[Congressional Record Volume 155, Number 73 (Wednesday, May 13, 2009)]
[Senate]
[Pages S5409-S5415]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        CREDIT CARDHOLDERS' BILL OF RIGHTS ACT OF 2009--Resumed

  The PRESIDING OFFICER. The clerk will report the bill.
  The assistant legislative clerk read as follows:

       A bill (H.R. 627) to amend the Truth in Lending Act to 
     establish fair and transparent practices relating to the 
     extension of credit under an open end consumer credit plan, 
     and for other purposes.

  Pending:

       Dodd-Shelby amendment No. 1058, in the nature of a 
     substitute.
       McConnell (for Gregg) amendment No. 1085 (to amendment No. 
     1058), to enhance public knowledge regarding the national 
     debt by requiring the publication of the facts about the 
     national debt on IRS instructions, Federal Web sites, and in 
     new legislation.
       Vitter amendment No. 1066 (to amendment No. 1058), to 
     specify acceptable forms of identification for the opening of 
     credit card accounts.
       Sanders amendment No. 1062 (to amendment No. 1058), to 
     establish a national consumer credit usury rate.
       Gillibrand amendment No. 1084 (to amendment No. 1058), to 
     amend the Fair Credit Reporting Act to require reporting 
     agencies to provide free credit reports in the native 
     language of certain non-English speaking consumers.

  The PRESIDING OFFICER. Under the previous order, the Senator from New 
Jersey is recognized.
  Mr. MENENDEZ. Mr. President, we see gathering clouds in this economic 
storm and those clouds are credit card debt. At the very same time that 
it is becoming harder to get new credit, Americans have almost a 
trillion dollars of credit card debt outstanding. Defaults are rising 
and delinquencies are at a 6-year high. It is clear this isn't only a 
question of consumers overspending. Credit card companies are trying to 
boost their profit with deceptive practices and making the situation 
worse. People are seeing so much of their paychecks eaten up by late 
fees, over-the-limit fees, and interest payments that today companies 
can unilaterally increase at any time. Credit card companies are 
pushing cards on college students who can't afford them and teenagers 
are winding up with a lifetime of debt.
  Companies are raising interest rates on consumers and customers who 
have a perfect record with their credit card but miss a payment with 
some other creditor. Maybe worst of all, if you have a credit card, 
chances are there is a line in the fine print that says the company can 
change the rules at any time. Considering some of the changes companies 
have made already, who knows what they could do tomorrow.
  I have heard from thousands of people in New Jersey who feel their 
credit card contracts are booby-trapped, that their credit card 
agreements conceal all kinds of trapdoors behind a layer of fine print. 
Take one false step and your credit rating plummets and your interest 
rate shoots through the roof.
  These are the same kinds of stories we started hearing as the 
foreclosure crisis began. Right now there is nothing stopping credit 
card companies from doing this to consumers--no law, no level playing 
field, no protection for the average American, no way to get the kind 
of fair treatment we expect as a matter of common sense.
  When some people see that their interest rate has shot through the 
roof for no apparent reason, they call and plead with their companies 
for help, but their fate lies solely in the hands of the credit card 
companies. If the companies don't want to help, they are out of luck 
and stuck with an even bigger mountain of debt. Meanwhile, credit card 
companies are still making multibillion-dollar profits. This isn't just 
impacting the lives of individual Americans and families trying to make 
ends meet; it has major ramifications for the entire economy.
  One of our major economic challenges right now is getting credit 
flowing again but not at the high price credit card companies are 
imposing. The economy is never going to get running at full speed again 
if consumers can't get their bearings because they have fallen behind 
on a payment treadmill that credit card companies keep speeding up. If 
there is any time to end deceptive practices and level the playing 
field, it is now.
  Credit card reform is something I have been calling for since I set 
foot in the Senate. In 2006, one of the first pieces of legislation I 
introduced was an effort to reform credit card practices. Even then it 
was clear credit card debt was a looming problem that had the potential 
to wreak havoc on American families unless we achieved commonsense 
reforms. If there is one thing we have learned from this economic 
crisis, it is that we can't wait for a dangerous situation to reach 
full-blown crisis proportions before we act.

  This Congress, as I have done for several Congresses, I introduced 
the Credit Card Reform Act to tackle essentially the same issues this 
current bill deals with, including banning retroactive rate increases, 
protecting young consumers from being sucked into the cycle of debt, 
reasonably tying fees to costs, and prohibiting unilateral changes to 
agreements.
  We have $1 trillion collective debt in credit cards. That is how big 
this issue is. I am proud to see Chairman Dodd's credit card reform 
bill includes many of the provisions I included in my bill and have 
championed for years. His leadership is what has brought us to the 
floor today. I included in my bill many of those provisions, and we 
have championed them together.
  Though in some cases I would like to see different provisions that I 
think would make for stronger legislation, I still look forward to 
working with the chairman on one or two of those. But this bill 
represents one of the strongest, most comprehensive efforts yet to end 
some of the most egregious practices of credit card issuers, while 
making sure that Americans young and old don't fall so easily into 
financial traps.
  The principle behind this bill is simple: Companies should be clear 
about the rules upfront, and they should not change them in the middle 
of the game. The bill says, similar to a provision I have been pushing, 
if companies want to change the terms of credit card agreements, they 
have to give reasonable notice before they do so. It will end an 
industry practice known as universal default on existing credit 
balances so companies don't raise interest rates on customers' 
outstanding debt when they have a perfect record with that credit card 
but maybe miss a payment by a few days with some other creditor.
  I called for this in my bill, and I am proud to see Chairman Dodd has 
it in his. I am also proud he included a provision I called for in my 
bill to make sure that when fees are imposed, they are reasonably tied 
to the original violation or omission that triggered the fee, not just 
the companies' desire to increase profits.
  This bill will discourage the bait-and-switch tactics behind the 
preapproved offers that almost every American consumer has seen come 
into their mailbox, an idea I also put forward strongly in my own bill. 
When you get a card offer, the offer should be real. The terms should 
not be so good to be true that it fades away once you apply for the 
card. This legislation will provide recourse for consumers, if a card 
issuer tries a sleight of hand and changes the terms in the fine print.
  One of the things I have been focused on--and I am glad to see it in 
this

