Congressional Record, Volume 158 Issue 63 (Monday, May 7, 2012)

[Congressional Record Volume 158, Number 63 (Monday, May 7, 2012)]
[Senate]
[Pages S2892-S2907]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

STOP THE STUDENT LOAN INTEREST RATE HIKE ACT OF 2012--MOTION TO PROCEED

The ACTING PRESIDENT pro tempore. Under the previous order, the
Senate will resume consideration of the motion to proceed to S. 2343,
which the clerk will report by title.
The legislative clerk read as follows:

Motion to proceed to S. 2343, a bill to amend the Higher
Education Act of 1965 to extend the reduced interest rate for
Federal Direct Stafford Loans, and for other purposes.

The ACTING PRESIDENT pro tempore. The Senator from Iowa.
Mr. HARKIN. Mr. President, parliamentary inquiry: We are now on the
Stop The Student Loan Interest Rate Hike Act of 2012, is that not
correct?
The ACTING PRESIDENT pro tempore. The Senate is on the motion to
proceed to that measure.
Mr. HARKIN. Mr. President, I yield myself such time as I may consume.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Mr. HARKIN. Mr. President, I can't emphasize strongly enough the
importance and the urgency of the legislation before us--the Stop the
Student Loan Interest Rate Hike Act of 2012--which the majority leader
spoke about. On July 1, unless Congress intervenes, the interest rate
on Federal student

[[Page S2893]]

loan debt is set to double from 3.4 percent to 6.8 percent. More than
7.4 million American students, including an estimated 255,000 students
enrolled in Iowa colleges and universities, will be required to pay an
average of $1,000 more per year of school.
The bill before us is straightforward and it is fully paid for. It
keeps the interest rate at 3.4 percent, and the cost is offset by
closing a tax loophole that benefits certain high-income professional
service providers.
I wish to thank Senator Reid for his leadership in advancing this
critical legislation. I also thank President Obama for making this
legislation an urgent priority and for visiting college campuses across
the country to speak out on this urgent problem facing our Nation's
students and their families.
In today's global knowledge-based economy, an education beyond high
school is no longer an option but a necessity. A worker with a
bachelor's degree earns 85 percent more, on average, than a high school
graduate. Almost two-thirds of the job vacancies between now and 2018
will require some postsecondary education, and more than half of those
jobs will require at least a bachelor's degree.
You can see by this chart, as I said, 63 percent of the jobs will
require at least some college education--either some college, an
associate's degree or bachelor's degree or more. And that is by 2018.
The demand is going to grow even beyond that. These statistics convey a
very clear message: Higher education is the key to entry not only to
the middle class but to a middle-class life.
Another message is equally clear, and that is America's economic
competitiveness and growth depends on a highly educated and highly
skilled workforce. That is why the ever-growing mountain of student
loan debt is a major concern to me as the chair of the Health,
Education, Labor and Pensions Committee, and also a major concern for
families all across America who are struggling to get by. It is a
shocking fact that total student loan debt has now surpassed total
credit card debt for the first time ever, with $867 billion right now
in student loans, auto loans at $734 billion, and credit cards at $704
billion. So for the first time ever, American families now owe more on
school loans than they do on their car loans or on their credit cards.
Again I want to bring this closer to my own home. It affects Iowans
profoundly. Nearly 72 percent of Iowa's college graduates have debt--
the fourth highest percentage in the Nation. And those borrowers have
an average of $30,000 in student loan debt, which is the third highest
level in the Nation.
Over the past 3 years, President Obama and Congress have taken robust
steps to improve college affordability and help our students succeed.
From the Recovery Act and its unprecedented support for our education
systems, to the student loan reforms that enabled us to help more
students through larger Pell grants, and most recently our efforts to
make it easier for students to repay their loans--this all happened in
the last few years--we have made major strides toward the President's
goal--and I hope it would be our shared goal--of reclaiming America's
standing by 2020 as the country with the highest proportion of college
graduates. Needless to say, it will be much harder to reach this goal
if Congress allows interest rates to double on July 1.
As I said, more than 7.4 million American students will be required
to pay an average of $1,000 over the lifetime of their loan for each
year they borrow. Again, if you look at this chart, it shows what is
happening. If the interest rate is paid at 3.4 percent, we are looking
at about $883 in interest over the life of the average loan. Double
that interest rate and it goes to $1,876. That is at 6.8 percent. So
the average savings to the average student would be almost $1,000 a
year.
I might add that the 255,404 borrowers in Iowa will save an estimated
total of $254 million with this bill in front of us.
With today's tough economy, and given the very high unemployment rate
among young Americans, it is absolutely unacceptable to ask middle-
class families to shoulder sharply higher student loan interest
payments. We must not allow this to happen.
If we look closer at the characteristics of students who will be
impacted by this interest rate hike, we see that it affects middle-
class families and vulnerable students from disadvantaged backgrounds
at the very time when they are under enormous financial strain. If we
look at who gets the subsidized loans, from this chart we can see, by
family income, dependent students, their family income is less than
$60,000 a year.
If we look at the independent student loan borrowers, their income is
less than $50,000 a year, and 89 percent of them earn less than
$50,000. Of the dependent student loan borrowers, 60 percent are from
families who earn less than $60,000. I might also add that 7 out of 10
of those independent students here reported under $30,000 a year in
income.
So allowing the interest rate to double would also disproportionately
affect minority students who account for 40 percent of these borrowers.
So 40 percent of these borrowers are minority students. This bill,
again, would prevent the interest rate from doubling on July 1 for
those borrowers.
So with the bill before us, we are considering a pragmatic and
fiscally responsible solution to this problem that will keep interest
rates low for more than 7.4 million students. Again, the bill is fully
paid for, and we offset the cost by raising revenues in a way that will
provide a solution to a longstanding problem in the Tax Code that has
been subject to widespread abuse.
Now, let me just define how this measure is paid for. For many years
we have seen avoidance of properly owed Social Security and Medicare
taxes by some subchapter S stockholders who can declare that a portion
of their income is effectively profit and therefore not subject to
Social Security or Medicare taxes. This is not supposed to be a choice
that is made at the whim of the taxpayer. It should be based on
objective facts. The offset in this legislation does just that. It
creates a bright-line test for a small share of subchapter S
shareholders--basically, those engaged in professions such as doctors,
lawyers, accountants, consultants and lobbyists--whose financial gains
they have come from the work they do.
It is narrowly tailored to cover only those subchapter S
organizations in which there are three or fewer stockholders, and only
for those earning $250,000 on joint filings. With this bright-line
test, the Medicare and Social Security trust fund will receive the
funds that are properly owed, which are not received today because they
are counted not as income but as profits.
My friends on the other side of the aisle have proposed a different
offset to pay for keeping the interest rate at 3.4 percent. The bill
that passed the House of Representatives and the legislation proposed
by Senator Alexander of Tennessee would offset the cost of this bill by
eliminating the Prevention and Public Health Fund which was created by
the Patient Protection and Affordability Care Act.
In short, rather than put an end to a widespread abuse of the Tax
Code, my friends on the other side of the aisle are proposing that we
eliminate the sole dedicated source of Federal funding for critical
investments in preventing disease and keeping women and children and
elderly families healthy. They want to eliminate the Prevention and
Public Health Fund.
Many of my Republican colleagues have acknowledged the critical
importance of investing in prevention and wellness, which makes the use
of this offset that is eliminating it all the more troubling.
Preventing disease, expanding access to screenings, encouraging people
to stop using tobacco--these used to be bipartisan goals strongly
supported by a vast majority of Republicans and Democrats alike. So in
the affordable care act we created the prevention fund, with the
express goal of ramping up our investments in these prevention and
wellness initiatives, again, with Republican support.
Here are quotes from two Republican leaders. Senator Kyl, on July 12,
2010, just a few months after we passed the affordable care act, said:

One of the things we did in the health care legislation was
to provide a lot of different incentives for preventive care,
for screening to try to help people avoid illnesses on the
theory that it would be a lot cheaper if we didn't do a lot
of treatment that was unnecessary.

I couldn't agree more.

[[Page S2894]]

The Republican leader, Senator McConnell, said in an op-ed the same
year, 2010:

Congress should be able to work together on our practical
ideas that the American people support, such as . . .
encouraging wellness and prevention programs that have proved
to be effective in cutting costs and improving care.

That was less than 2 years ago, right after passage of the health
reform law. But now Republicans are making outrageous partisan attacks
on the prevention fund. I find this deeply disturbing and
disappointing. It is not hard to imagine the message gurus, those who
hone messages, telling Republicans: Here is all you have to do. Just
smear the prevention fund by calling it a slush fund.

How many times have I heard that: the prevention fund is a slush
fund? I have heard it in committee, I have heard it on the floor, I
have seen it in print, Republicans calling the prevention fund a slush
fund. Well, this is shameful. That term ``slush fund'' is a malicious
untruth. Nothing could be further from the truth. The truth is the
prevention fund has been a giant step forward for public health in our
Nation.
Typically, prevention and public health initiatives are an
afterthought. This means important community-based interventions often
go unsupported. The prevention fund is making it possible for us to
make national investments in evidence-based programs that promote
physical activity, improved nutrition, and reduced tobacco use. Well,
these are the investments we make.
This prevention fund, which Republicans want to eliminate, invests
$226 million to reduce chronic diseases, including diabetes and heart
disease. That minimizes the $440 billion a year in health care costs
from heart disease alone. It invests $93 million for antitobacco
education and support campaigns to minimize the fact that over 6
million kids will die from smoking if the current rates persist. It
invests $190 million for childhood immunization programs, again, to
minimize the $3 billion a year in unnecessary health care costs right
now.
I might just add the lead editorial in today's New York Times said,
``No Longer Just `Adult Onset'.'' That is the head of it. I will not
read it all, but I think there are a few pertinent paragraphs in the
Times editorial. It starts off by saying:

This new study was published in the New England Journal of Medicine.
Reading further:

Some experts suggest that young patients at risk of
diabetes need to be detected earlier and treated more
aggressively. But the long-term goal should be prevention of
obesity and of diabetes.
Congressional Republicans, meanwhile, are bent on
dismantling health care reforms that could greatly assist in
curbing the obesity epidemic. The Republican-dominated House
last month narrowly passed a bill that would eliminate a
Prevention and Public Health Fund, established under the
reform law, in part to pay for lowering the interest rate on
subsidized student loans for this year.
The fund is already providing grants to state and local
governments to help pay for programs to fight obesity and
prevent chronic diseases, including diabetes, in the
community, the workplace and among minority groups that have
high rates of obesity and diabetes. Killing off this program
would be hugely costly to Americans' health and future health
care costs. There is no explanation for this move, except for
the usual anti-health care reform demagoguery.

