[Congressional Record (Bound Edition), Volume 153 (2007), Part 3]
[Senate]
[Pages 3677-3696]
[From the U.S. Government Publishing Office, www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. NELSON of Nebraska (for himself, Mr. Bunning, Ms. 
        Stabenow, Ms. Snowe, Mr. Kerry, Ms. Collins, Mr. Reed, Mrs. 
        Clinton, and Mr. Menendez):
  S. 543. A bill to improve Medicare beneficiary access by extending 
the 60 percent compliance threshold used to determine whether a 
hospital or unit of a hospital is an inpatient rehabilitation facility 
under the Medicare program; to the Committee on Finance.
  Mr. NELSON of Nebraska. Mr. President, today I am introducing the 
Preserving Patient Access to Inpatient Rehabilitation Hospitals Act of 
2007 to make changes to a rule issued by the Centers for Medicare and 
Medicaid Services, CMS, which has restricted the ability of 
rehabilitation hospitals to provide critical care.
  In my home State of Nebraska, Madonna Rehabilitation Hospital in 
Lincoln is a nationally recognized premier rehabilitation facility 
offering specialized programs and services for those who have suffered 
brain injuries, strokes, spinal cord injuries, and the latest care for 
cardiac, pulmonary, cancer, pain, and joint replacement patients. If 
the CMS rule is not updated, Madonna and other facilities will not be 
able to continue to offer critical care to patients eager to restore 
their past health and physical function.
  When CMS first looked at whether facilities would qualify as 
inpatient rehabilitation facilities, IRFs, a list of criteria were 
created to determine eligibility. The narrow criteria, generally 
referred to as the ``75-percent rule,'' were first established in 1984, 
but were never strictly enforced and ultimately suspended in 2002 due 
to inconsistencies in accurately determining medical necessity.
  Since establishing strict enforcement of the 75-percent rule in 2004, 
field data estimates that as many as 88,000 Medicare patients have been 
denied critical IRF services. The rule will, by CMS's own estimate, 
shift thousands of patients both Medicare and non-Medicare into 
alternative care settings which may be inappropriate and inadequate. 
Bipartisan Congressional efforts have repeatedly petitioned both the 
U.S. Department of Health and Human Services and CMS for cooperation in 
averting an escalation of the 75-percent threshold, which currently 
stands at 60 percent.
  For cost-reporting periods beginning July 1, 2007, the compliance 
threshold is scheduled to jump to 65 percent, with full 75-percent 
implementation scheduled for July 2008. If legislative action is not 
taken, IRFs will be forced to turn away more and more patients in order 
to operate as rehabilitation hospitals or units. By freezing the 
compliance threshold at 60 percent and ending the inconsistent and 
unpredictable use of fiscal intermediaries' local coverage 
determinations, our efforts will ensure that patients across America 
will continue to have access to the rehabilitative care they need.
  I am pleased a bipartisan group of Senate Finance Committee; Health, 
Education, Labor, and Pension Committee; and Special Committee on Aging 
members have joined me in supporting this legislation. In addition, the 
American Association of People with Disabilities, the American Academy 
of Physical Medicine and Rehabilitation, the American Hospital 
Association, the American Medical Rehabilitation Providers Association, 
the Federation of American Hospitals, and numerous other associations 
and advocacy groups have endorsed our bill. Just as I have heard from 
patients and medical providers who have experienced problems with the 
75-percent Rule, my colleagues and the members of these associations 
have witnessed the devastating effect this rule is having on those who 
need this type of critical care.
  I urge my colleagues to join Senators Jim Bunning, Debbie Stabenow, 
Olympia Snowe, John Kerry, Susan Collins, Jack Reed, Hillary Clinton, 
Robert Menendez and me in supporting this important bill. My colleagues 
and I are determined to resolve this lingering problem and return 
medical necessity decisions back into the hands of medical providers, 
while ensuring access to improved inpatient rehabilitation care. The 
Preserving Patient Access to Inpatient Rehabilitation Hospitals Act of 
2007 is a top priority, and I look forward to its passage this year.
                                 ______
                                 
      By Mr. VOINOVICH (for himself, Mr. Akaka, Mr. Levin, and Mrs. 
        McCaskill):
  S. 547. A bill to establish a Deputy Secretary of Homeland Security 
for Management, and for other purposes; to the Committee on Homeland 
Security and Governmental Affairs.
  Mr. VOINOVICH. Mr. President, I rise today to introduce legislation 
with my good friend and partner on the Oversight of Government 
Management Subcommittee, Senator Akaka, to address the critical 
management challenges facing the Department of Homeland Security (DHS). 
I am pleased to have Senators Levin and McCaskill as original 
cosponsors of this measure.
  The legislation would elevate the role and responsibilities of the 
current Under Secretary for Management of the Department to a Deputy 
Secretary of Homeland Security for Management. The language preserves 
the authority of the Secretary and Deputy Secretary of DHS as the 
first-and second-highest ranking Department officials, respectively. 
The individual appointed as the Deputy Secretary for Management would 
serve a five year term and be the third highest ranking official at the 
Department. A term would provide management continuity at the 
Department during times of leadership transition, such as following a 
presidential election.
  The role and responsibilities of the Deputy Secretary for Management 
would include serving as the Chief Management Officer and principal 
advisor to the Secretary on the management of the Department. The 
Deputy Secretary for Management would also be responsible for strategic 
and annual performance planning, identification and tracking of 
performance measures, as well as the integration and transformation 
process in support of homeland security operations and programs.
  The division of labor between the Deputy Secretary and the new Deputy

[[Page 3678]]

Secretary for Management will be similar to the leadership structure at 
the Office of Management and Budget. The Deputy Secretary will continue 
to be the Secretary's first assistant on all policy matters, while the 
newly created Deputy Secretary for Management will be the Secretary's 
principal advisor on the development of sustained, long-term management 
strategies.
  I offer this legislation today because of my belief that the existing 
Under Secretary position lacks sufficient authority to direct the type 
of sustained leadership and overarching management integration and 
transformation strategy that is needed department-wide.
  There continue to be significant management challenges associated 
with integrating the Department of Homeland Security, whose creation 
represented the single largest restructuring of the Federal Government 
since the creation of the Department of Defense in 1947. In addition to 
its complex mission of securing the Nation from terrorism and natural 
hazards through protection, prevention, response, and recovery 
leadership of the Department of Homeland Security has the enormous task 
of unifying 180,000 employees from 22 disparate Federal agencies.
  Since 2003, the Government Accountability Office (GAO) has included 
implementing and transforming the Department of Homeland Security on 
its high-risk list of programs susceptible to waste, fraud, abuse, and 
mismanagement. In announcing its 2007 high-risk list, Comptroller 
General Walker said that, ``The array of management and programmatic 
challenges continues to limit DHS's ability to carry out its roles 
under the National Homeland Security Strategy in an effective risk-
based way.''
  Similarly, in December 2005, the DHS Inspector General issued a 
report warning of major management challenges facing the Department of 
Homeland Security. The report noted that although progress has been 
made since the Department's inception, ``Integrating its many separate 
components in a single, effective, efficient, and economical Department 
remains one of DHS' biggest challenges.''
  The Department's own Performance and Accountability Report, released 
in November 2006, states that it did not meet its strategic goal of 
``providing comprehensive leadership and management to improve the 
efficiency and effectiveness of the Department,'' further underscoring 
the need for good management.
  The Homeland Security Advisory Council Culture Task Force Report, 
published in January 2007, detailed persisting organizational 
challenges within DHS, and prescribed leadership and management models 
designed to empower employees, foster collaboration, and encourage 
innovation. The third recommendation of the report is that the 
Department establish an operational leadership position. The report 
noted, ``Alignment and integration of the DHS component organizations 
is vital to the success of the DHS mission. The CTF believes there is a 
compelling need for the creation of a Deputy Secretary for Operations 
(DSO) who would report to the Secretary and be responsible for the high 
level Department-wide measures aimed at generating and sustaining 
seamless operational integration and alignment of the component 
organizations.''
  The creation of the Deputy Secretary for Management will help address 
the concerns outlined by GAO, the DHS Inspector General, the Homeland 
Security Advisory Council, and the Department itself.
  As former Chairman and now Ranking Member of the Oversight of 
Government Management Subcommittee, improving the management structure 
at the Department has been one of my top priorities. The Subcommittee's 
Chairman, Senator Akaka, and I have been committed to ensuring that DHS 
has the proper tools to make continual improvements in its operations. 
It has become clear that the Department needs a stronger management 
focus to enable programmatic and operational success. Congress must act 
to strengthen the management function at DHS.
  During my long career in public service, including as a Mayor and 
Governor, I have repeatedly observed that the path to organizational 
success lies in adopting best practices in management, including 
strategic planning, performance and accountability measures, and 
effectively leveraging human capital. When instituting reforms as Mayor 
and Governor, individuals tasked with implementation would tell me, 
``We don't have time for Total Quality Management; we are too busy 
putting out fires.'' I appreciate that DHS is also busy putting out 
fires. But the connection between good management practices and 
operational success should not be lost.
  With the four year anniversary of the Department only weeks away, we 
must be honest about the remaining management challenges it faces. The 
legislation I offer today provides the focused, high-level attention 
that will result in effective management reform. I believe this 
legislation is vital to the Department's success. I urge my colleagues 
to join me in supporting this legislation.
  Mr. AKAKA. Mr. President, I am extremely pleased to join with my good 
friend, the senior Senator from Ohio, in reintroducing legislation 
today to establish a Deputy Secretary for Management who would be the 
chief management officer at the Department of Homeland Security (DHS). 
I am especially pleased that we are joined by two of our colleagues on 
the Homeland Security and Governmental Affairs Committee, Senator 
Levin, who is also the chairman of the Armed Services Committee, and 
Senator McCaskill.
  The Department of Homeland Security continues to face serious 
challenges, some of which stem from integrating 22 separate entities 
with existing management problems into one agency. Such a broad, large-
scale merger is why the Government Accountability Office (GAO) 
continues to place DHS on the GAO High-Risk List. Our bill would assign 
overall management responsibilities to one individual who would be 
accountable for leading and instituting change. A Deputy Secretary for 
Management would provide the leadership necessary to move forward and 
sustain these needed changes. This presidentially appointed and Senate-
confirmed individual, who will have a term of office of five years, 
would serve as a bridge between political appointees and career 
employees. Changing agency culture is difficult and takes time. As 
Comptroller General David Walker notes, successful transformation 
initiatives in large private and public sector organizations can take 
at least five to seven years.
  In addition to serving as chairman of Oversight of Government 
Management Subcommittee, I am also the chairman of the Armed Services 
Readiness and Management Support Subcommittee, and I have witnessed 
firsthand how the Department of Defense (DoD) continues to struggle 
with business modernization despite clear congressional directives to 
do so. We cannot afford to allow the Department of Homeland Security, 
which has an extremely complex and critical mission, to be affected by 
the same management problems facing DoD. Our bill is born out of our 
concern and frustration that DHS is not doing better. We believe 
elevating the Under Secretary for Management to the Deputy Secretary 
level will provide DHS the necessary tools needed to avoid making the 
same mistakes as DoD. Having a single focus for key management 
functions, such as human capital, financial management, information 
technology, acquisition management, and performance management are 
essential if DHS is to avoid the stovepipe style of management at DoD.
  A Deputy Secretary for Management would bring needed attention to 
management issues and transformational change; would integrate various 
key operational and transformation efforts; and would institutionalize 
accountability for addressing management issues and leading change. Our 
bill enhances, not diminishes, the ability of the Secretary and Deputy 
Secretary of DHS to focus on policy decisions while leaving the 
management efforts to the Deputy Secretary for Management. It is good 
business practice to have one individual responsible for integrating 
strategic plans and overseeing change.

[[Page 3679]]

  I would like to note that the Homeland Security Advisory Council, 
established to advise and make recommendations to the Secretary of the 
Department of Homeland Security, created a Culture Task Force (CTF) at 
the request of Secretary Chertoff in June 2006. The CTF issued its 
recommendations to the Secretary last month. The January 2007 Report of 
the Homeland Security Culture Task Force recommends establishing an 
operational leadership position, ``who would report to the Secretary 
and be responsible for the high level Department-wide measures aimed at 
generating and sustaining operational integration and alignment of the 
component organizations.''
  Congress has a responsibility to ensure that agencies are instituting 
sound management practices that will empower agencies to spend taxpayer 
dollars more wisely while carrying out critical missions. A fully 
accountable chief management officer at DHS will make the difference by 
ensuring strong leadership over essential government programs.
                                 ______
                                 
      By Mr. LEAHY (for himself, Mr. Bennett, Ms. Cantwell, Mr. Cardin, 
        Mr. Cochran, Mr. Coleman, Mr. Conrad, Mr. Dodd, Mr. Domenici, 
        Mr. Durbin, Mrs. Feinstein, Mr. Kennedy, Mr. Kerry, Mr. 
        Lieberman, Mr. Sanders, Mr. Schumer, and Mr. Stevens):
  S. 548, A bill amend the Internal Revenue code of 1986 to provide 
that a deduction equal to fair market value shall be allowed for 
charitable contributions of literary, musical, artistic, or scholarly 
compositions created by the donor, to the Committee on Finance.
  Mr. LEAHY. Mr. President, today we reintroduce the ``Artist-Museum 
Partnership Act,'' and once again, I am pleased to be joined in this 
effort by Senator Bennett. This bipartisan legislation would enable our 
country to keep cherished art works in the United States and to 
preserve them in our public institutions. At the same time, this 
legislation will erase an inequity in our tax code that currently 
serves as a disincentive for artists to donate their works to museums 
and libraries. We have introduced this same bill in each of the past 
four Congresses. It was also included in the Senate-passed version of 
the 2001 tax reconciliation bill, the Senate-passed version of the 2003 
Charity Aid, Recovery, and Empowerment (CARE) Act, and the Senate-
passed version of the 2005 tax reconciliation bill. I would like to 
thank Senators Cantwell, Cardin, Cochran, Coleman, Conrad, Dodd, 
Domenici, Durbin, Feinstein, Kennedy, Kerry, Lieberman, Sanders, 
Schumer, and Stevens for cosponsoring this tri-partisan bill.
  Our bill is sensible and straightforward. It would allow artists, 
writers, and composers to take a tax deduction equal to the fair market 
value of the works they donate to museums and libraries. This is 
something that collectors who make similar donations are already able 
to do. Under current law, artists who donate self-created works are 
only able to deduct the cost of supplies such as canvas, pen, paper and 
ink, which does not even come close to their true value. This is unfair 
to artists, and it hurts museums and libraries--large and small--that 
are dedicated to preserving works for posterity. If we as a Nation want 
to ensure that works of art created by living artists are available to 
the public in the future--for study and for pleasure--this is something 
that artists should be allowed to do.
  In my State of Vermont, we are incredibly proud of the great works 
produced by hundreds of local artists who choose to live and work in 
the Green Mountain State. Displaying their creations in museums and 
libraries helps develop a sense of pride among Vermonters, and 
strengthens a bond with Vermont, its landscape, its beauty, and its 
cultural heritage. Anyone who has contemplated a painting in a museum 
or examined an original manuscript or composition, and has gained a 
greater understanding of both the artist and the subject as a result, 
knows the tremendous value of these works. I would like to see more of 
them, not fewer, preserved in Vermont and across the country.
  Prior to 1969, artists and collectors alike were able to take a 
deduction equivalent to the fair market value of a work, but Congress 
changed the law with respect to artists in the Tax Reform Act of 1969. 
Since then, fewer and fewer artists have donated their works to museums 
and cultural institutions. For example, prior to the enactment of the 
1969 law, Igor Stravinsky planned to donate his papers to the Music 
Division of the Library of Congress. But after the law passed, his 
papers were sold instead to a private foundation in Switzerland. We can 
no longer afford this massive loss to our cultural heritage. Losses to 
the public like this are an unintended consequence of the 1969 tax bill 
that should be corrected.
  Congress changed the law for artists more than 30 years ago in 
response to the perception that some taxpayers were taking advantage of 
the law by inflating the market value of self-created works. Since that 
time, however, the government has cut down significantly on the abuse 
of fair market value determinations.
  Under our legislation, artists who donate their own paintings, 
manuscripts, compositions, or scholarly compositions would be subject 
to the same new rules that all taxpayer/collectors who donate such 
works must now follow. This includes providing relevant information as 
to the value of the gift, providing appraisals by qualified appraisers, 
and, in some cases, subjecting them to review by the Internal Revenue 
Service's Art Advisory Panel.
  In addition, donated works must be accepted by museums and libraries, 
which often have strict criteria in place for works they intend to 
display. The institution must certify that it intends to put the work 
to a use that is related to the institution's tax exempt status. For 
example, a painting contributed to an educational institution must be 
used by that organization for educational purposes and could not be 
sold by the institution for profit. Similarly, a work could not be 
donated to a hospital or other charitable institution that did not 
intend to use the work in a manner related to the function constituting 
the recipient's exemption under Section 501 of the tax code. Finally, 
the fair market value of the work could only be deducted from the 
portion of the artist's income that has come from the sale of similar 
works or related activities.
  This bill would also correct another disparity in the tax treatment 
of self-created works--how the same work is treated before and after an 
artist's death. While living artists may only deduct the material costs 
of donations, donations of those same works after death are deductible 
from estate taxes at the fair market value of the work. In addition, 
when an artist dies, works that are part of his or her estate are taxed 
on the fair market value.
  I want to thank my colleagues again for cosponsoring this bipartisan 
legislation. The time has come for us to correct an unintended 
consequence of the 1969 law and encourage rather than discourage the 
donations of art works by their creators. This bill will make a crucial 
difference in an artist's decision to donate his or her work, rather 
than sell it to a private party where it may become lost to the public 
forever.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 548

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Artist-Museum Partnership 
     Act''.