[[Page S5410]]

bill--will protect young consumers from credit card solicitations they 
didn't ask for. I am convinced, having seen my own children, when they 
were in college and studying but not working, get an incredible number 
of preapproved credit cards, I could stack them this high, or my State 
director's 2-year-old who got a preapproved credit card, if you have a 
Social Security number and a pulse that, in fact, you can get a credit 
card.
  I am proud this bill includes a provision that says people under 21 
can proactively opt in to receive credit offers, but they will no 
longer will be lured into deals unless the decision is their own. It 
would also ensure that when college students do opt in and apply for a 
credit card, they prove that they or a cosigner can actually make the 
payments on that debt before they get that card. That is something I 
even think should be considered more broadly, ability to pay as a 
fundamental essence.
  This way we don't get people on the march of bad debt, bad credit, 
and all the consequences that flow therefrom. For far too many people, 
credit card debt is already a personal financial crisis. If we don't 
act soon, it could grow to become a national financial crisis. Already 
there is a trillion dollars in collective debt. We cannot allow 
predatory and deceptive practices in the industry to continue as we did 
in the subprime mortgage market. We cannot allow the credit card 
problem to become the next foreclosure crisis.
  When it comes down to it, this legislation is about trust. At a time 
we have seen financial institutions fail, either fail to be profitable 
or just fail to be honest, it is clear that restoring trust by ending 
deceptive practices is good for everyone. People are not demanding too 
much, just rules that are fair, understandable, and don't change in the 
middle of the game.
  It is time we give individual consumers the tools to level the 
playing field when it comes to dealing with credit card companies. This 
legislation is about creating a trustworthy financial system, restoring 
some commonsense rules of the road, and stabilizing our economy by 
making it possible for consumers to get their footing.
  At the end of the day, that is in the interest of all Americans. Now 
it is time to act because, similar to the debt on our credit cards, if 
we keep putting this problem off month after month, it is only going to 
get worse.
  I look forward to working with the chairman to pass this bill, making 
it as strong as possible and making sure it becomes law.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Oregon is recognized.
  Mr. MERKLEY. Mr. President, I commend my chairman, the distinguished 
Senator from Connecticut, for his work on the legislation before us 
today. This has been a complex issue. The chairman has worked very hard 
to bring people together on all sides. I commend also the senior 
Senator from Alabama for his vital engagement on these reforms that 
touch the wallet or the pocketbook of virtually every American. America 
needs credit card reform.
  Take the case of Maggie Bagon, a 59-year-old social worker from 
Salem, OR. As reported in the Oregonian, Maggie used her card 
conservatively. She paid her bills on time. So she was incensed when 
her credit card company charged her a late fee.
  So she called up the bank. They told her the terms of her contract 
permitted them to sit on her payment for 10 days before they posted it 
to her account, and that made it feasible--in fact, lawful--for them to 
charge her a late fee when she paid her bill early.
  That type of practice is a scam. Maggie and thousands of Oregonians, 
perhaps millions of Americans, have been charged late fees for paying 
their credit cards early. That kind of deception and trickery has to 
end.
  Late fees for early payments is not the only type of scam we have had 
in this industry. How about interest charges on balances that have been 
paid off? Well, you have paid it off, and you are very happy about 
that. You are now free of interest? No, you are not--not under the 
rules of the fine print in many credit card agreements.
  How about fees for going over the limit when you do not know you are 
over the limit? Well, it used to be you were simply turned down and 
that was fine because that was the deal you had and you understood the 
deal. But now suddenly you get your credit card statement, and you find 
out you were charged a $30 fee when you bought a newspaper with a 
credit card or you were charged a $30 fee when you bought a $5 meal 
with your credit card because the bank was not going to tell you about 
the fee because they wanted to collect those fees for going over the 
limit.
  Well, this act will fix that problem, that type of scam on the 
American worker. In fact, credit card companies have even charged fees 
for making your payments at all. Some charge fees for paying with a 
check. Some charge fees for paying over the Internet. Some charge fees 
for paying by telephone. That is simply crazy, and this act will 
address these types of tricks and traps that have become key and 
central to the industry.
  As a member of the Oregon House of Representatives and as speaker, I 
worked with my colleagues to reform lending practices in our home 
State. We tried to address credit card practices to establish fair 
rules of the road, and our legal counsel said: No, you can't do that 
here at the State level. You have to do that at the Federal level. It 
is federally preempted. So we were not able to help people such as 
Maggie, the citizens of our State, have fair practices. Only the 
Federal Government, under Federal law, can make these changes.
  But if we all have reserved to ourselves the power to set fair 
practices, then we have a moral obligation to set those fair practices. 
We have an obligation on behalf of the millions of American citizens 
such as Maggie. That is why this legislation is so important.
  It is strong, commonsense legislation which targets the most abusive 
practices. In particular, I am proud it prohibits ``universal default'' 
on existing balances--that bait-and-switch tactic when, under the deal 
you have signed up for, you are charged 7 percent, but after you make 
those charges, your interest rate is suddenly switched to 29 percent.
  I am proud this bill requires that payments beyond the minimum 
monthly payment be applied to the balances with the highest rate of 
interest.
  I am proud this bill limits the aggressive solicitation of young 
persons; that it prohibits fees based on the method of payment, be it 
telephone, mail, Internet or otherwise; that it prohibits over-the-
limit fees unless a person opts in to that feature--it is a fair deal, 
you choose it--and that it prohibits late fees if the card issuer 
delayed posting the payment.
  These long-overdue, commonsense reforms are important steps to bring 
transparency and fairness to credit card contracts. These reforms will 
help Maggie and millions such as her from Connecticut to Oregon and 
everywhere in between.
  Friends, this legislation is also good for our banking system. There 
is one clear lesson we have learned this year; that is, fair lending 
results in families who are on a solid foundation, strong consumers, 
and it avoids the sort of securitization that results in poison pills 
being based on fraudulent, deceptive practices, poison pills that 
infect our banks and financial institutions around the world.
  Even the banks are aware this system is flawed, and some have tried 
to offer better, safer cards. But they found it hard to differentiate 
themselves. Why is that? Well, here is why. It is pretty 
straightforward. Consumers do not have the time or patience to read the 
dozens of pages of fine print that come in a credit card contract and 
then to compare its terms--and be able to evaluate its terms--to the 
dozens of pages that come with another credit card.
  But even if a person dedicated a week of their life to comparing two 
credit card contracts, it would not matter because, at the end of the 
contract, it says: These terms can be changed at the discretion of the 
credit card company at any time. And they are changed frequently. 
Therefore, the contract does not give you the ability to compare and 
contrast. Therefore, we have a dysfunctional market because consumers 
are not able to choose better cards with better practices.
  We need to create a functional market where there is competition--
competition not based on how many tricks

