March 3, 2004 CONGRESSIONAL RECORD — SENATE S2025 these provisions will help to ensure an a.m. having arrived, the Senate will øSec. 216. Repeal of special capital gains tax affordable, reliable wood supply upon proceed to the consideration of S. 1637, on aliens present in the United which so many manufacturing jobs in which the clerk will report. States for 183 days or more. Maine depend. The assistant legislative clerk read øTITLE I—PROVISIONS RELATING TO RE- Finally, this bill is designed to en- as follows: PEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME sure that only companies that are help- A bill (S. 1637) to amend the Internal Rev- ø ing to build America’s manufacturing enue Code of 1986 to comply with the World SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME. base obtain its benefits. It has both a Trade Organization rulings on the FSC/ETI ø(a) IN GENERAL.—Section 114 is hereby re- benefit in a manner that preserves jobs and carrot and a stick approach. Companies pealed. production activities in the United States, to that move jobs offshore will see their ø(b) CONFORMING AMENDMENTS.— reform and simplify the international tax- benefits reduced. For example, they ø(1)(A) Subpart E of part III of subchapter ation rules of the United States, and for will not be able to claim that 9-percent N of chapter 1 (relating to qualifying foreign other purposes. deduction on operations that are lo- trade income) is hereby repealed. cated in the United States. Companies The Senate proceeded to consider the ø(B) The table of subparts for such part III that choose to invert their corporate bill, which had been reported from the is amended by striking the item relating to structure altogether in order to avoid Committee on Finance, with an amend- subpart E. ø U.S. taxes will not be eligible for this ment to strike all after the enacting (2) The table of sections for part III of subchapter B of chapter 1 is amended by credit at all. clause and inserting in lieu thereof the following: striking the item relating to section 114. The crisis in the manufacturing sec- ø(3) The second sentence of section tor demands our attention. It did not (Strike the part shown in black 56(g)(4)(B)(i) is amended by striking ‘‘or start yesterday, and it will not be re- brackets and insert the part shown in under section 114’’. solved tomorrow. Solutions can and italic.) ø(4) Section 275(a) is amended— should be sought today. S. 1637 ø(A) by inserting ‘‘or’’ at the end of para- The bill I have introduced is a good Be it enacted by the Senate and House of Rep- graph (4)(A), by striking ‘‘or’’ at the end of start, but additional remedies are need- resentatives of the United States of America in paragraph (4)(B) and inserting a period, and ed. Manufacturing jobs arise in part be- Congress assembled, by striking subparagraph (C), and ø(B) by striking the last sentence. cause some of our trading partners øSECTION 1. SHORT TITLE; AMENDMENT OF 1986 ø(5) Paragraph (3) of section 864(e) is simply do not play by the rules. The CODE; TABLE OF CONTENTS. ø(a) SHORT TITLE.—This Act may be cited amended— Presiding Officer has been a leader in ø as the ‘‘Jumpstart Our Business Strength (A) by striking: ø this area. Our Nation’s manufacturers (JOBS) Act’’. ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO can compete against the best in the ø(b) AMENDMENT OF 1986 CODE.—Except as ACCOUNT.— ø world, but they cannot compete otherwise expressly provided, whenever in ‘‘(A) IN GENERAL.—For purposes of’’; and against nations that provide huge sub- this Act an amendment or repeal is ex- inserting: ø sidies and other help to their manufac- pressed in terms of an amendment to, or re- ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO peal of, a section or other provision, the ref- ACCOUNT.—For purposes of’’, and turers. ø erence shall be considered to be made to a (B) by striking subparagraph (B). I hear from manufacturers in my ø(6) Section 903 is amended by striking State time and again whose efforts to section or other provision of the Internal Revenue Code of 1986. ‘‘114, 164(a),’’ and inserting ‘‘164(a)’’. compete successfully in a global econ- ø ø(c) TABLE OF CONTENTS.— (7) Section 999(c)(1) is amended by strik- omy simply cannot overcome the prac- ing ‘‘941(a)(5),’’. øSec. 1. Short title; amendment of 1986 Code; tices of the illegal pricing and sub- ø(c) EFFECTIVE DATE.— table of contents. sidies of nations such as China. That is ø(1) IN GENERAL.—The amendments made øTITLE I—PROVISIONS RELATING TO RE- by this section shall apply to transactions why I will soon be introducing a second PEAL OF EXCLUSION FOR bill that will help ensure that nations occurring after the date of the enactment of EXTRATERRITORIAL INCOME this Act. such as China are held fully account- øSec. 101. Repeal of exclusion for ø(2) BINDING CONTRACTS.—The amendments able for their actions by our trade rem- extraterritorial income. made by this section shall not apply to any edy laws. Unfair market conditions øSec. 102. Deduction relating to income at- transaction in the ordinary course of a trade cannot continue to cause our manufac- tributable to United States pro- or business which occurs pursuant to a bind- turers to hemorrhage jobs. duction activities. ing contract— I am hopeful that working together øTITLE II—INTERNATIONAL TAX ø(A) which is between the taxpayer and a on this and other legislative and ad- PROVISIONS person who is not a related person (as de- fined in section 943(b)(3) of such Code, as in ministrative proposals, we can take the øSubtitle A—International Tax Reform effect on the day before the date of the en- important steps needed to strengthen ø Sec. 201. 20-year foreign tax credit actment of this Act), and American manufacturers, to preserve carryforward. ø(B) which is in effect on September 17, ø our manufacturing capacity, and most Sec. 202. Look-thru rules to apply to divi- 2003, and at all times thereafter. of all, to help ensure that hard-working dends from noncontrolled sec- ø(d) REVOCATION OF SECTION 943(e) ELEC- Americans have the jobs they need and tion 902 corporations. TIONS.— øSec. 203. Foreign tax credit under alter- deserve. ø(1) IN GENERAL.—In the case of a corpora- native minimum tax. tion that elected to be treated as a domestic The PRESIDING OFFICER. The Sen- øSec. 204. Recharacterization of overall do- ator from Oregon. corporation under section 943(e) of the Inter- mestic loss. nal Revenue Code of 1986 (as in effect on the Mr. WYDEN. I thank the Chair. ø Sec. 205. Interest expense allocation rules. day before the date of the enactment of this (The remarks of Mr. WYDEN per- øSec. 206. Determination of foreign personal taining to the introduction of S. 2160 Act)— holding company income with ø(A) the corporation may, during the 1- are located in today’s RECORD under respect to transactions in com- year period beginning on the date of the en- ‘‘Statements on Introduced Bills and modities. actment of this Act, revoke such election, ef- Joint Resolutions.’’) øSubtitle B—International Tax fective as of such date of enactment, and Mr. WYDEN. Mr. President, I yield Simplification ø(B) if the corporation does revoke such the floor. øSec. 211. Repeal of foreign personal holding election— ø f company rules and foreign in- (i) such corporation shall be treated as a vestment company rules. domestic corporation transferring (as of such CONCLUSION OF MORNING øSec. 212. Expansion of de minimis rule date of enactment) all of its property to a BUSINESS under subpart F. foreign corporation in connection with an The PRESIDING OFFICER. Morning øSec. 213. Attribution of stock ownership exchange described in section 354 of such business is closed. through partnerships to apply Code, and in determining section 902 and ø(ii) no gain or loss shall be recognized on f 960 credits. such transfer. JUMPSTART OUR BUSINESS øSec. 214. Application of uniform capitaliza- ø(2) EXCEPTION.—Subparagraph (B)(ii) of STRENGTH (JOBS) ACT tion rules to foreign persons. paragraph (1) shall not apply to gain on any øSec. 215. Repeal of withholding tax on divi- asset held by the revoking corporation if— The PRESIDING OFFICER. Under dends from certain foreign cor- ø(A) the basis of such asset is determined the previous order, the hour of 10:30 porations. in whole or in part by reference to the basis

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of such asset in the hands of the person from ø(6) SPECIAL RULE FOR FARM COOPERA- ø‘‘(1) IN GENERAL.—The portion of the whom the revoking corporation acquired TIVES.—Determinations under this sub- modified taxable income which is attrib- such asset, section with respect to an organization de- utable to domestic production activities is ø(B) the asset was acquired by transfer scribed in section 943(g)(1) of such Code, as in so much of the modified taxable income for (not as a result of the election under section effect on the day before the date of the en- the taxable year as does not exceed— 943(e) of such Code) occurring on or after the actment of this Act, shall be made at the co- ø‘‘(A) the taxpayer’s domestic production 1st day on which its election under section operative level and the purposes of this sub- gross receipts for such taxable year, reduced 943(e) of such Code was effective, and section shall be carried out in a manner by ø(C) a principal purpose of the acquisition similar to section 250(h) of such Code, as ø‘‘(B) the sum of— was the reduction or avoidance of tax (other added by this Act. Such determinations shall ø‘‘(i) the costs of goods sold that are allo- than a reduction in tax under section 114 of be in accordance with such requirements and cable to such receipts, such Code, as in effect on the day before the procedures as the Secretary may prescribe. ø‘‘(ii) other deductions, expenses, or losses date of the enactment of this Act). ø(7) CERTAIN RULES TO APPLY.—Rules simi- directly allocable to such receipts, and ø(e) GENERAL TRANSITION.— lar to the rules of section 41(f) of such Code ø‘‘(iii) a proper share of other deductions, ø(1) IN GENERAL.—In the case of a taxable shall apply for purposes of this subsection. expenses, and losses that are not directly al- year ending after the date of the enactment ø(8) COORDINATION WITH BINDING CONTRACT locable to such receipts or another class of of this Act and beginning before January 1, RULE.—The deduction determined under income. 2007, for purposes of chapter 1 of such Code, paragraph (1) for any taxable year shall be ø‘‘(2) ALLOCATION METHOD.—The Secretary a current FSC/ETI beneficiary shall be al- reduced by the phaseout percentage of any shall prescribe rules for the proper alloca- lowed a deduction equal to the transition FSC/ETI benefit realized for the taxable year tion of items of income, deduction, expense, amount determined under this subsection by reason of subsection (c)(2), except that for and loss for purposes of determining income with respect to such beneficiary for such purposes of this paragraph the phaseout per- attributable to domestic production activi- year. centage for 2003 shall be treated as being ties. ø(2) CURRENT FSC/ETI BENEFICIARY.—The equal to 100 percent. ø‘‘(3) SPECIAL RULES FOR DETERMINING term ‘‘current FSC/ETI beneficiary’’ means ø(9) SPECIAL RULE FOR TAXABLE YEAR WHICH COSTS.— ø any corporation which entered into one or INCLUDES DATE OF ENACTMENT.—In the case of ‘‘(A) IN GENERAL.—For purposes of deter- more transactions during its taxable year be- a taxable year which includes the date of the mining costs under clause (i) of paragraph ginning in calendar year 2002 with respect to enactment of this Act, the deduction allowed (1)(B), any item or service brought into the which FSC/ETI benefits were allowable. under this subsection to any current FSC/ United States without a transfer price meet- ø(3) TRANSITION AMOUNT.—For purposes of ETI beneficiary shall in no event exceed— ing the requirements of section 482 shall be this subsection— ø(A) 100 percent of such beneficiary’s base treated as acquired by purchase, and its cost ø(A) IN GENERAL.—The transition amount period amount for calendar year 2003, re- shall be treated as not less than its value applicable to any current FSC/ETI bene- duced by when it entered the United States. A similar ficiary for any taxable year is the phaseout ø(B) the aggregate FSC/ETI benefits of rule shall apply in determining the adjusted percentage of the base period amount. such beneficiary with respect to transactions basis of leased or rented property where the ø(B) PHASEOUT PERCENTAGE.— occurring during the portion of the taxable lease or rental gives rise to domestic produc- ø(i) IN GENERAL.—In the case of a taxpayer year ending on the date of the enactment of tion gross receipts. using the calendar year as its taxable year, this Act. ø‘‘(B) EXPORTS FOR FURTHER MANUFAC- the phaseout percentage shall be determined øSEC. 102. DEDUCTION RELATING TO INCOME AT- TURE.—In the case of any property described under the following table: TRIBUTABLE TO UNITED STATES in subparagraph (A) that had been exported by the taxpayer for further manufacture, the The phaseout PRODUCTION ACTIVITIES. ø N ENERAL increase in cost or adjusted basis under sub- øYears: percentage is: (a) I G .—Part VIII of subchapter ø2004 ...... 80 B of chapter 1 (relating to special deductions paragraph (A) shall not exceed the difference ø2005 ...... 80 for corporations) is amended by adding at between the value of the property when ex- ø2006 ...... 60. the end the following new section: ported and the value of the property when ø(ii) SPECIAL RULE FOR 2003.—The phaseout ø‘‘SEC. 250. INCOME ATTRIBUTABLE TO DOMES- brought back into the United States after percentage for 2003 shall be the amount that TIC PRODUCTION ACTIVITIES. the further manufacture. ø bears the same ratio to 100 percent as the ø‘‘(a) IN GENERAL.—In the case of a cor- ‘‘(4) MODIFIED TAXABLE INCOME.—The term number of days after the date of the enact- poration, there shall be allowed as a deduc- ‘modified taxable income’ means taxable in- ment of this Act bears to 365. tion an amount equal to 9 percent of the come computed without regard to the deduc- ø(iii) SPECIAL RULE FOR FISCAL YEAR TAX- qualified production activities income of the tion allowable under this section. ø PAYERS.—In the case of a taxpayer not using corporation for the taxable year. ‘‘(e) DOMESTIC PRODUCTION GROSS RE- the calendar year as its taxable year, the ø‘‘(b) PHASEIN.—In the case of taxable CEIPTS.—For purposes of this section, the phaseout percentage is the weighted average years beginning in 2004, 2005, 2006, 2007, or term ‘domestic production gross receipts’ of the phaseout percentages determined 2008, subsection (a) shall be applied by sub- means the gross receipts of the taxpayer which are derived from— under the preceding provisions of this para- stituting for the percentage contained there- ø‘‘(1) any sale, exchange, or other disposi- graph with respect to calendar years any in the transition percentage determined tion of, or portion of which is included in the tax- under the following table: ø‘‘(2) any lease, rental, or license of, payer’s taxable year. The weighted average ø‘‘Taxable years The transition qualifying production property which was shall be determined on the basis of the re- beginning in: percentage is: manufactured, produced, grown, or extracted spective portions of the taxable year in each ø2004 ...... 1 in whole or in significant part by the tax- calendar year. ø2005 ...... 2 payer within the United States. ø (4) BASE PERIOD AMOUNT.—For purposes of ø2006 ...... 3 ø‘‘(f) QUALIFYING PRODUCTION PROPERTY.— this subsection, the base period amount is ø2007 or 2008 ...... 6. For purposes of this section— the aggregate FSC/ETI benefits for the tax- ø‘‘(c) QUALIFIED PRODUCTION ACTIVITIES IN- ø‘‘(1) IN GENERAL.—Except as otherwise payer’s taxable year beginning in calendar COME.—For purposes of this section— provided in this paragraph, the term ‘quali- year 2002. ø‘‘(1) IN GENERAL.—The term ‘qualified pro- fying production property’ means— ø(5) FSC/ETI BENEFIT.—For purposes of duction activities income’ means an amount ø‘‘(A) any tangible personal property, this subsection, the term ‘‘FSC/ETI benefit’’ equal to the applicable percentage of the ø‘‘(B) any computer software, and means— portion of the modified taxable income of ø‘‘(C) any property described in section ø(A) amounts excludable from gross in- the taxpayer which is attributable to domes- 168(f) (3) or (4). come under section 114 of such Code, and tic production activities. ø‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC- ø (B) the exempt foreign trade income of re- ø‘‘(2) APPLICABLE PERCENTAGE.—For pur- TION PROPERTY.—The term ‘qualifying pro- lated foreign sales corporations from prop- poses of this subsection, the term ‘applicable duction property’ shall not include— erty acquired from the taxpayer (determined percentage’ means— ø‘‘(A) consumable property that is sold, without regard to section 923(a)(5) of such ø‘‘(A) in the case of taxable years begin- leased, or licensed by the taxpayer as an in- Code (relating to special rule for military ning before 2012, a percentage equal to the tegral part of the provision of services, property), as in effect on the day before the domestic/worldwide fraction, ø‘‘(B) oil or gas (or any primary product date of the enactment of the FSC Repeal and ø‘‘(B) in the case of taxable years begin- thereof), Extraterritorial Income Exclusion Act of ning in 2012, a percentage (not greater than ø‘‘(C) electricity, 2000). 100 percent) equal to twice the domestic/ ø‘‘(D) water supplied by pipeline to the In determining the FSC/ETI benefit there worldwide fraction, and consumer, shall be excluded any amount attributable to ø‘‘(C) in the case of taxable years begin- ø‘‘(E) any unprocessed timber which is a transaction with respect to which the tax- ning after 2012, 100 percent. softwood, payer is the lessor unless the leased property ø‘‘(d) DETERMINATION OF INCOME ATTRIB- ø‘‘(F) utility services, or was manufactured or produced in whole or in UTABLE TO DOMESTIC PRODUCTION ACTIVI- ø‘‘(G) any property (not described in para- part by the taxpayer. TIES.—For purposes of this section— graph (1)(B)) which is a film, tape, recording,

VerDate jul 14 2003 02:24 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00008 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.036 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2027 book, magazine, newspaper, or similar prop- the payment period described in section chapter 1 is amended by adding at the end erty the market for which is primarily top- 1382(a), the following new item: ical or otherwise essentially transitory in then such person shall be allowed an exclu- ø‘‘Sec. 250. Income attributable to domestic nature. sion from gross income with respect to such production activities.’’ For purposes of subparagraph (E), the term amount. The taxable income of the organiza- ø(e) EFFECTIVE DATE.— ‘unprocessed timber’ means any log, cant, or tion shall not be reduced under section 1382 ø(1) IN GENERAL.—The amendments made similar form of timber. by the portion of any such amount with re- by this section shall apply to taxable years ø‘‘(g) DOMESTIC/WORLDWIDE FRACTION.—For spect to which an exclusion is allowable to a ending after the date of the enactment of purposes of this section— person by reason of this paragraph. this Act. ø‘‘(1) IN GENERAL.—The term ‘domestic/ ø‘‘(B) SPECIAL RULES.—For purposes of ap- ø(2) APPLICATION OF SECTION 15.—Section 15 worldwide fraction’ means a fraction— plying subparagraph (A), in determining the of the Internal Revenue Code of 1986 shall ø‘‘(A) the numerator of which is the value qualified production activities income of the apply to the amendments made by this sec- of the domestic production of the taxpayer, organization under this section— tion as if they were changes in a rate of tax. and ø‘‘(i) there shall not be taken into account ø‘‘(B) the denominator of which is the in computing the organization’s modified øTITLE II—INTERNATIONAL TAX value of the worldwide production of the tax- taxable income any deduction allowable PROVISIONS payer. under subsection (b) or (c) of section 1382 (re- øSubtitle A—International Tax Reform ø‘‘(2) VALUE OF DOMESTIC PRODUCTION.—The lating to patronage dividends, per-unit re- øSEC. 201. 20-YEAR FOREIGN TAX CREDIT value of domestic production is the excess tain allocations, and nonpatronage distribu- CARRYFORWARD. of— tions), and ø(a) GENERAL RULE.—Section 904(c) (relat- ø‘‘(A) the domestic production gross re- ø‘‘(ii) the organization shall be treated as ing to carryback and carryover of excess tax ceipts, over having manufactured, produced, grown, or paid) is amended by striking ‘‘in the first, ø‘‘(B) the cost of purchased inputs allo- extracted in whole or significant part any second, third, fourth, or fifth’’ and inserting cable to such receipts that are deductible qualifying production property marketed by ‘‘in any of the first 20’’. under this chapter for the taxable year. the organization which its patrons have so ø(b) EXCESS EXTRACTION TAXES.—Para- ø‘‘(3) PURCHASED INPUTS.— manufactured, produced, grown, or ex- graph (1) of section 907(f) is amended by ø‘‘(A) IN GENERAL.—Purchased inputs are tracted. striking ‘‘in the first, second, third, fourth, any of the following items acquired by pur- ø‘‘(2) SPECIAL RULE FOR PARTNERSHIPS.— or fifth’’ and inserting ‘‘in any of the first chase: For purposes of this section, a corporation’s 20’’. ø‘‘(i) Services (other than services of em- distributive share of any partnership item ø(c) EFFECTIVE DATE.—The amendments ployees) used in manufacture, production, shall be taken into account as if directly re- made by this section shall apply to excess growth, or extraction activities. alized by the corporation. foreign taxes which (without regard to the ø‘‘(ii) Items consumed in connection with ø‘‘(3) COORDINATION WITH MINIMUM TAX.— amendments made by this section) may be such activities. The deduction under this section shall be al- carried to any taxable year beginning after ø‘‘(iii) Items incorporated as part of the lowed for purposes of the tax imposed by sec- December 31, 2004. property being manufactured, produced, tion 55; except that for purposes of section øSEC. 202. LOOK-THRU RULES TO APPLY TO DIVI- grown, or extracted. 55, alternative minimum taxable income DENDS FROM NONCONTROLLED ø‘‘(B) SPECIAL RULE.—Rules similar to the shall be taken into account in determining SECTION 902 CORPORATIONS. rules of subsection (d)(3) shall apply for pur- the deduction under this section. ø(a) IN GENERAL.—Section 904(d)(4) (relat- poses of this subsection. ø‘‘(4) ORDERING RULE.—The amount of any ing to look-thru rules apply to dividends ø‘‘(4) VALUE OF WORLDWIDE PRODUCTION.— other deduction allowable under this chapter from noncontrolled section 902 corporations) ø‘‘(A) IN GENERAL.—The value of worldwide shall be determined as if this section had not is amended to read as follows: production shall be determined under the been enacted. ø‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS principles of paragraph (2), except that— ø‘‘(5) COORDINATION WITH TRANSITION FROM NONCONTROLLED SECTION 902 CORPORA- ø‘‘(i) worldwide production gross receipts RULES.—For purposes of this section— TIONS.— shall be taken into account, and ø‘‘(A) domestic production gross receipts ø‘‘(A) IN GENERAL.—For purposes of this ø‘‘(ii) paragraph (3)(B) shall not apply. shall not include gross receipts from any subsection, any dividend from a noncon- ø‘‘(B) WORLDWIDE PRODUCTION GROSS RE- transaction if the binding contract transi- trolled section 902 corporation with respect CEIPTS.—The worldwide production gross re- tion relief of section 101(c)(2) of the to the taxpayer shall be treated as income ceipts is the amount that would be deter- Jumpstart Our Business Strength (JOBS) described in a subparagraph of paragraph (1) mined under subsection (e) if such subsection Act applies to such transaction, and in proportion to the ratio of— were applied without any reference to the ø‘‘(B) any deduction allowed under section ø‘‘(i) the portion of earnings and profits at- United States. 101(e) of such Act shall be disregarded in de- tributable to income described in such sub- ø‘‘(5) SPECIAL RULE FOR AFFILIATED termining the portion of the taxable income paragraph, to GROUPS.— which is attributable to domestic production ø‘‘(ii) the total amount of earnings and ø‘‘(A) IN GENERAL.—In the case of a tax- gross receipts.’’. profits. payer that is a member of an expanded affili- ø(b) DEDUCTION ALLOWED TO SHAREHOLDERS ø‘‘(B) SPECIAL RULES.—For purposes of this ated group, the domestic/worldwide fraction OF S CORPORATIONS.— paragraph— shall be the amount determined under the ø(1) IN GENERAL.—Section 1363(b) (relating ø‘‘(i) EARNINGS AND PROFITS.— preceding provisions of this subsection by to computation of S corporation’s taxable in- ø‘‘(I) IN GENERAL.—The rules of section 316 treating all members of such group as a sin- come) is amended by striking ‘‘and’’ at the shall apply. gle corporation. end of paragraph (3), by striking the period ø‘‘(II) REGULATIONS.—The Secretary may ø‘‘(B) EXPANDED AFFILIATED GROUP.—The at the end of paragraph (4) and inserting ‘‘, prescribe regulations regarding the treat- term ‘expanded affiliated group’ means an and’’, and by adding at the end the following ment of distributions out of earnings and affiliated group as defined in section 1504(a), new paragraph: profits for periods before the taxpayer’s ac- determined— ø‘‘(5) the deduction under section 250 shall quisition of the stock to which the distribu- ø‘‘(i) by substituting ‘50 percent’ for ‘80 be allowed to the S corporation.’’ tions relate. percent’ each place it appears, and ø(2) INCREASE IN BASIS.—Section 1367(a)(1) ø‘‘(ii) INADEQUATE SUBSTANTIATION.—If the ø‘‘(ii) without regard to paragraphs (2), (3), (relating to increases in basis) is amended by Secretary determines that the proper sub- (4), and (8) of section 1504(b). striking ‘‘and’’ at the end of subparagraph paragraph of paragraph (1) in which a divi- ø‘‘(h) DEFINITIONS AND SPECIAL RULES.— (B), by striking the period at the end of sub- dend is described has not been substantiated, ø‘‘(1) EXCLUSION FOR PATRONS OF AGRICUL- paragraph (C) and inserting ‘‘, and’’, and by such dividend shall be treated as income de- TURAL AND HORTICULTURAL COOPERATIVES.— adding at the end the following new subpara- scribed in paragraph (1)(A). ø‘‘(A) IN GENERAL.—If any amount de- graph: ø‘‘(iii) LOOK-THRU WITH RESPECT TO scribed in paragraph (1) or (3) of section 1385 ø‘‘(D) any deduction allowed under section CARRYFORWARDS OF CREDIT.—Rules similar to (a)— 250.’’ subparagraph (A) also shall apply to any ø‘‘(i) is received by a person from an orga- ø(c) MINIMUM TAX.—Section 56(g)(4)(C) (re- carryforward under subsection (c) from a nization to which part I of subchapter T ap- lating to disallowance of items not deduct- taxable year beginning before January 1, plies which is engaged in the marketing of ible in computing earnings and profits) is 2003, of tax allocable to a dividend from a agricultural or horticultural products, and amended by adding at the end the following noncontrolled section 902 corporation with ø‘‘(ii) is allocable to the portion of the new clause: respect to the taxpayer. The Secretary may qualified production activities income of the ø‘‘(v) DEDUCTION FOR DOMESTIC PRODUC- by regulations provide for the allocation of organization which is deductible under sub- TION.—Clause (i) shall not apply to any any carryback of tax allocable to a dividend section (a) (determined as if the organization amount allowable as a deduction under sec- from a noncontrolled section 902 corporation were a corporation if it is not) and des- tion 250.’’ to such a taxable year for purposes of allo- ignated as such by the organization in a ø(d) CLERICAL AMENDMENT.—The table of cating such dividend among the separate cat- written notice mailed to its patrons during sections for part VIII of subchapter B of egories in effect for such taxable year.

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ø‘‘(iv) COORDINATION WITH HIGH-TAXED IN- sources within the United States previously single corporation. For purposes of the pre- COME PROVISIONS.—Rules similar to the rules allocated to those income categories. ceding sentence, the term ‘affiliated group’ of paragraph (3)(F) shall apply for purposes ø‘‘(B) INCOME CATEGORY.—For purposes of has the meaning given such term by section of this paragraph.’’. this paragraph, the term ‘income category’ 1504 (determined without regard to para- ø(b) CONFORMING AMENDMENTS.— has the meaning given such term by sub- graph (4) of section 1504(b)). ø(1) Section 904(d)(2)(E) is amended— section (f)(5)(E)(i). ø‘‘(3) TREATMENT OF TAX-EXEMPT ASSETS; ø(A) by inserting ‘‘or (4)’’ after ‘‘paragraph ø‘‘(4) COORDINATION WITH SUBSECTION (f).— BASIS OF STOCK IN NONAFFILIATED 10-PERCENT (3)’’ in clause (i), and The Secretary shall prescribe such regula- OWNED CORPORATIONS.—The rules of para- ø(B) by striking clauses (ii) and (iv) and by tions as may be necessary to coordinate the graphs (3) and (4) of subsection (e) shall redesignating clause (iii) as clause (ii). provisions of this subsection with the provi- apply for purposes of this subsection; except ø(2) Clause (i) of section 864(d)(5)(A) is sions of subsection (f).’’ that paragraph (4) shall be applied on world- amended to read as follows: ø(b) CONFORMING AMENDMENTS.— wide affiliated group basis. ø‘‘(i) Subclause (I) of section ø(1) Section 535(d)(2) is amended by strik- ø‘‘(4) TREATMENT OF CERTAIN FINANCIAL IN- 904(d)(2)(B)(iii).’’ ing ‘‘section 904(g)(6)’’ and inserting ‘‘section STITUTIONS.— ø(c) EFFECTIVE DATE.—The amendments 904(h)(6)’’. ø‘‘(A) IN GENERAL.—For purposes of para- made by this section shall apply to taxable ø(2) Subparagraph (A) of section 936(a)(2) is graph (1), any corporation described in sub- years beginning after December 31, 2002. amended by striking ‘‘section 904(f)’’ and in- paragraph (B) shall be treated as an includ- øSEC. 203. FOREIGN TAX CREDIT UNDER ALTER- serting ‘‘subsections (f) and (g) of section ible corporation for purposes of section 1504 NATIVE MINIMUM TAX. 904’’. only for purposes of applying this subsection ø(c) EFFECTIVE DATE.—The amendments ø(a) IN GENERAL.— separately to corporations so described. made by this section shall apply to losses for ø ø(1) Subsection (a) of section 59 is amended ‘‘(B) DESCRIPTION.—A corporation is de- taxable years beginning after December 31, by striking paragraph (2) and by redesig- scribed in this subparagraph if— 2006. ø‘‘(i) such corporation is a financial insti- nating paragraphs (3) and (4) as paragraphs ø (2) and (3), respectively. SEC. 205. INTEREST EXPENSE ALLOCATION tution described in section 581 or 591, RULES. ø ø(2) Section 53(d)(1)(B)(i)(II) of such Code is ‘‘(ii) the business of such financial insti- ø(a) ELECTION TO ALLOCATE ON WORLDWIDE amended by striking ‘‘and if section 59(a)(2) tution is predominantly with persons other BASIS.— Section 864 is amended by redesig- did not apply’’. than related persons (within the meaning of nating subsection (f) as subsection (g) and by subsection (d)(4)) or their customers, and ø(b) EFFECTIVE DATE.—The amendments inserting after subsection (e) the following ø made by this section shall apply to taxable ‘‘(iii) such financial institution is re- new subsection: quired by State or Federal law to be oper- years beginning after December 31, 2004. ø ‘‘(f) ELECTION TO ALLOCATE INTEREST, ETC. ated separately from any other entity which øSEC. 204. RECHARACTERIZATION OF OVERALL ON WORLDWIDE BASIS.—For purposes of this is not such an institution. DOMESTIC LOSS. subchapter, at the election of the worldwide ø‘‘(C) TREATMENT OF BANK AND FINANCIAL ø(a) GENERAL RULE.—Section 904 is amend- affiliated group— HOLDING COMPANIES.—To the extent provided ed by redesignating subsections (g), (h), (i), ø‘‘(1) ALLOCATION AND APPORTIONMENT OF in regulations— (j), and (k) as subsections (h), (i), (j), (k), and INTEREST EXPENSE.— ø‘‘(i) a bank holding company (within the (l) respectively, and by inserting after sub- ø‘‘(A) IN GENERAL.—The taxable income of meaning of section 2(a) of the Bank Holding section (f) the following new subsection: each domestic corporation which is a mem- Company Act of 1956), ø‘‘(g) RECHARACTERIZATION OF OVERALL DO- ber of a worldwide affiliated group shall be ø‘‘(ii) a financial holding company (within MESTIC LOSS.— determined by allocating and apportioning the meaning of section 2(p) of the Bank Hold- ø‘‘(1) GENERAL RULE.—For purposes of this interest expense of each member as if all ing Company Act of 1956), and subpart and section 936, in the case of any members of such group were a single cor- ø‘‘(iii) any subsidiary of a financial institu- taxpayer who sustains an overall domestic poration. tion described in section 581 or 591, or of any loss for any taxable year beginning after De- ø‘‘(B) TREATMENT OF WORLDWIDE AFFILI- such bank or financial holding company, if cember 31, 2006, that portion of the tax- ATED GROUP.—The taxable income of the do- such subsidiary is predominantly engaged payer’s taxable income from sources within mestic members of a worldwide affiliated (directly or indirectly) in the active conduct the United States for each succeeding tax- group from sources outside the United States of a banking, financing, or similar business, able year which is equal to the lesser of— shall be determined by allocating and appor- ø‘‘(A) the amount of such loss (to the ex- tioning the interest expense of such domestic shall be treated as a corporation described in tent not used under this paragraph in prior members to such income in an amount equal subparagraph (B). taxable years), or to the excess (if any) of— ø‘‘(5) ELECTION TO EXPAND FINANCIAL INSTI- ø‘‘(B) 50 percent of the taxpayer’s taxable ø‘‘(i) the total interest expense of the TUTION GROUP OF WORLDWIDE GROUP.— income from sources within the United worldwide affiliated group multiplied by the ø‘‘(A) IN GENERAL.—If a worldwide affili- States for such succeeding taxable year, ratio which the foreign assets of the world- ated group elects the application of this sub- shall be treated as income from sources wide affiliated group bears to all the assets section, all financial corporations which— without the United States (and not as in- of the worldwide affiliated group, over ø‘‘(i) are members of such worldwide affili- come from sources within the United ø‘‘(ii) the interest expense of all foreign ated group, but States). corporations which are members of the ø‘‘(ii) are not corporations described in ø‘‘(2) OVERALL DOMESTIC LOSS DEFINED.— worldwide affiliated group to the extent such paragraph (4)(B), For purposes of this subsection— interest expense of such foreign corporations shall be treated as described in paragraph ø‘‘(A) IN GENERAL.—The term ‘overall do- would have been allocated and apportioned (4)(B) for purposes of applying paragraph mestic loss’ means any domestic loss to the to foreign source income if this subsection (4)(A). This subsection (other than this para- extent such loss offsets taxable income from were applied to a group consisting of all the graph) shall apply to any such group in the sources without the United States for the foreign corporations in such worldwide affili- same manner as this subsection (other than taxable year or for any preceding taxable ated group. this paragraph) applies to the pre-election year by reason of a carryback. For purposes ø‘‘(C) WORLDWIDE AFFILIATED GROUP.—For worldwide affiliated group of which such of the preceding sentence, the term ‘domes- purposes of this paragraph, the term ‘world- group is a part. tic loss’ means the amount by which the wide affiliated group’ means a group con- ø‘‘(B) FINANCIAL CORPORATION.—For pur- gross income for the taxable year from sisting of— poses of this paragraph, the term ‘financial sources within the United States is exceeded ø‘‘(i) the includible members of an affili- corporation’ means any corporation if at by the sum of the deductions properly appor- ated group (as defined in section 1504(a), de- least 80 percent of its gross income is income tioned or allocated thereto (determined termined without regard to paragraphs (2) described in section 904(d)(2)(D)(ii) and the without regard to any carryback from a sub- and (4) of section 1504(b)), and regulations thereunder which is derived from sequent taxable year). ø‘‘(ii) all controlled foreign corporations in transactions with persons who are not re- ø‘‘(B) TAXPAYER MUST HAVE ELECTED FOR- which such members in the aggregate meet lated (within the meaning of section 267(b) or EIGN TAX CREDIT FOR YEAR OF LOSS.—The the ownership requirements of section 707(b)(1)) to the corporation. For purposes of term ‘overall domestic loss’ shall not include 1504(a)(2) either directly or indirectly the preceding sentence, there shall be dis- any loss for any taxable year unless the tax- through applying paragraph (2) of section regarded any item of income or gain from a payer chose the benefits of this subpart for 958(a) or through applying rules similar to transaction or series of transactions a prin- such taxable year. the rules of such paragraph to stock owned cipal purpose of which is the qualification of ø‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN- directly or indirectly by domestic partner- any corporation as a financial corporation. COME.— ships, trusts, or estates. ø‘‘(C) ANTIABUSE RULES.—In the case of a ø‘‘(A) IN GENERAL.—Any income from ø‘‘(2) ALLOCATION AND APPORTIONMENT OF corporation which is a member of an electing sources within the United States that is OTHER EXPENSES.—Expenses other than inter- financial institution group, to the extent treated as income from sources without the est which are not directly allocable or appor- that such corporation— United States under paragraph (1) shall be tioned to any specific income producing ac- ø‘‘(i) distributes dividends or makes other allocated among and increase the income tivity shall be allocated and apportioned as distributions with respect to its stock after categories in proportion to the loss from if all members of the affiliated group were a the date of the enactment of this paragraph

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00010 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.036 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2029 to any member of the pre-election worldwide for such taxable year and all subsequent ø(A) by striking paragraph (5) and insert- affiliated group (other than to a member of years unless revoked with the consent of the ing the following: the electing financial institution group) in Secretary.’’. ø‘‘(5) a foreign corporation,’’, excess of the greater of— ø(b) EXPANSION OF REGULATORY AUTHOR- ø(B) by striking paragraphs (7) and (10) and ø‘‘(I) its average annual dividend (ex- ITY.—Paragraph (7) of section 864(e) is by redesignating paragraphs (8) and (9) as pressed as a percentage of current earnings amended— paragraphs (7) and (8), respectively, and profits) during the 5-taxable-year period ø(1) by inserting before the comma at the ø(C) by inserting ‘‘and’’ at the end of para- ending with the taxable year preceding the end of subparagraph (B) ‘‘and in other cir- graph (7) (as so redesignated), and taxable year, or cumstances where such allocation would be ø(D) by striking ‘‘; and’’ at the end of para- ø‘‘(II) 25 percent of its average annual appropriate to carry out the purposes of this graph (8) (as so redesignated) and inserting a earnings and profits for such 5-taxable-year subsection’’, and period. period, or ø(2) by striking ‘‘and’’ at the end of sub- ø(2) TREATMENT OF INCOME FROM PERSONAL ø‘‘(ii) deals with any person in any manner paragraph (E), by redesignating subpara- SERVICE CONTRACTS.—Paragraph (1) of section not clearly reflecting the income of the cor- graph (F) as subparagraph (G), and by insert- 954(c) is amended by adding at the end the poration (as determined under principles ing after subparagraph (E) the following new following new subparagraph: similar to the principles of section 482), subparagraph: ø‘‘(I) PERSONAL SERVICE CONTRACTS.— ø an amount of indebtedness of the electing fi- ‘‘(F) preventing assets or interest expense ø‘‘(i) Amounts received under a contract nancial institution group equal to the excess from being taken into account more than under which the corporation is to furnish distribution or the understatement or over- once, and’’. personal services if— ø statement of income, as the case may be, (c) EFFECTIVE DATE.—The amendments ø‘‘(I) some person other than the corpora- shall be recharacterized (for the taxable year made by this section shall apply to taxable tion has the right to designate (by name or and subsequent taxable years) for purposes of years beginning after December 31, 2009. by description) the individual who is to per- ø this paragraph as indebtedness of the world- SEC. 206. DETERMINATION OF FOREIGN PER- form the services, or wide affiliated group (excluding the electing SONAL HOLDING COMPANY INCOME ø‘‘(II) the individual who is to perform the WITH RESPECT TO TRANSACTIONS financial institution group). If a corporation services is designated (by name or by de- IN COMMODITIES. scription) in the contract, and has not been in existence for 5 taxable years, ø(a) IN GENERAL.—Clauses (i) and (ii) of ø‘‘(ii) amounts received from the sale or this subparagraph shall be applied with re- section 954(c)(1)(C) (relating to commodity other disposition of such a contract. spect to the period it was in existence. transactions) are amended to read as follows: ø‘‘(D) ELECTION.—An election under this ø‘‘(i) arise out of commodity hedging This subparagraph shall apply with respect paragraph with respect to any financial in- transactions (as defined in paragraph (6)(A)), to amounts received for services under a par- stitution group may be made only by the ø‘‘(ii) are active business gains or losses ticular contract only if at some time during common parent of the pre-election world- from the sale of commodities, but only if the taxable year 25 percent or more in value wide affiliated group and may be made only substantially all of the controlled foreign of the outstanding stock of the corporation for the first taxable year beginning after De- corporation’s commodities are property de- is owned, directly or indirectly, by or for the cember 31, 2009, in which such affiliated scribed in paragraph (1), (2), or (8) of section individual who has performed, is to perform, group includes 1 or more financial corpora- 1221(a), or’’. or may be designated (by name or by descrip- tions. Such an election, once made, shall ø(b) DEFINITION AND SPECIAL RULES.—Sub- tion) as the one to perform, such services.’’ apply to all financial corporations which are section (c) of section 954 is amended by add- ø(c) CONFORMING AMENDMENTS.— members of the electing financial institution ing after paragraph (5) the following new ø(1) Section 1(h) is amended— group for such taxable year and all subse- paragraph: ø(A) in paragraph (10), by inserting ‘‘and’’ quent years unless revoked with the consent ø‘‘(6) DEFINITION AND SPECIAL RULES RELAT- at the end of subparagraph (F), by striking of the Secretary. ING TO COMMODITY TRANSACTIONS.— subparagraph (G), and by redesignating sub- ø‘‘(E) DEFINITIONS RELATING TO GROUPS.— ø‘‘(A) COMMODITY HEDGING TRANSACTIONS.— paragraph (H) as subparagraph (G), and For purposes of this paragraph— For purposes of paragraph (1)(C)(i), the term ø(B) by striking ‘‘a foreign personal hold- ø‘‘(i) PRE-ELECTION WORLDWIDE AFFILIATED ‘commodity hedging transaction’ means any ing company (as defined in section 552), a for- GROUP.—The term ‘pre-election worldwide af- transaction with respect to a commodity if eign investment company (as defined in sec- filiated group’ means, with respect to a cor- such transaction— tion 1246(b)), or’’ in paragraph (11)(C)(iii). poration, the worldwide affiliated group of ø‘‘(i) is a hedging transaction as defined in ø(2) Paragraph (2) of section 171(c) is which such corporation would (but for an section 1221(b)(2), determined— amended— election under this paragraph) be a member ø‘‘(I) without regard to subparagraph ø(A) by striking ‘‘, or by a foreign personal for purposes of applying paragraph (1). (A)(ii) thereof, holding company, as defined in section 552’’, ø‘‘(ii) ELECTING FINANCIAL INSTITUTION ø‘‘(II) by applying subparagraph (A)(i) and GROUP.—The term ‘electing financial institu- thereof by substituting ‘ordinary property or ø(B) by striking ‘‘, or foreign personal tion group’ means the group of corporations property described in section 1231(b)’ for ‘or- holding company’’. to which this subsection applies separately dinary property’, and ø(3) Paragraph (2) of section 245(a) is by reason of the application of paragraph ø‘‘(III) by substituting ‘controlled foreign amended by striking ‘‘foreign personal hold- (4)(A) and which includes financial corpora- corporation’ for ‘taxpayer’ each place it ap- ing company or’’. tions by reason of an election under subpara- pears, and ø(4) Section 312 is amended by striking sub- graph (A). ø‘‘(ii) is clearly identified as such in ac- section (j). ø‘‘(F) REGULATIONS.—The Secretary shall cordance with section 1221(a)(7). ø(5) Subsection (m) of section 312 is amend- prescribe such regulations as may be appro- ø‘‘(B) REGULATIONS.—The Secretary shall ed by striking ‘‘, a foreign investment com- priate to carry out this subsection, including prescribe such regulations as are appropriate pany (within the meaning of section 1246(b)), regulations— to carry out the purposes of paragraph (1)(C) or a foreign personal holding company (with- ø‘‘(i) providing for the direct allocation of in the case of transactions involving related in the meaning of section 552)’’. interest expense in other circumstances parties.’’ ø(6) Subsection (e) of section 443 is amend- where such allocation would be appropriate ø(c) EFFECTIVE DATE.—The amendments ed by striking paragraph (3) and by redesig- to carry out the purposes of this subsection, made by this section shall apply to trans- nating paragraphs (4) and (5) as paragraphs ø‘‘(ii) preventing assets or interest expense actions entered into after December 31, 2004. (3) and (4), respectively. ø from being taken into account more than øSubtitle B—International Tax Simplification (7) Subparagraph (B) of section 465(c)(7) is once, and ø amended by adding ‘‘or’’ at the end of clause ø SEC. 211. REPEAL OF FOREIGN PERSONAL ‘‘(iii) dealing with changes in members of HOLDING COMPANY RULES AND (i), by striking clause (ii), and by redesig- any group (through acquisitions or other- FOREIGN INVESTMENT COMPANY nating clause (iii) as clause (ii). wise) treated under this paragraph as an af- RULES. ø(8) Paragraph (1) of section 543(b) is filiated group for purposes of this subsection. ø(a) GENERAL RULE.—The following provi- amended by inserting ‘‘and’’ at the end of ø‘‘(6) ELECTION.—An election to have this sions are hereby repealed: subparagraph (A), by striking ‘‘, and’’ at the subsection apply with respect to any world- ø(1) Part III of subchapter G of chapter 1 end of subparagraph (B) and inserting a pe- wide affiliated group may be made only by (relating to foreign personal holding compa- riod, and by striking subparagraph (C). the common parent of the domestic affili- nies). ø(9) Paragraph (1) of section 562(b) is ated group referred to in paragraph (1)(C) ø(2) Section 1246 (relating to gain on for- amended by striking ‘‘or a foreign personal and may be made only for the first taxable eign investment company stock). holding company described in section 552’’. year beginning after December 31, 2009, in ø(3) Section 1247 (relating to election by ø(10) Section 563 is amended— which a worldwide affiliated group exists foreign investment companies to distribute ø(A) by striking subsection (c), which includes such affiliated group and at income currently). ø(B) by redesignating subsection (d) as sub- least one foreign corporation. Such an elec- ø(b) EXEMPTION OF FOREIGN CORPORATIONS section (c), and tion, once made, shall apply to such common FROM PERSONAL HOLDING COMPANY RULES.— ø(C) by striking ‘‘subsection (a), (b), or (c)’’ parent and all other corporations which are ø(1) IN GENERAL.—Subsection (c) of section in subsection (c) (as so redesignated) and in- members of such worldwide affiliated group 542 (relating to exceptions) is amended— serting ‘‘subsection (a) or (b)’’.

