[Congressional Record Volume 157, Number 105 (Thursday, July 14, 2011)]
[Senate]
[Pages S4609-S4620]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. ROBERTS (for himself and Mr. Nelson of Nebraska):
  S. 1368. A bill to amend the Patient Protection and Affordable Care 
Act to repeal distributions for medicine qualified only if for 
prescribed drug or insulin; to the Committee on Finance.
  Mr. ROBERTS. Mr. President, I rise today to introduce a bipartisan 
bill, the Restoring Access to Medication Act of 2011. This bill would 
repeal the portion of the Patient Protection and Affordable Care Act 
which requires individuals to have a prescription to spend the money 
they have saved in their Flexible Spending Accounts.
  Flexible Spending Accounts, FSAs, Health Savings Accounts, HSAs, and 
other medical savings arrangements provide plan participants with an 
affordable, convenient and accessible means to manage their health care 
expenses.
  More than 35 million Americans participate in FSAs and more than 10 
million Americans participate in a HSA. These accounts allow plan 
participants to set aside their own dollars on a pre-tax basis to pay 
for health care expenses, giving individuals control over health care 
decisions and how to pay for that care.
  A key benefit of these plans prior to enactment of the Patient 
Protection

[[Page S4610]]

and Affordable Care Act, PPACA, was the ability for participants to use 
the dollars they set aside in these plans to pay for the cost of over-
the-counter medications.
  However, under PPACA, plan participants may no longer use funds from 
these accounts to purchase over-the-counter medications, unless they 
have a prescription for the medication.
  This prohibition takes away choice from individuals about how to 
manage their health care expenses and adds yet another burden to 
physicians, as some plan participants will seek a prescription for 
over-the-counter medications. And, worst of all, it injects increased 
costs into our health care system.
  Rather than promoting cost-effectiveness and accessibility, this 
provision instead directs participants to potentially more costly, less 
convenient, and more time-consuming alternatives. Further, it injects 
unnecessary confusion and complexity into a system that was previously 
straightforward and easy for consumers to utilize.
  This bill repeals Sec. 9003 of the PPACA and restores the ability of 
plan participants to use the funds in their FSA, HRA, HSA or Archers 
MSA to purchase OTC medications, allowing them to better manage the 
cost of their health care expenses.
  A family physician from Leawood, Kansas told me, ``I am pleased that 
legislation is being introduced to reverse this policy. Many of my 
patients face undue burdens purchasing needed medications that are 
essential to their health maintenance and overall wellbeing. Reversal 
of this policy will allow my patients to continue to purchase the 
numerous beneficial over-the-counter products that are so important in 
our daily lives and will eliminate a substantial administrative burden 
on my practice.''
  In Kansas, and throughout the U.S., a broad coalition of groups 
support this legislation, including the U.S. Chamber, NFIB, pharmacist 
groups, drug store organizations and consumer groups.
  I would invite my colleagues to join me in this effort by 
cosponsoring this legislation.
                                 ______
                                 
      By Mr. CRAPO (for himself, Mr. Wyden, Mr. Risch, and Mr. Begich):
  S. 1369. A bill to amend the Federal Water Pollution Control Act to 
exempt the conduct of silvicultural activities from national pollutant 
discharge elimination system permitting requirements; to the Committee 
on Environment and Public Works.
  Mr. CRAPO. Mr. President, over the last several months, this body has 
been focused on issues pertaining to our economy, such as the ailing 
jobs market and our debt and deficits. That is as it should be. 
However, while these important issues have commanded most of our 
attention here in the United States Senate, that is not to say that 
other matters and conflicts have suddenly taken a back seat to them. 
Even as we vigorously debate our economic future, home-state and 
regional issues continue to command our attention. It is one of those 
regional issues that brings me to the floor today.
  Two months ago, a three judge panel of the U.S. Court of Appeals for 
the 9th Circuit handed down a final decision that could have far 
reaching negative impacts on public and private forests, and the 
communities that rely on them, throughout the United States. In the 
case of Northwest Environmental Defense Center v. Brown, the Court 
ruled that logging road runoff when managed with a system of ditches 
and culverts and deposited into rivers and streams qualifies under the 
Clean Water Act as point source pollution. This means that storm water 
when mixed with dirt and rocks will now be subject to some of the most 
stringent environmental protection laws in the United States. America's 
Federal forests are already heavily litigated, but with one fell swoop, 
this decision threw out over 35 years of precedent, opening the door 
for even more litigation on Federal forest lands, and subjecting 
private and state forest lands to the same specter.
  There was a time when forest jobs supported millions of Americans and 
their communities. But a lot has changed since then. Endless 
litigation, cheap imports, disease and a general shift in Federal 
forest management policy have drastically changed the landscape for 
forest jobs and the families and communities that rely on them. Working 
on the forests used to make up a considerable amount of the tax base in 
many rural communities, particularly in my State of Idaho. However, 
that has shrunk dramatically in recent decades.
  Forest communities that were once prosperous now find themselves in a 
state of perpetual economic jeopardy, with young people searching for 
employment elsewhere and tax bases that can barely cover the cost of 
basic public services. This has become so dire that in 2000, Congress 
had to pass legislation to provide funding to rural communities with 
Federal public lands to make up for lost revenues from timber harvests 
on those lands.
  Given all of this, I am disappointed that another impediment is being 
added to the economic survival of our forest communities.
  This decision will impact both public and private forests. In the 
case of Federal forests, we have millions upon millions of acres that 
are in need of active management and restoration. Our Federal forests 
have suffered from under management, disease, wild fires and other 
factors, and to address these problems, the U.S. Forest Service needs 
to be able to get to work on much needed fuels reduction, thinning and 
other forest health projects. But litigation has made that very 
difficult, and this decision is only going to make it worse.
  Then, there are private forests. The people who own, manage and work 
on these private forests need roads to have access to them. But, this 
judicially-mandated permit requirement will inevitably lead to 
increased costs for businesses that are already operating on the 
margins. Furthermore, this decision will impose the Federal Government 
into the management of private lands as these permits, even if issued 
by a State agency, will be subject to Environmental Protection Agency 
oversight under the Federal Clean Water Act, as well as citizen suits 
that are intended to further reduce timber harvests.
  We need to do something about this unfortunate and unwise decision 
out of the Ninth Circuit Court of Appeals. As such, I am introducing 
legislation along with my friends Senator Wyden, Senator Risch and 
Senator Begich to overturn it. This legislation is entitled the 
Silviculture Regulatory Consistency Act of 2011. Our forests and the 
communities that they have long supported are already in considerable 
jeopardy, and we need to do everything in our power to help these rural 
communities. Passing this legislation is only one step in that process, 
but it is a very necessary one.
  I hope that the Senate can pass this bipartisan legislation as soon 
as possible.
  Mr. WYDEN. Mr. President, today I am joining with my colleagues from 
Idaho, Senator Crapo and Senator Risch, and my colleague from Alaska, 
Senator Begich, to correct a regulatory problem that left uncorrected 
will bury private, State and tribal forest lands in a wave of 
litigation. If we have learned anything from the court battles that 
have contributed to the widespread gridlock and mismanagement of our 
Federal forests, it is that this is not the best path to ensure our 
forests' future and should be considered only as a last resort. Now 
those battles threaten to spill over onto private forest lands.
  Since the advent of the Clean Water Act, Democratic and Republican 
administrations have held that most silviculture activities were 
nonpoint sources for purposes of the act and would be best regulated at 
the State level, under the States' individual forest practices laws. 
Under this rule, known as the ``silviculture rule, `` silvicultural 
activities, such as nursery operations, site preparation, reforestation 
and subsequent treatment, thinning, prescribed burning, pest and fire 
control, harvesting operations, surface drainage, or road construction 
and maintenance, from which there is natural runoff, were regulated 
through the Clean Water Act by States best management practices.
  This rule for forest roads has now been explicitly invalidated by the 
Ninth Circuit Court of Appeals, which--in a series of two decisions--
implicitly undermined the long-held ``silvicultural rule,'' stemming 
from

[[Page S4611]]