[[Page S5411]]

and traps you can insert into the fine print but competition based on 
value, based on good interest rates, based on fair fees, and based on 
good, old-fashioned consumer service.
  Friends and colleagues, this legislation is fundamentally about 
fairness. It is long overdue. Our citizens deserve fair contracts on 
credit. It makes our families stronger. It makes our national financial 
system stronger.
  I certainly commend Senator Dodd for his 20 years of labor, day in 
and day out, to reform these practices. I commend President Obama for 
his leadership on this very important issue.
  Friends, it is time to adopt these reforms. President Obama is 
waiting. Maggie Bagon of Salem, OR, is waiting, along with millions of 
other Americans, for simple fairness.
  I yield the floor.
  The PRESIDING OFFICER (Mrs. Gillibrand). The Senator from 
Connecticut.
  Mr. DODD. Madam President, before my colleague from Oregon leaves the 
floor, I wish to thank Senator Merkley, who is a former speaker of the 
house in his home State. He is a new Member of this body and a welcome 
addition to it. While he and my colleague from Colorado, Senator 
Bennet, and Senator Warner from Virginia are new Members of the Senate 
and new members of the Banking Committee, I wish my colleagues to know 
what incredibly valuable additions they have been to the committee and 
to this body.
  In the few short months they have been here, I have gotten to know 
all three of them very well. We have had a lot of--almost, I think, 
close to 20--hearings in the Banking Committee since January 20 on a 
variety of issues. We had a housing bill up last week, which took a 
good part of the week, with some 20 amendments. Now we have this 
legislation. There is a lot of work in front of us.
  I wish to express to the people of Oregon how grateful we are to them 
they have sent Jeff Merkley to the Senate. He is making a wonderful 
contribution, and it has been in a matter of days. Certainly, on this 
issue, he has brought a wealth of knowledge and experience to the 
subject matter of consumer issues. Certainly, his additions and 
thoughts on the credit card legislation have been invaluable, as have 
been those by Bob Menendez, who was here a minute ago, the Senator from 
New Jersey, who is a more senior Member of the Senate but a former 
Member of the House. Also, his concerns about young people and the 
proliferation of credit cards arriving at their homes unsolicited, and 
in some cases being preapproved, has been a source of great concern for 
me over many years. To have the addition of Bob Menendez expressing his 
interests on those subject matters has brought us to the point where we 
now finally have provisions in this bill that do protect young people 
and their families.