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00011 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.036 S03PT1 S2030 CONGRESSIONAL RECORD — SENATE March 3, 2004 ø(11) Subsection (d) of section 751 is amend- ø(18) Paragraph (5) of section 1014(b) is United States shareholders of such corpora- ed by adding ‘‘and’’ at the end of paragraph amended by inserting ‘‘and before January 1, tions ending with or within such taxable (2), by striking paragraph (3), by redesig- 2005,’’ after ‘‘August 26, 1937,’’. years of such corporations. nating paragraph (4) as paragraph (3), and by ø(19) Subsection (a) of section 1016 is øSEC. 212. EXPANSION OF DE MINIMIS RULE striking ‘‘paragraph (1), (2), or (3)’’ in para- amended by striking paragraph (13). UNDER SUBPART F. ø graph (3) (as so redesignated) and inserting (20)(A) Paragraph (3) of section 1212(a) is ø(a) IN GENERAL.—Clause (ii) of section ‘‘paragraph (1) or (2)’’. amended to read as follows: 954(b)(3)(A) (relating to de minimis, etc., ø(12) Paragraph (2) of section 864(d) is ø‘‘(3) SPECIAL RULES ON CARRYBACKS.—A rules) is amended by striking ‘‘$1,000,000’’ amended by striking subparagraph (A) and net capital loss of a corporation shall not be and inserting ‘‘$5,000,000’’. by redesignating subparagraphs (B) and (C) carried back under paragraph (1)(A) to a tax- ø(b) TECHNICAL AMENDMENTS.— as subparagraphs (A) and (B), respectively. able year— ø(1) Clause (ii) of section 864(d)(5)(A) is ø ø (13)(A) Subparagraph (A) of section ‘‘(A) for which it is a regulated invest- amended by striking ‘‘$1,000,000’’ and insert- 898(b)(1) is amended to read as follows: ment company (as defined in section 851), or ing ‘‘$5,000,000’’. ø ø ‘‘(A) which is treated as a controlled for- ‘‘(B) for which it is a real estate invest- ø(2) Clause (i) of section 881(c)(5)(A) is eign corporation for any purpose under sub- ment trust (as defined in section 856).’’ amended by striking ‘‘$1,000,000’’ and insert- ø part F of part III of this subchapter, and’’. (B) The amendment made by subpara- ing ‘‘$5,000,000’’. ø(B) Subparagraph (B) of section 898(b)(2) is graph (A) shall apply to taxable years begin- ø(c) EFFECTIVE DATE.—The amendments amended by striking ‘‘and sections 551(f) and ning after December 31, 2004. made by this section shall apply to taxable 554, whichever are applicable,’’. ø(21) Section 1223 is amended by striking years of foreign corporations beginning after ø(C) Paragraph (3) of section 898(b) is paragraph (10) and by redesignating the fol- December 31, 2004, and taxable years of amended to read as follows: lowing paragraphs accordingly. United States shareholders of such corpora- ø‘‘(3) UNITED STATES SHAREHOLDER.—The ø(22) Subsection (d) of section 1248 is tions ending with or within such taxable term ‘United States shareholder’ has the amended by striking paragraph (5) and by re- years of such corporations. meaning given to such term by section designating paragraphs (6) and (7) as para- 951(b), except that, in the case of a foreign graphs (5) and (6), respectively. øSEC. 213. ATTRIBUTION OF STOCK OWNERSHIP corporation having related person insurance ø(23) Paragraph (2) of section 1260(c) is THROUGH PARTNERSHIPS TO APPLY IN DETERMINING SECTION 902 AND income (as defined in section 953(c)(2)), the amended by striking subparagraphs (H) and 960 CREDITS. Secretary may treat any person as a United (I) and by redesignating subparagraph (J) as ø(a) IN GENERAL.—Subsection (c) of section States shareholder for purposes of this sec- subparagraph (H). 902 is amended by redesignating paragraph tion if such person is treated as a United ø(24)(A) Subparagraph (F) of section (7) as paragraph (8) and by inserting after States shareholder under section 953(c)(1).’’ 1291(b)(3) is amended by striking ‘‘551(d), paragraph (6) the following new paragraph: ø(D) Subsection (c) of section 898 is amend- 959(a),’’ and inserting ‘‘959(a)’’. ø‘‘(7) CONSTRUCTIVE OWNERSHIP THROUGH ed to read as follows: ø(B) Subsection (e) of section 1291 is PARTNERSHIPS.—Stock owned, directly or in- ø‘‘(c) DETERMINATION OF REQUIRED YEAR.— amended by inserting ‘‘(as in effect on the directly, by or for a partnership shall be con- ø‘‘(1) IN GENERAL.—The required year is— day before the date of the enactment of the ø‘‘(A) the majority U.S. shareholder year, Jumpstart Our Business Strength (JOBS) sidered as being owned proportionately by or Act)’’ after ‘‘section 1246’’. its partners. Stock considered to be owned ø‘‘(B) if there is no majority U.S. share- ø(25) Paragraph (2) of section 1294(a) is by a person by reason of the preceding sen- holder year, the taxable year prescribed amended to read as follows: tence shall, for purposes of applying such under regulations. ø‘‘(2) ELECTION NOT PERMITTED WHERE sentence, be treated as actually owned by ø‘‘(2) 1-MONTH DEFERRAL ALLOWED.—A spec- AMOUNTS OTHERWISE INCLUDIBLE UNDER SEC- such person. The Secretary may prescribe ified foreign corporation may elect, in lieu of TION 951.—The taxpayer may not make an such regulations as may be necessary to the taxable year under paragraph (1)(A), a election under paragraph (1) with respect to carry out the purposes of this paragraph, in- taxable year beginning 1 month earlier than the undistributed PFIC earnings tax liability cluding rules to account for special partner- the majority U.S. shareholder year. attributable to a qualified electing fund for ship allocations of dividends, credits, and ø‘‘(3) MAJORITY U.S. SHAREHOLDER YEAR.— the taxable year if any amount is includible other incidents of ownership of stock in de- ø‘‘(A) IN GENERAL.—For purposes of this in the gross income of the taxpayer under termining proportionate ownership.’’ subsection, the term ‘majority U.S. share- section 951 with respect to such fund for such ø(b) CLARIFICATION OF COMPARABLE ATTRI- holder year’ means the taxable year (if any) taxable year.’’ BUTION UNDER SECTION 901(b)(5).—Paragraph which, on each testing day, constituted the ø(26) Section 6035 is hereby repealed. (5) of section 901(b) is amended by striking taxable year of— ø(27) Subparagraph (D) of section 6103(e)(1) ‘‘any individual’’ and inserting ‘‘any per- ø‘‘(i) each United States shareholder de- is amended by striking clause (iv) and redes- son’’. scribed in subsection (b)(2)(A), and ignating clauses (v) and (vi) as clauses (iv) ø(c) EFFECTIVE DATE.—The amendments ø‘‘(ii) each United States shareholder not and (v), respectively. made by this section shall apply to taxes of described in clause (i) whose stock was treat- ø(28) Subparagraph (B) of section 6501(e)(1) foreign corporations for taxable years of ed as owned under subsection (b)(2)(B) by any is amended to read as follows: such corporations beginning after the date of shareholder described in such clause. ø‘‘(B) CONSTRUCTIVE DIVIDENDS.—If the tax- the enactment of this Act. ø‘‘(B) TESTING DAY.—The testing days shall payer omits from gross income an amount øSEC. 214. APPLICATION OF UNIFORM CAPITAL- be— properly includible therein under section IZATION RULES TO FOREIGN PER- ø‘‘(i) the first day of the corporation’s tax- 951(a), the tax may be assessed, or a pro- SONS. able year (determined without regard to this ceeding in court for the collection of such ø(a) IN GENERAL.—Section 263A(c) (relating section), or tax may be done without assessing, at any to exceptions) is amended by adding at the ø‘‘(ii) the days during such representative time within 6 years after the return was end the following new paragraph: period as the Secretary may prescribe.’’ filed.’’ ø‘‘(7) FOREIGN PERSONS.—Except for pur- ø(14) Clause (ii) of section 904(d)(2)(A) is ø(29) Subsection (a) of section 6679 is poses of applying sections 871(b)(1) and amended to read as follows: amended— 882(a)(1), this section shall not apply to any ø‘‘(ii) CERTAIN AMOUNTS INCLUDED.—Except ø(A) by striking ‘‘6035, 6046, and 6046A’’ in taxpayer who is not a United States person if as provided in clause (iii), the term ‘passive paragraph (1) and inserting ‘‘6046 and 6046A’’, such taxpayer capitalizes costs of produced income’ includes, except as provided in sub- and property or property acquired for resale by paragraph (E)(iii) or paragraph (3)(I), any ø(B) by striking paragraph (3). applying the method used to ascertain the amount includible in gross income under sec- ø(30) Sections 170(f)(10)(A), 508(d), 4947, and income, profit, or loss for purposes of reports tion 1293 (relating to certain passive foreign 4948(c)(4) are each amended by striking or statements to shareholders, partners, investment companies).’’ ‘‘556(b)(2),’’ each place it appears. other proprietors, or beneficiaries, or for ø(15)(A) Subparagraph (A) of section ø(31) The table of parts for subchapter G of credit purposes.’’ 904(g)(1), as redesignated by section 204, is chapter 1 is amended by striking the item re- ø(b) EFFECTIVE DATE.— amended by adding ‘‘or’’ at the end of clause lating to part III. ø(1) IN GENERAL.—The amendment made by (i), by striking clause (ii), and by redesig- ø(32) The table of sections for part IV of subsection (a) shall apply to taxable years nating clause (iii) as clause (ii). subchapter P of chapter 1 is amended by beginning after December 31, 2004. ø(B) The paragraph heading of paragraph striking the items relating to sections 1246 ø(2) CHANGE IN METHOD OF ACCOUNTING.—In (2) of section 904(g), as so redesignated, is and 1247. the case of any taxpayer required by the amended by striking ‘‘FOREIGN PERSONAL ø(33) The table of sections for subpart A of amendment made by this section to change HOLDING OR’’. part III of subchapter A of chapter 61 is its method of accounting for its first taxable ø(16) Section 951 is amended by striking amended by striking the item relating to year beginning after December 31, 2004— subsections (c) and (d) and by redesignating section 6035. ø(A) such change shall be treated as initi- subsections (e) and (f) as subsections (c) and ø(d) EFFECTIVE DATE.—The amendments ated by the taxpayer, (d), respectively. made by this section shall apply to taxable ø(B) such change shall be treated as made ø(17) Paragraph (3) of section 989(b) is years of foreign corporations beginning after with the consent of the Secretary of the amended by striking ‘‘, 551(a),’’. December 31, 2004, and taxable years of Treasury, and

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00012 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.036 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2031 ø(C) the net amount of the adjustments re- Subtitle C—Additional International Tax Sec. 332. Election to treat cutting of timber as a quired to be taken into account by the tax- Provisions sale or exchange. payer under section 481 of the Internal Rev- Sec. 221. Active leasing income from aircraft Sec. 333. Capital gain treatment under section enue Code of 1986 shall be taken into account and vessels. 631(b) to apply to outright sales in such first year. Sec. 222. Look-thru treatment of payments be- by landowners. øSEC. 215. REPEAL OF WITHHOLDING TAX ON tween related controlled foreign Sec. 334. Modification of safe harbor rules for DIVIDENDS FROM CERTAIN FOR- corporations under foreign per- timber REITS. EIGN CORPORATIONS. sonal holding company income TITLE IV—ADDITIONAL PROVISIONS ø(a) IN GENERAL.—Paragraph (2) of section rules. Subtitle A—Provisions Designed To Curtail Tax 871(i) (relating to tax not to apply to certain Sec. 223. Look-thru treatment for sales of part- Shelters interest and dividends) is amended by adding nership interests. Sec. 401. Clarification of economic substance at the end the following new subparagraph: Sec. 224. Election not to use average exchange ø‘‘(D) Dividends paid by a foreign corpora- doctrine. rate for foreign tax paid other Sec. 402. Penalty for failing to disclose report- tion which are treated under section than in functional currency. 861(a)(2)(B) as income from sources within able transaction. Sec. 225. Treatment of income tax base dif- Sec. 403. Accuracy-related penalty for listed the United States.’’. ferences. ø transactions and other reportable (b) EFFECTIVE DATE.—The amendment Sec. 226. Modification of exceptions under sub- made by this section shall apply to payments transactions having a significant part F for active financing. tax avoidance purpose. made after December 31, 2004. Sec. 227. United States property not to include øSEC. 216. REPEAL OF SPECIAL CAPITAL GAINS Sec. 404. Penalty for understatements attrib- certain assets of controlled foreign utable to transactions lacking TAX ON ALIENS PRESENT IN THE corporation. UNITED STATES FOR 183 DAYS OR economic substance, etc. MORE. Sec. 228. Provide equal treatment for interest Sec. 405. Modifications of substantial under- ø(a) IN GENERAL.—Subsection (a) of section paid by foreign partnerships and statement penalty for nonreport- 871 is amended by striking paragraph (2) and foreign corporations. able transactions. by redesignating paragraph (3) as paragraph Sec. 229. Clarification of treatment of certain Sec. 406. Tax shelter exception to confiden- (2). transfers of intangible property. tiality privileges relating to tax- ø(b) EFFECTIVE DATE.—The amendment Sec. 230. Modification of the treatment of cer- payer communications. made by this section shall apply to taxable tain REIT distributions attrib- Sec. 407. Disclosure of reportable transactions. years beginning after December 31, 2003.¿ utable to gain from sales or ex- Sec. 408. Modifications to penalty for failure to SECTION 1. SHORT TITLE; AMENDMENT OF 1986 changes of United States real register tax shelters. CODE; TABLE OF CONTENTS. property interests. Sec. 409. Modification of penalty for failure to (a) SHORT TITLE.—This Act may be cited as Sec. 231. Toll tax on excess qualified foreign maintain lists of investors. the ‘‘Jumpstart Our Business Strength (JOBS) distribution amount. Sec. 410. Modification of actions to enjoin cer- Act’’. Sec. 232. Exclusion of income derived from cer- tain conduct related to tax shel- (b) AMENDMENT OF 1986 CODE.—Except as oth- tain wagers on horse races and ters and reportable transactions. erwise expressly provided, whenever in this Act dog races from gross income of Sec. 411. Understatement of taxpayer’s liability an amendment or repeal is expressed in terms of nonresident alien individuals. by income tax return preparer. an amendment to, or repeal of, a section or Sec. 233. Limitation of withholding tax for Sec. 412. Penalty on failure to report interests other provision, the reference shall be consid- Puerto Rico corporations. in foreign financial accounts. ered to be made to a section or other provision Sec. 234. Report on WTO dispute settlement Sec. 413. Frivolous tax submissions. of the Internal Revenue Code of 1986. panels and the appellate body. Sec. 414. Regulation of individuals practicing (c) TABLE OF CONTENTS.— Sec. 235. Study of impact of international tax before the Department of Treas- Sec. 1. Short title; amendment of 1986 Code; laws on taxpayers other than ury. table of contents. large corporations. Sec. 415. Penalty on promoters of tax shelters. Sec. 236. Consultative role for Senate Committee TITLE I—PROVISIONS RELATING TO RE- Sec. 416. Statute of limitations for taxable years on Finance in connection with PEAL OF EXCLUSION FOR for which required listed trans- the review of proposed tax trea- EXTRATERRITORIAL INCOME actions not reported. ties. Sec. 101. Repeal of exclusion for extraterritorial Sec. 417. Denial of deduction for interest on un- income. TITLE III—DOMESTIC MANUFACTURING derpayments attributable to non- Sec. 102. Deduction relating to income attrib- AND BUSINESS PROVISIONS disclosed reportable and non- utable to United States produc- Subtitle A—General Provisions economic substance transactions. tion activities. Sec. 301. Expansion of qualified small-issue Sec. 418. Authorization of appropriations for TITLE II—INTERNATIONAL TAX bond program. tax law enforcement. PROVISIONS Sec. 302. Expensing of broadband Internet ac- Subtitle B—Other Corporate Governance Subtitle A—International Tax Reform cess expenditures. Provisions Sec. 201. 20-year foreign tax credit carryover; 1- Sec. 303. Exemption of natural aging process in Sec. 421. Affirmation of consolidated return reg- year foreign tax credit carryback. determination of production pe- ulation authority. Sec. 202. Look-thru rules to apply to dividends riod for distilled spirits under sec- Sec. 422. Signing of corporate tax returns by from noncontrolled section 902 tion 263A. chief executive officer. corporations. Sec. 304. Modification of active business defini- Sec. 423. Denial of deduction for certain fines, Sec. 203. Foreign tax credit under alternative tion under section 355. penalties, and other amounts. minimum tax. Sec. 305. Exclusion of certain indebtedness of Sec. 424. Disallowance of deduction for punitive Sec. 204. Recharacterization of overall domestic small business investment compa- damages. loss. nies from acquisition indebted- Sec. 425. Increase in criminal monetary penalty Sec. 205. Interest expense allocation rules. ness. limitation for the underpayment Sec. 206. Determination of foreign personal Sec. 306. Modified taxation of imported archery or overpayment of tax due to holding company income with re- products. fraud. spect to transactions in commod- Sec. 307. Modification to cooperative marketing Subtitle C—Enron-Related Tax Shelter ities. rules to include value added proc- Provisions essing involving animals. Subtitle B—International Tax Simplification Sec. 431. Limitation on transfer or importation Sec. 211. Repeal of foreign personal holding Sec. 308. Extension of declaratory judgment procedures to farmers’ cooperative of built-in losses. company rules and foreign invest- Sec. 432. No reduction of basis under section 734 organizations. ment company rules. in stock held by partnership in Sec. 212. Expansion of de minimis rule under Sec. 309. Temporary suspension of personal holding company tax. corporate partner. subpart F. Sec. 433. Repeal of special rules for FASITs. Sec. 310. Increase in section 179 expensing. Sec. 213. Attribution of stock ownership Sec. 434. Expanded disallowance of deduction Sec. 311. Three-year carryback of net operating through partnerships to apply in for interest on convertible debt. losses. determining section 902 and 960 Sec. 435. Expanded authority to disallow tax credits. Subtitle B—Manufacturing Relating to Films benefits under section 269. Sec. 214. Application of uniform capitalization Sec. 321. Special rules for certain film and tele- Sec. 436. Modification of interaction between rules to foreign persons. vision productions. subpart F and passive foreign in- Sec. 215. Repeal of withholding tax on divi- Sec. 322. Modification of application of income vestment company rules. dends from certain foreign cor- forecast method of depreciation. porations. Subtitle D—Provisions To Discourage Sec. 216. Repeal of special capital gains tax on Subtitle C—Manufacturing Relating to Timber Expatriation aliens present in the United States Sec. 331. Expensing of certain reforestation ex- Sec. 441. Tax treatment of inverted corporate for 183 days or more. penditures. entities.

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Sec. 442. Imposition of mark-to-market tax on PART V—MISCELLANEOUS PROVISIONS (B) if the corporation does revoke such elec- individuals who expatriate. Sec. 491. Addition of vaccines against hepatitis tion— Sec. 443. Excise tax on stock compensation of A to list of taxable vaccines. (i) such corporation shall be treated as a do- insiders of inverted corporations. Sec. 492. Recognition of gain from the sale of a mestic corporation transferring (as of such date Sec. 444. Reinsurance of United States risks in principal residence acquired in a of enactment) all of its property to a foreign cor- foreign jurisdictions. like-kind exchange within 5 years poration in connection with an exchange de- Sec. 445. Reporting of taxable mergers and ac- of sale. scribed in section 354 of such Code, and quisitions. Sec. 493. Clarification of exemption from tax for (ii) no gain or loss shall be recognized on such Subtitle E—International Tax small property and casualty in- transfer. Sec. 451. Clarification of banking business for surance companies. (2) EXCEPTION.—Subparagraph (B)(ii) of purposes of determining invest- Sec. 494. Definition of insurance company for paragraph (1) shall not apply to gain on any ment of earnings in United States section 831. asset held by the revoking corporation if— property. Sec. 495. Limitations on deduction for chari- (A) the basis of such asset is determined in Sec. 452. Prohibition on nonrecognition of gain table contributions of patents and whole or in part by reference to the basis of through complete liquidation of similar property. such asset in the hands of the person from holding company. Sec. 496. Repeal of 10-percent rehabilitation tax whom the revoking corporation acquired such Sec. 453. Prevention of mismatching of interest credit. asset, and original issue discount deduc- Sec. 497. Increase in age of minor children (B) the asset was acquired by transfer (not as tions and income inclusions in whose unearned income is taxed a result of the election under section 943(e) of transactions with related foreign as if parent’s income. such Code) occurring on or after the 1st day on persons. TITLE I—PROVISIONS RELATING TO RE- which its election under section 943(e) of such Sec. 454. Effectively connected income to in- PEAL OF EXCLUSION FOR Code was effective, and clude certain foreign source in- (C) a principal purpose of the acquisition was EXTRATERRITORIAL INCOME come. the reduction or avoidance of tax (other than a Sec. 455. Recapture of overall foreign losses on SEC. 101. REPEAL OF EXCLUSION FOR reduction in tax under section 114 of such Code, sale of controlled foreign corpora- EXTRATERRITORIAL INCOME. as in effect on the day before the date of the en- tion. (a) IN GENERAL.—Section 114 is hereby re- actment of this Act). Sec. 456. Minimum holding period for foreign pealed. (e) GENERAL TRANSITION.— tax credit on withholding taxes on (b) CONFORMING AMENDMENTS.— (1) IN GENERAL.—In the case of a taxable year income other than dividends. (1)(A) Subpart E of part III of subchapter N of ending after the date of the enactment of this Subtitle F—Other Revenue Provisions chapter 1 (relating to qualifying foreign trade Act and beginning before January 1, 2007, for income) is hereby repealed. purposes of chapter 1 of such Code, a current PART I—FINANCIAL INSTRUMENTS (B) The table of subparts for such part III is Sec. 461. Treatment of stripped interests in bond FSC/ETI beneficiary shall be allowed a deduc- amended by striking the item relating to subpart tion equal to the transition amount determined and preferred stock funds, etc. E. Sec. 462. Application of earnings stripping rules under this subsection with respect to such bene- (2) The table of sections for part III of sub- ficiary for such year. to partnerships and S corpora- chapter B of chapter 1 is amended by striking tions. (2) CURRENT FSC/ETI BENEFICIARY.—The term the item relating to section 114. ‘‘current FSC/ETI beneficiary’’ means any cor- Sec. 463. Recognition of cancellation of indebt- (3) The second sentence of section edness income realized on satis- poration which entered into one or more trans- 56(g)(4)(B)(i) is amended by striking ‘‘or under actions during its taxable year beginning in cal- faction of debt with partnership section 114’’. interest. endar year 2002 with respect to which FSC/ETI (4) Section 275(a) is amended— benefits were allowable. Sec. 464. Modification of straddle rules. (A) by inserting ‘‘or’’ at the end of paragraph Sec. 465. Denial of installment sale treatment (3) TRANSITION AMOUNT.—For purposes of this (4)(A), by striking ‘‘or’’ at the end of paragraph for all readily tradeable debt. subsection— (4)(B) and inserting a period, and by striking PART II—CORPORATIONS AND PARTNERSHIPS (A) IN GENERAL.—The transition amount ap- subparagraph (C), and plicable to any current FSC/ETI beneficiary for Sec. 466. Modification of treatment of transfers (B) by striking the last sentence. any taxable year is the phaseout percentage of to creditors in divisive reorganiza- (5) Paragraph (3) of section 864(e) is amend- the base period amount. tions. ed— (B) PHASEOUT PERCENTAGE.— Sec. 467. Clarification of definition of non- (A) by striking: (i) IN GENERAL.—In the case of a taxpayer qualified preferred stock. ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO AC- Sec. 468. Modification of definition of con- using the calendar year as its taxable year, the COUNT.— phaseout percentage shall be determined under trolled group of corporations. ‘‘(A) IN GENERAL.—For purposes of’’; and in- the following table: Sec. 469. Mandatory basis adjustments in con- serting: nection with partnership distribu- ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO AC- The phaseout tions and transfers of partnership COUNT.—For purposes of’’, and percentage is: interests. (B) by striking subparagraph (B). Years: PART III—DEPRECIATION AND AMORTIZATION (6) Section 903 is amended by striking ‘‘114, 2004 ...... 80 2005 ...... 80 Sec. 471. Extension of amortization of intangi- 164(a),’’ and inserting ‘‘164(a)’’. 2006 ...... 60. bles to sports franchises. (7) Section 999(c)(1) is amended by striking Sec. 472. Services contracts treated in the same ‘‘941(a)(5),’’. (ii) SPECIAL RULE FOR 2003.—The phaseout per- manner as leases for rules relating (c) EFFECTIVE DATE.— centage for 2003 shall be the amount that bears to tax-exempt use of property. (1) IN GENERAL.—The amendments made by the same ratio to 100 percent as the number of Sec. 473. Class lives for utility grading costs. this section shall apply to transactions occur- days after the date of the enactment of this Act Sec. 474. Expansion of limitation on deprecia- ring after the date of the enactment of this Act. bears to 365. tion of certain passenger auto- (2) BINDING CONTRACTS.—The amendments (iii) SPECIAL RULE FOR FISCAL YEAR TAX- mobiles. made by this section shall not apply to any PAYERS.—In the case of a taxpayer not using Sec. 475. Consistent amortization of periods for transaction in the ordinary course of a trade or the calendar year as its taxable year, the phase- intangibles. business which occurs pursuant to a binding out percentage is the weighted average of the Sec. 476. Limitation on deductions allocable to contract— phaseout percentages determined under the pre- property used by governments or (A) which is between the taxpayer and a per- ceding provisions of this paragraph with respect other tax-exempt entities. son who is not a related person (as defined in to calendar years any portion of which is in- PART IV—ADMINISTRATIVE PROVISIONS section 943(b)(3) of such Code, as in effect on cluded in the taxpayer’s taxable year. The Sec. 481. Clarification of rules for payment of the day before the date of the enactment of this weighted average shall be determined on the estimated tax for certain deemed Act), and basis of the respective portions of the taxable asset sales. (B) which is in effect on September 17, 2003, year in each calendar year. Sec. 482. Extension of IRS user fees. and at all times thereafter. (C) SHORT TAXABLE YEAR.—The Secretary Sec. 483. Doubling of certain penalties, fines, (d) REVOCATION OF SECTION 943(e) ELEC- shall prescribe guidance for the computation of and interest on underpayments TIONS.— the transition amount in the case of a short tax- related to certain offshore finan- (1) IN GENERAL.—In the case of a corporation able year. cial arrangement. that elected to be treated as a domestic corpora- (4) BASE PERIOD AMOUNT.—For purposes of Sec. 484. Partial payment of tax liability in in- tion under section 943(e) of the Internal Rev- this subsection, the base period amount is the stallment agreements. enue Code of 1986 (as in effect on the day before FSC/ETI benefit for the taxpayer’s taxable year Sec. 485. Extension of customs user fees. the date of the enactment of this Act)— beginning in calendar year 2002. Sec. 486. Deposits made to suspend running of (A) the corporation may, during the 1-year pe- (5) FSC/ETI BENEFIT.—For purposes of this interest on potential underpay- riod beginning on the date of the enactment of subsection, the term ‘‘FSC/ETI benefit’’ means— ments. this Act, revoke such election, effective as of (A) amounts excludable from gross income Sec. 487. Qualified tax collection contracts. such date of enactment, and under section 114 of such Code, and

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(B) the exempt foreign trade income of related of employees of the taxpayer during the tax- ‘‘(e) DOMESTIC PRODUCTION GROSS RE- foreign sales corporations from property ac- payer’s taxable year. CEIPTS.—For purposes of this section— quired from the taxpayer (determined without ‘‘(3) SPECIAL RULES.— ‘‘(1) IN GENERAL.—The term ‘domestic produc- regard to section 923(a)(5) of such Code (relating ‘‘(A) PASS-THRU ENTITIES.—In the case of an S tion gross receipts’ means the gross receipts of to special rule for military property), as in effect corporation, partnership, estate or trust, or the taxpayer which are derived from— on the day before the date of the enactment of other pass-thru entity, the limitation under this ‘‘(A) any sale, exchange, or other disposition the FSC Repeal and Extraterritorial Income Ex- subsection shall apply at the entity level. of, or clusion Act of 2000). ‘‘(B) ACQUISITIONS AND DISPOSITIONS.—The ‘‘(B) any lease, rental, or license of, In determining the FSC/ETI benefit there shall Secretary shall provide for the application of qualifying production property which was man- be excluded any amount attributable to a trans- this subsection in cases where the taxpayer ac- ufactured, produced, grown, or extracted in action with respect to which the taxpayer is the quires, or disposes of, the major portion of a whole or in significant part by the taxpayer lessor unless the leased property was manufac- trade or business or the major portion of a sepa- within the United States. ‘‘(2) SPECIAL RULES FOR CERTAIN PROPERTY.— tured or produced in whole or in significant rate unit of a trade or business during the tax- In the case of any qualifying production prop- part by the taxpayer. able year. erty described in subsection (f)(1)(C)— (6) SPECIAL RULE FOR AGRICULTURAL AND HOR- ‘‘(c) QUALIFIED PRODUCTION ACTIVITIES IN- ‘‘(A) such property shall be treated for pur- TICULTURAL COOPERATIVES.—Determinations COME.—For purposes of this section— poses of paragraph (1) as produced in signifi- under this subsection with respect to an organi- ‘‘(1) IN GENERAL.—The term ‘qualified produc- cant part by the taxpayer within the United zation described in section 943(g)(1) of such tion activities income’ means an amount equal States if more than 50 percent of the aggregate Code, as in effect on the day before the date of to the portion of the modified taxable income of development and production costs are incurred the enactment of this Act, shall be made at the the taxpayer which is attributable to domestic by the taxpayer within the United States, and cooperative level and the purposes of this sub- production activities. ‘‘(B) if a taxpayer acquires such property be- section shall be carried out in a manner similar ‘‘(2) REDUCTION FOR TAXABLE YEARS BEGIN- fore such property begins to generate substan- to section 199(h)(2) of such Code, as added by NING BEFORE 2013.—The amount otherwise deter- tial gross receipts, any development or produc- this Act. Such determinations shall be in ac- mined under paragraph (1) (the ‘unreduced tion costs incurred before the acquisition shall cordance with such requirements and proce- amount’) shall not exceed— be treated as incurred by the taxpayer for pur- dures as the Secretary may prescribe. ‘‘(A) in the case of taxable years beginning be- poses of subparagraph (A) and paragraph (1). (7) CERTAIN RULES TO APPLY.—Rules similar to fore 2010, the product of the unreduced amount ‘‘(f) QUALIFYING PRODUCTION PROPERTY.—For the rules of section 41(f) of such Code shall and the domestic/worldwide fraction, and purposes of this section— apply for purposes of this subsection. ‘‘(B) in the case of taxable years beginning in ‘‘(1) IN GENERAL.—Except as otherwise pro- (8) COORDINATION WITH BINDING CONTRACT 2010, 2011, or 2012, an amount equal to the sum vided in this paragraph, the term ‘qualifying RULE.—The deduction determined under para- of— production property’ means— ‘‘(i) the product of the unreduced amount and graph (1) for any taxable year shall be reduced ‘‘(A) any tangible personal property, the domestic/worldwide fraction, plus by the phaseout percentage of any FSC/ETI ‘‘(B) any computer software, and benefit realized for the taxable year by reason of ‘‘(ii) the applicable percentage of an amount ‘‘(C) any property described in section 168(f) subsection (c)(2) or section 5(c)(1)(B) of the FSC equal to the unreduced amount minus the (3) or (4), including any underlying copyright or Repeal and Extraterritorial Income Exclusion amount determined under clause (i). trademark. Act of 2000, except that for purposes of this For purposes of subparagraph (B)(ii), the appli- ‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC- paragraph the phaseout percentage for 2003 cable percentage is 25 percent for 2010, 50 per- TION PROPERTY.—The term ‘qualifying produc- shall be treated as being equal to 100 percent. cent for 2011, and 75 percent for 2012. tion property’ shall not include— (9) SPECIAL RULE FOR TAXABLE YEAR WHICH ‘‘(d) DETERMINATION OF INCOME ATTRIB- ‘‘(A) consumable property that is sold, leased, INCLUDES DATE OF ENACTMENT.—In the case of a UTABLE TO DOMESTIC PRODUCTION ACTIVITIES.— or licensed by the taxpayer as an integral part taxable year which includes the date of the en- For purposes of this section— of the provision of services, actment of this Act, the deduction allowed ‘‘(1) IN GENERAL.—The portion of the modified ‘‘(B) oil or gas, under this subsection to any current FSC/ETI taxable income which is attributable to domestic ‘‘(C) electricity, beneficiary shall in no event exceed— production activities is so much of the modified ‘‘(D) water supplied by pipeline to the con- (A) 100 percent of such beneficiary’s base pe- taxable income for the taxable year as does not sumer, riod amount for calendar year 2003, reduced by exceed— ‘‘(E) utility services, or (B) the FSC/ETI benefit of such beneficiary ‘‘(A) the taxpayer’s domestic production gross ‘‘(F) any film, tape, recording, book, maga- with respect to transactions occurring during receipts for such taxable year, reduced by zine, newspaper, or similar property the market the portion of the taxable year ending on the ‘‘(B) the sum of— for which is primarily topical or otherwise es- date of the enactment of this Act. ‘‘(i) the costs of goods sold that are allocable sentially transitory in nature. SEC. 102. DEDUCTION RELATING TO INCOME AT- to such receipts, ‘‘(g) DOMESTIC/WORLDWIDE FRACTION.—For TRIBUTABLE TO UNITED STATES ‘‘(ii) other deductions, expenses, or losses di- purposes of this section— PRODUCTION ACTIVITIES. rectly allocable to such receipts, and ‘‘(1) IN GENERAL.—The term ‘domestic/world- (a) IN GENERAL.—Part VI of subchapter B of ‘‘(iii) a proper share of other deductions, ex- wide fraction’ means a fraction (not greater chapter 1 (relating to itemized deductions for in- penses, and losses that are not directly allocable than 1)— dividuals and corporations) is amended by add- to such receipts or another class of income. ‘‘(A) the numerator of which is the value of ing at the end the following new section: ‘‘(2) ALLOCATION METHOD.—The Secretary the domestic production of the taxpayer, and ‘‘SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC shall prescribe rules for the proper allocation of ‘‘(B) the denominator of which is the value of PRODUCTION ACTIVITIES. items of income, deduction, expense, and loss for the worldwide production of the taxpayer. ‘‘(2) VALUE OF DOMESTIC PRODUCTION.—The ‘‘(a) ALLOWANCE OF DEDUCTION.— purposes of determining income attributable to value of domestic production is the excess (if ‘‘(1) IN GENERAL.—There shall be allowed as a domestic production activities. any) of— deduction an amount equal to 9 percent of the ‘‘(3) SPECIAL RULES FOR DETERMINING COSTS.— ‘‘(A) the domestic production gross receipts, qualified production activities income of the tax- ‘‘(A) IN GENERAL.—For purposes of deter- over payer for the taxable year. mining costs under clause (i) of paragraph ‘‘(B) the cost of purchased inputs allocable to ‘‘(2) PHASEIN.—In the case of taxable years (1)(B), any item or service brought into the such receipts that are deductible under this beginning in 2003, 2004, 2005, 2006, 2007, or 2008, United States shall be treated as acquired by chapter for the taxable year. paragraph (1) shall be applied by substituting purchase, and its cost shall be treated as not for the percentage contained therein the transi- ‘‘(3) PURCHASED INPUTS.— less than its fair market value immediately after ‘‘(A) IN GENERAL.—Purchased inputs are any tion percentage determined under the following it entered the United States. A similar rule shall table: of the following items acquired by purchase: apply in determining the adjusted basis of ‘‘(i) Services (other than services of employees) ‘‘Taxable years begin- The transition leased or rented property where the lease or used in manufacture, production, growth, or ex- ning in: percentage is: rental gives rise to domestic production gross re- traction activities. 2003 or 2004 ...... 1 ceipts. ‘‘(ii) Items consumed in connection with such 2005 ...... 2 ‘‘(B) EXPORTS FOR FURTHER MANUFACTURE.— activities. 2006 ...... 3 In the case of any property described in sub- ‘‘(iii) Items incorporated as part of the prop- 2007 or 2008 ...... 6. paragraph (A) that had been exported by the erty being manufactured, produced, grown, or ‘‘(b) DEDUCTION LIMITED TO WAGES PAID.— taxpayer for further manufacture, the increase extracted. ‘‘(1) IN GENERAL.—The amount of the deduc- in cost or adjusted basis under subparagraph ‘‘(B) SPECIAL RULE.—Rules similar to the rules tion allowable under subsection (a) for any tax- (A) shall not exceed the difference between the of subsection (d)(3) shall apply for purposes of able year shall not exceed 50 percent of the W– value of the property when exported and the this subsection. 2 wages of the employer for the taxable year. value of the property when brought back into ‘‘(4) VALUE OF WORLDWIDE PRODUCTION.— ‘‘(2) W–2 WAGES.—For purposes of paragraph the United States after the further manufacture. ‘‘(A) IN GENERAL.—The value of worldwide (1), the term ‘W–2 wages’ means the sum of the ‘‘(4) MODIFIED TAXABLE INCOME.—The term production shall be determined under the prin- aggregate amounts the taxpayer is required to ‘modified taxable income’ means taxable income ciples of paragraph (2), except that— include on statements under paragraphs (3) and computed without regard to the deduction al- ‘‘(i) worldwide production gross receipts shall (8) of section 6051(a) with respect to employment lowable under this section. be taken into account, and

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‘‘(ii) paragraph (3)(B) shall not apply. ‘‘(6) TRADE OR BUSINESS REQUIREMENT.—This cess foreign taxes which (without regard to the ‘‘(B) WORLDWIDE PRODUCTION GROSS RE- section shall be applied by only taking into ac- amendments made by this section) may be car- CEIPTS.—The worldwide production gross re- count items which are attributable to the actual ried to any taxable year ending after the date of ceipts is the amount that would be determined conduct of a trade or business. the enactment of this Act. under subsection (e) if such subsection were ap- ‘‘(7) POSSESSIONS, ETC.— SEC. 202. LOOK-THRU RULES TO APPLY TO DIVI- plied without any reference to the United ‘‘(A) IN GENERAL.—For purposes of sub- DENDS FROM NONCONTROLLED States. sections (d) and (e), the term ‘United States’ in- SECTION 902 CORPORATIONS. ‘‘(h) DEFINITIONS AND SPECIAL RULES.— cludes the Commonwealth of Puerto Rico, (a) IN GENERAL.—Section 904(d)(4) (relating to ‘‘(1) APPLICATION OF SECTION TO PASS-THRU Guam, American Samoa, the Commonwealth of look-thru rules apply to dividends from noncon- ENTITIES.—In the case of an S corporation, part- the Northern Mariana Islands, and the Virgin trolled section 902 corporations) is amended to nership, estate or trust, or other pass-thru enti- Islands of the United States. read as follows: ty— ‘‘(B) SPECIAL RULES FOR APPLYING WAGE LIMI- ‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM ‘‘(A) subject to the provisions of paragraph (2) TATION.—For purposes of applying the limita- NONCONTROLLED SECTION 902 CORPORATIONS.— and subsection (b)(3)(A), this section shall be tion under subsection (b) for any taxable year— ‘‘(A) IN GENERAL.—For purposes of this sub- applied at the shareholder, partner, or similar ‘‘(i) the determination of W–2 wages of a tax- section, any dividend from a noncontrolled sec- level, and payer shall be made without regard to any ex- tion 902 corporation with respect to the taxpayer ‘‘(B) the Secretary shall prescribe rules for the clusion under section 3401(a)(8) for remunera- shall be treated as income described in a sub- application of this section, including rules relat- tion paid for services performed in a jurisdiction paragraph of paragraph (1) in proportion to the ing to— described in subparagraph (A), and ratio of— ‘‘(i) restrictions on the allocation of the de- ‘‘(ii) in determining the amount of any credit ‘‘(i) the portion of earnings and profits attrib- duction to taxpayers at the partner or similar allowable under section 30A or 936 for the tax- utable to income described in such subpara- level, and able year, there shall not be taken into account graph, to ‘‘(ii) additional reporting requirements. any wages which are taken into account in ap- ‘‘(ii) the total amount of earnings and profits. ‘‘(2) EXCLUSION FOR PATRONS OF AGRICUL- plying such limitation. ‘‘(B) EARNINGS AND PROFITS OF CONTROLLED TURAL AND HORTICULTURAL COOPERATIVES.— ‘‘(8) COORDINATION WITH TRANSITION RULES.— FOREIGN CORPORATIONS.—In the case of any dis- ‘‘(A) IN GENERAL.—If any amount described in For purposes of this section— tribution from a controlled foreign corporation paragraph (1) or (3) of section 1385 (a)— ‘‘(A) domestic production gross receipts shall to a United States shareholder, rules similar to ‘‘(i) is received by a person from an organiza- not include gross receipts from any transaction the rules of subparagraph (A) shall apply in de- tion to which part I of subchapter T applies if the binding contract transition relief of sec- termining the extent to which earnings and which is engaged in the marketing of agricul- tion 101(c)(2) of the Jumpstart Our Business profits of the controlled foreign corporation tural or horticultural products, and Strength (JOBS) Act applies to such trans- which are attributable to dividends received ‘‘(ii) is allocable to the portion of the qualified action, and from a noncontrolled section 902 corporation production activities income of the organization ‘‘(B) any deduction allowed under section may be treated as income in a separate category. which is deductible under subsection (a) and 101(e) of such Act shall be disregarded in deter- ‘‘(C) SPECIAL RULES.—For purposes of this designated as such by the organization in a mining the portion of the taxable income which paragraph— written notice mailed to its patrons during the is attributable to domestic production gross re- ‘‘(i) EARNINGS AND PROFITS.— payment period described in section 1382(d), ceipts.’’. ‘‘(I) IN GENERAL.—The rules of section 316 (b) MINIMUM TAX.—Section 56(g)(4)(C) (relat- shall apply. then such person shall be allowed an exclusion ing to disallowance of items not deductible in ‘‘(II) REGULATIONS.—The Secretary may pre- from gross income with respect to such amount. computing earnings and profits) is amended by scribe regulations regarding the treatment of The taxable income of the organization shall not adding at the end the following new clause: distributions out of earnings and profits for pe- be reduced under section 1382 by the portion of ‘‘(v) DEDUCTION FOR DOMESTIC PRODUCTION.— riods before the taxpayer’s acquisition of the any such amount with respect to which an ex- Clause (i) shall not apply to any amount allow- stock to which the distributions relate. clusion is allowable to a person by reason of this able as a deduction under section 199.’’. ‘‘(ii) INADEQUATE SUBSTANTIATION.—If the paragraph. (c) CLERICAL AMENDMENT.—The table of sec- Secretary determines that the proper subpara- ‘‘(B) SPECIAL RULES.—For purposes of apply- tions for part VI of subchapter B of chapter 1 is graph of paragraph (1) in which a dividend is ing subparagraph (A), in determining the quali- amended by adding at the end the following described has not been substantiated, such divi- fied production activities income of the organi- new item: dend shall be treated as income described in zation under this section— paragraph (1)(A). ‘‘(i) there shall not be taken into account in ‘‘Sec. 199. Income attributable to domestic pro- ‘‘(iii) COORDINATION WITH HIGH-TAXED INCOME computing the organization’s modified taxable duction activities.’’. PROVISIONS.—Rules similar to the rules of para- income any deduction allowable under sub- (d) EFFECTIVE DATE.— graph (3)(F) shall apply for purposes of this section (b) or (c) of section 1382 (relating to pa- (1) IN GENERAL.—The amendments made by paragraph. tronage dividends, per-unit retain allocations, this section shall apply to taxable years ending ‘‘(iv) LOOK-THRU WITH RESPECT TO CARRYOVER and nonpatronage distributions), and after the date of the enactment of this Act. OF CREDIT.—Rules similar to subparagraph (A) ‘‘(ii) the organization shall be treated as hav- (2) APPLICATION OF SECTION 15.—Section 15 of also shall apply to any carryforward under sub- ing manufactured, produced, grown, or ex- the Internal Revenue Code of 1986 shall apply to section (c) from a taxable year beginning before tracted in whole or significant part any quali- the amendments made by this section as if they January 1, 2003, of tax allocable to a dividend fying production property marketed by the orga- were changes in a rate of tax. from a noncontrolled section 902 corporation nization which its patrons have so manufac- TITLE II—INTERNATIONAL TAX with respect to the taxpayer. The Secretary may tured, produced, grown, or extracted. PROVISIONS by regulations provide for the allocation of any ‘‘(3) SPECIAL RULE FOR AFFILIATED GROUPS.— Subtitle A—International Tax Reform carryback of tax allocable to a dividend from a ‘‘(A) IN GENERAL.—All members of an ex- noncontrolled section 902 corporation to such a panded affiliated group shall be treated as a SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRY- taxable year for purposes of allocating such div- single corporation for purposes of this section. OVER; 1-YEAR FOREIGN TAX CREDIT CARRYBACK. idend among the separate categories in effect for ‘‘(B) EXPANDED AFFILIATED GROUP.—The term (a) GENERAL RULE.—Section 904(c) (relating to such taxable year.’’. ‘expanded affiliated group’ means an affiliated carryback and carryover of excess tax paid) is (b) CONFORMING AMENDMENTS.— group as defined in section 1504(a), deter- amended— (1) Subparagraph (E) of section 904(d)(1) is mined— (1) by striking ‘‘in the second preceding tax- hereby repealed. ‘‘(i) by substituting ‘50 percent’ for ‘80 per- able year,’’, and (2) Section 904(d)(2)(C)(iii) is amended by add- cent’ each place it appears, and (2) by striking ‘‘, and in the first, second, ing ‘‘and’’ at the end of subclause (I), by strik- ‘‘(ii) without regard to paragraphs (2) and (4) third, fourth, or fifth’’ and inserting ‘‘and in ing subclause (II), and by redesignating sub- of section 1504(b). any of the first 20’’. clause (III) as subclause (II). For purposes of determining the domestic/world- (b) EXCESS EXTRACTION TAXES.—Paragraph (3) The last sentence of section 904(d)(2)(D) is wide fraction under subsection (g), clause (ii) (1) of section 907(f) is amended— amended to read as follows: ‘‘Such term does shall be applied by also disregarding paragraphs (1) by striking ‘‘in the second preceding tax- not include any financial services income.’’. (3) and (8) of section 1504(b). able year,’’, (4) Section 904(d)(2)(E) is amended— ‘‘(4) COORDINATION WITH MINIMUM TAX.—The (2) by striking ‘‘, and in the first, second, (A) by inserting ‘‘or (4)’’ after ‘‘paragraph deduction under this section shall be allowed for third, fourth, or fifth’’ and inserting ‘‘and in (3)’’ in clause (i), and purposes of the tax imposed by section 55; except any of the first 20’’, and (B) by striking clauses (ii) and (iv) and by re- that for purposes of section 55, alternative min- (3) by striking the last sentence. designating clause (iii) as clause (ii). imum taxable income shall be taken into ac- (c) EFFECTIVE DATE.— (5) Section 904(d)(3)(F) is amended by striking count in determining the deduction under this (1) CARRYBACK.—The amendments made by ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’. section. subsections (a)(1) and (b)(1) shall apply to ex- (6) Section 864(d)(5)(A)(i) is amended by strik- ‘‘(5) ORDERING RULE.—The amount of any cess foreign taxes arising in taxable years begin- ing ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’. other deduction allowable under this chapter ning after the date of the enactment of this Act. (c) EFFECTIVE DATE.—The amendments made shall be determined as if this section had not (2) CARRYOVER.—The amendments made by by this section shall apply to taxable years be- been enacted. subsections (a)(2) and (b)(2) shall apply to ex- ginning after December 31, 2002.