I ask unanimous consent to have printed in the Record a copy of the
full editorial.
There being no objection, the material was ordered to be printed in
the Record, as follows:

No Longer Just ``Adult-Onset''

The virulence of Type 2 diabetes in children is yet another reason to
fight childhood obesity

A study of diabetes in overweight and obese youngsters
bears an ominous warning about future health care trends in
this country. It found that Type 2 diabetes, a new scourge
among young people, progresses faster and is harder to treat
in youngsters than in adults. The toll on their health as
they grow older could be devastating.
These findings provide more evidence of why the country
must get the obesity epidemic under control--to improve
health and to curb soaring health care costs.
Only two decades ago Type 2 diabetes was called ``adult-
onset diabetes'' because it was seldom found in young people,
who suffered primarily from Type 1, in which the patient's
immune system destroys cells that make insulin, a hormone
needed to control blood sugar levels. Type 2--thought to be
brought on by obesity and inactivity in many people--has
increased alarmingly and accounts for almost a fifth of newly
diagnosed cases in young people.
Obesity increases the risk of many chronic diseases. And
some 17 percent of American children from age 2 to 19 are now
considered obese, roughly half the rate of obesity among
adults.
The new study, published in The New England Journal of
Medicine, tested three ways to attain durable control of
blood sugar in youngsters between the ages of 10 and 17. None
worked very well. Almost half of the 699 youngsters had to
add daily shots of insulin within a few years to lower their
blood sugar. Metformin, the standard drug used to treat Type
2 diabetes in children, failed to control blood sugar in more
than half of the children. When lifestyle changes, including
one-on-one counseling on how to lead a healthy life, were
added to metformin, the results were only marginally better.
When a second drug was added, the results were
significantly better. But the two-drug treatment still failed
in 39 percent of the recipients, and the added drug, Avandia,
has been linked to heart attacks and strokes in adults.
The findings are especially ominous because poorly
controlled diabetes can lead to heart disease, stroke,
blindness, amputations and kidney failure. The longer one has
the disease, the greater the risk, so the fact that children
are starting so young bodes ill for their futures.
Some experts suggest that young patients at risk of
diabetes need to be detected earlier and treated more
aggressively. But the long-term goal should be prevention of
obesity and of diabetes.
Congressional Republicans, meanwhile, are bent on
dismantling health care reforms that could greatly assist in
curbing the obesity epidemic. The Republican-dominated House
last month narrowly passed a bill that would eliminate a
Prevention and Public Health Fund, established under the
reform law, in part to pay for lowering the interest rate on
subsidized student loans for a year.
The fund is already providing grants to state and local
governments to help pay for programs to fight obesity and
prevent chronic diseases, including diabetes, in the
community, the workplace and among minority groups that have
high rates of both obesity and diabetes. Killing off this
program would be hugely costly to Americans' health, and
future health care costs. There is no explanation for this
move, except for the usual anti-health care reform
demagoguery.
____

More Time for Justice

States need to extend the time for victims to bring claims against
sexual abusers

Hawaii significantly strengthened its protections against
child sexual abuse last month when Gov. Neil Abercrombie
signed a measure extending the statute of limitations for
civil lawsuits filed by child victims. At least as important,
it opens a one-time two-year window to allow victims to file
suits against their abusers even if the time limit had
expired under the old law.
Like similar laws in California and Delaware, the Hawaii
measure recognizes some wrenching realities. It can take many
years, even decades, before child abuse victims are
emotionally ready to come forward and tell their stories in
court. But by then, they may be barred from suing by the
statute of limitations. For example, many suits against the
Catholic Church have been blocked because the church's
covering up for pedophile priests made it hard for victims to
come forward until long past the time limit for bringing
civil claims.
Hawaii's new law allows child victims to bring suits up to
the age of 26 (it was 20), or three years from the time the
victim realizes the abuse caused injury. The law's leading
opponent was the Roman Catholic Church, which has been
working hard to defeat statute of limitations reform across
the country.
Lobbying by the church recently succeeded in blocking
reform in Pennsylvania. But lawmakers in Massachusetts seem
ready to follow Hawaii's example by passing similar reforms.
In New York, Gov. Andrew Cuomo has not yet indicated that
he would support a measure sponsored by Margaret Markey in
the Assembly to lift the statute of limitations for one year
for civil lawsuits involving child sex abuse. After that
year, an accuser would have 10 years after turning 18 to make
a claim, instead of five years, which is the current law. Mr.
Cuomo has voiced concern about fading memories and missing
evidence, but those concerns need to be balanced with justice
for victims and the need to stop abusers.
Like measures in other states, the Markey bill requires
that a victim obtain a certificate from a mental health
professional to show there is a reasonable basis to believe
the abuse occurred before a suit can go forward.
Getting the measure through the State Senate would be an
uphill climb; previous attempts have failed, and Republican
leaders have again vowed to stop it. Cardinal Timothy Dolan
has made defeating statute of

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limitations reform one of his top legislative priorities. Mr.
Cuomo's strong leadership will be needed if New York is to
match Hawaii's accomplishment any time soon.

Mr. HARKIN. I don't know that I can make it any more clear than the
New York Times editorial, and there is not the time to mention all of
the ways this fund is already making Americans healthier. But I want to
mention several representative investments that are happening, again,
right now.
I mentioned those right here, the $226 million for diabetes and heart
disease, the $93 million for antitobacco education, the $190 million,
again, for childhood immunization programs.
I might just go back to that first on the heart disease because heart
disease disproportionately affects women. Most people don't know that.
I think most people would say the No. 1 cause of death in women today
might be breast cancer. Not so. The No. 1 cause of death for women in
this country is heart disease. Some 42 million women in America are
currently living with some form of heart disease, and the World Health
Organization estimates that a staggering 80 percent of heart disease,
diabetes, and stroke could be prevented just from changes in smoking,
nutrition, and physical activity alone. That is what this prevention
fund is doing right now.
Moreover, this investment by the prevention fund isn't only saving
lives, but it is saving money. Right now, heart disease costs our
Nation about $440 billion a year. We can reduce those costs.
I might also mention smoking. Cigarette smoking also kills an
estimated 173,000 women every year. If current smoking rates persist,
more than 6 million kids will die from smoking.
The new national antitobacco ad campaign called Tips From a Former
Smoker is being supported by this prevention fund. I think many of us
probably have seen these ads. They are extremely powerful and effective
ads, and they are going to save lives. In fact, this ad campaign is
expected to inspire a half million quit attempts and help at least
50,000 Americans quit smoking forever.
I might just add that within 2 days of these ads first appearing, the
number of phone calls to quit-smoking lines tripled from people who
wanted help in quitting smoking.
I mentioned the immunization programs for kids. These investments
from the prevention fund aren't just at the national level, they are
also in our communities. This fund is helping States and cities and
towns to implement evidence-based programs that meet their particular
local needs.
For example, in Illinois, the State has made improvements to its
sidewalks and has marked crossings to increase levels of student
physical activity. Because of these improvements, the number of
students who are walking to school has doubled. That is a good thing.
So not only is this good for their health; it is expected to save the
school system about $67,000 yearly on bus costs.
In Mobile, AL, Mobile County officials enacted a comprehensive smoke-
free policy expected to protect 13,000 residents and visitors from
being exposed to secondhand smoke.
All across America, the prevention fund is investing in proven,
locally developed programs that promote health and wellness. These
evidence-based programs not only improve health but, as I said, will
help us save money in health care costs.
According to a new study by the Centers for Disease Control and
Prevention, programs such as the National Diabetes Prevention Program
could prevent or delay nearly 885,000 cases of type 2 diabetes, saving
our health care system about $5.7 billion over the next 25 years. The
National Diabetes Prevention Program is a public-private partnership of
health care organizations working together to prevent the type 2
diabetes the New York Times editorial was talking about. Given that in
2007 diabetes alone accounted for $116 billion in direct medical costs,
it is critical we continue these investments.
Again, here is how this investment is returned, the return on
investment for public health care spending. For every $1 spent on
childhood immunizations, we save $16.50--proven; tobacco control
programs, for every $1 we save $5; for chronic disease prevention, for
every $1 we save $5.60; for workplace wellness programs, $3.27. If we
want to look at it just in terms of dollars and not just in terms of
lives, we are saving money also.
The prevention fund's investments in cancer prevention also provide
an opportunity to save lives and money. In 2007, the direct and
indirect costs of cancer, which account for nearly one out of every
four deaths in the United States, totaled about $123 billion. Earlier
this year, researchers found nearly half of U.S. cancer deaths could be
prevented--again, through the kinds of programs the prevention fund is
funding today. Preventable U.S. cancer deaths, about 50 percent;
preventable deaths from heart disease, diabetes, and stroke, about 80
percent. This is what the prevention fund is going after. For the life
of me, I have never understood those who want to get rid of the
prevention fund, yet are willing to pump untold billions, trillions of
dollars into patching, fixing, mending surgery and health care costs
down the line. Perhaps my friends on the other side of the aisle never
learned the old axiom of Ben Franklin about an ounce of prevention is
worth about a pound of cure. Here, an ounce of prevention is worth
about 10 pounds of cure or more.
The list goes on. Recently, the Trust for America's Health released a
study showing that a 5-percent reduction in the obesity rate could
yield more than $600 billion in savings on health care costs over a 20-
year period of time--a 5-percent reduction. Studies such as this one
confirm what common sense tells us, that prevention is the best
medicine for our bodies and for our budgets. That is why nearly 800
organizations have spoken out against these misguided efforts to slash
or eliminate the prevention fund. These organizations, such as the
Young Invincibles, the U.S. Student Association, the American Diabetes
Association, the Campaign for Tobacco-Free Kids, have all said: No,
don't cut, don't eliminate the prevention fund.
Despite misguided efforts to cut or eliminate the Prevention and
Public Health Fund, most Americans understand what is at stake. Prior
to the prevention fund, for every $1 spent on health care, 75 cents
went to treating people with chronic illnesses and only about 4 cents
went to prevention: 75 cents taking care of people later on with
chronic diseases that are preventable, only 4 cents out of every $1
went to prevention. This underinvestment has had devastating
consequences. Nearly half of American adults have at least one chronic
condition. Yes, you heard me right. Nearly half of American adults have
at least one chronic condition, and two-thirds of the increase in
health care spending between 1987 and 2000 was due to the increased
prevalence of chronic diseases. So two-thirds of our budget, of the
increase in spending, is on chronic diseases. Yet since we can reduce
those chronic diseases through prevention, one would think we would
want to increase that 4 cents a little bit--4 cents on the $1 we are
spending right now. This prevention fund gives us an unprecedented
opportunity to bend the cost curve.
How many times have I heard about bending the cost curve in medicine?
The best way to do it is to prevent chronic diseases. The
transformation of America into a true wellness society, a society that
focuses on preventing diseases, saving lives and thereby money is the
most cost-effective way to proceed. As we can see, to slander the
prevention fund as a so-called slush fund is a shameful
mischaracterization. This fund is saving lives and saving money.
Eliminating this fund--as proposed by my friend from Tennessee--would
be bad public policy, a serious case of misplaced priorities. The very
idea that Republicans would slash prevention in public health care so a
small group of high-income taxpayers can continue to abuse the Tax Code
I find simply unacceptable.
Before I close my remarks, I would like to address an egregious
mischaracterization that I have heard from the other side of the aisle.
Some Republicans claim Democrats, in our historic reform of the student
loan program, took money that had been going to students and used it to
pay for the health care bill. I have heard that a lot of times. Again,
that is simply not so. The reforms passed by Democrats in Congress--I
might add over vehement Republican opposition--did not take a single
dime from students. Instead, the

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bill eliminated wasteful, taxpayer-funded subsidies to banks by
converting all new Federal student loans to a more stable, reliable,
cost-efficient direct loan program and redirected that money to
students, to deficit reduction, and some important health care reforms.
The money did not come from students. The money came from the
subsidization we have been giving to banks. Specifically, thanks to the
huge savings generated by eliminating wasteful subsidies to banks, what
we were able to do with that--we provided increases in the maximum Pell
grant award to keep up with inflation. We provided funding for
minority-serving colleges and universities. We made a major investment
in community colleges, creating a community college and career training
grant program. We were able to make loan repayment more manageable by
capping a new borrower's loan payment at 10 percent of their net income
and, for some, forgiving any remaining debt after 20 years of payment.
That was all done by stopping these wasteful subsidies to banks and
putting it into the direct loan program. Again, we provided more than
$10 billion in deficit reduction at the same time we were able to
expand the Community Health Center Program to ensure access to
lifesaving medications and to expand vital consumer protections to
millions of Americans with private health insurance--protections we put
in such as banning lifetime limits, requiring dependent coverage,
prohibiting cancellation of coverage due to an illness. In other words,
thanks to the education reform bill, students benefited, the middle
class benefited, taxpayers benefited, and health care consumers
benefited. For my friends on the Republican side, had they had their
way and had those reforms been defeated, only the banks would have
benefited.