  I pointed out yesterday that 20 percent of college students have in 
excess of $7,000 in credit card debt, and the average college graduate 
today is leaving college with more than $4,000 in credit card debt. In 
fact, one of the major reasons why students drop out is because of 
credit card debt.
  Again, we understand the value of a credit card. But the responsible 
use of it by the consumer and also the responsible proliferation of 
these cards by the issuers need to be in balance. It is not. This bill 
changes that, and we think for the better, which will provide the use 
of credit cards but in far more responsible ways than certainly 
presently is the case.
  I am very grateful to Senator Merkley, Senator Menendez, Senator 
Bennet, and Senator Warner, who have been involved in this debate over 
the last number of weeks and months. I am confident and hopeful in the 
next 2 days or so we will be able to finish the bill and work out with 
the House the differences we have, which are not many, and send this 
legislation to the President.
  The President, by the way, is the first American President who has 
spoken up so forcefully, on numerous occasions now over the last 
several weeks, on this issue. To have an American President talk about 
the importance of reform of the credit card industry has made an 
invaluable contribution to public awareness about this issue--not that 
the public needed to be made aware of it. The public has been living 
with it. They have been far more knowledgeable about this, with 70 
million accounts over the previous 11 months having their interest rate 
go up. That is one out of four American families.
  As you have heard in anecdote after anecdote, fees have been raised, 
penalties have been imposed, charges have been added on, with no cause, 
no justification whatsoever. It is the only contract I know of where 
one party can change the terms at will. If you buy a home, if you buy a 
car, if you buy an appliance, there is a contract. The seller cannot 
change the terms midway in that contract. On credit cards they can, and 
they say it bluntly: For any reason, at any time, we will change the 
contract. Of course, that is terribly unfair to American consumers, at 
a time they are paying an awful price economically, as well as with 
jobs being lost and homes falling into foreclosure.
  I am hopeful this bipartisan bill Senator Shelby and I have put 
together will enjoy broad bipartisan support. I cannot think of a more 
significant message we can send to the American public about this 
institution caring about what they are going through today. We have 
spent a lot of time over the last number of months dealing with 
financial institutions: stabilizing them, TARP money, automobile 
assistance. Americans are wondering if we are ever going to do anything 
about what they are going through. Certainly, I understand--I think 
most of my colleagues do--that stabilizing our financial institutions 
ultimately will get credit moving and be a great help to businesses and 
consumers. But it is an indirect assistance. This is direct assistance.
  This is an opportunity to say, it is not going to happen any longer. 
We are putting a stop to it. The people are going to get the kind of 
help they deserve. People need credit cards. They are essential for 
them in the conduct of their everyday lives. But they need to have the 
assurance that the terms are not going to change, the rights do not 
change, the credit limits do not change on the basis of the issuer 
deciding that on their own. This bill addresses all of those issues in 
a very comprehensive and thoughtful manner.
  I am grateful, again, to the members of the Banking Committee, as 
well as to Senator Shelby, of course, and others who have helped put 
this legislation together.
  The majority leader has been a champion in this area, and he is the 
one who has allowed us to be on this floor and to engage in this 
debate. Having leadership that insists upon this kind of debate 
occurring is welcomed in this country, and I thank Senator Reid, as 
well, for those efforts.
  With that, Madam President, unless others wish to be heard, I suggest 
the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. REED. Madam President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REED. Madam President, I wish to make some remarks with respect 
to this pending legislation. First, I wish to commend Senator Dodd and 
Senator Shelby for developing this bipartisan legislation. It will 
bring more fairness to the credit card market and provide more 
predictability to the many Americans who use credit cards, which is 
practically all Americans today.
  Families are being squeezed on every side. The unemployment rate 
continues to rise. The situation, we hope, is beginning to stabilize 
across the country. However, in my State of Rhode Island, there is 
still a significant 10.5-percent unemployment rate. That is 
unacceptable. Individuals are still working, but they are receiving 
pressure to take pay cuts. Home values have fallen precipitously. As a 
result, people can no longer call upon their biggest investment and 
their biggest source of wealth: their home. All of this is adding to 
the dilemma that is facing working families across this country.
  At a time of declining home prices, rising unemployment, and the 
pressures of daily life, individuals are faced with higher and higher 
credit card interest rates, which makes it even more difficult to make 
ends meet. People

[[Page S5412]]