     SEC. 2. CHARITABLE CONTRIBUTIONS OF CERTAIN ITEMS CREATED BY 
                   THE TAXPAYER.

       (a) In General.--Subsection (e) of section 170 of the 
     Internal Revenue Code of 1986 (relating to certain 
     contributions of ordinary income and capital gain property) 
     is amended by adding at the end the following new paragraph:
       ``(8) Special rule for certain contributions of literary, 
     musical, or artistic compositions.--

[[Page 3680]]

       ``(A) In general.--In the case of a qualified artistic 
     charitable contribution--
       ``(i) the amount of such contribution shall be the fair 
     market value of the property contributed (determined at the 
     time of such contribution), and
       ``(ii) no reduction in the amount of such contribution 
     shall be made under paragraph (1).
       ``(B) Qualified artistic charitable contribution.--For 
     purposes of this paragraph, the term `qualified artistic 
     charitable contribution' means a charitable contribution of 
     any literary, musical, artistic, or scholarly composition, or 
     similar property, or the copyright thereon (or both), but 
     only if--
       ``(i) such property was created by the personal efforts of 
     the taxpayer making such contribution no less than 18 months 
     prior to such contribution,
       ``(ii) the taxpayer--

       ``(I) has received a qualified appraisal of the fair market 
     value of such property in accordance with the regulations 
     under this section, and
       ``(II) attaches to the taxpayer's income tax return for the 
     taxable year in which such contribution was made a copy of 
     such appraisal,

       ``(iii) the donee is an organization described in 
     subsection (b)(1)(A),
       ``(iv) the use of such property by the donee is related to 
     the purpose or function constituting the basis for the 
     donee's exemption under section 501 (or, in the case of a 
     governmental unit, to any purpose or function described under 
     subsection (c)),
       ``(v) the taxpayer receives from the donee a written 
     statement representing that the donee's use of the property 
     will be in accordance with the provisions of clause (iv), and
       ``(vi) the written appraisal referred to in clause (ii) 
     includes evidence of the extent (if any) to which property 
     created by the personal efforts of the taxpayer and of the 
     same type as the donated property is or has been--

       ``(I) owned, maintained, and displayed by organizations 
     described in subsection (b)(1)(A), and
       ``(II) sold to or exchanged by persons other than the 
     taxpayer, donee, or any related person (as defined in section 
     465(b)(3)(C)).

       ``(C) Maximum dollar limitation; no carryover of increased 
     deduction.--The increase in the deduction under this section 
     by reason of this paragraph for any taxable year--
       ``(i) shall not exceed the artistic adjusted gross income 
     of the taxpayer for such taxable year, and
       ``(ii) shall not be taken into account in determining the 
     amount which may be carried from such taxable year under 
     subsection (d).
       ``(D) Artistic adjusted gross income.--For purposes of this 
     paragraph, the term `artistic adjusted gross income' means 
     that portion of the adjusted gross income of the taxpayer for 
     the taxable year attributable to--
       ``(i) income from the sale or use of property created by 
     the personal efforts of the taxpayer which is of the same 
     type as the donated property, and
       ``(ii) income from teaching, lecturing, performing, or 
     similar activity with respect to property described in clause 
     (i).
       ``(E) Paragraph not to apply to certain contributions.--
     Subparagraph (A) shall not apply to any charitable 
     contribution of any letter, memorandum, or similar property 
     which was written, prepared, or produced by or for an 
     individual while the individual is an officer or employee of 
     any person (including any government agency or 
     instrumentality) unless such letter, memorandum, or similar 
     property is entirely personal.
       ``(F) Copyright treated as separate property for partial 
     interest rule.--In the case of a qualified artistic 
     charitable contribution, the tangible literary, musical, 
     artistic, or scholarly composition, or similar property and 
     the copyright on such work shall be treated as separate 
     properties for purposes of this paragraph and subsection 
     (f)(3).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act in taxable years ending after such 
     date.
                                 ______
                                 
      By Mr. KENNEDY (for himself, Ms. Snowe, Mr. Reed, and Mr. Brown):
  S. 549. A bill to amend the Federal Food, Drug, and Cosmetic Act to 
preserve the effectiveness of medically important antibiotics used in 
the treatment of human and animal diseases; to the Committee on Health, 
Education, Labor, and Pensions.
  Mr. KENNEDY. Mr. President, it is a privilege to join Senator Snowe 
in introducing ``The Preservation of Antibiotics for Medical Treatment 
Act of 2007.'' I am also pleased that this year we are joined by 
Senator Sherrod Brown, who championed this legislation so ably as a 
member of the House of Representatives.
  Our goal in this important initiative is to take needed action to 
preserve the effectiveness of antibiotics in treating diseases. These 
drugs are truly modern medical miracles. During World War II, the newly 
developed ``wonder drug'' penicillin revolutionized care for our 
soldiers wounded in battle. Since then, such drugs have become 
indispensable in modern medicine, protecting all of us from deadly 
infections. They are even more valuable today, safeguarding the Nation 
from the threat of bioterrorism.
  Unfortunately, in recent years, we have done too little to prevent 
the emergence of antibiotic-resistant strains of bacteria and other 
germs, and many of our most powerful drugs are no longer effective.
  Partly, the resistance is the result of over-prescribing such drugs 
in routine medical care. Mounting evidence shows that indiscriminate 
use of such drugs in animal feed is also a major factor in the 
development of antibiotic resistant germs.
  Obviously, if animals are sick, whether as pets or livestock, they 
should be treated with the best veterinary medications available. That 
is not the problem. The problem is the widespread use of antibiotics to 
promote growth and fatten healthy livestock. Such nontherapeutic use 
clearly undermines the effectiveness of these important drugs, because 
it leads to greater development of antibiotic-resistant bacteria that 
can make infections in humans difficult or impossible to treat.
  In 1998--nine years ago--a report prepared at the request of the 
Department of Agriculture and the Food and Drug Administration by the 
National Academy of Sciences, concluded: ``There is a link between the 
use of antibiotics in food animals, the development of bacterial 
resistance to these drugs, and human disease.'' The World Health 
Organization has specifically recommended that antibiotics used to 
treat humans should not be used to promote animal growth, although they 
could still be used to treat sick animals.
  In 2001, a Federal interagency task force on antibiotic resistance 
concluded that ``drug-resistant pathogens are a growing menace to all 
people, regardless of age, gender, or socio-economic background. If we 
do not act to address the problem . . . [d]rug choices for the 
treatment of common infections will become increasingly limited and 
expensive--and, in some cases, nonexistent.''
  The Union of Concerned Scientists estimates that 70 percent of all 
U.S. antibiotics are used nontherapeutically in animal agriculture--8 
times more than are used in all of human medicine. This indiscriminate 
use clearly reduces their potency.
  Major medical associations have been increasingly concerned, and have 
taken strong stands against antibiotic use in animal agriculture. In 
June 2001, the American Medical Association adopted a resolution 
opposing nontherapeutic use of antibiotics in animals. Other 
professional medical organizations that have taken similar stands 
include the American College of Preventive Medicine, the American 
Public Health Association, and the Council of State and Territorial 
Epidemiologists. The legislation we are offering has been strongly 
endorsed by the American Public Health Association and numerous other 
groups and independent experts in the field.
  Ending the current detrimental practice is feasible and cost-
effective. Last month an economic study by researchers at Johns Hopkins 
University examined data from the poultry producer Perdue. In this 
study of 7 million chickens, the slight benefit from the nontherapeutic 
use of antibiotics was more than offset by the cost of purchasing 
antibiotics.
  In fact, most of the developed countries in the world, except for the 
United States and Canada, already restrict the use of antibiotics to 
promote growth in raising livestock. In 1999, the European Union banned 
such use, and funds saved on drugs have been invested in improving 
hygiene and animal husbandry practices. Researchers in Denmark found a 
dramatic decline in the number of drug-resistant organisms in animals--
and no significant increase in animal diseases or consumer prices.
  These results have encouraged clinicians and researchers to call for 
a similar ban in the United States. The title

[[Page 3681]]

of an editorial in the New England Journal of Medicine 6 years ago said 
it all: ``Antimicrobial Use in Animal Feed--Time to Stop.''
  In the last Congress, over 350 organizations representing scientific 
and medical associations, consumer and environmental groups as well as 
animal rights and religious groups endorsed this legislation and called 
for an end to the reckless and irresponsible use of these critically 
important medicines.
  The Nation is clearly at risk of an epidemic outbreak of food 
poisoning caused by drug-resistant bacteria or other germs. In recent 
years, many nations, including the United States, have been plagued by 
outbreaks of food-borne illnesses. Imagine the consequences of an 
outbreak caused by a strain of bacteria immune to any drugs we have. It 
is time to put public safety first and stop this promiscuous use of 
drugs essential for protecting human health.
  The bill we are introducing will phase out the non-therapeutic use in 
livestock of medically important antibiotics, unless manufacturers can 
demonstrate that such use is no danger to public health. The Act 
applies this same strict standard to applications for approval of new 
animal antibiotics. Such use is not restricted if the animals are sick, 
or if they are pets or are animals not used for food. In addition, FDA 
is also given authority to restrict the use of important drugs to treat 
such animals, if risk to humans is in question.
  According to the National Academy of Sciences, eliminating the use of 
antibiotics as feed additives in agriculture will cost each American 
consumer not more than five to ten dollars a year. The legislation 
recognizes, however, that economic costs to farmers in making the 
transition to antibiotic-free practices may be substantial. In such 
cases, the Act provides for Federal payments to defray the cost of 
shifting to antibiotic-free practices, with special preference for 
family farms.
  Antibiotics are one of the great miracles of modem medicine. Yet 
today, we are destroying them faster than the pharmaceutical industry 
can replace them with new discoveries. If doctors lose these vital 
medications, the most vulnerable Americans will suffer the most--
children, the elderly, persons with HIV/AIDS, and others who are most 
in danger of drug resistant infections. I urge my colleagues to support 
this clearly needed legislation to protect the health of all Americans 
from the reckless and unjustified use of antibiotics.
  Ms. SNOWE. Mr. President, today we face concerns about infectious 
disease which few could have anticipated. Over a half century ago, 
following the development of modem antibiotics, Nobel Laureate Sir 
McFarland Burnet summed up what many experts believed when he stated, 
``One can think of the middle of the twentieth century as the end of 
one of the most important social revolutions in history, the virtual 
elimination of infectious diseases as a significant factor in social 
life.''
  How things have changed! Today we face grave concern about pandemic 
influenza, and in fact every day many of the most serious health 
threats come from infectious diseases. When we consider the greatest 
killers--HIV, tuberculosis, malaria--it is clear that infectious 
diseases have not abated. At the same time we have seen an alarming 
trend as existing antibiotics are becoming less effective in treating 
infections. We know that resistance to drugs can be developed, and that 
the more we expose bacteria to antibiotics, the more resistance we will 
see. So it is critical to address preserving lifesaving antibiotic 
drugs for use in treating disease.
  Today over nine out of ten Americans understand that resistance to 
antibiotics is a problem. Most Americans have learned that that colds 
and flu are caused by viruses, and recognize that treating a cold with 
an antibiotic is inappropriate. Our health care providers are more 
careful to discriminate when to use antibiotics, because they know that 
when a patient who has been inappropriately prescribed an antibiotic 
actually develops a bacterial infection, it is more likely to be 
resistant to treatment.
  When we overuse antibiotics, we risk eliminating the very cures which 
scientists fought so hard to develop. The threat of bioterrorism 
amplifies the danger. I have supported increased NIH research funding, 
as well as Bioshield legislation, in order to promote development of 
essential drugs, both to address natural and man-made threats. It is so 
counterproductive to develop antimicrobial drugs and see their misuse 
render them ineffective.
  Yet every day in America antibiotics continue to be used in huge 
quantities for no treatment purpose whatsoever. I am speaking of the 
non-therapeutic use of antibiotics in agriculture. Simply put, the 
practice of feeding antibiotics to healthy animals jeopardizes the 
effectiveness of these medicines in treating ill people and animals.
  Recognizing the public health threat caused by antibiotic resistance, 
Congress in 2000 amended the Public Health Threats and Emergencies Act 
to curb antibiotic overuse in human medicine. Yet today, it is 
estimated that 70 percent of the antimicrobials used in the United 
States are fed to farm animals for non-therapeutic purposes including 
growth promotion, poor management practices and crowded, unsanitary 
conditions.
  In March 2003, the National Academies of Sciences stated that a 
decrease in antimicrobial use in human medicine alone will not solve 
the problem of drug resistance.
  Substantial efforts must be made to decrease inappropriate overuse of 
antibiotics in animals and agriculture.
  Two years ago five major medical and environmental groups--the 
American Academy of Pediatrics, the American Public Health Association, 
Environmental Defense, the Food Animal Concerns Trust and the Union of 
Concerned Scientists--jointly filed a formal regulatory petition with 
the U.S. Food and Drug Administration urging the agency to withdraw 
approvals for seven classes of antibiotics which are used as 
agricultural feed additives. They pointed out what we have known for 
years--that antibiotics which are crucial to treating human disease 
should never be used except for their intended purpose--to treat 
disease.
  In a study reported in the New England Journal of Medicine, 
researchers at the Centers for Disease Control and Prevention found 17 
percent of drug-resistant staph infections had no apparent links to 
health-care settings. Nearly one in five of these resistant infections 
arose in the community--not in the health care setting. We must do more 
to address inappropriate antibiotic use in medicine, the use of these 
drugs in our environment cannot be ignored.
  This is why I have joined with Senator Kennedy in again introducing 
the ``Preservation of Antibiotics for Medical Treatment Act''. This 
bill phases out the nontherapeutic uses of critical medically important 
antibiotics in livestock and poultry production, unless their 
manufacturers can show that they pose no danger to public health.
  Our legislation requires the Food and Drug Administration to withdraw 
the approval for nontherapeutic agricultural use of antibiotics in 
food-producing animals if the antibiotic is used for treating human 
disease, unless the application is proven harmless within two years. 
The same tough standard of safety will apply to new applications for 
approval of animal antibiotics.
  This legislation places no unreasonable burden on producers. It does 
not restrict the use of antibiotics to treat sick animals, or for that 
matter to treat pets and other animals not used for food. The Act 
authorizes Federal payments to small family farms to defray their 
costs, and it also establishes research and demonstration programs that 
reduce the use of antibiotics in raising food-producing animals. The 
Act also requires data collection from manufacturers so that the types 
and amounts of antibiotics used in animals can be monitored.
  As we are constantly reminded, the discovery and development of a new 
drug can require great time and expense. It is simply common sense that 
we preserve the use of the drugs which

[[Page 3682]]

we already have, and use them appropriately. I call on my colleagues to 
support us in this effort.
                                 ______
                                 
      By Mr. AKAKA (for himself, Mr. Voinovich, and Mr. Lieberman):
  S. 550. A bill to preserve existing judgeships on the Superior Court 
of the District of Columbia; to the Committee on Homeland Security and 
Governmental Affairs.
  Mr. AKAKA. Mr. President, today I rise to introduce legislation that 
would preserve existing seats on the District of Columbia Superior 
Court. I am pleased that Senators Voinovich and Lieberman are joining 
me in this effort.
  As my colleagues know, the Superior Court is the trial court of 
general jurisdiction over local matters in the District of Columbia. 
When a vacancy on the court occurs, the District of Columbia Judicial 
Nominations Commission solicits applicants to fill the vacancy and 
sends three names to the President. The President then selects one 
candidate and sends the individual's nomination to the Senate for 
confirmation. Existing law caps the total number of judges on the 
Superior Court at 59.
  However, the District of Columbia Family Court Act of 2001 created 
three new seats for the Family Court, which is a division of the 
Superior Court, but failed to increase the overall cap on the number of 
judges seated on the court. As a result, three existing seats in the 
other divisions of the court--including the criminal, civil, probate, 
and tax divisions--were effectively eliminated. Therefore, when 
vacancies in those divisions occur, new judges cannot be seated.
  Ever since the Family Court Act became law, the Homeland Security and 
Governmental Affairs Committee and the Senate has been in the untenable 
position of delaying the confirmation of judicial nominees when the cap 
has been reached. The end result is that residents of DC will face 
delay of justice due to a lack of judicial personnel.
  The bill we introduce today would address this problem by amending 
the DC Code to increase the cap on the number of associate judges on 
the Superior Court. Similar legislation introduced by my good friend 
Senator Collins in both the 108th and 109th Sessions of Congress was 
favorably reported by the Committee on Homeland Security and 
Governmental Affairs and passed by the Senate. I urge my colleagues to 
once again support this important legislation.
  I ask unanimous consent that the text of the legislation be printed 
in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 550

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

     SECTION 1. COMPOSITION OF SUPERIOR COURT.