Indeed, I kind of detect a pattern. When we Democrats were fighting
to end this subsidy to banks so we could dramatically increase college
grants and loans for middle-class and disadvantaged students, my
friends on the other side of the aisle stood with the banks and did
everything they could to kill the reforms. Likewise, today Democrats
are fighting to prevent a 100-percent student loan rate hike. We want
to fully pay for it by correcting a provision in the Tax Code that
allows a small group of wealthy Americans to avoid paying some Social
Security and Medicare taxes. Republicans are going to the mat to
prevent those wealthy taxpayers from having to pay their fair share.
Instead, how do they want to pay for keeping the interest rate down? By
gutting the prevention fund, killing it, eliminating it--the very fund
that is investing in initiatives to fight cancer and heart disease and
to protect the health of our children, our women, and our elderly.
What they are proposing is bad public policy. It is bad priorities.
We need to be putting the middle class first. We need to be putting
students struggling to pay for college first. We need to be putting
public health care and prevention first--put all those out there. To
make these things possible, we should ask a small group of wealthy
Americans to put their country first and stop abusing this provision,
this loophole in the Tax Code. I urge my colleagues to support the Stop
The Student Loan Interest Rate Hike Act and to support the offset
currently in the bill.
Five years ago, the original law that reduced the student loan
interest rate to 3.4 percent passed with overwhelming bipartisan
support and was signed by a Republican President. I hope we can find
common ground to pass this new legislation with that same kind of broad
and bipartisan support.
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Tennessee.
Mr. ALEXANDER. Mr. President, I am glad I had an opportunity to hear
the distinguished Senator from Iowa, who is my friend and the chairman
of the Health, Education, Labor and Pensions Committee. I wish to
address the same subject he did, but I want to hasten to summarize it
at the beginning to say that we agree. By we, I mean Governor Romney,
the likely Republican nominee for President, President Obama, the House
Republicans, I, and others agree that for the next year we should keep
the interest rate on 40 percent of new student loans at 3.4 percent.
There is no difference of opinion on that.
What is different is how we propose to pay for it. The distinguished
Senator from Iowa has actually outlined the difference of opinion very
well. What we are saying, what the Republicans are saying, is that in
order to pay for the $6 billion it will cost taxpayers to keep that 3.4
percent interest rate the same for the next year, we want to give to
students--give them back their own money, the money the Democrats are
overcharging them on their student loans. The Senator from Iowa went
through a very careful explanation on that which was largely correct.
He pointed out that at the time the majority decided it would make the
Secretary of Education the Nation's leading banker and put him in
charge of administering what is becoming to be nearly $1 trillion worth
of student debt--in other words, take it away from banks and make the
government the banker--that there was about $61 billion in ``savings.''
That is from the Congressional Budget Office.
Our friends on the other side of the aisle argued those were
unnecessary subsidies to banks. Let's say, for the moment, for the sake
of argument, they are correct about that. That $61 billion is money
students were paying in interest on their student loans. Wouldn't the
logical thing to do be to let the students keep the money? If we truly
cared about college tuition going up and student loans rising, wouldn't
the thing to do be to say: We have done a big favor to you students--
the government has been overcharging you on your student loans, all 18
or 19 million of you who have student loans--so instead of the rate of
6.8 percent, which it is for most students, we are going to lower that
rate to 5.3 percent.
That is not my number. That is the number the Congressional Budget
Office said. We could have that $61 billion our friends on the other
side said the government is overcharging students and we could reduce
the average loan of about $25,000 to a 5.3-percent rate instead of 6.8
percent and that would save the average student on the average loan
about $2,200 over 10 years. But they didn't do that. They spent it on
more government; $10 billion to reduce the debt and $8.7 billion to pay
for the health care bill. So what we are saying is in order to freeze
this rate at 3.4 percent, let's give to students the money they were
paying. Instead of paying for the health care bill, let's reduce the
student rates. That is the difference of opinion here.

Of course, our friends on the other side of the aisle have a better
way, in their opinion. Not only do they want the students to continue
to pay for other government programs, and some money for the health
care bill, they want to raise taxes on job creators in the middle of
the longest recession we have had since the Great Depression.
Let me go back to the beginning point here. We are talking about
something that was reflected very well in the New York Times yesterday.
I noticed the Senator from Iowa talked about the New York Times. Here
is the national section from yesterday talking about what is going on
in California.

Angry about tuition increases and cuts in courses and
enrollment, a dozen students at California State University
have taken their protest beyond marches . . . and declared a
hunger strike.
The fasting protest was the latest display of anger at the
23 California State University campuses. The system has lost
roughly $970 million in state financing since 2008.

The University of California is probably the best public university
in the world. It has lost nearly $1 billion in State funding since
2008, and the students are fasting. They are upset about the tuition
increases. Why is the tuition increasing? Well, the administrators say
if we lose $1 billion from the State for our State universities, the
money has to come from somewhere to pay for excellence in our
universities, so we increased the tuition. That story has been going on
all over the country. Why is that happening?
The President has put this issue on the table. I think we need to
discuss it. Why are they fasting in California, protesting tuition
increases? In the last year why did State funding for the University of
Tennessee and Tennessee's community colleges and Tennessee Tech go down
15 percent last year? The main reason is the Federal Government's
health care policies and its

[[Page S2897]]

Medicaid mandates on States that are soaking up State dollars on
Medicaid that would otherwise go to pay for public universities.
President Obama did not start this policy--it has been going on for
30 years--but he is making it much worse with his health care law. And
when it takes effect next year, the Kaiser Family Foundation says that
States, which already are spending one out of four of their State tax
revenues on Medicaid, will see a 29-percent increase in their spending
on Medicaid. What will that do? What that will do is force California,
Tennessee, Connecticut, and Iowa to look in their State budgets, to
take the money that most likely would have gone for the colleges and
community colleges and public universities and instead spend it on
Medicaid. Those Federal Medicaid mandates are soaking up money that
would otherwise go to public colleges and universities, and as a result
of that, universities are raising tuition. As a result of that, loans
are up, students are fasting, and the President is on the campaign
trail promising to fix it.
Let's talk about his fix. First, it is the political season, so
Senators, and all of us, need to listen very carefully when someone
begins to stir the crowd about a popular issue, and surely being able
to pay for college is a popular issue. We hope all American students
who want to have a college degree will be able to go and afford to go
to college. Our Federal Government goes to great efforts to make that
possible.
Half of the students who go to colleges and universities in America--
there are 6,000 of them--have a Federal grant or loan to help pay for
college. We have more than $100 billion in new loans going out this
year from the American taxpayer. That is from people out there working
and paying taxes--the UAW member, the teacher, their taxes are going to
loan more than $100 billion to students this year. The amount of money
for Pell grants this year is over $41 billion.
The University of Tennessee in Knoxville is a fine campus where the
tuition is about $7,400 a year, which is a good bargain at a great
university. Almost all the students show up with a $4,000 State
scholarship called the HOPE scholarship. For a quarter of the students
who are low income, they have Pell grants that carry them above the
amount of tuition. State and local governments have made a great effort
to try to make it easier for our young people and older people to
continue their education, and we want to continue to do that. There is
a bipartisan effort on that.
Now the specific issue at play here, and the one we are likely to
vote on tomorrow, has to do with one type of those student loans, and
let's try to put that in perspective.
The Democrats have a version and the Republicans have a version. I
offered a version which would pay for it by giving back to students the
money the government is overcharging them. The Democrats have one that
would raise taxes on people who create jobs. But whatever one passes--
if one were to pass--would save average students on new loans about $7
a month in interest payments for the next 10 years. That can add up.
That could be $83 in a year, $830 over 10 years. But that is what we
are talking about, $7 a month in savings or $7 a month in interest
payments on the average loan, and that is for 40 percent of the new
loans. So if you have a student loan and it is at 3.4 percent, that is
not going to change. There are 40 percent who have student loans today
that they took out last year at about 3.4 percent. Most everybody else
is at 6.8 percent, which is a good deal lower than you could get with a
private loan. A private loan is one where you go to a bank and say: I
am going to college and I don't have a job so I need to borrow money.
You may get it, but they are going to charge you more because you may
not be able to pay it back as well as somebody else.
We have agreed on this--at least we agreed on the policy, but not how
to pay for it. The President has agreed on it and Governor Romney
agreed on it. For the next year we wish to take 40 percent of new loans
and keep them at the 3.4 percent rate, and then later in the year--
earlier next year--when we look at our entire budget, how much money we
have to spend, the size of the debt, which is of great concern to all
of us on both sides of the aisle, we will see what we can afford to do.
That is the first question.

But I am glad the President has been going to college campuses. I am
glad he has raised the issue of student loans and college tuition
because as a former Governor of Tennessee who cares deeply about
education and as someone who was also U.S. Education Secretary about 20
years ago, I have been trying for 20 or 25 years to get Washington to
pay attention to the idea that it is ruining our public colleges and
universities where these Medicaid mandates soak up the dollars that
ought to go to public colleges and universities. Three-quarters of our
students go to public universities such as the University of Tennessee
or Iowa or Iowa State or California or the community colleges, which
are our secret weapon. And even with the rising tuition, those costs
are at least reasonable now. I mean tuition at a community college in
Tennessee is about $3,000. Nationally the average tuition for a 4-year
public university is about $8,200. It is not easy to find the money for
that, but it is still within range.
What has happened in the last 25 years? I can tell you what happened
in my State. I visited with the retiring president of Tennessee Tech
University, a fine engineering school. He said two things: One, over
the last 3 years State funding for his university--and for most in
Tennessee--has gone down by 30 percent. That is not a 30-percent
reduction in the rate of growth, that is a flat-out cut. And why has
that been happening? Well, our current Governor, a Republican, and our
former one, a Democrat, have said what I know and every Governor knows:
when you make up your State budget and you get down toward the end of
it, you make a choice between Medicaid and higher education. And
because Medicaid is run from Washington with specific mandates on
states, the States end up having a stranglehold put on them, and in
effect, if they participate in the program, they are forced to make
decisions about eligibility and how much they spend, and there goes the
money. There goes the money and it doesn't go to the public colleges
and universities, resulting in less money, higher tuition, and more
loans.
The fasting students in California--if I walked up to them today and
said: I bet you didn't know that President Obama's health care policies
are the reason you are hungry today, they wouldn't believe that. But
the fact of the matter is not just the President's policies but the
policies over the last number of years have gradually soaked up money
that would make the University of California a great university and
left it no recourse but to become more efficient, which it should, and
to raise tuition, which it is doing.
I will give an example of how much difference this makes. In the
early 1980s, I was a young Governor and I was making these budgets up.
I would say: Well, about this much goes to K 12 education, and the
courts are running prisons, so I will have to put that in, and then the
gas tax goes to the highways. And you get down to the end of the budget
and you make a choice between Medicaid, the Federal program that States
pay about 30 percent of, and education. I was trying to restrict
funding for Medicaid and increase funding for education. I could see
where we were headed over the next several years.
I went to see President Reagan. I had made an appointment. I saw him
in the Oval Office. I said: Mr. President, let me propose a grand swap.
He said: What do you mean, a grand swap? I said: We will take all of K
12 education in the States and you take all of Medicaid. He thought for
a moment, and he said that sounds like a pretty good idea. My reasoning
was that instead of Medicaid having two masters--one in Washington and
the other among all the different Governors--if it had one, it would be
managed better. If Washington ran Medicaid, Washington would have to
pay for it all and make sure that it could be funded.
I thought then, and I still think today, that almost all of the
responsibility for kindergarten through the 12th grade belongs as close
to the child as possible--first with the family, then with the
classroom, and then with the State. I believe that while there has been
some important advocacy from Washington over the last 30 years, if we