who have never missed a payment are facing double-digit interest rate 
increases because card issuers are currently permitted to increase 
rates at any time for any reason.
  Our small business owners are struggling. The Federal Reserve April 
2009 survey of senior loan officers shows that banks continue to 
tighten standards for credit for small business lending and to decrease 
existing credit lines. With few viable alternatives, many small 
business owners must use their personal credit cards just to keep the 
lights on in their company and to stay afloat, and they also are 
subject to these arbitrary increases of their interest rates.
  The Dodd-Shelby substitute restores balance to a market that has 
lacked adequate consumer protections for far too long. This legislation 
codifies the rules the Federal Reserve recently issued by prohibiting 
double-cycle billing, retroactive interest rate increases on credit 
card holders in good standing, and other questionable practices. It 
will institute commonsense rules that will make a meaningful difference 
for consumers, and this is a very important and very positive first 
step. These Federal Reserve rules have done that.
  But this bill goes further. It requires that penalty fees be 
reasonable and proportional to the cost of the violation. It requires 
that any interest rate increases on new purchases be reviewed every 6 
months so that consumers can return to a previous rate if conditions 
change. It also protects consumers who have temporarily fallen on hard 
times by requiring 60 days before penalty interest rates can be 
imposed.
  It shields young people from taking on more debt than they can handle 
by limiting prescreened offers to young consumers. It also gives 
consumers more access to the information they need to make wise 
financial decisions, such as requiring full disclosure about due dates, 
penalties, and changes in terms.
  I am pleased that much of the bill will take effect just 9 months 
from enactment. This is an aggressive but achievable effective date--
something I pushed for, along with my colleagues, particularly Senators 
Dodd and Shelby. When the Federal Reserve first announced that its 
rules would not be implemented until July 2010, I wrote to Chairman 
Bernanke urging him to reconsider the effective date in light of the 
economic crisis.
  This legislation is careful to try to make changes in a way that 
preserves consumer access to credit. Implementation is staggered in 
recognition that some of these changes are very narrow in scope and 
others are more far-reaching. For instance, an important provision 
requiring a 45-day notice before any interest rate increase will take 
effect in 3 months. Other changes, which may require more time to be 
implemented appropriately, will be instituted on a different timeline. 
This is a sensible and rational way to quickly address issues that are 
clear cut. It will also place more difficult issues on a timeline that 
will provide relief but give an opportunity to effectively implement 
these changes.
  I am, however, disappointed that the ban on retroactive interest rate 
increases will not take effect until 15 months after the bill is 
enacted. I think we should do that much more quickly. I point out that 
15 months is even later than the date included in the Federal Reserve's 
original rules, although we are improving upon their original approach. 
This bill goes further than the Federal Reserve's rules, and in that 
sense I think it is important and timely and effective.
  This bill will stop the exploitation of credit cardholders, there is 
no doubt. But we must acknowledge that when card issuers return to 
careful underwriting standards because they can no longer change 
interest rates at will, credit may become tighter. As a result, for 
some consumers, a credit card will be harder to come by. We have to 
recognize that. That is something which I think should be explicit 
rather than implicit.
  One more point. Our first priority is protecting consumers, but what 
should not get lost in the debate is that robust consumer protections 
benefit the whole economy. We are now seeing what happens when some 
financial institutions are able to pursue profits without reasonable 
safeguards for borrowers, without prudent underwriting, without 
effective due diligence. The short-run gain quickly turns into long-run 
pain for the economy. That is precisely what has happened over the last 
several months. Not only did consumers suffer, but also the 
institutions that originally underwrote these products suffered.
  All of this having been said, the legislation before us is timely. It 
will provide long-overdue protections to Americans--individuals, 
households, families, and businesses. I urge my colleagues to support 
this important legislation.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from New Hampshire is recognized.


                               U.S. Debt

  Mr. GREGG. Madam President, I rise to speak about the dire situation 
of our fiscal house and the Federal Government, which has been 
confirmed and reinforced by the recent trustees' report on Social 
Security.
  We are in big trouble as a nation because of the amount of debt we 
are running up. This President has proposed a budget that doubles the 
debt in 5 years and triples it in 10 years. He proposed a budget that 
runs, on the average, a trillion dollars of deficit every year for the 
next 10 years--4 to 5 percent of GDP in deficit. In fact, this year the 
deficit will be almost $2 trillion and it will be almost 13 percent of 
GDP--staggering numbers, numbers we have never seen as a nation except 
during World War II when we were fighting for survival. These numbers 
add up to debt that is unsustainable and cannot possibly be repaid by 
our children and therefore will create an atmosphere for our children 
and our children's children where our Nation will not be as prosperous 
or as strong as it was when our Nation was passed on to our 
stewardship.
  These problems are only massively compounded by the report that came 
out yesterday from the Social Security trustees because they pointed 
out that the Medicare trust fund is going into a negative cash flow 
situation and the Social Security trust fund will soon go into a 
negative cash flow situation. What does that mean? Well, in the last 15 
or 20 years, we have basically been financing our Government by 
borrowing from the piggy bank of Social Security and using that money 
to operate the day-to-day costs of the Federal Government. What the 
trustees are telling us is that the piggy bank is broken. It has been 
smashed. It no longer has any money in it. It is not going to take in 
money that exceeds the amount of money it has to pay out. In fact, we 
are going to have to borrow money now in order to pay Social Security 
benefits beginning in 2016 and Medicare benefits right now, this year.
  This chart reflects the seriousness of the situation. If you take 
just these basic mandatory programs--Social Security, Medicare, and 
Medicaid--the cost is escalating on a steep upward slope. By around the 
year 2025 or 2030, these three programs alone will absorb all of the 
money the Federal Government has traditionally spent on all of the 
programs of the Federal Government--20 percent of GDP--and then they go 
up. It is projected that toward the middle of this century, Social 
Security, Medicare, and Medicaid will literally bankrupt our Nation by 
themselves. That says nothing about the basic underlying budget, which 
is expanding so dramatically under this Presidency.
  The debt of this country under President Obama's proposal and budget, 
because of spending in these three accounts and because of the new 
spending the President proposed in all sorts of other accounts--massive 
expansions in the size of Government, where the debt of the Federal 
Government just goes up and up, to the point where it will represent, 
at the end of President Obama's budget, 80 percent of the gross 
national product. Today, the Federal debt is about 40 percent of the 
gross national product, down here, but after the spending spree of 
President Obama and the Democratic Congress, it will be 80 percent of 
the gross national product.
  We will be in a position where we cannot get out of the hole. 
Usually, when you dig a hole that is too deep--and we are deep in the 
hole already, by the way--you stop digging. That is the old adage. If 
you are digging a hole and you are underground, you stop digging. We 
are not going to stop digging as a