litigation over the use of forest roads in Oregon State-owned forests.
  According to the Ninth Circuit, stormwater runoff collected and 
directed by a system of ditches and culverts creates a discrete point 
source and therefore, must be regulated as industrial stormwater 
runoff. This judicial interpretation of the Clean Water Act means that 
every source of runoff on forest roads will now require an industrial 
stormwater runoff permit. Not only will new roads need to be permitted, 
but the hundreds of thousands of miles of existing roads in Oregon and 
around the country, on both public and private lands, will now need to 
be reviewed and issued permits.
  If this one court's decision to overturn 35 years of widely-accepted, 
Environmental Protection Agency, EPA, policy is allowed to stand, 
private, State, and tribal forest owners will also likely be subjected 
to litigation as part of the permitting process or through lawsuits 
under the citizen suit provisions of the Clean Water Act. The outcome 
could well deny States the use of their forests which they depend on to 
pay for schools and services, while significantly depressing the 
investment required to sustain private forestry.
  If this decision is allowed to stand, every use of forest roads will 
require permitting and will therefore be subject to challenge by 
citizen lawsuits. This will not only overburden landowners and managers 
in the Ninth Circuit states by adding significant compliance and 
permitting costs, it will create an opportunity for administrative 
appeal and litigation every time a permit is approved.
  Initially, the court's ruling will apply solely to my region of the 
country, but we can expect lawyers to quickly beat a path to other 
Federal courts and the EPA itself, seeking to extend the ruling to all 
other forested regions of the country, and giving an immediate and 
perhaps permanent competitive advantage to our foreign competitors who 
have far lesser environmental standards and enforcement.
  The fact of the matter is that forests and forest roads--even private 
ones--have multiple economic and environmental uses and users--from 
wildlife habitat to recreation to timber production--over decades long 
growing and harvesting cycles. The ``silviculture rule'' existed 
because forestry is different from other industries, even other 
agricultural production. This is why, in this instance, I believe the 
courts have gone too far in reinterpreting the law and why legislation 
is needed to make the long-accepted ``silvicultural rule'' the legal 
basis for Clean Water Act regulation of forestry practices.
  The Clean Water Act is one of the cornerstones of environmental 
protection. In the past two Congresses, I cosponsored the Clean Water 
Restoration Act because I believed that the U.S. Supreme Court went too 
far in reinterpreting decades of Clean Water Act law by excluding 
wetlands and intermittent streams that had long been protected under 
that law. Here too, I believe that the courts have gone too far in 
reinterpreting what has been a longstanding understanding of how 
silvicultural activities should be regulated. The Ninth Circuit 
concluded that only Congress can authorize EPA's original reading of 
the law. Senators Crapo, Risch, Begich and I are introducing 
legislation today in response to that conclusion.
  That is not to say that the persons who orchestrated this litigation 
were not well-intentioned in their desire to address the water quality 
issues that can arise from silviculture, as they can in virtually every 
other agricultural activity. Rather, I believe they had the best of 
intentions. In fact, I share their intentions. I have labored for 
decades and will continue to work to address the poor condition of 
forest roads on Federal lands. I will also be the first to argue that 
the Federal Government has much to do in that regard. Efforts can also 
be made on State and private lands. In many instances, what is needed 
is simply more technical assistance and financial incentives to help 
landowners and managers that are seeking to do the right thing. I 
certainly care about keeping the pristine quality of our streams and 
the impacts that sediment can have on salmon and aquatic creatures. It 
is part of the reason why I have championed wilderness and wild and 
scenic river legislation to protect Oregon's special places, including 
its beautiful waterways.
  But I can't agree with their decision to first fight this out in 
court. Their litigation tries to impose an outcome on my region without 
ever attempting to address the concerns and needs of the thousands of 
people in my State who earn their living as responsible stewards of 
private forest land. Oregon is still struggling to come back from the 
economic crisis and many of our forested counties continue to suffer 
from double digit unemployment. Where will the 120,000 people in Oregon 
who make their living on private forest land go when private lands 
experience the same gridlock as their Federal land counterparts? How 
will small woodlot owners in Oregon--mostly mom and pop investments--
survive when subjected to Federal regulation and lawsuits for the first 
time in our State's history? How many millions of acres of private, 
shareholder-owned forest land will be converted to nonagricultural 
purposes when companies are no longer able to carry out needed forest 
management? To my knowledge, the litigants did not make a meaningful 
effort to address any of those challenges before initiating the lawsuit 
that now threatens to throw my State into a dangerous economic 
trajectory.
  I should point out that this issue transcends partisan concerns, as 
evidenced by the prominent Democrats who have found common ground with 
Republicans on this issue. Oregon's Governor, John Kitzhaber, one of 
the most prominent environmental champions in the Nation, has 
consistently fought against the Northwest Environmental Defense Center 
ruling and continues to do so. Senator Begich, who is known for his 
thoughtful and balanced approach to natural resource issues, joins me 
as an original cosponsor. On the House side, I am joined by Democratic 
Congressman Kurt Schrader, who knows better than most the unintended 
consequences of well-intentioned, but poorly aimed efforts at 
regulation.
  To my friends in the environmental community who raise legitimate 
concerns about a range of issues surrounding this policy I encourage 
you to sit down with us in a dialogue, at both the Federal and State 
levels. Bring your ideas for how we can monitor and protect water 
without sacrificing what remains of Oregon's forest industry. You will 
be heard and I stand ready to work with you. But it is not enough to 
simply dictate outcomes. We have to first look for solutions that avoid 
the epidemic of litigation and appeals that threaten the sustainability 
and survival of our timber industry. You are, of course, right to 
expect that we arrive at those solutions within a reasonable period of 
time.
                                 ______
                                 
      By Mrs. BOXER (for herself, Ms. Murkowski, and Mrs. Murray):
  S. 1370. A bill to reauthorize 21st century community learning 
centers, and for other purposes; to the Committee on Health, Education, 
Labor, and Pensions.
  Mrs. BOXER. Mr. President, I rise today to urge my colleagues to 
cosponsor the Afterschool for America's Children Act, which I am 
introducing today with Senators Murkowski and Murray.
  Across the country, afterschool programs help keep children safe and 
help them learn through hands-on academic enrichment activities that 
are disappearing from the regular school day.
  Numerous studies have shown that quality afterschool programs give 
students the academic, social and professional skills they need to 
succeed. Students who regularly attend have better grades and behavior 
in school, and lower incidences of drug use, violence and unintended 
pregnancy.
  Over the past 10 years, the 21st Century Community Learning Centers, 
CCLC, program has helped support afterschool programs for millions of 
children from low-income backgrounds, including over 1.6 million 
children last year.
  Unfortunately, the demand for affordable, quality afterschool 
experiences far exceeds the number of programs available. The 2009 
report, America After 3PM, found that while afterschool programs are 
serving more kids than ever, the number of unsupervised children in the 
United States has increased. More than 18 million children have parents 
who would like to enroll their child in an afterschool program but 
can't find one available.
  For over 10 years, federally funded afterschool programs have played 
an important role in the lives of so many children and families. The 
Afterschool for America's Children Act, AACA, would strengthen the 21st 
CCLC program, leaving in place what works and

[[Page S4612]]

using what we have learned about what makes afterschool successful to 
improve the program.
  The AACA would modernize the 21st CCLC program to improve States' 
ability to effectively support quality afterschool programs, run more 
effective grant competitions and improve struggling programs. In 
addition, this legislation helps improve local programs by fostering 
better communication between local schools and programs, encouraging 
parental engagement in student learning, and improving the tracking of 
student progress.
  Afterschool programs have such a diverse group of supporters, from 
law enforcement to the business community, because these vital programs 
help keep the children of working parents safe while enriching their 
learning experience and preparing them for the real world.
  I urge my colleagues to join me and Senators Murkowski and Murray in 
supporting the Afterschool for America's Children Act to ensure that 
21st CCLC dollars are invested most efficiently in successful 
afterschool programs that keep children safe and help them learn.
                                 ______
                                 
      By Mr. REED (for himself and Mr. Whitehouse):
  S. 1371. A bill to amend the Magnuson-Stevens Fishery Conservation 
and Management Act to add Rhode Island to the Mid-Atlantic Fishery 
Management Council; to the Committee on Commerce, Science, and 
Transportation.
  Mr. REED. Mr. President, today, along with my colleague Senator 
Whitehouse, I am introducing the Rhode Island Fishermen's Fairness Act 
of 2011.
  For nearly a decade, I have worked to correct a serious flaw in our 
fisheries management system, which denies the fishermen of my state a 
voice in the management of many of the stocks that they catch and rely 
upon for their livelihoods.
  The Magnuson-Stevens Fishery Conservation and Management Act 
established eight regional fishery management councils to give 
fishermen and other stakeholders the leading role in developing the 
fishery management plans for federally regulated species. As such, the 
councils have enormous significance on the lives and livelihoods of 
fishermen. To ensure equitable representation, the statute sets out the 
states from which appointees are to be drawn for each council.
  Under the Magnuson-Stevens Act, the State of Rhode Island was granted 
voting membership on the New England Fishery Management Council, NEFMC, 
as NEFMC-managed stocks represent a significant percentage of landings 
and revenue for the State. However, while Rhode Island has an even 
larger stake in the Mid-Atlantic fishery it does not have voting 
representation on the Mid-Atlantic Fishery Management Council, MAFMC, 
which currently consists of representatives from New York, New Jersey, 
Delaware, Pennsylvania, Maryland, Virginia, and North Carolina.
  Rhode Island's stake in the Mid-Atlantic fishery is hardly 
incidental. According to National Oceanic and Atmospheric 
Administration, NOAA, data, Rhode Island accounts for approximately a 
quarter of the catch from this fishery, and its landings are greater 
than the combined total of landings for the States of New York, 
Delaware, Pennsylvania, Maryland, Virginia, and North Carolina. In act, 
only one State, New Jersey, lands more MAFMC regulated species than 
Rhode Island.
  This legislation offers a simple solution. Following current 
practice, the Rhode Island Fishermen's Fairness Act would create two 
seats on the MAFMC for Rhode Island: one seat appointed by the 
Secretary of Commerce based on recommendations from the Governor of 
Rhode Island, and a second seat filled by Rhode Island's principal 
state official with marine fishery management responsibility. To 
accommodate these new members, the MAFMC would increase in size from 21 
voting members to 23.
  Pursuant to a provision included in the Magnuson-Stevens 
Reauthorization Act of 2006 at my request, the MAFMC reported to 
Congress on this issue in 2007 and confirmed that there is a precedent 
for this proposal. As the report notes, North Carolina's 
representatives in Congress succeeded in adding that State to the MAFMC 
through an amendment to the Sustainable Fisheries Act in 1996. Like 
Rhode Island, a significant proportion of North Carolina's landed fish 
species were managed by the MAFMC, yet the State had no vote on the 
council.
  With mounting economic, ecological, and regulatory challenges, it is 
more important than ever that Rhode Island's fishermen have a voice in 
the management of the fisheries they depend on. I look forward to 
working with Senator Whitehouse and my other colleagues to restore a 
measure of equity to the fisheries management process by passing the 
Rhode Island Fishermen's Fairness Act.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1371

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Rhode Island Fishermen's 
     Fairness Act''.

     SEC. 2. FINDINGS.