       Section 903 of title 11 of the District of Columbia Code is 
     amended by striking ``fifty-eight'' and inserting ``61''.
                                 ______
                                 
      By Ms. MURKOWSKI (for herself and Mr. Stevens):
  S. 552. A bill to provide for the tax treatment of income received in 
connection with the litigation concerning the Exxon Valdez oil spill 
and for other purposes; to the Committee on Finance.
  Ms. MURKOWSKI. Mr. President, I rise to introduce a bill that will 
help the commercial fishermen and others whose livelihoods were 
negatively impacted by the Exxon Valdez oil spill. I am pleased to have 
Mr. Stevens join me in introducing this important legislation.
  The Exxon Valdez ran aground on Bligh Reef on March 24, 1989, 
spilling 11 million gallons of oil into Prince William Sound in Alaska. 
A class action jury trial was held in Federal court in Anchorage, AK, 
in 1994. The plaintiffs included 32,000 fishermen among others whose 
livelihoods were gravely affected by this disaster. The jury awarded $5 
billion in punitive damages to plaintiffs. The punitive damage award 
has been on repeated appeal by the Exxon Corporation since 1994. Many 
of the original plaintiffs, possibly more than 1,000 people, have 
already died.
  Once the punitive damage award of the Exxon Valdez litigation is 
settled, many fishermen will receive payments to reimburse them for 
fishing income lost due to the environmental consequences of the Exxon 
Valdez oil spill. The eventual settlement could be as much as several 
billion dollars.
  My bill gives the affected fishermen, as well as other plaintiffs in 
this case, a fair shake when it comes to contributions to retirement 
plans and averaging of income for tax purposes.
  With respect to retirement plan contributions, my bill increases the 
caps on both deductions and income for traditional IRAs to the extent 
of the income a plaintiff receives from the settlement or judgment. 
Also, it allows the plaintiffs to make contributions to Roth IRAs and 
other retirement plans to the extent of the income received from the 
settlement or judgment.
  Fishermen are currently allowed to average their income over three 
years due to the often inconsistent nature of the fishing business. The 
litigation stemming from the Exxon Valdez oil spill poses an even more 
unique situation since fishermen and other plaintiffs have been waiting 
to receive lost income--in the form of a settlement or judgment--since 
1994. My bill allows plaintiffs to average their income for the period 
of time between December 31 of the year they receive the settlement or 
judgment payment and January 1, 1994--the year of the original jury 
award in Federal court.
  It is imperative that we address this important issue to help those 
affected by the Exxon Valdez oil spill plan for their retirement.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 552

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Exxon Valdez Oil Spill Tax 
     Treatment Act''.

     SEC. 2. TAX TREATMENT OF INCOME RECEIVED IN CONNECTION WITH 
                   THE EXXON VALDEZ LITIGATION.

       (a) Income Averaging of Amounts Received From the Exxon 
     Valdez Litigation.--
       (1) In general.--At the election of a qualified taxpayer 
     who receives qualified settlement income during a taxable 
     year, the tax imposed by chapter 1 of the Internal Revenue 
     Code of 1986 for such taxable year shall be equal to the sum 
     of--
       (A) the tax which would be imposed under such chapter if--
       (i) no amount of elected qualified settlement income were 
     included in gross income for such year, and
       (ii) no deduction were allowed for such year for expenses 
     (otherwise allowable as a deduction to the taxpayer for such 
     year) attributable to such elected qualified settlement 
     income, plus
       (B) the increase in tax under such chapter which would 
     result if taxable income for each of the years in the 
     applicable period were increased by an amount equal to the 
     applicable fraction of the elected qualified settlement 
     income reduced by any expenses (otherwise allowable as a 
     deduction to the taxpayer) attributable to such elected 
     qualified settlement income.
     Any adjustment under this section for any taxable year shall 
     be taken into account in applying this section for any 
     subsequent taxable year.
       (2) Coordination with farm income averaging.--If a 
     qualified taxpayer makes an election with respect to any 
     qualified settlement income under paragraph (1) for any 
     taxable year, such taxpayer may not elect to treat such 
     amount as elected farm income under section 1301 of the 
     Internal Revenue Code of 1986.
       (3) Definitions.--For purposes of this subsection--
       (A) Applicable period.--The term ``applicable period'' 
     means the period beginning on January 1, 1994, and ending on 
     December 31 of the year in which the elected qualified 
     settlement income is received.
       (B) Applicable fraction.--The term ``applicable fraction'' 
     means the fraction the numerator of which is one and the 
     denominator of which is the number of years in the applicable 
     period.
       (C) Elected qualified settlement income.--The term 
     ``elected qualified settlement income'' means so much of the 
     taxable income for the taxable year which is--
       (i) qualified settlement income, and
       (ii) specified under the election under paragraph (1).
       (b) Contributions of Amounts Received to Retirement 
     Accounts.--
       (1) In general.--Any qualified taxpayer who receives 
     qualified settlement income during the taxable year may, at 
     any time before the end of the taxable year in which

[[Page 3683]]

     such income was received, make one or more contributions to 
     an eligible retirement plan of which such qualified taxpayer 
     is a beneficiary in an aggregate amount not to exceed the 
     amount of qualified settlement income received during such 
     year.
       (2) Time when contributions deemed made.--For purposes of 
     paragraph (1), a qualified taxpayer shall be deemed to have 
     made a contribution to an eligible retirement plan on the 
     last day of the taxable year in which such income is received 
     if the contribution is made on account of such taxable year 
     and is made not later than the time prescribed by law for 
     filing the return for such taxable year (not including 
     extensions thereof).
       (3) Treatment of contributions to eligible retirement 
     plans.--For purposes of the Internal Revenue Code of 1986, if 
     a contribution is made pursuant to paragraph (1) with respect 
     to qualified settlement income, then--
       (A) except as provided in paragraph (4)--
       (i) to the extent of such contribution, the qualified 
     settlement income shall not be included in taxable income, 
     and
       (ii) for purposes of section 72 of such Code, such 
     contribution shall not be considered to be investment in the 
     contract, and
       (B) the qualified taxpayer shall, to the extent of the 
     amount of the contribution, be treated--
       (i) as having received the qualified settlement income--

       (I) in the case of a contribution to an individual 
     retirement plan (as defined under section 7701(a)(37) of such 
     Code), in a distribution described in section 408(d)(3) of 
     such Code, and
       (II) in the case of any other eligible retirement plan, in 
     an eligible rollover distribution (as defined under section 
     402(f)(2) of such Code), and

       (ii) as having transferred the amount to the eligible 
     retirement plan in a direct trustee to trustee transfer 
     within 60 days of the distribution.
       (4) Special rule for roth iras and roth 401(k)s.--For 
     purposes of the Internal Revenue Code of 1986, if a 
     contribution is made pursuant to paragraph (1) with respect 
     to qualified settlement income to a Roth IRA (as defined 
     under section 408A(b) of such Code) or as a designated Roth 
     contribution to an applicable retirement plan (within the 
     meaning of section 402A of such Code), then--
       (A) the qualified settlement income shall be includible in 
     taxable income, and
       (B) for purposes of section 72 of such Code, such 
     contribution shall be considered to be investment in the 
     contract.
       (5) Eligible retirement plan.--For purpose of this 
     subsection, the term ``eligible retirement plan'' has the 
     meaning given such term under section 402(c)(8)(B) of the 
     Internal Revenue Code of 1986.
       (c) Qualified Settlement Income Not Included in SECA.--For 
     purposes of chapter 2 of the Internal Revenue Code of 1986 
     and section 211 of the Social Security Act, no portion of 
     qualified settlement income received by a qualified taxpayer 
     shall be treated as self-employment income.
       (d) Qualified Taxpayer.--For purposes of this section, the 
     term ``qualified taxpayer'' means--
       (1) any plaintiff in the civil action In re Exxon Valdez, 
     No. 89-095-CV (HRH) (Consolidated) (D. Alaska); or
       (2) any beneficiary of the estate of such a plaintiff who--
       (A) acquired the right to receive qualified settlement 
     income from that plaintiff; and
       (B) was the spouse or an immediate relative of that 
     plaintiff.
       (e) Qualified Settlement Income.--For purposes of this 
     section, the term ``qualified settlement income'' means 
     income received (whether as lump sums or periodic payments) 
     in connection with the civil action In re Exxon Valdez, No. 
     89-095-CV (HRH) (Consolidated) (D. Alaska), including 
     interest (whether pre- or post judgment and whether related 
     to a settlement or judgment).
                                 ______
                                 
      By Mr. DORGAN:
  S. 554. A bill to reduce the Federal budget deficit, and for other 
purposes; to the Committee on Finance.
  Mr. DORGAN. Mr. President, this Nation was founded on the principle 
that the future matters more than the past. It was the first Nation in 
the world so conceived. The Founders took great pains to ensure that 
each generation would get a fresh start, free of the encumbrances of 
the past. They abolished primogeniture, entail, and hereditary titles. 
Jefferson for one believed that every twenty years or so, the books of 
the Federal Government should be wiped clean, so that prior generations 
would not be able to fob their debts off upon later ones who would have 
no say in the matter.
  Over the last half dozen years, we have done exactly what the 
Founders of this Nation did not intend. We have heaped debt upon debt 
on the backs of our children and theirs--the very people the Founders 
thought should be free of such debts. In just about every corner of 
government and policy, the story has been the same--let's have a party 
today, and let our kids and grandkids clean up the mess. We've done it 
with energy, the environment, and, perhaps most of all, we have done it 
with the Federal budget.
  Just six years ago, we had our fiscal house in order. The government 
had $5.6 trillion in projected surpluses between 2002 and 2011. We were 
paying down the debt. But now it's changed. We racked up the second 
largest deficit in our history in 2003, our largest deficit ever in 
2004, the third highest deficit in 2005 and the seventh largest deficit 
last year.
  The administration can claim to be making progress only by leaving 
out of its budget plans the full cost of the ongoing war against 
terrorism, long term relief from the alternative minimum tax, using 
Social Security surplus revenues for unrelated spending and by 
generally setting expectations so low that even failure looks good by 
comparison. But the reality, of course, is unless the Nation's fiscal 
policies are dramatically changed, we are going to see large deficits 
for many years in the future. At the current rate the accumulated debt 
of this government will grow from $8.6 trillion today to over $12 
trillion by 2012.
  That projected debt is bigger than the economies of Japan, Germany, 
France, the United Kingdom and Canada combined. It's almost $39,000 for 
every man, woman and child in this country. Meanwhile, the 
Administration has provided big tax cuts for people who use them to buy 
third homes, pricey wines and three-hundred-dollar dungarees. This is 
Me-Generation economics. It is economics that says, ``Let others make 
the sacrifices while we have a bash.'' It is the total opposite of the 
economics envisioned by the founders of this country, who said that we 
should meet our own obligations, clean up our own messes and pay our 
own way, so that those who come after us can have a future that is 
clear and bright.
  To this end, I rise today to introduce legislation called the Act For 
Our Kids that I hope will help spark a serious discussion in the U.S. 
Congress, and across our country, about putting the Federal 
Government's balance sheet back in order. This legislation provides for 
a package of Federal spending cuts and more revenue that would raise 
nearly $76 billion the first full year and some $205 billion over five 
years and every penny would be used to reduce the Federal deficit! It 
is a real first step in acting like we are serious about fixing our 
fiscal policies and paying our bills.
  Last year on the Senate floor I spoke about an agenda that Congress 
could be pursuing that would benefit all Americans. Among other things, 
I said that two of our top priorities ought to be paying our bills and 
taking care of our kids. Regrettably, however, the administration and 
the majority in Congress at that time adopted a card credit mentality 
to fiscal policy that would make even the most aggressive credit card 
companies blush. If a part of the American dream is ensuring that one's 
kids and grandkids get at least the same opportunities that we had to 
climb the economic ladder to success, then the Federal Government's 
recent approach to fiscal policy has been a full-blown nightmare.
  Unless we change the direction of our fiscal policy, the Federal 
Government will ``borrow'' trillions of dollars of Social Security 
surplus revenues over the next decade to pay for tax cuts and other 
spending. Social Security faces significant financial challenges as the 
baby boomers retire in the years ahead. Loading up the country with 
more debt and diverting needed revenues away from the Social Security 
program will only make the program's fiscal problems worse, not better.
  The real question is how are we going to dig ourselves out of this 
fiscal quagmire? The solution offered by the White House and the 
Republicans in Congress was simple: They said let's run up our Federal 
credit card balances even more, while at the same time giving more 
large tax cuts to the richest Americans.
  And if President Bush is successful in permanently extending the bulk 
of his

[[Page 3684]]

previous tax cuts that mostly benefit the wealthiest Americans, as he 
proposed in his Fiscal Year 2008 budget submission just this week, 
another $2 trillion in revenues will be lost over the next decade.
  Frankly, I am not aware of any instance in the history of this great 
country where those in charge of the Federal purse decided to cut 
revenues on such a large scale while in the midst of war. Today we ask 
our young men and women in uniform to sacrifice so much, yet the 
wealthiest among us are not asked to contribute even a portion of their 
tax cuts to what we are told every day is a noble cause.
  In one of his famous fireside chats, President Franklin D. Roosevelt 
described our obligation as citizens to support our troops during times 
of war. He said:

     Not all of us can have the privilege of fighting our enemies 
     in distant parts of the world. Not all of us can have the 
     privilege of working in a munitions factory or a ship yard, 
     or on the farms or in oil fields or mines, producing the 
     weapons or the raw materials that are needed by our armed 
     forces. But there is one front and one battle where everyone 
     in the United States--every man, woman and child--is in 
     action. . . . That front is right here at home, in our daily 
     lives, in our daily tasks. Here at home everyone will have 
     the privilege of making whatever self-denial is necessary, 
     not only to supply our fighting men, but to keep the economic 
     structure of our country fortified and secure during the war 
     and after the war.

  The sentiments of President Roosevelt's remarks are truly lost on an 
Administration that has borrowed every dollar it has used to pay for 
the war in Iraq and the global fight against terrorism.
  I think the American public understands that one of our obligations 
as U.S. citizens is helping to defend this country in whatever way is 
best. But what we have been missing is leadership and at least some 
measure of fiscal discipline in paying our war debt and getting other 
parts of our fiscal house in order.
  It is unfair to pile up this massive debt and heave it onto the 
shoulders of working families and their children. The Federal 
Government is expected to pay $3.3 trillion in interest payments on the 
debt alone during the 10-year period ending in 2017.
  The legislation I am introducing today includes a number of proposals 
that, taken together, would reduce the Federal deficit by my estimate 
$205 billion over the next five years.
  First and foremost, this bill requires Federal agencies to tighten 
their belts by cutting their administrative overhead expenses. Before 
we ask others to make sacrifices needed to reduce the Nation's debt 
load, Federal agencies must do their part.
  My legislation includes other targeted cuts in Federal spending and 
will make changes to the tax code to ensure that the wealthiest 
Americans and most profitable multinational companies that do business 
in this country pay their fair share of taxes--revenues that are needed 
to defend this Nation and keep our economy strong and growing.
  Among other things, the Act For Our Kids would do the following: Cut 
Federal agency administrative overhead by 5 percent for fiscal years 
2008 through 2012 and save taxpayers an estimated $30 billion. This 
proposal would reduce ``nuts and bolts'' expenditures, including those 
relating to agency travel and transportation, advertising, office 
supplies, conferences and equipment. These savings must come from the 
bureaucracy, not programs. It is generally understood that 
administrative expenses do not include personnel compensation and 
benefits.
  Eliminate $3.5 billion that remains in a giveaway fund in the 
Medicare drug plan. The 2003 Medicare drug bill included a $10 billion 
``slush'' fund that the Secretary of the U.S. Department of Health and 
Human Services could tap to entice regional preferred provider 
organizations (PPOs) to participate in Medicare. This fund has been 
roundly criticized by policy experts as an inappropriate use of Federal 
resources. The Senate has previously supported eliminating this fund 
altogether and legislation enacted by Congress late last year used $6.5 
billion of the $10 billion in the fund for the physician payment fix.
  Make drug importation legal and safe. This will not only help 
consumers by reducing the cost they pay for prescription drugs, but 
will save the Federal Government and therefore taxpayers an estimated 
$1.6 billion in Federal health program costs in the five years after 
its enactment.
  Stop providing Federal funding for TV Marti broadcasts into Cuba that 
are jammed and therefore are not watched by their intended recipients. 
This provision would save U.S. taxpayers an estimated $100 million in 
the next half decade.
  Restore honesty and accountability in Federal contracting by, among 
other things, reinstating a Federal rule that would deny Federal 
contracts to companies with a pattern of overcharging the government or 
violating other Federal laws, including tax, labor and consumer 
protections. Other provisions in the bill would crack down on corporate 
cheaters and require full disclosure of contracting abuses. It requires 
real contract competition, bans corporate cronyism and takes other 
significant steps to ensure that Federal contractors. large or small, 
are not gouging American taxpayers. Based on information derived from 
similar experiences in the past, and more recently, one could easily 
expect these reforms would save the Federal Government some $6 billion 
over a five-year period.
  Abolish the U.S. Court of Federal Claims. The docket of the Court of 
Federal Claims includes a hodgepodge of cases, including patent cases, 
claims involving Indian property, vaccine injury cases, claims arising 
from the interment of Japanese Americans, and cases arising under the 
Fifth Amendment's takings clause. The light caseload of this court 
could be handled more efficiently by Federal district courts. This 
elimination of the Claims Court would result in additional taxpayer 
savings of tens of millions of dollars over five years.
  Impose a temporary 2 percent emergency tariff on all imports for two 
years to help correct our country's $800-billion-plus trade deficit. 
Article XII of the GATT, which has been incorporated into the World 
Trade Organization, specifically allows member countries to impose 
tariffs to correct a balance of payment crisis. Temporary emergency 
tariffs over two years would help address this crisis, while raising an 
estimated $66 billion for deficit reduction.
  Prevent tax avoidance for U.S. multinational companies that move 
profits to offshore tax havens by generally treating their controlled 
``paper or shell'' subsidiaries set up in foreign tax-haven countries 
as domestic companies for U.S. tax purposes. This proposal would save 
taxpayers another $5.8 billion over five years.
  Repeal the perverse Federal tax subsidy called tax deferral for U.S. 
companies that shut down manufacturing plants in the U.S. and move jobs 
abroad, only to ship their now foreign-made products back into our 
country. Killing this ill-advised tax break for runaway manufacturing 
plants would help level the financial playing field for domestic 
manufacturers while saving taxpayers some $4.2 billion over a five-year 
period.
  Clarify and enhance the application of the economic substance 
doctrine that courts apply to deny tax benefits from business tax 
shelter transactions that do not result in a meaningful change to the 
taxpayer's economic position other than a reduction in their Federal 
income tax. This proposal would save taxpayers an estimated $5.8 
billion over the next five years.
  Rescind on a prospective basis a portion of the major tax cuts passed 
by Congress since 2001 for individuals who are earning more than $1 
million annually. Providing some $90 billion in additional large tax 
cuts over the next five years for millionaires when the Nation is still 
accruing massive debt and paying ongoing war costs is irresponsible in 
my judgment.
  Disallow the tax deduction for punitive damages that are paid or 
incurred by taxpayers as a result of a judgment or in settlement of a 
claim. Allowing a tax deduction for punitive damages undermines the use 
of punitive damages to discourage and penalize the activities or 
actions for which punitive damages are imposed. Making this change

