[Congressional Record Volume 155, Number 163 (Wednesday, November 4, 2009)]
[Senate]
[Pages S11075-S11077]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  UNEMPLOYMENT COMPENSATION EXTENSION

  Mr. SCHUMER. Mr. President, I rise to speak in favor of the 
unemployment relief expansion that the Senate is poised to pass, 
hopefully, later today, with broad bipartisan support, although there 
were, I am sorry to say, some unnecessary delays from the other side.
  This bill is vitally important and we could have, and should have, 
passed it weeks ago. I am relieved to finally see the light at the end 
of a very long, very dark tunnel that being out of work has caused for 
hundreds of thousands of American workers who have lost their jobs.
  Since we first began considering this vital legislation nearly a 
month ago, nearly a quarter of a million Americans, and 50,000 New 
Yorkers have seen their benefits dry up. With each passing day of 
inaction, tens of thousands of middle-class families have seen their 
safety net pulled out from under them. So I am glad to see the Senate 
finally take action.
  I think of something that happened to me on Monday. I was rushing to 
my New York City office in midtown Manhattan. A well-dressed gentleman 
was obviously waiting at the front door of the office building in which 
my office is 17 floors up. He was well dressed, in a camel hair coat, 
and he was well groomed. I could see anxiety in his eyes. He pulled me 
aside and said, ``Senator, I have been waiting for you. Can I speak 
with you for a minute?'' I said, ``I am late for a meeting, so can you 
walk with me?'' He said to me again, ``I would like to ask you a 
question. When will you pass an unemployment benefit extension? I have 
a lot of friends who are asking.'' I sort of knew what was happening. 
Of course, he was a man who was obviously middle class, and maybe more, 
who had lost his job and could not find his benefits. He was too proud 
to ask me for himself, so he asked me for others.
  It hit home to me that New Yorkers of all backgrounds and economic 
levels and all parts of our State are out of work through no fault of 
their own. They are desperately looking for jobs, and not enough of 
those jobs have come back. Our job is to help them. That is what this 
bill does. I am glad to see the Senate finally take action.
  The bill will also extend the home buyer tax credit for 7 months, 
which I support, and it will provide for a 5-year carryback of net 
operating losses, or NOLs.
  The main focus of my remarks today is on this last provision, since 
one of the important effects of this NOL part of the legislation will 
be to provide much needed and deserved tax relief and, in too many 
cases, the money needed to survive to thousands of Americans who were 
lured into Ponzi schemes such as Bernie Madoff's and have lost 
everything. These evil schemes hurt so many people.
  When we hear about the Madoff investors, we hear a lot about 
celebrities who lost hundreds of millions. But for every wealthy 
individual, there are hundreds, if not thousands, of people not at all 
of wealth who had their retirement savings stolen from them. They 
trusted Madoff or their investment adviser who put their money with 
Madoff. Now these poor folks have lost everything. In many ways, these 
average people are worse off than the people who lost many times as 
much, because so many--too many--of these smaller victims lost 
everything.
  As you know, many of them are in New York, because Bernie Madoff was 
located there. I want to explain to my colleagues how what we are doing 
today helps the little guy, the average person, who saved for their 
retirement and now finds, at age 60, 65, or 70, that their retirement 
savings are gone. Everything they have worked for their whole life has 
been stolen from them. In many cases, the victims are destitute and 
have nothing to live on. They saved their money for years. They got 
statements and confirmations and 1099 forms that looked real. The SEC 
had checked out Madoff and said everything was fine. The victims did 
everything right. They played by the rules, and then their future 
financial security evaporated before their eyes on December 11 of last 
year.
  Here is what we are doing to try to help those thousands of smaller 
investors. There are basically two types of Madoff investors, leaving 
out the charities and pension funds that were also