[[Page S2898]]

had made that grand swap 30 years ago, the Medicaid Program would be
run better today and our public schools would be performing better
today.
We could argue about that, but the one thing we could not argue about
is the difference in money. Back then if we made the swap, the States
would have come out ahead by about $4.5 billion. In other words, the
Federal Government would have taken over Medicaid and the States would
have taken over K 12. The States would have given back to the Federal
Government the Federal aid for education and keep their Medicaid money.
Four-and-a-half billion dollars was the difference in 1981 or 1982.
What would the difference be today if we made such a grand swap? It
would be $92 billion. It would be $92 billion of extra money the States
would have if today the Federal Government took over all of Medicaid
and the States took over all of the responsibility funding for K 12.
That would mean in a State such as California where the students are
fasting, California would probably have an extra $12 billion or $13
billion. Do you think much of that would go to the University of
California to continue its excellence? Sure it would. Would much of it
go to Tennessee Tech, the University of Tennessee, and the community
colleges? It absolutely would.
What happened over the years is that these well-intentioned Federal
health care Medicaid mandates have put a stranglehold on Governors,
which is why I said when we were debating the health care law that I
thought any Senator who voted for it ought to be sentenced to serve as
Governor for 8 years and try to implement it.
I mentioned that last year Tennessee's State funding for higher
education went down 15 percent. Guess what. State funding for Medicaid
went up 16 percent. So there is a direct relationship: Medicaid up,
State funding for public universities down, tuition and loans go up,
and that is the real problem we have today.
I am glad the President has put this issue on the table. I am glad he
is talking about it, and I hope Governor Romney talks about it. I hope
what they agree to do is either to repeal the health care law or to
repeal the Medicaid mandates and give States more flexibility. We can't
pass a law in Washington, as we did 3 or 4 years ago with the stimulus,
and say we are going to give you more Medicaid money, but, Mr. Governor
and Ms. Legislator, you can't reduce State funding on Medicaid.
Lieutenant Governor Ravitch of New York, a Democrat, wrote an
excellent article in the Wall Street Journal. At the time it said: If
you tell New York that at a time when we are reducing revenues and say
we have to keep spending on Medicaid, we have to cut something else,
and the State University of New York gets cut. So New York cuts the
State University of New York, tuition goes up, loans go up, and
students are protesting.
It is not just the student protests that I worry about. We are at a
time in our history when we are in a serious brain-power competition
around the world. We have a lot of Chinese scholars who go from
American universities home to their universities. In a bipartisan way--
and the Senator from Iowa and I were part of it--we passed something
called the America Competes Act a few years ago and reauthorized it so
we could properly fund science and our innovation. Government-sponsored
research has been an important part of our job growth over the last 30
or 40 years. Where is that done? It is done in our national
laboratories or our great research universities. Well, at least half of
our great research universities are public universities, such as the
University of California, the University of Michigan, the University of
Tennessee, the University of Connecticut. If we keep cutting
government-sponsored research and the quality of those universities,
our job growth won't be nearly as good in the future.

Here is another example of how much that has changed over the years.
Thirty years ago in Tennessee, the State paid 70 percent of the cost of
a student to attend a State university and the student paid 30 percent.
We had an implicit agreement between the government and the student,
and we said: If we increase your tuition, we will increase the State
contribution by the same percentage. So we kept it at about 70 and 30,
and it made it possible for a lot of students to go to college. What is
it today? It is 30 and 70. It is upside down. Thirty percent of the
support for colleges and universities comes from the State government
and nearly 70 percent comes from the students. Why is that? The main
reason is Federal health care mandates that put an unrealistic amount
of money on top of States, and it is about to get worse.
I mentioned earlier the Kaiser Family Foundation, which estimates
that next year States that are already spending $1 out of every $4 for
Medicaid will see a 29-percent increase in Medicaid funding. This fast
will have to go on a lot longer in California if that is going to
happen. We can't cut $1 billion out of the University of California
every 3 years and have it remain the best public university in the
world. It is just not going to happen. And we can't raise tuition 6
percent or 8 percent every year and make college available to the large
number of students that would like to go.
So I am glad the President and our friends on the other side in this
political year have raised the issue of rising tuition and student
loans. We agree on the little issue before us. We would all like to
take that 3.4 percent interest rate and extend it for a year. That
costs $6 billion. That would affect new loans and only 40 percent of
the students. But we agree on that, the President agrees, and Governor
Romney agrees. That is not an issue. The issue is, do we raise taxes on
job creators or do we give back to students some of the money we are
continuing to overcharge them on student loans? That is the issue. The
larger question--and one that I hope we all address this year in our
debates and that the President and Governor Romney address in their
debates--is, What about the future of our public colleges and
universities, where three out of four American college students go? How
are we going to maintain their quality and maintain the opportunity for
access to them if we continue to impose Medicaid mandates on States
that soak up the money that ought to be going for excellence in higher
education and the greatest amount of opportunity for students by
keeping tuition rates low? That is the real issue.
While President Obama is not responsible for what went on before he
became President, he has made that condition much worse. If he is going
to bring this up on the campaign trail, I hope he tells the rest of the
story, which is that he and his health care and Medicaid mandate
policies are a principal part of the reason and I would say the main
cause going back over the years as to the reason California students
are fasting, Tennessee students saw an 8-percent increase in tuition,
and all across the country college presidents know very well that the
reason there have been such reductions is because of Federal Medicaid
mandates.
I hope we have an opportunity tomorrow to vote not only on the
Democratic proposal to keep student loan rates at 3.4 percent but also
on the Republican interest rate reduction act that I have proposed,
which would also keep the rates at 3.4 percent but pay for it by
stopping the overcharging of students to help pay for the health care
law.
Mr. President, I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Arizona.
Mr. KYL. Mr. President, first let me say that I very much appreciate
the comments of the Senator from Tennessee and his leadership on this
issue. I join him in hoping we will be able to vote for the alternative
he has provided, which is a more sensible way to ensure that this
increase in student loan interest fees does not continue.
Many students who entered college 4 or 5 years ago believing that
higher education would improve their prospects for getting a good job
are now, sadly, very disappointed. The Obama economy is going to let
them down. According to a recent Associated Press story, one out of two
recent graduates is either unemployed or underemployed. The article
cites a new analysis based on government data which found that young
college graduates ``are heavily represented in jobs that require a high
school diploma or less . . . that's confounding their hopes a degree
would pay off despite higher tuition and mounting student loans.''

[[Page S2899]]

At this time, most of us agree that Congress should extend the lower
interest rate on certain Stafford loans. Unless we do, interest rates
will double to 6.8 percent this July. There are competing proposals to
accomplish this extension, as Senator Alexander pointed out.
Unfortunately, the majority leader's proposal is going to make the
underlying jobs problem worse by burdening job-creating businesses with
new taxes and compliance costs. Let me illustrate how this occurs.
In order to pay for the $6 billion cost of extending the 3.4-percent
interest rates for 1 year, the Reid bill attempts to do what nearly
every bill proposed by Senate Democrats this session has done: It
permanently raises taxes on job creators in order to pay for temporary
spending. Worse, the majority is attempting to divert dollars that are
supposed to go to Medicare or Social Security in order to fund
completely unrelated spending.
In this case, the legislation singles out certain professional
service businesses for a punitive tax hike, including those in the
fields of health, engineering, architecture, accounting, actuarial
science, performing arts, and athletics. Ironically, these are some of
the fields in which there is actually demand for new employees,
according to the AP story I referenced earlier.
The tax hike would hit business owners who perform services for their
businesses and make $200,000 or, if they are married, $250,000. If the
IRS determines that 75 percent or more of the business's gross income
is what this bill describes as ``attributable'' to the services of
three or fewer owners, then this bill would make the owners pay payroll
taxes on 100 percent of their share of the business profits even if
some of that profit had nothing to do with the owner's work. In
addition, if family members also own a piece of the business, then the
working owner will owe additional payroll taxes on the family members'
share of the business even if that family member provides no services.

Obviously, there are several problems with this approach. Let's start
with the most obvious: It takes more money from the private sector and
gives it to the government at the very time when we want the private
sector to have enough to create new jobs. Second, it rewrites the laws
of income from labor and income from capital investment. This should
not be done lightly, especially since confiscating more from small
businesses means they will be less able to expand and create more jobs.
Underscoring that this proposal is a tax increase and not a mere
compliance measure, a coalition of 37 organizations that represents
small businesses wrote a letter explaining that it ``could increase the
payroll tax burden on business owners who are already fully complying
with the law. For those businesses, this provision represents a tax
increase rather than a clarification of existing tax burdens.''
I ask unanimous consent that the text of this letter be printed in
the Record at the conclusion of my remarks.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
(See exhibit 1.)
Mr. KYL. I thank the Chair.
So a bill that is intended to help students would actually make their
job prospects even bleaker when they graduate. The American Institute
of Architects said of the Reid proposal:

If we're trying to make it easier for our college graduates
to get started in their career and become contributing
members of society, increasing taxes on those who would most
likely hire them is simply bad public policy.

Payroll taxes are already scheduled to become more punitive for the
small business owners targeted by this bill. Under ObamaCare, the
Medicare portion of their payroll tax will rise from 2.9 percent to 3.8
percent, and another 3.8 percent will be assessed on their investment
income.
To add insult to injury, this bill exposes family-owned businesses to
double taxation. For example, in a business with three family member
shareholders in which only two provide substantial services, those two
family members would be responsible for payroll taxes on their own
incomes and then both of them would have to pay payroll taxes on the
income of their third family member.
Applying this rising payroll tax to even more small business income
is a terrible recipe in a time of a weak economy. At a time when
businesses are struggling to hire, the last thing Congress should do is
to make a bad situation worse.
Now, the other side will argue that their bill is intended to prevent
cases of tax abuse, so let's look into that. According to the IRS, 4.5
million S corporation tax returns were filed in 2009. Data from the
Treasury Department shows that S corporations account for nearly 40
percent of small businesses with employees. As these numbers showed,
doing business as an S corporation is popular because it allows a
business to avoid the double taxation of income that comes with
organizing as a C corporation. The business income of these and other
so-called flowthrough organizations is taxed as individual income by
the IRS.
Given the prevalence of flowthrough businesses in our economy, it is
not surprising that there has been some abuse from some S corporation
shareholders who pay themselves small salaries in order to avoid paying
Medicare and Social Security payroll taxes owed on their compensation.
The IRS is well aware of this potential and has developed and
implemented tools to go after firms and individuals who do not pay
appropriate payroll taxes through what the IRS calls the reasonable
compensation test. This test has been used for over 50 years, and the
IRS has won a number of cases against taxpayers who paid themselves
compensation that was deemed less than reasonable, most recently in
last year's United States v. Watson decision.
The Reid bill would impose a different standard--one that is arguably
more confusing and less enforceable than the current IRS reasonable
compensation test. Under the Reid bill, small businesses and the IRS
will be asked to determine whether 75 percent of the small business
income is ``attributable'' to the services of three or fewer
shareholders. How on Earth is the IRS going to determine which income
is attributable to the work of a particular shareholder and not to
other employees or to capital investments? For example, if a business
has three physical therapists, how will the IRS know whether the
business's income is substantially due to their services or whether at
least part of it relates to the fact that they hired talented front
office staff, did marketing, bought a building in a good location, have
a comfortable waiting room, implemented an efficient billing system,
and invested in state-of-the-art medical equipment? Let's say an IRS
agent manages to determine that exactly 75 percent of the business's
income is attributable to the services of the three physical
therapists. That means 25 percent of the business income was not due to
their services, but the bill would impose payroll taxes on that portion
as well. In other words, this bill would impose taxes on business
income that is due to capital investment, which should not be subject
to the payroll tax, and to the work of other employees who have already
paid their payroll taxes. Payroll taxes should only apply to labor
income, and they should only be applied once. That is current IRS
policy and it is good policy.