[[Page 3685]]

would save taxpayers about $130 million over a 5-year period.
  Lift the U.S. ban on travel to Cuba by U.S. citizens. Repealing this 
obsolete and ineffective restriction on travel to Cuba would raise an 
estimated $1 billion in U.S. tax revenues over five years from 
increased U.S. business activity.
  Extend permanently the Federal Communications Commission's (FCC's) 
authority to auction licenses to those using the radio spectrum. This 
FCC authority was recently extended by Congress through 2011. A 
permanent extension of this authority would raise $1 billion between 
2012 to 2016, about $200 million annually starting in 2012.
  The provisions I have highlighted above and others in the bill would 
help reduce the Federal debt by what I roughly calculate is $205 
billion over the next half decade. I understand that this package does 
not fully cover our outstanding debt obligations. But I think it is a 
reasonable and balanced package of spending cuts and revenue 
enhancements that offer a first installment that will help us begin a 
thoughtful process of curbing our addiction to deficit spending and 
hopefully head us once again toward truly a balanced budget not 
counting Social Security surplus revenue that should be set aside for 
future beneficiaries, and not used for unrelated spending.
  Garrison Keillor once said, ``Nothing you do for children is ever 
wasted. They seem not to notice us, hovering, averting our eyes, and 
they seldom offer thanks, but what we do for them is never wasted.'' I 
believe that one of the greatest gifts we can give for our kids is a 
future without a mountain of debt from under which they may never dig 
out. To make this happen, however, we need to set aside our differences 
and come together, Republicans and Democrats, conservatives and 
liberals alike, and begin to confront our recent obsession with debt 
financing. When we decide to do so, our Nation will be better for it, 
and so will the future of our children.
                                 ______
                                 
      By Ms. SNOWE (for herself, Mr. Bond, and Mr. Bingaman):
  S. 555. A bill to amend the Internal Revenue Code of 1986 to allow 
small businesses to set up simple cafeteria plans to provide nontaxable 
employee benefits to their employees, to make changes in the 
requirements for cafeteria plans, flexible spending accounts, and 
benefits provided under such plans or accounts, and for other purposes; 
to the Committee on Finance.
  Ms. SNOWE. Mr. President, I rise today to introduce the ``SIMPLE 
Cafeteria Plan Act of 2007,'' which will increase the access to 
quality, affordable health care for millions of small business owners 
and their employees. I am pleased that my good friend Senator Bond from 
Missouri, as well as my good friend from New Mexico, Senator Bingaman, 
have agreed to co-sponsor this critical piece of legislation.
  Regrettably, our Nation's healthcare system is in the midst of a 
crisis. Each year, more and more Americans are unable to purchase 
health insurance, and there are no signs that things are improving. As 
evidence, the United States Census Bureau estimates that nearly 47 
million people did not have health insurance coverage in 2005. Sadly, 
this number rose from 41.2 million uninsured persons in 2001--a 13 
percent increase.
  The lack of health insurance is even more troubling when we look 
specifically at the small business sector of our economy. In 2005, 
according to the Employee Benefit Research Institute, a non-partisan 
health policy group, nearly 63 percent of all uninsured workers were 
either self-employed or working for private-sector firms with fewer 
than 100 employees. In comparison, only 13.4 percent of workers in 
firms with more than 1,000 employees do not have health insurance. 
These numbers demonstrate that the majority of uninsured Americans work 
for small enterprises.
  So why are our Nation's small businesses, which are our country's job 
creators and the true engine of our economic growth, so disadvantaged 
when it comes to purchasing health insurance?
  The main reason that small business owners do not offer their 
employees health insurance is because many of them cannot afford to 
provide any health insurance, or other benefits to their employees. 
Many other small companies can only afford to pay a portion of their 
employees' health insurance premiums. As a result, many small business 
employees must acquire health insurance from the private sector rather 
than through their work place. This more expensive alternative is not 
practical or possible for the majority of the uninsured.
  Clearly, we have a problem on our hands. While we can debate among 
ourselves why this crisis exists, and how we ended up here, what is not 
open for debate is that we need to start identifying ways to fix the 
system. It is simply unconscionable to do nothing while more and more 
Americans find themselves without health insurance and health care.
  Currently, many large companies, and even the Federal Government, 
allow their employees to purchase health insurance, and other qualified 
benefits, with tax-free dollars. Larger companies are able to offer 
these accounts because they meet the specific qualifications outlined 
in the tax code.
  Cafeteria plans is one means for employers to offer health benefits 
with pretax dollars. As the name suggests, cafeteria plans are programs 
where employees can purchase a range of qualified benefits. 
Specifically, cafeteria plans offer employees great flexibility in 
selecting their desired benefits while allowing them to disregard those 
benefits that do not fit their particular needs. Moreover, the 
employees are usually purchasing benefits at a lower cost because their 
employers are often able to obtain a reduced group rate price for their 
benefits.
  Typically, in cafeteria plans, a combination of employer 
contributions and employee contributions are used to fund the accounts 
that employees used to buy specific benefits. Under current law, 
qualified benefits include health insurance, dependent-care 
reimbursement, life and disability insurance. Unfortunately, long term 
care insurance is NOT currently a qualified benefit available for 
purchase in cafeteria plans. I will come back to long term care 
insurance in a moment.
  Clearly, cafeteria plans play a critical role in our Nation's health 
care system. The problem though, is that in order for companies to 
qualify for cafeteria plans they must satisfy the tax code's strict 
non-discrimination rules. These rules exist to ensure that companies 
offer the same benefits to their non-highly compensated employees that 
they offer to their highly compensated employees. These rules strive to 
ensure that non-highly compensated employees in fact receive a 
substantial portion of the employee benefits companies provide.
  Now, I want to be clear. I believe that these non-discrimination 
rules serve a legitimate purpose and are necessary employee 
protections. Indeed, we need to ensure that employers are not able to 
game the tax system so that the cafeteria plans that qualify for 
preferential tax treatment are used by a majority of a companies' 
employees. At the same time these benefits must be made available to 
small companies and not just large companies.
  Unfortunately, we often hear that small businesses lose skilled 
employees to larger companies simply because the bigger firm is able to 
offer a more generous employee benefit package. Many small firms have 
relatively few employees and a high proportion of owners or highly 
compensated individuals. Right now, if these small companies opened 
cafeteria plans they will likely violate the nondiscrimination rules, 
and subject their workers and organizations to taxable penalties.
  Consequently, many small companies simply forgo opening cafeteria 
plans and offering more comprehensive employee benefits because they 
fear they will violate the non-discrimination rules. According to the 
Employers' Council on Flexible Compensation, though roughly 38 million 
U.S. workers had access to cafeteria plans, only 19 percent of those 
workers were employees of small businesses.
  Allowing small business to offer cafeteria plans would provide them 
with

[[Page 3686]]

much needed employee recruiting and retention tools. If more small 
business owners are able to offer their employees the chance to enjoy a 
variety of employee benefits these firms will be more likely to 
attract, recruit, and retain talented workers. This will ultimately 
increase their business output.
  In order to help small companies increase their employees access to 
health insurance and other benefits, and help them compete for talented 
professionals, I am introducing the SIMPLE Cafeteria Plan Act. This 
bill will enable small business employees to purchase health insurance 
with tax-free dollars in the same way that many employees of large 
companies already do in their cafeteria plans. My bill accomplishes 
this by creating a SIMPLE Cafeteria Plan, which is modeled after the 
Savings Incentive Match Plan for Employees, SIMPLE, pension plan.
  As with the SIMPLE pension plan, a small business employer that is 
willing to make a minimum contribution for all employees, or who is 
willing to match contributions, will be permitted to waive the non-
discrimination rules that currently prevent them from otherwise 
offering these benefits. This structure has worked extraordinarily well 
in the pension area with little risk of abuse. I am confident that it 
will be just as successful when it comes to broad-based benefits 
offered through cafeteria plans.
  In addition my bill will expand the types of qualified benefits that 
can be offered in SIMPLE cafeteria plans and existing cafeteria plans. 
These modifications will increase the benefits provided for all 
employees and the likelihood that employees will utilize their 
cafeteria plans to purchase these benefits.
  This legislation modifies rules that pertain to employer-provided 
dependent-care assistance plans. First, it would increase the current 
$5,000 annual contribution limitation of these plans to $10,000 for 
employees that claim two or more dependents on their tax return. This 
increase is significant because it will allow taxpayers to use their 
cafeteria accounts to pay for the care of their children and their 
elderly dependent family members. As the current baby-boomer generation 
continues to age, this scenario will become increasingly more common.
  The bill also works to address our aging populations' need for long-
term care insurance. Here in the United States, nearly half of all 
seniors age 65 or older will need long-term care at some point in their 
life. Unfortunately, most seniors have not adequately prepared for this 
possibility, just as many working age individuals have not given much 
thought to their eventual long-term care needs. With the cost of a 
private room in a nursing home averaging more than $72,000 annually, 
many Americans risk losing their life savings--and jeopardizing their 
children's inheritance--by failing to properly plan for the long-term 
care services they will need as they grow older.
  To address this problem, this bill would allow employees to purchase 
long-term care insurance coverage through their cafeteria plans and 
flexible spending arrangements. Allowing employers to offer long-term 
care benefits through these accounts would make long-term care 
insurance more affordable and help Americans prepare for their future 
long-term care needs.
  Additionally, by including long-term care insurance as a qualified 
benefit available for purchase in cafeteria plans employers will be 
able to include information about long-term care options in their 
employee benefit packages. This will help increase employee 
understanding of the need to plan for their care while also increasing 
their access to long-term care insurance.
  Small businesses are the backbone of the American economy. According 
to the Small Business Administration, small businesses represent 99 
percent of all employers, pay more than 45 percent of the private-
sector's payroll, and generated 60 to 80 percent of net new jobs 
annually over the last decade. It is critical that small businesses are 
able to offer their employees cafeteria plans so that they may purchase 
the health care and other benefits that will provide security for their 
families.
  The ``SIMPLE Cafeteria Plan Act of 2007'' achieves these objectives, 
in a manner that employers and employees can afford. Although the use 
of pre-tax dollars to acquire these benefits reduces current Federal 
revenues, the opportunity to provide small business employees these 
same benefits currently enjoyed by the employees of the Federal 
Government, and larger companies, more than justifies this minimal 
investment. Therefore, I urge my colleagues to join me in supporting 
this important legislation as we work with you to enact this bill into 
law.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 555

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

     SECTION 1. SHORT TITLE.

       (a) Short Title.--This Act may be cited as the ``SIMPLE 
     Cafeteria Plan Act of 2007''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.

     SEC. 2. ESTABLISHMENT OF SIMPLE CAFETERIA PLANS FOR SMALL 
                   BUSINESSES.

       (a) In General.--Section 125 (relating to cafeteria plans) 
     is amended by redesignating subsections (h) and (i) as 
     subsections (i) and (j), respectively, and by inserting after 
     subsection (g) the following new subsection:
       ``(h) Simple Cafeteria Plans for Small Businesses.--
       ``(1) In general.--An eligible employer maintaining a 
     simple cafeteria plan with respect to which the requirements 
     of this subsection are met for any year shall be treated as 
     meeting any applicable nondiscrimination requirement with 
     respect to benefits provided under the plan during such year.
       ``(2) Simple cafeteria plan.--For purposes of this 
     subsection, the term `simple cafeteria plan' means a 
     cafeteria plan--
       ``(A) which is established and maintained by an eligible 
     employer, and
       ``(B) with respect to which the contribution requirements 
     of paragraph (3), and the eligibility and participation 
     requirements of paragraph (4), are met.
       ``(3) Contributions requirements.--
       ``(A) In general.--The requirements of this paragraph are 
     met if, under the plan--
       ``(i) the employer makes matching contributions on behalf 
     of each employee who is eligible to participate in the plan 
     and who is not a highly compensated or key employee in an 
     amount equal to the elective plan contributions of the 
     employee to the plan to the extent the employee's elective 
     plan contributions do not exceed 3 percent of the employee's 
     compensation, or
       ``(ii) the employer is required, without regard to whether 
     an employee makes any elective plan contribution, to make a 
     contribution to the plan on behalf of each employee who is 
     not a highly compensated or key employee and who is eligible 
     to participate in the plan in an amount equal to at least 2 
     percent of the employee's compensation.
       ``(B) Matching contributions on behalf of highly 
     compensated and key employees.--The requirements of 
     subparagraph (A)(i) shall not be treated as met if, under the 
     plan, the rate of matching contribution with respect to any 
     elective plan contribution of a highly compensated or key 
     employee at any rate of contribution is greater than that 
     with respect to an employee who is not a highly compensated 
     or key employee.
       ``(C) Special rules.--
       ``(i) Time for making contributions.--An employer shall not 
     be treated as failing to meet the requirements of this 
     paragraph with respect to any elective plan contributions of 
     any compensation, or employer contributions required under 
     this paragraph with respect to any compensation, if such 
     contributions are made no later than the 15th day of the 
     month following the last day of the calendar quarter which 
     includes the date of payment of the compensation.
       ``(ii) Form of contributions.--Employer contributions 
     required under this paragraph may be made either to the plan 
     to provide benefits offered under the plan or to any person 
     as payment for providing benefits offered under the plan.
       ``(iii) Additional contributions.--Subject to subparagraph 
     (B), nothing in this paragraph shall be treated as 
     prohibiting an employer from making contributions to the plan 
     in addition to contributions required under subparagraph (A).
       ``(D) Definitions.--For purposes of this paragraph--
       ``(i) Elective plan contribution.--The term `elective plan 
     contribution' means any amount which is contributed at the 
     election of the employee and which is not includible in gross 
     income by reason of this section.

[[Page 3687]]

       ``(ii) Highly compensated employee.--The term `highly 
     compensated employee' has the meaning given such term by 
     section 414(q).
       ``(iii) Key employee.--The term `key employee' has the 
     meaning given such term by section 416(i).
       ``(4) Minimum eligibility and participation requirements.--
       ``(A) In general.--The requirements of this paragraph shall 
     be treated as met with respect to any year if, under the 
     plan--
       ``(i) all employees who had at least 1,000 hours of service 
     for the preceding plan year are eligible to participate, and
       ``(ii) each employee eligible to participate in the plan 
     may, subject to terms and conditions applicable to all 
     participants, elect any benefit available under the plan.
       ``(B) Certain employees may be excluded.--For purposes of 
     subparagraph (A)(i), an employer may elect to exclude under 
     the plan employees--
       ``(i) who have less than 1 year of service with the 
     employer as of any day during the plan year,
       ``(ii) who have not attained the age of 21 before the close 
     of a plan year,
       ``(iii) who are covered under an agreement which the 
     Secretary of Labor finds to be a collective bargaining 
     agreement if there is evidence that the benefits covered 
     under the cafeteria plan were the subject of good faith 
     bargaining between employee representatives and the employer, 
     or
       ``(iv) who are described in section 410(b)(3)(C) (relating 
     to nonresident aliens working outside the United States).