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SEC. 203. FOREIGN TAX CREDIT UNDER ALTER- subsection (f) as subsection (g) and by inserting ‘‘(C) TREATMENT OF BANK AND FINANCIAL NATIVE MINIMUM TAX. after subsection (e) the following new sub- HOLDING COMPANIES.—To the extent provided in (a) IN GENERAL.— section: regulations— (1) Subsection (a) of section 59 is amended by ‘‘(f) ELECTION TO ALLOCATE INTEREST, ETC. ‘‘(i) a bank holding company (within the striking paragraph (2) and by redesignating ON WORLDWIDE BASIS.—For purposes of this meaning of section 2(a) of the Bank Holding paragraphs (3) and (4) as paragraphs (2) and subchapter, at the election of the worldwide af- Company Act of 1956 (12 U.S.C. 1841(a)), (3), respectively. filiated group— ‘‘(ii) a financial holding company (within the (2) Section 53(d)(1)(B)(i)(II) is amended by ‘‘(1) ALLOCATION AND APPORTIONMENT OF IN- meaning of section 2(p) of the Bank Holding striking ‘‘and if section 59(a)(2) did not apply’’. TEREST EXPENSE.— Company Act of 1956 (12 U.S.C. 1841(p)), and (b) EFFECTIVE DATE.—The amendments made ‘‘(A) IN GENERAL.—The taxable income of each ‘‘(iii) any subsidiary of a financial institution by this section shall apply to taxable years be- domestic corporation which is a member of a described in section 581 or 591, or of any such ginning after December 31, 2004. worldwide affiliated group shall be determined bank or financial holding company, if such sub- SEC. 204. RECHARACTERIZATION OF OVERALL by allocating and apportioning interest expense sidiary is predominantly engaged (directly or in- DOMESTIC LOSS. of each member as if all members of such group directly) in the active conduct of a banking, fi- (a) GENERAL RULE.—Section 904 is amended by redesignating subsections (g), (h), (i), (j), and were a single corporation. nancing, or similar business, ‘‘(B) TREATMENT OF WORLDWIDE AFFILIATED (k) as subsections (h), (i), (j), (k), and (l) respec- shall be treated as a corporation described in GROUP.—The taxable income of the domestic tively, and by inserting after subsection (f) the subparagraph (B). members of a worldwide affiliated group from following new subsection: ‘‘(5) ELECTION TO EXPAND FINANCIAL INSTITU- ‘‘(g) RECHARACTERIZATION OF OVERALL DO- sources outside the United States shall be deter- TION GROUP OF WORLDWIDE GROUP.— MESTIC LOSS.— mined by allocating and apportioning the inter- ‘‘(A) IN GENERAL.—If a worldwide affiliated ‘‘(1) GENERAL RULE.—For purposes of this est expense of such domestic members to such in- group elects the application of this subsection, subpart and section 936, in the case of any tax- come in an amount equal to the excess (if any) all financial corporations which— payer who sustains an overall domestic loss for of— ‘‘(i) are members of such worldwide affiliated any taxable year beginning after December 31, ‘‘(i) the total interest expense of the world- group, but 2006, that portion of the taxpayer’s taxable in- wide affiliated group multiplied by the ratio ‘‘(ii) are not corporations described in para- come from sources within the United States for which the foreign assets of the worldwide affili- graph (4)(B), ated group bears to all the assets of the world- each succeeding taxable year which is equal to shall be treated as described in paragraph (4)(B) wide affiliated group, over the lesser of— for purposes of applying paragraph (4)(A). This ‘‘(ii) the interest expense of all foreign cor- ‘‘(A) the amount of such loss (to the extent subsection (other than this paragraph) shall porations which are members of the worldwide not used under this paragraph in prior taxable apply to any such group in the same manner as affiliated group to the extent such interest ex- years), or this subsection (other than this paragraph) ap- ‘‘(B) 50 percent of the taxpayer’s taxable in- pense of such foreign corporations would have plies to the pre-election worldwide affiliated come from sources within the United States for been allocated and apportioned to foreign group of which such group is a part. such succeeding taxable year, source income if this subsection were applied to ‘‘(B) FINANCIAL CORPORATION.—For purposes a group consisting of all the foreign corpora- shall be treated as income from sources without of this paragraph, the term ‘financial corpora- tions in such worldwide affiliated group. the United States (and not as income from tion’ means any corporation if at least 80 per- ‘‘(C) WORLDWIDE AFFILIATED GROUP.—For sources within the United States). cent of its gross income is income described in ‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For purposes of this paragraph, the term ‘worldwide section 904(d)(2)(C)(ii) and the regulations purposes of this subsection— affiliated group’ means a group consisting of— thereunder which is derived from transactions ‘‘(A) IN GENERAL.—The term ‘overall domestic ‘‘(i) the includible members of an affiliated loss’ means any domestic loss to the extent such group (as defined in section 1504(a), determined with persons who are not related (within the loss offsets taxable income from sources without without regard to paragraphs (2) and (4) of sec- meaning of section 267(b) or 707(b)(1)) to the cor- the United States for the taxable year or for any tion 1504(b)), and poration. For purposes of the preceding sen- preceding taxable year by reason of a ‘‘(ii) all controlled foreign corporations in tence, there shall be disregarded any item of in- carryback. For purposes of the preceding sen- which such members in the aggregate meet the come or gain from a transaction or series of tence, the term ‘domestic loss’ means the amount ownership requirements of section 1504(a)(2) ei- transactions a principal purpose of which is the by which the gross income for the taxable year ther directly or indirectly through applying qualification of any corporation as a financial from sources within the United States is exceed- paragraph (2) of section 958(a) or through ap- corporation. ed by the sum of the deductions properly appor- plying rules similar to the rules of such para- ‘‘(C) ANTIABUSE RULES.—In the case of a cor- tioned or allocated thereto (determined without graph to stock owned directly or indirectly by poration which is a member of an electing finan- regard to any carryback from a subsequent tax- domestic partnerships, trusts, or estates. cial institution group, to the extent that such able year). ‘‘(2) ALLOCATION AND APPORTIONMENT OF corporation— ‘‘(i) distributes dividends or makes other dis- ‘‘(B) TAXPAYER MUST HAVE ELECTED FOREIGN OTHER EXPENSES.—Expenses other than interest TAX CREDIT FOR YEAR OF LOSS.—The term ‘over- which are not directly allocable or apportioned tributions with respect to its stock after the date all domestic loss’ shall not include any loss for to any specific income producing activity shall of the enactment of this paragraph to any mem- any taxable year unless the taxpayer chose the be allocated and apportioned as if all members ber of the pre-election worldwide affiliated benefits of this subpart for such taxable year. of the affiliated group were a single corporation. group (other than to a member of the electing fi- ‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN- For purposes of the preceding sentence, the term nancial institution group) in excess of the great- COME.— ‘affiliated group’ has the meaning given such er of— ‘‘(A) IN GENERAL.—Any income from sources term by section 1504 (determined without regard ‘‘(I) its average annual dividend (expressed as within the United States that is treated as in- to paragraph (4) of section 1504(b)). a percentage of current earnings and profits) come from sources without the United States ‘‘(3) TREATMENT OF TAX-EXEMPT ASSETS; BASIS during the 5-taxable-year period ending with under paragraph (1) shall be allocated among OF STOCK IN NONAFFILIATED 10-PERCENT OWNED the taxable year preceding the taxable year, or and increase the income categories in proportion ‘‘(II) 25 percent of its average annual earn- CORPORATIONS.—The rules of paragraphs (3) to the loss from sources within the United States and (4) of subsection (e) shall apply for pur- ings and profits for such 5-taxable-year period, previously allocated to those income categories. poses of this subsection, except that paragraph or ‘‘(B) INCOME CATEGORY.—For purposes of this ‘‘(ii) deals with any person in any manner not paragraph, the term ‘income category’ has the (4) shall be applied on a worldwide affiliated group basis. clearly reflecting the income of the corporation meaning given such term by subsection (as determined under principles similar to the ‘‘(4) TREATMENT OF CERTAIN FINANCIAL INSTI- (f)(5)(E)(i). principles of section 482), ‘‘(4) COORDINATION WITH SUBSECTION (f).—The TUTIONS.— an amount of indebtedness of the electing finan- Secretary shall prescribe such regulations as ‘‘(A) IN GENERAL.—For purposes of paragraph cial institution group equal to the excess dis- may be necessary to coordinate the provisions of (1), any corporation described in subparagraph tribution or the understatement or overstate- this subsection with the provisions of subsection (B) shall be treated as an includible corporation ment of income, as the case may be, shall be re- (f).’’. for purposes of section 1504 only for purposes of (b) CONFORMING AMENDMENTS.— applying this subsection separately to corpora- characterized (for the taxable year and subse- (1) Section 535(d)(2) is amended by striking tions so described. quent taxable years) for purposes of this para- ‘‘section 904(g)(6)’’ and inserting ‘‘section ‘‘(B) DESCRIPTION.—A corporation is described graph as indebtedness of the worldwide affili- 904(h)(6)’’. in this subparagraph if— ated group (excluding the electing financial in- (2) Subparagraph (A) of section 936(a)(2) is ‘‘(i) such corporation is a financial institution stitution group). If a corporation has not been amended by striking ‘‘section 904(f)’’ and insert- described in section 581 or 591, in existence for 5 taxable years, this subpara- ing ‘‘subsections (f) and (g) of section 904’’. ‘‘(ii) the business of such financial institution graph shall be applied with respect to the period (c) EFFECTIVE DATE.—The amendments made is predominantly with persons other than re- it was in existence. by this section shall apply to losses for taxable lated persons (within the meaning of subsection ‘‘(D) ELECTION.—An election under this para- years beginning after December 31, 2006. (d)(4)) or their customers, and graph with respect to any financial institution SEC. 205. INTEREST EXPENSE ALLOCATION ‘‘(iii) such financial institution is required by group may be made only by the common parent RULES. State or Federal law to be operated separately of the pre-election worldwide affiliated group (a) ELECTION TO ALLOCATE ON WORLDWIDE from any other entity which is not such an in- and may be made only for the first taxable year BASIS.—Section 864 is amended by redesignating stitution. beginning after December 31, 2008, in which

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such affiliated group includes 1 or more finan- ‘‘(A) COMMODITY HEDGING TRANSACTIONS.— year 25 percent or more in value of the out- cial corporations. Such an election, once made, For purposes of paragraph (1)(C)(i), the term standing stock of the corporation is owned, di- shall apply to all financial corporations which ‘commodity hedging transaction’ means any rectly or indirectly, by or for the individual who are members of the electing financial institution transaction with respect to a commodity if such has performed, is to perform, or may be des- group for such taxable year and all subsequent transaction— ignated (by name or by description) as the one years unless revoked with the consent of the ‘‘(i) is a hedging transaction as defined in sec- to perform, such services.’’. Secretary. tion 1221(b)(2), determined— (c) CONFORMING AMENDMENTS.— ‘‘(E) DEFINITIONS RELATING TO GROUPS.—For ‘‘(I) without regard to subparagraph (A)(ii) (1) Section 1(h) is amended— purposes of this paragraph— thereof, (A) in paragraph (10), by inserting ‘‘and’’ at ‘‘(i) PRE-ELECTION WORLDWIDE AFFILIATED ‘‘(II) by applying subparagraph (A)(i) thereof the end of subparagraph (F), by striking sub- GROUP.—The term ‘pre-election worldwide affili- by substituting ‘ordinary property or property paragraph (G), and by redesignating subpara- ated group’ means, with respect to a corpora- described in section 1231(b)’ for ‘ordinary prop- graph (H) as subparagraph (G), and tion, the worldwide affiliated group of which erty’, and (B) by striking ‘‘a foreign personal holding such corporation would (but for an election ‘‘(III) by substituting ‘controlled foreign cor- company (as defined in section 552), a foreign under this paragraph) be a member for purposes poration’ for ‘taxpayer’ each place it appears, investment company (as defined in section of applying paragraph (1). and 1246(b)), or’’ in paragraph (11)(C)(iii). ‘‘(ii) ELECTING FINANCIAL INSTITUTION ‘‘(ii) is clearly identified as such in accord- (2) Section 163(e)(3)(B), as amended by this GROUP.—The term ‘electing financial institution ance with section 1221(a)(7). Act, is amended by striking ‘‘which is a foreign group’ means the group of corporations to ‘‘(B) TREATMENT OF DEALER ACTIVITIES UNDER personal holding company (as defined in section which this subsection applies separately by rea- PARAGRAPH (1)(C).—Commodities with respect to 552), a controlled foreign corporation (as defined son of the application of paragraph (4)(A) and which gains and losses are not taken into ac- in section 957), or’’ and inserting ‘‘which is a which includes financial corporations by reason count under paragraph (2)(C) in computing a controlled foreign corporation (as defined in sec- of an election under subparagraph (A). controlled foreign corporation’s foreign personal tion 957) or’’. ‘‘(F) REGULATIONS.—The Secretary shall pre- holding company income shall not be taken into (3) Paragraph (2) of section 171(c) is amend- scribe such regulations as may be appropriate to account in applying the substantially all test ed— carry out this subsection, including regula- under paragraph (1)(C)(ii) to such corporation. (A) by striking ‘‘, or by a foreign personal holding company, as defined in section 552’’, tions— ‘‘(C) REGULATIONS.—The Secretary shall pre- ‘‘(i) providing for the direct allocation of in- scribe such regulations as are appropriate to and (B) by striking ‘‘, or foreign personal holding terest expense in other circumstances where carry out the purposes of paragraph (1)(C) in such allocation would be appropriate to carry company’’. the case of transactions involving related par- (4) Paragraph (2) of section 245(a) is amended out the purposes of this subsection, ties.’’. by striking ‘‘foreign personal holding company ‘‘(ii) preventing assets or interest expense from (c) MODIFICATION OF EXCEPTION FOR DEAL- or’’. being taken into account more than once, and ERS.—Clause (i) of section 954(c)(2)(C) is amend- (5) Section 267(a)(3)(B), as amended by this ‘‘(iii) dealing with changes in members of any ed by inserting ‘‘and transactions involving Act, is amended by striking ‘‘to a foreign per- group (through acquisitions or otherwise) treat- physical settlement’’ after ‘‘(including hedging sonal holding company (as defined in section ed under this paragraph as an affiliated group transactions’’. 552), a controlled foreign corporation (as defined for purposes of this subsection. (d) EFFECTIVE DATE.—The amendments made in section 957), or’’ and inserting ‘‘to a con- ‘‘(6) ELECTION.—An election to have this sub- by this section shall apply to transactions en- trolled foreign corporation (as defined in section section apply with respect to any worldwide af- tered into after December 31, 2004. 957) or’’. filiated group may be made only by the common Subtitle B—International Tax Simplification (6) Section 312 is amended by striking sub- parent of the domestic affiliated group referred SEC. 211. REPEAL OF FOREIGN PERSONAL HOLD- section (j). to in paragraph (1)(C) and may be made only (7) Subsection (m) of section 312 is amended by for the first taxable year beginning after Decem- ING COMPANY RULES AND FOREIGN INVESTMENT COMPANY RULES. striking ‘‘, a foreign investment company (with- ber 31, 2008, in which a worldwide affiliated (a) GENERAL RULE.—The following provisions in the meaning of section 1246(b)), or a foreign group exists which includes such affiliated are hereby repealed: personal holding company (within the meaning group and at least 1 foreign corporation. Such (1) Part III of subchapter G of chapter 1 (re- of section 552)’’. an election, once made, shall apply to such com- lating to foreign personal holding companies). (8) Subsection (e) of section 443 is amended by mon parent and all other corporations which (2) Section 1246 (relating to gain on foreign in- striking paragraph (3) and by redesignating are members of such worldwide affiliated group vestment company stock). paragraphs (4) and (5) as paragraphs (3) and for such taxable year and all subsequent years (3) Section 1247 (relating to election by foreign (4), respectively. unless revoked with the consent of the Sec- investment companies to distribute income cur- (9) Subparagraph (B) of section 465(c)(7) is retary.’’. rently). amended by adding ‘‘or’’ at the end of clause (b) EXPANSION OF REGULATORY AUTHORITY.— (b) EXEMPTION OF FOREIGN CORPORATIONS (i), by striking clause (ii), and by redesignating Paragraph (7) of section 864(e) is amended— FROM PERSONAL HOLDING COMPANY RULES.— clause (iii) as clause (ii). (1) by inserting before the comma at the end (1) IN GENERAL.—Subsection (c) of section 542 (10) Paragraph (1) of section 543(b) is amend- of subparagraph (B) ‘‘and in other cir- (relating to exceptions) is amended— ed by inserting ‘‘and’’ at the end of subpara- cumstances where such allocation would be ap- (A) by striking paragraph (5) and inserting graph (A), by striking ‘‘, and’’ at the end of propriate to carry out the purposes of this sub- the following: subparagraph (B) and inserting a period, and section’’, and ‘‘(5) a foreign corporation,’’, by striking subparagraph (C). (2) by striking ‘‘and’’ at the end of subpara- (B) by striking paragraphs (7) and (10) and by (11) Paragraph (1) of section 562(b) is amend- graph (E), by redesignating subparagraph (F) redesignating paragraphs (8) and (9) as para- ed by striking ‘‘or a foreign personal holding as subparagraph (G), and by inserting after sub- graphs (7) and (8), respectively, company described in section 552’’. paragraph (E) the following new subparagraph: (C) by inserting ‘‘and’’ at the end of para- (12) Section 563 is amended— ‘‘(F) preventing assets or interest expense from graph (7) (as so redesignated), and (A) by striking subsection (c), being taken into account more than once, and’’. (B) by redesignating subsection (d) as sub- (D) by striking ‘‘; and’’ at the end of para- (c) EFFECTIVE DATE.—The amendments made section (c), and graph (8) (as so redesignated) and inserting a by this section shall apply to taxable years be- (C) by striking ‘‘subsection (a), (b), or (c)’’ in period. ginning after December 31, 2008. subsection (c) (as so redesignated) and inserting (2) TREATMENT OF INCOME FROM PERSONAL SEC. 206. DETERMINATION OF FOREIGN PER- ‘‘subsection (a) or (b)’’. SERVICE CONTRACTS.—Paragraph (1) of section SONAL HOLDING COMPANY INCOME (13) Subsection (d) of section 751 is amended WITH RESPECT TO TRANSACTIONS 954(c) is amended by adding at the end the fol- by adding ‘‘and’’ at the end of paragraph (2), IN COMMODITIES. lowing new subparagraph: by striking paragraph (3), by redesignating ‘‘(I) PERSONAL SERVICE CONTRACTS.— (a) IN GENERAL.—Clauses (i) and (ii) of sec- paragraph (4) as paragraph (3), and by striking ‘‘(i) Amounts received under a contract under tion 954(c)(1)(C) (relating to commodity trans- ‘‘paragraph (1), (2), or (3)’’ in paragraph (3) (as which the corporation is to furnish personal actions) are amended to read as follows: so redesignated) and inserting ‘‘paragraph (1) or services if— ‘‘(i) arise out of commodity hedging trans- (2)’’. actions (as defined in paragraph (4)(A)), ‘‘(I) some person other than the corporation (14) Paragraph (2) of section 864(d) is amend- ‘‘(ii) are active business gains or losses from has the right to designate (by name or by de- ed by striking subparagraph (A) and by redesig- the sale of commodities, but only if substantially scription) the individual who is to perform the nating subparagraphs (B) and (C) as subpara- all of the controlled foreign corporation’s com- services, or graphs (A) and (B), respectively. modities are property described in paragraph ‘‘(II) the individual who is to perform the (15)(A) Subparagraph (A) of section 898(b)(1) (1), (2), or (8) of section 1221(a), or’’. services is designated (by name or by descrip- is amended to read as follows: (b) DEFINITION AND SPECIAL RULES.—Sub- tion) in the contract, and ‘‘(A) which is treated as a controlled foreign section (c) of section 954 is amended by adding ‘‘(ii) amounts received from the sale or other corporation for any purpose under subpart F of after paragraph (3) the following new para- disposition of such a contract. part III of this subchapter, and’’. graph: This subparagraph shall apply with respect to (B) Subparagraph (B) of section 898(b)(2) is ‘‘(4) DEFINITION AND SPECIAL RULES RELATING amounts received for services under a particular amended by striking ‘‘and sections 551(f) and TO COMMODITY TRANSACTIONS.— contract only if at some time during the taxable 554, whichever are applicable,’’.

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00018 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.037 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2037 (C) Paragraph (3) of section 898(b) is amended paragraphs (6) and (7) as paragraphs (5) and paragraph (8) and by inserting after paragraph to read as follows: (6), respectively. (6) the following new paragraph: ‘‘(3) UNITED STATES SHAREHOLDER.—The term (25) Paragraph (2) of section 1260(c) is amend- ‘‘(7) CONSTRUCTIVE OWNERSHIP THROUGH ‘United States shareholder’ has the meaning ed by striking subparagraphs (H) and (I) and by PARTNERSHIPS.—Stock owned, directly or indi- given to such term by section 951(b), except that, redesignating subparagraph (J) as subpara- rectly, by or for a partnership shall be consid- in the case of a foreign corporation having re- graph (H). ered as being owned proportionately by its part- lated person insurance income (as defined in (26)(A) Subparagraph (F) of section 1291(b)(3) ners. Stock considered to be owned by a person section 953(c)(2)), the Secretary may treat any is amended by striking ‘‘551(d), 959(a),’’ and in- by reason of the preceding sentence shall, for person as a United States shareholder for pur- serting ‘‘959(a)’’. purposes of applying such sentence, be treated poses of this section if such person is treated as (B) Subsection (e) of section 1291 is amended as actually owned by such person. The Sec- a United States shareholder under section by inserting ‘‘(as in effect on the day before the retary may prescribe such regulations as may be 953(c)(1).’’. date of the enactment of the Jumpstart Our necessary to carry out the purposes of this para- (D) Subsection (c) of section 898 is amended to Business Strength (JOBS) Act)’’ after ‘‘section graph, including rules to account for special read as follows: 1246’’. partnership allocations of dividends, credits, ‘‘(c) DETERMINATION OF REQUIRED YEAR.— (27) Paragraph (2) of section 1294(a) is amend- and other incidents of ownership of stock in de- ‘‘(1) IN GENERAL.—The required year is— ed to read as follows: termining proportionate ownership.’’. ‘‘(A) the majority U.S. shareholder year, or ‘‘(2) ELECTION NOT PERMITTED WHERE (b) CLARIFICATION OF COMPARABLE ATTRIBU- ‘‘(B) if there is no majority U.S. shareholder AMOUNTS OTHERWISE INCLUDIBLE UNDER SECTION TION UNDER SECTION 901(b)(5).—Paragraph (5) year, the taxable year prescribed under regula- 951.—The taxpayer may not make an election tions. of section 901(b) is amended by striking ‘‘any in- under paragraph (1) with respect to the undis- dividual’’ and inserting ‘‘any person’’. ‘‘(2) 1-MONTH DEFERRAL ALLOWED.—A speci- tributed PFIC earnings tax liability attributable (c) EFFECTIVE DATE.—The amendments made fied foreign corporation may elect, in lieu of the to a qualified electing fund for the taxable year by this section shall apply to taxes of foreign taxable year under paragraph (1)(A), a taxable if any amount is includible in the gross income corporations for taxable years of such corpora- year beginning 1 month earlier than the major- of the taxpayer under section 951 with respect to tions beginning after the date of the enactment ity U.S. shareholder year. such fund for such taxable year.’’. ‘‘(3) MAJORITY U.S. SHAREHOLDER YEAR.— (28) Section 6035 is hereby repealed. of this Act. ‘‘(A) IN GENERAL.—For purposes of this sub- (29) Subparagraph (D) of section 6103(e)(1) is SEC. 214. APPLICATION OF UNIFORM CAPITALIZA- section, the term ‘majority U.S. shareholder amended by striking clause (iv) and redesig- TION RULES TO FOREIGN PERSONS. year’ means the taxable year (if any) which, on nating clauses (v) and (vi) as clauses (iv) and (a) IN GENERAL.—Section 263A(c) (relating to each testing day, constituted the taxable year (v), respectively. exceptions) is amended by adding at the end the of— (30) Subparagraph (B) of section 6501(e)(1) is following new paragraph: ‘‘(i) each United States shareholder described amended to read as follows: ‘‘(7) FOREIGN PERSONS.—Except for purposes in subsection (b)(2)(A), and ‘‘(B) CONSTRUCTIVE DIVIDENDS.—If the tax- of applying sections 871(b)(1) and 882(a)(1), this ‘‘(ii) each United States shareholder not de- payer omits from gross income an amount prop- section shall not apply to any taxpayer who is scribed in clause (i) whose stock was treated as erly includible therein under section 951(a), the not a United States person if such taxpayer cap- owned under subsection (b)(2)(B) by any share- tax may be assessed, or a proceeding in court for italizes costs of produced property or property holder described in such clause. the collection of such tax may be done without acquired for resale by applying the method used ‘‘(B) TESTING DAY.—The testing days shall assessing, at any time within 6 years after the to ascertain the income, profit, or loss for pur- be— return was filed.’’. ‘‘(i) the first day of the corporation’s taxable poses of reports or statements to shareholders, (31) Subsection (a) of section 6679 is amend- year (determined without regard to this section), partners, other proprietors, or beneficiaries, or ed— for credit purposes.’’. or (A) by striking ‘‘6035, 6046, and 6046A’’ in ‘‘(ii) the days during such representative pe- (b) EFFECTIVE DATE.— paragraph (1) and inserting ‘‘6046 and 6046A’’, riod as the Secretary may prescribe.’’. (1) IN GENERAL.—The amendment made by and (16) Clause (ii) of section 904(d)(2)(A) is subsection (a) shall apply to taxable years be- (B) by striking paragraph (3). amended to read as follows: ginning after December 31, 2004. (32) Sections 170(f)(10)(A), 508(d), 4947, and ‘‘(ii) CERTAIN AMOUNTS INCLUDED.—Except as 4948(c)(4) are each amended by striking (2) CHANGE IN METHOD OF ACCOUNTING.—In provided in clause (iii), the term ‘passive in- ‘‘556(b)(2),’’ each place it appears. the case of any taxpayer required by the amend- come’ includes, except as provided in subpara- (33) The table of parts for subchapter G of ment made by this section to change its method graph (E)(iii) or paragraph (3)(I), any amount chapter 1 is amended by striking the item relat- of accounting for its first taxable year beginning includible in gross income under section 1293 ing to part III. after December 31, 2004— (relating to certain passive foreign investment (34) The table of sections for part IV of sub- (A) such change shall be treated as initiated companies).’’. chapter P of chapter 1 is amended by striking by the taxpayer, (17)(A) Subparagraph (A) of section 904(g)(1), (B) such change shall be treated as made with as redesignated by section 204, is amended by the items relating to sections 1246 and 1247. (35) The table of sections for subpart A of part the consent of the Secretary of the Treasury, adding ‘‘or’’ at the end of clause (i), by striking III of subchapter A of chapter 61 is amended by and clause (ii), and by redesignating clause (iii) as striking the item relating to section 6035. (C) the net amount of the adjustments re- clause (ii). (B) The paragraph heading of paragraph (2) (d) EFFECTIVE DATE.—The amendments made quired to be taken into account by the taxpayer of section 904(g), as so redesignated, is amended by this section shall apply to taxable years of under section 481 of the Internal Revenue Code foreign corporations beginning after December of 1986 shall be taken into account in such first by striking ‘‘FOREIGN PERSONAL HOLDING OR’’. (18) Section 951 is amended by striking sub- 31, 2004, and to taxable years of United States year. sections (c) and (d) and by redesignating sub- shareholders with or within which such taxable SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVI- sections (e) and (f) as subsections (c) and (d), years of foreign corporations end. DENDS FROM CERTAIN FOREIGN respectively. SEC. 212. EXPANSION OF DE MINIMIS RULE CORPORATIONS. (19) Paragraph (3) of section 989(b) is amend- UNDER SUBPART F. (a) IN GENERAL.—Paragraph (2) of section ed by striking ‘‘, 551(a),’’. (a) IN GENERAL.—Clause (ii) of section 871(i) (relating to tax not to apply to certain in- (20) Paragraph (5) of section 1014(b) is amend- 954(b)(3)(A) (relating to de minimis, etc., rules) terest and dividends) is amended by adding at ed by inserting ‘‘and before January 1, 2005,’’ is amended by striking ‘‘$1,000,000’’ and insert- the end the following new subparagraph: after ‘‘August 26, 1937,’’. ing ‘‘$5,000,000’’. ‘‘(D) Dividends paid by a foreign corporation (21) Subsection (a) of section 1016 is amended (b) TECHNICAL AMENDMENTS.— which are treated under section 861(a)(2)(B) as by striking paragraph (13). (1) Clause (ii) of section 864(d)(5)(A) is amend- income from sources within the United States.’’. ed by striking ‘‘$1,000,000’’ and inserting (22)(A) Paragraph (3) of section 1212(a) is (b) EFFECTIVE DATE.—The amendment made ‘‘$5,000,000’’. amended to read as follows: by this section shall apply to payments made (2) Clause (i) of section 881(c)(5)(A) is amend- ‘‘(3) SPECIAL RULES ON CARRYBACKS.—A net after December 31, 2004. capital loss of a corporation shall not be carried ed by striking ‘‘$1,000,000’’ and inserting back under paragraph (1)(A) to a taxable year— ‘‘$5,000,000’’. SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS ‘‘(A) for which it is a regulated investment (c) EFFECTIVE DATE.—The amendments made TAX ON ALIENS PRESENT IN THE by this section shall apply to taxable years of UNITED STATES FOR 183 DAYS OR company (as defined in section 851), or MORE. ‘‘(B) for which it is a real estate investment foreign corporations beginning after December trust (as defined in section 856).’’. 31, 2004, and to taxable years of United States (a) IN GENERAL.—Subsection (a) of section 871 (B) The amendment made by subparagraph shareholders with or within which such taxable is amended by striking paragraph (2) and by re- (A) shall apply to taxable years beginning after years of foreign corporations end. designating paragraph (3) as paragraph (2). (b) CONFORMING AMENDMENT.—Section 1441(g) December 31, 2004. SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP (23) Section 1223 is amended by striking para- THROUGH PARTNERSHIPS TO APPLY is amended is amended by striking ‘‘section graph (10) and by redesignating the following IN DETERMINING SECTION 902 AND 871(a)(3)’’ and inserting ‘‘section 871(a)(2)’’. paragraphs accordingly. 960 CREDITS. (c) EFFECTIVE DATE.—The amendments made (24) Subsection (d) of section 1248 is amended (a) IN GENERAL.—Subsection (c) of section 902 by this section shall apply to taxable years be- by striking paragraph (5) and by redesignating is amended by redesignating paragraph (7) as ginning after December 31, 2003.

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00019 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.037 S03PT1 S2038 CONGRESSIONAL RECORD — SENATE March 3, 2004 Subtitle C—Additional International Tax tions providing for coordination of this para- ‘‘(ii) the activity is performed in the home Provisions graph with the provisions of subchapter K. country of the related person, and SEC. 221. ACTIVE LEASING INCOME FROM AIR- ‘‘(B) 25-PERCENT OWNER.—For purposes of this ‘‘(iii) the related person is compensated on an CRAFT AND VESSELS. paragraph, the term ‘25-percent owner’ means a arm’s-length basis for the performance of the ac- (a) IN GENERAL.—Section 954(c)(2) is amended controlled foreign corporation which owns di- tivity by its employees and such compensation is by adding at the end the following new sub- rectly 25 percent or more of the capital or profits treated as earned by such person in its home paragraph: interest in a partnership. For purposes of the country for purposes of the home country’s tax ‘‘(D) CERTAIN RENTS, ETC.— preceding sentence, if a controlled foreign cor- laws.’’. FFECTIVE ATE ‘‘(i) IN GENERAL.—Foreign personal holding poration is a shareholder or partner of a cor- (b) E D .—The amendment made company income shall not include qualified poration or partnership, the controlled foreign by this section shall apply to taxable years of leasing income derived from or in connection corporation shall be treated as owning directly such foreign corporations beginning after De- with the leasing or rental of any aircraft or ves- its proportionate share of any such capital or cember 31, 2004, and to taxable years of United sel. profits interest held directly or indirectly by States shareholders with or within which such ‘‘(ii) QUALIFIED LEASING INCOME.—For pur- such corporation or partnership’’. taxable years of such foreign corporations end. poses of this subparagraph, the term ‘qualified (b) EFFECTIVE DATE.—The amendment made SEC. 227. UNITED STATES PROPERTY NOT TO IN- leasing income’ means rents and gains derived by this section shall apply to taxable years of CLUDE CERTAIN ASSETS OF CON- TROLLED FOREIGN CORPORATION. in the active conduct of a trade or business of foreign corporations beginning after December (a) IN GENERAL.—Section 956(c)(2) (relating to leasing with respect to which the controlled for- 31, 2004, and to taxable years of United States exceptions from property treated as United eign corporation conducts substantial activity, shareholders with or within which such taxable States property) is amended by striking ‘‘and’’ but only if— years of foreign corporations end. at the end of subparagraph (J), by striking the ‘‘(I) the leased property is used by the lessee SEC. 224. ELECTION NOT TO USE AVERAGE EX- period at the end of subparagraph (K) and in- or other end-user in foreign commerce and pre- CHANGE RATE FOR FOREIGN TAX serting a semicolon, and by adding at the end dominantly outside the United States, and PAID OTHER THAN IN FUNCTIONAL CURRENCY. the following new subparagraphs: ‘‘(II) the lessee or other end-user is not a re- (a) IN GENERAL.—Paragraph (1) of section ‘‘(L) securities acquired and held by a con- lated person (as defined in subsection (d)(3)). 986(a) (relating to determination of foreign taxes trolled foreign corporation in the ordinary Any amount not treated as foreign personal and foreign corporation’s earnings and profits) course of its business as a dealer in securities holding income under this subparagraph shall is amended by redesignating subparagraph (D) if— not be treated as foreign base company shipping as subparagraph (E) and by inserting after sub- ‘‘(i) the dealer accounts for the securities as income.’’. paragraph (C) the following new subparagraph: securities held primarily for sale to customers in (b) CONFORMING AMENDMENT.—Section ‘‘(D) ELECTIVE EXCEPTION FOR TAXES PAID the ordinary course of business, and 954(c)(1)(B) is amended by inserting ‘‘or (2)(D)’’ OTHER THAN IN FUNCTIONAL CURRENCY.— ‘‘(ii) the dealer disposes of the securities (or after ‘‘paragraph (2)(A)’’. ‘‘(i) IN GENERAL.—At the election of the tax- such securities mature while held by the dealer) (c) EFFECTIVE DATE.—The amendments made payer, subparagraph (A) shall not apply to any within a period consistent with the holding of by this section shall apply to taxable years of foreign income taxes the liability for which is securities for sale to customers in the ordinary foreign corporations beginning after December denominated in any currency other than in the course of business; and 31, 2006, and to taxable years of United States taxpayer’s functional currency. ‘‘(M) an obligation of a United States person shareholders with or within which such taxable ‘‘(ii) APPLICATION TO QUALIFIED BUSINESS which— years of foreign corporations end. UNITS.—An election under this subparagraph ‘‘(i) is not a domestic corporation, and ‘‘(ii) is not— SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS may apply to foreign income taxes attributable ‘‘(I) a United States shareholder (as defined BETWEEN RELATED CONTROLLED to a qualified business unit in accordance with in section 951(b)) of the controlled foreign cor- FOREIGN CORPORATIONS UNDER regulations prescribed by the Secretary. poration, or FOREIGN PERSONAL HOLDING COM- ‘‘(iii) ELECTION.—Any such election shall ‘‘(II) a partnership, estate, or trust in which PANY INCOME RULES. apply to the taxable year for which made and the controlled foreign corporation, or any re- (a) IN GENERAL.—Subsection (c) of section 954, all subsequent taxable years unless revoked with lated person (as defined in section 954(d)(3)), is as amended by this Act, is amended by adding the consent of the Secretary.’’. a partner, beneficiary, or trustee immediately after paragraph (4) the following new para- (b) EFFECTIVE DATE.—The amendments made after the acquisition of any obligation of such graph: by this section shall apply to taxable years be- partnership, estate, or trust by the controlled ‘‘(5) LOOK-THRU IN THE CASE OF RELATED CON- ginning after December 31, 2004. TROLLED FOREIGN CORPORATIONS.—For purposes foreign corporation.’’. SEC. 225. TREATMENT OF INCOME TAX BASE DIF- (b) CONFORMING AMENDMENT.—Section of this subsection, dividends, interest, rents, and FERENCES. 956(c)(2) is amended by striking ‘‘and (K)’’ in royalties received or accrued from a controlled (a) IN GENERAL.—Paragraph (2) of section the last sentence and inserting ‘‘, (K), and (L)’’. foreign corporation which is a related person (as 904(d) is amended by redesignating subpara- defined in subsection (b)(9)) shall not be treated (c) EFFECTIVE DATE.—The amendments made graphs (H) and (I) as subparagraphs (I) and (J), by this section shall apply to taxable years of as foreign personal holding company income to respectively, and by inserting after subpara- the extent attributable or properly allocable (de- foreign corporations beginning after December graph (G) the following new subparagraph: 31, 2004, and to taxable years of United States termined under rules similar to the rules of sub- ‘‘(H) TREATMENT OF INCOME TAX BASE DIF- paragraphs (C) and (D) of section 904(d)(3)) to shareholders with or within which such taxable FERENCES.— years of foreign corporations end. income of the related person which is not sub- ‘‘(i) IN GENERAL.—A taxpayer may elect to part F income (as defined in section 952). The treat tax imposed under the law of a foreign SEC. 228. PROVIDE EQUAL TREATMENT FOR IN- TEREST PAID BY FOREIGN PARTNER- Secretary shall prescribe such regulations as country or possession of the United States on an may be appropriate to prevent the abuse of the SHIPS AND FOREIGN CORPORA- amount which does not constitute income under TIONS. purposes of this paragraph.’’. United States tax principles as tax imposed on (a) IN GENERAL.—Paragraph (1) of section (b) EFFECTIVE DATE.—The amendment made income described in subparagraph (C) or (I) of 861(a) is amended by striking ‘‘and’’ at the end by this section shall apply to taxable years of paragraph (1). of subparagraph (A), by striking the period at foreign corporations beginning after December ‘‘(ii) ELECTION IRREVOCABLE.—Any such elec- the end of subparagraph (B) and inserting ‘‘, 31, 2004, and to taxable years of United States tion shall apply to the taxable year for which and’’, and by adding at the end the following shareholders with or within which such taxable made and all subsequent taxable years unless new subparagraph: years of foreign corporations end. revoked with the consent of the Secretary.’’. ‘‘(C) in the case of a foreign partnership in SEC. 223. LOOK-THRU TREATMENT FOR SALES OF (b) EFFECTIVE DATE.—The amendments made which United States persons do not hold di- PARTNERSHIP INTERESTS. by this section shall apply to taxable years end- rectly or indirectly 20 percent or more of either (a) IN GENERAL.—Section 954(c) (defining for- ing after the date of the enactment of this Act. the capital or profits interests, any interest not eign personal holding company income), as SEC. 226. MODIFICATION OF EXCEPTIONS UNDER paid by a trade or business engaged in by the amended by this Act, is amended by adding SUBPART F FOR ACTIVE FINANCING. partnership in the United States and not allo- after paragraph (5) the following new para- (a) IN GENERAL.—Section 954(h)(3) is amended cable to income which is effectively connected graph: by adding at the end the following: (or treated as effectively connected) with the ‘‘(6) LOOK-THRU RULE FOR CERTAIN PARTNER- ‘‘(E) DIRECT CONDUCT OF ACTIVITIES.—For conduct of a trade or business in the United SHIP SALES.— purposes of subparagraph (A)(ii)(II), an activity States.’’. ‘‘(A) IN GENERAL.—In the case of any sale by shall be treated as conducted directly by an eli- (b) EFFECTIVE DATE.—The amendments made a controlled foreign corporation of an interest in gible controlled foreign corporation or qualified by this section shall apply to taxable years be- a partnership with respect to which such cor- business unit in its home country if the activity ginning after December 31, 2003. poration is a 25-percent owner, such corporation is performed by employees of a related person SEC. 229. CLARIFICATION OF TREATMENT OF shall be treated for purposes of this subsection and— CERTAIN TRANSFERS OF INTAN- as selling the proportionate share of the assets ‘‘(i) the related person is an eligible controlled GIBLE PROPERTY. of the partnership attributable to such interest. foreign corporation the home country of which (a) IN GENERAL.—Subparagraph (C) of section The Secretary shall prescribe such regulations is the same as the home country of the corpora- 367(d)(2) is amended by adding at the end the as may be appropriate to prevent abuse of the tion or unit to which subparagraph (A)(ii)(II) is following new sentence: ‘‘For purposes of apply- purposes of this paragraph, including regula- being applied, ing section 904(d), any such amount shall be