[[Page S5413]]

government. What the President and the Democrats are suggesting is that 
we bring a backhoe into the hole and dig twice as fast, so that we go 
even further down into the negative, into debt. That is not 
sustainable. It is not survivable for our kids because they are going 
to end up with costs and deficits that far exceed their ability to be 
able to manage.
  The Medicare system alone has an unfunded liability of $37.8 
trillion. When you throw in the Social Security system on top of that, 
you are talking about unfunded liabilities of over $42 trillion. What 
are the implications of that? If you took all the taxes paid in the 
United States since we were formed as a nation, since we began our 
Government and started to collect taxes, we have paid less in taxes 
than we have in obligations on those two accounts. If you took the net 
worth of every American--all of our homes, cars, and stock--and you 
added it all up, we have a debt on the books for the purpose of paying 
for the programs that we know already exist under Medicare and Social 
Security--we have a debt that exceeds the net worth of the entire 
country. That is the definition of bankruptcy, by the way--when your 
debt dramatically exceeds your assets.
  In fact, by the 10th year of this budget, as proposed by President 
Obama and passed by the Democratic Senate--without any Republican votes 
because it is such an irresponsible budget--the interest on the Federal 
debt alone will be $850 billion. To try to put that into context, the 
interest on the debt will actually exceed what we spend on national 
defense. It will exceed by a factor of 4 or 5 what we spend on 
education and on transportation. So we will be putting more money into 
paying interest.

  By the way, to whom do we pay this interest? We pay it to the 
Chinese, to the Japanese, to Southeast Asian countries, and, obviously, 
to the Arab and oil-producing countries. We will be paying more 
interest to those nations--more American hard-earned dollars will go to 
those nations to pay interest on our debt--than we will have available, 
what we will be able to spend on our own national defense.
  Does that make sense? No, it doesn't make any sense at all. Plus, it 
is not supportable.
  There are only two things that can happen to our Nation. When you run 
up the debt in the manner in which this deficit is proposed and in the 
manner these deficits will do under the budget passed here, when you 
look at the debt and the serious financial situations of Social 
Security and Medicare, there are basically only two things--unless we 
take action on controlling spending now--that can occur. One is that 
you devalue the dollar and inflate the currency. That is sort of a 
combined thing. You basically take the value of the American currency 
and inflate it. That is the cruelest tax of all. That says to people 
who have savings that they will find they are worth less the next day 
because of inflation. It says to the people who want to buy things that 
they can buy less because of inflation. Inflation is a massive tax on 
working Americans. That is one way you get out of debt, you inflate it. 
The practical effect of that is that people won't want to buy your 
debt. If they know inflation is coming, they won't buy your debt. Why 
give you $1 billion to buy a billion dollars of American debt knowing 
that you are going to pay them back in inflated dollars? If they are 
going to give you a billion dollars, or lend it to you, they are going 
to require much higher interest rates than we presently have to pay 
because they are going to have to anticipate inflation and the fact 
that the value of the dollar will be reduced and that the value of the 
debt they just bought will be worth less. So inflation has a lot of 
very bad ramifications.
  But how else do you get out from underneath the debt? The other way 
is to massively increase taxes on all Americans. This euphemism that we 
are just going to tax the rich--you cannot do it by just taxing the 
rich even if taxing the rich is something you want to do.
  On the other side of the aisle, they claim they are going to raise 
the rate on high-income Americans from 35 percent up to an effective 
rate of about 41 or 42 percent, as proposed by the President. These 
high-income Americans, making more than $250,000, are the majority of 
the job producers in America. Most of the jobs in America are produced 
by small businesses today, and almost all of those small businesses 
would be hit with this additional tax rate. So what happens to the 
small business, that mom-and-pop activity in New Hampshire, which is 
suddenly starting to grow? Maybe they have 10 employees and they want 
to add 12 or 15 more, but they cannot do it because they have to take 
their money and put it toward paying taxes. They are not going to be 
able to put it toward adding more jobs, which would be much more 
beneficial to us than having the money come to Washington and having 
the people in Washington decide how to efficiently spend it. It is 
spent much more efficiently by small business.
  It is not like they are undertaxed. A 35-percent tax rate on a small 
business means they are taxed more than any other people in the 
industrialized world for small business activity. Most corporate taxes 
and business taxes in the world average out around 20, 19, 15 percent. 
In the United States it is 35 percent, if you are an individual or a 
subchapter S corporation. Now they are talking about taking it up to 41 
percent under the proposal from the other side of the aisle.
  That is their plan for taxes. This is tax the rich. Even though for 
the most part this is small business and it will cost us jobs--fine, 
let's accept the tax-the-rich argument. How much money do they get from 
that? Not very much, compared to what they are talking about spending. 
They, the other side of the aisle, are proposing increasing spending by 
over $1 trillion on the discretionary side--that is education and 
things like that--and over $1 trillion on the entitlement side. The 
revenues from this tax increase are about one-fifth of that spending 
increase, maximum one-fifth--and that presumes that wealthy people are 
not going to be smart enough to go out and figure out ways to avoid 
taxes, which is what people do who have accountants when their tax 
rates go up. They figure out a way to invest so they do not have to pay 
their taxes at such a high level, legally, by investing in things that 
are tax avoidance vehicles.
  It is not a very efficient way to manage the economy. We would rather 
have people invest in a way to get the maximum return because that 
creates the most productivity in society, which promotes the most jobs, 
but what happens is people invest not to create jobs and create return, 
they go out and invest to avoid taxes, which is a very inefficient way 
to spend dollars. But let's accept the theory this is all acceptable, 
that we should go out and tax the rich because it is a good political 
statement and makes a nice TV ad and that will address the problem.
  It does not. We still have a debt curve that goes up essentially on 
the same pathway because this pathway of debt assumes--this debt 
assumes this tax increase on the wealthy.
  What is the other option besides inflating the economy? It is to tax 
everyone at very dramatic rates. What is the practical effect of that? 
If we tax all working Americans in order to pay off this debt--and 
remember what this debt is being used for. It is being used to expand 
the size of the Government. The President has been very forthright 
about this. He says: I believe, by dramatically growing the size of the 
Government--I heard this today on NPR, which I found was very 
appropriate since they happen to be a Government-funded agency--by 
dramatically expanding the size of the Government, you can create 
prosperity.
  That is the argument of the President. That is the argument of the 
NPR's commentator today. I am thinking to myself--explain this to me.
  Take the debt of the United States up to 80 percent of GDP, run 
deficits of $1 trillion a year for the next 10 years, and we are going 
to create prosperity? We are not going to create prosperity. We are 
going to create a momentary blip in the activity of the Government in 
the private sector--not momentary, a permanent blip. And we are going 
to significantly increase the size of the Government and maybe we will 
create some Government jobs, but in the end what we get is a massive 
expansion in debt, a massive expansion in deficit, and a commensurate 
expansion either in inflation or in taxes, which have a huge dampening 
effect on prosperity.
  We don't create prosperity by increasing inflation. We don't create