     A plan may provide a shorter period of service or younger age 
     for purposes of clause (i) or (ii).
       ``(5) Eligible employer.--For purposes of this subsection--
       ``(A) In general.--The term `eligible employer' means, with 
     respect to any year, any employer if such employer employed 
     an average of 100 or fewer employees on business days during 
     either of the 2 preceding years. For purposes of this 
     subparagraph, a year may only be taken into account if the 
     employer was in existence throughout the year.
       ``(B) Employers not in existence during preceding year.--If 
     an employer was not in existence throughout the preceding 
     year, the determination under subparagraph (A) shall be based 
     on the average number of employees that it is reasonably 
     expected such employer will employ on business days in the 
     current year.
       ``(C) Growing employers retain treatment as small 
     employer.--If--
       ``(i) an employer was an eligible employer for any year (a 
     `qualified year'), and
       ``(ii) such employer establishes a simple cafeteria plan 
     for its employees for such year, then, notwithstanding the 
     fact the employer fails to meet the requirements of 
     subparagraph (A) for any subsequent year, such employer shall 
     be treated as an eligible employer for such subsequent year 
     with respect to employees (whether or not employees during a 
     qualified year) of any trade or business which was covered by 
     the plan during any qualified year. This subparagraph shall 
     cease to apply if the employer employs an average of 200 more 
     employees on business days during any year preceding any such 
     subsequent year.
       ``(D) Special rules.--
       ``(i) Predecessors.--Any reference in this paragraph to an 
     employer shall include a reference to any predecessor of such 
     employer.
       ``(ii) Aggregation rules.--All persons treated as a single 
     employer under subsection (a) or (b) of section 52, or 
     subsection (n) or (o) of section 414, shall be treated as one 
     person.
       ``(6) Applicable nondiscrimination requirement.--For 
     purposes of this subsection, the term `applicable 
     nondiscrimination requirement' means any requirement under 
     subsection (b) of this section, section 79(d), section 
     105(h), or paragraph (2), (3), (4), or (8) of section 129(d).
       ``(7) Compensation.--The term `compensation' has the 
     meaning given such term by section 414(s).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2006.

     SEC. 3. MODIFICATIONS OF RULES APPLICABLE TO CAFETERIA PLANS.

       (a) Application to Self-Employed Individuals.--
       (1) In general.--Section 125(d) (defining cafeteria plan) 
     is amended by adding at the end the following new paragraph:
       ``(3) Employee to include self-employed.--
       ``(A) In general.--The term `employee' includes an 
     individual who is an employee within the meaning of section 
     401(c)(1) (relating to self-employed individuals).
       ``(B) Limitation.--The amount which may be excluded under 
     subsection (a) with respect to a participant in a cafeteria 
     plan by reason of being an employee under subparagraph (A) 
     shall not exceed the employee's earned income (within the 
     meaning of section 401(c)) derived from the trade or business 
     with respect to which the cafeteria plan is established.''.
       (2) Application to benefits which may be provided under 
     cafeteria plan.--
       (A) Group-term life insurance.--Section 79 (relating to 
     group-term life insurance provided to employees) is amended 
     by adding at the end the following new subsection:
       ``(f) Employee Includes Self-Employed.--
       ``(1) In general.--For purposes of this section, the term 
     `employee' includes an individual who is an employee within 
     the meaning of section 401(c)(1) (relating to self-employed 
     individuals).
       ``(2) Limitation.--The amount which may be excluded under 
     the exceptions contained in subsection (a) or (b) with 
     respect to an individual treated as an employee by reason of 
     paragraph (1) shall not exceed the employee's earned income 
     (within the meaning of section 401(c)) derived from the trade 
     or business with respect to which the individual is so 
     treated.''.
       (B) Accident and health plans.--Section 105(g) is amended 
     to read as follows:
       ``(g) Employee Includes Self-Employed.--
       ``(1) In general.--For purposes of this section, the term 
     `employee' includes an individual who is an employee within 
     the meaning of section 401(c)(1) (relating to self-employed 
     individuals).
       ``(2) Limitation.--The amount which may be excluded under 
     this section by reason of subsection (b) or (c) with respect 
     to an individual treated as an employee by reason of 
     paragraph (1) shall not exceed the employee's earned income 
     (within the meaning of section 401(c)) derived from the trade 
     or business with respect to which the accident or health 
     insurance was established.''.
       (C) Contributions by employers to accident and health 
     plans.--
       (i) In general.--Section 106, as amended by subsection (b), 
     is amended by adding after subsection (b) the following new 
     subsection:
       ``(c) Employer to Include Self-Employed.--
       ``(1) In general.--For purposes of this section, the term 
     `employee' includes an individual who is an employee within 
     the meaning of section 401(c)(1) (relating to self-employed 
     individuals).
       ``(2) Limitation.--The amount which may be excluded under 
     subsection (a) with respect to an individual treated as an 
     employee by reason of paragraph (1) shall not exceed the 
     employee's earned income (within the meaning of section 
     401(c)) derived from the trade or business with respect to 
     which the accident or health insurance was established.''.
       (ii) Clarification of limitations on other coverage.--The 
     first sentence of section 162(l)(2)(B) is amended to read as 
     follows: ``Paragraph (1) shall not apply to any taxpayer for 
     any calendar month for which the taxpayer participates in any 
     subsidized health plan maintained by any employer (other than 
     an employer described in section 401(c)(4)) of the taxpayer 
     or the spouse of the taxpayer.''.
       (b) Long-Term Care Insurance Permitted to Be Offered Under 
     Cafeteria Plans and Flexible Spending Arrangements.--
       (1) Cafeteria plans.--The last sentence of section 125(f) 
     (defining qualified benefits) is amended to read as follows: 
     ``Such term shall include the payment of premiums for any 
     qualified long-term care insurance contract (as defined in 
     section 7702B) to the extent the amount of such payment does 
     not exceed the eligible long-term care premiums (as defined 
     in section 213(d)(10)) for such contract.''.
       (2) Flexible spending arrangements.--Section 106 (relating 
     to contributions by employer to accident and health plans) is 
     amended by striking subsection (c).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006.

     SEC. 4. MODIFICATION OF RULES APPLICABLE TO FLEXIBLE SPENDING 
                   ARRANGEMENTS.

       (a) Modification of Rules.--
       (1) In general.--Section 125 of the Internal Revenue Code 
     of 1986, as amended by section 2, is amended by redesignating 
     subsections (i) and (j) as subsections (j) and (k), 
     respectively, and by inserting after subsection (h) the 
     following new subsection:
       ``(i) Special Rules Applicable to Flexible Spending 
     Arrangements.--
       ``(1) In general.--For purposes of this title, a plan or 
     other arrangement shall not fail to be treated as a flexible 
     spending or similar arrangement solely because under the plan 
     or arrangement--
       ``(A) the amount of the reimbursement for covered expenses 
     at any time may not exceed the balance in the participant's 
     account for the covered expenses as of such time,
       ``(B) except as provided in paragraph (4)(A)(ii), a 
     participant may elect at any time specified by the plan or 
     arrangement to make or modify any election regarding the 
     covered benefits, or the level of covered benefits, of the 
     participant under the plan, and
       ``(C) a participant is permitted access to any unused 
     balance in the participant's accounts under such plan or 
     arrangement in the manner provided under paragraph (2) or 
     (3).
       ``(2) Carryovers and rollovers of unused benefits in health 
     and dependent care arrangements.--
       ``(A) In general.--A plan or arrangement may permit a 
     participant in a health flexible spending arrangement or 
     dependent care flexible spending arrangement to elect--
       ``(i) to carry forward any aggregate unused balances in the 
     participant's accounts under such arrangement as of the close 
     of any year to the succeeding year, or
       ``(ii) to have such balance transferred to a plan described 
     in subparagraph (E)


[[Page 3688]]


     Such carryforward or transfer shall be treated as having 
     occurred within 30 days of the close of the year.
       ``(B) Dollar limit on carryforwards.--
       ``(i) In general.--The amount which a participant may elect 
     to carry forward under subparagraph (A)(i) from any year 
     shall not exceed $500. For purposes of this paragraph, all 
     plans and arrangements maintained by an employer or any 
     related person shall be treated as 1 plan.
       ``(ii) Cost-of-living adjustment.--In the case of any 
     taxable year beginning in a calendar year after 2007, the 
     $500 amount under clause (i) shall be increased by an amount 
     equal to--

       ``(I) $500, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `2006' for `1992' in subparagraph (B) thereof

     .If any dollar amount as increased under this clause is not a 
     multiple of $100, such amount shall be rounded to the next 
     lowest multiple of $100.
       ``(C) Exclusion from gross income.--No amount shall be 
     required to be included in gross income under this chapter by 
     reason of any carryforward or transfer under this paragraph.
       ``(D) Coordination with limits.--
       ``(i) Carryforwards.--The maximum amount which may be 
     contributed to a health flexible spending arrangement or 
     dependent care flexible spending arrangement for any year to 
     which an unused amount is carried under this paragraph shall 
     be reduced by such amount.
       ``(ii) Rollovers.--Any amount transferred under 
     subparagraph (A)(ii) shall be treated as an eligible rollover 
     under section 219, 223(f)(5), 401(k), 403(b), or 457, 
     whichever is applicable, except that--

       ``(I) the amount of the contributions which a participant 
     may make to the plan under any such section for the taxable 
     year including the transfer shall be reduced by the amount 
     transferred, and
       ``(II) in the case of a transfer to a plan described in 
     clause (ii) or (iii) of subparagraph (E), the transferred 
     amounts shall be treated as elective deferrals for such 
     taxable year.

       ``(E) Plans.--A plan is described in this subparagraph if 
     it is--
       ``(i) an individual retirement plan,
       ``(ii) a qualified cash or deferred arrangement described 
     in section 401(k),
       ``(iii) a plan under which amounts are contributed by an 
     individual's employer for an annuity contract described in 
     section 403(b),
       ``(iv) an eligible deferred compensation plan described in 
     section 457, or
       ``(v) a health savings account described in section 223.
       ``(3) Distribution upon termination.--
       ``(A) In general.--A plan or arrangement may permit a 
     participant (or any designated heir of the participant) to 
     receive a cash payment equal to the aggregate unused account 
     balances in the plan or arrangement as of the date the 
     individual is separated (including by death or disability) 
     from employment with the employer maintaining the plan or 
     arrangement.
       ``(B) Inclusion in income.--Any payment under subparagraph 
     (A) shall be includible in gross income for the taxable year 
     in which such payment is distributed to the employee.
       ``(4) Terms relating to flexible spending arrangements.--
       ``(A) Flexible spending arrangements.--
       ``(i) In general.--For purposes of this subsection, a 
     flexible spending arrangement is a benefit program which 
     provides employees with coverage under which specified 
     incurred expenses may be reimbursed (subject to reimbursement 
     maximums and other reasonable conditions).
       ``(ii) Elections required.--A plan or arrangement shall not 
     be treated as a flexible spending arrangement unless a 
     participant may at least 4 times during any year make or 
     modify any election regarding covered benefits or the level 
     of covered benefits.
       ``(B) Health and dependent care arrangements.--The terms 
     `health flexible spending arrangement' and `dependent care 
     flexible spending arrangement' means any flexible spending 
     arrangement (or portion thereof) which provides payments for 
     expenses incurred for medical care (as defined in section 
     213(d)) or dependent care (within the meaning of section 
     129), respectively.''.
       (2) Conforming amendments.--
       (A) The heading for section 125 of the Internal Revenue 
     Code of 1986 is amended by inserting ``AND FLEXIBLE SPENDING 
     ARRANGEMENTS'' after ``PLANS''.
       (B) The item relating to section 125 of such Code in the 
     table of sections for part III of subchapter B of chapter 1 
     is amended by inserting ``and flexible spending 
     arrangements'' after ``plans''.
       (b) Technical Amendments.--
       (1) Section 106 is amended by striking subsection (e) 
     (relating to FSA and HRA Terminations to Fund HSAs).
       (2) Section 223(c)(1)(A)(iii)(II) is amended to read as 
     follows:

       ``(II) the individual is transferring the entire balance of 
     such arrangement as of the end of the plan year to a health 
     savings account pursuant to section 125(i)(2)(A)(ii), in 
     accordance with rules prescribed by the Secretary.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 5. RULES RELATING TO EMPLOYER-PROVIDED HEALTH AND 
                   DEPENDENT CARE BENEFITS.

       (a) Health Benefits.--Section 106, as amended by section 
     4(b), is amended by adding at the end the following new 
     subsection:
       ``(e) Limitation on Contributions to Health Flexible 
     Spending Arrangements.--
       ``(1) In general.--Gross income of an employee for any 
     taxable year shall include employer-provided coverage 
     provided through 1 or more health flexible spending 
     arrangements (within the meaning of section 125(i)) to the 
     extent that the amount otherwise excludable under subsection 
     (a) with regard to such coverage exceeds the applicable 
     dollar limit for the taxable year.
       ``(2) Applicable dollar limit.--For purposes of this 
     subsection--
       ``(A) In general.--The applicable dollar limit for any 
     taxable year is an amount equal to the sum of--
       ``(i) $7,500, plus
       ``(ii) if the arrangement provides coverage for 1 or more 
     individuals in addition to the employee, an amount equal to 
     one-third of the amount in effect under clause (i) (after 
     adjustment under subparagraph (B)).
       ``(B) Cost-of-living adjustment.--In the case of taxable 
     years beginning in any calendar year after 2007, the $7,500 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--
       ``(i) $7,500, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year, determined by 
     substituting `2006' for `1992' in subparagraph (B) thereof.

     If any dollar amount as increased under this subparagraph is 
     not a multiple of $100, such dollar amount shall be rounded 
     to the next lowest multiple of $100.''.
       (b) Dependent Care.--
       (1) Exclusion limit.--
       (A) In general.--Section 129(a)(2) (relating to limitation 
     on exclusion) is amended--
       (i) by striking ``$5,000'' and inserting ``the applicable 
     dollar limit'', and
       (ii) by striking ``$2,500'' and inserting ``one-half of 
     such limit''.
       (B) Applicable dollar limit.--Section 129(a) is amended by 
     adding at the end the following new paragraph:
       ``(3) Applicable dollar limit.--For purposes of this 
     subsection--
       ``(A) In general.--The applicable dollar limit is $5,000 
     ($10,000 if dependent care assistance is provided under the 
     program to 2 or more qualifying individuals of the employee).
       ``(B) Cost-of-living adjustments.--
       ``(i) $5,000 amount.--In the case of taxable years 
     beginning after 2007, the $5,000 amount under subparagraph 
     (A) shall be increased by an amount equal to--

       ``(I) $5,000, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `2006' for `1992' in 
     subparagraph (B) thereof.

     If any dollar amount as increased under this clause is not a 
     multiple of $100, such dollar amount shall be rounded to the 
     next lowest multiple of $100.
       ``(ii) $10,000 amount.--The $10,000 amount under 
     subparagraph (A) for taxable years beginning after 2005 shall 
     be increased to an amount equal to twice the amount the 
     $5,000 amount is increased to under clause (i).''.
       (2) Average benefits test.--
       (A) In general.--Section 129(d)(8)(A) (relating to 
     benefits) is amended--
       (i) by striking ``55 percent'' and inserting ``60 
     percent'', and
       (ii) by striking ``highly compensated employees'' the 
     second place it appears and inserting ``employees receiving 
     benefits''.
       (B) Salary reduction agreements.--Section 129(d)(8)(B) 
     (relating to salary reduction agreements) is amended--
       (i) by striking ``$25,000'' and inserting ``$30,000'', and
       (ii) by adding at the end the following: ``In the case of 
     years beginning after 2007, the $30,000 amount in the first 
     sentence shall be adjusted at the same time, and in the same 
     manner, as the applicable dollar amount is adjusted under 
     subsection (a)(3)(B).''.
       (3) Principal shareholders or owners.--Section 129(d)(4) 
     (relating to principal shareholders and owners) is amended by 
     adding at the end the following: ``In the case of any failure 
     to meet the requirements of this paragraph for any year, 
     amounts shall only be required by reason of the failure to be 
     included in gross income of the shareholders or owners who 
     are members of the class described in the preceding 
     sentence.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006.
                                 ______
                                 
      By Mr. KENNEDY (for himself, Mr. Enzi, Mr. Dodd, and Mr. 
        Alexander):
  S. 556. A bill to reauthorize the Head Start Act, and for other 
purposes; to the Committee on Health, Education, Labor, and Pensions.
  Mr. KENNEDY. Mr. President, it is a privilege to join Senators Enzi, 
Dodd, and Alexander in introducing the

[[Page 3689]]