As one commentator noted last week, the Reid proposal will be a
``jobs program for tax lawyers defending clients before the IRS.'' To
determine what percentage of business income is ``attributable'' to
services performed by certain shareholders of an S corporation will be
a boon for lawyers and CPAs but not for the professional service
businesses that wish to expand and hire.
Those of us who were here in 2010 argued against ObamaCare, among
other reasons because it relied on student loans to pay for part of its
costs. A more prudent way to extend the 3.4-percent interest rate on
student loans is to cut at least $6 billion in ObamaCare spending,
which is exactly what the House of Representatives recently voted to
do. The House bill would cut spending from an unaccountable ObamaCare
slush fund, formerly known as the Prevention and Public Health Fund.
This approach, which our colleague Senator Alexander spoke to a
moment ago, and of which I am a cosponsor, fully offsets the cost of a
1-year extension of the subsidized interest rate and

[[Page S2900]]

directs an additional $6 billion toward debt reduction. This ensures
that job-creating capital will not be diverted from small businesses to
fund a temporary unrelated spending program.
Notably, President Obama's own budget request recommended cutting
this very same ObamaCare slush fund, and he has already signed into law
legislation that cut $5 billion from it.
Finally, I want to express my dismay at the lack of urgency from the
majority about the most pressing issue facing small businesses and
those college graduates seeking work; that is, the automatic tax
increase for all Americans on January 1 of next year--the largest tax
increase in the history of our country. The legislation on the floor
today will not become law. The majority knows that. It is another
political showboat. We know this because this Chamber rejected a
similar tax hike 2 years ago when the majority had 59 Senate seats, and
we know the House of Representatives would not pass the legislation.
As the senior Senator from Utah noted last month:

Senate Democrats are fiddling while Rome burns.

That is because, in 8 months, as I said, the largest tax increase in
American history will take effect on individuals, families, and
businesses. Taxes on income, capital gains, dividends, family-owned
farms and estates will skyrocket. As previously mentioned, new taxes on
investment and payroll from ObamaCare will also take effect.
Even without the tax increase in this Reid bill, small business
owners are facing a marginal tax rate increase to nearly 41 percent, a
regular payroll tax rising to 16.2 percent, and an additional 3.8-
percent payroll tax on investment income. And we want these people to
hire more, to create more jobs?
Instead of wasting valuable time on a bill that will never become
law, I hope my colleagues on the other side of the aisle will end their
obsession with class warfare and start focusing on the most pressing
issue at hand: stopping policies that will do further damage to our
already weak economy. Defeating the majority leader's latest tax hike
proposal will be a good place to start.

Exhibit 1

May 3, 2012.
Hon. Harry Reid,
Majority Leader, U.S. Senate, Capitol Building, Washington,
DC.
Hon. Mitch McConnell,
Minority Leader, U.S. Senate, Capitol Building, Washington,
DC.
Dear Senators Reid and McConnell: As organizations
representing millions of employers, we strongly oppose the
provision in S. 2343 to increase payroll taxes on S
corporations and partnerships by $9 billion.
While we are sympathetic with efforts to ensure that
taxpayers, including business owners, fully comply with the
tax law, we are concerned that the new rules envisioned by S.
2343 are less clear and less enforceable than current law and
will do little to increase compliance.
On the other hand, they could increase the payroll tax
burden on business owners who are already fully complying
with the law. For those businesses, this provision represents
a tax increase rather than a clarification of existing tax
burdens. Businesses engaged in service professions have
employees and capital investments. S. 2343 would apply
payroll taxes to the income attributable to both, thus
blurring the line between payroll taxes imposed on wages and
salary, and income taxes applied to other forms of income.
While the authors describe the targets of this provision as
lobby shops and law firms, the application of the
``Professional Service Business'' definition included in the
bill is much broader and could embrace a significant portion
of the American economy. Closely-held businesses engaged in
health, real estate, engineering, architecture, consulting,
financial services, billing, and other fields could be
affected. Moreover, once the line between earnings from labor
and capital is removed, we are concerned that this provision
could be expanded to include other, more capital intensive
industries.
Under S. 2343, the active shareholders of service sector S
corporations would be required to pay payroll taxes on all
their income from the business--wage and business earnings
alike--if the S corporation is a partner in a professional
service business or if 75 percent or more of the gross income
of the S corporation is attributable to the service of three
or fewer shareholders.
This new approach, particularly the ``principal rainmaker''
test, is neither clear nor more enforceable than existing
rules. These rules have been in effect for over half a
century, and the IRS has repeatedly and successfully used
them to ensure that active S corporation shareholders pay
themselves a reasonable wage, most recently in Watson v. US
(2011).
Legislation similar to the payroll tax provision in S. 2343
failed to move through the Senate in 2010. Like S. 2343, that
provision was made public at the last minute and brought
directly to the Senate floor. It was not considered by the
full Finance Committee, nor was it subject to an open
amending process the Senate floor. Now, two years later, we
are presented with a similar policy to be debated in a
similar, truncated manner.
Finally, we are concerned that the permanent payroll tax
increase in S. 2343 would be used to fund a temporary
program--however worthy--outside of the Medicare or Social
Security programs. Moving forward, we would argue that
payroll tax collections should be reserved for Medicare and
Social Security and not diverted to offset unrelated federal
spending.
Thank you for your consideration of our concerns.
Sincerely,
Air Conditioning Contractors of America; American Bankers
Association; American Council of Engineering Companies; The
American Institute of Architects; American Rental
Association; American Supply Association; Associated Builders
and Contractors; Associated Equipment Distributors;
Associated General Contractors of America; Automotive
Aftermarket Industry Association; Financial Executives
International's Committee on Private Company Policy;
Financial Planning Association; Financial Services Institute,
Inc.; Independent Community Bankers of America; Independent
Insurance Agents & Brokers of America; International
Foodservice Distributors Association.
International Franchise Association; National Apartment
Association; The National Association for the Self-Employed;
National Association of Convenience Stores; National
Association of Wholesaler-Distributors; National Electrical
Contractors Association; National Federation of Independent
Businesses; National Funeral Directors Association; National
Grocers Association; National Multi Housing Council; National
Restaurant Association; National Roofing Contractors
Association; National Small Business Association; National
Utility Contractors Association; Printing Industries of
America; Professional Beauty Association; The S Corporation
Association; Truck Renting & Leasing Association; U.S.
Business and Industry Council; U.S. Chamber of Commerce; Wine
& Spirits Wholesalers of America.

The ACTING PRESIDENT pro tempore. The Senator from Wyoming.
Mr. ENZI. Mr. President, there is no reason we should be having this
debate today. Freezing student loan interest rates for 1 year during
tough economic times is something I believe we all agree on, so it
should be relatively simple to accomplish. The President supports it,
Governor Romney supports it, and a bipartisan majority in both the
House and the Senate supports it. Given this kind of agreement, I see
no reason why both sides could not have a good-faith discussion on
where to find the $6 billion in savings in a government with a budget
that spends nearly $2 trillion annually. Actually, we spend more than
$2 trillion annually.
I would mention, this bill has not been to committee. I hope the
American people have noticed that bills that go to committee and then
come to the floor are usually successful. I hope they also notice that
bills that do not go to committee and come to the floor are usually not
successful; they are usually a political statement. That is what we
have here again today.
This is how it works: You bring a bill that you know the other side--
well, in fact, this body has already voted on the concept of this tax
before and defeated it. They know with that provision in there, this
common interest will fail. So why do they do it? Well, you notice this
is a motion to proceed and requires a cloture vote. So 40 of us can
stop this bill, and will stop this bill in the condition it is in
without having gone to committee. But when we stop things, it seems
those Republicans think that students ought to be paying more interest.
That is the part that is wrong. The part we are disagreeing about is
how to pay for it.
Pay for it? We have an economic judgment day coming in this country
because of the debt we are running up on a daily basis. That is what
put the world into kind of this funk anyway. I am not sure what is
going to happen now that France has decided they are not going to have
austerity and Greece has decided they are not going to have austerity.
Now they have leaders who say they are going to fight any kind of
austerity. It could put the world in a real crisis.
But what we are talking about is whether to keep the student interest
rate at the low rate that it is right now, and we are going to have to
vote on a bill that we are going to have to defeat because of the pay-
for in it,

[[Page S2901]]

which will make it look as though Republicans want to raise the rates
on students, and that is not true.
But the majority prefers to pick a fight rather than help students
during these tough economic times. What do I mean by this? After
initially reaching out to my staff, indicating their willingness to
work toward a bipartisan solution, they leaked their proposal before
talking to us, which contained the offset they have in here.
There could be a solution. We have to counter with one and ask that
there can be two side-by-side bills. That means we can have one they
vote against, so we can say they did not want to keep student rates
low, which is also wrong. But somehow we have to figure this out, and
we have to do it in a bipartisan way. That means probably neither
suggestion that is up right now is the one that is going to work.
The majority would have Americans believe their bill simply closes a
loophole used by wealthy doctors and lawyers and other professionals
who organize as an S corporation in order to avoid payroll taxes. Well,
let me tell you about taxes. If you are in one of those small business
S corporations, you pay your taxes. You pay them on the year the
company earns them--not the year the dividends are distributed. The
year the company earns it, you pay all of the taxes that are due on
that piece of money, even though you have to leave it in your business,
so you can keep reinventing your business, so you can stay in business,
so you can maintain the jobs you already have, and, hopefully, add a
few. That is what an S corporation does. It says: We are going to give
you this big break. We are going to let you pay your taxes upfront,
even though you cannot take the money out.
But what we are talking about here is payroll taxes. Payroll taxes
are the money all of us put in as an investment for our Social Security
and our Medicare. That is what payroll taxes are. That is what we are
talking about now, charging on this money that has already had all the
income taxes paid on it and, incidentally, has also had payroll taxes
paid on it.
The IRS is already given the authority to check and see if people are
taking out a de minimis distribution. There is an amount you have to
take out of your business and you have to claim it for salary. You
cannot hide it as if you were rich or something. It does not work that
way. The IRS has rules. The IRS can claim those payroll taxes. But what
we are talking about now is taking those payroll taxes--payroll taxes,
remember, are Social Security and Medicare payments; they are
investments in your Social Security and your Medicare--we are talking
about taking those and subsidizing student loans.
Medicare is in trouble and, once again, we are talking about stealing
from Medicare. We did that in the health care bill. We took half a
trillion dollars out of Medicare and we put it into new programs. We
did not put it into a doc fix. You keep hearing us talk about the doc
fix. We are not paying the docs enough that they want to take any new
Medicare patients. Well, we did not take the money in Medicare that
might have been used and use it in Medicare to keep the Medicare system
running. No. We put it into new programs so we could say this health
care plan was paid for.
Now we are saying we are going to use those payroll taxes and we are
going to use them to subsidize the student loans. When does Medicare
ever get the money to pay for Medicare? Oh, that is right, we have a
new board now--an unelected board--and this unelected board will tell
us each and every year where we have to cut in Medicare in order to pay
for Medicare, even though we stripped all this other money out that
could have paid for Medicare. What a deal.
Well, here we go again. This tax would end the payroll taxes by
shifting them into the student loans. When we are talking about pay-
fors, we do all kinds of crazy things around here, and we should not be
doing them. We should be a little bit more straightforward, not just
with the students but with the American taxpayer. In reality, this is
an irresponsible tax increase on small businesses at a time when we
need small businesses creating jobs so college students have employment
opportunities when they graduate.