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00020 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.037 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2039 treated in the same manner as if such amount payment for executive compensation), including filing a consolidated return under section 1501 were a royalty.’’. as a source for the funding of worker hiring and shall be treated as a single taxpayer for pur- (b) EFFECTIVE DATE.—The amendment made training, infrastructure, research and develop- poses of this section. by this section shall apply to amounts treated as ment, capital investments, or the financial sta- ‘‘(7) DESIGNATION OF DIVIDENDS.—Subject to received pursuant to section 367(d)(2) of the In- bilization of the corporation for the purposes of subsection (b)(2), the taxpayer shall designate ternal Revenue Code of 1986 on or after August job retention or creation, over the particular dividends received during the tax- 5, 1997. ‘‘(B) the base dividend amount. able year from 1 or more corporations which are SEC. 230. MODIFICATION OF THE TREATMENT OF ‘‘(2) BASE DIVIDEND AMOUNT.—The term ‘base controlled foreign corporations in which it is a CERTAIN REIT DISTRIBUTIONS AT- dividend amount’ means an amount designated United States shareholder which are dividends TRIBUTABLE TO GAIN FROM SALES under subsection (c)(7), but not less than the av- excluded from the excess qualified foreign dis- OR EXCHANGES OF UNITED STATES erage amount of dividends received during the tribution amount. The total amount of such des- REAL PROPERTY INTERESTS. fixed base period from 1 or more corporations ignated dividends shall equal the base dividend (a) IN GENERAL.—Paragraph (1) of section which are controlled foreign corporations in amount. 897(h) (relating to look-through of distributions) which the taxpayer is a United States share- is amended by adding at the end the following ‘‘(8) TREATMENT OF EXPENSES, LOSSES, AND holder on the date such dividends are paid. DEDUCTIONS.—Any expenses, losses, or deduc- new sentence: ‘‘Notwithstanding the preceding ‘‘(3) FIXED BASE PERIOD.— sentence, any distribution by a REIT with re- tions of the taxpayer allowable under sub- ‘‘(A) IN GENERAL.—The term ‘fixed base pe- chapter B— spect to any class of stock which is regularly riod’ means each of 3 taxable years which are traded on an established securities market lo- ‘‘(A) shall not be applied to reduce the among the 5 most recent taxable years of the amounts described in subsection (a)(1), and cated in the United States shall not be treated taxpayer ending on or before December 31, 2002, as gain recognized from the sale or exchange of ‘‘(B) shall be applied to reduce other income determined by disregarding— of the taxpayer (determined without regard to a United States real property interest if the ‘‘(i) the 1 taxable year for which the taxpayer the amounts described in subsection (a)(1)). shareholder did not own more than 5 percent of had the highest amount of dividends from 1 or ‘‘(d) ELECTION.— such class of stock at any time during the tax- more corporations which are controlled foreign ‘‘(1) IN GENERAL.—An election under this sec- able year.’’. corporations relative to the other 4 taxable tion shall be made on the taxpayer’s timely filed (b) CONFORMING AMENDMENT.—Paragraph (3) years, and of section 857(b) (relating to capital gains) is ‘‘(ii) the 1 taxable year for which the taxpayer income tax return for the first taxable year (de- amended by adding at the end the following had the lowest amount of dividends from such termined by taking extensions into account) new subparagraph: corporations relative to the other 4 taxable ending 120 days or more after the date of the en- ‘‘(F) CERTAIN DISTRIBUTIONS.—In the case of years. actment of this section, and, once made, may be a shareholder of a real estate investment trust to ‘‘(B) SHORTER PERIOD.—If the taxpayer has revoked only with the consent of the Secretary. whom section 897 does not apply by reason of fewer than 5 taxable years ending on or before ‘‘(2) ALL CONTROLLED FOREIGN CORPORA- the second sentence of section 897(h)(1), the December 31, 2002, then in lieu of applying sub- TIONS.—The election shall apply to all corpora- amount which would be included in computing paragraph (A), the fixed base period shall in- tions which are controlled foreign corporations long-term capital gains for such shareholder clude all the taxable years of the taxpayer end- in which the taxpayer is a United States share- under subparagraph (B) or (D) (without regard ing on or before December 31, 2002. holder during the taxable year. to this subparagraph)— ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For ‘‘(3) CONSOLIDATED GROUPS.—If a taxpayer is ‘‘(i) shall not be included in computing such purposes of this section— a member of an affiliated group of corporations shareholder’s long-term capital gains, and ‘‘(1) DIVIDENDS.—The term ‘dividend’ has the filing a consolidated return under section 1501 ‘‘(ii) shall be included in such shareholder’s meaning given such term by section 316, except for the taxable year, an election under this sec- gross income as a dividend from the real estate that the term shall include amounts described in tion shall be made by the common parent of the investment trust.’’. section 951(a)(1)(B), but shall not include affiliated group which includes the taxpayer (c) EFFECTIVE DATE.—The amendments made amounts described in sections 78 and 959. and shall apply to all members of the affiliated by this section shall apply to taxable years be- ‘‘(2) CONTROLLED FOREIGN CORPORATIONS AND group. ginning after the date of the enactment of this UNITED STATES SHAREHOLDERS.—The term ‘con- ‘‘(e) REGULATIONS.—The Secretary shall pre- Act. trolled foreign corporation’ has the meaning scribe such regulations as may be necessary and SEC. 231. TOLL TAX ON EXCESS QUALIFIED FOR- given such term by section 957(a) and the term appropriate to carry out the purposes of this EIGN DISTRIBUTION AMOUNT. ‘United States shareholder’ has the meaning section, including regulations under section 55 (a) IN GENERAL.—Subpart F of part III of sub- given such term by section 951(b). and regulations addressing corporations which, chapter N of chapter 1 is amended by adding at ‘‘(3) FOREIGN TAX CREDITS.—The amount of during the fixed base period or thereafter, join the end the following new section: any income, war, profits, or excess profit taxes or leave an affiliated group of corporations fil- ‘‘SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALI- paid (or deemed paid under sections 902 and 960) ing a consolidated return.’’. FIED FOREIGN DISTRIBUTION or accrued by the taxpayer with respect to the (b) CONFORMING AMENDMENT.—The table of AMOUNT. excess qualified foreign distribution amount for sections for subpart F of part III of subchapter ‘‘(a) TOLL TAX IMPOSED ON EXCESS QUALIFIED which a credit would be allowable under section N of chapter 1 is amended by adding at the end FOREIGN DISTRIBUTION AMOUNT.—If a corpora- 901 in the absence of this section, shall be re- the following new item: tion elects the application of this section, a tax duced by 85 percent. No deduction shall be al- shall be imposed on the taxpayer in an amount ‘‘Sec. 965. Toll tax imposed on excess qualified lowed under this chapter for the portion of any equal to 5.25 percent of— foreign distribution amount.’’. ‘‘(1) the taxpayer’s excess qualified foreign tax for which credit is not allowable by reason distribution amount, and of the preceding sentence. (c) EFFECTIVE DATE.—The amendments made ‘‘(2) the amount determined under section 78 ‘‘(4) FOREIGN TAX CREDIT LIMITATION.—For by this section shall apply only to the first tax- which is attributable to such excess qualified purposes of section 904, there shall be dis- able year of the electing taxpayer ending 120 foreign distribution amount. regarded 85 percent of— days or more after the date of the enactment of ‘‘(A) the excess qualified foreign distribution this Act. Such tax shall be imposed in lieu of the tax im- amount, SEC. 232. EXCLUSION OF INCOME DERIVED FROM posed under section 11 or 55 on the amounts de- ‘‘(B) the amount determined under section 78 scribed in paragraphs (1) and (2) for such tax- CERTAIN WAGERS ON HORSE RACES which is attributable to such excess qualified AND DOG RACES FROM GROSS IN- able year. foreign distribution amount, and COME OF NONRESIDENT ALIEN INDI- ‘‘(b) EXCESS QUALIFIED FOREIGN DISTRIBU- ‘‘(C) the amounts (including assets, gross in- VIDUALS. TION AMOUNT.—For purposes of this section— come, and other relevant bases of apportion- (a) IN GENERAL.—Subsection (b) of section 872 ‘‘(1) IN GENERAL.—The term ‘excess qualified ment) which are attributable to the excess quali- (relating to exclusions) is amended by redesig- foreign distribution amount’ means the excess (if fied foreign distribution amount which would, nating paragraphs (5), (6), and (7) as para- any) of— ‘‘(A) the aggregate dividends received by the determined without regard to this section, be graphs (6), (7), and (8), respectively, and insert- taxpayer during the taxable year which are— used to apportion the expenses, losses, and de- ing after paragraph (4) the following new para- ‘‘(i) from 1 or more corporations which are ductions of the taxpayer under section 861 and graph: controlled foreign corporations in which the 864 in determining its taxable income from ‘‘(5) INCOME DERIVED FROM WAGERING TRANS- taxpayer is a United States shareholder on the sources without the United States. ACTIONS IN CERTAIN PARIMUTUEL POOLS.—Gross date such dividends are paid, and For purposes of applying subparagraph (C), the income derived by a nonresident alien indi- ‘‘(ii) described in a domestic reinvestment plan principles of section 864(e)(3)(A) shall apply. vidual from a legal wagering transaction initi- which— ‘‘(5) TREATMENT OF ACQUISITIONS AND DISPOSI- ated outside the United States in a parimutuel ‘‘(I) is approved by the taxpayer’s president, TIONS.—Rules similar to the rules of section pool with respect to a live horse race or dog race chief executive officer, or comparable official be- 41(f)(3) shall apply in the case of acquisitions or in the United States.’’. fore the payment of such dividends and subse- dispositions of controlled foreign corporations (b) CONFORMING AMENDMENT.—Section quently approved by the taxpayer’s board of di- occurring on or after the first day of the earliest 883(a)(4) is amended by striking ‘‘(5), (6), and rectors, management committee, executive com- taxable year taken into account in determining (7)’’ and inserting ‘‘(6), (7), and (8)’’. mittee, or similar body, and the fixed base period. (c) EFFECTIVE DATE.—The amendments made ‘‘(II) provides for the reinvestment of such ‘‘(6) TREATMENT OF CONSOLIDATED GROUPS.— by this section shall apply to wagers made after dividends in the United States (other than as Members of an affiliated group of corporations the date of the enactment of this Act.

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00021 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.037 S03PT1 S2040 CONGRESSIONAL RECORD — SENATE March 3, 2004 SEC. 233. LIMITATION OF WITHHOLDING TAX FOR shall report to the Committee on Finance of the incurred with respect to the launching of any PUERTO RICO CORPORATIONS. Senate and the Committee on Ways and Means satellite equipment. (a) IN GENERAL.—Subsection (b) of section 881 of the House of Representatives the results of ‘‘(3) LEASED EQUIPMENT.—Such term shall in- is amended by redesignating paragraph (2) as the study conducted under subsection (a), in- clude so much of the purchase price paid by the paragraph (3) and by inserting after paragraph cluding any recommendations for legislative or lessor of qualified equipment subject to a lease (1) the following new paragraph: administrative changes to reduce the compliance described in subsection (c)(2)(B) as is attrib- ‘‘(2) COMMONWEALTH OF PUERTO RICO.—If burden on taxpayers other than large corpora- utable to expenditures incurred by the lessee dividends are received during a taxable year by tions and for such other purposes as the Sec- which would otherwise be described in para- a corporation— retary determines appropriate. graph (1). ‘‘(A) created or organized in, or under the law SEC. 236. CONSULTATIVE ROLE FOR SENATE COM- ‘‘(c) WHEN EXPENDITURES TAKEN INTO AC- of, the Commonwealth of Puerto Rico, and MITTEE ON FINANCE IN CONNEC- COUNT.—For purposes of this section— ‘‘(B) with respect to which the requirements of TION WITH THE REVIEW OF PRO- ‘‘(1) IN GENERAL.—Qualified broadband ex- subparagraphs (A), (B), and (C) of paragraph POSED TAX TREATIES. penditures with respect to qualified equipment (1) are met for the taxable year, Paragraph 1(j) of Rule XXV of the Standing shall be taken into account with respect to the subsection (a) shall be applied for such taxable Rules of the Senate is amended by adding at the first taxable year in which— year by substituting ‘10 percent’ for ‘30 per- end the following: ‘‘(A) current generation broadband services cent’.’’. ‘‘(3)(A) Notwithstanding any other rule of the are provided through such equipment to quali- (b) WITHHOLDING.—Subsection (c) of section Senate, the Committee on Foreign Relations fied subscribers, or 1442 (relating to withholding of tax on foreign shall consult with the Committee on Finance ‘‘(B) next generation broadband services are corporations) is amended— with respect to any proposed treaty on taxation provided through such equipment to qualified (1) by striking ‘‘For purposes’’ and inserting prior to reporting such treaty to the Senate. subscribers. the following: ‘‘(B) The Committee on Foreign Relations ‘‘(2) LIMITATION.— ‘‘(1) GUAM, AMERICAN SAMOA, THE NORTHERN shall request in writing the views of the Com- ‘‘(A) IN GENERAL.—Qualified expenditures MARIANA ISLANDS, AND THE VIRGIN ISLANDS.—For mittee on Finance with respect to any proposed shall be taken into account under paragraph (1) purposes’’, and treaty on taxation which is referred to the Com- only with respect to qualified equipment— (2) by adding at the end the following new mittee on Foreign Relations. Not less than 120 ‘‘(i) the original use of which commences with paragraph: days after the date on which such request is the taxpayer, and ‘‘(2) COMMONWEALTH OF PUERTO RICO.—If made, the Committee on Finance shall respond ‘‘(ii) which is placed in service, after Decem- dividends are received during a taxable year by to such request in writing. If the Committee on ber 31, 2003. a corporation— Finance does not provide such written response ‘‘(B) SALE-LEASEBACKS.—For purposes of sub- ‘‘(A) created or organized in, or under the law during such 120 day period, the Committee on paragraph (A), if property— of, the Commonwealth of Puerto Rico, and Finance shall be deemed to have waived the op- ‘‘(i) is originally placed in service after De- ‘‘(B) with respect to which the requirements of portunity to submit such views. cember 31, 2003, by any person, and subparagraphs (A), (B), and (C) of section ‘‘(C) The Committee on Foreign Relations ‘‘(ii) sold and leased back by such person 881(b)(1) are met for the taxable year, shall consider the views submitted by the Com- within 3 months after the date such property subsection (a) shall be applied for such taxable mittee on Finance and shall include such views was originally placed in service, year by substituting ‘10 percent’ for ‘30 per- in any report of the treaty to the Senate.’’. such property shall be treated as originally cent’.’’. TITLE III—DOMESTIC MANUFACTURING placed in service not earlier than the date on (b) CONFORMING AMENDMENTS.— AND BUSINESS PROVISIONS which such property is used under the leaseback (1) Subsection (b) of section 881 is amended by Subtitle A—General Provisions referred to in clause (ii). striking ‘‘GUAM AND VIRGIN ISLANDS CORPORA- ‘‘(d) SPECIAL ALLOCATION RULES.— SEC. 301. EXPANSION OF QUALIFIED SMALL- TIONS’’ in the heading and inserting ‘‘POSSES- ISSUE BOND PROGRAM. ‘‘(1) CURRENT GENERATION BROADBAND SERV- SIONS’’. (a) IN GENERAL.—Subparagraph (F) of section ICES.—For purposes of determining the amount (2) Paragraph (1) of section 881(b) is amended 144(a)(4) (relating to $10,000,000 limit in certain of qualified broadband expenditures under sub- by striking ‘‘IN GENERAL’’ in the heading and cases) is amended to read as follows: section (a)(1) with respect to qualified equip- inserting ‘‘GUAM, AMERICAN SAMOA, THE NORTH- ‘‘(F) ADDITIONAL CAPITAL EXPENDITURES NOT ment through which current generation ERN MARIANA ISLANDS, AND THE VIRGIN IS- TAKEN INTO ACCOUNT.—With respect to any broadband services are provided, if the qualified LANDS’’. issue, in addition to any capital expenditure de- equipment is capable of serving both qualified (c) EFFECTIVE DATE.—The amendments made scribed in subparagraph (C), capital expendi- subscribers and other subscribers, the qualified by this section shall apply to dividends paid tures of not to exceed $10,000,000 shall not be broadband expenditures shall be multiplied by a after the date of the enactment of this Act. taken into account for purposes of applying fraction— SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT subparagraph (A)(ii).’’. ‘‘(A) the numerator of which is the sum of the PANELS AND THE APPELLATE BODY. (b) EFFECTIVE DATE.—The amendment made number of potential qualified subscribers within Not later than March 31, 2004, the Secretary by this section shall apply to bonds issued after the rural areas and the underserved areas of Commerce, in consultation with the United the date of the enactment of this Act. which the equipment is capable of serving with States Trade Representative, shall transmit a re- SEC. 302. EXPENSING OF BROADBAND INTERNET current generation broadband services, and port to the Committee on Finance of the Senate ACCESS EXPENDITURES. ‘‘(B) the denominator of which is the total po- and the Committee on Ways and Means of the (a) IN GENERAL.—Part VI of subchapter B of tential subscriber population of the area which House of Representatives, regarding whether chapter 1 (relating to itemized deductions for in- the equipment is capable of serving with current dispute settlement panels and the Appellate dividuals and corporations) is amended by in- generation broadband services. Body of the World Trade Organization have— serting after section 190 the following new sec- ‘‘(2) NEXT GENERATION BROADBAND SERV- (1) added to or diminished the rights of the tion: ICES.—For purposes of determining the amount of qualified broadband expenditures under sub- United States by imposing obligations or restric- ‘‘SEC. 191. BROADBAND EXPENDITURES. section (a)(1) with respect to qualified equip- tions on the use of antidumping, countervailing, ‘‘(a) TREATMENT OF EXPENDITURES.— and safeguard measures not agreed to under the ‘‘(1) IN GENERAL.—A taxpayer may elect to ment through which next generation broadband Agreement on Implementation of Article VI of treat any qualified broadband expenditure services are provided, if the qualified equipment the General Agreement on Tariffs and Trade of which is paid or incurred by the taxpayer as an is capable of serving both qualified subscribers 1994, the Agreement on Subsidies and Counter- expense which is not chargeable to capital ac- and other subscribers, the qualified expenditures vailing Measures, and the Agreement on Safe- count. Any expenditure which is so treated shall shall be multiplied by a fraction— guards; be allowed as a deduction. ‘‘(A) the numerator of which is the sum of— (2) appropriately applied the standard of re- ‘‘(2) ELECTION.—An election under paragraph ‘‘(i) the number of potential qualified sub- view contained in Article 17.6 of the Agreement (1) shall be made at such time and in such man- scribers within the rural areas and underserved on Implementation of Article VI of the General ner as the Secretary may prescribe by regula- areas, plus Agreement on Tariffs and Trade of 1994; or tion. ‘‘(ii) the number of potential qualified sub- (3) exceeded their authority or terms of ref- ‘‘(b) QUALIFIED BROADBAND EXPENDITURES.— scribers within the area consisting only of resi- erence under the Agreements referred to in For purposes of this section— dential subscribers not described in clause (i), paragraph (1). ‘‘(1) IN GENERAL.—The term ‘qualified which the equipment is capable of serving with SEC. 235. STUDY OF IMPACT OF INTERNATIONAL broadband expenditure’ means, with respect to next generation broadband services, and TAX LAWS ON TAXPAYERS OTHER any taxable year, any direct or indirect costs in- ‘‘(B) the denominator of which is the total po- THAN LARGE CORPORATIONS. curred during 2004 and properly taken into ac- tential subscriber population of the area which (a) STUDY.—The Secretary of the Treasury or count for such taxable year with respect to— the equipment is capable of serving with next the Secretary’s delegate shall conduct a study of ‘‘(A) the purchase or installation of qualified generation broadband services. the impact of Federal international tax rules on equipment (including any upgrades thereto), ‘‘(e) DEFINITIONS.—For purposes of this sec- taxpayers other than large corporations, includ- and tion— ing the burdens placed on such taxpayers in ‘‘(B) the connection of such qualified equip- ‘‘(1) ANTENNA.—The term ‘antenna’ means complying with such rules. ment to any qualified subscriber. any device used to transmit or receive signals (b) REPORT.—Not later than 180 days after the ‘‘(2) CERTAIN SATELLITE EXPENDITURES EX- through the electromagnetic spectrum, including date of the enactment of this Act, the Secretary CLUDED.—Such term shall not include any costs satellite equipment.

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‘‘(2) CABLE OPERATOR.—The term ‘cable oper- ‘‘(i) at least a majority of the time during peri- ‘‘(B) is not within a county or county equiva- ator’ has the meaning given such term by sec- ods of maximum demand to each subscriber who lent which has an overall population density of tion 602(5) of the Communications Act of 1934 is utilizing such services, and more than 500 people per square mile of land. (47 U.S.C. 522(5)). ‘‘(ii) in a manner substantially the same as ‘‘(17) RURAL SUBSCRIBER.—The term ‘rural ‘‘(3) COMMERCIAL MOBILE SERVICE CARRIER.— such services are provided by the provider to subscriber’ means any residential subscriber re- The term ‘commercial mobile service carrier’ subscribers through equipment with respect to siding in a dwelling located in a rural area or means any person authorized to provide com- which no deduction is allowed under subsection nonresidential subscriber maintaining a perma- mercial mobile radio service as defined in section (a)(1). nent place of business located in a rural area. 20.3 of title 47, Code of Federal Regulations. ‘‘(B) ONLY CERTAIN INVESTMENT TAKEN INTO ‘‘(18) SATELLITE CARRIER.—The term ‘satellite ‘‘(4) CURRENT GENERATION BROADBAND SERV- ACCOUNT.—Except as provided in subparagraph carrier’ means any person using the facilities of ICE.—The term ‘current generation broadband (C) or (D), equipment shall be taken into ac- a satellite or satellite service licensed by the service’ means the transmission of signals at a count under subparagraph (A) only to the ex- Federal Communications Commission and oper- rate of at least 1,000,000 bits per second to the tent it— ating in the Fixed-Satellite Service under part subscriber and at least 128,000 bits per second ‘‘(i) extends from the last point of switching to 25 of title 47 of the Code of Federal Regulations from the subscriber. the outside of the unit, building, dwelling, or of- or the Direct Broadcast Satellite Service under ‘‘(5) MULTIPLEXING OR DEMULTIPLEXING.—The fice owned or leased by a subscriber in the case part 100 of title 47 of such Code to establish and term ‘multiplexing’ means the transmission of 2 of a telecommunications carrier, operate a channel of communications for dis- or more signals over a single channel, and the ‘‘(ii) extends from the customer side of the mo- tribution of signals, and owning or leasing a ca- term ‘demultiplexing’ means the separation of 2 bile telephone switching office to a transmission/ pacity or service on a satellite in order to pro- or more signals previously combined by compat- receive antenna (including such antenna) vide such point-to-multipoint distribution. ible multiplexing equipment. owned or leased by a subscriber in the case of a ‘‘(19) SATURATED MARKET.—The term ‘satu- commercial mobile service carrier, ‘‘(6) NEXT GENERATION BROADBAND SERVICE.— rated market’ means any census tract in which, ‘‘(iii) extends from the customer side of the The term ‘next generation broadband service’ as of the date of the enactment of this section— headend to the outside of the unit, building, means the transmission of signals at a rate of at ‘‘(A) current generation broadband services dwelling, or office owned or leased by a sub- least 22,000,000 bits per second to the subscriber have been provided by a single provider to 85 scriber in the case of a cable operator or open and at least 5,000,000 bits per second from the percent or more of the total number of potential video system operator, or residential subscribers residing in dwellings lo- subscriber. ‘‘(iv) extends from a transmission/receive an- ‘‘(7) NONRESIDENTIAL SUBSCRIBER.—The term cated within such census tract, and tenna (including such antenna) which transmits ‘‘(B) such services can be utilized— ‘nonresidential subscriber’ means any person and receives signals to or from multiple sub- who purchases broadband services which are ‘‘(i) at least a majority of the time during peri- scribers, to a transmission/receive antenna (in- ods of maximum demand by each such sub- delivered to the permanent place of business of cluding such antenna) on the outside of the such person. scriber who is utilizing such services, and unit, building, dwelling, or office owned or ‘‘(ii) in a manner substantially the same as ‘‘(8) OPEN VIDEO SYSTEM OPERATOR.—The leased by a subscriber in the case of a satellite term ‘open video system operator’ means any such services are provided by the provider to carrier or other wireless carrier, unless such subscribers through equipment with respect to person authorized to provide service under sec- other wireless carrier is also a telecommuni- tion 653 of the Communications Act of 1934 (47 which no deduction is allowed under subsection cations carrier. (a)(1). U.S.C. 573). ‘‘(C) PACKET SWITCHING EQUIPMENT.—Packet ‘‘(20) SUBSCRIBER.—The term ‘subscriber’ ‘‘(9) OTHER WIRELESS CARRIER.—The term switching equipment, regardless of location, ‘other wireless carrier’ means any person (other means any person who purchases current gen- shall be taken into account under subparagraph eration broadband services or next generation than a telecommunications carrier, commercial (A) only if it is deployed in connection with mobile service carrier, cable operator, open video broadband services. equipment described in subparagraph (B) and is ‘‘(21) TELECOMMUNICATIONS CARRIER.—The system operator, or satellite carrier) providing uniquely designed to perform the function of current generation broadband services or next term ‘telecommunications carrier’ has the mean- packet switching for current generation ing given such term by section 3(44) of the Com- generation broadband service to subscribers broadband services or next generation through the radio transmission of energy. munications Act of 1934 (47 U.S.C. 153(44)), broadband services, but only if such packet but— ‘‘(10) PACKET SWITCHING.—The term ‘packet switching is the last in a series of such functions switching’ means controlling or routing the path ‘‘(A) includes all members of an affiliated performed in the transmission of a signal to a group of which a telecommunications carrier is of any digitized transmission signal which is as- subscriber or the first in a series of such func- sembled into packets or cells. a member, and tions performed in the transmission of a signal ‘‘(B) does not include a commercial mobile ‘‘(11) PROVIDER.—The term ‘provider’ means, from a subscriber. with respect to any qualified equipment— service carrier. ‘‘(D) MULTIPLEXING AND DEMULTIPLEXING ‘‘(22) TOTAL POTENTIAL SUBSCRIBER POPU- ‘‘(A) a cable operator, EQUIPMENT.—Multiplexing and demultiplexing LATION.—The term ‘total potential subscriber ‘‘(B) a commercial mobile service carrier, equipment shall be taken into account under population’ means, with respect to any area and ‘‘(C) an open video system operator, subparagraph (A) only to the extent it is de- based on the most recent census data, the total ‘‘(D) a satellite carrier, ployed in connection with equipment described number of potential residential subscribers resid- ‘‘(E) a telecommunications carrier, or in subparagraph (B) and is uniquely designed to ing in dwellings located in such area and poten- ‘‘(F) any other wireless carrier, perform the function of multiplexing and tial nonresidential subscribers maintaining per- providing current generation broadband services demultiplexing packets or cells of data and mak- manent places of business located in such area. or next generation broadband services to sub- ing associated application adaptions, but only if ‘‘(23) UNDERSERVED AREA.—The term ‘under- scribers through such qualified equipment. such multiplexing or demultiplexing equipment served area’ means— ‘‘(12) PROVISION OF SERVICES.—A provider is located between packet switching equipment ‘‘(A) any census tract which is located in— shall be treated as providing services to 1 or described in subparagraph (C) and the sub- ‘‘(i) an empowerment zone or enterprise com- more subscribers if— scriber’s premises. munity designated under section 1391, or ‘‘(A) such a subscriber has been passed by the ‘‘(14) QUALIFIED SUBSCRIBER.—The term ‘‘(ii) the District of Columbia Enterprise Zone provider’s equipment and can be connected to ‘qualified subscriber’ means— established under section 1400, or such equipment for a standard connection fee, ‘‘(A) with respect to the provision of current ‘‘(B) any census tract— ‘‘(B) the provider is physically able to deliver generation broadband services— ‘‘(i) the poverty level of which is at least 30 ‘‘(i) any nonresidential subscriber maintain- current generation broadband services or next percent (based on the most recent census data), ing a permanent place of business in a rural generation broadband services, as applicable, to and area or underserved area, or such a subscriber without making more than an ‘‘(ii) the median family income of which does ‘‘(ii) any residential subscriber residing in a insignificant investment with respect to such not exceed— dwelling located in a rural area or underserved subscriber, ‘‘(I) in the case of a census tract located in a area which is not a saturated market, and ‘‘(C) the provider has made reasonable efforts ‘‘(B) with respect to the provision of next gen- metropolitan statistical area, 70 percent of the to make such subscribers aware of the avail- eration broadband services— greater of the metropolitan area median family ability of such services, ‘‘(i) any nonresidential subscriber maintain- income or the statewide median family income, ‘‘(D) such services have been purchased by 1 ing a permanent place of business in a rural and or more such subscribers, and area or underserved area, or ‘‘(II) in the case of a census tract located in ‘‘(E) such services are made available to such ‘‘(ii) any residential subscriber. a nonmetropolitan statistical area, 70 percent of subscribers at average prices comparable to ‘‘(15) RESIDENTIAL SUBSCRIBER.—The term the nonmetropolitan statewide median family those at which the provider makes available ‘residential subscriber’ means any individual income. similar services in any areas in which the pro- who purchases broadband services which are ‘‘(24) UNDERSERVED SUBSCRIBER.—The term vider makes available such services. delivered to such individual’s dwelling. ‘underserved subscriber’ means any residential ‘‘(13) QUALIFIED EQUIPMENT.— ‘‘(16) RURAL AREA.—The term ‘rural area’ subscriber residing in a dwelling located in an ‘‘(A) IN GENERAL.—The term ‘qualified equip- means any census tract which— underserved area or nonresidential subscriber ment’ means equipment which provides current ‘‘(A) is not within 10 miles of any incor- maintaining a permanent place of business lo- generation broadband services or next genera- porated or census designated place containing cated in an underserved area. tion broadband services— more than 25,000 people, and ‘‘(f) SPECIAL RULES.—

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‘‘(1) PROPERTY USED OUTSIDE THE UNITED applicable providers not later than 30 days after (b) CONFORMING AMENDMENTS.— STATES, ETC., NOT QUALIFIED.—No expenditures the last date such submissions are allowed (1) Subparagraph (A) of section 355(b)(2) is shall be taken into account under subsection under clause (i). amended to read as follows: (a)(1) with respect to the portion of the cost of (B) NO SUBSEQUENT LISTS REQUIRED.—The ‘‘(A) it is engaged in the active conduct of a any property referred to in section 50(b) or with Secretary of the Treasury shall not be required trade or business,’’. respect to the portion of the cost of any property to publish any list of census tracts meeting such (2) Section 355(b)(2) is amended by striking the specified in an election under section 179. criteria subsequent to the list described in sub- last sentence. FFECTIVE ATE ‘‘(2) BASIS REDUCTION.— paragraph (A)(ii). (c) E D .— (1) IN GENERAL.—The amendments made by ‘‘(A) IN GENERAL.—For purposes of this title, (e) OTHER REGULATORY MATTERS.— the basis of any property shall be reduced by (1) PROHIBITION.—No Federal or State agency this section shall apply— (A) to distributions after the date of the enact- the portion of the cost of such property taken or instrumentality shall adopt regulations or ment of this Act, and into account under subsection (a)(1). ratemaking procedures that would have the ef- fect of eliminating or reducing any deduction or (B) for purposes of determining the continued ‘‘(B) ORDINARY INCOME RECAPTURE.—For pur- qualification under section 355(b)(2)(A) of the poses of section 1245, the amount of the deduc- portion thereof allowed under section 191 of the Internal Revenue Code of 1986 (as added by this Internal Revenue Code of 1986 (as amended by tion allowable under subsection (a)(1) with re- subsection (b)(1)) of distributions made before spect to any property which is of a character section) or otherwise subverting the purpose of this section. such date, as a result of an acquisition, disposi- subject to the allowance for depreciation shall tion, or other restructuring after such date. be treated as a deduction allowed for deprecia- (2) TREASURY REGULATORY AUTHORITY.—It is the intent of Congress in providing the election (2) TRANSITION RULE.—The amendments made tion under section 167. by this section shall not apply to any distribu- ‘‘(3) COORDINATION WITH SECTION 38.—No to deduct qualified broadband expenditures under section 191 of the Internal Revenue Code tion pursuant to a transaction which is— credit shall be allowed under section 38 with re- (A) made pursuant to an agreement which of 1986 (as added by this section) to provide in- spect to any amount for which a deduction is was binding on such date of enactment and at centives for the purchase, installation, and con- allowed under subsection (a)(1).’’. all times thereafter, nection of equipment and facilities offering ex- (b) SPECIAL RULE FOR MUTUAL OR COOPERA- (B) described in a ruling request submitted to panded broadband access to the Internet for TIVE TELEPHONE COMPANIES.—Section the Internal Revenue Service on or before such users in certain low income and rural areas of 501(c)(12)(B) (relating to list of exempt organiza- date, or tions) is amended by striking ‘‘or’’ at the end of the United States, as well as to residential users (C) described on or before such date in a pub- clause (iii), by striking the period at the end of nationwide, in a manner that maintains com- lic announcement or in a filing with the Securi- clause (iv) and inserting ‘‘, or’’, and by adding petitive neutrality among the various classes of ties and Exchange Commission. at the end the following: providers of broadband services. Accordingly, (3) ELECTION TO HAVE AMENDMENTS APPLY.— ‘‘(v) from the sale of property subject to a the Secretary of the Treasury shall prescribe Paragraph (2) shall not apply if the distributing lease described in section 191(c)(2)(B), but only such regulations as may be necessary or appro- corporation elects not to have such paragraph to the extent such income does not in any year priate to carry out the purposes of section 191 of apply to distributions of such corporation. Any exceed an amount equal to the qualified such Code, including— such election, once made, shall be irrevocable. (A) regulations to determine how and when a broadband expenditures which would be taken SEC. 305. EXCLUSION OF CERTAIN INDEBTED- into account under section 191 for such year if taxpayer that incurs qualified broadband ex- NESS OF SMALL BUSINESS INVEST- the mutual or cooperative telephone company penditures satisfies the requirements of section MENT COMPANIES FROM ACQUISI- was not exempt from taxation and was treated 191 of such Code to provide broadband services, TION INDEBTEDNESS. as the owner of the property subject to such and (a) IN GENERAL.—Section 514(c) (relating to lease.’’. (B) regulations describing the information, acquisition indebtedness) is amended by adding (c) CONFORMING AMENDMENTS.— records, and data taxpayers are required to pro- at the end the following new paragraph: (1) Section 263(a)(1) (relating to capital ex- vide the Secretary to substantiate compliance ‘‘(10) CERTAIN INDEBTEDNESS OF SMALL BUSI- penditures) is amended by striking ‘‘or’’ at the with the requirements of section 191 of such NESS INVESTMENT COMPANIES.—For purposes of end of subparagraph (G), by striking the period Code. this section, the term ‘acquisition indebtedness’ at the end of subparagraph (H) and inserting ‘‘, (f) EFFECTIVE DATE.—The amendments made does not include any indebtedness incurred by a or’’, and by adding at the end the following new by this section shall apply to expenditures in- small business investment company licensed subparagraph: curred after December 31, 2003. under the Small Business Investment Act of 1958 ‘‘(I) expenditures for which a deduction is al- SEC. 303. EXEMPTION OF NATURAL AGING PROC- which is evidenced by a debenture— lowed under section 191.’’. ESS IN DETERMINATION OF PRO- ‘‘(A) issued by such company under section DUCTION PERIOD FOR DISTILLED (2) Section 1016(a) of such Code is amended by 303(a) of such Act, and SPIRITS UNDER SECTION 263A. ‘‘(B) held or guaranteed by the Small Busi- striking ‘‘and’’ at the end of paragraph (27), by (a) IN GENERAL.—Section 263A(f) of the Inter- striking the period at the end of paragraph (28) ness Administration.’’. nal Revenue Code of 1986 (relating to general (b) EFFECTIVE DATE.—The amendment made and inserting ‘‘, and’’, and by adding at the end exceptions) is amended by adding at the end the by this section shall apply to any indebtedness the following new paragraph: following new paragraph: ‘‘(29) to the extent provided in section incurred after December 31, 2003, by a small ‘‘(5) EXEMPTION OF NATURAL AGING PROCESS IN business investment company described in sec- 191(f)(2).’’. DETERMINATION OF PRODUCTION PERIOD FOR DIS- (3) The table of sections for part VI of sub- tion 514(c)(10) of the Internal Revenue Code of TILLED SPIRITS.—For purposes of this sub- 1986 (as added by this section) with respect to chapter A of chapter 1 of such Code is amended section, the production period for distilled spir- by inserting after the item relating to section 190 property acquired by such company after such its shall be determined without regard to any date. the following new item: period allocated to the natural aging process.’’. ‘‘Sec. 191. Broadband expenditures.’’. SEC. 306. MODIFIED TAXATION OF IMPORTED (b) EFFECTIVE DATE.—The amendment made ARCHERY PRODUCTS. (d) DESIGNATION OF CENSUS TRACTS.— by this section shall apply to production periods (a) BOWS.—Paragraph (1) of section 4161(b) (1) IN GENERAL.—The Secretary of the Treas- beginning after the date of the enactment of this (relating to bows) is amended to read as follows: ury shall, not later than 90 days after the date Act. ‘‘(1) BOWS.— of the enactment of this Act, designate and pub- SEC. 304. MODIFICATION OF ACTIVE BUSINESS ‘‘(A) IN GENERAL.—There is hereby imposed on lish those census tracts meeting the criteria de- DEFINITION UNDER SECTION 355. the sale by the manufacturer, producer, or im- scribed in paragraphs (16), (22), and (23) of sec- (a) IN GENERAL.—Section 355(b) (defining ac- porter of any bow which has a peak draw tion 191(e) of the Internal Revenue Code of 1986 tive conduct of a trade or business) is amended weight of 30 pounds or more, a tax equal to 11 (as added by this section). In making such des- by adding at the end the following new para- percent of the price for which so sold. ignations, the Secretary of the Treasury shall graph: ‘‘(B) ARCHERY EQUIPMENT.—There is hereby consult with such other departments and agen- ‘‘(3) SPECIAL RULES RELATING TO ACTIVE BUSI- imposed on the sale by the manufacturer, pro- cies as the Secretary determines appropriate. NESS REQUIREMENT.— ducer, or importer— (2) SATURATED MARKET.— ‘‘(A) IN GENERAL.—For purposes of deter- ‘‘(i) of any part or accessory suitable for in- (A) IN GENERAL.—For purposes of designating mining whether a corporation meets the require- clusion in or attachment to a bow described in and publishing those census tracts meeting the ment of paragraph (2)(A), all members of such subparagraph (A), and criteria described in subsection (e)(19) of such corporation’s separate affiliated group shall be ‘‘(ii) of any quiver or broadhead suitable for section 191— treated as one corporation. For purposes of the use with an arrow described in paragraph (2), (i) the Secretary of the Treasury shall pre- preceding sentence, a corporation’s separate af- a tax equal to 11 percent of the price for which scribe not later than 30 days after the date of filiated group is the affiliated group which so sold.’’. the enactment of this Act the form upon which would be determined under section 1504(a) if (b) ARROWS.—Subsection (b) of section 4161 any provider which takes the position that it such corporation were the common parent and (relating to bows and arrows, etc.) is amended meets such criteria with respect to any census section 1504(b) did not apply. by redesignating paragraph (3) as paragraph (4) tract shall submit a list of such census tracts ‘‘(B) CONTROL.—For purposes of paragraph and inserting after paragraph (2) the following: (and any other information required by the Sec- (2)(D), all distributee corporations which are ‘‘(3) ARROWS.— retary) not later than 60 days after the date of members of the same affiliated group (as defined ‘‘(A) IN GENERAL.—There is hereby imposed on the publication of such form, and in section 1504(a) without regard to section the sale by the manufacturer, producer, or im- (ii) the Secretary of the Treasury shall publish 1504(b)) shall be treated as one distributee cor- porter of any arrow, a tax equal to 12 percent of an aggregate list of such census tracts and the poration.’’. the price for which so sold.