       The findings are as follows:
       (1) Rhode Island fishermen participate in fisheries managed 
     by the New England Fishery Management Council (NEFMC) and the 
     Mid-Atlantic Fishery Management Council (MAFMC).
       (2) Rhode Island currently has voting membership on the 
     NEFMC under the Magnuson-Stevens Fishery Conservation and 
     Management Act but does not have voting membership on the 
     MAFMC.
       (3) Rhode Island lands more MAFMC-managed stocks than any 
     other MAFMC member except the State of New Jersey.
       (4) A higher percentage of Rhode Island's commercial 
     landings (by weight or value) traditionally have come from 
     species that are managed by the MAFMC as compared to species 
     managed by NEFMC.
       (5) MAFMC has found that Rhode Island's circumstance 
     parallels that of Florida and North Carolina, which each have 
     voting membership on two different fishery management 
     councils.

     SEC. 3. ADDITION OF RHODE ISLAND TO THE MID-ATLANTIC FISHERY 
                   MANAGEMENT COUNCIL.

       Section 302(a)(1)(B) of the Magnuson-Stevens Fishery 
     Conservation and Management Act (16 U.S.C. 1852(a)(1)(B)) is 
     amended--
       (1) by inserting ``Rhode Island,'' after ``States of'';
       (2) by inserting ``Rhode Island,'' after ``except North 
     Carolina,'';
       (3) by striking ``21'' and inserting ``23''; and
       (4) by striking ``13'' and inserting ``14''.
                                 ______
                                 
      By Mr. REED (for himself, Mr. Kirk, Mr. Bingaman, Mr. Cardin, Mr. 
        Durbin, Mrs. Gillibrand, Mr. Kerry, Mr. Lautenberg, Ms. 
        Mikulski, Mrs. Murray, Mr. Sanders, and Mr. Whitehouse):
  S. 1372. A bill to amend the Elementary and Secondary Education Act 
of 1965 regarding environmental education, and for other purposes; to 
the Committee on Health, Education, Labor, and Pensions.
  Mr. REED. Mr. President, today I am introducing bipartisan 
legislation to provide new support for environmental education in our 
Nation's classrooms. I thank Senators Kirk, Bingaman, Cardin, Durbin, 
Gillibrand, Kerry, Lautenberg, Mikulski, Murray, Sanders, and 
Whitehouse for agreeing to be original cosponsors of the No Child Left 
Inside Act of 2011. Given the major environmental challenges we face 
today, our bill seeks to prioritize teaching our young people about 
their natural world. For more than three decades, environmental 
education has been a growing part of effective instruction in America's 
schools. Responding to the need to improve student achievement and 
prepare students for the 21st century economy, many schools throughout 
the Nation now offer some form of environmental education.
  Yet, environmental education is facing a significant challenge. Many 
schools are being forced to scale back or eliminate environmental 
programs. As a result, fewer and fewer students are able to take part 
in related classroom instruction and field investigations, however 
effective or popular. State and local administrators, teachers, and 
environmental educators point to two factors behind this recent and 
disturbing shift: the unintended consequences of the No Child Left 
Behind Act and dwindling sources of funding for these critical 
programs.
  The legislation that we are introducing today would address these two

[[Page S4613]]

concerns. First, it would provide a new professional development 
initiative to ensure that teachers possess the content knowledge and 
pedagogical skills to effectively teach environmental education in the 
classroom, including the use of innovative interdisciplinary and field-
based learning strategies. Second, the bill would create incentives for 
states to develop a peer-reviewed comprehensive statewide environmental 
literacy plan to make sure prekindergarten, elementary, and secondary 
school students have a solid understanding of our planet and its 
natural resources. Lastly, the No Child Left Inside Act provides 
support for school districts to initiate, expand, or improve their 
environmental education curriculum, and for replication and 
dissemination of effective practices. This legislation has broad 
support among national and state environmental groups and educational 
groups.
  The American public recognizes that the environment is already one of 
the dominant issues of the 21st century. In 2003, a National Science 
Foundation panel noted that ``in the coming decades, the public will 
more frequently be called upon to understand complex environmental 
issues, assess risk, evaluate proposed environmental plans and 
understand how individual decisions affect the environment at local and 
global scales. Creating a scientifically informed citizenry requires a 
concerted, systemic approach to environmental education . . .''. In the 
private sector, business leaders also increasingly believe that an 
environmentally literate workforce is critical to their long-term 
success. They recognize that better, more efficient environmental 
practices improve the bottom line and help position their companies for 
the future.
  Environmental education is an important part of the solution to many 
of the problems facing our country today. It helps prepare the next 
generation with the skills and knowledge necessary to be competitive in 
the global economy. Studies have shown that it enhances student 
achievement in science and other core subjects and increases student 
engagement and critical thinking skills. It promotes healthy lifestyles 
by encouraging kids to get outside.
  In Rhode Island, organizations such as the Rhode Island Environmental 
Education Association, Roger Williams Park Zoo, Save the Bay, the 
Nature Conservancy, and the Audubon Society as well as countless 
schools and teachers, reach out to children to offer educational and 
outdoor experiences that these children may never otherwise have, 
helping to inspire them to learn. Partnering with the Rhode Island 
Department of Education, these organizations have developed a statewide 
environmental literacy plan.
  Similar efforts are taking place across the Nation. According to the 
National Association for Environmental Education, 40 states have taken 
steps towards developing similar plans to integrate environmental 
literacy into their statewide educational initiatives. Despite these 
extraordinary efforts, environmental education remains out of reach for 
too many kids.
  That is why I look forward to working with my colleagues to enact the 
No Child Left Inside Act of 2011.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1372

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``No Child 
     Left Inside Act of 2011''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. References.
Sec. 3. Authorization of appropriations.

                 TITLE I--ENVIRONMENTAL LITERACY PLANS

Sec. 101. Development, approval, and implementation of State 
              environmental literacy plans.

    TITLE II--ESTABLISHMENT OF ENVIRONMENTAL EDUCATION PROFESSIONAL 
                       DEVELOPMENT GRANT PROGRAMS

Sec. 201. Environmental education professional development grant 
              programs.

TITLE III--ENVIRONMENTAL EDUCATION GRANT PROGRAM TO HELP BUILD NATIONAL 
                                CAPACITY

Sec. 301. Environmental education grant program to help build national 
              capacity.

     SEC. 2. REFERENCES.

       Except as otherwise specifically provided, whenever in this 
     Act an amendment or repeal is expressed in terms of an 
     amendment to, or a repeal of, a section or other provision, 
     the reference shall be considered to be made to a section or 
     other provision of the Elementary and Secondary Education Act 
     of 1965 (20 U.S.C. 6301 et seq.).

     SEC. 3. AUTHORIZATION OF APPROPRIATIONS.

       (a) Authorization.--There are authorized to be appropriated 
     to carry out section 5622(g) and part E of title II of the 
     Elementary and Secondary Education Act of 1965, such sums as 
     may be necessary for fiscal year 2012 and each of the 4 
     succeeding fiscal years.
       (b) Distribution.--With respect to any amount appropriated 
     under subsection (a) for a fiscal year--
       (1) not more than 70 percent of such amount shall be used 
     to carry out section 5622(g) of the Elementary and Secondary 
     Education Act of 1965 for such fiscal year; and
       (2) not less than 30 percent of such amount shall be used 
     to carry out part E of title II of such Act for such fiscal 
     year.
                 TITLE I--ENVIRONMENTAL LITERACY PLANS

     SEC. 101. DEVELOPMENT, APPROVAL, AND IMPLEMENTATION OF STATE 
                   ENVIRONMENTAL LITERACY PLANS.

       Part D of title V (20 U.S.C. 7201 et seq.) is amended by 
     adding at the end the following:

     ``SUBPART 22--ENVIRONMENTAL LITERACY PLANS

     ``SEC. 5621. ENVIRONMENTAL LITERACY PLAN REQUIREMENTS.

       ``In order for any State educational agency, or a local 
     educational agency served by a State educational agency, to 
     receive grant funds, either directly or through participation 
     in a partnership with a recipient of grant funds, under this 
     subpart or part E of title II, the State educational agency 
     shall meet the requirements regarding an environmental 
     literacy plan under section 5622.

     ``SEC. 5622. STATE ENVIRONMENTAL LITERACY PLANS.

       ``(a) Submission of Plan.--
       ``(1) In general.--Not later than 1 year after the date of 
     enactment of the No Child Left Inside Act of 2011, a State 
     educational agency subject to the requirements of section 
     5621 shall, in consultation with State environmental agencies 
     and State natural resource agencies, and with input from the 
     public--
       ``(A) submit an environmental literacy plan for 
     prekindergarten through grade 12 to the Secretary for peer 
     review and approval that will ensure that elementary and 
     secondary school students in the State are environmentally 
     literate; and
       ``(B) begin the implementation of such plan in the State.
       ``(2) Existing plans.--A State may satisfy the requirement 
     of paragraph (1)(A) by submitting to the Secretary for peer 
     review an existing State plan that has been developed in 
     cooperation with a State environmental or natural resource 
     management agency, if such plan complies with this section.
       ``(b) Plan Objectives.--A State environmental literacy plan 
     shall meet the following objectives:
       ``(1) Prepare students to understand, analyze, and address 
     the major environmental challenges facing the students' State 
     and the United States.
       ``(2) Provide field experiences as part of the regular 
     school curriculum and create programs that contribute to 
     healthy lifestyles through outdoor recreation and sound 
     nutrition.
       ``(3) Create opportunities for enhanced and on-going 
     professional development for teachers that improves the 
     teachers'--
       ``(A) environmental subject matter knowledge; and
       ``(B) pedagogical skills in teaching about environmental 
     issues, including the use of--
       ``(i) interdisciplinary, field-based, and research-based 
     learning; and
       ``(ii) innovative technology in the classroom.
       ``(c) Contents of Plan.--A State environmental literacy 
     plan shall include each of the following:
       ``(1) A description of how the State educational agency 
     will measure the environmental literacy of students, 
     including--
       ``(A) relevant State academic content standards and content 
     areas regarding environmental education, and courses or 
     subjects where environmental education instruction will be 
     integrated throughout the prekindergarten to grade 12 
     curriculum; and
       ``(B) a description of the relationship of the plan to the 
     secondary school graduation requirements of the State.
       ``(2) A description of programs for professional 
     development for teachers to improve the teachers'--
       ``(A) environmental subject matter knowledge; and
       ``(B) pedagogical skills in teaching about environmental 
     issues, including the use of--
       ``(i) interdisciplinary, field-based, and research-based 
     learning; and
       ``(ii) innovative technology in the classroom.
       ``(3) A description of how the State educational agency 
     will implement the plan, including securing funding and other 
     necessary support.