In Wyoming, S corporations are family owned small businesses working
hard to keep their businesses afloat. As I mentioned, they get to pay
their taxes even if they cannot draw the money out and use it. So, for
instance, small motels, small architecture firms, and groups of
engineers might choose to operate as S corporations. Or they could be a
full corporation, and then they would have some of the same benefits
Warren Buffett has. Warren Buffett makes millions and he does not have
to pay payroll taxes on that. But we did not suggest ending Warren
Buffett's payroll tax-free money. We are only going to do this to the
small business corporations. Sounds fair? I do not think so.
This will also hurt family businesses in another way. For example, a
son who is taking over an accounting practice from his father could be
hit with substantial payroll taxes if he owns, for example, 10 percent
of the firm, while his father, who is no longer active in the business,
retains the other 90 percent.
These are not the tax scofflaws that the majority suggests this tax
will impact. They are real, small businesses that are the fabric of the
American economy. Small businesses accounted for 65 percent of the 15
million jobs created between 1993 and 2009. So rather than increasing
taxes on small engineering and accounting firms, we should be
encouraging these businesses to hire new employees. As a former small
businessman, I know this will not happen if we raise taxes on the very
businesses we depend upon to turn the labor market around.
Recent reports demonstrate the need to encourage, rather than
inhibit, job growth and creation. That is what we are talking about:
jobs. This year, more than 50 percent of college graduates are either
unemployed or underemployed. Graduating in a bad economy, where jobs
are scarce and lower wages are the norm, can have negative economic
consequences for up to 15 years. With the cost of higher education
increasing more rapidly than the median family income, there will
continue to be greater dependence on student loans. Unless the economy
improves, there will also be a lesser chance that going forward
graduates will have the resources to even make minimum loan payments.
The Republican alternative puts forward a solution that takes money
out of--and I know the Senator from Iowa hates the word--a slush fund,
but it is a fund with rather wide possibilities, and a fund that can be
designated by the Secretary. This is not the first time this has been
used as an offset. Our President signed legislation that cut $5 billion
from the fund to offset the payroll tax bill. Now we are talking about
payroll taxes again, but our side is talking about using the same
funding source the President used to pay for a payroll tax cut earlier
this year. The President also proposed to cut an additional $4.5
billion out of the same fund when he submitted his budget for this
year.
I had to go and look and see what some of the uses are for this fund
that we would be cutting into because it is spent at the discretion of
the Secretary of Health and Human Services and there are not a lot of
guidelines. Many of the programs funded by this Prevention and Public
Health Fund--often called a slush fund--duplicate existing health
programs or waste taxpayer money on some frivolous programs.
The fund has wasted millions of taxpayer dollars and even supported
potentially unlawful lobbying activity. For instance, a public health
clinic in Nashville, TN, used money to offer free preventive services
for dogs and cats, not women and children; $3.6 million went to the
Minnesota Department of Health to create at least four regional food
policy councils, to increase the access and availability of affordable
healthy food; $8.4 million to the New York Fund for Public Health to
implement a local tax on sugar-sweetened beverages; $3.3 million to the
Washington State Department of Health to increase local preemption of
tobacco marketing and taxation and support legislation that repeals
preemption of tobacco marketing; $3 million to lobby lawmakers in New
York for legislation requiring chain restaurants to publicly post the
amounts of the calories they serve; $7 million to Jefferson County,

[[Page S2902]]

AL, to urge Alabama lawmakers to raise tobacco taxes; $16 million to
the County of Los Angeles to help secure a ban on new fast food
restaurants around Los Angeles. A lot of that is lobbying activity.
Yes, I suppose the end results could be prevention of health care.
This country is coming up on an economic judgment day. We do not have
extra money lying around. In fact, when we are talking about pay-fors,
we are only talking about paying for whatever new is put in. We do not
talk about how we are going to cover the $15 trillion in debt we have
out there, the $49,000 every man, woman, and child in the United States
owes. It is a heavy burden.
I talked earlier about Greece. Greece only owes $39,000 per person.
They are just not trusted as much as the United States. If we keep
running up that debt, we are not going to be trusted either.
Unfortunately, President Obama and the congressional Democrats would
rather play election-year politics than find a solution that focuses on
the immediate need of America's students and their families.
Neither bill is ideal. Each spends 10 years of savings in 1 year and
neither produces a long-term, sustainable solution. However, the
Republican proposal has the benefit of using an offset previously used
by the Democrats, as I mentioned. The $5 billion from that fund was
used earlier this year to help pay for the extension of the payroll tax
holiday, and in this year's budget, the President proposed cutting an
additional $4.5 billion.
The Democratic bill raises taxes on small businesses at a time when
the Nation needs those businesses to be creating jobs so college
students have employment opportunities when they graduate. It is
discriminating against small businesses because it does not take in
corporate dividends that people get, which are the same thing. It is
the dividends they eventually are able to take out of the business. But
a big corporation pays dividends to investors and those do not have
payroll taxes taken out either.
So no sincere attempt was made by the Democrats to find a bipartisan
solution. Both Senator Reid and Senator Harkin reached out to my staff
to inquire about the possibility of funding a solution. My staff
expressed a willingness to discuss possible offsets, but the Democrats
released the details of their proposed S corporation tax prior to any
meeting.
When my staff did meet with Senator Harkin's office, his staff
indicated the S corporation offset was the only offset the Democrats
were willing to consider. That makes compromise pretty difficult.
Senator Reid has filed for cloture on S. 2343, the Democrats' bill we
are talking about now, and a vote will be held tomorrow at noon. At
this point, we have been told we are not going to have a vote on the
Republican bill at all.
So cloture tomorrow will fail because there will be no opportunity to
put any amendments on this bill, and this is not a perfectly drafted
bill. This is something that was put together in a bit of a hurry
without having bipartisan input. The reason we have 535 people in
Congress is that there are a whole bunch of different viewpoints. The
reason we have 22 people on a committee is that there are 22 viewpoints
that go into the bill and we can see what unintended consequences there
are. That did not happen on this bill.
This has been put together by two or three people or half a dozen
staff members or whatever, I am not sure. But it has not had the input
from both sides. So our side had to come up with a bill that follows
the same procedure. I can tell you neither bill is ideal, and a
solution has to be reached for these young people. We are all agreed on
that. We are just not agreed on how we pay for it, and we do have a
problem with paying for things around here.
I urge the majority leader to pull the bill from the floor, sit down
with us, find a solution we all can agree to. This is not an issue over
which election-year politics should prevent us from reaching a
bipartisan agreement. I am not aware of anybody who is opposed to the
extension of the reduction in the interest rate. Incidentally, that is
not an interest rate reduction to everybody; it is only to those who
have subsidized loans.
If someone is a student who has regular loans, they are not able to
participate in this. That would require a lot more money. Again, I urge
the majority leader to pull this bill, sit down, come up with a
solution both sides can agree on. It is getting tougher and tougher to
find pay-fors because we are getting further and further in the hole.
We are not going to stop digging, so we better start digging together.
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Iowa.
Mr. HARKIN. Mr. President, how much time is remaining on our side?
The ACTING PRESIDENT pro tempore. There is no allocation of time.
Mr. HARKIN. Mr. President, am I correct the time for debate under
this bill will expire at 4 p.m.?
The ACTING PRESIDENT pro tempore. At 4:30.
Mr. HARKIN. I thank the Chair. Mr. President, after listening to the
previous three speakers, it is hard to know where to begin to correct
the record with all the misstatements. Maybe I will kind of work
backward. My good friend, the Senator from Wyoming, gave a whole list
of different things about where this money was spent. He mentioned
something about California and fast food construction. I did not get it
all. But I am informed there was absolutely no money from the
Prevention and Public Health Fund that went for that program.
If the Senator from Wyoming has any evidence to the contrary, I would
be more than delighted to look at it. Then there was the one about the
dogs and cats in Nashville, TN. I thought the newspaper article that
was in the Hill newspaper put that one to rest, but I guess it did not.
It just goes on and on.
That money actually was funded by private grant money. I guess
PetSmart, from what I am told, put that money in for pet spaying and
neutering in Nashville, TN. Again, that money did not come from the
Prevention and Public Health Fund. If the Senator from Wyoming has
evidence to the contrary, I would like to look into that. Then the
Senator from Wyoming mentioned the New York Department of Health using
$3 million to lobby in New York for a soda tax initiative. First of
all, I will tell my good friend, the Senator from Wyoming, there is an
absolute prohibition on Federal moneys being used for lobbying. So if
anyone has any evidence of Federal funds being used to lobby, please
let us know. We would like to take them to task for that and sic the
Justice Department on them.

That did not happen. It was not CDC funding. This was funding by the
New York State Department of Health. Again, none of the CDC money we
used in the prevention fund was used for that. Those were just three
of--I do not how many examples my friend the Senator from Wyoming had,
but those are just three of them there that absolutely had nothing to
do with the Prevention and Public Health Fund, but somehow this has
gotten out in the popular press.
The city of Nashville received a $7.5 million grant to provide free
pet spaying and neutering. You put that out there and the radio talk
shows pick up on that and all that kind of stuff. Then they bat this
around and it gets everyone upset. My God, we are using tax money now
to neuter dog and cats in Nashville, TN. Who would not be opposed to
that? It is not true. That is all. It is simply not true. As I say, if
anyone has any evidence to the contrary, please let me know and we will
get the Justice Department after them.
Again, I say to my friends on this side of the aisle that talk about
seriousness of whether--how we are going to pay for this. I heard it
said by the previous three speakers we all agree the interest rate
should not go up. OK. We have before us, as I understand, two choices
right now. The Republican choice is the one passed by the House of
Representatives a couple weeks ago, which would eliminate the
Prevention and Public Health Fund and put that money in to keep the
interest rate down at 3.4 percent rather than letting it go up to 6.8
percent.
So they would eliminate the Prevention and Public Health Fund, about
which I spoke at length a little while ago. Our bill would close a
loophole in the Tax Code that allows certain subchapter S corporations
to avoid paying their FICA taxes, their Social Security and Medicare
taxes, because of the way they are arranged.

[[Page S2903]]