[[Page S11076]]

decimated. There are the direct investors, who knew Madoff and invested 
directly with him. Then there are the indirect investors, who went 
through someone they knew or an investment advisor called ``feeder 
fund'' investors. In general, direct investors tend to be the bigger 
investors, the wealthy who had personal relationships with Madoff. The 
indirect investors are the folks who tend to have a lower net worth, 
and a lot of them are elderly people who saved all their lives, and 
suddenly they are destitute. Many gave their money to somebody they 
trusted, such as an investment advisor, and didn't even know their 
money was invested with Bernie Madoff.
  When the IRS issued a revenue ruling in April, which I urged them to 
do, the ruling simplified and clarified the rules under which a direct 
investor could take a theft loss deduction for their Madoff losses, by 
saying that theft losses could be treated as NOLs, as if the individual 
investors were small businesses. Direct investors were allowed to 
``carry back'' their losses for 5 years instead of 3 and carry forward 
any remaining losses for up to 20 years. A longer carryback is 
important because it allows the investor to recoup some of those losses 
and put cash in their pockets.
  But investors in a ``small business'' with more than $15 million in 
assets could not qualify for this relief. As a result, the IRS guidance 
was of help only to direct investors because the feeder funds that had 
the money of thousands of smaller investors were usually worth more 
than $15 million. They aggregated lots of little investors and gave one 
big chunk of money to Madoff. The IRS was sympathetic. They told us it 
was right to help these people, but they said they needed a change in 
the law.
  I should also add that the indirect investors are also not eligible 
for the $500,000 of relief from the Security Investor Protection 
Corporation, or SIPC, so they have been hit by a double whammy: They 
are the smaller people usually, and they got shut out of the expanded 
carryback on the theft losses because the feeder funds of which they 
were a small part were too big, and they get no SIPC relief either.
  The bill we are considering today will allow larger businesses to 
carry back their NOLs for 5 years. They can offset 100 percent of the 
income for the first 4 years and 50 percent in the fifth. I have worked 
hard to ensure that this language is drafted in such a way that the 
Madoff indirect investors will qualify for the expanded NOL relief, 
because these individuals will no longer be subject to the ``small 
business test.''
  I believe very strongly that the indirect and direct investors should 
be treated equally. I tried to amend the bill so that those who are 
victims of theft losses from fraudulent investment schemes could get 
the full 100 percent in the fifth year. I particularly thank the 
chairman of the Finance Committee, Senator Baucus, and his staff, for 
being receptive to this, and for working with my very capable staff to 
make it happen. I believe we could have added this to the bill if we 
could have gotten it scored in the compressed timetable that we had 
had.
  I will continue to work with the Finance Committee and the Joint 
Committee on Tax and the victims advocates to get the necessary data so 
that future tax relief for Ponzi scheme victims can be considered by 
the full Senate, and not stalled by unrelated scoring issues.
  The action we are taking today will help millions of unemployed, 
thousands of home buyers, and many large corporations that need the 
refunds to improve their cash flow and make new investments, and that 
is hugely important. But I also wanted to explain how what we are doing 
today will help provide some modest assistance to thousands of people 
whose life savings were stolen from them 11 months ago.
  The victims haven't been sure where to turn, but I assure them that 
they have allies in the Senate, including the chairman of the committee 
and myself. We hear them, and we are doing everything we can to help 
right these wrongs and at least make up for some of the evil done by 
Bernie Madoff.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Kaufman). The Senator from Oregon is 
recognized.
  Mr. MERKLEY. Mr. President, I rise today to address one particular 
aspect of the bill before us, the Home Ownership and Business 
Assistance Act of 2009.
  Home ownership is addressed in this bill through an extension of the 
$8,000 credit to first-time home buyers. There are some adjustments to 
that credit encapsulated in the bill, but I will not get into that. I 
want to address a different aspect. This is an idea that hasn't been 
fully debated in the Senate. I think it is an appropriate time to put 
it forward.
  We need a permanent $5,000 tax credit for first-time home buyers. 
Folks may say: But we have a mortgage interest deduction, and that is a 
major home ownership program in America. Why should we have a 
downpayment tax credit for first-time home buyers on an ongoing basis?
  In the bill before us, the tax credit is designed to stimulate the 
economy, stimulate the housing market. But I put this idea forward from 
a different direction--the direction of empowering our working families 
through home ownership.
  Why is that so important? I will tell you and I will give you a few 
vignettes.
  I spent years working as director for Habitat for Humanities, working 
with low-income families trying to become homeowners. The community 
made it affordable and possible by donating land and materials and 
participating in the construction of the home. Habitat sold the homes 
to the individuals on a zero interest mortgage. Those families 
participated in the construction, which is often called ``sweat 
equity.'' They were out there hammering nails, putting up walls, 
pouring foundations, putting on roofing, putting their own labor and 
sweat into the construction of the house.
  What I saw through that experience was the profound impact of home 
ownership on working families. I saw families, who were unstable and 
had been going from living in a van to living in a basement, become 
stable. I saw the positive impact on the children, who had never been 
able to invite a friend over before--now having pride in their home and 
having the ability to invite friends over, having more self-respect. I 
saw them doing better in school. I saw parents who didn't believe they 
had a stake in the community. Now they had a stake in the community, 
and that affected the way they behaved. They became more involved in 
the affairs of the community.
  I want to turn first to laying out the fact that studies that look at 
the details of home ownership impact find that indeed home ownership 
has an enormous impact on working families. Sociologist R. J. Bursik 
found that crime, unemployment, suicides, juvenile delinquency, teen 
pregnancy, and drug use are decreased by home ownership. The Journal of 
Urban Economics found that children in home-owning families tend to 
have higher levels of achievement in math and reading, to have fewer 
behavioral problems, stay in school longer, are more likely to graduate 
from high school, and are more likely to go to college.
  A study by Alba, Logan, and Bellaire titled ``Living with Crime'' 
found that home ownership resulted in family members being 
significantly less likely to be involved in crime.
  All of this is common sense. It is common sense that a family who 
feels part of a community is going to be less likely to be involved in 
crime, is going to be more involved in the community, that children who 
have more stable lives have more self-respect and are going to fare 
better in school. The stability of home ownership makes it more likely 
that children are going to graduate from high school. But I think it is 
important to document those impacts from the studies, as well as from 
our common sense or from vignettes.
  We have a major program in America, the home mortgage interest 
deduction, which is designed to facilitate home ownership. It is a 
terrific program, but the program does not assist working families 
getting into their first homes.
  Let me put up a chart to explain what I am talking about.
  Take a working family. Maybe they are earning $40,000 or $50,000 or 
$70,000, and they buy a $150,000 house and put 5 percent down. Right 
now, mortgage rates are low, so they pay 5 percent interest. Their 
total interest is $7,078. That is less than the standard deduction for 
a year. The standard deduction