[[Page S4614]]

       ``(d) Plan Update.--The State environmental literacy plan 
     shall be revised or updated by the State educational agency 
     and submitted to the Secretary not less often than every 5 
     years or as appropriate to reflect plan modifications.
       ``(e) Peer Review and Secretarial Approval.--The Secretary 
     shall--
       ``(1) establish a peer review process to assist in the 
     review of State environmental literacy plans;
       ``(2) appoint individuals to the peer review process who--
       ``(A) are representative of parents, teachers, State 
     educational agencies, State environmental agencies, State 
     natural resource agencies, local educational agencies, and 
     nongovernmental organizations; and
       ``(B) are familiar with national environmental issues and 
     the health and educational needs of students;
       ``(3) include, in the peer review process, appropriate 
     representatives from the Department of Commerce, Department 
     of Interior, Department of Energy, the Environmental 
     Protection Agency, and other appropriate Federal agencies, to 
     provide environmental expertise and background for evaluation 
     of the State environmental literacy plan;
       ``(4) approve a State environmental literacy plan not later 
     than 120 days after the plan's submission unless the 
     Secretary determines that the State environmental literacy 
     plan does not meet the requirements of this section;
       ``(5) immediately notify the State if the Secretary 
     determines that the State environmental literacy plan does 
     not meet the requirements of this section, and state the 
     reasons for such determination;
       ``(6) not decline to approve a State environmental literacy 
     plan before--
       ``(A) offering the State an opportunity to revise the State 
     environmental literacy plan;
       ``(B) providing technical assistance in order to assist the 
     State to meet the requirements of this section; and
       ``(C) providing notice and an opportunity for a hearing; 
     and
       ``(7) have the authority to decline to approve a State 
     environmental literacy plan for not meeting the requirements 
     of this part, but shall not have the authority to require a 
     State, as a condition of approval of the State environmental 
     literacy plan, to--
       ``(A) include in, or delete from, such State environmental 
     literacy plan 1 or more specific elements of the State 
     academic content standards under section 1111(b)(1); or
       ``(B) use specific academic assessment instruments or 
     items.
       ``(f) State Revisions.--The State educational agency shall 
     have the opportunity to revise a State environmental literacy 
     plan if such revision is necessary to satisfy the 
     requirements of this section.
       ``(g) Grants for Implementation.--
       ``(1) Program authorized.--From amounts appropriated for 
     this subsection, the Secretary shall award grants, through 
     allotments in accordance with the regulations described in 
     paragraph (2), to States to enable the States to award 
     subgrants, on a competitive basis, to local educational 
     agencies and eligible partnerships (as such term is defined 
     in section 2502) to support the implementation of the State 
     environmental literacy plan.
       ``(2) Regulations.--The Secretary shall promulgate 
     regulations implementing the grant program under paragraph 
     (1), which regulations shall include the development of an 
     allotment formula that best achieves the purposes of this 
     subpart.
       ``(3) Administrative expenses.--A State receiving a grant 
     under this subsection may use not more than 2.5 percent of 
     the grant funds for administrative expenses.
       ``(h) Reporting.--
       ``(1) In general.--Not later than 2 years after approval of 
     a State environmental literacy plan, and every 2 years 
     thereafter, the State educational agency shall submit to the 
     Secretary a report on the implementation of the State plan.
       ``(2) Report requirements.--The report required by this 
     subsection shall be--
       ``(A) in the form specified by the Secretary;
       ``(B) based on the State's ongoing evaluation activities; 
     and
       ``(C) made readily available to the public.''.
    TITLE II--ESTABLISHMENT OF ENVIRONMENTAL EDUCATION PROFESSIONAL 
                       DEVELOPMENT GRANT PROGRAMS

     SEC. 201. ENVIRONMENTAL EDUCATION PROFESSIONAL DEVELOPMENT 
                   GRANT PROGRAMS.

       Title II (20 U.S.C. 6601 et seq.) is amended by adding at 
     the end the following:

     ``PART E--ENVIRONMENTAL EDUCATION PROFESSIONAL DEVELOPMENT 
                   GRANT PROGRAMS

     ``SEC. 2501. PURPOSE.

       ``The purpose of this part is to ensure the academic 
     achievement of students in environmental literacy through the 
     professional development of teachers and educators.

     ``SEC. 2502. GRANTS FOR ENHANCING EDUCATION THROUGH 
                   ENVIRONMENTAL EDUCATION.

       ``(a) Definition of Eligible Partnership.--In this section, 
     the term `eligible partnership' means a partnership that--
       ``(1) shall include a local educational agency; and
       ``(2) may include--
       ``(A) the teacher training department of an institution of 
     higher education;
       ``(B) the environmental department of an institution of 
     higher education;
       ``(C) another local educational agency, a public charter 
     school, a public elementary school or secondary school, or a 
     consortium of such schools;
       ``(D) a Federal, State, regional, or local environmental or 
     natural resource management agency that has demonstrated 
     effectiveness in improving the quality of environmental 
     education teachers; or
       ``(E) a nonprofit organization that has demonstrated 
     effectiveness in improving the quality of environmental 
     education teachers.
       ``(b) Grants Authorized.--
       ``(1) Program authorized.--From amounts appropriated for 
     this subsection, the Secretary shall award grants, through 
     allotments in accordance with the regulations described in 
     paragraph (2), to States whose State environmental literacy 
     plan has been approved under section 5622, to enable the 
     States to award subgrants under subsection (c).
       ``(2) Regulations.--The Secretary shall promulgate 
     regulations implementing the grant program under paragraph 
     (1), which regulations shall include the development of an 
     allotment formula that best achieves the purposes of this 
     subpart.
       ``(3) Administrative expenses.--A State receiving a grant 
     under this subsection may use not more than 2.5 percent of 
     the grant funds for administrative expenses.
       ``(c) Subgrants Authorized.--
       ``(1) Subgrants to eligible partnerships.--From amounts 
     made available to a State educational agency under subsection 
     (b)(1), the State educational agency shall award subgrants, 
     on a competitive basis, to eligible partnerships serving the 
     State, to enable the eligible partnerships to carry out the 
     authorized activities described in subsection (e) consistent 
     with the approved State environmental literacy plan.
       ``(2) Duration.--The State educational agency shall award 
     each subgrant under this part for a period of not more than 3 
     years beginning on the date of approval of the State's 
     environmental literacy plan under section 5622.
       ``(3) Supplement, not supplant.--Funds provided to an 
     eligible partnership under this part shall be used to 
     supplement, and not supplant, funds that would otherwise be 
     used for activities authorized under this part.
       ``(d) Application Requirements.--
       ``(1) In general.--Each eligible partnership desiring a 
     subgrant under this part shall submit an application to the 
     State educational agency, at such time, in such manner, and 
     accompanied by such information as the State educational 
     agency may require.
       ``(2) Contents.--Each application submitted under paragraph 
     (1) shall include--
       ``(A) the results of a comprehensive assessment of the 
     teacher quality and professional development needs, with 
     respect to the teaching and learning of environmental 
     content;
       ``(B) an explanation of how the activities to be carried 
     out by the eligible partnership are expected to improve 
     student academic achievement and strengthen the quality of 
     environmental instruction;
       ``(C) a description of how the activities to be carried out 
     by the eligible partnership--
       ``(i) will be aligned with challenging State academic 
     content standards and student academic achievement standards 
     in environmental education, to the extent such standards 
     exist, and with the State's environmental literacy plan under 
     section 5622; and
       ``(ii) will advance the teaching of interdisciplinary 
     courses that integrate the study of natural, social, and 
     economic systems and that include strong field components in 
     which students have the opportunity to directly experience 
     nature;
       ``(D) a description of how the activities to be carried out 
     by the eligible partnership will ensure that teachers are 
     trained in the use of field-based or service learning to 
     enable the teachers--
       ``(i) to use the local environment and community as a 
     resource; and
       ``(ii) to enhance student understanding of the environment 
     and academic achievement;
       ``(E) a description of--
       ``(i) how the eligible partnership will carry out the 
     authorized activities described in subsection (e); and
       ``(ii) the eligible partnership's evaluation and 
     accountability plan described in subsection (f); and
       ``(F) a description of how the eligible partnership will 
     continue the activities funded under this part after the 
     grant period has expired.
       ``(e) Authorized Activities.--An eligible partnership shall 
     use the subgrant funds provided under this part for 1 or more 
     of the following activities related to elementary schools or 
     secondary schools:
       ``(1) Creating opportunities for enhanced and ongoing 
     professional development of teachers that improves the 
     environmental subject matter knowledge of such teachers.
       ``(2) Creating opportunities for enhanced and ongoing 
     professional development of teachers that improves teachers' 
     pedagogical skills in teaching about the environment and 
     environmental issues, including in the use of--
       ``(A) interdisciplinary, research-based, and field-based 
     learning; and
       ``(B) innovative technology in the classroom.
       ``(3) Establishing and operating environmental education 
     summer workshops or institutes, including follow-up training, 
     for elementary and secondary school teachers to