I am going to get into that in a minute and try to explain exactly
how that is set up. We are not going after small businesses at all. We
are simply providing more of a bright line on what are legitimate
dividends from a corporation, which does not have to pay FICA taxes,
and what are wages and salaries that they do have to pay FICA taxes on.
Right now, in certain subchapter S corporations, it is kind of
cloudy. It is kind of cloudy. As someone on the other side said, we
have seen this big increase in subchapter S corporations. Well, of
course. People who have had partnerships before or sole proprietorships
all of a sudden are rushing to establish subchapter S corporations,
with very few stockholders, to get away from paying their legitimate
taxes on Social Security and Medicare.
Our bill would close that loophole. We have these two choices in
front of us. Which do we want? If those are the only two, do we want to
eliminate the Prevention and Public Health Fund or do we want to put a
bright line on subchapter S corporations and say if they cross that
line they have to pay their Social Security and Medicare taxes? Maybe
we can have that vote. Maybe we have to actually have that vote here.
I would like to see if my Republican friends want to eliminate the
Prevention and Public Health Fund. Earlier this year, from our
committee I passed out to every Member of the Senate how much money
went to the individual States and what it was used for in the
Prevention and Public Health Fund because I wanted to be transparent
and above board. So I pointed out, for example--these are not private
things; these are public. I pointed out to my friend from Tennessee
that $4,669,362 was made available to Tennessee in this Prevention and
Wellness Fund for fiscal year 2011. I listed all the things it went to:
community programs to promote healthy living, detection and prevention
of infectious diseases, clinical preventive services, strengthening of
public health infrastructure, tobacco prevention programs, some to East
Tennessee State University for the training and preparing of a public
health workforce, Vanderbilt University Medical Center for clinical
preventive services.
I get right down to the dollar, where it all went. I am not trying to
hide anything. I say to my friend from Tennessee, ask these people
where did this money go. We know where it went. Does my friend propose
that we cut out all this money that went to the State of Tennessee?
Here is Arizona: $7,758,944 went to Arizona in 2011. I gave this to
my friend from Arizona listing exactly where it went and what it went
for in prevention and wellness. Does my friend say this ought to be
eliminated? Wyoming got $1,785,534. Every bit of it is listed here,
exactly where it went.
If we accept the Republicans' proposal, we do away with all of that,
all prevention and public health. It has been said on the other side
that even our President wanted to do away with or take money out of it.
I point out that the President did propose earlier this year as a pay-
for for the extension of the unemployment insurance program and for
other things to keep tax rates from going up that we take $5 billion
out of this program over the life. But I think the President made it
very clear that was it.
In fact, we have a Statement of Administration Policy on this bill
which states unequivocally that the President will veto this bill if
there are any cuts in the Prevention and Public Health Fund. While I
was personally opposed to the $5 billion that the President proposed
taking out--and was taken out of the fund--I can say that, well, that
ought to be the last penny taken out of the Prevention and Public
Health Fund. Now we see that the President agrees, no more. We took $5
billion out and that is the end of it.
People keep calling it a slush fund. I have here where every dollar
went in all of the States, what it went for. It did not go to neutering
dogs in Nashville, TN, regardless of how many times we may read it or
hear it on Rush Limbaugh or Joe Scarborough or anyplace else. It is not
true. I challenge anybody, if they have that evidence, let's see it.
Again, I just think what the Republicans have offered as an offset is
not serious. I cannot believe they want to do away with the Prevention
and Public Health Fund. On the other hand, is our proposal serious? Do
we want to really close this loophole for professional corporations
under subchapter S? Yes, we do. I think that is serious. There has been
a lot of abuse of people using the cover of subchapter S to avoid
paying their taxes. A number of cases have come before us that I have
seen where people have used subchapter S as a means of not paying their
fair share of taxes.
One of the examples that just came through was former Senator John
Edwards of North Carolina, a former Member of this body, a former
Presidential candidate and Vice Presidential candidate. I will not get
into his personal life; that is something else. But former Senator John
Edwards of North Carolina claimed, over a multiyear period, that $26
million in revenue from his subchapter S corporation was unearned. He
claimed he didn't really work for a large share of his income from
winning court cases. By making this argument, he avoided nearly
$750,000 in payroll taxes.
That is not fair. That is an inappropriate gimmick. It is a gimmick
when we allow a professional to give his or her spouse and children 95
percent of the stock in their subchapter S corporation and then declare
it their profit and not their work as an accountant or as a lawyer that
is responsible for the income. That is a gimmick. That is why people
are rushing to form these subchapter S corporations.
We have a recent case where the taxpayer was an S corporation, an
accounting practice owned by a CPA and his wife. The CPA served as the
corporation's president, treasurer, director, and only full-time
accountant but received no salary. Imagine that. He received no salary.
Instead, the CPA ``donated'' his services to the corporation and
withdrew earnings from the entity in the form of dividend distribution.
During the years under audit, the CPA worked for the corporation
approximately 36 hours per week. In addition to testifying that his
work was crucial to the continued success of the corporation's
business, the CPA also indicated that dividends were drawn in lieu of
salary to reduce employment taxes. Imagine that. The corporation
asserted that the CPA was not an employee, and even if he was an
employee dividend distributions cannot be taxed as wages.
Well, he was caught in an audit. But, we know audits are few and far
between. So the court found the shareholder to be an employee who
performed significant services. His wages encompassed all remuneration
for services, and it constituted all wages for tax purposes. That is
what is happening. That is what is happening out there.
What does our bill do? Right now, if you are in a subchapter S
corporation, you, the person, get to say whether what you are making is
income or dividends. I heard mentioned something about Warren Buffett.
I don't know his whole deal, but it seems to me that most of his income
is from dividends and capital gains. We are not talking about that. We
are talking about--this would be--if we took the subchapter S situation
and applied it to C corporations, which Mr. Buffett would be in, then
Mr. Buffett would face a board with independent people making a
decision on officers' salary.
Now with subchapter S corporations with only one, two or three
stockholders, they are making their own decisions on their personal
taxes, whether they are dividends or salary. What do you think people
decide?
Again, an accountant tells a subchapter S corporation it can do 40
percent and it would not get audited, they do 40 percent and don't get
audited, and they don't have to pay Social Security or Medicare taxes
on what is really gain.
What do we do in this bill? We say: Look, if you are a professional
subchapter S corporation and you have three or fewer shareholders, then
we draw a bright line. If your income is over $250,000 a year for a
joint filer, and if in fact there was earned income, then it would be
subject to FICA taxes. That is the bright line that we are drawing. In
fact, what it will do is give subchapter S corporations a better idea
of whether profits are earning money or dividends.
Quite frankly, not only are we helping to raise money for the
Medicare

[[Page S2904]]

and Social Security trust funds, we are actually making it better for
people out there who may not know where they fall. Is it dividends or
is it earned income? Our bill only covers a very narrow share of S
corporations. It deals only with certain professional corporations. It
doesn't touch manufacturing or retail activities. It doesn't touch real
estate activities. It covers the area where the abuse is most prevalent
right now.
I want to speak for a minute on what Senator Alexander was talking
about earlier about the money that came from students and whether it
was given back to students. He said that instead of 6.8 percent, it
would have been 5.3 percent. We voted on that and it failed. So we did
speak on that.

Again, what I point out is that most of this money--most of the money
that we had in that $61 billion, most of that indeed went for students.
I think I had it here--of that $61 billion, $36 billion went to Pell
grants, helping raise Pell grants; $750 million went to bolster college
access for students through the College Access Challenge Grant Program;
$2.55 billion went to Historically Black Colleges and Universities and
minority-serving institutions; $2 billion went to community colleges;
about $10 billion was used for deficit reduction; $9.2 billion, as I
said, went to certain health care activities.
Guess what one of those was that was paid for. Requiring dependent
coverage--saying that a young person can stay on his or her parents'
health care policy until age 26. Does that help students? Of course it
helps students. How many young people who go off to college, and they
are in college and maybe drop out a little while to make some money and
then go back to college and maybe even graduate, but they don't have a
full-time job--they can stay on their parents' policy until they are
age 26.
I cannot tell you how many people I have heard from in my State of
Iowa who have said what a godsend this is to them and their kids who
are students. I make no apologies for the fact that some of this money
out of that $61 billion that went to subsidize banks went to help
students stay on their parents' health care policy.
When they say some of the money came from students, it didn't. The
$61 billion all came from cutting the subsidy to banks. The great bulk
of it, all but about--well, $10 million went to pay the deficit down,
and $9.2 billion went to things such as banning lifetime limits,
requiring dependent coverage, expanding community health centers, that
type of thing. So none of it actually came from students themselves. It
all came from closing the loophole where banks were making on that
money.
The next thing that was said I wanted to correct was that the
Medicaid expansion in the affordable care act--100 percent of that
expansion is paid for in the Federal side, not the stateside. Senator
Alexander talked about this and was saying we are expanding Medicaid,
which is a burden on the States. That would be true, but for the fact
that 100 percent of this expansion is paid for by the Federal
Government. I think that phases down to 90 percent in the future, but
it never comes below 90 percent.
If the Senator would like to debate whether Medicaid should be all
Federal, or Federal and State, we can do that and maybe even find some
common ground on that, but that is not the case before us. I didn't
think the debate on this bill to keep student interest rates low would
now morph into a debate on health care. But if you want to have a
debate on health care, I will be more than happy to do so, and whether
or not we should use money from the Prevention and Public Health Fund
to pay for it.

So, again, I would say no money--no money--comes out of the Medicare
trust fund to pay for this bill--none--and certainly none comes out of
the Social Security trust fund. The money that is raised goes to the
Social Security trust fund and the Medicare trust fund. None of it is
actually diverted from the trust funds.
Under the budget rules we are operating under, money raised can be
used as an offset even though that money is raised for Medicare. I want
to make it crystal clear that the money we are raising from closing
this loophole on subchapter S corporations, none of it--none of it--
actually comes out of the trust funds for student loans or to keep the
interest rate low. It does go to the Medicare and Social Security trust
funds.
Under the Republican proposal, we would not get any more money into
Medicare or Social Security. They would just do away with the
Prevention and Public Health Fund and take that money and use it to
offset keeping the interest rates low, but not one nickel of that would
go to Medicare or Social Security. Our bill would help those trust
funds.
So our bill really has three benefits: First, it closes a tax
loophole, provides for more definitive application of what is
subchapter S income or dividends for a narrow class of companies--
earned income or unearned income; second, it provides money to the
Social Security trust fund and Medicare trust fund, which is needed;
and third, it allows the student interest rate loans, Federal
subsidized loans, to stay at 3.4 percent for the next year.
Sometime in the next year, obviously, we are going to have to figure
out a long-term fix for this or what we want to do on these subsidized
loans in the future and how we are going to pay for this down the road.
In the meantime, as everyone has said on both sides, we both agree it
ought to stay at 3.4 percent for the next year.
So I guess the debate does revolve around how we pay for it. Again,
from my viewpoint--not my viewpoint; the House already voted last week
to kill the Prevention and Public Health Fund, and that is what the
Republicans are proposing here.
Again, to refer back to where I started earlier this afternoon, I
think the lead editorial in the New York Times today was quite clear in
talking about the findings found in the New England Journal of Medicine
about what is happening with type 2 diabetes and how devastating that
is going to be in the future. They said the long-term goal should be
the prevention of obesity and diabetes. The editorial said:

Congressional Republicans, meanwhile, are bent on
dismantling health care reforms that could greatly assist in
curbing the obesity epidemic. The Republican-dominated House
last month narrowly passed a bill that would eliminate a
Prevention and Public Health Fund, established under the
reform law in part to pay for lowering the interest rate on
subsidized student loans for a year.

The editorial noted that there is no explanation for this move except
for the usual anti-health care reform demagoguery and noted that the
fund is already providing grants to state and local governments to help
pay for programs to fight obesity and prevent chronic diseases,
including diabetes, in the community, the workplace, and among minority
groups.
So I guess that is really the argument--how do we pay for it? It
comes as no surprise, I am sure, when I say that I think closing this
loophole is much better than doing away with the Prevention and Public
Health Fund.
With that, Mr. President, I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Wyoming.
Mr. ENZI. Mr. President, I said it before and I will say it again:
Neither option is ideal. These ought to be the options we are voting
on, but actually we are not going to get to vote on the two options, we
are going to get to vote on one option because this is a cloture vote.
And this cloture vote will fail. It will fail because it is not a good
enough bill to pass. It is not a good enough bill to get 60 votes, so
it will fail. And the only purpose of it failing is to say: Look at
those Republicans who killed that bill.
There could be a solution, but it isn't a solution by bringing a bill
directly to the floor and saying: Take it or leave it. It has to be a
solution by sending it to committee and having the people there work
out a way that it can be done. We have done that in our committee a
number of times, and the bills that go to our committee and then come
to the floor are pretty successful. But this one did not go to
committee.
So it isn't really two choices we are getting, it is one choice: We
can take it the way the Democrats wrote it or we can forget it.
They say this closes a loophole because of the wording regarding
there being three or fewer shareholders. Now, I can already hear how
people's minds are working. They are saying: OK, if I want to cheat on
that--and you have

[[Page S2905]]

now taught me how I can--I will add a fourth person. Now your bill
doesn't cover it. So it is not written properly. We are not going to
stop them by doing what is written in the bill, so it is not going to
generate any revenue. If it doesn't generate any revenue, it will not
pay for the cost of keeping the health care down.
Besides that, the IRS has guidelines that say how much one should be
taking out of their business as wages, and they have to pay a payroll
tax on that or they will be taken to tax court. That is the case to
which the Senator from Iowa referred. It was a case of an accountant
who got caught and was taken to tax court and told he couldn't cheat on
his taxes. Now, we ought to have more enforcement like that. It should
be pretty easy for the IRS to check and see if there are some S
corporations out there that aren't paying any wages. That should be a
little computer check since every return gets turned into a digital
return now. Some of us help the IRS by sending our forms in digitally
to begin with, which saves a lot of input on someone's part. But they
can check in a matter of seconds the S corporations that have no wages,
and if they have no wages, perhaps they ought to have a much lower
limit than what the other side is suggesting.
If we are going to do tax reform, let's do tax reform. To do it this
way is the wrong way.
I also heard the comment that this money is not being taken from
Medicare and Social Security. Well, the way we do Federal accounting--
and we should be ashamed of the way we do Federal accounting--that can
be a true statement, but, in fact, it is not true. Here is how we do
it. Here is how we cook the books as a Federal Government. We will
collect this tax that should go to Medicare and Social Security and we
will put bonds in a drawer and we will spend the money on the reduction
in interest rates for the students. That is spending it twice because
we are still showing it over here as owing it to the Social Security
and Medicare folks. But we do this all the time. Do you know how much
money there actually is in the drawer called Social Security? Nothing.
There are bonds in there.