[[Page S5414]]

prosperity by creating a nonproductive workplace where capital is being 
invested, not for the purposes of efficiency but for the purposes of 
avoiding taxes. Basically, what we are absolutely guaranteeing when we 
are running up this type of debt is that we are not going to get 
prosperity. We are going to get a weaker economy, a less prosperous 
country, and a country that is not as strong.
  These numbers that came out yesterday from the Social Security 
trustees only highlight, in a most devastating way, how significant our 
problem is. If we fail to take it on, if we fail to address this issue, 
if we continue on this path of just spending money as if there is no 
tomorrow, there will be no tomorrow for our children because the 
burdens will be so high and so extreme from all the costs of 
Government, and especially from the burdens of these entitlement 
programs.
  What is the answer? To begin with, yes we are in a tough fiscal time 
right now, and we have to spend money that we do not want to spend in 
order to try to get things going. But let's acknowledge the fact that 
this recession is not going to go on forever. Hopefully, there are some 
lights at the end of the tunnel and some glimmers that things are 
turning around, and we all hope that is going to occur and it appears 
it may. The Federal Reserve Chairman thinks it will.
  As we move out of this recession, we should not continue to spend as 
if we are in a recession. Rather, we should draw back on the spending 
we put into the system. We should start to take some of that spending 
back. All of the spending programs that came in the stimulus should 
have been sunsetted so these programs end after the recession is over, 
1\1/2\ years from now, or maybe 1 year from now.
  But that is not the plan. The plan is to build all of this spending 
into the baseline and have this spending go on for as far as the eye 
can see, and that is why the President's budget expects to have a $1 
trillion deficit as far as the eye can see, or at least as far as the 
budget window--10 years.
  Then after retrenching on the spending that is being proposed just in 
the short term, saying: Let's stop this spending when we get out of the 
recession, let's start curtailing this spending, let's go back to the 
former spending patterns of the Government--which were not very good to 
begin with but at least a lot better than what is being proposed now. 
Let's put someplace some strict fiscal discipline. Let's freeze 
discretionary spending for 1 or 2 years after we move past this 
recession--in other words, in the year 2010, 2012, 2013.
  Let's also, at the same time, look at these entitlement accounts and 
see how we can put them on a more sustainable path. That means making 
some courageous decisions around here. We proposed--myself and Senator 
Conrad--a way to accomplish that because we know the political system 
does not inherently allow people, members of the Government who have to 
run for reelection, to make the tough decisions on these programs that 
affect everyone. We know that.
  We know it is very hard for somebody to stand up at a town meeting 
and say we are going to raise the age of retirement in Social Security; 
we are going to change the ways we calculate COLAs on Social Security. 
No, that is not the way these things are discussed around here. That is 
not possible in a political climate. We accept that.
  Why not set up a procedure which drives a good policy, which we can 
vote on and everybody can sort of hold hands and go at the issue 
together? That is what Senator Conrad and I have suggested. It is 
called the Conrad-Gregg Commission, except in New Hampshire where we 
call it the Gregg-Conrad Commission.
  Actually, what it does is set up a process where a group of people 
who are very knowledgable--with a majority, by the way, from the 
majority party--sit down and figure out the best ways to try to bend 
this curve a little bit. Hopefully, more than this. See, this is the 
current baseline, the blue one. Hopefully, we can get it back to the 
current baseline and get under control the rate of growth of these 
entitlements so they do become, at least if not immediately affordable, 
over a long period more affordable.
  We do this on a fast track. We do it without amendments. We require 
an up-or-down vote and require supermajorities so everybody is 
protected, everybody knows it is fair. It gets to the underlying issue 
which is how to control the rate of growth of spending.
  I recognize I have been sort of a Sisyphus, pushing a rock up a hill 
in this position, and I have not gotten to the top of the hill yet. But 
I am not alone on this concern. The chairmen of the Budget Committee in 
both the House and Senate have both said that these outyear debt 
patterns of their budgets are unsustainable. Those were not my words.