[[Page S4615]]

     improve their pedagogical skills and subject matter knowledge 
     for the teaching of environmental education.
       ``(4) Developing or redesigning more rigorous environmental 
     education curricula that--
       ``(A) are aligned with challenging State academic content 
     standards in environmental education, to the extent such 
     standards exist, and with the State environmental literacy 
     plan under section 5622; and
       ``(B) advance the teaching of interdisciplinary courses 
     that integrate the study of natural, social, and economic 
     systems and that include strong field components.
       ``(5) Designing programs to prepare teachers at a school to 
     provide mentoring and professional development to other 
     teachers at such school to improve teacher environmental 
     education subject matter and pedagogical skills.
       ``(6) Establishing and operating programs to bring teachers 
     into contact with working professionals in environmental 
     fields to expand such teachers' subject matter knowledge of, 
     and research in, environmental issues.
       ``(7) Creating initiatives that seek to incorporate 
     environmental education within teacher training programs or 
     accreditation standards consistent with the State 
     environmental literacy plan under section 5622.
       ``(8) Promoting outdoor environmental education activities 
     as part of the regular school curriculum and schedule in 
     order to further the knowledge and professional development 
     of teachers and help students directly experience nature.
       ``(f) Evaluation and Accountability Plan.--
       ``(1) In general.--Each eligible partnership receiving a 
     subgrant under this part shall develop an evaluation and 
     accountability plan for activities assisted under this part 
     that includes rigorous objectives that measure the impact of 
     the activities.
       ``(2) Contents.--The plan developed under paragraph (1) 
     shall include measurable objectives to increase the number of 
     teachers who participate in environmental education content-
     based professional development activities.
       ``(g) Report.--Each eligible partnership receiving a 
     subgrant under this part shall report annually, for each year 
     of the subgrant, to the State educational agency regarding 
     the eligible partnership's progress in meeting the objectives 
     described in the accountability plan of the eligible 
     partnership under subsection (f).''.
TITLE III--ENVIRONMENTAL EDUCATION GRANT PROGRAM TO HELP BUILD NATIONAL 
                                CAPACITY

     SEC. 301. ENVIRONMENTAL EDUCATION GRANT PROGRAM TO HELP BUILD 
                   NATIONAL CAPACITY.

       Part D of title V (20 U.S.C. 7201 et seq.) (as amended by 
     section 101) is further amended by adding at the end the 
     following:

     ``SUBPART 23--ENVIRONMENTAL EDUCATION GRANT PROGRAM

     ``SEC. 5631. PURPOSES.

       ``The purposes of this subpart are--
       ``(1) to prepare children to understand and address major 
     environmental challenges facing the United States; and
       ``(2) to strengthen environmental education as an integral 
     part of the elementary school and secondary school 
     curriculum.

     ``SEC. 5632. GRANT PROGRAM AUTHORIZED.

       ``(a) Definition of Eligible Partnership.--In this section, 
     the term `eligible partnership' means a partnership that--
       ``(1) shall include a local educational agency; and
       ``(2) may include--
       ``(A) the teacher training department of an institution of 
     higher education;
       ``(B) the environmental department of an institution of 
     higher education;
       ``(C) another local educational agency, a public charter 
     school, a public elementary school or secondary school, or a 
     consortium of such schools;
       ``(D) a Federal, State, regional, or local environmental or 
     natural resource management agency, or park and recreation 
     department, that has demonstrated effectiveness, expertise, 
     and experience in the development of the institutional, 
     financial, intellectual, or policy resources needed to help 
     the field of environmental education become more effective 
     and widely practiced; and
       ``(E) a nonprofit organization that has demonstrated 
     effectiveness, expertise, and experience in the development 
     of the institutional, financial, intellectual, or policy 
     resources needed to help the field of environmental education 
     become more effective and widely practiced.
       ``(b) Grants Authorized.--
       ``(1) In general.--The Secretary is authorized to award 
     grants, on a competitive basis, to eligible partnerships to 
     enable the eligible partnerships to pay the Federal share of 
     the costs of activities under this subpart.
       ``(2) Duration.--Each grant under this subpart shall be for 
     a period of not less than 1 year and not more than 3 years.

     ``SEC. 5633. APPLICATIONS.

       ``Each eligible partnership desiring a grant under this 
     subpart shall submit to the Secretary an application that 
     contains--
       ``(1) a plan to initiate, expand, or improve environmental 
     education programs in order to make progress toward meeting--
       ``(A) challenging State academic content standards and 
     student academic achievement standards in environmental 
     education, to the extent such standards exist; and
       ``(B) academic standards that are aligned with the State's 
     environmental literacy plan under section 5622; and
       ``(2) an evaluation and accountability plan for activities 
     assisted under this subpart that includes rigorous objectives 
     that measure the impact of activities funded under this 
     subpart.

     ``SEC. 5634. USE OF FUNDS.

       ``Grant funds made available under this subpart shall be 
     used for 1 or more of the following:
       ``(1) Developing and implementing State curriculum 
     frameworks for environmental education that meet--
       ``(A) challenging State academic content standards and 
     student academic achievement standards for environmental 
     education, to the extent such standards exist; and
       ``(B) academic standards that are aligned with the State's 
     environmental literacy plan under section 5622.
       ``(2) Replicating or disseminating information about proven 
     and tested model environmental education programs that--
       ``(A) use the environment as an integrating theme or 
     content throughout the curriculum; or
       ``(B) provide integrated, interdisciplinary instruction 
     about natural, social, and economic systems along with field 
     experience that provides students with opportunities to 
     directly experience nature in ways designed to improve 
     students' overall academic performance, personal health 
     (including addressing child obesity issues), and 
     understanding of nature.
       ``(3) Developing and implementing new approaches to 
     advancing environmental education, and to advancing the 
     adoption and use of environmental education content 
     standards, at the State and local levels.

     ``SEC. 5635. REPORTS.

       ``(a) Eligible Partnership Report.--In order to continue 
     receiving grant funds under this subpart after the first year 
     of a multiyear grant under this subpart, the eligible 
     partnership shall submit to the Secretary an annual report 
     that--
       ``(1) describes the activities assisted under this subpart 
     that were conducted during the preceding year;
       ``(2) demonstrates that progress has been made in helping 
     schools to meet the State academic standards for 
     environmental education described in section 5634(1); and
       ``(3) describes the results of the eligible partnership's 
     evaluation and accountability plan.
       ``(b) Report to Congress.--Not later than 2 years after the 
     date of enactment of the No Child Left Inside Act of 2011 and 
     annually thereafter, the Secretary shall submit a report to 
     Congress that--
       ``(1) describes the programs assisted under this subpart;
       ``(2) documents the success of such programs in improving 
     national and State environmental education capacity; and
       ``(3) makes such recommendations as the Secretary 
     determines appropriate for the continuation and improvement 
     of the programs assisted under this subpart.

     ``SEC. 5636. ADMINISTRATIVE PROVISIONS.

       ``(a) Federal Share.--The Federal share of a grant under 
     this subpart shall not exceed--
       ``(1) 90 percent of the total costs of the activities 
     assisted under the grant for the first year for which the 
     program receives assistance under this subpart; and
       ``(2) 75 percent of such costs for each of the second and 
     third years.
       ``(b) Administrative Expenses.--Not more than 7.5 percent 
     of the grant funds made available to an eligible partnership 
     under this subpart for any fiscal year may be used for 
     administrative expenses.
       ``(c) Availability of Funds.--Amounts made available to the 
     Secretary to carry out this subpart shall remain available 
     until expended.

     ``SEC. 5637. SUPPLEMENT, NOT SUPPLANT.

       ``Funds made available under this subpart shall be used to 
     supplement, and not supplant, any other Federal, State, or 
     local funds available for environmental education 
     activities.''.
                                 ______
                                 
      By Mr. ROCKEFELLER:
  S. 1373. A bill to amend the Internal Revenue Code of 1986 to reduce 
international tax avoidance and restore a level playing field for 
American businesses; to the Committee on Finance.
  Mr. ROCKEFELLER. Mr. President, today I am introducing the 
International Tax Competitiveness Act, legislation that will protect 
American businesses and workers by ensuring that they can compete on a 
level playing field with competitors who are using tax evasion to boost 
profits and ship jobs and dollars overseas.
  This bill targets companies that cheat the Federal Government out of 
billions of dollars a year in revenue by taking advantage of tax 
loopholes. This legislation is designed to put an end to the practice 
where American companies avoid domestic taxes by moving their 
headquarters to a post office box overseas, while their executives and 
much of their workforce remain here in the United States. If you 
benefit from the protection of American laws and the talent of the 
American workforce, you should also pay taxes here in the United 
States.
  In March, the television program 60 Minutes aired a story on tax 
avoidance

[[Page S4616]]

that centered on Zug, a town in Switzerland. While Zug has only 26,000 
residents, it is home to nearly 30,000 corporations, many of which 
operate out of mailboxes. This is because the tax rates in Zug are low 
and companies can create phony headquarters there that allow them to 
avoid higher taxes in their home country.
  The International Tax Competitiveness Act also discourages tax abuse 
related to transfer pricing. Sometimes, a company will produce a 
product here in the United States, taking advantage of generous 
research and development subsidies, and then sell it to a foreign 
subsidiary for pennies on the dollar. The royalty payments and profits 
then flow to that foreign company in a low tax jurisdiction, cheating 
the American government out of this revenue. This legislation would 
recognize many of these transactions for what they are . . . blatant 
abuse of the tax code, and treat profits as American-earned for tax 
purposes.
  At a time when members of Congress are working hard to balance the 
budget and reduce our debt, everyone must contribute to the effort and 
our laws must be obeyed. It is not fair to cut funding for valuable 
healthcare and education programs in an effort to cut spending, while 
allowing corporations to avoid paying billions of dollars in taxes.
  I want to thank my counterpart from the House of Representatives, 
Representative Lloyd Doggett, for his leadership in that body on this 
legislation. I ask my colleagues to join me in supporting this 
important legislation and thank the chair for allowing me to speak on 
this issue.
                                 ______
                                 