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‘‘(B) EXCEPTION.—In the case of any arrow of SEC. 311. THREE-YEAR CARRYBACK OF NET OPER- production as an expense which is not charge- which the shaft or any other component has ATING LOSSES. able to capital account. Any cost so treated been previously taxed under paragraph (1) or (a) IN GENERAL.—Paragraph (1) of section shall be allowed as a deduction. (2)— 172(b) (relating to years to which loss may be ‘‘(2) DOLLAR LIMITATION.— ‘‘(i) section 6416(b)(3) shall not apply, and carried) is amended by adding at the end the ‘‘(A) IN GENERAL.—The aggregate cost which ‘‘(ii) the tax imposed by subparagraph (A) following new subparagraph: may be taken into account under paragraph (1) shall be an amount equal to the excess (if any) ‘‘(I) SPECIAL RULE FOR 2003.—In the case of a with respect to each qualified film or television of— net operating loss for any taxable year ending production shall not exceed $15,000,000. ‘‘(I) the amount of tax imposed by this para- during 2003, subparagraph (A)(i) shall be ap- ‘‘(B) HIGHER DOLLAR LIMITATION FOR PRODUC- graph (determined without regard to this sub- plied by substituting ‘3’ for ‘2’.’’. TIONS IN CERTAIN AREAS.—In the case of any paragraph), over (b) ELECTION TO DISREGARD 3-YEAR qualified film or television production the aggre- ‘‘(II) the amount of tax paid with respect to CARRYBACK.—Section 172 (relating to net oper- gate cost of which is significantly incurred in an the tax imposed under paragraph (1) or (2) on ating loss deduction) is amended by redesig- area eligible for designation as— such shaft or component. nating subsection (k) as subsection (l) and by ‘‘(i) a low-income community under section ‘‘(C) ARROW.—For purposes of this para- inserting after subsection (j) the following new 45D, or graph, the term ‘arrow’ means any shaft de- subsection: ‘‘(ii) a distressed county or isolated area of scribed in paragraph (2) to which additional ‘‘(k) ELECTION TO DISREGARD 3-YEAR distress by the Delta Regional Authority estab- components are attached.’’. CARRYBACK FOR CERTAIN NET OPERATING lished under section 2009aa–1 of title 7, United (c) CONFORMING AMENDMENTS.—Section LOSSES.—Any taxpayer entitled to a 3-year States Code, 4161(b)(2) is amended— carryback under subsection (b)(1)(I) from any (1) by inserting ‘‘(other than broadheads)’’ subparagraph (A) shall be applied by sub- loss year may elect to have the carryback period after ‘‘point’’, and stituting ‘$20,000,000’ for ‘$15,000,000’. with respect to such loss year determined with- ‘‘(b) AMORTIZATION OF REMAINING COSTS.— (2) by striking ‘‘ARROWS.—’’ in the heading out regard to subsection (b)(1)(I). Such election ‘‘(1) IN GENERAL.—If an election is made and inserting ‘‘ARROW COMPONENTS.—’’. shall be made in such manner as may be pre- (d) EFFECTIVE DATE.—The amendments made under subsection (a) with respect to any quali- by this section shall apply to articles sold by the scribed by the Secretary and shall be made by fied film or television production, that portion of manufacturer, producer, or importer after De- the due date (including extensions of time) for the basis of such production in excess of the cember 31, 2003. filing the taxpayer’s return for the taxable year amount taken into account under subsection (a) of the net operating loss. Such election, once shall be allowed as a deduction ratably over the SEC. 307. MODIFICATION TO COOPERATIVE MAR- KETING RULES TO INCLUDE VALUE made for any taxable year, shall be irrevocable 36-month period beginning with the month in ADDED PROCESSING INVOLVING for such taxable year.’’. which such production is placed in service. ANIMALS. (c) TEMPORARY SUSPENSION OF 90 PERCENT ‘‘(2) NO OTHER DEDUCTION OR AMORTIZATION (a) IN GENERAL.—Section 1388 (relating to LIMIT ON CERTAIN NOL CARRYOVERS.— DEDUCTION ALLOWABLE.—With respect to the definitions and special rules) is amended by (1) IN GENERAL.—Section 56(d)(1)(A)(ii)(I) (re- basis of any qualified film or television produc- adding at the end the following new subsection: lating to general rule defining alternative tax tion described in paragraph (1), no other depre- ‘‘(k) COOPERATIVE MARKETING INCLUDES net operating loss deduction) is amended— ciation or amortization deduction shall be al- VALUE-ADDED PROCESSING INVOLVING ANI- (A) by striking ‘‘or 2002’’ and inserting ‘‘, lowable. MALS.—For purposes of section 521 and this sub- 2002, or 2003’’, and ‘‘(c) ELECTION.— chapter, the marketing of the products of mem- (B) by striking ‘‘and 2002’’ and inserting ‘‘, ‘‘(1) IN GENERAL.—An election under sub- bers or other producers shall include the feeding 2002, and 2003’’. section (a) with respect to any qualified film or of such products to cattle, hogs, fish, chickens, (d) TECHNICAL CORRECTIONS.— television production shall be made in such or other animals and the sale of the resulting (1) Subparagraph (H) of section 172(b)(1) is manner as prescribed by the Secretary and by animals or animal products.’’. amended by striking ‘‘a taxpayer which has’’. the due date (including extensions) for filing the (b) CONFORMING AMENDMENT.—Section 521(b) (2) Section 102(c)(2) of the Job Creation and taxpayer’s return of tax under this chapter for is amended by adding at the end the following Worker Assistance Act of 2002 (Public Law 107– the taxable year in which costs of the produc- new paragraph: 147) is amended by striking ‘‘before January 1, tion are first incurred. ‘‘(7) CROSS REFERENCE.— 2003’’ and inserting ‘‘after December 31, 1990’’. ‘‘(2) REVOCATION OF ELECTION.—Any election ‘‘For treatment of value-added processing (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is made under subsection (a) may not be revoked involving animals, see section 1388(k).’’. amended by striking ‘‘attributable to without the consent of the Secretary. (c) EFFECTIVE DATE.—The amendments made carryovers’’. ‘‘(d) QUALIFIED FILM OR TELEVISION PRODUC- by this section shall apply to taxable years be- (B) Subclause (I) of section 56(d)(1)(A)(ii) is TION.—For purposes of this section— ginning after the date of the enactment of this amended— ‘‘(1) IN GENERAL.—The term ‘qualified film or Act. (i) by striking ‘‘for taxable years’’ and insert- television production’ means any production de- SEC. 308. EXTENSION OF DECLARATORY JUDG- ing ‘‘from taxable years’’, and scribed in paragraph (2) if 75 percent of the MENT PROCEDURES TO FARMERS’ (ii) by striking ‘‘carryforwards’’ and inserting total compensation of the production is qualified COOPERATIVE ORGANIZATIONS. ‘‘carryovers’’. compensation. (a) IN GENERAL.—Section 7428(a)(1) (relating (e) EFFECTIVE DATES.— ‘‘(2) PRODUCTION.— to declaratory judgments of tax exempt organi- (1) IN GENERAL.—Except as provided in para- ‘‘(A) IN GENERAL.—A production is described zations) is amended by striking ‘‘or’’ at the end graph (2), the amendments made by this section in this paragraph if such production is property of subparagraph (B) and by adding at the end shall apply to net operating losses for taxable described in section 168(f)(3). For purposes of a the following new subparagraph: years ending after December 31, 2002. television series, only the first 44 episodes of ‘‘(D) with respect to the initial classification (2) TECHNICAL CORRECTIONS.—The amend- such series may be taken into account. or continuing classification of a cooperative as ments made by subsection (d) shall take effect as ‘‘(B) EXCEPTION.—A production is not de- an organization described in section 521(b) if included in the amendments made by section scribed in this paragraph if records are required which is exempt from tax under section 521(a), 102 of the Job Creation and Worker Assistance under section 2257 of title 18, United States or’’. Act of 2002. Code, to be maintained with respect to any per- (b) EFFECTIVE DATE.—The amendments made (3) ELECTION.—In the case of a net operating former in such production. by this section shall apply with respect to plead- loss for a taxable year ending during 2003— ‘‘(3) QUALIFIED COMPENSATION.—For purposes ings filed after the date of the enactment of this (A) any election made under section 172(b)(3) of paragraph (1)— Act. of such Code may (notwithstanding such sec- ‘‘(A) IN GENERAL.—The term ‘qualified com- SEC. 309. TEMPORARY SUSPENSION OF PER- tion) be revoked before April 15, 2004, and pensation’ means compensation for services per- SONAL HOLDING COMPANY TAX. (B) any election made under section 172(k) (as formed in the United States by actors, directors, (a) IN GENERAL.—Section 541 (relating to im- added by this section) of such Code shall (not- producers, and other relevant production per- position of personal holding company tax) is withstanding such section) be treated as timely sonnel. amended by adding at the end the following made if made before April 15, 2004. ‘‘(B) PARTICIPATIONS AND RESIDUALS EX- new sentence: ‘‘The preceding sentence shall not CLUDED.—The term ‘compensation’ does not in- Subtitle B—Manufacturing Relating to Films apply with respect to any taxable year to which clude participations and residuals (as defined in section 1(h)(11) (as in effect on the date of the SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND section 167(g)(7)(B)). enactment of this sentence) applies.’’. TELEVISION PRODUCTIONS. ‘‘(e) APPLICATION OF CERTAIN OTHER (b) EFFECTIVE DATE.—The amendment made (a) IN GENERAL.—Part VI of subchapter B of RULES.—For purposes of this section, rules simi- by this section shall apply to taxable years be- chapter 1 is amended by inserting after section lar to the rules of subsections (b)(2) and (c)(4) of ginning after December 31, 2003. 180 the following new section: section 194 shall apply. SEC. 310. INCREASE IN SECTION 179 EXPENSING. ‘‘SEC. 181. TREATMENT OF QUALIFIED FILM AND ‘‘(f) TERMINATION.—This section shall not (a) IN GENERAL.—Section 179(b)(2) (relating to TELEVISION PRODUCTIONS. apply to qualified film and television produc- reduction in limitation) is amended by inserting ‘‘(a) ELECTION TO TREAT CERTAIN COSTS OF tions commencing after December 31, 2008.’’. ‘‘50 percent of’’ before ‘‘the amount’’. QUALIFIED FILM AND TELEVISION PRODUCTIONS (b) CONFORMING AMENDMENT.—The table of (b) EFFECTIVE DATE.—The amendment made AS EXPENSES.— sections for part VI of subchapter B of chapter by this section shall apply to taxable years be- ‘‘(1) IN GENERAL.—A taxpayer may elect to 1 is amended by inserting after the item relating ginning after December 31, 2002. treat the cost of any qualified film or television to section 180 the following new item:

VerDate jul 14 2003 01:25 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00025 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.038 S03PT1 S2044 CONGRESSIONAL RECORD — SENATE March 3, 2004 ‘‘Sec. 181. Treatment of qualified film and tele- taxpayer has made (in accordance with regula- SEC. 332. ELECTION TO TREAT CUTTING OF TIM- vision productions.’’. tions prescribed by the Secretary) an election BER AS A SALE OR EXCHANGE. Any election under section 631(a) of the Inter- (c) EFFECTIVE DATE.—The amendments made under this subsection, the taxpayer shall treat nal Revenue Code of 1986 made for a taxable by this section shall apply to qualified film and reforestation expenditures which are paid or in- year ending on or before the date of the enact- television productions (as defined in section curred during the taxable year with respect to ment of this Act may be revoked by the taxpayer 181(d)(1) of the Internal Revenue Code of 1986, such property as an expense which is not for any taxable year ending after such date. For as added by this section) commencing after the chargeable to capital account. The reforestation purposes of determining whether the taxpayer date of the enactment of this Act. expenditures so treated shall be allowed as a de- duction. may make a further election under such section, SEC. 322. MODIFICATION OF APPLICATION OF IN- such election (and any revocation under this COME FORECAST METHOD OF DE- ‘‘(B) DOLLAR LIMITATION.—The aggregate PRECIATION. amount of reforestation expenditures which may section) shall not be taken into account. (a) IN GENERAL.—Section 167(g) (relating to be taken into account under subparagraph (A) SEC. 333. CAPITAL GAIN TREATMENT UNDER SEC- depreciation under income forecast method) is with respect to each qualified timber property TION 631(b) TO APPLY TO OUTRIGHT amended by adding at the end the following for any taxable year shall not exceed $10,000 SALES BY LANDOWNERS. new paragraph: ($5,000 in the case of a separate return by a (a) IN GENERAL.—The first sentence of section ‘‘(7) TREATMENT OF PARTICIPATIONS AND RE- married individual (as defined in section 631(b) (relating to disposal of timber with a re- SIDUALS.— 7703)).’’. tained economic interest) is amended by striking ‘‘(A) IN GENERAL.—For purposes of deter- (b) NET AMORTIZABLE BASIS.—Section ‘‘retains an economic interest in such timber’’ mining the depreciation deduction allowable 194(c)(2) (defining amortizable basis) is amended and inserting ‘‘either retains an economic inter- with respect to a property under this subsection, by inserting ‘‘which have not been taken into est in such timber or makes an outright sale of the taxpayer may include participations and re- account under subsection (b)’’ after ‘‘expendi- such timber’’. siduals with respect to such property in the ad- tures’’. (b) CONFORMING AMENDMENTS.— justed basis of such property for the taxable (c) CONFORMING AMENDMENTS.— (1) The third sentence of section 631(b) is year in which the property is placed in service, (1) Section 194(b) is amended by striking para- amended by striking ‘‘The date of disposal’’ and but only to the extent that such participations graphs (3) and (4). inserting ‘‘In the case of disposal of timber with and residuals relate to income estimated (for (2) Section 194(b)(2) is amended by striking a retained economic interest, the date of dis- purposes of this subsection) to be earned in con- ‘‘paragraph (1)’’ both places it appears and in- posal’’. nection with the property before the close of the serting ‘‘paragraph (1)(B)’’. (2) The heading for section 631(b) is amended 10th taxable year referred to in paragraph (3) Section 194(c) is amended by striking para- by striking ‘‘WITH A RETAINED ECONOMIC INTER- (1)(A). graph (4) and inserting the following new para- EST’’. ‘‘(B) PARTICIPATIONS AND RESIDUALS.—For graphs: (c) EFFECTIVE DATE.—The amendments made purposes of this paragraph, the term ‘participa- ‘‘(4) TREATMENT OF TRUSTS AND ESTATES.— by this section shall apply to sales after the date tions and residuals’ means, with respect to any ‘‘(A) IN GENERAL.—Except as provided in sub- of the enactment of this Act. property, costs the amount of which by contract paragraph (B), this section shall not apply to SEC. 334. MODIFICATION OF SAFE HARBOR RULES varies with the amount of income earned in con- trusts and estates. FOR TIMBER REITS. nection with such property. ‘‘(B) AMORTIZATION DEDUCTION ALLOWED TO (a) EXPANSION OF PROHIBITED TRANSACTION ‘‘(C) SPECIAL RULES RELATING TO RECOMPUTA- ESTATES.—The benefit of the deduction for am- SAFE HARBOR.—Section 857(b)(6) (relating to in- TION YEARS.—If the adjusted basis of any prop- ortization provided by subsection (a) shall be al- come from prohibited transactions) is amended erty is determined under this paragraph, para- lowed to estates in the same manner as in the by redesignating subparagraphs (D) and (E) as graph (4) shall be applied by substituting ‘for case of an individual. The allowable deduction subparagraphs (E) and (F), respectively, and by each taxable year in such period’ for ‘for such shall be apportioned between the income bene- inserting after subparagraph (C) the following period’. ficiary and the fiduciary under regulations pre- new subparagraph: ‘‘(D) OTHER SPECIAL RULES.— scribed by the Secretary. Any amount so appor- ‘‘(D) CERTAIN SALES NOT TO CONSTITUTE PRO- ‘‘(i) PARTICIPATIONS AND RESIDUALS.—Not- tioned to a beneficiary shall be taken into ac- HIBITED TRANSACTIONS.—For purposes of this withstanding subparagraph (A), the taxpayer count for purposes of determining the amount part, the term ‘prohibited transaction’ does not may exclude participations and residuals from allowable as a deduction under subsection (a) to include a sale of property which is a real estate the adjusted basis of such property and deduct such beneficiary. asset (as defined in section 856(c)(5)(B)) if— such participations and residuals in the taxable ‘‘(5) APPLICATION WITH OTHER DEDUCTIONS.— ‘‘(i) the trust held the property for not less year that such participations and residuals are No deduction shall be allowed under any other than 4 years in connection with the trade or paid. provision of this chapter with respect to any ex- business of producing timber, ‘‘(ii) COORDINATION WITH OTHER RULES.—De- penditure with respect to which a deduction is ‘‘(ii) the aggregate expenditures made by the ductions computed in accordance with this allowed or allowable under this section to the trust, or a partner of the trust, during the 4- paragraph shall be allowable notwithstanding taxpayer .’’. year period preceding the date of sale which— paragraph (1)(B) or sections 263, 263A, 404, 419, (4) The heading for section 194 is amended by ‘‘(I) are includible in the basis of the property or 461(h). striking ‘‘AMORTIZATION’’ and inserting (other than timberland acquisition expendi- ‘‘(E) AUTHORITY TO MAKE ADJUSTMENTS.—The ‘‘TREATMENT’’. tures), and Secretary shall prescribe appropriate adjust- (5) The item relating to section 194 in the table ‘‘(II) are directly related to operation of the ments to the basis of property and to the look- of sections for part VI of subchapter B of chap- property for the production of timber or for the back method for the additional amounts allow- ter 1 is amended by striking ‘‘Amortization’’ and preservation of the property for use as able as a deduction solely by reason of this inserting ‘‘Treatment’’. timberland, paragraph.’’. (d) REPEAL OF REFORESTATION CREDIT.— do not exceed 30 percent of the net selling price (b) DETERMINATION OF INCOME.—Section (1) IN GENERAL.—Section 46 (relating to of the property, 167(g)(5) (relating to special rules) is amended amount of credit) is amended— ‘‘(iii) the aggregate expenditures made by the by redesignating subparagraphs (E) and (F) as (A) by adding ‘‘and’’ at the end of paragraph trust, or a partner of the trust, during the 4- subparagraphs (F) and (G), respectively, and in- (1), year period preceding the date of sale which— serting after subparagraph (D) the following (B) by striking ‘‘, and ’’ at the end of para- ‘‘(I) are includible in the basis of the property new subparagraph: graph (2) and inserting a period, and (other than timberland acquisition expendi- ‘‘(E) TREATMENT OF DISTRIBUTION COSTS.—For (C) by striking paragraph (3). tures), and purposes of this subsection, the income with re- (2) CONFORMING AMENDMENTS.— ‘‘(II) are not directly related to operation of spect to any property shall be the taxpayer’s (A) Section 48 is amended— the property for the production of timber, or for gross income from such property.’’. (i) by striking subsection (b), the preservation of the property for use as (c) EFFECTIVE DATE.—The amendments made (ii) by striking ‘‘this subsection’’ in paragraph timberland, by this section shall apply to property placed in (5) of subsection (a) and inserting ‘‘subsection do not exceed 5 percent of the net selling price service after the date of the enactment of this (a)’’, and of the property, Act. (iii) by redesignating such paragraph (5) as ‘‘(iv)(I) during the taxable year the trust does Subtitle C—Manufacturing Relating to subsection (b). not make more than 7 sales of property (other Timber (B) The heading for section 48 is amended by than sales of foreclosure property or sales to SEC. 331. EXPENSING OF CERTAIN REFOREST- striking ‘‘; REFORESTATION CREDIT’’. which section 1033 applies), or ATION EXPENDITURES. (C) The item relating to section 48 in the table ‘‘(II) the aggregate adjusted bases (as deter- (a) IN GENERAL.—So much of subsection (b) of of sections for subpart E of part IV of sub- mined for purposes of computing earnings and section 194 (relating to amortization of reforest- chapter A of chapter 1 is amended by striking ‘‘, profits) of property (other than sales of fore- ation expenditures) as precedes paragraph (2) is reforestation credit’’. closure property or sales to which section 1033 amended to read as follows: (D) Section 50(c)(3) is amended by striking ‘‘or applies) sold during the taxable year does not ‘‘(b) TREATMENT AS EXPENSES.— reforestation credit’’. exceed 10 percent of the aggregate bases (as so ‘‘(1) ELECTION TO TREAT CERTAIN REFOREST- (e) EFFECTIVE DATE.—The amendments made determined) of all of the assets of the trust as of ATION EXPENDITURES AS EXPENSES.— by this section shall apply with respect to ex- the beginning of the taxable year, ‘‘(A) IN GENERAL.—In the case of any quali- penditures paid or incurred after the date of the ‘‘(v) in the case that the requirement of clause fied timber property with respect to which the enactment of this Act. (iv)(I) is not satisfied, substantially all of the

VerDate jul 14 2003 02:24 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00026 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.038 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2045 marketing expenditures with respect to the prop- a tax-indifferent party shall not be respected ‘‘(i) a large entity, or erty were made through an independent con- if— ‘‘(ii) a high net worth individual, tractor (as defined in section 856(d)(3)) from ‘‘(i) it results in an allocation of income or the penalty under paragraph (1) or (2) shall be whom the trust itself does not derive or receive gain to the tax-indifferent party in excess of twice the amount determined without regard to any income, and such party’s economic income or gain, or this paragraph. ‘‘(vi) the sales price of the property sold by ‘‘(ii) it results in a basis adjustment or shift- ‘‘(B) LARGE ENTITY.—For purposes of sub- the trust is not based in whole or in part on in- ing of basis on account of overstating the in- paragraph (A), the term ‘large entity’ means, come or profits, including income or profits de- come or gain of the tax-indifferent party. with respect to any taxable year, a person rived from the sale or operation of such prop- ‘‘(3) DEFINITIONS AND SPECIAL RULES.—For (other than a natural person) with gross re- erty.’’. purposes of this subsection— ceipts in excess of $10,000,000 for the taxable (b) EFFECTIVE DATE.—The amendments made ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.—The year in which the reportable transaction occurs by this section shall apply to taxable years be- term ‘economic substance doctrine’ means the or the preceding taxable year. Rules similar to ginning after the date of the enactment of this common law doctrine under which tax benefits the rules of paragraph (2) and subparagraphs Act. under subtitle A with respect to a transaction (B), (C), and (D) of paragraph (3) of section are not allowable if the transaction does not TITLE IV—ADDITIONAL PROVISIONS 448(c) shall apply for purposes of this subpara- have economic substance or lacks a business graph. Subtitle A—Provisions Designed To Curtail purpose. Tax Shelters ‘‘(C) HIGH NET WORTH INDIVIDUAL.—For pur- ‘‘(B) TAX-INDIFFERENT PARTY.—The term ‘tax- poses of subparagraph (A), the term ‘high net SEC. 401. CLARIFICATION OF ECONOMIC SUB- indifferent party’ means any person or entity worth individual’ means, with respect to a re- STANCE DOCTRINE. not subject to tax imposed by subtitle A. A per- portable transaction, a natural person whose (a) IN GENERAL.—Section 7701 is amended by son shall be treated as a tax-indifferent party net worth exceeds $2,000,000 immediately before redesignating subsection (n) as subsection (o) with respect to a transaction if the items taken the transaction. and by inserting after subsection (m) the fol- into account with respect to the transaction ‘‘(c) DEFINITIONS.—For purposes of this sec- lowing new subsection: have no substantial impact on such person’s li- tion— ‘‘(n) CLARIFICATION OF ECONOMIC SUBSTANCE ability under subtitle A. ‘‘(1) REPORTABLE TRANSACTION.—The term ‘re- DOCTRINE; ETC.— ‘‘(C) EXCEPTION FOR PERSONAL TRANSACTIONS portable transaction’ means any transaction ‘‘(1) GENERAL RULES.— OF INDIVIDUALS.—In the case of an individual, with respect to which information is required to ‘‘(A) IN GENERAL.—In any case in which a this subsection shall apply only to transactions be included with a return or statement because, court determines that the economic substance entered into in connection with a trade or busi- as determined under regulations prescribed doctrine is relevant for purposes of this title to ness or an activity engaged in for the produc- under section 6011, such transaction is of a type a transaction (or series of transactions), such tion of income. which the Secretary determines as having a po- transaction (or series of transactions) shall have ‘‘(D) TREATMENT OF LESSORS.—In applying tential for tax avoidance or evasion. economic substance only if the requirements of paragraph (1)(B)(ii) to the lessor of tangible ‘‘(2) LISTED TRANSACTION.—Except as pro- this paragraph are met. property subject to a lease— vided in regulations, the term ‘listed trans- ‘‘(B) DEFINITION OF ECONOMIC SUBSTANCE.— ‘‘(i) the expected net tax benefits with respect action’ means a reportable transaction which is For purposes of subparagraph (A)— to the leased property shall not include the ben- the same as, or substantially similar to, a trans- ‘‘(i) IN GENERAL.—A transaction has economic efits of— substance only if— ‘‘(I) depreciation, action specifically identified by the Secretary as ‘‘(I) the transaction changes in a meaningful ‘‘(II) any tax credit, or a tax avoidance transaction for purposes of sec- way (apart from Federal tax effects) the tax- ‘‘(III) any other deduction as provided in tion 6011. ‘‘(d) AUTHORITY TO RESCIND PENALTY.— payer’s economic position, and guidance by the Secretary, and ‘‘(1) IN GENERAL.—The Commissioner of Inter- ‘‘(II) the taxpayer has a substantial nontax ‘‘(ii) subclause (II) of paragraph (1)(B)(ii) nal Revenue may rescind all or any portion of purpose for entering into such transaction and shall be disregarded in determining whether any any penalty imposed by this section with respect the transaction is a reasonable means of accom- of such benefits are allowable. to any violation if— plishing such purpose. ‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF- FECTED.—Except as specifically provided in this ‘‘(A) the violation is with respect to a report- In applying subclause (II), a purpose of achiev- subsection, the provisions of this subsection able transaction other than a listed transaction, ing a financial accounting benefit shall not be shall not be construed as altering or sup- ‘‘(B) the person on whom the penalty is im- taken into account in determining whether a planting any other rule of law, and the require- posed has a history of complying with the re- transaction has a substantial nontax purpose if ments of this subsection shall be construed as quirements of this title, the origin of such financial accounting benefit being in addition to any such other rule of law. ‘‘(C) it is shown that the violation is due to an is a reduction of income tax. ‘‘(5) REGULATIONS.—The Secretary shall pre- unintentional mistake of fact; ‘‘(ii) SPECIAL RULE WHERE TAXPAYER RELIES scribe such regulations as may be necessary or ‘‘(D) imposing the penalty would be against ON PROFIT POTENTIAL.—A transaction shall not appropriate to carry out the purposes of this equity and good conscience, and be treated as having economic substance by rea- subsection. Such regulations may include ex- ‘‘(E) rescinding the penalty would promote son of having a potential for profit unless— emptions from the application of this sub- compliance with the requirements of this title ‘‘(I) the present value of the reasonably ex- section.’’. and effective tax administration. pected pre-tax profit from the transaction is (b) EFFECTIVE DATE.—The amendments made ‘‘(2) DISCRETION.—The exercise of authority substantial in relation to the present value of by this section shall apply to transactions en- under paragraph (1) shall be at the sole discre- the expected net tax benefits that would be al- tered into after the date of the enactment of this tion of the Commissioner and may be delegated lowed if the transaction were respected, and Act. only to the head of the Office of Tax Shelter ‘‘(II) the reasonably expected pre-tax profit Analysis. The Commissioner, in the Commis- from the transaction exceeds a risk-free rate of SEC. 402. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION. sioner’s sole discretion, may establish a proce- return. (a) IN GENERAL.—Part I of subchapter B of dure to determine if a penalty should be referred ‘‘(C) TREATMENT OF FEES AND FOREIGN chapter 68 (relating to assessable penalties) is to the Commissioner or the head of such Office TAXES.—Fees and other transaction expenses amended by inserting after section 6707 the fol- for a determination under paragraph (1). and foreign taxes shall be taken into account as lowing new section: ‘‘(3) NO APPEAL.—Notwithstanding any other expenses in determining pre-tax profit under provision of law, any determination under this subparagraph (B)(ii). ‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION INFOR- subsection may not be reviewed in any adminis- PECIAL RULES FOR TRANSACTIONS WITH ‘‘(2) S MATION WITH RETURN OR STATE- trative or judicial proceeding. TAX-INDIFFERENT PARTIES.— MENT. ‘‘(4) RECORDS.—If a penalty is rescinded ‘‘(A) SPECIAL RULES FOR FINANCING TRANS- ‘‘(a) IMPOSITION OF PENALTY.—Any person under paragraph (1), the Commissioner shall ACTIONS.—The form of a transaction which is in who fails to include on any return or statement place in the file in the Office of the Commis- substance the borrowing of money or the acqui- any information with respect to a reportable sioner the opinion of the Commissioner or the sition of financial capital directly or indirectly transaction which is required under section 6011 head of the Office of Tax Shelter Analysis with from a tax-indifferent party shall not be re- to be included with such return or statement respect to the determination, including— spected if the present value of the deductions to shall pay a penalty in the amount determined ‘‘(A) the facts and circumstances of the trans- be claimed with respect to the transaction is under subsection (b). action, substantially in excess of the present value of ‘‘(b) AMOUNT OF PENALTY.— ‘‘(B) the reasons for the rescission, and the anticipated economic returns of the person ‘‘(1) IN GENERAL.—Except as provided in para- ‘‘(C) the amount of the penalty rescinded. lending the money or providing the financial graphs (2) and (3), the amount of the penalty ‘‘(5) REPORT.—The Commissioner shall each capital. A public offering shall be treated as a under subsection (a) shall be $50,000. year report to the Committee on Ways and borrowing, or an acquisition of financial cap- ‘‘(2) LISTED TRANSACTION.—The amount of the Means of the House of Representatives and the ital, from a tax-indifferent party if it is reason- penalty under subsection (a) with respect to a Committee on Finance of the Senate— ably expected that at least 50 percent of the of- listed transaction shall be $100,000. ‘‘(A) a summary of the total number and ag- fering will be placed with tax-indifferent par- ‘‘(3) INCREASE IN PENALTY FOR LARGE ENTITIES gregate amount of penalties imposed, and re- ties. AND HIGH NET WORTH INDIVIDUALS.— scinded, under this section, and ‘‘(B) ARTIFICIAL INCOME SHIFTING AND BASIS ‘‘(A) IN GENERAL.—In the case of a failure ‘‘(B) a description of each penalty rescinded ADJUSTMENTS.—The form of a transaction with under subsection (a) by— under this subsection and the reasons therefor.

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‘‘(e) PENALTY REPORTED TO SEC.—In the case ‘‘(B) any reportable transaction (other than a is amended by adding at the end the following of a person— listed transaction) if a significant purpose of flush sentence: ‘‘(1) which is required to file periodic reports such transaction is the avoidance or evasion of ‘‘The excess under the preceding sentence shall under section 13 or 15(d) of the Securities Ex- Federal income tax. be determined without regard to items to which change Act of 1934 or is required to be consoli- ‘‘(c) HIGHER PENALTY FOR NONDISCLOSED section 6662A applies and without regard to dated with another person for purposes of such LISTED AND OTHER AVOIDANCE TRANSACTIONS.— items with respect to which a penalty is imposed reports, and ‘‘(1) IN GENERAL.—Subsection (a) shall be ap- by section 6662B.’’. ‘‘(2) which— plied by substituting ‘30 percent’ for ‘20 percent’ (c) REASONABLE CAUSE EXCEPTION.— ‘‘(A) is required to pay a penalty under this with respect to the portion of any reportable (1) IN GENERAL.—Section 6664 is amended by section with respect to a listed transaction, transaction understatement with respect to adding at the end the following new subsection: ‘‘(B) is required to pay a penalty under sec- which the requirement of section 6664(d)(2)(A) is ‘‘(d) REASONABLE CAUSE EXCEPTION FOR RE- tion 6662A with respect to any reportable trans- not met. PORTABLE TRANSACTION UNDERSTATEMENTS.— action at a rate prescribed under section ‘‘(2) RULES APPLICABLE TO ASSERTION AND ‘‘(1) IN GENERAL.—No penalty shall be im- 6662A(c), or COMPROMISE OF PENALTY.— posed under section 6662A with respect to any ‘‘(C) is required to pay a penalty under sec- ‘‘(A) IN GENERAL.—Only upon the approval by portion of a reportable transaction understate- tion 6662B with respect to any noneconomic sub- the Chief Counsel for the Internal Revenue ment if it is shown that there was a reasonable stance transaction, Service or the Chief Counsel’s delegate at the cause for such portion and that the taxpayer the requirement to pay such penalty shall be national office of the Internal Revenue Service acted in good faith with respect to such portion. disclosed in such reports filed by such person for may a penalty to which paragraph (1) applies ‘‘(2) SPECIAL RULES.—Paragraph (1) shall not such periods as the Secretary shall specify. Fail- be included in a 1st letter of proposed deficiency apply to any reportable transaction understate- ure to make a disclosure in accordance with the which allows the taxpayer an opportunity for ment unless— preceding sentence shall be treated as a failure administrative review in the Internal Revenue ‘‘(A) the relevant facts affecting the tax treat- to which the penalty under subsection (b)(2) ap- Service Office of Appeals. If such a letter is pro- ment of the item are adequately disclosed in ac- plies. vided to the taxpayer, only the Commissioner of cordance with the regulations prescribed under ‘‘(f) COORDINATION WITH OTHER PENALTIES.— Internal Revenue may compromise all or any section 6011, The penalty imposed by this section is in addi- portion of such penalty. ‘‘(B) there is or was substantial authority for tion to any penalty imposed under this title.’’. ‘‘(B) APPLICABLE RULES.—The rules of para- such treatment, and (b) CONFORMING AMENDMENT.—The table of graphs (2), (3), (4), and (5) of section 6707A(d) ‘‘(C) the taxpayer reasonably believed that sections for part I of subchapter B of chapter 68 shall apply for purposes of subparagraph (A). such treatment was more likely than not the is amended by inserting after the item relating ‘‘(d) DEFINITIONS OF REPORTABLE AND LISTED proper treatment. TRANSACTIONS.—For purposes of this section, to section 6707 the following: A taxpayer failing to adequately disclose in ac- the terms ‘reportable transaction’ and ‘listed ‘‘Sec. 6707A. Penalty for failure to include re- cordance with section 6011 shall be treated as transaction’ have the respective meanings given portable transaction information meeting the requirements of subparagraph (A) if to such terms by section 6707A(c). with return or statement.’’. the penalty for such failure was rescinded under ‘‘(e) SPECIAL RULES.— section 6707A(d). (c) EFFECTIVE DATE.—The amendments made ‘‘(1) COORDINATION WITH PENALTIES, ETC., ON ‘‘(3) RULES RELATING TO REASONABLE BE- by this section shall apply to returns and state- OTHER UNDERSTATEMENTS.—In the case of an LIEF.—For purposes of paragraph (2)(C)— ments the due date for which is after the date of understatement (as defined in section ‘‘(A) IN GENERAL.—A taxpayer shall be treated the enactment of this Act. 6662(d)(2))— as having a reasonable belief with respect to the SEC. 403. ACCURACY-RELATED PENALTY FOR ‘‘(A) the amount of such understatement (de- tax treatment of an item only if such belief— LISTED TRANSACTIONS AND OTHER termined without regard to this paragraph) ‘‘(i) is based on the facts and law that exist at REPORTABLE TRANSACTIONS HAV- shall be increased by the aggregate amount of the time the return of tax which includes such ING A SIGNIFICANT TAX AVOIDANCE reportable transaction understatements and PURPOSE. tax treatment is filed, and noneconomic substance transaction understate- (a) IN GENERAL.—Subchapter A of chapter 68 ‘‘(ii) relates solely to the taxpayer’s chances of ments for purposes of determining whether such is amended by inserting after section 6662 the success on the merits of such treatment and does understatement is a substantial understatement following new section: not take into account the possibility that a re- under section 6662(d)(1), and turn will not be audited, such treatment will not ‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED ‘‘(B) the addition to tax under section 6662(a) be raised on audit, or such treatment will be re- PENALTY ON UNDERSTATEMENTS shall apply only to the excess of the amount of WITH RESPECT TO REPORTABLE solved through settlement if it is raised. the substantial understatement (if any) after the TRANSACTIONS. ‘‘(B) CERTAIN OPINIONS MAY NOT BE RELIED application of subparagraph (A) over the aggre- ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer UPON.— gate amount of reportable transaction under- has a reportable transaction understatement for ‘‘(i) IN GENERAL.—An opinion of a tax advisor statements and noneconomic substance trans- any taxable year, there shall be added to the tax may not be relied upon to establish the reason- action understatements. an amount equal to 20 percent of the amount of able belief of a taxpayer if— ‘‘(2) COORDINATION WITH OTHER PENALTIES.— such understatement. ‘‘(I) the tax advisor is described in clause (ii), ‘‘(A) APPLICATION OF FRAUD PENALTY.—Ref- ‘‘(b) REPORTABLE TRANSACTION UNDERSTATE- or erences to an underpayment in section 6663 MENT.—For purposes of this section— ‘‘(II) the opinion is described in clause (iii). shall be treated as including references to a re- ‘‘(1) IN GENERAL.—The term ‘reportable trans- ‘‘(ii) DISQUALIFIED TAX ADVISORS.—A tax ad- action understatement’ means the sum of— portable transaction understatement and a non- visor is described in this clause if the tax advi- ‘‘(A) the product of— economic substance transaction understatement. sor— O DOUBLE PENALTY.—This section shall ‘‘(i) the amount of the increase (if any) in tax- ‘‘(B) N ‘‘(I) is a material advisor (within the meaning not apply to any portion of an understatement able income which results from a difference be- of section 6111(b)(1)) who participates in the or- on which a penalty is imposed under section tween the proper tax treatment of an item to ganization, management, promotion, or sale of 6662B or 6663. which this section applies and the taxpayer’s the transaction or who is related (within the ‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.— treatment of such item (as shown on the tax- meaning of section 267(b) or 707(b)(1)) to any Except as provided in regulations, in no event payer’s return of tax), and person who so participates, shall any tax treatment included with an ‘‘(ii) the highest rate of tax imposed by section ‘‘(II) is compensated directly or indirectly by amendment or supplement to a return of tax be 1 (section 11 in the case of a taxpayer which is a material advisor with respect to the trans- taken into account in determining the amount a corporation), and action, of any reportable transaction understatement or ‘‘(B) the amount of the decrease (if any) in ‘‘(III) has a fee arrangement with respect to noneconomic substance transaction understate- the aggregate amount of credits determined the transaction which is contingent on all or ment if the amendment or supplement is filed under subtitle A which results from a difference part of the intended tax benefits from the trans- after the earlier of the date the taxpayer is first between the taxpayer’s treatment of an item to action being sustained, or contacted by the Secretary regarding the exam- which this section applies (as shown on the tax- ‘‘(IV) as determined under regulations pre- ination of the return or such other date as is payer’s return of tax) and the proper tax treat- scribed by the Secretary, has a disqualifying fi- specified by the Secretary. ment of such item. nancial interest with respect to the transaction. ‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION For purposes of subparagraph (A), any reduc- ‘‘(iii) DISQUALIFIED OPINIONS.—For purposes UNDERSTATEMENT.—For purposes of this sub- tion of the excess of deductions allowed for the of clause (i), an opinion is disqualified if the section, the term ‘noneconomic substance trans- taxable year over gross income for such year, opinion— action understatement’ has the meaning given and any reduction in the amount of capital ‘‘(I) is based on unreasonable factual or legal such term by section 6662B(c). losses which would (without regard to section assumptions (including assumptions as to future ‘‘(5) CROSS REFERENCE.— 1211) be allowed for such year, shall be treated events), as an increase in taxable income. ‘‘For reporting of section 6662A(c) penalty to ‘‘(II) unreasonably relies on representations, ‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This the Securities and Exchange Commission, see statements, findings, or agreements of the tax- section shall apply to any item which is attrib- section 6707A(e).’’. payer or any other person, utable to— (b) DETERMINATION OF OTHER UNDERSTATE- ‘‘(III) does not identify and consider all rel- ‘‘(A) any listed transaction, and MENTS.—Subparagraph (A) of section 6662(d)(2) evant facts, or

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TAX SHELTER EXCEPTION TO CON- the Secretary may prescribe.’’. or the transaction was not respected under sec- FIDENTIALITY PRIVILEGES RELAT- (2) CONFORMING AMENDMENT.—The heading tion 7701(n)(2), or ING TO TAXPAYER COMMUNICA- TIONS. for subsection (c) of section 6664 is amended by ‘‘(B) the transaction fails to meet the require- (a) IN GENERAL.—Section 7525(b) (relating to inserting ‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEP- ments of any similar rule of law. section not to apply to communications regard- TION’’. ‘‘(d) RULES APPLICABLE TO COMPROMISE OF ing corporate tax shelters) is amended to read as (d) CONFORMING AMENDMENTS.— PENALTY.— follows: (1) Subparagraph (C) of section 461(i)(3) is ‘‘(1) IN GENERAL.—If the 1st letter of proposed ‘‘(b) SECTION NOT TO APPLY TO COMMUNICA- amended by striking ‘‘section 6662(d)(2)(C)(iii)’’ deficiency which allows the taxpayer an oppor- and inserting ‘‘section 1274(b)(3)(C)’’. TIONS REGARDING TAX SHELTERS.—The privilege tunity for administrative review in the Internal under subsection (a) shall not apply to any (2) Paragraph (3) of section 1274(b) is amend- Revenue Service Office of Appeals has been sent ed— written communication which is— with respect to a penalty to which this section ‘‘(1) between a federally authorized tax prac- (A) by striking ‘‘(as defined in section applies, only the Commissioner of Internal Rev- 6662(d)(2)(C)(iii))’’ in subparagraph (B)(i), and titioner and— enue may compromise all or any portion of such ‘‘(A) any person, (B) by adding at the end the following new penalty. subparagraph: ‘‘(B) any director, officer, employee, agent, or ‘‘(2) APPLICABLE RULES.—The rules of para- ‘‘(C) TAX SHELTER.—For purposes of subpara- representative of the person, or graphs (2), (3), (4), and (5) of section 6707A(d) graph (B), the term ‘tax shelter’ means— ‘‘(C) any other person holding a capital or shall apply for purposes of paragraph (1). ‘‘(i) a partnership or other entity, profits interest in the person, and ‘‘(ii) any investment plan or arrangement, or ‘‘(e) COORDINATION WITH OTHER PENALTIES.— ‘‘(2) in connection with the promotion of the ‘‘(iii) any other plan or arrangement, Except as otherwise provided in this part, the direct or indirect participation of the person in penalty imposed by this section shall be in addi- any tax shelter (as defined in section if a significant purpose of such partnership, en- tion to any other penalty imposed by this title. tity, plan, or arrangement is the avoidance or 1274(b)(3)(C)).’’. ‘‘(f) CROSS REFERENCES.— evasion of Federal income tax.’’. (b) EFFECTIVE DATE.—The amendment made (3) Section 6662(d)(2) is amended by striking ‘‘(1) For coordination of penalty with under- by this section shall apply to communications subparagraphs (C) and (D). statements under section 6662 and other spe- made on or after the date of the enactment of (4) Section 6664(c)(1) is amended by striking cial rules, see section 6662A(e). this Act. ‘‘this part’’ and inserting ‘‘section 6662 or 6663’’. ‘‘(2) For reporting of penalty imposed under SEC. 407. DISCLOSURE OF REPORTABLE TRANS- (5) Subsection (b) of section 7525 is amended this section to the Securities and Exchange ACTIONS. by striking ‘‘section 6662(d)(2)(C)(iii)’’ and in- Commission, see section 6707A(e).’’. (a) IN GENERAL.—Section 6111 (relating to reg- istration of tax shelters) is amended to read as serting ‘‘section 1274(b)(3)(C)’’. (b) CLERICAL AMENDMENT.—The table of sec- (6)(A) The heading for section 6662 is amended tions for part II of subchapter A of chapter 68 follows: to read as follows: is amended by inserting after the item relating ‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANS- ‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED to section 6662A the following new item: ACTIONS. PENALTY ON UNDERPAYMENTS.’’. ‘‘(a) IN GENERAL.—Each material advisor with (B) The table of sections for part II of sub- ‘‘Sec. 6662B. Penalty for understatements attrib- respect to any reportable transaction shall make chapter A of chapter 68 is amended by striking utable to transactions lacking a return (in such form as the Secretary may pre- the item relating to section 6662 and inserting economic substance, etc.’’. scribe) setting forth— the following new items: (c) EFFECTIVE DATE.—The amendments made ‘‘(1) information identifying and describing by this section shall apply to transactions en- the transaction, ‘‘Sec. 6662. Imposition of accuracy-related pen- ‘‘(2) information describing any potential tax alty on underpayments. tered into after the date of the enactment of this Act. benefits expected to result from the transaction, ‘‘Sec. 6662A. Imposition of accuracy-related pen- and alty on understatements with re- SEC. 405. MODIFICATIONS OF SUBSTANTIAL UN- ‘‘(3) such other information as the Secretary DERSTATEMENT PENALTY FOR NON- spect to reportable transactions.’’. REPORTABLE TRANSACTIONS. may prescribe. (e) EFFECTIVE DATE.—The amendments made (a) SUBSTANTIAL UNDERSTATEMENT OF COR- Such return shall be filed not later than the by this section shall apply to taxable years end- PORATIONS.—Section 6662(d)(1)(B) (relating to date specified by the Secretary. ing after the date of the enactment of this Act. special rule for corporations) is amended to read ‘‘(b) DEFINITIONS.—For purposes of this sec- SEC. 404. PENALTY FOR UNDERSTATEMENTS AT- as follows: tion— TRIBUTABLE TO TRANSACTIONS ‘‘(B) SPECIAL RULE FOR CORPORATIONS.—In ‘‘(1) MATERIAL ADVISOR.— LACKING ECONOMIC SUBSTANCE, the case of a corporation other than an S cor- ‘‘(A) IN GENERAL.—The term ‘material advisor’ ETC. poration or a personal holding company (as de- means any person— (a) IN GENERAL.—Subchapter A of chapter 68 fined in section 542), there is a substantial un- ‘‘(i) who provides any material aid, assist- is amended by inserting after section 6662A the derstatement of income tax for any taxable year ance, or advice with respect to organizing, man- following new section: if the amount of the understatement for the tax- aging, promoting, selling, implementing, or car- ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS able year exceeds the lesser of— rying out any reportable transaction, and ATTRIBUTABLE TO TRANSACTIONS ‘‘(i) 10 percent of the tax required to be shown ‘‘(ii) who directly or indirectly derives gross LACKING ECONOMIC SUBSTANCE, income in excess of the threshold amount for ETC. on the return for the taxable year (or, if greater, $10,000), or such aid, assistance, or advice. ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer ‘‘(B) THRESHOLD AMOUNT.—For purposes of ‘‘(ii) $10,000,000.’’. has an noneconomic substance transaction un- subparagraph (A), the threshold amount is— (b) REDUCTION FOR UNDERSTATEMENT OF TAX- derstatement for any taxable year, there shall be ‘‘(i) $50,000 in the case of a reportable trans- PAYER DUE TO POSITION OF TAXPAYER OR DIS- added to the tax an amount equal to 40 percent action substantially all of the tax benefits from CLOSED ITEM.— of the amount of such understatement. which are provided to natural persons, and ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED (1) IN GENERAL.—Section 6662(d)(2)(B)(i) (re- ‘‘(ii) $250,000 in any other case. lating to substantial authority) is amended to TRANSACTIONS.—Subsection (a) shall be applied ‘‘(2) REPORTABLE TRANSACTION.—The term ‘re- by substituting ‘20 percent’ for ‘40 percent’ with read as follows: portable transaction’ has the meaning given to respect to the portion of any noneconomic sub- ‘‘(i) the tax treatment of any item by the tax- such term by section 6707A(c). stance transaction understatement with respect payer if the taxpayer had reasonable belief that ‘‘(c) REGULATIONS.—The Secretary may pre- to which the relevant facts affecting the tax the tax treatment was more likely than not the scribe regulations which provide— treatment of the item are adequately disclosed in proper treatment, or’’. ‘‘(1) that only 1 person shall be required to the return or a statement attached to the return. (2) CONFORMING AMENDMENT.—Section 6662(d) meet the requirements of subsection (a) in cases ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION is amended by adding at the end the following in which 2 or more persons would otherwise be UNDERSTATEMENT.—For purposes of this sec- new paragraph: required to meet such requirements, tion— ‘‘(3) SECRETARIAL LIST.—For purposes of this ‘‘(2) exemptions from the requirements of this ‘‘(1) IN GENERAL.—The term ‘noneconomic subsection, section 6664(d)(2), and section section, and substance transaction understatement’ means 6694(a)(1), the Secretary may prescribe a list of ‘‘(3) such rules as may be necessary or appro- any amount which would be an understatement positions for which the Secretary believes there priate to carry out the purposes of this sec- under section 6662A(b)(1) if section 6662A were is not substantial authority or there is no rea- tion.’’. applied by taking into account items attrib- sonable belief that the tax treatment is more (b) CONFORMING AMENDMENTS.— utable to noneconomic substance transactions likely than not the proper tax treatment. Such (1) The item relating to section 6111 in the rather than items to which section 6662A would list (and any revisions thereof) shall be pub- table of sections for subchapter B of chapter 61 apply without regard to this paragraph. lished in the Federal Register or the Internal is amended to read as follows: ‘‘(2) NONECONOMIC SUBSTANCE TRANSACTION.— Revenue Bulletin.’’. The term ‘noneconomic substance transaction’ (c) EFFECTIVE DATE.—The amendments made ‘‘Sec. 6111. Disclosure of reportable trans- means any transaction if— by this section shall apply to taxable years be- actions.’’. ‘‘(A) there is a lack of economic substance ginning after the date of the enactment of this (2)(A) So much of section 6112 as precedes sub- (within the meaning of section 7701(n)(1)) for Act. section (c) thereof is amended to read as follows:

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‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE ‘‘(2) LISTED TRANSACTIONS.—The penalty im- (b) CONFORMING AMENDMENTS.— TRANSACTIONS MUST KEEP LISTS posed under subsection (a) with respect to any (1) The heading for section 7408 is amended to OF ADVISEES. listed transaction shall be an amount equal to read as follows: ‘‘(a) IN GENERAL.—Each material advisor (as the greater of— ‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CON- defined in section 6111) with respect to any re- ‘‘(A) $200,000, or DUCT RELATED TO TAX SHELTERS portable transaction (as defined in section ‘‘(B) 50 percent of the gross income derived by AND REPORTABLE TRANSACTIONS.’’. 6707A(c)) shall maintain, in such manner as the such person with respect to aid, assistance, or (2) The table of sections for subchapter A of Secretary may by regulations prescribe, a list— advice which is provided with respect to the list- chapter 67 is amended by striking the item relat- ‘‘(1) identifying each person with respect to ed transaction before the date the return includ- ing to section 7408 and inserting the following whom such advisor acted as such a material ad- ing the transaction is filed under section 6111. new item: visor with respect to such transaction, and Subparagraph (B) shall be applied by sub- ‘‘Sec. 7408. Actions to enjoin specified con- ‘‘(2) containing such other information as the stituting ‘75 percent’ for ‘50 percent’ in the case duct related to tax shelters and Secretary may by regulations require. of an intentional failure or act described in sub- reportable transactions.’’. This section shall apply without regard to section (a). (c) EFFECTIVE DATE.—The amendment made whether a material advisor is required to file a ERTAIN RULES TO APPLY.—The provi- ‘‘(c) C by this section shall take effect on the day after return under section 6111 with respect to such sions of section 6707A(d) shall apply to any pen- the date of the enactment of this Act. transaction.’’. alty imposed under this section. (B) Section 6112 is amended by redesignating ‘‘(d) REPORTABLE AND LISTED TRANS- SEC. 411. UNDERSTATEMENT OF TAXPAYER’S LI- ABILITY BY INCOME TAX RETURN subsection (c) as subsection (b). ACTIONS.—The terms ‘reportable transaction’ PREPARER. (C) Section 6112(b), as redesignated by sub- and ‘listed transaction’ have the respective (a) STANDARDS CONFORMED TO TAXPAYER paragraph (B), is amended— meanings given to such terms by section STANDARDS.—Section 6694(a) (relating to under- (i) by inserting ‘‘written’’ before ‘‘request’’ in 6707A(c).’’. statements due to unrealistic positions) is paragraph (1)(A), and (b) CLERICAL AMENDMENT.—The item relating amended— (ii) by striking ‘‘shall prescribe’’ in paragraph to section 6707 in the table of sections for part (1) by striking ‘‘realistic possibility of being (2) and inserting ‘‘may prescribe’’. I of subchapter B of chapter 68 is amended by sustained on its merits’’ in paragraph (1) and (D) The item relating to section 6112 in the striking ‘‘tax shelters’’ and inserting ‘‘reportable inserting ‘‘reasonable belief that the tax treat- table of sections for subchapter B of chapter 61 transactions’’. ment in such position was more likely than not is amended to read as follows: (c) EFFECTIVE DATE.—The amendments made by this section shall apply to returns the due the proper treatment’’, ‘‘Sec. 6112. Material advisors of reportable date for which is after the date of the enactment (2) by striking ‘‘or was frivolous’’ in para- transactions must keep lists of of this Act. graph (3) and inserting ‘‘or there was no rea- advisees.’’. sonable basis for the tax treatment of such posi- SEC. 409. MODIFICATION OF PENALTY FOR FAIL- tion’’, and (3)(A) The heading for section 6708 is amended URE TO MAINTAIN LISTS OF INVES- to read as follows: TORS. (3) by striking ‘‘UNREALISTIC’’ in the heading and inserting ‘‘IMPROPER’’. ‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF (a) IN GENERAL.—Subsection (a) of section (b) AMOUNT OF PENALTY.—Section 6694 is ADVISEES WITH RESPECT TO RE- 6708 is amended to read as follows: PORTABLE TRANSACTIONS.’’. ‘‘(a) IMPOSITION OF PENALTY.— amended— (B) The item relating to section 6708 in the ‘‘(1) IN GENERAL.—If any person who is re- (1) by striking ‘‘$250’’ in subsection (a) and table of sections for part I of subchapter B of quired to maintain a list under section 6112(a) inserting ‘‘$1,000’’, and chapter 68 is amended to read as follows: fails to make such list available upon written re- (2) by striking ‘‘$1,000’’ in subsection (b) and quest to the Secretary in accordance with sec- inserting ‘‘$5,000’’. ‘‘Sec. 6708. Failure to maintain lists of advisees tion 6112(b)(1)(A) within 20 business days after (c) EFFECTIVE DATE.—The amendments made with respect to reportable trans- the date of the Secretary’s request, such person by this section shall apply to documents pre- actions.’’. shall pay a penalty of $10,000 for each day of pared after the date of the enactment of this (c) REQUIRED DISCLOSURE NOT SUBJECT TO such failure after such 20th day. Act. CLAIM OF CONFIDENTIALITY.—Subparagraph (A) ‘‘(2) REASONABLE CAUSE EXCEPTION.—No pen- SEC. 412. PENALTY ON FAILURE TO REPORT IN- of section 6112(b)(1), as redesignated by sub- alty shall be imposed by paragraph (1) with re- TERESTS IN FOREIGN FINANCIAL AC- section (b)(2)(B), is amended by adding at the spect to the failure on any day if such failure is COUNTS. end the following new flush sentence: due to reasonable cause.’’. (a) IN GENERAL.—Section 5321(a)(5) of title 31, (b) EFFECTIVE DATE.—The amendment made United States Code, is amended to read as fol- ‘‘For purposes of this section, the identity of lows: any person on such list shall not be privileged.’’. by this section shall apply to requests made ‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION (d) EFFECTIVE DATE.— after the date of the enactment of this Act. VIOLATION.— (1) IN GENERAL.—Except as provided in para- SEC. 410. MODIFICATION OF ACTIONS TO ENJOIN ‘‘(A) PENALTY AUTHORIZED.—The Secretary of graph (2), the amendments made by this section CERTAIN CONDUCT RELATED TO TAX SHELTERS AND REPORTABLE the Treasury may impose a civil money penalty shall apply to transactions with respect to TRANSACTIONS. on any person who violates, or causes any vio- which material aid, assistance, or advice re- (a) IN GENERAL.—Section 7408 (relating to ac- lation of, any provision of section 5314. ferred to in section 6111(b)(1)(A)(i) of the Inter- tion to enjoin promoters of abusive tax shelters, ‘‘(B) AMOUNT OF PENALTY.— nal Revenue Code of 1986 (as added by this sec- etc.) is amended by redesignating subsection (c) ‘‘(i) IN GENERAL.—Except as provided in sub- tion) is provided after the date of the enactment as subsection (d) and by striking subsections (a) paragraph (C), the amount of any civil penalty of this Act. and (b) and inserting the following new sub- imposed under subparagraph (A) shall not ex- (2) NO CLAIM OF CONFIDENTIALITY AGAINST sections: ceed $5,000. DISCLOSURE .—The amendment made by sub- ‘‘(a) AUTHORITY TO SEEK INJUNCTION.—A civil ‘‘(ii) REASONABLE CAUSE EXCEPTION.—No pen- section (c) shall take effect as if included in the action in the name of the United States to en- alty shall be imposed under subparagraph (A) amendments made by section 142 of the Deficit join any person from further engaging in speci- with respect to any violation if— Reduction Act of 1984. fied conduct may be commenced at the request ‘‘(I) such violation was due to reasonable SEC. 408. MODIFICATIONS TO PENALTY FOR FAIL- of the Secretary. Any action under this section cause, and URE TO REGISTER TAX SHELTERS. shall be brought in the district court of the ‘‘(II) the amount of the transaction or the bal- (a) IN GENERAL.—Section 6707 (relating to United States for the district in which such per- ance in the account at the time of the trans- failure to furnish information regarding tax son resides, has his principal place of business, action was properly reported. shelters) is amended to read as follows: or has engaged in specified conduct. The court ‘‘(C) WILLFUL VIOLATIONS.—In the case of ‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION may exercise its jurisdiction over such action (as any person willfully violating, or willfully caus- REGARDING REPORTABLE TRANS- provided in section 7402(a)) separate and apart ing any violation of, any provision of section ACTIONS. from any other action brought by the United 5314— ‘‘(a) IN GENERAL.—If a person who is required States against such person. ‘‘(i) the maximum penalty under subpara- to file a return under section 6111(a) with re- ‘‘(b) ADJUDICATION AND DECREE.—In any ac- graph (B)(i) shall be increased to the greater spect to any reportable transaction— tion under subsection (a), if the court finds— of— ‘‘(1) fails to file such return on or before the ‘‘(1) that the person has engaged in any speci- ‘‘(I) $25,000, or date prescribed therefor, or fied conduct, and ‘‘(II) the amount (not exceeding $100,000) de- ‘‘(2) files false or incomplete information with ‘‘(2) that injunctive relief is appropriate to termined under subparagraph (D), and the Secretary with respect to such transaction, prevent recurrence of such conduct, ‘‘(ii) subparagraph (B)(ii) shall not apply. such person shall pay a penalty with respect to the court may enjoin such person from engaging ‘‘(D) AMOUNT.—The amount determined under such return in the amount determined under in such conduct or in any other activity subject this subparagraph is— subsection (b). to penalty under this title. ‘‘(i) in the case of a violation involving a ‘‘(b) AMOUNT OF PENALTY.— ‘‘(c) SPECIFIED CONDUCT.—For purposes of transaction, the amount of the transaction, or ‘‘(1) IN GENERAL.—Except as provided in para- this section, the term ‘specified conduct’ means ‘‘(ii) in the case of a violation involving a fail- graph (2), the penalty imposed under subsection any action, or failure to take action, subject to ure to report the existence of an account or any (a) with respect to any failure shall be $50,000. penalty under section 6700, 6701, 6707, or 6708.’’. identifying information required to be provided

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with respect to an account, the balance in the hearing before levy) is amended by adding at (b) TAX SHELTER OPINIONS, ETC.—Section 330 account at the time of the violation.’’. the end the following new subsection: of such title 31 is amended by adding at the end (b) EFFECTIVE DATE.—The amendment made ‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, the following new subsection: by this section shall apply to violations occur- ETC.—Notwithstanding any other provision of ‘‘(d) Nothing in this section or in any other ring after the date of the enactment of this Act. this section, if the Secretary determines that provision of law shall be construed to limit the SEC. 413. FRIVOLOUS TAX SUBMISSIONS. any portion of a request for a hearing under authority of the Secretary of the Treasury to im- (a) CIVIL PENALTIES.—Section 6702 is amended this section or section 6320 meets the require- pose standards applicable to the rendering of to read as follows: ment of clause (i) or (ii) of section 6702(b)(2)(A), written advice with respect to any entity, trans- then the Secretary may treat such portion as if action plan or arrangement, or other plan or ar- ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. it were never submitted and such portion shall rangement, which is of a type which the Sec- ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE- not be subject to any further administrative or retary determines as having a potential for tax TURNS.—A person shall pay a penalty of $5,000 judicial review.’’. avoidance or evasion.’’. if— (2) PRECLUSION FROM RAISING FRIVOLOUS SEC. 415. PENALTY ON PROMOTERS OF TAX SHEL- ‘‘(1) such person files what purports to be a ISSUES AT HEARING.—Section 6330(c)(4) is amend- return of a tax imposed by this title but which— TERS. ed— (a) PENALTY ON PROMOTING ABUSIVE TAX ‘‘(A) does not contain information on which (A) by striking ‘‘(A)’’ and inserting ‘‘(A)(i)’’; SHELTERS.—Section 6700(a) is amended by add- the substantial correctness of the self-assessment (B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’; may be judged, or (C) by striking the period at the end of the ing at the end the following new sentence: ‘‘Not- ‘‘(B) contains information that on its face in- first sentence and inserting ‘‘; or’’; and withstanding the first sentence, if an activity dicates that the self-assessment is substantially (D) by inserting after subparagraph (A)(ii) (as with respect to which a penalty imposed under incorrect; and so redesignated) the following: this subsection involves a statement described in ‘‘(2) the conduct referred to in paragraph ‘‘(B) the issue meets the requirement of clause paragraph (2)(A), the amount of the penalty (1)— (i) or (ii) of section 6702(b)(2)(A).’’. shall be equal to 50 percent of the gross income ‘‘(A) is based on a position which the Sec- (3) STATEMENT OF GROUNDS.—Section derived (or to be derived) from such activity by retary has identified as frivolous under sub- 6330(b)(1) is amended by striking ‘‘under sub- the person on which the penalty is imposed.’’. section (c), or section (a)(3)(B)’’ and inserting ‘‘in writing (b) EFFECTIVE DATE.—The amendment made ‘‘(B) reflects a desire to delay or impede the under subsection (a)(3)(B) and states the by this section shall apply to activities after the administration of Federal tax laws. grounds for the requested hearing’’. date of the enactment of this Act. (c) TREATMENT OF FRIVOLOUS REQUESTS FOR ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SEC. 416. STATUTE OF LIMITATIONS FOR TAX- HEARINGS UPON FILING OF NOTICE OF LIEN.— ABLE YEARS FOR WHICH REQUIRED SUBMISSIONS.— Section 6320 is amended— LISTED TRANSACTIONS NOT RE- ‘‘(1) IMPOSITION OF PENALTY.—Except as pro- (1) in subsection (b)(1), by striking ‘‘under PORTED. vided in paragraph (3), any person who submits subsection (a)(3)(B)’’ and inserting ‘‘in writing (a) IN GENERAL.—Section 6501(c) (relating to a specified frivolous submission shall pay a pen- under subsection (a)(3)(B) and states the exceptions) is amended by adding at the end the alty of $5,000. grounds for the requested hearing’’, and following new paragraph: ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For (2) in subsection (c), by striking ‘‘and (e)’’ ‘‘(10) LISTED TRANSACTIONS.—If a taxpayer purposes of this section— and inserting ‘‘(e), and (g)’’. fails to include on any return or statement for ‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.—The (d) TREATMENT OF FRIVOLOUS APPLICATIONS any taxable year any information with respect term ‘specified frivolous submission’ means a FOR OFFERS-IN-COMPROMISE AND INSTALLMENT to a listed transaction (as defined in section specified submission if any portion of such sub- AGREEMENTS.—Section 7122 is amended by add- 6707A(c)(2)) which is required under section 6011 mission— ing at the end the following new subsection: to be included with such return or statement, ‘‘(i) is based on a position which the Secretary ‘‘(e) FRIVOLOUS SUBMISSIONS, ETC.—Notwith- the time for assessment of any tax imposed by has identified as frivolous under subsection (c), standing any other provision of this section, if this title with respect to such transaction shall or the Secretary determines that any portion of an not expire before the date which is 1 year after ‘‘(ii) reflects a desire to delay or impede the application for an offer-in-compromise or in- the earlier of— administration of Federal tax laws. stallment agreement submitted under this sec- ‘‘(A) the date on which the Secretary is fur- ‘‘(B) SPECIFIED SUBMISSION.—The term ‘speci- tion or section 6159 meets the requirement of nished the information so required; or fied submission’ means— clause (i) or (ii) of section 6702(b)(2)(A), then the ‘‘(B) the date that a material advisor (as de- ‘‘(i) a request for a hearing under— Secretary may treat such portion as if it were fined in section 6111) meets the requirements of ‘‘(I) section 6320 (relating to notice and oppor- never submitted and such portion shall not be section 6112 with respect to a request by the Sec- tunity for hearing upon filing of notice of lien), subject to any further administrative or judicial retary under section 6112(b) relating to such review.’’. or transaction with respect to such taxpayer.’’. (e) CLERICAL AMENDMENT.—The table of sec- ‘‘(II) section 6330 (relating to notice and op- (b) EFFECTIVE DATE.—The amendment made tions for part I of subchapter B of chapter 68 is portunity for hearing before levy), and by this section shall apply to taxable years with amended by striking the item relating to section ‘‘(ii) an application under— respect to which the period for assessing a defi- 6702 and inserting the following new item: ‘‘(I) section 6159 (relating to agreements for ciency did not expire before the date of the en- payment of tax liability in installments), ‘‘Sec. 6702. Frivolous tax submissions.’’. actment of this Act. ‘‘(II) section 7122 (relating to compromises), or (f) EFFECTIVE DATE.—The amendments made SEC. 417. DENIAL OF DEDUCTION FOR INTEREST ‘‘(III) section 7811 (relating to taxpayer assist- by this section shall apply to submissions made ON UNDERPAYMENTS ATTRIB- ance orders). and issues raised after the date on which the UTABLE TO NONDISCLOSED RE- ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS- Secretary first prescribes a list under section PORTABLE AND NONECONOMIC SUB- SION.—If the Secretary provides a person with STANCE TRANSACTIONS. 6702(c) of the Internal Revenue Code of 1986, as notice that a submission is a specified frivolous amended by subsection (a). (a) IN GENERAL.—Section 163 (relating to de- submission and such person withdraws such duction for interest) is amended by redesig- SEC. 414. REGULATION OF INDIVIDUALS PRAC- submission within 30 days after such notice, the TICING BEFORE THE DEPARTMENT nating subsection (m) as subsection (n) and by penalty imposed under paragraph (1) shall not OF TREASURY. inserting after subsection (l) the following new apply with respect to such submission. (a) CENSURE; IMPOSITION OF PENALTY.— subsection: ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The (1) IN GENERAL.—Section 330(b) of title 31, ‘‘(m) INTEREST ON UNPAID TAXES ATTRIB- Secretary shall prescribe (and periodically re- United States Code, is amended— UTABLE TO NONDISCLOSED REPORTABLE TRANS- vise) a list of positions which the Secretary has (A) by inserting ‘‘, or censure,’’ after ‘‘Depart- ACTIONS AND NONECONOMIC SUBSTANCE TRANS- identified as being frivolous for purposes of this ment’’, and ACTIONS.—No deduction shall be allowed under subsection. The Secretary shall not include in (B) by adding at the end the following new this chapter for any interest paid or accrued such list any position that the Secretary deter- flush sentence: under section 6601 on any underpayment of tax mines meets the requirement of section ‘‘The Secretary may impose a monetary penalty which is attributable to— 6662(d)(2)(B)(ii)(II). on any representative described in the preceding ‘‘(1) the portion of any reportable transaction ‘‘(d) REDUCTION OF PENALTY.—The Secretary sentence. If the representative was acting on be- understatement (as defined in section 6662A(b)) may reduce the amount of any penalty imposed half of an employer or any firm or other entity with respect to which the requirement of section under this section if the Secretary determines in connection with the conduct giving rise to 6664(d)(2)(A) is not met, or that such reduction would promote compliance such penalty, the Secretary may impose a mone- ‘‘(2) any noneconomic substance transaction with and administration of the Federal tax tary penalty on such employer, firm, or entity if understatement (as defined in section laws. it knew, or reasonably should have known, of 6662B(c)).’’. ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN- such conduct. Such penalty shall not exceed the (b) EFFECTIVE DATE.—The amendments made ALTIES.—The penalties imposed by this section gross income derived (or to be derived) from the by this section shall apply to transactions in shall be in addition to any other penalty pro- conduct giving rise to the penalty and may be in taxable years beginning after the date of the en- vided by law.’’. addition to, or in lieu of, any suspension, dis- actment of this Act. (b) TREATMENT OF FRIVOLOUS REQUESTS FOR barment, or censure of the representative.’’. SEC. 418. AUTHORIZATION OF APPROPRIATIONS HEARINGS BEFORE LEVY.— (2) EFFECTIVE DATE.—The amendments made FOR TAX LAW ENFORCEMENT. (1) FRIVOLOUS REQUESTS DISREGARDED.—Sec- by this subsection shall apply to actions taken There is authorized to be appropriated tion 6330 (relating to notice and opportunity for after the date of the enactment of this Act. $300,000,000 for each fiscal year beginning after

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00031 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.039 S03PT1 S2050 CONGRESSIONAL RECORD — SENATE March 3, 2004 September 30, 2003, for the purpose of carrying ‘‘(A) a nongovernmental entity which exer- payment (as defined in section 6401(a)) of tax out tax law enforcement to combat tax avoid- cises self-regulatory powers (including imposing required to be shown on a return is attributable ance transactions and other tax shelters, includ- sanctions) in connection with a qualified board to fraudulent action described in subsection (a), ing the use of offshore financial accounts to or exchange (as defined in section 1256(g)(7)), or the applicable dollar amount under subsection conceal taxable income. ‘‘(B) to the extent provided in regulations, a (a) shall in no event be less than an amount Subtitle B—Other Corporate Governance nongovernmental entity which exercises self-reg- equal to such portion. A rule similar to the rule Provisions ulatory powers (including imposing sanctions) under section 6663(b) shall apply for purposes of as part of performing an essential governmental determining the portion so attributable.’’. SEC. 421. AFFIRMATION OF CONSOLIDATED RE- (b) INCREASE IN PENALTIES.— TURN REGULATION AUTHORITY. function.’’. (b) EFFECTIVE DATE.—The amendment made (1) ATTEMPT TO EVADE OR DEFEAT TAX.—Sec- (a) IN GENERAL.—Section 1502 (relating to by this section shall apply to amounts paid or tion 7201 is amended— consolidated return regulations) is amended by incurred after April 27, 2003, except that such (A) by striking ‘‘$100,000’’ and inserting adding at the end the following new sentence: amendment shall not apply to amounts paid or ‘‘$250,000’’, ‘‘In prescribing such regulations, the Secretary incurred under any binding order or agreement (B) by striking ‘‘$500,000’’ and inserting may prescribe rules applicable to corporations entered into on or before April 27, 2003. Such ex- ‘‘$1,000,000’’, and filing consolidated returns under section 1501 ception shall not apply to an order or agreement (C) by striking ‘‘5 years’’ and inserting ‘‘10 that are different from other provisions of this requiring court approval unless the approval years’’. title that would apply if such corporations filed was obtained on or before April 27, 2003. (2) WILLFUL FAILURE TO FILE RETURN, SUPPLY separate returns.’’. INFORMATION, OR PAY TAX.—Section 7203 is (b) RESULT NOT OVERTURNED.—Notwith- SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES. amended— standing subsection (a), the Internal Revenue (A) in the first sentence— (a) DISALLOWANCE OF DEDUCTION.— Code of 1986 shall be construed by treating (i) by striking ‘‘misdemeanor’’ and inserting (1) IN GENERAL.—Section 162(g) (relating to Treasury regulation § 1.1502–20(c)(1)(iii) (as in ‘‘felony’’, and treble damage payments under the antitrust effect on January 1, 2001) as being inapplicable (ii) by striking ‘‘1 year’’ and inserting ‘‘10 laws) is amended by adding at the end the fol- to the type of factual situation in 255 F.3d 1357 years’’, and (Fed. Cir. 2001). lowing new paragraph: (B) by striking the third sentence. ‘‘(2) PUNITIVE DAMAGES.—No deduction shall (c) EFFECTIVE DATE.—The provisions of this (3) FRAUD AND FALSE STATEMENTS.—Section section shall apply to taxable years beginning be allowed under this chapter for any amount 7206(a) (as redesignated by subsection (a)) is before, on, or after the date of the enactment of paid or incurred for punitive damages in con- amended— this Act. nection with any judgment in, or settlement of, (A) by striking ‘‘$100,000’’ and inserting any action. This paragraph shall not apply to SEC. 422. SIGNING OF CORPORATE TAX RETURNS ‘‘$250,000’’, BY CHIEF EXECUTIVE OFFICER. punitive damages described in section 104(c).’’. (B) by striking ‘‘$500,000’’ and inserting (2) CONFORMING AMENDMENTS.— (a) IN GENERAL.—Section 6062 (relating to ‘‘$1,000,000’’, and (A) Section 162(g) is amended— signing of corporation returns) is amended by (C) by striking ‘‘3 years’’ and inserting ‘‘5 (i) by striking ‘‘If’’ and inserting: inserting after the first sentence the following years’’. ‘‘(1) TREBLE DAMAGES.—If’’, and new sentences: ‘‘The return of a corporation (c) EFFECTIVE DATE.—The amendments made (ii) by redesignating paragraphs (1) and (2) as with respect to income shall also include a dec- by this section shall apply to underpayments subparagraphs (A) and (B), respectively. laration signed by the chief executive officer of and overpayments attributable to actions occur- (B) The heading for section 162(g) is amended such corporation (or other such officer of the ring after the date of the enactment of this Act. by inserting ‘‘OR PUNITIVE DAMAGES’’ after corporation as the Secretary may designate if Subtitle C—Enron-Related Tax Shelter ‘‘LAWS’’. the corporation does not have a chief executive Provisions (b) INCLUSION IN INCOME OF PUNITIVE DAM- officer), under penalties of perjury, that the AGES PAID BY INSURER OR OTHERWISE.— SEC. 431. LIMITATION ON TRANSFER OR IMPOR- chief executive officer ensures that such return TATION OF BUILT-IN LOSSES. (1) IN GENERAL.—Part II of subchapter B of complies with this title and that the chief execu- chapter 1 (relating to items specifically included (a) IN GENERAL.—Section 362 (relating to basis tive officer was provided reasonable assurance in gross income) is amended by adding at the to corporations) is amended by adding at the of the accuracy of all material aspects of such end the following new section: end the following new subsection: return. The preceding sentence shall not apply ‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.— ‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY to any return of a regulated investment com- ‘‘(1) LIMITATION ON IMPORTATION OF BUILT-IN INSURANCE OR OTHERWISE. pany (within the meaning of section 851).’’. LOSSES.— ‘‘Gross income shall include any amount paid (b) EFFECTIVE DATE.—The amendment made ‘‘(A) IN GENERAL.—If in any transaction de- by this section shall apply to returns filed after to or on behalf of a taxpayer as insurance or scribed in subsection (a) or (b) there would (but the date of the enactment of this Act. otherwise by reason of the taxpayer’s liability for this subsection) be an importation of a net (or agreement) to pay punitive damages.’’. SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN built-in loss, the basis of each property de- (2) REPORTING REQUIREMENTS.—Section 6041 FINES, PENALTIES, AND OTHER scribed in subparagraph (B) which is acquired AMOUNTS. (relating to information at source) is amended in such transaction shall (notwithstanding sub- by adding at the end the following new sub- (a) IN GENERAL.—Subsection (f) of section 162 sections (a) and (b)) be its fair market value im- (relating to trade or business expenses) is section: mediately after such transaction. ‘‘(f) SECTION TO APPLY TO PUNITIVE DAMAGES amended to read as follows: ‘‘(B) PROPERTY DESCRIBED.—For purposes of OMPENSATION ‘‘(f) FINES, PENALTIES, AND OTHER C .—This section shall apply to subparagraph (A), property is described in this AMOUNTS.— payments by a person to or on behalf of another subparagraph if— ‘‘(1) IN GENERAL.—Except as provided in para- person as insurance or otherwise by reason of ‘‘(i) gain or loss with respect to such property graph (2), no deduction otherwise allowable the other person’s liability (or agreement) to pay is not subject to tax under this subtitle in the shall be allowed under this chapter for any punitive damages.’’. hands of the transferor immediately before the amount paid or incurred (whether by suit, (3) CONFORMING AMENDMENT.—The table of transfer, and agreement, or otherwise) to, or at the direction sections for part II of subchapter B of chapter ‘‘(ii) gain or loss with respect to such property of, a government or entity described in para- 1 is amended by adding at the end the following is subject to such tax in the hands of the trans- graph (4) in relation to the violation of any law new item: feree immediately after such transfer. or the investigation or inquiry by such govern- ‘‘Sec. 91. Punitive damages compensated by in- In any case in which the transferor is a partner- ment or entity into the potential violation of surance or otherwise.’’. ship, the preceding sentence shall be applied by any law. (c) EFFECTIVE DATE.—The amendments made treating each partner in such partnership as ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING by this section shall apply to damages paid or holding such partner’s proportionate share of RESTITUTION.—Paragraph (1) shall not apply to incurred on or after the date of the enactment the property of such partnership. any amount which the taxpayer establishes con- of this Act. ‘‘(C) IMPORTATION OF NET BUILT-IN LOSS.—For stitutes restitution for damage or harm caused SEC. 425. INCREASE IN CRIMINAL MONETARY purposes of subparagraph (A), there is an im- by the violation of any law or the potential vio- PENALTY LIMITATION FOR THE UN- portation of a net built-in loss in a transaction lation of any law. This paragraph shall not DERPAYMENT OR OVERPAYMENT OF if the transferee’s aggregate adjusted bases of apply to any amount paid or incurred as reim- TAX DUE TO FRAUD. property described in subparagraph (B) which is bursement to the government or entity for the (a) IN GENERAL.—Section 7206 (relating to transferred in such transaction would (but for costs of any investigation or litigation. fraud and false statements) is amended— this paragraph) exceed the fair market value of ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN- (1) by striking ‘‘Any person who—’’ and in- such property immediately after such trans- CURRED AS THE RESULT OF CERTAIN COURT OR- serting ‘‘(a) IN GENERAL.—Any person who—’’, action.’’. DERS.—Paragraph (1) shall not apply to any and ‘‘(2) LIMITATION ON TRANSFER OF BUILT-IN amount paid or incurred by order of a court in (2) by adding at the end the following new LOSSES IN SECTION 351 TRANSACTIONS.— a suit in which no government or entity de- subsection: ‘‘(A) IN GENERAL.—If— scribed in paragraph (4) is a party. ‘‘(b) INCREASE IN MONETARY LIMITATION FOR ‘‘(i) property is transferred by a transferor in ‘‘(4) CERTAIN NONGOVERNMENTAL REGULATORY UNDERPAYMENT OR OVERPAYMENT OF TAX DUE any transaction which is described in subsection ENTITIES.—An entity is described in this para- TO FRAUD.—If any portion of any under- (a) and which is not described in paragraph (1) graph if it is— payment (as defined in section 6664(a)) or over- of this subsection, and

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00032 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.039 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2051

‘‘(ii) the transferee’s aggregate adjusted bases (b) CONFORMING AMENDMENTS.— promptly and appropriately reduced to the ex- of such property so transferred would (but for (1) Paragraph (6) of section 56(g) is amended tent the amount held in such reserve is no this paragraph) exceed the fair market value of by striking ‘‘REMIC, or FASIT’’ and inserting longer reasonably required for purposes speci- such property immediately after such trans- ‘‘or REMIC’’. fied in clause (i) or (ii) of paragraph (3)(A).’’. action, (2) Clause (ii) of section 382(l)(4)(B) is amend- (9) Subparagraph (C) of section 1202(e)(4) is then, notwithstanding subsection (a), the trans- ed by striking ‘‘a REMIC to which part IV of amended by striking ‘‘REMIC, or FASIT’’ and feree’s aggregate adjusted bases of the property subchapter M applies, or a FASIT to which part inserting ‘‘or REMIC’’. so transferred shall not exceed the fair market V of subchapter M applies,’’ and inserting ‘‘or (10) Section 1272(a)(6)(B) is amended by add- value of such property immediately after such a REMIC to which part IV of subchapter M ap- ing at the end the following new flush sentence: transaction. plies,’’. ‘‘For purposes of clause (iii), the Secretary shall ‘‘(B) ALLOCATION OF BASIS REDUCTION.—The (3) Paragraph (1) of section 582(c) is amended prescribe regulations permitting the use of a aggregate reduction in basis by reason of sub- by striking ‘‘, and any regular interest in a current prepayment assumption, determined as paragraph (A) shall be allocated among the FASIT,’’. of the close of the accrual period (or such other property so transferred in proportion to their re- (4) Subparagraph (E) of section 856(c)(5) is time as the Secretary may prescribe during the spective built-in losses immediately before the amended by striking the last sentence. taxable year in which the accrual period transaction. (5)(A) Section 860G(a)(1) is amended by add- ends).’’. ‘‘(C) EXCEPTION FOR TRANSFERS WITHIN AF- ing at the end the following new sentence: ‘‘An (11) Subparagraph (C) of section 7701(a)(19) is FILIATED GROUP.—Subparagraph (A) shall not interest shall not fail to qualify as a regular in- amended by adding ‘‘and’’ at the end of clause apply to any transaction if the transferor owns terest solely because the specified principal (ix), by striking ‘‘, and’’ at the end of clause (x) stock in the transferee meeting the requirements amount of the regular interest (or the amount of and inserting a period, and by striking clause of section 1504(a)(2). In the case of property to interest accrued on the regular interest) can be (xi). which subparagraph (A) does not apply by rea- reduced as a result of the nonoccurrence of 1 or (12) The table of parts for subchapter M of son of the preceding sentence, the transferor’s more contingent payments with respect to any chapter 1 is amended by striking the item relat- basis in the stock received for such property reverse mortgage loan held by the REMIC if, on ing to part V. shall not exceed its fair market value imme- the startup day for the REMIC, the sponsor rea- (c) EFFECTIVE DATE.— diately after the transfer.’’. sonably believes that all principal and interest (1) IN GENERAL.—Except as provided in para- (b) COMPARABLE TREATMENT WHERE LIQUIDA- due under the regular interest will be paid at or graph (2), the amendments made by this section TION.—Paragraph (1) of section 334(b) (relating prior to the liquidation of the REMIC.’’. shall take effect on February 14, 2003. to liquidation of subsidiary) is amended to read (B) The last sentence of section 860G(a)(3) is (2) EXCEPTION FOR EXISTING FASITS.— as follows: amended by inserting ‘‘, and any reverse mort- (A) IN GENERAL.—Paragraph (1) shall not ‘‘(1) IN GENERAL.—If property is received by a gage loan (and each balance increase on such apply to any FASIT in existence on the date of corporate distributee in a distribution in a com- loan meeting the requirements of subparagraph the enactment of this Act to the extent that reg- plete liquidation to which section 332 applies (or (A)(iii)) shall be treated as an obligation secured ular interests issued by the FASIT before such in a transfer described in section 337(b)(1)), the by an interest in real property’’ before the pe- date continue to remain outstanding in accord- basis of such property in the hands of such dis- riod at the end. ance with the original terms of issuance. tributee shall be the same as it would be in the (6) Paragraph (3) of section 860G(a) is amend- (B) TRANSFER OF ADDITIONAL ASSETS NOT PER- hands of the transferor; except that the basis of ed by adding ‘‘and’’ at the end of subparagraph MITTED.—Except as provided in regulations pre- such property in the hands of such distributee (B), by striking ‘‘, and’’ at the end of subpara- scribed by the Secretary of the Treasury or the shall be the fair market value of the property at graph (C) and inserting a period, and by strik- Secretary’s delegate, subparagraph (A) shall the time of the distribution— ing subparagraph (D). cease to apply as of the earliest date after the ‘‘(A) in any case in which gain or loss is rec- (7) Section 860G(a)(3), as amended by para- date of the enactment of this Act that any prop- ognized by the liquidating corporation with re- graph (6), is amended by adding at the end the erty is transferred to the FASIT. spect to such property, or following new sentence: ‘‘For purposes of sub- SEC. 434. EXPANDED DISALLOWANCE OF DEDUC- ‘‘(B) in any case in which the liquidating cor- paragraph (A), if more than 50 percent of the poration is a foreign corporation, the corporate TION FOR INTEREST ON CONVERT- obligations transferred to, or purchased by, the IBLE DEBT. distributee is a domestic corporation, and the REMIC are originated by the United States or corporate distributee’s aggregate adjusted bases (a) IN GENERAL.—Paragraph (2) of section any State (or any political subdivision, agency, 163(l) is amended by striking ‘‘or a related of property described in section 362(e)(1)(B) or instrumentality of the United States or any which is distributed in such liquidation would party’’ and inserting ‘‘or equity held by the State) and are principally secured by an interest issuer (or any related party) in any other per- (but for this subparagraph) exceed the fair mar- in real property, then each obligation trans- ket value of such property immediately after son’’. ferred to, or purchased by, the REMIC shall be (b) CAPITALIZATION ALLOWED WITH RESPECT such liquidation.’’. treated as secured by an interest in real prop- (c) EFFECTIVE DATE.—The amendments made TO EQUITY OF PERSONS OTHER THAN ISSUER AND erty.’’. by this section shall apply to transactions after RELATED PARTIES.—Section 163(l) is amended by (8)(A) Section 860G(a)(3)(A) is amended by February 13, 2003. redesignating paragraphs (4) and (5) as para- striking ‘‘or’’ at the end of clause (i), by insert- graphs (5) and (6) and by inserting after para- SEC. 432. NO REDUCTION OF BASIS UNDER SEC- ing ‘‘or’’ at the end of clause (ii), and by insert- TION 734 IN STOCK HELD BY PART- graph (3) the following new paragraph: NERSHIP IN CORPORATE PARTNER. ing after clause (ii) the following new clause: ‘‘(4) CAPITALIZATION ALLOWED WITH RESPECT (a) IN GENERAL.—Section 755 is amended by ‘‘(iii) represents an increase in the principal TO EQUITY OF PERSONS OTHER THAN ISSUER AND adding at the end the following new subsection: amount under the original terms of an obliga- RELATED PARTIES.—If the disqualified debt in- ‘‘(c) NO ALLOCATION OF BASIS DECREASE TO tion described in clause (i) or (ii) if such in- strument of a corporation is payable in equity STOCK OF CORPORATE PARTNER.—In making an crease— held by the issuer (or any related party) in any allocation under subsection (a) of any decrease ‘‘(I) is attributable to an advance made to the other person (other than a related party), the in the adjusted basis of partnership property obligor pursuant to the original terms of the ob- basis of such equity shall be increased by the under section 734(b)— ligation, amount not allowed as a deduction by reason of ‘‘(1) no allocation may be made to stock in a ‘‘(II) occurs after the startup day, and paragraph (1) with respect to the instrument.’’. corporation (or any person which is related ‘‘(III) is purchased by the REMIC pursuant to (c) EXCEPTION FOR CERTAIN INSTRUMENTS (within the meaning of section 267(b) or a fixed price contract in effect on the startup ISSUED BY DEALERS IN SECURITIES.—Section 707(b)(1)) to such corporation) which is a part- day.’’. 163(l), as amended by subsection (b), is amended ner in the partnership, and (B) Section 860G(a)(7)(B) is amended to read by redesignating paragraphs (5) and (6) as para- ‘‘(2) any amount not allocable to stock by rea- as follows: graphs (6) and (7) and by inserting after para- son of paragraph (1) shall be allocated under ‘‘(B) QUALIFIED RESERVE FUND.—For purposes graph (4) the following new paragraph: subsection (a) to other partnership property in of subparagraph (A), the term ‘qualified reserve ‘‘(5) EXCEPTION FOR CERTAIN INSTRUMENTS such manner as the Secretary may prescribe. fund’ means any reasonably required reserve ISSUED BY DEALERS IN SECURITIES.—For purposes Gain shall be recognized to the partnership to to— of this subsection, the term ‘disqualified debt in- the extent that the amount required to be allo- ‘‘(i) provide for full payment of expenses of strument’ does not include indebtedness issued cated under paragraph (2) to other partnership the REMIC or amounts due on regular interests by a dealer in securities (or a related party) property exceeds the aggregate adjusted basis of in the event of defaults on qualified mortgages which is payable in, or by reference to, equity such other property immediately before the allo- or lower than expected returns on cash flow in- (other than equity of the issuer or a related cation required by paragraph (2).’’. vestments, or party) held by such dealer in its capacity as a (b) EFFECTIVE DATE.—The amendment made ‘‘(ii) provide a source of funds for the pur- dealer in securities. For purposes of this para- by this section shall apply to distributions after chase of obligations described in clause (ii) or graph, the term ‘dealer in securities’ has the February 13, 2003. (iii) of paragraph (3)(A). meaning given such term by section 475.’’. SEC. 433. REPEAL OF SPECIAL RULES FOR FASITS. The aggregate fair market value of the assets (c) CONFORMING AMENDMENTS.—Paragraph (a) IN GENERAL.—Part V of subchapter M of held in any such reserve shall not exceed 50 per- (3) of section 163(l) is amended— chapter 1 (relating to financial asset cent of the aggregate fair market value of all of (1) by striking ‘‘or a related party’’ in the ma- securitization investment trusts) is hereby re- the assets of the REMIC on the startup day, terial preceding subparagraph (A) and inserting pealed. and the amount of any such reserve shall be ‘‘or any other person’’, and

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00033 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.039 S03PT1 S2052 CONGRESSIONAL RECORD — SENATE March 3, 2004 (2) by striking ‘‘or interest’’ each place it ap- holders of the domestic corporation by reason of in paragraph (1) only to the extent such tax ex- pears. holding stock in the domestic corporation, or ceeds the product of— (d) EFFECTIVE DATE.—The amendments made ‘‘(ii) in the case of an acquisition with respect ‘‘(A) the amount of the inversion gain for the by this section shall apply to debt instruments to a domestic partnership, by former partners of taxable year, and issued after February 13, 2003. the domestic partnership by reason of holding a ‘‘(B) the highest rate of tax specified in sec- SEC. 435. EXPANDED AUTHORITY TO DISALLOW capital or profits interest in the domestic part- tion 11(b)(1). TAX BENEFITS UNDER SECTION 269. nership, and For purposes of determining the credit allowed (a) IN GENERAL.—Subsection (a) of section 269 ‘‘(C) the expanded affiliated group which by section 901 inversion gain shall be treated as (relating to acquisitions made to evade or avoid after the acquisition includes the entity does not from sources within the United States. income tax) is amended to read as follows: have substantial business activities in the for- ‘‘(3) SPECIAL RULES FOR PARTNERSHIPS.—In ‘‘(a) IN GENERAL.—If— eign country in which or under the law of the case of an acquired entity which is a part- ‘‘(1)(A) any person or persons acquire, di- which the entity is created or organized when nership— rectly or indirectly, control of a corporation, or compared to the total business activities of such ‘‘(A) the limitations of this subsection shall ‘‘(B) any corporation acquires, directly or in- expanded affiliated group. directly, property of another corporation and apply at the partner rather than the partner- the basis of such property, in the hands of the Except as provided in regulations, an acquisi- ship level, acquiring corporation, is determined by ref- tion of properties of a domestic corporation shall ‘‘(B) the inversion gain of any partner for any erence to the basis in the hands of the trans- not be treated as described in subparagraph (A) taxable year shall be equal to the sum of— feror corporation, and if none of the corporation’s stock was readily ‘‘(i) the partner’s distributive share of inver- ‘‘(2) the principal purpose for which such ac- tradeable on an established securities market at sion gain of the partnership for such taxable quisition was made is evasion or avoidance of any time during the 4-year period ending on the year, plus Federal income tax, date of the acquisition. ‘‘(ii) income or gain required to be recognized ‘‘(b) PRESERVATION OF DOMESTIC TAX BASE IN for the taxable year by the partner under sec- then the Secretary may disallow such deduction, CERTAIN INVERSION TRANSACTIONS TO WHICH tion 367(a), 741, or 1001, or under any other pro- credit, or other allowance. For purposes of para- SUBSECTION (a) DOES NOT APPLY.— vision of chapter 1, by reason of the transfer graph (1)(A), control means the ownership of ‘‘(1) IN GENERAL.—If a foreign incorporated during the applicable period of any partnership stock possessing at least 50 percent of the total entity would be treated as an inverted domestic interest of the partner in such partnership to combined voting power of all classes of stock en- corporation with respect to an acquired entity if the foreign incorporated entity, and titled to vote or at least 50 percent of the total either— ‘‘(C) the highest rate of tax specified in the value of all shares of all classes of stock of the ‘‘(A) subsection (a)(2)(A) were applied by sub- rate schedule applicable to the partner under corporation.’’. stituting ‘after December 31, 1996, and on or be- chapter 1 shall be substituted for the rate of tax (b) EFFECTIVE DATE.—The amendment made under paragraph (2)(B). by this section shall apply to stock and property fore March 20, 2002’ for ‘after March 20, 2002’ ‘‘(4) INVERSION GAIN.—For purposes of this acquired after February 13, 2003. and subsection (a)(2)(B) were applied by sub- stituting ‘more than 50 percent’ for ‘at least 80 section, the term ‘inversion gain’ means any in- SEC. 436. MODIFICATION OF INTERACTION BE- come or gain required to be recognized under TWEEN SUBPART F AND PASSIVE percent’, or FOREIGN INVESTMENT COMPANY ‘‘(B) subsection (a)(2)(B) were applied by sub- section 304, 311(b), 367, 1001, or 1248, or under RULES. stituting ‘more than 50 percent’ for ‘at least 80 any other provision of chapter 1, by reason of (a) LIMITATION ON EXCEPTION FROM PFIC percent’, the transfer during the applicable period of RULES FOR UNITED STATES SHAREHOLDERS OF then the rules of subsection (c) shall apply to stock or other properties by an acquired entity— CONTROLLED FOREIGN CORPORATIONS.—Para- any inversion gain of the acquired entity during ‘‘(A) as part of the acquisition described in graph (2) of section 1297(e) (relating to passive the applicable period and the rules of subsection subsection (a)(2)(A) to which subsection (b) ap- foreign investment company) is amended by (d) shall apply to any related party transaction plies, or adding at the end the following flush sentence: of the acquired entity during the applicable pe- ‘‘(B) after such acquisition to a foreign re- ‘‘Such term shall not include any period if the riod. This subsection shall not apply for any lated person. earning of subpart F income by such corpora- taxable year if subsection (a) applies to such The Secretary may provide that income or gain tion during such period would result in only a foreign incorporated entity for such taxable from the sale of inventories or other trans- remote likelihood of an inclusion in gross in- year. actions in the ordinary course of a trade or come under section 951(a)(1)(A)(i).’’. ‘‘(2) ACQUIRED ENTITY.—For purposes of this business shall not be treated as inversion gain (b) EFFECTIVE DATE.—The amendment made section— under subparagraph (B) to the extent the Sec- by this section shall apply to taxable years of ‘‘(A) IN GENERAL.—The term ‘acquired entity’ retary determines such treatment would not be controlled foreign corporations beginning after means the domestic corporation or partnership inconsistent with the purposes of this section. February 13, 2003, and to taxable years of substantially all of the properties of which are ‘‘(5) COORDINATION WITH SECTION 172 AND MIN- United States shareholders with or within which directly or indirectly acquired in an acquisition IMUM TAX.—Rules similar to the rules of para- such taxable years of controlled foreign corpora- described in subsection (a)(2)(A) to which this graphs (3) and (4) of section 860E(a) shall apply tions end. subsection applies. for purposes of this section. Subtitle D—Provisions to Discourage ‘‘(B) AGGREGATION RULES.—Any domestic per- ‘‘(6) STATUTE OF LIMITATIONS.— Expatriation son bearing a relationship described in section ‘‘(A) IN GENERAL.—The statutory period for 267(b) or 707(b) to an acquired entity shall be the assessment of any deficiency attributable to SEC. 441. TAX TREATMENT OF INVERTED COR- PORATE ENTITIES treated as an acquired entity with respect to the the inversion gain of any taxpayer for any pre- (a) IN GENERAL.—Subchapter C of chapter 80 acquisition described in subparagraph (A). inversion year shall not expire before the expira- (relating to provisions affecting more than one ‘‘(3) APPLICABLE PERIOD.—For purposes of tion of 3 years from the date the Secretary is no- subtitle) is amended by adding at the end the this section— tified by the taxpayer (in such manner as the following new section: ‘‘(A) IN GENERAL.—The term ‘applicable pe- Secretary may prescribe) of the acquisition de- riod’ means the period— scribed in subsection (a)(2)(A) to which such ‘‘SEC. 7874. RULES RELATING TO INVERTED COR- PORATE ENTITIES ‘‘(i) beginning on the first date properties are gain relates and such deficiency may be assessed ‘‘(a) INVERTED CORPORATIONS TREATED AS acquired as part of the acquisition described in before the expiration of such 3-year period not- DOMESTIC CORPORATIONS.— subsection (a)(2)(A) to which this subsection ap- withstanding the provisions of any other law or ‘‘(1) IN GENERAL.—If a foreign incorporated plies, and rule of law which would otherwise prevent such entity is treated as an inverted domestic cor- ‘‘(ii) ending on the date which is 10 years assessment. poration, then, notwithstanding section after the last date properties are acquired as ‘‘(B) PRE-INVERSION YEAR.—For purposes of 7701(a)(4), such entity shall be treated for pur- part of such acquisition. subparagraph (A), the term ‘pre-inversion year’ poses of this title as a domestic corporation. ‘‘(B) SPECIAL RULE FOR INVERSIONS OCCURRING means any taxable year if— ‘‘(2) INVERTED DOMESTIC CORPORATION.—For BEFORE MARCH 21, 2002.—In the case of any ac- ‘‘(i) any portion of the applicable period is in- purposes of this section, a foreign incorporated quired entity to which paragraph (1)(A) applies, cluded in such taxable year, and entity shall be treated as an inverted domestic the applicable period shall be the 10-year period ‘‘(ii) such year ends before the taxable year in corporation if, pursuant to a plan (or a series of beginning on January 1, 2003. which the acquisition described in subsection related transactions)— ‘‘(c) TAX ON INVERSION GAINS MAY NOT BE (a)(2)(A) is completed. ‘‘(A) the entity completes after March 20, 2002, OFFSET.—If subsection (b) applies— ‘‘(d) SPECIAL RULES APPLICABLE TO ACQUIRED the direct or indirect acquisition of substantially ‘‘(1) IN GENERAL.—The taxable income of an ENTITIES TO WHICH SUBSECTION (b) APPLIES.— all of the properties held directly or indirectly acquired entity (or any expanded affiliated ‘‘(1) INCREASES IN ACCURACY-RELATED PEN- by a domestic corporation or substantially all of group which includes such entity) for any tax- ALTIES.—In the case of any underpayment of the properties constituting a trade or business of able year which includes any portion of the ap- tax of an acquired entity to which subsection (b) a domestic partnership, plicable period shall in no event be less than the applies— ‘‘(B) after the acquisition at least 80 percent inversion gain of the entity for the taxable year. ‘‘(A) section 6662(a) shall be applied with re- of the stock (by vote or value) of the entity is ‘‘(2) CREDITS NOT ALLOWED AGAINST TAX ON spect to such underpayment by substituting ‘30 held— INVERSION GAIN.—Credits shall be allowed percent’ for ‘20 percent’, and ‘‘(i) in the case of an acquisition with respect against the tax imposed by this chapter on an ‘‘(B) if such underpayment is attributable to to a domestic corporation, by former share- acquired entity for any taxable year described one or more gross valuation understatements,