  The Director of OMB, the President's Office of Management and Budget, 
has said these outyear numbers are unsustainable. The Secretary of 
Treasury has said these outyear numbers are unsustainable. We cannot 
have a debt-to-GDP ratio of 85 percent. We can't have deficits of 4 to 
5 percent annually. We cannot do it and have a sustainable Government. 
We end up turning into a banana republic if we continue on this path 
where we basically self-implode through inflation or excessive taxing.
  The international community is starting to comment on this. The head 
of the Chinese Federal Reserve--a different title but the same 
position--has raised his concerns about it, as has the premier of 
China. After all, they are our biggest lender.
  If the person who lent you the money for your credit card comes to 
you and says: I am a little concerned about the amount of credit you 
are running up. I am a little concerned about it. You ought to listen 
to that person because that is the person who is going to lend you the 
next dollar.
  Regrettably, we are in that situation whether we like it or not. This 
is a real discussion about the real problems we confront as a country, 
and the trustees report should be listened to. There was one specific 
suggestion in the trustees report that we in the Congress were supposed 
to do. The trustees report says when it is projected that the Medicare 
trust fund will have to be supported with more than 45 percent of the 
general funds of the Government--in other words, the Medicare trust 
fund is supposed to be self-insured. It never has been, but it is 
supposed to be. It is not supposed to be general funds, which is 
general taxation, to pay for it. So 5 years or so ago we put in that 
language that said if over 45 percent of the support funds comes from 
the general fund so it is no longer an insurance event, so people who 
are paying into their HI insurance are no longer supporting anything 
more than 55 percent of the cost of the fund--at that point the 
trustees notify Congress and the President that this is going to occur 
within the next 7 years, and we are supposed to, by our own statute, 
receive from the President directions as to how to bring spending or 
the cost of the trust fund down so that the general fund will not be 
invaded by more than 45 percent.
  President Bush took this to heart. He sent up two proposals to 
accomplish that, both of which were fairly reasonable. The first one 
was, the people who take part in the Part D drug program should have to 
pay a percentage of their premium for that program if they are rich, if 
they are well off. In other words, people working in a restaurant in 
Epping, NH, today are fully subsidizing the Part D premium of, for 
example, Warren Buffett. That makes no sense, does it? So if you have a 
fair amount of income, you should pay a larger--some percentage at 
least of your Part D premium. President Bush suggested that.
  Another approach, he said, was there are a lot of savings occurring 
in the health care industry today based mostly on technology advances. 
We would like to share the rewards of those savings with the people who 
are getting them. Today, 100 percent of the savings goes to the health 
care industry. President Bush suggested that we take half of those 
savings and put them back into the Medicare trust fund. Those are very 
reasonable proposals, both of those. They were both rejected by the 
Democratic Congress, a Congress controlled by the Democrats. Both were 
rejected by the Democratic Congress.
  Now it is President Obama's turn to send us some ideas for how we 
keep the cost to the general fund of the trust fund of Medicare below 
45 percent. But what has happened? Total silence. Total silence. 
Nothing has been sent. No proposal has been sent. No endorsement of any 
proposal has been sent.

[[Page S5415]]

  Interestingly enough, and to his credit, President Obama suggests in 
his budget the same proposal on Part D that President Bush proposed, 
which was that wealthy people should pay some percentage of the cost of 
their premium. So one might think they would send that proposal as a 
free-standing initiative, at least that one, as a way to address some 
of the costs which are being generated and being borne by the general 
fund. But we have not heard that.
  It is ironic, of course, that President Obama has that proposal in 
his budget and is not willing to send it. It may be that because 
Congress, under the Democratic leadership, rejected this idea 2 years 
ago, that they believe it will be rejected again. But let's at least 
take a run at it because it is a good idea, and it is very appropriate. 
It should be done along with some other ideas because we have this 
responsibility, under our own rules.
  There are rules. We set them up. We said if the general fund is going 
to be invaded by more than 45 percent we have to come up with some way 
to correct that. So we ought to at least live by that. There are some 
ideas as to where we should go from here, rather than allowing this 
debt to become so excessive that, for example, it got so high that we 
become so irresponsible as a nation in the area of debt that we 
couldn't even get in the European Union. That is an irony, isn't it?
  When this debt gets up over 60 percent of GDP, which it may well, 
probably in the next 2 years, at that point the United States would no 
longer qualify for entry into the European Union.
  Because those industrialized States said: That level of debt is 
irresponsible. A government that has that level of debt is so 
irresponsible that we do not want you in the European Union.
  In other words, Latvia or Lithuania could get into the European 
Union, but the United States could not. Not that we are going to apply. 
But that is a pretty good place to look for a standard, is it not? They 
are industrialized nations.
  So we need to take some action. We need to listen closely and read 
closely the trustee's report, because it is telling us we are in deep 
trouble.
  I yield the floor.

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