Head Start for School Readiness Act. Our goal is to reauthorize Head 
Start and continue our bipartisan support for this very successful 
program to prepare low-income children for school.
  For over forty years, Head Start has given disadvantaged children the 
assistance they need to arrive at school ready to learn. It's 
comprehensive services guarantee balanced meals for children, and a 
well-defined curriculum to see that children develop early skills in 
reading, writing, and math, and positive social skills as well. It 
provides visits to doctors and dentists, and outreach to parents to 
encourage them to participate actively in their child's early 
development.
  It is clear that Head Start works. A federal evaluation found that 
Head Start children make gains during the program itself, and the gains 
continue when the children enter kindergarten. Once Head Start children 
complete their kindergarten year, they are near the national average of 
100 in key areas, with scores of 93 in vocabulary, 96 in early writing, 
and 92 in early math.
  We've made tremendous, bipartisan progress this year in our effort to 
reauthorize Head Start and build upon a program that serves as a 
lifeline for the neediest families and children across the Nation.
  In this legislation, we build on Head Start's proven track record and 
expand it to include thousands of low-income children who are not yet 
served by the program. We provide for better coordination of Head Start 
with state programs for low-income children. We strengthen Head Start's 
focus on school readiness and early literacy. We enhance the 
educational goals for Head Start teachers. And we provide greater 
accountability for the program, including new policies to ensure 
improved monitoring visits and new policies to address programs with 
serious deficiencies.
  To strengthen Head Start, we have to begin by providing more 
resources for it. The need for Head Start is greater than ever. Child 
poverty is on the rise again. Today, less than 50 percent of children 
eligible for Head Start participate in the program. Hundreds of 
thousands of three- and four-year-olds are left out because of the 
inadequate funding level of the program. Early Head Start serves only 3 
percent of eligible infants and toddlers. It is shameful that 97 
percent of the children eligible for Early Head Start have no access to 
it. It's long past time for Congress to expand access to Head Start to 
serve as many infants, toddlers, and preschool children as possible.
  The bill that we introduce today will set a goal to expand Head Start 
over the next several years. We call for increases in funding, from 
$6.9 billion in the current fiscal year, to $7.3 billion in FY 2008, 
$7.5 billion in FY 2009, and $7.9 billion in 2010. These funding levels 
are critical to advance the essential reforms in this legislation, and 
to serve thousands of additional children in the Head Start program.
  Early Head Start is an especially important program for needy infants 
and toddlers. Research clearly shows its benefit to infants and 
toddlers and their families. Early Head Start children have larger 
vocabularies, lower levels of aggressive behavior, and higher levels of 
sustained attention than children not enrolled in the program. Parents 
are more likely to play with their children and read to them.
  This bill will double the size of Early Head Start over the course of 
this authorization, and deliver services to over 56,000 additional 
children over the course of this authorization.
  Our bill establishes a Head Start Collaboration Office in every state 
to maximize services to Head Start children, align Head Start with 
kindergarten classrooms, and strengthen its local partnerships with 
other agencies. These offices will work hand in hand with the Head 
Start network of training and technical assistance to support Head 
Start grantees in better meeting the goals of preparing children for 
school.
  States will also have an active role in coordinating their system of 
early childhood programs, and increasing the quality of those programs. 
Our bill designates an Early Care and Education Council in each State 
to conduct an inventory of children's needs, develop plans for data 
collection and for supporting early childhood educators, review and 
upgrade early learning standards, and make recommendations on technical 
assistance and training. For those States ready to move forward and 
implement their statewide plan, our bill will offer a one-time 
incentive grant to implement these important efforts.
  Over the past four decades, Head Start has built up quality and 
performance standards to guarantee a full range of services, so that 
children are educated in the basics about letters and numbers and 
books, and are also healthy, well-fed, and supported in stable and 
nurturing relationships. Head Start is a model program, and we can 
enhance its quality even more.
  One way to do that is to strengthen Head Start's current literacy 
initiative. We know the key to later reading success is to get young 
children excited about letters and books and numbers. Our bill 
emphasizes language and literacy, by enhancing the literacy training 
required of Head Start teachers, by continuing to promote parent 
literacy, and by working to put more books into Head Start classrooms 
and into children's homes.
  We also make a commitment in this bill to upgrade all of the 
educational components of Head Start, and ensure that services are 
aligned with expectations for children's kindergarten year and continue 
to be driven by the effective Head Start Child Outcomes Framework.
  At the heart of Head Start's success are its teachers and staff. They 
are caring, committed persons who know the children they serve and are 
dedicated to improving their lives. They help children learn to 
identify letters of the alphabet and arrange the pieces of puzzles. 
They teach them to brush their teeth, wash their hands, make friends 
and follow rules. Yet their salary is still half the salary of 
kindergarten teachers, and turnover is high--11 percent a year.
  Because a teacher's quality is directly related to a child's outcome, 
our bill establishes a goal to ensue that every Head Start teacher have 
their A.A. degree and 50 percent earn their B.A. degree over the course 
of this authorization. Head Start teachers and staff are the greatest 
resource to children and families in the program, and we must match 
these ambitious reforms and improvements with the funding needed to see 
that Head Start programs can meet these goals.
  We have also granted additional flexibility in this bill for Head 
Start programs to serve families and children that need services at the 
local level. We've lifted the eligibility requirements so that families 
living below 130 percent of the federal poverty rate can qualify and 
participate in Head Start. Often, these are the neighbors of Head Start 
children with similar needs, but currently remain barred from 
participating in the program.
  Under this bill, Head Start programs will be empowered with greater 
authority to determine the needs of families in their local communities 
and define services to meet those needs. If programs determine that 
there is a greater share infants and toddlers in need of services, our 
bill allows them to apply to the Secretary to convert and expand Head 
Start to serve those youngest children, consistent with Early Head 
Start standards. If programs identify a need to provide full-day or 
full-year care for children and families, they can take steps to do so.
  Accountability is a cornerstone of excellence in education and should 
start early. Head Start should be accountable for its promise to 
provide safe and healthy learning environments, to support each child's 
individual pattern of development and learning, to cement community 
partnerships in services for children, and to involve parents in their 
child's growth.
  Head Start reviews are already among the most extensive in the field. 
Every 3 years, a federal and local team spends a week thoroughly 
examining every aspect of every Head Start program. They check 
everything from batteries in flashlights to how parents feel

[[Page 3690]]

about the program. Our bill takes a further step to improve the 
monitoring of Head Start programs, ensures that programs receive useful 
and timely feedback and information, and strengthens annual reviews and 
plans for improvement.
  Our bill also takes an important step to suspend the Head Start 
National Reporting System. Four years ago, I insisted that instead of 
rushing forward with a national assessment for every four- and five-
year-old in Head Start, this Administration should instead move more 
deliberately to develop and implement an assessment tool that would 
help guide and improve Head Start programs. Unfortunately, they 
rejected that call and proceeded with an assessment--absent sufficient 
authorization or oversight from Congress--that was later proven by a 
GAO study to be flawed and inconsistent with professional standards for 
testing and measurement.
  Any assessment used in Head Start must be held to the highest 
standard. It must be valid and reliable, fair to children from all 
backgrounds, balanced in what it measures, and address the development 
of the whole child. Our bill calls on the National Academy of Sciences 
to continue their work in surveying assessments and outcomes 
appropriate for early childhood programs, and to make recommendations 
to the Secretary and to Congress on the use of assessments and outcomes 
in Head Start programs. I hope the National Academy's work will be 
helpful as we consider future improvements in the Head Start program.
  Finally, this bill appropriately rejects earlier calls to block grant 
Head Start services, preserving the community-based structure of the 
program. It makes no sense to turn Head Start into a block grant to the 
states. To do so would have dismantled the program and undermined Head 
Start's guarantees that children can see doctors and dentists, eat 
nutritious meals, and learn early academic and social skills. The 
current Federal-to-local structure of Head Start enables it to tailor 
its services to meet local community needs. Performance standards 
guarantee a high level of quality across all programs. Yet each program 
is unique and specifically adapted to the local community. Head Start 
is successful in serving Inuit children in Alaska, migrant-workers' 
children in Tennessee, and inner-city children in Boston. It is 
essential to maintain the ability of local Head Start programs to 
tailor their services to meet the needs of local neighborhoods and 
their children.
  The Head Start for School Readiness Act we are introducing today will 
keep Head Start on its successful path, and enable this vital program 
to continue to thrive and improve. I urge our colleagues on both sides 
of the aisle to join us in advancing and strengthening this program, 
and give children the head start they need and deserve to prepare for 
school and for life.
  Mr. ENZI. Mr. President, I rise to join my colleagues in introducing 
the Head Start for School Readiness Act.
  Head Start programs are critical to ensuring that all children, 
regardless of their background, enter school ready to learn and 
succeed. I want to thank Senator Kennedy and his staff for his ongoing 
commitment to our bipartisan approach, which has resulted in a bill 
that meets the needs of children and families who participate in the 
Head Start program throughout our Nation. I would also like to thank 
our colleagues Senators Alexander and Dodd and their staff for their 
fine work as well.
  This legislation would reauthorize the Head Start program and help 
ensure that children in this important program will be better prepared 
to enter school with the skills to succeed. Success in life depends a 
great deal on the preparation for that success, which comes early in 
life. It is well documented in early childhood education research that 
students who are not reading well by the third grade will struggle with 
reading most of their lives. Head Start provides early education for 
over 900,000 children each year, most of whom would not have the 
opportunity to attend preschool programs elsewhere. It is because of 
these 900,000 children we have all worked so hard to improve and 
strengthen this Act.
  I am particularly pleased with the accountability provisions we put 
forth in this legislation. The legislation we introduce today limits 
the timeframe for Head Start grantees to appeal decisions made by the 
Secretary to terminate grants. In some instances, Head Start grantees 
have been found to be operating programs that are unsafe or misusing 
Federal funds--and are often continuing those bad practices for months, 
as long as 600 days in some cases--during the termination process. This 
equates to children not receiving quality services, and instead of 
being prepared for success, they fall further behind.
  Additional steps have been taken in this legislation to increase the 
quality of the Head Start program including providing the Secretary the 
authority to terminate a grantee that has multiple and recurring 
deficiencies that has not made significant and substantial progress 
toward correcting those deficiencies.
  We recognize that a vast majority of the Head Start agencies provide 
high quality, comprehensive services for children in the Head Start 
programs. However, the provisions in this bill will create an important 
incentive for programs to operate at their best, and in the best 
interest of the children they serve.
  Senator Dodd has provided valuable leadership as we worked to develop 
a clear policy on the roles and responsibilities of the governing body 
and policy councils. We have worked together to clarify and strengthen 
the roles of the governing body and policy councils. After careful 
review, the Committee found that many of the important fiscal and legal 
responsibilities of Head Start grantees were not explicitly assigned. 
The bill clarifies those responsibilities leading to more consistent, 
high quality fiscal and legal management, which will ensure these 
programs are serving children in the best possible way.
  I want to particularly note emphasis we have placed on the role of 
parents in Head Start programs. It is vital to remember that this 
program provides services to children and their families. Parents 
provide valuable insight and experience as to what a Head Start program 
should do for children.
  Senators Alexander, Kennedy, and Dodd have worked tirelessly on this 
legislation and championed increasing coordination, collaboration, and 
excellence in early childhood education and care programs. I wish to 
thank my colleagues on the Committee, particularly Senators Kennedy, 
Alexander, and Dodd, for their work in drafting this bipartisan 
legislation to reauthorize the Head Start Act. I believe the 
legislation we are introducing today will improve the quality and 
effectiveness of the Head Start program for generations of children to 
come. It is my hope that our bipartisan efforts will continue to 
produce results as we move the bill through the Senate and into 
Conference.
  Mr. DODD. Mr. President, I rise today to join my colleagues, Senator 
Kennedy, Senator Enzi, and Senator Alexander in introducing the Head 
Start for School Readiness Act. I am pleased that we are beginning the 
process of reauthorizing this important legislation early in the 110th 
Congress.
  Since 1965, Head Start has provided comprehensive early childhood 
development services to low-income children. The evidence is clear: 
Head Start works for the more than 900,000 children enrolled in centers 
throughout the country. As we reauthorize this bill, we have the 
opportunity to refine and improve the program to make it work even 
better.
  This reauthorization bill maintains the important characteristics of 
Head Start that have made it such an important program, aiding in the 
social, emotional, physical and cognitive development of low-income 
preschool children. The program is successful because each center 
addresses the needs of the local community. It is more than just a 
school readiness program; it addresses the comprehensive needs of 
children and their families by providing health and other services to 
the

[[Page 3691]]

enrolled children. Families play the most important role in ensuring 
the success of their children, and our bill maintains an integral role 
for parents in the decision-making and day to day operations of the 
program. Parent involvement is a centerpiece of Head Start and I 
believe this bill strengthens that component.
  This reauthorization bill expands eligibility, improves 
accountability by clarifying program governance, strengthens school 
readiness for children and enhances teacher quality. In addition, 
collaboration and coordination with other early childhood development 
programs and outreach to underserved populations is greatly improved.
  The bill we're introducing enables more low-income children to get a 
head start by allowing programs to serve families with incomes up to 
130 percent of the poverty level, while ensuring that the most 
vulnerable families below the poverty level are served first. This is 
important for Connecticut and other States where the cost of living is 
especially high and many working poor families aren't able to access 
services because they earn just above the poverty level. In addition, 
the bill expands access to services for infants and toddlers in Early 
Head Start by increasing the set-aside from 10 percent to 20 percent 
over the next 5 years. Programs are also provided more discretion to 
serve eligible individuals based on the needs of the each community.
  Although we do not go as far as I would personally like to see in 
funding for Head Start, we do authorize additional resources in this 
bill. Despite the tight budget situation, we authorize an increase of 
six percent from $6.9 billion to $7.35 billion in Fiscal Year 2008, to 
$7.65 billion in Fiscal Year 2009 and to $7.995 billion in Fiscal Year 
2009. I continue to be gravely concerned about the lack of resources 
for Head Start--funding levels have been essentially flat since 2002. 
Currently, only half of eligible children are served in Head Start and 
fewer than 5 percent are served in Early Head Start.
  Across the country, Head Start providers are reporting rising costs 
in transportation, some more than 15 percent due to fuel prices. Other 
budget concerns include higher unemployment and health care premiums, 
facilities maintenance and training for staff. Rising operating costs 
are coinciding with State, local and private funding partners cutting 
back their contributions to local Head Start programs. This terrible 
budget crunch has caused providers to make deep cuts in already tight 
budgets, as they try desperately to not remove children from their 
enrollments. I understand the challenges facing the Federal budget and 
look forward to continuing to work with my colleagues on the budget and 
appropriations committees to increase vital resources for Head Start.
  Research shows that child outcomes are directly related to the 
quality of the teachers and professionals who work with them on a daily 
basis. I am pleased that we establish goals in this Head Start bill for 
improving educational standards for Head Start teachers, curriculum 
specialists and teacher assistants. Understanding that dedicated Head 
Start teachers and staff work hard for relatively low wages, there will 
not be penalties associated with programs not meeting the goal we have 
established. I would hope that we could offer funding to help teachers 
meet these goals, but that is not possible at this juncture. I will 
continue to work toward increased funding to assist teachers in 
pursuing additional educational goals.
  When Head Start began more than 40 years ago, it was the only 
preschool program available for low-income children; now there are many 
approaches. Collaboration and coordination with other early childhood 
programs is also an essential piece of this Head Start bill, reducing 
duplication and encouraging opportunities for shared information and 
resources.
  I look forward to working with my colleagues as we move this bill 
through the Senate.
                                 ______
                                 
      By Mr. SCHUMER (for himself, Mr. Roberts, Mr. Nelson of Florida, 
        Mrs. Dole, Ms. Stabenow, and Mr. Kyl):
  S. 557. A bill to amend the Internal Revenue Code of 1986 to make 
permanent the depreciation classification of motorsports entertainment 
complexes; to the Committee on Finance.
  Mr. SCHUMER. Mr. President, I rise today to introduce ``The 
Motorsports Fairness and Permanency Act.'' This bill extends the 
current tax treatment for speedways and race tracks around the country. 
Just over two years ago, Congress codified the seven-year depreciation 
classification for motorsports facilities. However, this provision of 
the tax code expires at the end of 2007. The bill I am introducing 
today would make the seven-year classification permanent, providing 
much needed clarity and certainty for facility owners who are planning 
capital investments.
  There are over fifty motorsports facilities in every part of New York 
State: from Long Island Motorsports Park to Poughkeepsie Speedway to 
Utica-Rome Speedway to Wyoming County International Speedway. These 
tracks provide entertainment for thousands of fans and are important 
engines of local and regional economic development.
  The highest profile facility in New York State is Watkins Glen 
International. This storied road course has played an important role in 
open wheel and stock car racing since it opened in 1956. The Glen has 
hosted NASCAR racing since 1986, and this year's schedule will include 
the Grand-Am Rolex Sports Car Series, the IndyCar Series and the NASCAR 
Nextel Cup. With these high profile events drawing thousands of out-of-
state racing fans to Schuyler County it is no surprise that the Glen's 
economic impact has been estimated at over $200 million a year.
  Watkins Glen is also a prime example of the need for continual 
capital reinvestment at motorsports facilities. Since 2005, the Glen 
has added new grandstands and spectator suites and upgraded and repaved 
the track. Planning multi-million dollar capital projects requires a 
certain and stable tax regime governing these investments. In order to 
provide this stability and certainty, I am introducing the Motorsports 
Fairness and Permanency Act, and I am pleased to be joined by Senators 
Roberts, Bill Nelson, Dole, Stabenow, and Kyl as original cosponsors. 
Enacting this legislation will be crucial to supporting the economic 
benefits that motorsports facilities provide across New York State and 
across the country. I hope that my colleagues will join me in 
supporting this legislation, and I look forward to working with my 
colleague from Kansas to have it considered in the Finance Committee.
                                 ______
                                 