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the increase in the rate of penalty under section ‘‘(B) REQUIREMENTS.—The requirements of the sale to the extent otherwise provided by this 6662(h) shall be to 50 percent rather than 40 per- subparagraph are met with respect to a trans- title, except that section 1091 shall not apply to cent. action involving any acquisition described in any such loss. ‘‘(2) MODIFICATIONS OF LIMITATION ON INTER- subparagraph (A) if— Proper adjustment shall be made in the amount EST DEDUCTION.—In the case of an acquired en- ‘‘(i) before such transaction the domestic cor- of any gain or loss subsequently realized for tity to which subsection (b) applies, section poration did not have a relationship described gain or loss taken into account under the pre- 163(j) shall be applied— in section 267(b) or 707(b), and was not under ceding sentence. ‘‘(A) without regard to paragraph (2)(A)(ii) common control (within the meaning of section ‘‘(3) EXCLUSION FOR CERTAIN GAIN.— thereof, and 482), with the acquired entity, or any member of ‘‘(A) IN GENERAL.—The amount which, but for ‘‘(B) by substituting ‘25 percent’ for ‘50 per- an expanded affiliated group including such en- this paragraph, would be includible in the gross cent’ each place it appears in paragraph (2)(B) tity, and income of any individual by reason of this sec- thereof. ‘‘(ii) after such transaction, such acquired en- tion shall be reduced (but not below zero) by ‘‘(e) OTHER DEFINITIONS AND SPECIAL tity— $600,000. For purposes of this paragraph, allo- RULES.—For purposes of this section— ‘‘(I) is a member of the same expanded affili- cable expatriation gain taken into account ‘‘(1) RULES FOR APPLICATION OF SUBSECTION ated group which includes the domestic corpora- under subsection (f)(2) shall be treated in the (a)(2).—In applying subsection (a)(2) for pur- tion or has such a relationship or is under such same manner as an amount required to be in- poses of subsections (a) and (b), the following common control with any member of such group, cludible in gross income. rules shall apply: and ‘‘(B) COST-OF-LIVING ADJUSTMENT.— ‘‘(A) CERTAIN STOCK DISREGARDED.—There ‘‘(II) is not a member of, and does not have ‘‘(i) IN GENERAL.—In the case of an expatria- shall not be taken into account in determining such a relationship and is not under such com- tion date occurring in any calendar year after ownership for purposes of subsection (a)(2)(B)— mon control with any member of, the expanded 2003, the $600,000 amount under subparagraph ‘‘(i) stock held by members of the expanded af- affiliated group which before such acquisition filiated group which includes the foreign incor- (A) shall be increased by an amount equal to— included such entity. ‘‘(I) such dollar amount, multiplied by porated entity, or ‘‘(f) REGULATIONS.—The Secretary shall pro- ‘‘(II) the cost-of-living adjustment determined ‘‘(ii) stock of such entity which is sold in a vide such regulations as are necessary to carry public offering or private placement related to under section 1(f)(3) for such calendar year, de- out this section, including regulations providing termined by substituting ‘calendar year 2002’ for the acquisition described in subsection (a)(2)(A). for such adjustments to the application of this ‘‘(B) PLAN DEEMED IN CERTAIN CASES.—If a ‘calendar year 1992’ in subparagraph (B) there- section as are necessary to prevent the avoid- of. foreign incorporated entity acquires directly or ance of the purposes of this section, including indirectly substantially all of the properties of a ‘‘(ii) ROUNDING RULES.—If any amount after the avoidance of such purposes through— adjustment under clause (i) is not a multiple of domestic corporation or partnership during the ‘‘(1) the use of related persons, pass-thru or $1,000, such amount shall be rounded to the next 4-year period beginning on the date which is 2 other noncorporate entities, or other inter- lower multiple of $1,000. years before the ownership requirements of sub- mediaries, or ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS section (a)(2)(B) are met with respect to such ‘‘(2) transactions designed to have persons UNITED STATES CITIZEN.— domestic corporation or partnership, such ac- cease to be (or not become) members of expanded ‘‘(A) IN GENERAL.—If a covered expatriate tions shall be treated as pursuant to a plan. affiliated groups or related persons.’’. elects the application of this paragraph— ‘‘(C) CERTAIN TRANSFERS DISREGARDED.—The (b) INFORMATION REPORTING.—The Secretary ‘‘(i) this section (other than this paragraph transfer of properties or liabilities (including by of the Treasury shall exercise the Secretary’s and subsection (i)) shall not apply to the expa- contribution or distribution) shall be dis- authority under the Internal Revenue Code of triate, but regarded if such transfers are part of a plan a 1986 to require entities involved in transactions ‘‘(ii) in the case of property to which this sec- principal purpose of which is to avoid the pur- to which section 7874 of such Code (as added by tion would apply but for such election, the ex- poses of this section. subsection (a)) applies to report to the Sec- patriate shall be subject to tax under this title in ‘‘(D) SPECIAL RULE FOR RELATED PARTNER- retary, shareholders, partners, and such other the same manner as if the individual were a SHIPS.—For purposes of applying subsection persons as the Secretary may prescribe such in- United States citizen. (a)(2) to the acquisition of a domestic partner- formation as is necessary to ensure the proper EQUIREMENTS.—Subparagraph (A) shall ship, except as provided in regulations, all part- ‘‘(B) R tax treatment of such transactions. not apply to an individual unless the indi- nerships which are under common control (with- (c) CONFORMING AMENDMENT.—The table of vidual— in the meaning of section 482) shall be treated as sections for subchapter C of chapter 80 is ‘‘(i) provides security for payment of tax in 1 partnership. amended by adding at the end the following such form and manner, and in such amount, as ‘‘(E) TREATMENT OF CERTAIN RIGHTS.—The new item: Secretary shall prescribe such regulations as the Secretary may require, ‘‘Sec. 7874. Rules relating to inverted corporate ‘‘(ii) consents to the waiver of any right of the may be necessary— ‘‘(i) to treat warrants, options, contracts to entities.’’. individual under any treaty of the United States acquire stock, convertible debt instruments, and (d) TRANSITION RULE FOR CERTAIN REGU- which would preclude assessment or collection other similar interests as stock, and LATED INVESTMENT COMPANIES AND UNIT IN- of any tax which may be imposed by reason of ‘‘(ii) to treat stock as not stock. VESTMENT TRUSTS.—Notwithstanding section this paragraph, and ‘‘(2) EXPANDED AFFILIATED GROUP.—The term 7874 of the Internal Revenue Code of 1986 (as ‘‘(iii) complies with such other requirements as ‘expanded affiliated group’ means an affiliated added by subsection (a)), a regulated investment the Secretary may prescribe. group as defined in section 1504(a) but without company, or other pooled fund or trust specified ‘‘(C) ELECTION.—An election under subpara- regard to section 1504(b)(3), except that section by the Secretary of the Treasury, may elect to graph (A) shall apply to all property to which 1504(a) shall be applied by substituting ‘more recognize gain by reason of section 367(a) of this section would apply but for the election than 50 percent’ for ‘at least 80 percent’ each such Code with respect to a transaction under and, once made, shall be irrevocable. Such elec- place it appears. which a foreign incorporated entity is treated as tion shall also apply to property the basis of ‘‘(3) FOREIGN INCORPORATED ENTITY.—The an inverted domestic corporation under section which is determined in whole or in part by ref- term ‘foreign incorporated entity’ means any en- 7874(a) of such Code by reason of an acquisition erence to the property with respect to which the tity which is, or but for subsection (a)(1) would completed after March 20, 2002, and before Jan- election was made. be, treated as a foreign corporation for purposes uary 1, 2004. ‘‘(b) ELECTION TO DEFER TAX.— of this title. ‘‘(1) IN GENERAL.—If the taxpayer elects the SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX application of this subsection with respect to ‘‘(4) FOREIGN RELATED PERSON.—The term ON INDIVIDUALS WHO EXPATRIATE. any property treated as sold by reason of sub- ‘foreign related person’ means, with respect to (a) IN GENERAL.—Subpart A of part II of sub- any acquired entity, a foreign person which— chapter N of chapter 1 is amended by inserting section (a), the payment of the additional tax ‘‘(A) bears a relationship to such entity de- after section 877 the following new section: attributable to such property shall be postponed until the due date of the return for the taxable scribed in section 267(b) or 707(b), or ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIA- ‘‘(B) is under the same common control (with- TION. year in which such property is disposed of (or, in the meaning of section 482) as such entity. ‘‘(a) GENERAL RULES.—For purposes of this in the case of property disposed of in a trans- ‘‘(5) SUBSEQUENT ACQUISITIONS BY UNRELATED subtitle— action in which gain is not recognized in whole DOMESTIC CORPORATIONS.— ‘‘(1) MARK TO MARKET.—Except as provided in or in part, until such other date as the Sec- ‘‘(A) IN GENERAL.—Subject to such conditions, subsections (d) and (f), all property of a covered retary may prescribe). limitations, and exceptions as the Secretary may expatriate to whom this section applies shall be ‘‘(2) DETERMINATION OF TAX WITH RESPECT TO prescribe, if, after an acquisition described in treated as sold on the day before the expatria- PROPERTY.—For purposes of paragraph (1), the subsection (a)(2)(A) to which subsection (b) ap- tion date for its fair market value. additional tax attributable to any property is an plies, a domestic corporation stock of which is ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the amount which bears the same ratio to the addi- traded on an established securities market ac- case of any sale under paragraph (1)— tional tax imposed by this chapter for the tax- quires directly or indirectly any properties of ‘‘(A) notwithstanding any other provision of able year solely by reason of subsection (a) as one or more acquired entities in a transaction this title, any gain arising from such sale shall the gain taken into account under subsection with respect to which the requirements of sub- be taken into account for the taxable year of the (a) with respect to such property bears to the paragraph (B) are met, this section shall cease sale, and total gain taken into account under subsection to apply to any such acquired entity with re- ‘‘(B) any loss arising from such sale shall be (a) with respect to all property to which sub- spect to which such requirements are met. taken into account for the taxable year of the section (a) applies.

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‘‘(3) TERMINATION OF POSTPONEMENT.—No tax any interest in a retirement plan to which this relinquishment is subsequently approved by the may be postponed under this subsection later paragraph applies— issuance to the individual of a certificate of loss than the due date for the return of tax imposed ‘‘(i) such interest shall not be treated as sold of nationality by the United States Department by this chapter for the taxable year which in- for purposes of subsection (a)(1), but of State. cludes the date of death of the expatriate (or, if ‘‘(ii) an amount equal to the present value of ‘‘(4) LONG-TERM RESIDENT.—The term ‘long- earlier, the time that the security provided with the expatriate’s nonforfeitable accrued benefit term resident’ has the meaning given to such respect to the property fails to meet the require- shall be treated as having been received by such term by section 877(e)(2). ments of paragraph (4), unless the taxpayer cor- individual on such date as a distribution under ‘‘(f) SPECIAL RULES APPLICABLE TO BENE- rects such failure within the time specified by the plan. FICIARIES’ INTERESTS IN TRUST.— the Secretary). ‘‘(B) TREATMENT OF SUBSEQUENT DISTRIBU- ‘‘(1) IN GENERAL.—Except as provided in para- ‘‘(4) SECURITY.— TIONS.—In the case of any distribution on or graph (2), if an individual is determined under ‘‘(A) IN GENERAL.—No election may be made after the expatriation date to or on behalf of the paragraph (3) to hold an interest in a trust on under paragraph (1) with respect to any prop- covered expatriate from a plan from which the the day before the expatriation date— erty unless adequate security is provided to the expatriate was treated as receiving a distribu- ‘‘(A) the individual shall not be treated as Secretary with respect to such property. tion under subparagraph (A), the amount other- having sold such interest, ‘‘(B) ADEQUATE SECURITY.—For purposes of wise includible in gross income by reason of the ‘‘(B) such interest shall be treated as a sepa- subparagraph (A), security with respect to any subsequent distribution shall be reduced by the rate share in the trust, and property shall be treated as adequate security excess of the amount includible in gross income ‘‘(C)(i) such separate share shall be treated as if— under subparagraph (A) over any portion of a separate trust consisting of the assets allo- ‘‘(i) it is a bond in an amount equal to the de- such amount to which this subparagraph pre- cable to such share, ferred tax amount under paragraph (2) for the viously applied. ‘‘(ii) the separate trust shall be treated as property, or ‘‘(C) TREATMENT OF SUBSEQUENT DISTRIBU- having sold its assets on the day before the ex- ‘‘(ii) the taxpayer otherwise establishes to the TIONS BY PLAN.—For purposes of this title, a re- patriation date for their fair market value and satisfaction of the Secretary that the security is tirement plan to which this paragraph applies, as having distributed all of its assets to the indi- adequate. and any person acting on the plan’s behalf, vidual as of such time, and ‘‘(5) WAIVER OF CERTAIN RIGHTS.—No election shall treat any subsequent distribution described ‘‘(iii) the individual shall be treated as having may be made under paragraph (1) unless the in subparagraph (B) in the same manner as recontributed the assets to the separate trust. taxpayer consents to the waiver of any right such distribution would be treated without re- Subsection (a)(2) shall apply to any income, under any treaty of the United States which gard to this paragraph. gain, or loss of the individual arising from a dis- would preclude assessment or collection of any ‘‘(D) APPLICABLE PLANS.—This paragraph tribution described in subparagraph (C)(ii). In tax imposed by reason of this section. shall apply to— determining the amount of such distribution, ‘‘(6) ELECTIONS.—An election under para- ‘‘(i) any qualified retirement plan (as defined proper adjustments shall be made for liabilities graph (1) shall only apply to property described in section 4974(c)), of the trust allocable to an individual’s share in in the election and, once made, is irrevocable. ‘‘(ii) an eligible deferred compensation plan the trust. An election may be made under paragraph (1) (as defined in section 457(b)) of an eligible em- ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI- with respect to an interest in a trust with re- ployer described in section 457(e)(1)(A), and FIED TRUSTS.— spect to which gain is required to be recognized ‘‘(iii) to the extent provided in regulations, ‘‘(A) IN GENERAL.—If the trust interest de- under subsection (f)(1). any foreign pension plan or similar retirement scribed in paragraph (1) is an interest in a ‘‘(7) INTEREST.—For purposes of section 6601— arrangements or programs. qualified trust— ‘‘(A) the last date for the payment of tax shall ‘‘(e) DEFINITIONS.—For purposes of this sec- ‘‘(i) paragraph (1) and subsection (a) shall not be determined without regard to the election tion— apply, and under this subsection, and ‘‘(1) EXPATRIATE.—The term ‘expatriate’ ‘‘(ii) in addition to any other tax imposed by ‘‘(B) section 6621(a)(2) shall be applied by sub- means— this title, there is hereby imposed on each dis- stituting ‘5 percentage points’ for ‘3 percentage ‘‘(A) any United States citizen who relin- tribution with respect to such interest a tax in points’ in subparagraph (B) thereof. quishes citizenship, and the amount determined under subparagraph ‘‘(c) COVERED EXPATRIATE.—For purposes of ‘‘(B) any long-term resident of the United (B). this section— States who— ‘‘(B) AMOUNT OF TAX.—The amount of tax ‘‘(1) IN GENERAL.—Except as provided in para- ‘‘(i) ceases to be a lawful permanent resident under subparagraph (A)(ii) shall be equal to the graph (2), the term ‘covered expatriate’ means of the United States (within the meaning of sec- lesser of— an expatriate. tion 7701(b)(6)), or ‘‘(i) the highest rate of tax imposed by section ‘‘(2) EXCEPTIONS.—An individual shall not be ‘‘(ii) commences to be treated as a resident of 1(e) for the taxable year which includes the day treated as a covered expatriate if— a foreign country under the provisions of a tax before the expatriation date, multiplied by the ‘‘(A) the individual— treaty between the United States and the for- ‘‘(i) became at birth a citizen of the United amount of the distribution, or eign country and who does not waive the bene- States and a citizen of another country and, as ‘‘(ii) the balance in the deferred tax account fits of such treaty applicable to residents of the of the expatriation date, continues to be a cit- immediately before the distribution determined foreign country. izen of, and is taxed as a resident of, such other without regard to any increases under subpara- ‘‘(2) EXPATRIATION DATE.—The term ‘expatria- graph (C)(ii) after the 30th day preceding the country, and tion date’ means— ‘‘(ii) has not been a resident of the United distribution. ‘‘(A) the date an individual relinquishes States (as defined in section 7701(b)(1)(A)(ii)) ‘‘(C) DEFERRED TAX ACCOUNT.—For purposes United States citizenship, or of subparagraph (B)(ii)— during the 5 taxable years ending with the tax- ‘‘(B) in the case of a long-term resident of the able year during which the expatriation date oc- ‘‘(i) OPENING BALANCE.—The opening balance United States, the date of the event described in in a deferred tax account with respect to any curs, or clause (i) or (ii) of paragraph (1)(B). ‘‘(B)(i) the individual’s relinquishment of trust interest is an amount equal to the tax ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A cit- United States citizenship occurs before such in- which would have been imposed on the allocable izen shall be treated as relinquishing United expatriation gain with respect to the trust inter- dividual attains age 181⁄2, and States citizenship on the earliest of— ‘‘(ii) the individual has been a resident of the est if such gain had been included in gross in- ‘‘(A) the date the individual renounces such United States (as so defined) for not more than come under subsection (a). individual’s United States nationality before a 5 taxable years before the date of relinquish- ‘‘(ii) INCREASE FOR INTEREST.—The balance in diplomatic or consular officer of the United ment. the deferred tax account shall be increased by States pursuant to paragraph (5) of section ‘‘(d) EXEMPT PROPERTY; SPECIAL RULES FOR the amount of interest determined (on the bal- 349(a) of the Immigration and Nationality Act (8 PENSION PLANS.— ance in the account at the time the interest ac- ‘‘(1) EXEMPT PROPERTY.—This section shall U.S.C. 1481(a)(5)), crues), for periods after the 90th day after the not apply to the following: ‘‘(B) the date the individual furnishes to the expatriation date, by using the rates and meth- ‘‘(A) UNITED STATES REAL PROPERTY INTER- United States Department of State a signed od applicable under section 6621 for underpay- ESTS.—Any United States real property interest statement of voluntary relinquishment of United ments of tax for such periods, except that sec- (as defined in section 897(c)(1)), other than States nationality confirming the performance tion 6621(a)(2) shall be applied by substituting ‘5 stock of a United States real property holding of an act of expatriation specified in paragraph percentage points’ for ‘3 percentage points’ in corporation which does not, on the day before (1), (2), (3), or (4) of section 349(a) of the Immi- subparagraph (B) thereof. the expatriation date, meet the requirements of gration and Nationality Act (8 U.S.C. ‘‘(iii) DECREASE FOR TAXES PREVIOUSLY section 897(c)(2). 1481(a)(1)–(4)), PAID.—The balance in the tax deferred account ‘‘(B) SPECIFIED PROPERTY.—Any property or ‘‘(C) the date the United States Department of shall be reduced— interest in property not described in subpara- State issues to the individual a certificate of loss ‘‘(I) by the amount of taxes imposed by sub- graph (A) which the Secretary specifies in regu- of nationality, or paragraph (A) on any distribution to the person lations. ‘‘(D) the date a court of the United States holding the trust interest, and ‘‘(2) SPECIAL RULES FOR CERTAIN RETIREMENT cancels a naturalized citizen’s certificate of nat- ‘‘(II) in the case of a person holding a non- PLANS.— uralization. vested interest, to the extent provided in regula- ‘‘(A) IN GENERAL.—If a covered expatriate Subparagraph (A) or (B) shall not apply to any tions, by the amount of taxes imposed by sub- holds on the day before the expatriation date individual unless the renunciation or voluntary paragraph (A) on distributions from the trust

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00036 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.040 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2055 with respect to nonvested interests not held by trust, or estate, the shareholders, partners, or income) is amended by adding at the end the such person. beneficiaries shall be deemed to be the trust following new subsection: ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For beneficiaries for purposes of this section. ‘‘(d) GIFTS AND INHERITANCES FROM COVERED purposes of this paragraph, the allocable expa- ‘‘(ii) TAXPAYER RETURN POSITION.—A tax- EXPATRIATES.— triation gain with respect to any beneficiary’s payer shall clearly indicate on its income tax re- ‘‘(1) IN GENERAL.—Subsection (a) shall not ex- interest in a trust is the amount of gain which turn— clude from gross income the value of any prop- would be allocable to such beneficiary’s vested ‘‘(I) the methodology used to determine that erty acquired by gift, bequest, devise, or inherit- and nonvested interests in the trust if the bene- taxpayer’s trust interest under this section, and ance from a covered expatriate after the expa- ficiary held directly all assets allocable to such ‘‘(II) if the taxpayer knows (or has reason to triation date. For purposes of this subsection, interests. know) that any other beneficiary of such trust any term used in this subsection which is also ‘‘(E) TAX DEDUCTED AND WITHHELD.— is using a different methodology to determine used in section 877A shall have the same mean- ‘‘(i) IN GENERAL.—The tax imposed by sub- such beneficiary’s trust interest under this sec- ing as when used in section 877A. paragraph (A)(ii) shall be deducted and with- tion. ‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE held by the trustees from the distribution to ‘‘(g) TERMINATION OF DEFERRALS, ETC.—In SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1) which it relates. the case of any covered expatriate, notwith- shall not apply to any property if either— ‘‘(ii) EXCEPTION WHERE FAILURE TO WAIVE standing any other provision of this title— ‘‘(A) the gift, bequest, devise, or inheritance TREATY RIGHTS.—If an amount may not be de- ‘‘(1) any period during which recognition of is— ducted and withheld under clause (i) by reason income or gain is deferred shall terminate on the ‘‘(i) shown on a timely filed return of tax im- of the distributee failing to waive any treaty day before the expatriation date, and posed by chapter 12 as a taxable gift by the cov- right with respect to such distribution— ‘‘(2) any extension of time for payment of tax ered expatriate, or ‘‘(I) the tax imposed by subparagraph (A)(ii) shall cease to apply on the day before the expa- ‘‘(ii) included in the gross estate of the cov- shall be imposed on the trust and each trustee triation date and the unpaid portion of such tax ered expatriate for purposes of chapter 11 and shall be personally liable for the amount of such shall be due and payable at the time and in the shown on a timely filed return of tax imposed by tax, and manner prescribed by the Secretary. chapter 11 of the estate of the covered expa- ‘‘(II) any other beneficiary of the trust shall ‘‘(h) IMPOSITION OF TENTATIVE TAX.— triate, or be entitled to recover from the distributee the ‘‘(1) IN GENERAL.—If an individual is required ‘‘(B) no such return was timely filed but no amount of such tax imposed on the other bene- to include any amount in gross income under such return would have been required to be filed ficiary. subsection (a) for any taxable year, there is even if the covered expatriate were a citizen or ‘‘(F) DISPOSITION.—If a trust ceases to be a hereby imposed, immediately before the expa- long-term resident of the United States.’’. qualified trust at any time, a covered expatriate triation date, a tax in an amount equal to the (c) DEFINITION OF TERMINATION OF UNITED disposes of an interest in a qualified trust, or a amount of tax which would be imposed if the STATES CITIZENSHIP.—Section 7701(a) is amend- covered expatriate holding an interest in a taxable year were a short taxable year ending ed by adding at the end the following new para- qualified trust dies, then, in lieu of the tax im- on the expatriation date. graph: posed by subparagraph (A)(ii), there is hereby ‘‘(2) DUE DATE.—The due date for any tax im- ‘‘(48) TERMINATION OF UNITED STATES CITIZEN- imposed a tax equal to the lesser of— posed by paragraph (1) shall be the 90th day SHIP.— ‘‘(i) the tax determined under paragraph (1) after the expatriation date. ‘‘(A) IN GENERAL.—An individual shall not as if the day before the expatriation date were ‘‘(3) TREATMENT OF TAX.—Any tax paid under cease to be treated as a United States citizen be- the date of such cessation, disposition, or death, paragraph (1) shall be treated as a payment of fore the date on which the individual’s citizen- whichever is applicable, or the tax imposed by this chapter for the taxable ship is treated as relinquished under section ‘‘(ii) the balance in the tax deferred account year to which subsection (a) applies. 877A(e)(3). immediately before such date. ‘‘(4) DEFERRAL OF TAX.—The provisions of ‘‘(B) DUAL CITIZENS.—Under regulations pre- Such tax shall be imposed on the trust and each subsection (b) shall apply to the tax imposed by scribed by the Secretary, subparagraph (A) shall trustee shall be personally liable for the amount this subsection to the extent attributable to gain not apply to an individual who became at birth of such tax and any other beneficiary of the includible in gross income by reason of this sec- a citizen of the United States and a citizen of trust shall be entitled to recover from the cov- tion. another country.’’. ered expatriate or the estate the amount of such ‘‘(i) SPECIAL LIENS FOR DEFERRED TAX (d) INELIGIBILITY FOR VISA OR ADMISSION TO tax imposed on the other beneficiary. AMOUNTS.— UNITED STATES.— ‘‘(G) DEFINITIONS AND SPECIAL RULES.—For ‘‘(1) IMPOSITION OF LIEN.— (1) IN GENERAL.—Section 212(a)(10)(E) of the purposes of this paragraph— ‘‘(A) IN GENERAL.—If a covered expatriate Immigration and Nationality Act (8 U.S.C. ‘‘(i) QUALIFIED TRUST.—The term ‘qualified makes an election under subsection (a)(4) or (b) 1182(a)(10)(E)) is amended to read as follows: trust’ means a trust which is described in sec- which results in the deferral of any tax imposed ‘‘(E) FORMER CITIZENS NOT IN COMPLIANCE tion 7701(a)(30)(E). by reason of subsection (a), the deferred amount WITH EXPATRIATION REVENUE PROVISIONS.—Any ‘‘(ii) VESTED INTEREST.—The term ‘vested in- (including any interest, additional amount, ad- alien who is a former citizen of the United terest’ means any interest which, as of the day dition to tax, assessable penalty, and costs at- States who relinquishes United States citizen- before the expatriation date, is vested in the tributable to the deferred amount) shall be a ship (within the meaning of section 877A(e)(3) of beneficiary. lien in favor of the United States on all property the Internal Revenue Code of 1986) and who is ‘‘(iii) NONVESTED INTEREST.—The term ‘non- of the expatriate located in the United States not in compliance with section 877A of such vested interest’ means, with respect to any bene- (without regard to whether this section applies Code (relating to expatriation).’’. ficiary, any interest in a trust which is not a to the property). (2) AVAILABILITY OF INFORMATION.— vested interest. Such interest shall be deter- ‘‘(B) DEFERRED AMOUNT.—For purposes of (A) IN GENERAL.—Section 6103(l) (relating to mined by assuming the maximum exercise of dis- this subsection, the deferred amount is the disclosure of returns and return information for cretion in favor of the beneficiary and the oc- amount of the increase in the covered expatri- purposes other than tax administration) is currence of all contingencies in favor of the ben- ate’s income tax which, but for the election amended by adding at the end the following eficiary. under subsection (a)(4) or (b), would have oc- new paragraph: ‘‘(iv) ADJUSTMENTS.—The Secretary may pro- curred by reason of this section for the taxable ‘‘(19) DISCLOSURE TO DENY VISA OR ADMISSION vide for such adjustments to the bases of assets year including the expatriation date. TO CERTAIN EXPATRIATES.—Upon written request in a trust or a deferred tax account, and the ‘‘(2) PERIOD OF LIEN.—The lien imposed by of the Attorney General or the Attorney Gen- timing of such adjustments, in order to ensure this subsection shall arise on the expatriation eral’s delegate, the Secretary shall disclose that gain is taxed only once. date and continue until— whether an individual is in compliance with sec- ‘‘(v) COORDINATION WITH RETIREMENT PLAN ‘‘(A) the liability for tax by reason of this sec- tion 877A (and if not in compliance, any items RULES.—This subsection shall not apply to an tion is satisfied or has become unenforceable by of noncompliance) to officers and employees of interest in a trust which is part of a retirement reason of lapse of time, or the Federal agency responsible for administering plan to which subsection (d)(2) applies. ‘‘(B) it is established to the satisfaction of the section 212(a)(10)(E) of the Immigration and Na- ‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER- Secretary that no further tax liability may arise tionality Act solely for the purpose of, and to EST IN TRUST.— by reason of this section. the extent necessary in, administering such sec- ‘‘(A) DETERMINATIONS UNDER PARAGRAPH ‘‘(3) CERTAIN RULES APPLY.—The rules set tion 212(a)(10)(E).’’. (1).—For purposes of paragraph (1), a bene- forth in paragraphs (1), (3), and (4) of section (B) SAFEGUARDS.— ficiary’s interest in a trust shall be based upon 6324A(d) shall apply with respect to the lien im- (i) TECHNICAL AMENDMENTS.—Paragraph (4) all relevant facts and circumstances, including posed by this subsection as if it were a lien im- of section 6103(p) of the Internal Revenue Code the terms of the trust instrument and any letter posed by section 6324A. of 1986, as amended by section 202(b)(2)(B) of of wishes or similar document, historical pat- ‘‘(j) REGULATIONS.—The Secretary shall pre- the Trade Act of 2002 (Public Law 107–210; 116 terns of trust distributions, and the existence of scribe such regulations as may be necessary or Stat. 961), is amended by striking ‘‘or (17)’’ after and functions performed by a trust protector or appropriate to carry out the purposes of this ‘‘any other person described in subsection any similar adviser. section.’’. (l)(16)’’ each place it appears and inserting ‘‘or ‘‘(B) OTHER DETERMINATIONS.—For purposes (b) INCLUSION IN INCOME OF GIFTS AND BE- (18)’’. of this section— QUESTS RECEIVED BY UNITED STATES CITIZENS (ii) CONFORMING AMENDMENTS.—Section ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a bene- AND RESIDENTS FROM EXPATRIATES.—Section 6103(p)(4) (relating to safeguards), as amended ficiary of a trust is a corporation, partnership, 102 (relating to gifts, etc. not included in gross by clause (i), is amended by striking ‘‘or (18)’’

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after ‘‘any other person described in subsection time during the 12-month period beginning on ‘‘(B) EXCEPTIONS.—Such term shall not in- (l)(16)’’ each place it appears and inserting the date which is 6 months before the inversion clude— ‘‘(18), or (19)’’. date. ‘‘(i) any option to which part II of subchapter (3) EFFECTIVE DATES.— ‘‘(b) VALUE.—For purposes of subsection (a)— D of chapter 1 applies, or (A) IN GENERAL.—Except as provided in sub- ‘‘(1) IN GENERAL.—The value of specified stock ‘‘(ii) any payment or right to payment from a paragraph (B), the amendments made by this compensation shall be— plan referred to in section 280G(b)(6). subsection shall apply to individuals who relin- ‘‘(A) in the case of a stock option (or other ‘‘(4) EXPANDED AFFILIATED GROUP.—The term quish United States citizenship on or after the similar right) or any stock appreciation right, ‘expanded affiliated group’ means an affiliated date of the enactment of this Act. the fair value of such option or right, and group (as defined in section 1504(a) without re- (B) TECHNICAL AMENDMENTS.—The amend- ‘‘(B) in any other case, the fair market value gard to section 1504(b)(3)); except that section ments made by paragraph (2)(B)(i) shall take ef- of such compensation. 1504(a) shall be applied by substituting ‘more fect as if included in the amendments made by ‘‘(2) DATE FOR DETERMINING VALUE.—The de- than 50 percent’ for ‘at least 80 percent’ each section 202(b)(2)(B) of the Trade Act of 2002 termination of value shall be made— place it appears. (Public Law 107–210; 116 Stat. 961). ‘‘(A) in the case of specified stock compensa- ‘‘(f) SPECIAL RULES.—For purposes of this sec- (e) CONFORMING AMENDMENTS.— tion held on the inversion date, on such date, tion— (1) Section 877 is amended by adding at the ‘‘(B) in the case of such compensation which ‘‘(1) CANCELLATION OF RESTRICTION.—The end the following new subsection: is canceled during the 6 months before the inver- cancellation of a restriction which by its terms ‘‘(g) APPLICATION.—This section shall not sion date, on the day before such cancellation, will never lapse shall be treated as a grant. apply to an expatriate (as defined in section and ‘‘(2) PAYMENT OR REIMBURSEMENT OF TAX BY 877A(e)) whose expatriation date (as so defined) ‘‘(C) in the case of such compensation which CORPORATION TREATED AS SPECIFIED STOCK COM- occurs on or after February 5, 2003.’’. is granted after the inversion date, on the date PENSATION.—Any payment of the tax imposed by (2) Section 2107 is amended by adding at the such compensation is granted. this section directly or indirectly by the inverted end the following new subsection: ‘‘(c) TAX TO APPLY ONLY IF SHAREHOLDER corporation or by any member of the expanded ‘‘(f) APPLICATION.—This section shall not GAIN RECOGNIZED.—Subsection (a) shall apply affiliated group which includes such corpora- apply to any expatriate subject to section to any disqualified individual with respect to an tion— ‘‘(A) shall be treated as specified stock com- 877A.’’. inverted corporation only if gain (if any) on any (3) Section 2501(a)(3) is amended by adding at stock in such corporation is recognized in whole pensation, and ‘‘(B) shall not be allowed as a deduction the end the following new subparagraph: or part by any shareholder by reason of the ac- under any provision of chapter 1. ‘‘(F) APPLICATION.—This paragraph shall not quisition referred to in section 7874(a)(2)(A) (de- ‘‘(3) CERTAIN RESTRICTIONS IGNORED.—Wheth- apply to any expatriate subject to section termined by substituting ‘July 10, 2002’ for ‘March 20, 2002’) with respect to such corpora- er there is specified stock compensation, and the 877A.’’. value thereof, shall be determined without re- (4)(A) Paragraph (1) of section 6039G(d) is tion. ‘‘(d) EXCEPTION WHERE GAIN RECOGNIZED ON gard to any restriction other than a restriction amended by inserting ‘‘or 877A’’ after ‘‘section which by its terms will never lapse. 877’’. COMPENSATION.—Subsection (a) shall not apply to— ‘‘(4) PROPERTY TRANSFERS.—Any transfer of (B) The second sentence of section 6039G(e) is property shall be treated as a payment and any amended by inserting ‘‘or who relinquishes ‘‘(1) any stock option which is exercised on the inversion date or during the 6-month period right to a transfer of property shall be treated as United States citizenship (within the meaning of a right to a payment. section 877A(e)(3))’’ after ‘‘877(a))’’. before such date and to the stock acquired in such exercise, if income is recognized under sec- ‘‘(5) OTHER ADMINISTRATIVE PROVISIONS.—For (C) Section 6039G(f) is amended by inserting purposes of subtitle F, any tax imposed by this ‘‘or 877A(e)(2)(B)’’ after ‘‘877(e)(1)’’. tion 83 on or before the inversion date with re- spect to the stock acquired pursuant to such ex- section shall be treated as a tax imposed by sub- (f) CLERICAL AMENDMENT.—The table of sec- title A. tions for subpart A of part II of subchapter N of ercise, and ‘‘(2) any specified stock compensation which ‘‘(g) REGULATIONS.—The Secretary shall pre- chapter 1 is amended by inserting after the item scribe such regulations as may be necessary or relating to section 877 the following new item: is exercised, sold, exchanged, distributed, cashed out, or otherwise paid during such period in a appropriate to carry out the purposes of this ‘‘Sec. 877A. Tax responsibilities of expatria- transaction in which gain or loss is recognized section.’’. (b) DENIAL OF DEDUCTION.— tion.’’. in full. (1) IN GENERAL.—Paragraph (6) of section ‘‘(e) DEFINITIONS.—For purposes of this sec- (g) EFFECTIVE DATE.— 275(a) is amended by inserting ‘‘48,’’ after ‘‘46,’’. tion— (1) IN GENERAL.—Except as provided in this (2) $1,000,000 LIMIT ON DEDUCTIBLE COMPENSA- ‘‘(1) DISQUALIFIED INDIVIDUAL.—The term subsection, the amendments made by this sec- TION REDUCED BY PAYMENT OF EXCISE TAX ON ‘disqualified individual’ means, with respect to tion shall apply to expatriates (within the SPECIFIED STOCK COMPENSATION.—Paragraph (4) a corporation, any individual who, at any time meaning of section 877A(e) of the Internal Rev- of section 162(m) is amended by adding at the during the 12-month period beginning on the enue Code of 1986, as added by this section) end the following new subparagraph: date which is 6 months before the inversion whose expatriation date (as so defined) occurs ‘‘(G) COORDINATION WITH EXCISE TAX ON SPEC- date— on or after February 5, 2003. IFIED STOCK COMPENSATION.—The dollar limita- (2) GIFTS AND BEQUESTS.—Section 102(d) of the ‘‘(A) is subject to the requirements of section tion contained in paragraph (1) with respect to Internal Revenue Code of 1986 (as added by sub- 16(a) of the Securities Exchange Act of 1934 with any covered employee shall be reduced (but not section (b)) shall apply to gifts and bequests re- respect to such corporation, or below zero) by the amount of any payment ‘‘(B) would be subject to such requirements if ceived on or after February 5, 2003, from an in- (with respect to such employee) of the tax im- such corporation were an issuer of equity secu- dividual or the estate of an individual whose ex- posed by section 5000A directly or indirectly by rities referred to in such section. patriation date (as so defined) occurs after such the inverted corporation (as defined in such sec- ‘‘(2) INVERTED CORPORATION; INVERSION date. tion) or by any member of the expanded affili- DATE.— (3) DUE DATE FOR TENTATIVE TAX.—The due ated group (as defined in such section) which ‘‘(A) INVERTED CORPORATION.—The term ‘in- date under section 877A(h)(2) of the Internal includes such corporation.’’. verted corporation’ means any corporation to Revenue Code of 1986, as added by this section, (c) CONFORMING AMENDMENTS.— shall in no event occur before the 90th day after which subsection (a) or (b) of section 7874 ap- (1) The last sentence of section 3121(v)(2)(A) is the date of the enactment of this Act. plies determined— amended by inserting before the period ‘‘or to ‘‘(i) by substituting ‘July 10, 2002’ for ‘March any specified stock compensation (as defined in SEC. 443. EXCISE TAX ON STOCK COMPENSATION 20, 2002’ in section 7874(a)(2)(A), and OF INSIDERS IN INVERTED COR- section 5000A) on which tax is imposed by sec- ‘‘(ii) without regard to subsection (b)(1)(A). PORATIONS. tion 5000A’’. (a) IN GENERAL.—Subtitle D is amended by Such term includes any predecessor or successor (2) The table of chapters for subtitle D is adding at the end the following new chapter: of such a corporation. amended by adding at the end the following ‘‘(B) INVERSION DATE.—The term ‘inversion new item: ‘‘CHAPTER 48—STOCK COMPENSATION OF date’ means, with respect to a corporation, the INSIDERS IN INVERTED CORPORATIONS date on which the corporation first becomes an ‘‘Chapter 48. Stock compensation of insiders in ‘‘Sec. 5000A. Stock compensation of insiders in inverted corporation. inverted corporations.’’. inverted corporations entities. ‘‘(3) SPECIFIED STOCK COMPENSATION.— (d) EFFECTIVE DATE.—The amendments made ‘‘SEC. 5000A. STOCK COMPENSATION OF INSIDERS ‘‘(A) IN GENERAL.—The term ‘specified stock by this section shall take effect on July 11, 2002; IN INVERTED CORPORATIONS. compensation’ means payment (or right to pay- except that periods before such date shall not be ‘‘(a) IMPOSITION OF TAX.—In the case of an ment) granted by the inverted corporation (or by taken into account in applying the periods in individual who is a disqualified individual with any member of the expanded affiliated group subsections (a) and (e)(1) of section 5000A of the respect to any inverted corporation, there is which includes such corporation) to any person Internal Revenue Code of 1986, as added by this hereby imposed on such person a tax equal to 20 in connection with the performance of services section. percent of the value (determined under sub- by a disqualified individual for such corporation SEC. 444. REINSURANCE OF UNITED STATES section (b)) of the specified stock compensation or member if the value of such payment or right RISKS IN FOREIGN JURISDICTIONS. held (directly or indirectly) by or for the benefit is based on (or determined by reference to) the (a) IN GENERAL.—Section 845(a) (relating to of such individual or a member of such individ- value (or change in value) of stock in such cor- allocation in case of reinsurance agreement in- ual’s family (as defined in section 267) at any poration (or any such member). volving tax avoidance or evasion) is amended by