      By Mr. LEVIN (for himself and Mr. Brown of Ohio):
  S. 1375. A bill to amend the Internal Revenue Code of 1986 to provide 
that corporate tax benefits based upon stock option compensation 
expenses be consistent with accounting expenses shown in corporate 
financial statements for such compensation; to the Committee on 
Finance.
  Mr. LEVIN. Mr. President, today I am introducing a bill with my 
colleague, Senator Sherrod Brown, to eliminate the federal tax break 
that gives special tax treatment to corporations that pay their 
executives with stock options. The bill is called the Ending Excessive 
Corporate Deductions for Stock Options Act, and it has been endorsed by 
the AFL-CIO, Citizens for Tax Justice, Consumer Federation of America, 
OMB Watch, and Tax Justice Network-USA. According to the Joint 
Committee on Taxation, eliminating this corporate tax break would bring 
in almost $25 billion over 10 years.
  The existing special treatment of corporate stock options forces 
ordinary taxpayers to subsidize the salaries of corporate executives. 
The subsidy is a consequence of the current mismatch between U.S. 
accounting rules and tax rules for stock options, which have developed 
along divergent paths and are now out of kilter. Today, U.S. accounting 
rules require corporations to report stock option expenses on their 
books when those stock options are granted, while federal tax rules 
provide that they use another method to claim a different--and 
typically much higher--deduction on their tax returns when the stock 
options are exercised. The result is that corporations can claim larger 
tax deductions for stock options on their tax returns than the actual 
expense they show on their books, creating a tax windfall for those 
corporations.
  Stock options are the only type of compensation where the tax code 
lets a corporation deduct more than the expense shown on their books. 
For all other types of compensation--cash, stock, bonuses, and more--
the tax return deduction equals the book expense. In fact, if 
corporations took tax deductions for compensation in excess of what 
their books showed, it could constitute tax fraud. The sole exception 
to that rule is stock options. It is an exception we can no longer 
afford.
  When corporate compensation committees learn that stock options can 
generate tax deductions that are many times larger than their book 
expense, it creates a huge temptation for corporations to pay their 
executives with stock options instead of cash. Why? Because 
compensating executives with stock options instead of cash can produce 
a huge tax windfall for the corporation. By taking advantage of federal 
tax laws that have not been updated for four decades, corporations can 
claim tax deductions at rates that are often 2 to 10 times higher than 
the stock option expense shown on their books.
  Stock options are paid to virtually every chief executive officer, 
CEO, in America and are a major contributor to sky-high executive pay. 
Stock options give the recipients the right to buy company stock at a 
set price for a specified period of time, typically 10 years.
  Since the 1980s, CEO pay has increased at a torrid pace. In 2010, 
according to Forbes magazine, executives at the 500 largest U.S. 
companies received pay totaling $4.5 billion, averaging $9 million per 
CEO. Thirty percent of that pay was comprised of exercised stock 
options which were cashed in for an average gain of about $2.7 million, 
bringing total pay to its highest level since before the recession. The 
highest paid executive in 2010 was the CEO of United Health Group, who 
received $102 million in total pay. Of that pay, almost all of it--$98 
million--came from exercising stock options.
  During the recession from 2007 to 2009, while many stock prices 
dropped in value, 90 percent of corporations awarded stock options to 
their executives. Because of the depressed stock prices at the time, 
most of those stock options were recorded on the corporations' books as 
a relatively small expense. Fast forward to 2010, and even in this 
struggling economy, as stock prices have begun to increase, those same 
stock options are seeing major jumps in their value, far above their 
book expense.
  For example, in a recent study conducted by the Wall Street Journal, 
the CEO of Oracle Corporation was granted stock options in July 2009, 
with an estimated value of $62 million. Two years later, those options 
are estimated to be worth over $97 million, a gain of $35 million in 
just two years. Other corporate executives have experienced similar 
increases in their stock option holdings. For example, according to the 
Wall Street Journal analysis, the CEOs of Abercrombie and Fitch Inc., 
Nabors Industries, Ltd., and Starbucks Corporation all saw jumps in the 
value of stock options awarded during the financial crisis of more than 
$60 million each. The former CEO of Occidental Petroleum, Ray R. Irani, 
received a compensation package valued at $76.1 million, including 
stock option awards valued at $40.3 million.
  These huge increases in the dollar value of the stock option awards 
mean skyrocketing tax deductions for corporations doing so well that 
their stock prices have climbed. The deductions will reduce the taxes 
being paid by these successful companies, depriving the U.S. treasury 
of needed revenues.
  The average worker, by the way, has not experienced any increase in 
pay. From 2009 to 2010 alone, CEOs at the 500 biggest U.S. corporations 
saw a 12 percent increase in compensation, but median income has been 
stagnant. According to the Bureau of Labor Statistics, only 8 percent 
of workers in private industry received stock options as part of their 
compensation package. For CEOs, however, more than 90 percent of those 
in the S&P 500 received stock options in the 12 months starting October 
1, 2008.
  The financial tycoon J.P. Morgan once said that executive pay should 
not exceed 20 times average worker pay. But since 1990, CEO pay has 
increased to a level that is now nearly 300 times greater than the 
average worker's salary. The single biggest factor fueling that massive 
pay gap is stock options which are, in turn, generating huge tax 
deductions for the corporations that doled them out.
  This bill would end the loophole that allows a corporation to deduct 
on its taxes more than the stock option expense shown on its books. 
Over a 5 year period, from 2005 to 2009, the latest year for which data 
is available, IRS tax return data shows that corporate stock option tax 
deductions have exceeded corporate book expenses by billions of dollars 
every year, with the size of the excess tax deductions varying from $12 
billion to $61 billion per year. These excessive deductions mean 
billions of dollars in reduced taxes for

[[Page S4617]]

corporations wealthy enough to provide substantial stock option 
compensation to their executives, all at the expense of ordinary 
taxpayers.
  We cannot afford to continue this multi-billion dollar loss to the 
U.S. Treasury, and tax fairness means ordinary taxpayers should not 
continue to be asked to subsidize corporate executive salaries. That is 
why the bill I am introducing today would change the tax code so that 
corporations can deduct only the stock option expense actually shown on 
their books.
  To get a better understanding of why this bill is needed, it helps to 
have a clear understanding of how stock option accounting and tax rules 
fell out of sync over time.
  Calculating the cost of stock options may sound straightforward, but 
for years, companies and their accountants engaged the Financial 
Accounting Standards Board, or FASB, in an all-out, knock-down battle 
over how companies should record stock option compensation expenses on 
their books.
  U.S. publicly traded corporations are required by law to follow 
Generally Accepted Accounting Principles, or GAAP, which are issued by 
FASB which is, in turn, overseen by the SEC. For many years, GAAP 
allowed U.S. companies to issue stock options to employees and, unlike 
any other type of compensation, report a zero compensation expense on 
their books, so long as on the grant date, the stock option's exercise 
price equaled the market price at which the stock could be sold.
  Assigning a zero value to stock options that routinely produced huge 
amounts of executive pay provoked deep disagreements within the 
accounting community. In 1993, FASB proposed assigning a ``fair value'' 
to stock options on the date they were granted to an employee, using 
mathematical valuation tools. FASB proposed further that companies 
include that amount as a compensation expense on their financial 
statements. A battle over stock option expensing followed, involving 
the accounting profession, corporate executives, FASB, the SEC, and 
Congress.
  In the end, after years of fighting and negotiation, FASB issued a 
new accounting standard, Financial Accounting Standard, or FAS, 123R, 
which was endorsed by the SEC and became mandatory for all publicly 
traded corporations in 2005. In essence, FAS 123R requires all 
companies to record a compensation expense equal to the fair value on 
grant date of all stock options provided to an employee in exchange for 
the employee's services.
  Opponents of the new accounting rule had predicted that, if 
implemented, it would severely damage U.S. capital markets. They warned 
that stock option expensing would eliminate corporate profits, 
discourage investment, end stock option compensation, depress stock 
prices, and stifle innovation. But none of that happened.
  2006 was the first year in which all U.S. publicly traded companies 
were required to expense stock options. Instead of tumbling, both the 
New York Stock Exchange and NASDAQ turned in strong performances, as 
did initial public offerings by new companies. The dire predictions 
were wrong. Stock option expensing has been fully implemented without 
any detrimental impact to the markets.
  During the years the battle raged over stock option accounting, 
relatively little attention was paid to the taxation of stock options. 
Section 83 of the tax code, first enacted in 1969 and still in place 
after four decades, is the key statutory provision. It essentially 
provides that, when an employee exercises compensatory stock options, 
the employee must report as income the difference between what the 
employee paid to exercise the options and the market value of the stock 
received. The corporation can then take a mirror deduction for whatever 
amount of income the employee realized.
  For example, suppose a company gave options to an executive to buy 1 
million shares of the company stock at $10 per share. Suppose, 5 years 
later, the executive exercised the options when the stock was selling 
at $30 per share. The executive's income would be $20 per share for a 
total of $20 million. The executive would declare $20 million as 
ordinary income, and in the same year, the company could take a tax 
deduction for $20 million.
  The two main problems with this approach are, first, that the 
deduction amount is out of sync--and usually significantly greater 
than--the expense shown on the corporate books years earlier and, 
second, the $20 million in ordinary income obtained by the executive 
did not come from the corporation itself. In fact, rather than pay the 
executive the $20 million, the corporation actually received money from 
the executive who paid to exercise the option and purchase the related 
stock.
  In most cases, the $20 million was actually paid by unrelated parties 
on the stock market who bought the stock from the executive. Yet the 
tax code currently allows the corporation to declare the $20 million 
paid by third parties as its own business expense and take it as a tax 
deduction. The reasoning behind this approach has been that the 
exercise date value was the only way to get certainty regarding the 
value of the stock options for tax deduction purposes. That reasoning 
lost its persuasive character, however, once consensus was reached on 
how to calculate the value of stock option compensation on the date the 
stock options are granted.
  So U.S. stock option accounting and tax rules are now at odds with 
each other. Accounting rules require companies to expense stock options 
on their books on the grant date. Tax rules require companies to deduct 
stock option expenses on the exercise date. Companies report the grant 
date expense to investors on their financial statements, and the 
exercise date expense on their tax returns. The financial statements 
report on the stock options granted during the year, while the tax 
returns report on the stock options exercised during the year. In 
short, company financial statements and tax returns use different 
valuation methods and value, resulting in widely divergent stock option 
expenses for the same year.
  To examine the nature and consequences of that stock option book-tax 
difference, the Permanent Subcommittee on Investigations, which I 
chair, initiated an investigation and held a hearing in June 2007. Here 
is what we found.
  To test just how far the book and tax figures for stock options 
diverge, the Subcommittee contacted a number of companies to compare 
the stock option expenses they reported for accounting and tax 
purposes. The Subcommittee asked each company to identify stock options 
that had been exercised by one or more of its executives from 2002 to 
2006. The Subcommittee then asked each company to identify the 
compensation expense they reported on their financial statements versus 
the compensation expense on their tax returns. The Subcommittee very 
much appreciated the cooperation and assistance provided by the nine 
companies we worked with. At the hearing, we disclosed the resulting 
stock option data for those companies, including three companies that 
testified.
  The data provided by the companies showed that, under then existing 
rules, eight of the nine companies showed a zero expense on their books 
for the stock options that had been awarded to their executives, but 
claimed millions of dollars in tax deductions for the same 
compensation. The ninth company, Occidental Petroleum, had begun 
voluntarily expensing its stock options in 2005, but also reported 
significantly greater tax deductions than the stock option expenses 
shown on its books. When the Subcommittee asked the companies what 
their book expense would have been if FAS 123R had been in effect, all 
nine calculated book expenses that remained dramatically lower than 
their tax deductions. Altogether, the nine companies calculated that 
they would have claimed about $1 billion more in stock option tax 
deductions than they would have shown as book expenses, even using the 
tougher new accounting rule. Let me repeat that--just 9 companies 
produced a stock option book-tax difference and excess tax deductions 
of about $1 billion.