      By Mr. DOMENICI (for himself, Mr. Kennedy, Mr. Enzi, Mr. Brown, 
        Mr. Smith, Mr. Feingold, Mr. Coleman, Mr. Lautenberg, Mr. 
        Warner, Mrs. Boxer, Ms. Murkowski, Mr. Akaka, Mr. Roberts, Mr. 
        Cardin, Mr. Hatch, Ms. Cantwell, Ms. Collins, Ms. Stabenow, Ms. 
        Snowe, Mr. Biden, Mr. Graham, and Mr. Nelson of Nebraska):
  S. 558. A bill to provide parity between health insurance coverage of 
mental health benefits and benefits for medical and surgical services; 
to the Committee on Health, Education, Labor, and Pensions.
  Mr. KENNEDY. Access to mental health services is one of the most 
important and most neglected civil rights issues facing the Nation. For 
too long, persons living with mental disorders have suffered 
discriminatory treatment at all levels of society. They have been 
forced to pay more for the services they need and to worry about their 
job security if their employer finds out about their condition. Sadly, 
in America today, patients with biochemical problems in their liver are 
treated with better care and greater compassion than patients with 
biochemical problems in their brain.
  That kind of discrimination must end. No one questions the need for 
affordable treatment of physical illnesses. But those who suffer from 
mental illnesses face serious barriers in obtaining the care they need 
at a cost they can afford. Like those suffering

[[Page 3692]]

from physical illnesses, persons with mental disorders deserve the 
opportunity for quality care. The failure to obtain treatment can mean 
years of shattered dreams and unfulfilled potential.
  Eleven years ago, Congress passed the first Mental Health Parity Act. 
That legislation was an important first step in bringing attention to 
discriminatory practices against the mentally ill, but it did little to 
correct the injustices that so many Americans continue to face. The 
1996 legislation required that annual and lifetime dollar limits for 
mental health coverage must be no less than the limits for medical and 
surgical coverage. But more steps are clearly needed to guarantee that 
Americans suffering from mental illness are not forced to pay more for 
the services they need, do not face harsher limitations on treatment, 
and are not denied access to care.
  This bill is a chance to take the actions needed to end the 
longstanding discrimination against persons with mental illness. The 
late Senator Paul Wellstone and Senator Pete Domenici deserve great 
credit for their bipartisan leadership on mental health parity. If it 
were not for them, we would not be here today.
  The bill prohibits group health plans from imposing treatment 
limitations or financial requirements on the coverage of mental health 
conditions that do not also apply to physical conditions. That means no 
limits on days or treatment visits, and no exorbitant co-payments or 
deductibles. The bill was negotiated by and has the support of the 
mental health community, the business community, and the insurance 
industry.
  The need is clear. One in five Americans will suffer some form of 
mental illness this year--but only a third of them will receive 
treatment. Millions of our fellow citizens are unnecessarily enduring 
the pain and sadness of seeing a family member, friend, or loved one 
suffer illnesses that seize the mind and break the spirit.
  Battling mental illness is itself a painful process, but 
discrimination against persons with such illnesses is especially cruel, 
since the success rates for treatment often equal or surpass those for 
physical conditions. According to the National Institute of Mental 
Health, clinical depression treatment can be 70 percent successful, and 
treatment for schizophrenia can be 60 percent successful.
  Over the years we've heard compelling testimony from experts, 
activists, and patients about the need to equalize coverage of physical 
and mental illnesses. The Office of Personnel Management talks us that 
providing full parity to 8.5 million federal employees has led to 
minimal premium increases. We heard dramatic testimony about the 
economic and social advantages of parity, including a healthier, more 
productive workforce.
  Some of the most compelling testimony came several years ago from 
Lisa Cohen, a hardworking American from New Jersey, who suffers from 
both physical and mental illnesses, and is forced to pay exorbitant 
costs for treating her mental disorder, while paying little for her 
physical disorder. She is typical of millions of Americans who not only 
face the cruel burden of mental illness, but also the cruel burden of 
discriminatory treatment. No Americans should be denied equal treatment 
of an illness because it starts in the brain instead of the heart, 
lungs, or other parts of their body. No patients should be denied 
access to the treatment that can cure their illness because of where 
they live or work.
  A number of States have already enacted mental health parity laws, 
but 86 million workers under ERISA have no protection under state 
mental health statutes.
  Mental health parity is a good investment for the Nation. The costs 
from lost worker productivity and extra physical care outweigh the 
costs of implementing parity for mental health treatment.
  Over the years study after study has shown that parity makes good 
financial sense. An analysis of more than 46,000 workers at major 
companies showed that employees who report being depressed or under 
stress are likely to have substantially higher health costs than co-
workers without such conditions. Employees who reported being depressed 
had health bills 70 percent higher than those who did not suffer from 
depression. Those reporting high stress had 46 percent higher health 
costs. McDonnell Douglas found a 4 to 1 return on investment after 
accounting for lower medical claims, reduced absenteeism, and smaller 
turnover.
  Mental illness also imposes a huge financial burden on the Nation. It 
costs us $300 billion each year in treatment expenses, lost worker 
productivity, and crime. This country can afford mental health parity. 
What we can't afford is to continue denying persons with mental 
disorders the care they need.
  Today is a turning point. We are finally moving toward ending this 
shameful form of discrimination in our society--discrimination against 
mental illness. This bill has been seven years in the making, and 
brings first class medicine to millions of Americans who have been 
second class patients for too long.
  Today, we begin to right that wrong, by guaranteeing equal treatment 
to the 11 million people receiving mental health services, and 
promising equal treatment to the remaining 100 million insured workers 
and their families who never know the day they may need their mental 
health benefit.
  The 1996 Act, was an important step towards ending health insurance 
discrimination against mental illness. This bill will take another 
large step forward by closing the loopholes that remain.
  It guarantees co-payments, deductibles, coinsurance, out of pocket 
expenses and annual and lifetime limits that apply to mental health 
benefits are no different than those applied to medical and surgical 
benefits.
  It guarantees that the frequency of treatment, number of visits, days 
of coverage and other limits on scope and duration of treatment for 
mental health services are no different than those applied to medical 
and surgical benefits.
  This equal treatment and financial equity is also applied to 
substance abuse.
  Features of State law that require coverage of mental disorders are 
protected, to assure those currently protected by state parity laws 
that their needs will be met.
  The medical management strategies needed to prevent denial of 
medically needed services for patients remain intact.
  Finally, the bill is modeled on the parity that is already guaranteed 
to the 8.5 million persons, including Members of Congress, under the 
Federal Employee Benefits Program,
  Equal treatment of those affected by mental illness is not just an 
insurance issue. It's a civil rights issue. At its heart, mental health 
parity is a question of simple justice.
  It is long past time to end insurance discrimination and guarantee 
all people with mental illness the coverage they deserve.
  I urge my colleagues to support this important principle, and end the 
unacceptable double standards that have unfairly plagued our health 
care systems for so long.
  Mr. DOMENICI. Mr. President, I rise today along with my colleagues 
Senator Kennedy and Senator Enzi to introduce the Mental Health Parity 
Act of 2007. I want to thank my colleagues for all of their hard work 
on this issue and I am glad we are able to introduce this paramount 
legislation.
  Simply put, our legislation will provide parity between mental health 
coverage and medical and surgical coverage. No longer will people be 
treated differently only because they suffer from a mental illness. 
This means 113 million people in group health plans will benefit from 
our bill.
  We are here today after years of hard work. We have worked with the 
mental health community, the business community, and insurance groups 
to carefully construct a fair bill. A sampling of the groups include 
the National Alliance on Mental Illness, the American Psychological 
Association, the American Psychiatric Association, the National Retail 
Federation, and Aetna Insurance.

[[Page 3693]]

  This bill will no longer apply a more restrictive standard to mental 
health coverage and another more lenient standard be applied to medical 
and surgical coverage. What we are doing is a matter of simple 
fairness. Statistics demonstrate that there is a significant need for 
this change in policy. Currently, 26 percent of American adults or 
nearly 58 million people suffer from a diagnosable mental illness each 
year. Six percent of those adults suffer from a serious mental illness. 
Additionally, more than 30,000 people commit suicide each year in the 
United States. We need to reduce these numbers, and I believe expanding 
access to mental health services will allow us to do so.
  This bill will provide mental health parity for about 113 million 
Americans who work for employers with 50 or more employees and ensure 
health plans do not place more restrictive conditions on mental health 
coverage than on medical and surgical coverage. Additionally, the 
legislation includes parity for financial requirements such as 
deductibles, copayments, and annual lifetime limits. Also, this bill 
includes parity for treatment limitations regarding the number of 
covered hospital days and visits. This bill does not Mandate the 
coverage of mental health nor does it prohibit a health plan from 
managing mental health benefits in order to ensure only medically 
necessary treatments are covered.
  Again, I would like to thank everyone who contributed to the 
development of this legislation. I believe we are making a difference 
today and I look forward to working with my colleagues to move this 
bill forward.
  I ask for unanimous consent that the text of the bill to be printed 
in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 558

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Mental Health Parity Act of 
     2007''.

     SEC. 2. MENTAL HEALTH PARITY.

       (a) Amendments of ERISA.--Subpart B of part 7 of title I of 
     the Employee Retirement Income Security Act of 1974 is 
     amended by inserting after section 712 (29 U.S.C. 1185a) the 
     following:

     ``SEC. 712A. MENTAL HEALTH PARITY.

       ``(a) In General.--In the case of a group health plan (or 
     health insurance coverage offered in connection with such a 
     plan) that provides both medical and surgical benefits and 
     mental health benefits, such plan or coverage shall ensure 
     that--
       ``(1) the financial requirements applicable to such mental 
     health benefits are no more restrictive than the financial 
     requirements applied to substantially all medical and 
     surgical benefits covered by the plan (or coverage), 
     including deductibles, copayments, coinsurance, out-of-pocket 
     expenses, and annual and lifetime limits, except that the 
     plan (or coverage) may not establish separate cost sharing 
     requirements that are applicable only with respect to mental 
     health benefits; and
       ``(2) the treatment limitations applicable to such mental 
     health benefits are no more restrictive than the treatment 
     limitations applied to substantially all medical and surgical 
     benefits covered by the plan (or coverage), including limits 
     on the frequency of treatment, number of visits, days of 
     coverage, or other similar limits on the scope or duration of 
     treatment.
       ``(b) Clarifications.--In the case of a group health plan 
     (or health insurance coverage offered in connection with such 
     a plan) that provides both medical and surgical benefits and 
     mental health benefits, such plan or coverage shall not be 
     prohibited from--
       ``(1) negotiating separate reimbursement or provider 
     payment rates and service delivery systems for different 
     benefits consistent with subsection (a);
       ``(2) managing the provision of mental health benefits in 
     order to provide medically necessary services for covered 
     benefits, including through the use of any utilization 
     review, authorization or management practices, the 
     application of medical necessity and appropriateness criteria 
     applicable to behavioral health, and the contracting with and 
     use of a network of providers; or
       ``(3) applying the provisions of this section in a manner 
     that takes into consideration similar treatment settings or 
     similar treatments.
       ``(c) In- and Out-of-Network.--
       ``(1) In general.--In the case of a group health plan (or 
     health insurance coverage offered in connection with such a 
     plan) that provides both medical and surgical benefits and 
     mental health benefits, and that provides such benefits on 
     both an in- and out-of-network basis pursuant to the terms of 
     the plan (or coverage), such plan (or coverage) shall ensure 
     that the requirements of this section are applied to both in- 
     and out-of-network services by comparing in-network medical 
     and surgical benefits to in-network mental health benefits 
     and out-of-network medical and surgical benefits to out-of-
     network mental health benefits, except that in no event shall 
     this subsection require the provision of out-of-network 
     coverage for mental health benefits even in the case where 
     out-of-network coverage is provided for medical and surgical 
     benefits.
       ``(2) Clarification.--Nothing in paragraph (1) shall be 
     construed as requiring that a group health plan (or coverage 
     in connection with such a plan) eliminate an out-of-network 
     provider option from such plan (or coverage) pursuant to the 
     terms of the plan (or coverage).
       ``(d) Small Employer Exemption.--
       ``(1) In general.--This section shall not apply to any 
     group health plan (and group health insurance coverage 
     offered in connection with a group health plan) for any plan 
     year of any employer who employed an average of at least 2 
     (or 1 in the case of an employer residing in a State that 
     permits small groups to include a single individual) but not 
     more than 50 employees on business days during the preceding 
     calendar year.
       ``(2) Application of certain rules in determination of 
     employer size.--For purposes of this subsection:
       ``(A) Application of aggregation rule for employers.--Rules 
     similar to the rules under subsections (b), (c), (m), and (o) 
     of section 414 of the Internal Revenue Code of 1986 shall 
     apply for purposes of treating persons as a single employer.
       ``(B) Employers not in existence in preceding year.--In the 
     case of an employer which was not in existence throughout the 
     preceding calendar year, the determination of whether such 
     employer is a small employer shall be based on the average 
     number of employees that it is reasonably expected such 
     employer will employ on business days in the current calendar 
     year.
       ``(C) Predecessors.--Any reference in this paragraph to an 
     employer shall include a reference to any predecessor of such 
     employer.
       ``(e) Cost Exemption.--
       ``(1) In general.--With respect to a group health plan (or 
     health insurance coverage offered in connections with such a 
     plan), if the application of this section to such plan (or 
     coverage) results in an increase for the plan year involved 
     of the actual total costs of coverage with respect to medical 
     and surgical benefits and mental health benefits under the 
     plan (as determined and certified under paragraph (3)) by an 
     amount that exceeds the applicable percentage described in 
     paragraph (2) of the actual total plan costs, the provisions 
     of this section shall not apply to such plan (or coverage) 
     during the following plan year, and such exemption shall 
     apply to the plan (or coverage) for 1 plan year. An employer 
     may elect to continue to apply mental health parity pursuant 
     to this section with respect to the group health plan (or 
     coverage) involved regardless of any increase in total costs.
       ``(2) Applicable percentage.--With respect to a plan (or 
     coverage), the applicable percentage described in this 
     paragraph shall be--
       ``(A) 2 percent in the case of the first plan year in which 
     this section is applied; and
       ``(B) 1 percent in the case of each subsequent plan year.
       ``(3) Determinations by actuaries.--Determinations as to 
     increases in actual costs under a plan (or coverage) for 
     purposes of this section shall be made by a qualified actuary 
     who is a member in good standing of the American Academy of 
     Actuaries. Such determinations shall be certified by the 
     actuary and be made available to the general public.
       ``(4) 6-month determinations.--If a group health plan (or a 
     health insurance issuer offering coverage in connections with 
     a group health plan) seeks an exemption under this 
     subsection, determinations under paragraph (1) shall be made 
     after such plan (or coverage) has complied with this section 
     for the first 6 months of the plan year involved.
       ``(5) Notification.--An election to modify coverage of 
     mental health benefits as permitted under this subsection 
     shall be treated as a material modification in the terms of 
     the plan as described in section 102(a)(1) and shall be 
     subject to the applicable notice requirements under section 
     104(b)(1).
       ``(f) Rule of Construction.--Nothing in this section shall 
     be construed to require a group health plan (or health 
     insurance coverage offered in connection with such a plan) to 
     provide any mental health benefits.
       ``(g) Mental Health Benefits.--In this section, the term 
     `mental health benefits' means benefits with respect to 
     mental health services (including substance abuse treatment) 
     as defined under the terms of the group health plan or 
     coverage.''.
       (b) Public Health Service Act.--Subpart 1 of part A of 
     title XXVII of the Public Health Service Act is amended by 
     inserting after section 2705 (42 U.S.C. 300gg-5) the 
     following:

[[Page 3694]]



     ``SEC. 2705A. MENTAL HEALTH PARITY.

