leader, and our leadership here in the 
House, and the chairman of the Committee on Ways and Means and the 
chairman of the Committee on Education and the Workforce for all of 
their help and support in making this tax credit proposal a reality, 
because it will allow us to bypass this bureaucracy with just a small 
amount of money to begin to show in America how making the connection 
between taxpayer and school child will improve education dramatically 
throughout the country and begin to treat children like they matter, 
and also begin to expose American education to more of a free market 
approach.
  Mr. HOEKSTRA. Mr. Speaker, the end result is the shared vision that 
we have with the President, that we have with our Speaker, and with the 
chairman of the Committee on Education and the Workforce to make sure 
we leave no child behind; that every child in America gets a first 
class education, and that they can compete on a worldwide basis.

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