  KB Home, for example, is a company that builds residential homes. Its 
stock price had more than quadrupled over the 10 years leading up to 
2006. Over the same time period, it had repeatedly granted stock 
options to its then CEO. Company records show that, over 5 years, KB 
Home gave him 5.5 million stock options of which, by 2006, he had 
exercised more than 3 million.

[[Page S4618]]

  With respect to those 3 million stock options, KB Home recorded a 
zero expense on its books. Had the new accounting rule been in effect, 
KB Home calculated that it would have reported on its books a 
compensation expense of about $11.5 million. KB Home also disclosed 
that the same 3 million stock options enabled it to claim compensation 
expenses on its tax returns totaling about $143.7 million. In other 
words, KB Home claimed a $143 million tax deduction for expenses that 
on its books, under current accounting rules, would have totaled $11.5 
million. That is a tax deduction 12 times bigger than the book expense.
  Occidental Petroleum disclosed a similar book-tax discrepancy. That 
company's stock price had also skyrocketed, dramatically increasing the 
value of the 16 million stock options granted to its CEO since 1993. Of 
the 12 million stock options the CEO actually exercised over a 5-year 
period, Occidental Petroleum claimed a $353 million tax deduction for a 
book expense that, under current accounting rules, would have totaled 
just $29 million. That is a book-tax difference of more than 1200 
percent.
  Similar book-tax discrepancies applied to the other companies we 
examined. Cisco System's CEO exercised nearly 19 million stock options 
over 5 years, and provided the company with a $169 million tax 
deduction for a book expense which, under current accounting rules, 
would have totaled about $21 million. UnitedHealth's former CEO 
exercised over 9 million stock options in 5 years, providing the 
company with a $318 million tax deduction for a book expense which 
would have totaled about $46 million. Safeway's CEO exercised over 2 
million stock options, providing the company with a $39 million tax 
deduction for a book expense which would have totaled about $6.5 
million.
  Altogether, these nine companies took stock option tax deductions 
totaling about $1.2 billion, a figure nearly five times larger than the 
$217 million that their combined stock option book expenses would have 
been. The resulting $1 billion in excess tax deductions represents a 
tax windfall for these companies simply because they issued lots of 
stock options to their CEOs.
  Tax rules that produce huge tax deductions that are many times larger 
than the related stock option book expenses give companies an incentive 
to issue massive stock option grants, because they know it is highly 
likely the stock options will produce a relatively small hit to the 
profits shown on their books, and are likely to produce a much larger 
tax deduction that can dramatically lower their taxes.
  The data we gathered for just nine companies found excess stock 
option tax deductions of $1 billion. To gauge whether the same tax gap 
applied to stock options across the country as a whole, the 
Subcommittee asked the IRS to perform an analysis of what, back then, 
was newly available stock option data.
  The data is taken from tax Schedule M-3, which corporations were 
required to file for the first time in 2004, with their tax returns. 
The M-3 Schedule asks companies to identify differences in how they 
report corporate income to investors versus what they report to Uncle 
Sam, so that the IRS can track and analyze significant book-tax 
differences.
  The M-3 data showed that, for corporate tax returns filed from July 
1, 2004 to June 30, 2005, the first full year in which it was 
available, companies' stock option tax deductions totaled about $43 
billion more than their stock options expenses on their books. Similar 
data over the next 5 years, with the latest available data from tax 
returns filed from July 1, 2008 to June 30, 2009, showed that corporate 
stock option tax deductions as a whole exceeded their book expenses 
every year by billions of dollars, with the size of the excess tax 
deductions varying from $12 billion to $61 billion per year. These 
excessive deductions meant billions of dollars in reduced taxes for the 
relevant corporations each year.
  In addition, the IRS data showed that the bulk of the stock option 
deductions were taken by a relatively small number of corporations 
nationwide. For example, in 2005, 56 percent of the excess tax 
deductions were taken by only 100 corporations, while 76 percent were 
taken by 250 corporations. In fact, over the 5 years of data, just 250 
corporations took two thirds to three quarters of all of the stock 
option deductions claimed in those years. That is just 250 corporations 
out of the more than 5 million corporations that filed tax returns each 
year. In other words, the IRS data proves that the corporate stock 
option tax loophole actually benefits a very small number of 
corporations.
  Claiming massive stock option tax deductions enabled those 
corporations, as a whole, to legally reduce payment of their taxes by 
billions of dollars each year. Moreover, under current tax rules, if a 
stock option deduction is not useful in the year it is first available, 
the corporation is allowed to add the deduction to its net operating 
losses and use the deduction to reduce its taxes for up to the next 20 
years, an unbelievable windfall. It is a corporate loophole that just 
keeps going.
  There were other surprises in the stock option data as well. One set 
of issues disclosed by the data involves what happens to unexercised 
stock options. Under the current mismatched set of accounting and tax 
rules, stock options which are granted, vested, but never exercised by 
the option holder turn out to produce a corporate book expense but no 
tax deduction.
  Cisco Systems told the Subcommittee, for example, that in addition to 
the 19 million exercised stock options previously mentioned, their CEO 
held about 8 million options that, due to a stock price drop, would 
likely expire without being exercised. Cisco calculated that, had FAS 
123R been in effect at the time those options were granted, the company 
would have had to show a $139 million book expense, but would never 
have been able to claim a tax deduction for this expense since the 
options would never have been exercised. Apple made a similar point. It 
told the Subcommittee that, in 2003, it allowed its CEO to trade 17.5 
million in underwater stock options for 5 million shares of restricted 
stock. That trade meant the stock options would never be exercised and, 
under current rules, would produce a book expense without ever 
producing a tax deduction.
  In both of these cases, under current accounting rules, it is 
possible that the stock options given to a corporate executive would 
have produced a reported book expense greater than the company's tax 
deduction. While the M-3 data indicates that, overall, accounting 
expenses lag far behind claimed tax deductions, the possible financial 
impact on an individual company with a large number of unexercised 
stock options is additional evidence that existing stock option 
accounting and tax rules are out of kilter and should be brought into 
alignment. Under our bill, if a company incurred a stock option 
expense, it would always be able to claim a tax deduction for that 
expense.
  Another set of issues brought to light by the stock option data 
focuses on the fact that the current stock option tax deduction is 
typically claimed years later than the initial book expense. Normally, 
a corporation dispenses compensation to an employee and takes a tax 
deduction in the same year for the expense. The company controls the 
timing and amount of the compensation expense and the corresponding tax 
deduction. With respect to stock options, however, corporations may 
have to wait years to see if, when, and how much of a deduction can be 
taken. That's because the corporate tax deduction is wholly dependent 
upon when an individual corporate executive decides to exercise his or 
her stock options.
  Our bill would require that, when the company gives away something of 
value, it reflects that expense on its books and claims that same 
expense in the same year on its tax return. The company, and the 
government, would not have to wait to see if and when the stock options 
given to executives were exercised. As with any other form of 
compensation, the company would use the FASB accounting rules to 
determine the value of what it is giving away, and take the equivalent 
tax deduction in the year the compensation was provided.
  UnitedHealth, for example, told the Subcommittee that it gave its 
former CEO 8 million stock options in 1999, of which, by 2006, only 
about 730,000 had been exercised. It did not know if or when its former 
CEO would exercise the remaining 7 million options, and so could not 
calculate when or how much