       ``(a) In General.--In the case of a group health plan (or 
     health insurance coverage offered in connection with such a 
     plan) that provides both medical and surgical benefits and 
     mental health benefits, such plan or coverage shall ensure 
     that--
       ``(1) the financial requirements applicable to such mental 
     health benefits are no more restrictive than the financial 
     requirements applied to substantially all medical and 
     surgical benefits covered by the plan (or coverage), 
     including deductibles, copayments, coinsurance, out-of-pocket 
     expenses, and annual and lifetime limits, except that the 
     plan (or coverage) may not establish separate cost sharing 
     requirements that are applicable only with respect to mental 
     health benefits; and
       ``(2) the treatment limitations applicable to such mental 
     health benefits are no more restrictive than the treatment 
     limitations applied to substantially all medical and surgical 
     benefits covered by the plan (or coverage), including limits 
     on the frequency of treatment, number of visits, days of 
     coverage, or other similar limits on the scope or duration of 
     treatment.
       ``(b) Clarifications.--In the case of a group health plan 
     (or health insurance coverage offered in connection with such 
     a plan) that provides both medical and surgical benefits and 
     mental health benefits, such plan or coverage shall not be 
     prohibited from--
       ``(1) negotiating separate reimbursement or provider 
     payment rates and service delivery systems for different 
     benefits consistent with subsection (a);
       ``(2) managing the provision of mental health benefits in 
     order to provide medically necessary services for covered 
     benefits, including through the use of any utilization 
     review, authorization or management practices, the 
     application of medical necessity and appropriateness criteria 
     applicable to behavioral health, and the contracting with and 
     use of a network of providers; or
       ``(3) be prohibited from applying the provisions of this 
     section in a manner that takes into consideration similar 
     treatment settings or similar treatments.
       ``(c) In- and Out-of-Network.--
       ``(1) In general.--In the case of a group health plan (or 
     health insurance coverage offered in connection with such a 
     plan) that provides both medical and surgical benefits and 
     mental health benefits, and that provides such benefits on 
     both an in- and out-of-network basis pursuant to the terms of 
     the plan (or coverage), such plan (or coverage) shall ensure 
     that the requirements of this section are applied to both in- 
     and out-of-network services by comparing in-network medical 
     and surgical benefits to in-network mental health benefits 
     and out-of-network medical and surgical benefits to out-of-
     network mental health benefits, except that in no event shall 
     this subsection require the provision of out-of-network 
     coverage for mental health benefits even in the case where 
     out-of-network coverage is provided for medical and surgical 
     benefits.
       ``(2) Clarification.--Nothing in paragraph (1) shall be 
     construed as requiring that a group health plan (or coverage 
     in connection with such a plan) eliminate an out-of-network 
     provider option from such plan (or coverage) pursuant to the 
     terms of the plan (or coverage).
       ``(d) Small Employer Exemption.--
       ``(1) In general.--This section shall not apply to any 
     group health plan (and group health insurance coverage 
     offered in connection with a group health plan) for any plan 
     year of any employer who employed an average of at least 2 
     (or 1 in the case of an employer residing in a State that 
     permits small groups to include a single individual) but not 
     more than 50 employees on business days during the preceding 
     calendar year.
       ``(2) Application of certain rules in determination of 
     employer size.--For purposes of this subsection:
       ``(A) Application of aggregation rule for employers.--Rules 
     similar to the rules under subsections (b), (c), (m), and (o) 
     of section 414 of the Internal Revenue Code of 1986 shall 
     apply for purposes of treating persons as a single employer.
       ``(B) Employers not in existence in preceding year.--In the 
     case of an employer which was not in existence throughout the 
     preceding calendar year, the determination of whether such 
     employer is a small employer shall be based on the average 
     number of employees that it is reasonably expected such 
     employer will employ on business days in the current calendar 
     year.
       ``(C) Predecessors.--Any reference in this paragraph to an 
     employer shall include a reference to any predecessor of such 
     employer.
       ``(e) Cost Exemption.--
       ``(1) In general.--With respect to a group health plan (or 
     health insurance coverage offered in connections with such a 
     plan), if the application of this section to such plan (or 
     coverage) results in an increase for the plan year involved 
     of the actual total costs of coverage with respect to medical 
     and surgical benefits and mental health benefits under the 
     plan (as determined and certified under paragraph (3)) by an 
     amount that exceeds the applicable percentage described in 
     paragraph (2) of the actual total plan costs, the provisions 
     of this section shall not apply to such plan (or coverage) 
     during the following plan year, and such exemption shall 
     apply to the plan (or coverage) for 1 plan year. An employer 
     may elect to continue to apply mental health parity pursuant 
     to this section with respect to the group health plan (or 
     coverage) involved regardless of any increase in total costs.
       ``(2) Applicable percentage.--With respect to a plan (or 
     coverage), the applicable percentage described in this 
     paragraph shall be--
       ``(A) 2 percent in the case of the first plan year in which 
     this section is applied; and
       ``(B) 1 percent in the case of each subsequent plan year.
       ``(3) Determinations by actuaries.--Determinations as to 
     increases in actual costs under a plan (or coverage) for 
     purposes of this section shall be made by a qualified actuary 
     who is a member in good standing of the American Academy of 
     Actuaries. Such determinations shall be certified by the 
     actuary and be made available to the general public.
       ``(4) 6-month determinations.--If a group health plan (or a 
     health insurance issuer offering coverage in connections with 
     a group health plan) seeks an exemption under this 
     subsection, determinations under paragraph (1) shall be made 
     after such plan (or coverage) has complied with this section 
     for the first 6 months of the plan year involved.
       ``(5) Notification.--An election to modify coverage of 
     mental health benefits as permitted under this subsection 
     shall be treated as a material modification in the terms of 
     the plan as described in section 102(a)(1) and shall be 
     subject to the applicable notice requirements under section 
     104(b)(1).
       ``(f) Rule of Construction.--Nothing in this section shall 
     be construed to require a group health plan (or health 
     insurance coverage offered in connection with such a plan) to 
     provide any mental health benefits.
       ``(g) Mental Health Benefits.--In this section, the term 
     `mental health benefits' means benefits with respect to 
     mental health services (including substance abuse treatment) 
     as defined under the terms of the group health plan or 
     coverage, and when applicable as may be defined under State 
     law when applicable to health insurance coverage offered in 
     connection with a group health plan.''.

     SEC. 3. EFFECTIVE DATE.

       (a) In General.--The provisions of this Act shall apply to 
     group health plans (or health insurance coverage offered in 
     connection with such plans) beginning in the first plan year 
     that begins on or after January 1 of the first calendar year 
     that begins more than 1 year after the date of the enactment 
     of this Act.
       (b) Termination of Certain Provisions.--
       (1) ERISA.--Section 712 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1185a) is amended by striking 
     subsection (f) and inserting the following:
       ``(f) Sunset.--This section shall not apply to benefits for 
     services furnished after the effective date described in 
     section 3(a) of the Mental Health Parity Act of 2007.''.
       (2) PHSA.--Section 2705 of the Public Health Service Act 
     (42 U.S.C. 300gg-5) is amended by striking subsection (f) and 
     inserting the following:
       ``(f) Sunset.--This section shall not apply to benefits for 
     services furnished after the effective date described in 
     section 3(a) of the Mental Health Parity Act of 2007.''.

     SEC. 4. SPECIAL PREEMPTION RULE.

       (a) ERISA Preemption.--Section 731 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1191) is 
     amended--
       (1) by redesignating subsections (c) and (d) as subsections 
     (e) and (f), respectively; and
       (2) by inserting after subsection (b), the following:
       ``(c) Special Rule in Case of Mental Health Parity 
     Requirements.--
       ``(1) In general.--Notwithstanding any provision of section 
     514 to the contrary, the provisions of this part relating to 
     a group health plan or a health insurance issuer offering 
     coverage in connection with a group health plan shall 
     supercede any provision of State law that establishes, 
     implements, or continues in effect any standard or 
     requirement which differs from the specific standards or 
     requirements contained in subsections (a), (b), (c), or (e) 
     of section 712A.
       ``(2) Clarifications.--Nothing in this subsection shall be 
     construed to preempt State insurance laws relating to the 
     individual insurance market or to small employers (as such 
     term is defined for purposes of section 712A(d)).''.
       (b) PHSA Preemption.--Section 2723 of the Public Health 
     Service Act (42 U.S.C. 300gg-23) is amended--
       (1) by redesignating subsections (c) and (d) as subsections 
     (e) and (f), respectively; and
       (2) by inserting after subsection (b), the following:
       ``(c) Special Rule in Case of Mental Health Parity 
     Requirements.--
       ``(1) In general.--Notwithstanding any provision of section 
     514 of the Employee Retirement Income Security Act of 1974 to 
     the contrary, the provisions of this part relating to a group 
     health plan or a health insurance issuer offering coverage in 
     connection with a group health plan shall supercede any 
     provisions of State law that establishes, implements, or 
     continues in effect any standard or requirement which differs 
     from the specific

[[Page 3695]]

     standards or requirements contained in subsections (a), (b), 
     (c), or (e) of section 2705A.
       ``(2) Clarifications.--Nothing in this subsection shall be 
     construed to preempt State insurance laws relating to the 
     individual insurance market or to small employers (as such 
     term is defined for purposes of section 2705A(d)).''.
       (c) Effective Date.--The provisions of this section shall 
     take effect with respect to a State, on the date on which the 
     provisions of section 2 apply with respect to group health 
     plans and health insurance coverage offered in connection 
     with group health plans.

     SEC. 5. FEDERAL ADMINISTRATIVE RESPONSIBILITIES.

       (a) Group Health Plan Ombudsman.--
       (1) Department of labor.--The Secretary of Labor shall 
     designate an individual within the Department of Labor to 
     serve as the group health plan ombudsman for the Department. 
     Such ombudsman shall serve as an initial point of contact to 
     permit individuals to obtain information and provide 
     assistance concerning coverage of mental health services 
     under group health plans in accordance with this Act.
       (2) Department of health and human services.--The Secretary 
     of Health and Human Services shall designate an individual 
     within the Department of Health and Human Services to serve 
     as the group health plan ombudsman for the Department. Such 
     ombudsman shall serve as an initial point of contact to 
     permit individuals to obtain information and provide 
     assistance concerning coverage of mental health services 
     under health insurance coverage issued in connection with 
     group health plans in accordance with this Act.
       (b) Audits.--The Secretary of Labor and the Secretary of 
     Health and Human Services shall each provide for the conduct 
     of random audits of group health plans (and health insurance 
     coverage offered in connection with such plans) to ensure 
     that such plans are in compliance with this Act (and the 
     amendments made by this Act).
       (c) Government Accountability Office Study.--
       (1) Study.--The Comptroller General shall conduct a study 
     that evaluates the effect of the implementation of the 
     amendments made by this Act on the cost of health insurance 
     coverage, access to health insurance coverage (including the 
     availability of in-network providers), the quality of health 
     care, the impact on benefits and coverage for mental health 
     and substance abuse, the impact of any additional cost or 
     savings to the plan, the impact on State mental health 
     benefit mandate laws, other impact on the business community 
     and the Federal Government, and other issues as determined 
     appropriate by the Comptroller General.
       (2) Report.--Not later than 2 years after the date of 
     enactment of this Act, the Comptroller General shall prepare 
     and submit to the appropriate committees of Congress a report 
     containing the results of the study conducted under paragraph 
     (1).
       (d) Regulations.--Not later than 1 year after the date of 
     enactment of this Act, the Secretary of Labor and the 
     Secretary of Health and Human Services shall jointly 
     promulgate final regulations to carry out this Act.

  Mr. ENZI. Mr. President, first and foremost I want to thank my 
respective colleagues Senator Kennedy and Senator Domenici for their 
dedication and leadership on the issues of mental health parity. Your 
commitment and willingness to compromise has gotten us to the point 
where we are today--introducing a mental health parity bill that has 
the potential to be signed into law this year.
  For many this is monumental. Parity for mental health benefits was 
first championed by the late Senator Paul Wellstone. Senator Domenici 
in memory of our late colleague took over as the lead advocate for this 
legislation after the passing of Senator Wellstone.
  Today is a reflection of your hard work, Senator Domenici, as well as 
the groundwork that was laid by the late Senator Paul Wellstone.
  The advocacy of my good colleagues Senator Wellstone and Domenici 
helped to get the Mental Health Parity Act of 1996 signed into law. 
This legislation acted as a catalyst for many states to take action in 
passing their own mental health parity laws. To date 38 States have 
passed some sort of mental health parity or benefit law. Many of these 
laws go much farther than the 1996 Act. However, there is a concern 
that while the 1996 Act requires parity for annual and lifetime dollar 
limits on coverage, group plans may impose more restrictive treatment 
and cost sharing requirements. This is a legit concern. There is a also 
a valid concern that requiring parity or mental health benefits will 
drive up the cost of insurance, and result in group plans offering less 
coverage or even worse dropping coverage for both mental and physical 
health. The bill introduced today recognizes both of these concerns and 
addresses them. This in turn breaks the log jam that has halted efforts 
in the past three Congress's to pass a Mental Health Parity Act that is 
more widely known as the Paul Wellston Mental Health Equitable 
Treatment Act.
  The Mental Health Parity Act we are introducing today is a compromise 
between the proponents and those who opposed the Paul Wellstone Mental 
Health Equitable Treatment Act. It is a result of two years of 
discussion and compromise between the business and insurer industry and 
the mental health community. I want to thank both of you for coming 
together in good faith to find a middle ground on an issue has 
polarized stakeholders. Your support and input has been critical to 
making this process work. Your willingness to work together to 
accommodate each others concerns, makes it possible for a mental health 
parity law to be enacted this Congress.
  A vital component of the Mental Health Parity Act introduced today 
recognizes the importance and need for treating mental health equal to 
physical health, without unfairly mandating group health plans offer 
mental health coverage. The legislation applies only to those group 
health plans that already offer physical and surgical benefits as well 
as mental health benefits. It does not mandate what types of mental 
health benefits must receive parity, but leaves that to be defined 
under the terms of the plan or coverage or as defined under State law. 
What this legislation does do, is require a plan to provide financial 
requirements and treatment limitations applied to mental health 
benefits equal to the financial requirements and treatment limitations 
applied to medical and surgical benefits that the plan covers. For 
example, deductibles, co-payments, coinsurance, out of pocket expenses, 
frequency of treatment, number of visits and days of coverage will now 
be treated equally for mental health and physical health. To allow for 
health plans to adequately manage the new parity requirement mechanisms 
are authorized to allow for medical management tools to be used by 
health plans. Provisions of this law will preempt provisions of State 
law that differ. But again, this bill would not preempt State laws 
mandating that mental health benefits be covered. Furthermore, States 
that elect to adopt the Federal standards would not be subject to 
preemption.
  In addition, the legislation recognizes the stress many small 
business employers are under to provide health care to their employees, 
thus, this bill does exempts small employers. Any employer with 50 or 
less employees will not be affected by the Federal law, but must still 
comply with its State law or regulation.
  Another critical component of this compromised legislation is a cost 
exemption. Under the provision, an employer may elect to continue to 
offer mental health parity if a group plan results in an increase of 2 
percent in the case of the first plan year and 1 percent in the case of 
each subsequent plan year.
  The compromises made in this legislation are of great importance to 
making sure this legislation will not burden employers struggling with 
health care costs, while not compromising the significance or effect 
this legislation will have in ensuring individuals have better access 
to critical mental health services. Approximately 1 in 5 Americans ages 
18 and older, have a mental disorder that can be diagnosed in a given 
year according to the Substance Abuse and Mental Health Service 
Administration. However, their ability to receive treatment may be 
hindered due to cost issues or the stigma attached to mental illness. 
This legislation will help to address both by sending the message that 
mental health is just as important as physical health, and needs to be 
treated with the same amount of importance. This bill signals to an 
individual diagnosed with schizophrenia that his or her illness is as 
real as an individual diagnosed with diabetes and that they should not 
have to pay more for the mental illness than

[[Page 3696]]

the physical. This legislation will help an employee covered by an 
affected plan who has a child with bipolar disorder better access to 
the treatment that child needs. In the past 20 years new technologies 
and treatments have advanced our understanding and ability to treat a 
mental illness. We now know with the right diagnoses, support, 
treatment and case management a person with mental illness can be a 
contributing member of society. It is time to update our laws to 
reflect this.
  While introduction today is a huge step forward for a Mental Health 
Parity law, much more needs to be done to secure its passage. The 
legislation, as it is currently crafted, still must pass through the 
Senate Health, Education, Labor and Pensions Committee as early as 
Wednesday, the full Senate and then the House. At this point, a process 
has been created that allows for open and honest discussion. I 
encourage my colleagues and the stakeholders to continue this process 
and to remain together throughout each step of the way. By working 
together, instead of against each other, we can achieve passage of this 
legislation.
  Mr. SMITH. Mr. President, I rise today with my colleagues Senator 
Domenici and Senator Kennedy to introduce a bill that will have 
tremendous impact for the millions of Americans who will suffer from 
mental illness in their lifetime. The Mental Health Parity Act of 2007 
is an important bill and I look forward to its passage.
  Mental illness can affect people of any age, of any race, and of any 
income. As a parent with a son who struggled with mental illness, I 
know all too well the indiscriminate nature of the illness and the 
frightening statistics of its regular occurrence for those we love. The 
statistics on the prevalence of mental illness are indeed startling. We 
know that in any given year, more than a quarter of our nation's 
adults--60 million people--suffer from a diagnosable mental disorder, 
many of whom suffer in silence. We also know that mental disorders can 
disrupt lives and are the leading cause of disability for those aged 
15-44 in the United States and in Canada.
  Mental illness is just as deadly and serious as a physical illness. 
Suicide takes the lives of more than 30,000 people each year, with more 
than 700,000 attempts. We also know that suicides outnumber homicides 
three to one each year. We also know that people who suffer from mental 
illness suffer from much higher rates of other chronic conditions, such 
as cardiovascular disease. However, unlike heart attacks and strokes, 
mental illness is not something that we, as a nation, want to talk 
about.
  However, we know that effective treatment exists for most people 
suffering. Help is out there, and this bill will help make it 
available. Mental health is not a Democratic issue or a Republican 
issue. Too much is at stake when we talk about mental health care 
reform to get caught up in partisan politics. We need to work together 
to find solutions. This bill is a big step and an important step in 
moving that needed reform forward. Through parity, we can alleviate 
some of the burden on the public mental health system that results when 
families are forced to turn to the public system when they do not have 
access to treatment through private plans.
  My home State of Oregon had the wisdom and foresight to see that 
mental health parity was necessary. I am proud that this year they are 
implementing parity for the people of Oregon. In a 2004 report by the 
Governor's Mental Health Taskforce, they found that in any given year 
175,00 adults and 75,000 children under the age of 18 are in need of 
mental health services. It also listed as one of the major problems 
facing the Oregon mental health system the fact that mental health 
parity was not, at that time, in effect. That is no longer the case and 
I look forward to seeing significant improvements in the mental health 
system in Oregon as a result of the hard work done there.
  The introduction of this federal legislation is hard fought and so 
important. I look forward to working with my colleagues to ensure its 
passage. I urge my colleagues on both sides of the aisle to support 
this bill.

                          ____________________