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is $11,400. So working families are not assisted by the home mortgage 
interest deduction in getting into homes.
  It is still a good program. It still empowers home ownership over the 
long term. It certainly is beneficial in an increasing way to families 
who earn more.
  Here is a family buying a $500,000 house. While the interest is the 
same, the same assumptions--5 percent down, 5 percent interest, 
$23,591, far exceeding the standard deduction. So if you are a family 
who is better off, you can buy a bigger house. The home mortgage 
interest deduction helps launch you into home ownership. But if you are 
a working family in America, it does not help much. In fact, often the 
interest is less than your standard deduction. So it has no impact 
whatsoever. This is why we should debate fully a permanent $5,000 
downpayment tax credit for first-time home buyers.
  Of course, we always struggle with the cost of programs and that is a 
very important thing to do. The cost of the home mortgage interest 
deduction in this last year was about $97 billion. That is the cost of 
the home mortgage interest deduction, with most of the benefits going 
to affluent families. So $97 billion is directed in ways that do not 
help our working families get into their first home.
  What if we were to spend a fraction of that to help working families 
become homeowners, knowing that the externalities of home ownership--
the stability for children, the lower crime rates, more likely to 
finish school, more likely to earn more money, you pay more in taxes, 
less likely to end up on public programs. All those programs are paid 
back to us in multiples.
  What would the cost be of providing a $5,000 downpayment tax credit, 
a permanent one, to first-time home buyers? It would be on the order of 
$10 billion, assuming that every family, regardless of income, was 
eligible.
  A $97 billion program, an important program, a good program, but it 
does not help working families get into homes. Why not spend 10 percent 
of that on a program that would help launch our working families into 
home ownership, which makes much better lives for them and a much 
better community, stronger communities for everyone else, and a much 
better future for their children?
  I will conclude in this fashion. Home ownership has enormous value to 
our society--home ownership done right, not with liar loans, not with 
prepayment penalties, not with steering payments, not with mortgages 
that are basically scams. But home ownership done right has enormous 
returns--responsible, good, solid mortgages. We should support our 
working families to become homeowners, for their sake and for 
strengthening all of America and for the future of our children.

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