[[Page S4619]]

of a tax deduction it would be able to claim for this compensation 
expense.
  If the rules for stock option tax deductions were changed as provided 
for in our bill, companies would typically take the deduction years 
earlier than they do now, without waiting to see if and when particular 
options are exercised. In addition, by requiring stock option expenses 
to be deducted in the same year they appear on the company books, stock 
options would become consistent with how other forms of compensation 
are treated in the tax code.
  Right now, U.S. stock option accounting and tax rules are mismatched, 
misaligned, and out of kilter. They allow companies collectively to 
deduct billions of dollars in stock option expenses in excess of the 
expenses that actually appear on the company books. They disallow tax 
deductions for stock options that are given as compensation but never 
exercised. They often force companies to wait years to claim a tax 
deduction for a compensation expense that could and should be claimed 
in the same year it appears on the company books.
  The bill being introduced today would cure those problems. It would 
bring stock option accounting and tax rules into alignment, so that the 
two sets of rules would apply in a consistent manner. It would 
accomplish that goal simply by requiring the corporate stock option tax 
deduction to reflect the stock option expenses as shown on the 
corporate books each year.
  Specifically, the bill would end use of the current stock option 
deduction under Section 83 of the tax code, which allows corporations 
to deduct stock option expenses when exercised in an amount equal to 
the income declared by the individual exercising the option, replacing 
it with a new Section 162(q), which would require companies to deduct 
the stock option expenses as shown on their books each year.
  The bill would apply only to corporate stock option deductions; it 
would make no changes to the rules that apply to individuals who 
receive stock options as part of their compensation. Those individuals 
would still report their compensation in the year they exercise their 
stock options. They would still report as income the difference between 
what they paid to exercise the options and the fair market value of the 
stock they received upon exercise. The gain would continue to be 
treated as ordinary income rather than a capital gain, since the option 
holder did not invest any capital in the stock prior to exercising the 
stock option and the only reason the person obtained the stock was 
because of the services they performed for the corporation.
  The amount of income declared by an individual after exercising a 
stock option will likely be greater than the stock option expense 
booked and deducted by the corporation which employed that individual. 
That's in part because the individual's gain often comes years after 
the original stock option grant, during which time the underlying stock 
will usually have gained in value. In addition, the individual will 
typically exercise the option and immediately sell the stock and 
therefore receive income, not just from the corporation that supplied 
the stock options years earlier, but also from the third parties 
purchasing the resulting shares.
  Consider the same example discussed earlier of an executive who 
exercised options to buy 1 million shares of stock at $10 per share, 
obtained the shares from the corporation, and then immediately sold 
them on the open market for $30 per share, making a total profit of $20 
million. The individual's corporation didn't supply that $20 million. 
Just the opposite. Rather than paying cash to its executive, the 
corporation received a $10 million payment from the executive in 
exchange for the 1 million shares. The $20 million profit from selling 
the shares was paid, not by the corporation, but by third parties in 
the marketplace who purchased the stock. That's why it makes no sense 
for the company to declare as an expense the amount of profit that an 
employee--often a former employee--obtained from unrelated parties in 
the marketplace.
  The executive who exercised the stock options must still treat any 
resulting profit as ordinary income for the reasons given earlier: the 
executive received the shares at a below market cost, solely because of 
work that the executive performed for the corporation in return for the 
stock option compensation.
  The bill we are introducing today would put an end to the current 
approach of allowing a corporation to take a mirror deduction equal to 
the ordinary income declared by its executive. It would break that old 
artificial illogical symmetry and replace it with a new logical 
symmetry--one in which the corporation's stock option tax deduction 
would match its book expense.
  I call the current approach a case of artificial symmetry, because it 
uses a construct in the tax code that, when first implemented 40 years 
ago, enabled corporations to calculate their stock option expense on 
the exercise date, when there was no consensus on how to calculate 
stock option expenses on the grant date. The artificiality of the 
approach is demonstrated by the fact that it allows corporations to 
claim a deductible expense for money that comes not from company 
coffers, but from third parties in the stock market. Now that an 
accounting consensus determines how to calculate stock option expenses 
on the grant date, however, there is no longer any need to rely on an 
artificial construct that calculates corporate stock option expenses on 
the exercise date using third party funds.
  It is also important to note that the bill would not affect in any 
way current tax provisions that provide favored tax treatment to so-
called Incentive Stock Options under Section 422 of the tax code. Under 
that section, in certain circumstances, corporations can surrender 
their stock option deductions in favor of allowing their employees with 
stock option gains to be taxed at a capital gains rate instead of 
ordinary income tax rates. Many start-up companies use these types of 
stock options, because they don't yet have taxable profits and don't 
need a stock option tax deduction. So they forfeit their stock option 
corporate deduction in favor of giving their employees more favorable 
treatment of their stock option income. Incentive Stock Options would 
not be affected by our legislation and would remain available to any 
corporation providing stock options to its employees.
  The bill would make one other important change to the tax code as it 
relates to corporate stock option tax deductions. In 1993, Congress 
enacted a $1 million cap on the compensation that a corporation can 
deduct from its taxes, so that other taxpayers wouldn't be forced to 
subsidize corporate executive pay. That cap was not applied to stock 
options, however, instead allowing companies to deduct any amount of 
stock option compensation from their tax obligations, without limit.
  By not applying the $1 million cap to stock option compensation, the 
tax code created a significant tax incentive for corporations to pay 
their executives with stock options. Indeed, it is common for 
executives to have salaries of $1 million, while simultaneously 
receiving millions of dollars more in stock options. History has 
subsequently shown that the $1 million cap--established to stop 
ordinary taxpayers from being forced to subsidize enormous paychecks 
for corporate executives--is effectively meaningless without including 
stock options.
  Further, while corporate directors may be comfortable diluting their 
shareholders' interests while doling out massive amounts of stock 
options, that still does not mean that ordinary taxpayers should be 
forced to subsidize the large amounts of stock option compensation 
involved. The bill would eliminate this unwarranted, favored treatment 
of executive stock options by making deductions for this type of 
compensation subject to the same $1 million cap that applies to other 
forms of compensation covered by Section 162(m). It is also worth 
noting that, if the cap were applied to stock options, it would not 
prevent stock option pay from exceeding $1 million--it would simply 
ensure that those stock option awards were not made at the expense of 
ordinary taxpayers.
  The bill also contains several technical provisions. First, it would 
make a conforming change to the research tax credit so that stock 
option expenses claimed under that credit would match the stock option 
deductions taken under the new tax code section 162(q).

[[Page S4620]]

Second, the bill would authorize the Secretary of the Treasury to adopt 
regulations governing how to calculate the deduction for stock options 
in unusual circumstances, such as when a parent corporation issues 
options on its shares to the employee of a subsidiary or another 
corporation in a consolidated group, or when one corporation issues 
options on its shares to employees of a joint venture.
  Finally, the bill contains a transition rule for applying the new 
Section 162(q) stock option tax deduction to existing and future stock 
option grants. Essentially, this transition rule would ensure that 
stock options issued prior to the enactment date of the legislation 
would remain tax deductible and ensure all corporations can start 
deducting stock option expenses on a yearly schedule.
  The transition rule has three parts. First, it would allow the old 
Section 83 deduction rules to apply to any option which was vested 
prior to the effective date of the new stock option accounting rule, 
FAS 123R, and exercised after the date of enactment of the bill. The 
effective date of FAS 123R is June 15, 2005 for most corporations, and 
December 31, 2005 for most small businesses. Prior to the effective 
date of FAS 123R, most corporations would have shown a zero expense on 
their books for the stock options issued to their executives and, thus, 
would be unable to claim a tax deduction under the new Section 162(q). 
For that reason, the bill would allow these corporations to continue to 
use Section 83 to claim stock option deductions on their tax returns.
  For stock options that vested after the effective date of FAS 123R 
and were exercised after the date of enactment, the bill takes another 
tack. Under FAS 123R, these corporations would have had to show the 
appropriate stock option expense on their books, but would have been 
unable to take a tax deduction until the executive actually exercised 
the option. For those options, the bill would allow corporations to 
take an immediate tax deduction--in the first year that the bill is in 
effect--for all of the expenses shown on their books with respect to 
these options. This ``catch-up deduction'' in the first year after 
enactment would enable corporations, in the following years, to begin 
with a clean slate so that their tax returns the next year would 
reflect their actual stock option book expenses for that same year.
  After that catch-up year, all stock option expenses incurred by a 
company each year would be reflected in their annual tax deductions 
under the new Section 162(q).
  This transition rule is a generous one, but even with it, the Joint 
Committee on Taxation has estimated that closing the corporate stock 
option tax deduction loophole would produce $24.6 billion in corporate 
tax revenues over 10 years.
  Over the last 5 years, the stock option book-tax gap has ranged from 
$12 billion to $61 billion per year, generating deductions far in 
excess of corporate expenses. Corporations have avoided paying their 
fair share to Uncle Sam by simply giving their executives the right to 
tap huge sums of money from the stock market. It is a tax policy that 
forces ordinary taxpayers to subsidize outsized executive compensation 
and that favors corporations doling out stock options over paying their 
executives in cash.
  Right now, stock options are the only compensation expense where the 
tax code allows companies to deduct more than their book expense. In 
these times of financial distress, we cannot afford this multi-billion 
dollar loss to the Treasury, not only because of the need to reduce the 
deficit, but also because the stock option tax deduction contributes to 
the anger and social disruption caused by the ever deepening chasm 
between the pay of executives and the pay of average workers.
  The Obama administration has pledged itself to closing unfair 
corporate tax loopholes and to returning sanity to executive pay. It 
should start with supporting an end to excessive stock option corporate 
deductions. I urge my colleagues to include this legislation in any 
deficit reduction package this year, or to pass it separately.

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