I used to listen to Senator Hollings, Democrat from South Carolina,
talking about how we were lootin' Social Security--lootin' it--because
all we do is put bonds in a drawer and we spend the money. And we have
been doing that for decades. So the deficit we are talking about is
probably considerably greater than what we are willing to admit. But
that is exactly what we are going to be doing here once again. We are
going to be lootin' Social Security and Medicare and providing some
loopholes for them to keep on doing the same thing they have been
doing. We are going to have to get the IRS on that and get it going
better.
There ought to be a lot more options. But that is not what we are
doing here. What we should be doing is getting together and figuring
out more options, more ways to take care of all of the problems
students are having. And they are going to be demanding a whole lot
more than what we are doing.
I would remind the Democrats that the President did take $5 million
from this prevention fund, and I heard him say that was enough. Well,
if that was enough, how come his new budget includes taking another
$4.5 billion out of that fund? So I guess he doesn't think that is
enough. He thinks there is still more that can be taken--$4.5 billion.
This is a $6 billion project we are talking about here, so $1.5 billion
another way.
We are just talking past each other, and that is what happens any
time a bill comes to the floor if this is the only place we get to
debate it. Notice how many of my colleagues are listening to me right
now. If there are two people on the floor, it usually means one is
getting ready to speak and is not listening to what is being said. That
is not a debate. That is not a way to come up with solutions. What we
have to do is send these things to committee.
Senator Harkin and I have a way of working on bills in committee, and
that is to have people turn in their amendments a couple days ahead of
time and we look at those. It is surprising how many times an amendment
by a Republican is almost the same as an amendment by a Democrat. The
trick is to get the two of them to sit down together and figure out
which words need to be changed so that they can both take credit for
it.
So this is a frustrating process. It is the wrong way to do it. But I
have to answer one more thing yet; that is, I cited some cases where
funds were being used from that prevention fund that I thought were
wrong and I do think are wrong. The Senator said that if we had some
information on that, if we would give it to him, he would make sure the
Department of Justice gets on it. Well, now we not only need to have
the IRS working, we have to have the Department of Justice working a
little bit because there is some pretty good evidence, I think, that
some money has been spent for lobbying. In some cases it is called
advocacy, but it is by people working the legislators over, and that,
in my opinion, is lobbying.
I do hope this bill will be referred to committee, which is where it
deserves to be, so that a solution can be worked out. I would hope that
if we do have that cloture vote tomorrow, instead of having the bill
pulled, that both sides will join in saying ``send it to committee''
and vote against cloture.
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Iowa.
Mr. HARKIN. Mr. President, I say to my good friend from Wyoming--and
he is my good friend, and we do a lot of good work together--I wish we
could have this bill in our committee. I think we could work it out.
But the fact is, to raise the money, it has to come from the Finance
Committee, and we don't have jurisdiction over that. If we had
jurisdiction over that, we could probably work it out. We have a good
way of working things out in our committee. But we don't have
jurisdiction over finance on this darned thing. If we did, we could
probably figure it out.
Mr. ENZI. Could I amend my comments to have the Finance Committee
take the bill and work out a solution?
Mr. HARKIN. Well, I think that is where this came from. I don't know.
I would also say to my friend from Wyoming, because I was listening
to him, I think it is fair, if we are going to have a vote on ours,
that we ought to have a vote on yours. I think that if we are going to
have a vote, we ought to have a vote on ours, which is the subchapter S
corporation, and see how that falls, and have a vote on whether we want
to end the Prevention and Public Health Fund and use that money. I
would like to have that vote. I would love to have that vote. I would
love to see how my friends on the other side of the aisle want to vote
on whether they want to kill the Prevention and Public Health Fund.
I would also say that on this subchapter S corporation issue, the IRS
right now audits about one-half of 1 percent of the returns from
subchapter S corporations. So they have to think, what are the odds
they are ever going to catch me, and if they do, they pay a fine and
that is it. The IRS doesn't have the personnel to do everyone.
What we are doing, I wish to say again, just to make it very clear,
that because of the sort of fog that surrounds subchapter S
corporations right now, the IRS simply can't audit them all. They don't
have the personnel to do that, and some claim that there is a lot of
questions about whether something is income or dividends. But let me
repeat again what our bill does.
We create a bright-line test that affects only a narrow class of
subchapter S corporations. It affects only professional subchapter S
corporations, those engaged in professions such as doctors, lawyers,
accountants, consultants, lobbyists, where the gain is due to the
professional work. This provision does not include subchapter S gains
from unrelated retail, wholesale or manufacturing activities.
The provision only covers subchapter S corporations where there are
three or fewer stockholders. It only covers those earning more than
$250,000 a year as a joint filer, and it only covers gains when 75% or
more are attributable to 3 or fewer stockholders.
So if a subchapter S company has income that is partially from
professional activities, such as lobbying, and partially from other
activities, such as real estate investments, the investment income does
not fall under the rule.
The Joint Committee on Taxation and the Treasury Inspector General
for

[[Page S2906]]

Tax Administration have both issued reports that show that
underreporting of earned income subject to FICA taxes is a significant
issue. Using IRS data, the Government Accountability Office in 2009
calculated that in 2003 and 2004 tax years the net shareholder
compensation underreporting amounted to nearly $23 billion. Since then,
the number of subchapter S organizations has been increasing rapidly,
and I would suggest that is a main reason why.
Lastly, I just wish to point out for the record, to my friend from
Wyoming, that the House bill did not go through the committee either.
They brought it directly to the floor. It did not go through the
Education Committee. It only went through the Rules Committee and then
to the floor. So they did the same thing. They didn't go through their
committee either. Again, I am hopeful we can work this out. But if we
can't, I say to my friend, I hope we do have an up-or-down vote on both
provisions.
There was one other thing I wished to mention before I leave the
floor this afternoon and leave this debate on the student interest rate
bill; that is, I heard time and time again from the other side about
the fact that the President took $5 billion out of this and the fact
that I said earlier: Yes, and that was the limit and that was all and
he didn't want any more taken out of it. Someone said, but he has $4.5
billion in his budget to take out.
What happened, the President did put $4.5 billion in his budget to
take out of the Prevention and Public Health Fund--which I hope comes
as no surprise to anyone. Then, when the House and Senate earlier this
year were engaged in negotiations on extending the unemployment
compensation and also the payroll tax deduction, when we were engaged
in that, they put that on the table. The President stuck with his $4.5
billion, the Congress added another $500 million, and they come up with
a $5 million cut to the Prevention and Public Health Fund. The
President said: That was in our budget. If you want to use it for that,
use it for that but no more.
As I said, we have a statement of administration policy that says
that if the elimination or any cuts to the Prevention and Public Health
Fund are in here, he will veto the bill. I just wanted to make clear
that the $5 billion and the $4.5 billion are one and the same. They are
not $9.5 billion that he wanted to take out of the Prevention and
Public Health Fund. I wanted to make that clear.
I see my friend from Florida is here, and I yield the floor.
The PRESIDING OFFICER (Mr. Coons). The Senator from Florida.
Mr. NELSON of Florida. I thank the chairman and the ranking member,
the Senator from Wyoming, for all their hard work on bringing this
important legislation to the floor.
Mr. President, I wanted to try to paint a personal face on some of
the students whom I have met this past week on how it is going to
impact them. But let me just set the table by saying we voted on this
back in 2007 in order to give some relief to students, and we cut the
loan interest from 6.8 to 3.4 for undergraduate Stafford loans.
The whole idea was, in this time of economic trial, that we would
give some little break to students. Indeed, it is and has been a break.
It is something on the average of $1,000 a year we were looking at a
student saving in extra interest payments on these loans. When it comes
right down to the personal stories, they are wrenching.
At the University of Florida, meeting with a group of students this
past week, a young woman--I will not use her name because she just
broke down in tears--pointed out how not only did she have Stafford
loans but that her mom--who had gone through school as an adult raising
a family--had gotten a degree in computer science and could not get a
job, was going back to school because she had an LPN associate degree
and wants a registered nurse degree where she can get a job. So the mom
and the daughter both had a considerable number of loans. This young
woman absolutely broke down as to what it was going to be in the way of
financial burden.
Over at the University of South Florida in Tampa, student body
president Matthew Diaz said: You are cutting down the dreams of an
entire generation.
Another student at USF, Emmanuel Catalan, a political science major,
said he is the first in his family to attend college. He questions, if
we don't give this break on interest, whether his brother and other
members in his family are going to be able to pursue higher education.
Another student, Austin Prince, a sophomore microbiology and Chinese
major, wondered how in the world students are going to make it in this
kind of economy if they are mired in debt. He said: It reduces consumer
buying power if we are paying off loans for 20 years.
At the University of Florida, Madison Todd, a political science
major, said she took out the maximum amount of loans available to
attend the University of Florida, and her family has been scraping
together everything they could in order that she could continue her
education.
Why is this important? Can we remember back to World War II, when we
defeated two enemies on either side of the globe and all those GIs came
home, and for the first time we had a major part of American youth
under the GI bill going into college. What did that do? America was at
the pinnacle of her power and influence in the world. Then, with that
generation of young people getting educated as they never had before,
all of a sudden we had an expanding middle class as we went into the
1950s and the 1960s.

We will also remember that was a time of attention to high technology
because we suddenly found ourselves behind the Soviets in the space
race, with Sputnik and then Gagarin going up. All the more kids went
into math and science and technology and look what that spawned in the
generations to come because of education. A lot of that came directly
out of the GI bill. Are we now to adopt policies that are going to
reverse that trend?
We tried to take care of it in a diminishing economy, as we slipped
into the recession back in 2007, by saying it is a matter of policy
that we should lower interest rates for students who want to get their
education. Here we are. What this boils down to is how are we going to
pay for it? It costs $6 billion for 1 year.
The House of Representatives has taken a position and that has been
discussed here. Their position is take it out of the health care bill.
When we take it out of health care, we are taking it out of diabetes
screening, heart disease screening, cancer screening for breast and
cervical cancer. Do we want to do that? I don't think so.
Do we want to take it out of antitobacco programs to try to keep kids
from getting hooked on tobacco? I don't think so.
Do we want to take it out of childhood immunizations, where the
spending of $1 on childhood immunizations by the Federal Government
saves the government $16 in the long run? That is a ratio of 1 to 16
because of children not getting the diseases they were immunized
against. Do we want to take it out of that? I don't think so.
What have we come up with in the Senate? We came up with a narrow
part of the tax-paying public, subchapter S corporation individuals who
pay individual tax--not corporate tax--and only those in a joint return
above $250,000 gross income. They would do what? They would pay the
payroll tax, Medicare, and Social Security that they do not pay under
the existing law because they are treated as if they were a corporation
instead of a partner which, in effect, they are, save for the tax laws.
That is the choice. If this motion does not get 60 votes in order to
break the filibuster or even if it does, we have to reconcile the pay-
for for the $6 billion this student loan interest bill will cost. It is
my hope that common sense, that bipartisanship, that nonideological
rigidity would rule the day and that we would simply ask what is best
for our people and for our country.

I yield the floor.

[[Page S2907]]

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