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striking ‘‘source and character’’ and inserting (d) EFFECTIVE DATE.—The amendments made eign person) is amended by redesignating sub- ‘‘amount, source, or character’’. by this section shall apply to acquisitions after paragraph (B) as subparagraph (C) and by in- (b) EFFECTIVE DATE.—The amendments made the date of the enactment of this Act. serting after subparagraph (A) the following by this section shall apply to any risk reinsured Subtitle E—International Tax new subparagraph: after April 11, 2002. ‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN EN- SEC. 451. CLARIFICATION OF BANKING BUSINESS SEC. 445. REPORTING OF TAXABLE MERGERS AND FOR PURPOSES OF DETERMINING TITIES.— ACQUISITIONS. INVESTMENT OF EARNINGS IN ‘‘(i) IN GENERAL.—In the case of any debt in- (a) IN GENERAL.—Subpart B of part III of sub- UNITED STATES PROPERTY. strument having original issue discount which is chapter A of chapter 61 is amended by inserting (a) IN GENERAL.—Subparagraph (A) of section held by a related foreign person which is a for- after section 6043 the following new section: 956(c)(2) is amended to read as follows: eign personal holding company (as defined in ‘‘SEC. 6043A. TAXABLE MERGERS AND ACQUISI- ‘‘(A) obligations of the United States, money, section 552), a controlled foreign corporation (as TIONS. or deposits with— defined in section 957), or a passive foreign in- ‘‘(a) IN GENERAL.—The acquiring corporation ‘‘(i) any bank (as defined by section 2(c) of vestment company (as defined in section 1297), a in any taxable acquisition shall make a return the Bank Holding Company Act of 1956 (12 deduction shall be allowable to the issuer with (according to the forms or regulations prescribed U.S.C. 1841(c)), without regard to subpara- respect to such original issue discount for any by the Secretary) setting forth— graphs (C) and (G) of paragraph (2) of such sec- taxable year before the taxable year in which ‘‘(1) a description of the acquisition, tion), or paid only to the extent such original issue dis- ‘‘(2) the name and address of each share- ‘‘(ii) any corporation not described in clause count is included during such prior taxable year holder of the acquired corporation who is re- (i) with respect to which a bank holding com- in the gross income of a United States person quired to recognize gain (if any) as a result of pany (as defined by section 2(a) of such Act) or who owns (within the meaning of section 958(a)) the acquisition, financial holding company (as defined by sec- stock in such corporation. ‘‘(3) the amount of money and the fair market tion 2(p) of such Act) owns directly or indirectly ‘‘(ii) SECRETARIAL AUTHORITY.—The Secretary value of other property transferred to each such more than 80 percent by vote or value of the may by regulation exempt transactions from the shareholder as part of such acquisition, and stock of such corporation;’’. application of clause (i), including any trans- ‘‘(4) such other information as the Secretary (b) EFFECTIVE DATE.—The amendment made action which is entered into by a payor in the may prescribe. by this section shall take effect on the date of ordinary course of a trade or business in which the enactment of this Act. the payor is predominantly engaged.’’. To the extent provided by the Secretary, the re- (b) INTEREST AND OTHER DEDUCTIBLE quirements of this section applicable to the ac- SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH COMPLETE LIQUIDA- AMOUNTS.—Section 267(a)(3) is amended— quiring corporation shall be applicable to the TION OF HOLDING COMPANY. (1) by striking ‘‘The Secretary’’ and inserting: acquired corporation and not to the acquiring (a) IN GENERAL.—Section 332 is amended by ‘‘(A) IN GENERAL.—The Secretary’’, and corporation. adding at the end the following new subsection: (2) by adding at the end the following new ‘‘(b) NOMINEE REPORTING.—Any person who ‘‘(d) RECOGNITION OF GAIN ON LIQUIDATION OF subparagraph: holds stock as a nominee for another person CERTAIN HOLDING COMPANIES.— ‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN EN- shall furnish in the manner prescribed by the ‘‘(1) IN GENERAL.—In the case of any distribu- TITIES.— Secretary to such other person the information tion to a foreign corporation in complete liq- ‘‘(i) IN GENERAL.—Notwithstanding subpara- provided by the corporation under subsection uidation of an applicable holding company— graph (A), in the case of any amount payable to (d). ‘‘(A) subsection (a) and section 331 shall not a foreign personal holding company (as defined ‘‘(c) TAXABLE ACQUISITION.—For purposes of apply to such distribution, and in section 552), a controlled foreign corporation this section, the term ‘taxable acquisition’ ‘‘(B) such distribution shall be treated as a (as defined in section 957), or a passive foreign means any acquisition by a corporation of stock distribution to which section 301 applies. investment company (as defined in section 1297), in or property of another corporation if any ‘‘(2) APPLICABLE HOLDING COMPANY.—For a deduction shall be allowable to the payor with shareholder of the acquired corporation is re- purposes of this subsection— respect to such amount for any taxable year be- quired to recognize gain (if any) as a result of ‘‘(A) IN GENERAL.—The term ‘applicable hold- fore the taxable year in which paid only to the such acquisition. ing company’ means any domestic corporation— extent such amount is included during such ‘‘(d) STATEMENTS TO BE FURNISHED TO ‘‘(i) which is a common parent of an affiliated prior taxable year in the gross income of a SHAREHOLDERS.—Every person required to make group, United States person who owns (within the a return under subsection (a) shall furnish to ‘‘(ii) stock of which is directly owned by the meaning of section 958(a)) stock in such cor- each shareholder whose name is required to be distributee foreign corporation, poration. set forth in such return a written statement ‘‘(iii) substantially all of the assets of which ‘‘(ii) SECRETARIAL AUTHORITY.—The Secretary showing— consist of stock in other members of such affili- may by regulation exempt transactions from the ‘‘(1) the name, address, and phone number of ated group, and application of clause (i), including any trans- the information contact of the person required ‘‘(iv) which has not been in existence at all action which is entered into by a payor in the to make such return, times during the 5 years immediately preceding ordinary course of a trade or business in which ‘‘(2) the information required to be shown on the date of the liquidation. the payor is predominantly engaged and in such return with respect to such shareholder, ‘‘(B) AFFILIATED GROUP.—For purposes of this which the payment of the accrued amounts oc- and subsection, the term ‘affiliated group’ has the curs within 81⁄2 months after accrual or within ‘‘(3) such other information as the Secretary meaning given such term by section 1504(a) such other period as the Secretary may pre- may prescribe. (without regard to paragraphs (2) and (4) of sec- scribe.’’. The written statement required under the pre- tion 1504(b)). (c) EFFECTIVE DATE.—The amendments made ceding sentence shall be furnished to the share- ‘‘(3) COORDINATION WITH SUBPART F.—If the by this section shall apply to payments accrued holder on or before January 31 of the year fol- distributee of a distribution described in para- on or after the date of the enactment of this Act. lowing the calendar year during which the tax- graph (1) is a controlled foreign corporation (as defined in section 957), then notwithstanding SEC. 454. EFFECTIVELY CONNECTED INCOME TO able acquisition occurred.’’. INCLUDE CERTAIN FOREIGN (b) ASSESSABLE PENALTIES.— paragraph (1) or subsection (a), such distribu- SOURCE INCOME. tion shall be treated as a distribution to which (1) Subparagraph (B) of section 6724(d)(1) (re- (a) IN GENERAL.—Section 864(c)(4)(B) (relat- lating to definitions) is amended by redesig- section 331 applies. ing to treatment of income from sources without nating clauses (ii) through (xvii) as clauses (iii) ‘‘(4) REGULATIONS.—The Secretary shall pro- the United States as effectively connected in- through (xviii), respectively, and by inserting vide such regulations as appropriate to prevent come) is amended by adding at the end the fol- after clause (i) the following new clause: the abuse of this subsection, including regula- lowing new flush sentence: ‘‘(ii) section 6043A(a) (relating to returns re- tions which provide, for the purposes of clause ‘‘Any income or gain which is equivalent to any lating to taxable mergers and acquisitions),’’. (iv) of paragraph (2)(A), that a corporation is item of income or gain described in clause (i), (2) Paragraph (2) of section 6724(d) is amend- not in existence for any period unless it is en- (ii), or (iii) shall be treated in the same manner ed by redesignating subparagraphs (F) through gaged in the active conduct of a trade or busi- as such item for purposes of this subpara- (AA) as subparagraphs (G) through (BB), re- ness or owns a significant ownership interest in graph.’’. spectively, and by inserting after subparagraph another corporation so engaged.’’. (b) EFFECTIVE DATE.—The amendment made (E) the following new subparagraph: (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years be- ‘‘(F) subsections (b) and (d) of section 6043A by this section shall apply to distributions in ginning after the date of the enactment of this (relating to returns relating to taxable mergers complete liquidation occurring on or after the Act. and acquisitions).’’. date of the enactment of this Act. (c) CLERICAL AMENDMENT.—The table of sec- SEC. 453. PREVENTION OF MISMATCHING OF IN- SEC. 455. RECAPTURE OF OVERALL FOREIGN tions for subpart B of part III of subchapter A TEREST AND ORIGINAL ISSUE DIS- LOSSES ON SALE OF CONTROLLED FOREIGN CORPORATION. of chapter 61 is amended by inserting after the COUNT DEDUCTIONS AND INCOME (a) IN GENERAL.—Section 904(f)(3) (relating to item relating to section 6043 the following new INCLUSIONS IN TRANSACTIONS WITH RELATED FOREIGN PERSONS. dispositions) is amending by adding at the end item: (a) ORIGINAL ISSUE DISCOUNT.—Section the following new subparagraph: ‘‘Sec. 6043A. Returns relating to taxable mergers 163(e)(3) (relating to special rule for original ‘‘(D) APPLICATION TO DISPOSITIONS OF STOCK and acquisitions.’’. issue discount on obligation held by related for- IN CONTROLLED FOREIGN CORPORATIONS.—In the

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case of any disposition by a taxpayer of any (c) EFFECTIVE DATE.—The amendments made the indebtedness with an amount of money share of stock in a controlled foreign corpora- by this section shall apply to amounts paid or equal to the fair market value of the stock or in- tion (as defined in section 957), this paragraph accrued more than 30 days after the date of the terest. In the case of any partnership, any dis- shall apply to such disposition in the same man- enactment of this Act. charge of indebtedness income recognized under ner as if it were a disposition of property de- Subtitle F—Other Revenue Provisions this paragraph shall be included in the distribu- scribed in subparagraph (A), except that the ex- tive shares of taxpayers which were the partners PART I—FINANCIAL INSTRUMENTS ception contained in subparagraph (C)(i) shall in the partnership immediately before such dis- not apply.’’. SEC. 461. TREATMENT OF STRIPPED INTERESTS charge.’’. IN BOND AND PREFERRED STOCK (b) EFFECTIVE DATE.—The amendment made (b) EFFECTIVE DATE.—The amendment made FUNDS, ETC. by this section shall apply to dispositions after by this section shall apply with respect to can- (a) IN GENERAL.—Section 1286 (relating to tax the date of the enactment of this Act. cellations of indebtedness occurring on or after treatment of stripped bonds) is amended by re- SEC. 456. MINIMUM HOLDING PERIOD FOR FOR- the date of the enactment of this Act. EIGN TAX CREDIT ON WITHHOLDING designating subsection (f) as subsection (g) and by inserting after subsection (e) the following SEC. 464. MODIFICATION OF STRADDLE RULES. TAXES ON INCOME OTHER THAN (a) RULES RELATING TO IDENTIFIED STRAD- DIVIDENDS. new subsection: DLES.— N ENERAL ‘‘(f) TREATMENT OF STRIPPED INTERESTS IN (a) I G .—Section 901 is amended by (1) IN GENERAL.—Subparagraph (A) of section BOND AND PREFERRED STOCK FUNDS, ETC.—In redesignating subsection (l) as subsection (m) 1092(a)(2) (relating to special rule for identified the case of an account or entity substantially and by inserting after subsection (k) the fol- straddles) is amended to read as follows: all of the assets of which consist of bonds, pre- lowing new subsection: ‘‘(A) IN GENERAL.—In the case of any straddle ‘‘(l) MINIMUM HOLDING PERIOD FOR WITH- ferred stock, or a combination thereof, the Sec- which is an identified straddle— HOLDING TAXES ON GAIN AND INCOME OTHER retary may by regulations provide that rules ‘‘(i) paragraph (1) shall not apply with re- THAN DIVIDENDS ETC.— similar to the rules of this section and 305(e), as spect to identified positions comprising the iden- ‘‘(1) IN GENERAL.—In no event shall a credit appropriate, shall apply to interests in such ac- tified straddle, be allowed under subsection (a) for any with- count or entity to which (but for this sub- ‘‘(ii) if there is any loss with respect to any holding tax (as defined in subsection (k)) on section) this section or section 305(e), as the case identified position of the identified straddle, the any item of income or gain with respect to any may be, would not apply.’’. basis of each of the identified offsetting posi- property if— (b) CROSS REFERENCE.—Subsection (e) of sec- tions in the identified straddle shall be in- ‘‘(A) such property is held by the recipient of tion 305 is amended by adding at the end the creased by an amount which bears the same the item for 15 days or less during the 30-day pe- following new paragraph: ratio to the loss as the unrecognized gain with riod beginning on the date which is 15 days be- ‘‘(7) CROSS REFERENCE.— respect to such offsetting position bears to the fore the date on which the right to receive pay- ‘‘For treatment of stripped interests in cer- aggregate unrecognized gain with respect to all ment of such item arises, or tain accounts or entities holding preferred such offsetting positions, and ‘‘(B) to the extent that the recipient of the stock, see section 1286(f).’’. ‘‘(iii) any loss described in clause (ii) shall not item is under an obligation (whether pursuant (c) EFFECTIVE DATE.—The amendments made otherwise be taken into account for purposes of to a short sale or otherwise) to make related by this section shall apply to purchases and dis- this title.’’. payments with respect to positions in substan- positions after the date of the enactment of this (2) IDENTIFIED STRADDLE.—Section tially similar or related property. Act. 1092(a)(2)(B) (defining identified straddle) is This paragraph shall not apply to any dividend amended— to which subsection (k) applies. SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERSHIPS AND S (A) by striking clause (ii) and inserting the ‘‘(2) EXCEPTION FOR TAXES PAID BY DEAL- CORPORATIONS. following: ERS.— (a) IN GENERAL.—Section 168(j) (relating to ‘‘(ii) to the extent provided by regulations, the ‘‘(A) IN GENERAL.—Paragraph (1) shall not limitation on deduction for interest on certain value of each position of which (in the hands of apply to any qualified tax with respect to any indebtedness) is amended by redesignating para- the taxpayer immediately before the creation of property held in the active conduct in a foreign graph (8) as paragraph (9) and by inserting the straddle) is not less than the basis of such country of a business as a dealer in such prop- after paragraph (7) the following new para- position in the hands of the taxpayer at the time erty. graph: the straddle is created, and’’, and ‘‘(B) QUALIFIED TAX.—For purposes of sub- ‘‘(8) APPLICATION TO PARTNERSHIPS AND S (B) by adding at the end the following new paragraph (A), the term ‘qualified tax’ means a CORPORATIONS.— flush sentence: tax paid to a foreign country (other than the ‘‘(A) IN GENERAL.—This subsection shall apply ‘‘The Secretary shall prescribe regulations foreign country referred to in subparagraph (A)) to partnerships and S corporations in the same which specify the proper methods for clearly if— identifying a straddle as an identified straddle ‘‘(i) the item to which such tax is attributable manner as it applies to C corporations. ‘‘(B) ALLOCATIONS TO CERTAIN CORPORATE (and the positions comprising such straddle), is subject to taxation on a net basis by the coun- PARTNERS.—If a C corporation is a partner in a which specify the rules for the application of try referred to in subparagraph (A), and ‘‘(ii) such country allows a credit against its partnership— this section for a taxpayer which fails to prop- net basis tax for the full amount of the tax paid ‘‘(i) the corporation’s allocable share of in- erly identify the positions of an identified strad- to such other foreign country. debtedness and interest income of the partner- dle, and which specify the ordering rules in ‘‘(C) DEALER.—For purposes of subparagraph ship shall be taken into account in applying this cases where a taxpayer disposes of less than an (A), the term ‘dealer’ means— subsection to the corporation, and entire position which is part of an identified ‘‘(i) with respect to a security, any person to ‘‘(ii) if a deduction is not disallowed under straddle.’’. whom paragraphs (1) and (2) of subsection (k) this subsection with respect to any interest ex- (3) UNRECOGNIZED GAIN.—Section 1092(a)(3) would not apply by reason of paragraph (4) pense of the partnership, this subsection shall (defining unrecognized gain) is amended by re- thereof if such security were stock, and be applied separately in determining whether a designating subparagraph (B) as subparagraph ‘‘(ii) with respect to any other property, any deduction is allowable to the corporation with (C) and by inserting after subparagraph (A) the person with respect to whom such property is respect to the corporation’s allocable share of following new subparagraph: described in section 1221(a)(1). such interest expense.’’. ‘‘(B) SPECIAL RULE FOR IDENTIFIED STRAD- ‘‘(D) REGULATIONS.—The Secretary may pre- (b) EFFECTIVE DATE.—The amendments made DLES.—For purposes of paragraph (2)(A)(ii), the scribe such regulations as may be appropriate to by this section shall apply to taxable years be- unrecognized gain with respect to any identified carry out this paragraph, including regulations ginning after the date of the enactment of this offsetting position shall be the excess of the fair to prevent the abuse of the exception provided Act. market value of the position at the time of the by this paragraph and to treat other taxes as SEC. 463. RECOGNITION OF CANCELLATION OF determination over the fair market value of the qualified taxes. INDEBTEDNESS INCOME REALIZED position at the time the taxpayer identified the ‘‘(3) EXCEPTIONS.—The Secretary may by reg- ON SATISFACTION OF DEBT WITH position as a position in an identified straddle.’’ ulation provide that paragraph (1) shall not PARTNERSHIP INTEREST. (4) CONFORMING AMENDMENT.—Section apply to property where the Secretary deter- (a) IN GENERAL.—Paragraph (8) of section 1092(c)(2) is amended by striking subparagraph mines that the application of paragraph (1) to 108(e) (relating to general rules for discharge of (B) and by redesignating subparagraph (C) as such property is not necessary to carry out the indebtedness (including discharges not in title subparagraph (B). purposes of this subsection. 11 cases or insolvency)) is amended to read as (b) PHYSICALLY SETTLED POSITIONS.—Section ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar follows: 1092(d) (relating to definitions and special rules) to the rules of paragraphs (5), (6), and (7) of ‘‘(8) INDEBTEDNESS SATISFIED BY CORPORATE is amended by adding at the end the following subsection (k) shall apply for purposes of this STOCK OR PARTNERSHIP INTEREST.—For purposes new paragraph: subsection. of determining income of a debtor from dis- ‘‘(8) SPECIAL RULES FOR PHYSICALLY SETTLED ‘‘(5) DETERMINATION OF HOLDING PERIOD.— charge of indebtedness, if— POSITIONS.—For purposes of subsection (a), if a Holding periods shall be determined for purposes ‘‘(A) a debtor corporation transfers stock, or taxpayer settles a position which is part of a of this subsection without regard to section 1235 ‘‘(B) a debtor partnership transfers a capital straddle by delivering property to which the po- or any similar rule.’’. or profits interest in such partnership, sition relates (and such position, if terminated, (b) CONFORMING AMENDMENT.—The heading to a creditor in satisfaction of its recourse or would result in a realization of a loss), then of subsection (k) of section 901 is amended by in- nonrecourse indebtedness, such corporation or such taxpayer shall be treated as if such tax- serting ‘‘ON DIVIDENDS’’ after ‘‘TAXES’’. partnership shall be treated as having satisfied payer—

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‘‘(A) terminated the position for its fair mar- ‘‘(A) IN GENERAL.—Except as specifically pro- (4) Section 774(a) is amended by striking ket value immediately before the settlement, and vided in an applicable provision, subsection ‘‘743(b)’’ both places it appears and inserting ‘‘(B) sold the property so delivered by the tax- (a)(2) shall be applied to an applicable provision ‘‘743(a)’’. payer at its fair market value.’’. as if it read as follows: (5) The item relating to section 734 in the table (c) REPEAL OF STOCK EXCEPTION.— ‘(2) BROTHER-SISTER CONTROLLED GROUP.— of sections for subpart B of part II of sub- (1) IN GENERAL.—Section 1092(d)(3) is re- Two or more corporations if 5 or fewer persons chapter K of chapter 1 is amended by striking pealed. who are individuals, estates, or trusts own ‘‘Optional’’. (2) CONFORMING AMENDMENT.—Section (within the meaning of subsection (d)(2) stock (6) The item relating to section 743 in the table 1258(d)(1) is amended by striking ‘‘; except that possessing— of sections for subpart C of part II of subchapter the term ‘personal property’ shall include ‘(A) at least 80 percent of the total combined K of chapter 1 is amended by striking ‘‘Op- stock’’. voting power of all classes of stock entitled to tional’’. (d) REPEAL OF QUALIFIED COVERED CALL EX- vote, or at least 80 percent of the total value of (e) EFFECTIVE DATES.— CEPTION.—Section 1092(c)(4) is amended by add- shares of all classes of stock, of each corpora- (1) IN GENERAL.—Except as provided in para- ing at the end the following new subparagraph: tion, and graph (2), the amendments made by this section ‘‘(I) TERMINATION.—This paragraph shall not ‘(B) more than 50 percent of the total com- shall apply to transfers and distributions made apply to any position established on or after the bined voting power of all classes of stock enti- after the date of the enactment of this Act. date of the enactment of this subparagraph.’’. tled to vote or more than 50 percent of the total (2) REPEAL OF SECTION 732(d).—The amend- (e) EFFECTIVE DATE.—The amendments made value of shares of all classes of stock of each ments made by subsections (b)(2) and (d)(1) by this section shall apply to positions estab- corporation, taking into account the stock own- shall apply to— lished on or after the date of the enactment of ership of each such person only to the extent (A) except as provided in subparagraph (B), this Act. such stock ownership is identical with respect to transfers made after the date of the enactment each such corporation.’ of this Act, and SEC. 465. DENIAL OF INSTALLMENT SALE TREAT- (B) in the case of any transfer made on or be- MENT FOR ALL READILY TRADEABLE ‘‘(B) APPLICABLE PROVISION.—For purposes of DEBT. this paragraph, an applicable provision is any fore such date to which section 732(d) applies, distributions made after the date which is 2 (a) IN GENERAL.—Section 453(f)(4)(B) (relating provision of law (other than this part) which in- years after such date of enactment. to purchaser evidences of indebtedness payable corporates the definition of controlled group of on demand or readily tradeable) is amended by corporations under subsection (a).’’. PART III—DEPRECIATION AND striking ‘‘is issued by a corporation or a govern- (c) EFFECTIVE DATE.—The amendments made AMORTIZATION ment or political subdivision thereof and’’. by this section shall apply to taxable years be- SEC. 471. EXTENSION OF AMORTIZATION OF IN- (b) EFFECTIVE DATE.—The amendment made ginning after the date of the enactment of this TANGIBLES TO SPORTS FRAN- by this section shall apply to sales occurring on Act. CHISES. or after the date of the enactment of this Act. SEC. 469. MANDATORY BASIS ADJUSTMENTS IN (a) IN GENERAL.—Section 197(e) (relating to CONNECTION WITH PARTNERSHIP exceptions to definition of section 197 intan- PART II—CORPORATIONS AND DISTRIBUTIONS AND TRANSFERS OF gible) is amended by striking paragraph (6) and PARTNERSHIPS PARTNERSHIP INTERESTS. by redesignating paragraphs (7) and (8) as para- SEC. 466. MODIFICATION OF TREATMENT OF (a) IN GENERAL.—Section 754 is repealed. graphs (6) and (7), respectively. TRANSFERS TO CREDITORS IN DIVI- (b) ADJUSTMENT TO BASIS OF UNDISTRIBUTED (b) CONFORMING AMENDMENTS.— SIVE REORGANIZATIONS. PARTNERSHIP PROPERTY.—Section 734 is amend- (1)(A) Section 1056 (relating to basis limitation (a) IN GENERAL.—Section 361(b)(3) (relating to ed— for player contracts transferred in connection treatment of transfers to creditors) is amended (1) by striking ‘‘, with respect to which the with the sale of a franchise) is repealed. by adding at the end the following new sen- election provided in section 754 is in effect,’’ in (B) The table of sections for part IV of sub- tence: ‘‘In the case of a reorganization described the matter preceding paragraph (1) of subsection chapter O of chapter 1 is amended by striking in section 368(a)(1)(D) with respect to which (b), the item relating to section 1056. stock or securities of the corporation to which (2) by striking ‘‘(as adjusted by section (2) Section 1245(a) (relating to gain from dis- the assets are transferred are distributed in a 732(d))’’ both places it appears in subsection (b), position of certain depreciable property) is transaction which qualifies under section 355, (3) by striking the last sentence of subsection amended by striking paragraph (4). this paragraph shall apply only to the extent (b), (3) Section 1253 (relating to transfers of fran- that the sum of the money and the fair market (4) by striking subsection (a) and by redesig- chises, trademarks, and trade names) is amend- value of other property transferred to such nating subsections (b) and (c) as subsections (a) ed by striking subsection (e). creditors does not exceed the adjusted bases of and (b), respectively, and (c) EFFECTIVE DATES.— such assets transferred.’’. (5) by striking ‘‘optional’’ in the heading. (1) IN GENERAL.—Except as provided in para- (b) LIABILITIES IN EXCESS OF BASIS.—Section (c) ADJUSTMENT TO BASIS OF PARTNERSHIP graph (2), the amendments made by this section 357(c)(1)(B) is amended by inserting ‘‘with re- PROPERTY.—Section 743 is amended— shall apply to property acquired after the date spect to which stock or securities of the corpora- (1) by striking ‘‘with respect to which the elec- of the enactment of this Act. tion to which the assets are transferred are dis- tion provided in section 754 is in effect’’ in the (2) SECTION 1245.—The amendment made by tributed in a transaction which qualifies under matter preceding paragraph (1) of subsection subsection (b)(2) shall apply to franchises ac- section 355’’ after ‘‘section 368(a)(1)(D)’’. (b), quired after the date of the enactment of this (c) EFFECTIVE DATE.—The amendments made (2) by striking subsection (a) and by redesig- Act. by this section shall apply to transfers of money nating subsections (b) and (c) as subsections (a) SEC. 472. SERVICE CONTRACTS TREATED IN SAME or other property, or liabilities assumed, in con- and (b), respectively, MANNER AS LEASES FOR RULES RE- nection with a reorganization occurring on or (3) by adding at the end the following new LATING TO TAX-EXEMPT USE PROP- after the date of the enactment of this Act. subsection: ERTY. ‘‘(c) ELECTION TO ADJUST BASIS FOR TRANS- (a) IN GENERAL.—Section 168(h)(7) (defining SEC. 467. CLARIFICATION OF DEFINITION OF FERS UPON DEATH OF PARTNER.—Subsection (a) lease) is amended by adding at the end the fol- NONQUALIFIED PREFERRED STOCK. shall not apply and no adjustments shall be lowing: ‘‘Such term shall also include any serv- (a) IN GENERAL.—Section 351(g)(3)(A) is made in the case of any transfer of an interest ice contract or other similar arrangement.’’. amended by adding at the end the following: in a partnership upon the death of a partner (b) LEASE TERM.—Section 168(i)(3) (relating to ‘‘Stock shall not be treated as participating in unless an election to do so is made by the part- lease term) is amended by adding at the end the corporate growth to any significant extent un- nership. Such an election shall apply with re- following new subparagraph: less there is a real and meaningful likelihood of spect to all such transfers of interests in the ‘‘(C) SPECIAL RULE FOR SERVICE CONTRACTS.— the shareholder actually participating in the partnership. Any election under section 754 in In the case of any service contract or other simi- earnings and growth of the corporation.’’. effect on the date of the enactment of this sub- lar arrangement treated as a lease under sub- (b) EFFECTIVE DATE.—The amendment made section shall constitute an election made under section (h)(7), the lease term shall be determined by this section shall apply to transactions after this subsection. Such election may be revoked by in the same manner as a lease.’’. May 14, 2003. the partnership, subject to such limitations as (c) CONFORMING AMENDMENTS.—Section SEC. 468. MODIFICATION OF DEFINITION OF CON- may be provided by regulations prescribed by 168(g)(3)(A) is amended— TROLLED GROUP OF CORPORA- the Secretary.’’, and (1) by inserting ‘‘(as defined in subsection TIONS. (4) by striking ‘‘optional’’ in the heading. (h)(7)’’ after ‘‘lease’’ the first place it appears, (a) IN GENERAL.—Section 1563(a)(2) (relating (d) CONFORMING AMENDMENTS.— and to brother-sister controlled group) is amended by (1) Subsection (d) of section 732 is repealed. (2) by inserting ‘‘(as determined under sub- striking ‘‘possessing—’’ and all that follows (2) Section 755(a) is amended— section (i)(3))’’ after ‘‘term’’. through ‘‘(B)’’ and inserting ‘‘possessing’’. (A) by striking ‘‘section 734(b) (relating to the (d) EFFECTIVE DATE.—The amendments made (b) APPLICATION OF EXISTING RULES TO OTHER optional adjustment’’ and inserting ‘‘section by this section shall apply to leases and service CODE PROVISIONS.—Section 1563(f) (relating to 734(a) (relating to the adjustment’’, and contracts or other similar arrangements entered other definitions and rules) is amended by add- (B) by striking ‘‘section 743(b) (relating to the into after the date of the enactment of this Act. ing at the end the following new paragraph: optional adjustment’’ and inserting ‘‘section SEC. 473. CLASS LIVES FOR UTILITY GRADING ‘‘(5) BROTHER-SISTER CONTROLLED GROUP DEF- 743(a) (relating to the adjustment’’. COSTS. INITION FOR PROVISIONS OTHER THAN THIS (3) Section 761(e)(2) is amended by striking (a) GAS UTILITY PROPERTY.—Section PART.— ‘‘optional’’. 168(e)(3)(E) (defining 15-year property) is

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amended by striking ‘‘and’’ at the end of clause over the 180-month period beginning with the ‘‘(b) DISALLOWED DEDUCTION CARRIED TO (ii), by striking the period at the end of clause month in which the active trade or business be- NEXT YEAR.—Except as otherwise provided in (iii) and inserting ‘‘, and’’, and by adding at the gins.’’. this section, any deduction with respect to any end the following new clause: (2) CONFORMING AMENDMENT.—Subsection (b) tax-exempt use property which is disallowed ‘‘(iv) initial clearing and grading land im- of section 195 is amended by striking ‘‘AMOR- under subsection (a) shall, subject to the limita- provements with respect to gas utility prop- TIZE’’ and inserting ‘‘DEDUCT’’ in the heading. tion under subsection (a), be treated as a deduc- erty.’’. (b) ORGANIZATIONAL EXPENDITURES.—Sub- tion with respect to such property in the next (b) ELECTRIC UTILITY PROPERTY.—Section section (a) of section 248 (relating to organiza- taxable year. 168(e)(3) is amended by adding at the end the tional expenditures) is amended to read as fol- ‘‘(c) TAX-EXEMPT USE PROPERTY.—For pur- following new subparagraph: lows: poses of this section— ‘‘(F) 20-YEAR PROPERTY.—The term ‘20-year ‘‘(a) ELECTION TO DEDUCT.—If a corporation ‘‘(1) IN GENERAL.—The term ‘tax-exempt use property’ means initial clearing and grading elects the application of this subsection (in ac- property’ has the meaning given such term by land improvements with respect to any electric cordance with regulations prescribed by the Sec- section 168(h), except that such section shall be utility transmission and distribution plant.’’. retary) with respect to any organizational ex- applied without regard to paragraphs (2)(C)(ii) (c) CONFORMING AMENDMENTS.—The table penditures— and (3). contained in section 168(g)(3)(B) is amended— ‘‘(1) the corporation shall be allowed a deduc- ‘‘(2) SPECIAL RULES FOR SERVICE CONTRACTS (1) by inserting ‘‘or (E)(iv)’’ after ‘‘(E)(iii)’’, tion for the taxable year in which the corpora- AND SIMILAR ARRANGEMENTS.—If tangible prop- and tion begins business in an amount equal to the erty is subject to a service contract or other simi- (2) by adding at the end the following new lesser of— lar arrangement between a taxpayer (or any re- item: ‘‘(A) the amount of organizational expendi- lated person) and any tax-exempt entity, such ‘‘(F) ...... 25’’. tures with respect to the taxpayer, or contract or arrangement shall be treated in the (d) EFFECTIVE DATE.—The amendments made ‘‘(B) $5,000, reduced (but not below zero) by same manner as if it were a lease for purposes by this section shall apply to property placed in the amount by which such organizational ex- of determining whether such property is tax-ex- service after the date of the enactment of this penditures exceed $50,000, and empt use property under paragraph (1). Act. ‘‘(2) the remainder of such organizational ex- ‘‘(d) SPECIAL RULES.— ‘‘(1) ALLOCABLE DEDUCTIONS.—Subsection (a) SEC. 474. EXPANSION OF LIMITATION ON DEPRE- penditures shall be allowed as a deduction rat- CIATION OF CERTAIN PASSENGER ably over the 180-month period beginning with shall apply to— AUTOMOBILES. the month in which the corporation begins busi- ‘‘(A) any deduction directly allocable to any (a) IN GENERAL.—Section 179(b) (relating to ness.’’. tax-exempt use property, and limitations) is amended by adding at the end the (c) TREATMENT OF ORGANIZATIONAL AND SYN- ‘‘(B) a proper share of other deductions that following new paragraph: DICATION FEES OR PARTNERSHIPS.— are not directly allocable to such property. ‘‘(2) PROPERTY CEASING TO BE TAX-EXEMPT ‘‘(6) LIMITATION ON COST TAKEN INTO ACCOUNT (1) IN GENERAL.—Section 709(b) (relating to USE PROPERTY.—If property of a taxpayer ceases FOR CERTAIN PASSENGER VEHICLES.— amortization of organization fees) is amended by to be tax-exempt use property in the hands of ‘‘(A) IN GENERAL.—The cost of any sport util- redesignating paragraph (2) as paragraph (3) ity vehicle for any taxable year which may be and by amending paragraph (1) to read as fol- the taxpayer— ‘‘(A) any unused deduction allocable to such taken into account under this section shall not lows: property under subsection (b) shall only be al- exceed $25,000. ‘‘(1) ALLOWANCE OF DEDUCTION.—If a tax- lowable as a deduction for any taxable year to ‘‘(B) SPORT UTILITY VEHICLE.—For purposes payer elects the application of this subsection of subparagraph (A)— (in accordance with regulations prescribed by the extent of any net income of the taxpayer al- locable to such property, and ‘‘(i) IN GENERAL.—The term ‘sport utility vehi- the Secretary) with respect to any organiza- ‘‘(B) any portion of such unused deduction cle’ means any 4-wheeled vehicle which— tional expenses— ‘‘(I) is manufactured primarily for use on pub- ‘‘(A) the taxpayer shall be allowed a deduc- remaining after application of subparagraph (A) lic streets, roads, and highways, tion for the taxable year in which the partner- shall, subject to the limitation of subparagraph ‘‘(II) is not subject to section 280F, and ship begins business in an amount equal to the (A), be treated as a deduction allocable to such ‘‘(III) is rated at not more than 14,000 pounds lesser of— property in the next taxable year. ISPOSITION OF ENTIRE INTEREST IN PROP- gross vehicle weight. ‘‘(i) the amount of organizational expenses ‘‘(3) D ERTY.—If during the taxable year a taxpayer ‘‘(ii) CERTAIN VEHICLES EXCLUDED.—Such term with respect to the partnership, or does not include any vehicle which— ‘‘(ii) $5,000, reduced (but not below zero) by disposes of the taxpayer’s entire interest in tax- ‘‘(I) does not have the primary load carrying the amount by which such organizational ex- exempt use property, rules similar to the rules of device or container attached, penses exceed $50,000, and section 469(g) shall apply for purposes of this ‘‘(II) has a seating capacity of more than 12 ‘‘(B) the remainder of such organizational ex- section. ‘‘(e) REGULATIONS.—The Secretary shall pre- individuals, penses shall be allowed as a deduction ratably scribe such regulations as may be necessary or ‘‘(III) is designed for more than 9 individuals over the 180-month period beginning with the appropriate to carry out the provisions of this in seating rearward of the driver’s seat, month in which the partnership begins business. section.’’. ‘‘(IV) is equipped with an open cargo area, or ‘‘(2) DISPOSITIONS BEFORE CLOSE OF AMORTI- (b) CONFORMING AMENDMENT.—The table of a covered box not readily accessible from the ZATION PERIOD.—In any case in which a part- sections for subpart C of part II of subchapter E passenger compartment, of at least 72.0 inches nership is liquidated before the end of the period of chapter 1 is amended by adding at the end in interior length, or to which paragraph (1)(B) applies, any deferred ‘‘(V) has an integral enclosure, fully enclosing the following new item: expenses attributable to the partnership which ‘‘Sec. 470. Deductions allocable to property used the driver compartment and load carrying de- were not allowed as a deduction by reason of by governments or other tax-ex- vice, does not have seating rearward of the driv- this section may be deducted to the extent al- empt entities.’’. er’s seat, and has no body section protruding lowable under section 165.’’. FFECTIVE ATE more than 30 inches ahead of the leading edge (2) CONFORMING AMENDMENT.—Subsection (b) (c) E D .—The amendments made of the windshield.’’. of section 709 is amended by striking ‘‘AMORTI- by this section shall apply to leases and service (c) EFFECTIVE DATE.—The amendments made ZATION’’ and inserting ‘‘DEDUCTION’’ in the contracts or similar arrangements entered into by this section shall apply to property placed in heading. after the date of the enactment of this Act. service after the date of the enactment of this (d) EFFECTIVE DATE.—The amendments made PART IV—ADMINISTRATIVE PROVISIONS Act. by this section shall apply to amounts paid or SEC. 481. CLARIFICATION OF RULES FOR PAY- SEC. 475. CONSISTENT AMORTIZATION OF PERI- incurred after the date of the enactment of this MENT OF ESTIMATED TAX FOR CER- ODS FOR INTANGIBLES. Act. TAIN DEEMED ASSET SALES. (a) START-UP EXPENDITURES.— SEC. 476. LIMITATION ON DEDUCTIONS ALLO- (a) IN GENERAL.—Paragraph (13) of section (1) ALLOWANCE OF DEDUCTION.—Paragraph CABLE TO PROPERTY USED BY GOV- 338(h) (relating to tax on deemed sale not taken (1) of section 195(b) (relating to start-up expend- ERNMENTS OR OTHER TAX-EXEMPT into account for estimated tax purposes) is itures) is amended to read as follows: ENTITIES. amended by adding at the end the following: ‘‘(1) ALLOWANCE OF DEDUCTION.—If a tax- (a) IN GENERAL.—Subpart C of part II of sub- ‘‘The preceding sentence shall not apply with payer elects the application of this subsection chapter E of chapter 1 (relating to taxable year respect to a qualified stock purchase for which with respect to any start-up expenditures— for which deductions taken) is amended by add- an election is made under paragraph (10).’’. ‘‘(A) the taxpayer shall be allowed a deduc- ing at the end the following new section: (b) EFFECTIVE DATE.—The amendment made tion for the taxable year in which the active ‘‘SEC. 470. DEDUCTIONS ALLOCABLE TO PROP- by subsection (a) shall apply to transactions oc- trade or business begins in an amount equal to ERTY USED BY GOVERNMENTS OR curring after the date of the enactment of this the lesser of— OTHER TAX-EXEMPT ENTITIES. Act. ‘‘(i) the amount of start-up expenditures with ‘‘(a) GENERAL RULE.—The aggregate amount SEC. 482. EXTENSION OF IRS USER FEES. respect to the active trade or business, or of deductions otherwise allowable to the tax- (a) IN GENERAL.—Section 7528(c) (relating to ‘‘(ii) $5,000, reduced (but not below zero) by payer with respect to tax-exempt use property termination) is amended by striking ‘‘December the amount by which such start-up expenditures for any taxable year shall not exceed the aggre- 31, 2004’’ and inserting ‘‘September 30, 2013’’. exceed $50,000, and gate amount of income includible in gross in- (b) EFFECTIVE DATE.—The amendment made ‘‘(B) the remainder of such start-up expendi- come of the taxpayer for the taxable year with by this section shall apply to requests after the tures shall be allowed as a deduction ratably respect to such property. date of the enactment of this Act.

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00042 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.041 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2061

SEC. 483. DOUBLING OF CERTAIN PENALTIES, SEC. 485. EXTENSION OF CUSTOMS USER FEES. (c) EFFECTIVE DATE.— FINES, AND INTEREST ON UNDER- Section 13031(j)(3) of the Consolidated Omni- (1) IN GENERAL.—The amendments made by PAYMENTS RELATED TO CERTAIN bus Budget Reconciliation Act of 1985 (19 U.S.C. this section shall apply to deposits made after OFFSHORE FINANCIAL ARRANGE- 58c(j)(3)) is amended by striking ‘‘March 31, the date of the enactment of this Act. MENT. 2004’’ and inserting ‘‘September 30, 2013’’. (2) COORDINATION WITH DEPOSITS MADE UNDER (a) GENERAL RULE.—If— (1) a taxpayer eligible to participate in— SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING REVENUE PROCEDURE 84–58.—In the case of an (A) the Department of the Treasury’s Offshore OF INTEREST ON POTENTIAL UN- amount held by the Secretary of the Treasury or DERPAYMENTS. Voluntary Compliance Initiative, or his delegate on the date of the enactment of this (a) IN GENERAL.—Subchapter A of chapter 67 (B) the Department of the Treasury’s vol- Act as a deposit in the nature of a cash bond (relating to interest on underpayments) is untary disclosure initiative which applies to the deposit pursuant to Revenue Procedure 84–58, amended by adding at the end the following taxpayer by reason of the taxpayer’s under- the date that the taxpayer identifies such new section: reporting of United States income tax liability amount as a deposit made pursuant to section through financial arrangements which rely on ‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUN- 6603 of the Internal Revenue Code (as added by NING OF INTEREST ON POTENTIAL this Act) shall be treated as the date such the use of offshore arrangements which were the UNDERPAYMENTS, ETC. subject of the initiative described in subpara- amount is deposited for purposes of such section ‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER 6603. graph (A), and THAN AS PAYMENT OF TAX.—A taxpayer may (2) any interest or applicable penalty is im- make a cash deposit with the Secretary which SEC. 487. QUALIFIED TAX COLLECTION CON- TRACTS. posed with respect to any arrangement to which may be used by the Secretary to pay any tax im- any initiative described in paragraph (1) applied (a) CONTRACT REQUIREMENTS.— posed under subtitle A or B or chapter 41, 42, 43, or to any underpayment of Federal income tax (1) IN GENERAL.—Subchapter A of chapter 64 or 44 which has not been assessed at the time of attributable to items arising in connection with (relating to collection) is amended by adding at the deposit. Such a deposit shall be made in any arrangement described in paragraph (1), the end the following new section: such manner as the Secretary shall prescribe. then, notwithstanding any other provision of ‘‘(b) NO INTEREST IMPOSED.—To the extent ‘‘SEC. 6306. QUALIFIED TAX COLLECTION CON- law, the amount of such interest or penalty that such deposit is used by the Secretary to pay TRACTS. shall be equal to twice that determined without tax, for purposes of section 6601 (relating to in- ‘‘(a) IN GENERAL.—Nothing in any provision regard to this section. terest on underpayments), the tax shall be treat- of law shall be construed to prevent the Sec- (b) DEFINITIONS AND RULES.—For purposes of ed as paid when the deposit is made. retary from entering into a qualified tax collec- this section— ‘‘(c) RETURN OF DEPOSIT.—Except in a case tion contract. (1) APPLICABLE PENALTY.—The term ‘‘applica- where the Secretary determines that collection ‘‘(b) QUALIFIED TAX COLLECTION CONTRACT.— ble penalty’’ means any penalty, addition to of tax is in jeopardy, the Secretary shall return For purposes of this section, the term ‘qualified tax, or fine imposed under chapter 68 of the In- to the taxpayer any amount of the deposit (to tax collection contract’ means any contract ternal Revenue Code of 1986. the extent not used for a payment of tax) which which— (2) VOLUNTARY OFFSHORE COMPLIANCE INITIA- the taxpayer requests in writing. ‘‘(1) is for the services of any person (other TIVE.—The term ‘‘Voluntary Offshore Compli- ‘‘(d) PAYMENT OF INTEREST.— than an officer or employee of the Treasury De- ance Initiative’’ means the program established ‘‘(1) IN GENERAL.—For purposes of section 6611 partment)— by the Department of the Treasury in January (relating to interest on overpayments), a deposit ‘‘(A) to locate and contact any taxpayer speci- of 2003 under which any taxpayer was eligible which is returned to a taxpayer shall be treated fied by the Secretary, to voluntarily disclose previously undisclosed as a payment of tax for any period to the extent ‘‘(B) to request full payment from such tax- income on assets placed in offshore accounts (and only to the extent) attributable to a disput- payer of an amount of Federal tax specified by and accessed through credit card and other fi- able tax for such period. Under regulations pre- the Secretary and, if such request cannot be met nancial arrangements. scribed by the Secretary, rules similar to the by the taxpayer, to offer the taxpayer an in- (3) PARTICIPATION.—A taxpayer shall be treat- rules of section 6611(b)(2) shall apply. stallment agreement providing for full payment ed as having participated in the Voluntary Off- ‘‘(2) DISPUTABLE TAX.— of such amount during a period not to exceed 3 shore Compliance Initiative if the taxpayer sub- ‘‘(A) IN GENERAL.—For purposes of this sec- years, and mitted the request in a timely manner and all tion, the term ‘disputable tax’ means the ‘‘(C) to obtain financial information specified information requested by the Secretary of the amount of tax specified at the time of the de- by the Secretary with respect to such taxpayer, Treasury or his delegate within a reasonable pe- posit as the taxpayer’s reasonable estimate of ‘‘(2) prohibits each person providing such riod of time following the request. the maximum amount of any tax attributable to services under such contract from committing (c) EFFECTIVE DATE.—The provisions of this disputable items. section shall apply to interest, penalties, addi- any act or omission which employees of the In- ‘‘(B) SAFE HARBOR BASED ON 30-DAY LETTER.— ternal Revenue Service are prohibited from com- tions to tax, and fines with respect to any tax- In the case of a taxpayer who has been issued able year if as of the date of the enactment of mitting in the performance of similar services, a 30-day letter, the maximum amount of tax ‘‘(3) prohibits subcontractors from— this Act, the assessment of any tax, penalty, or under subparagraph (A) shall not be less than interest with respect to such taxable year is not ‘‘(A) having contacts with taxpayers, the amount of the proposed deficiency specified ‘‘(B) providing quality assurance services, and prevented by the operation of any law or rule of in such letter. law. ‘‘(C) composing debt collection notices, and ‘‘(3) OTHER DEFINITIONS.—For purposes of ‘‘(4) permits subcontractors to perform other SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN paragraph (2)— services only with the approval of the Secretary. INSTALLMENT AGREEMENTS. ‘‘(A) DISPUTABLE ITEM.—The term ‘disputable ‘‘(c) FEES.—The Secretary may retain and use (a) IN GENERAL.— item’ means any item of income, gain, loss, de- an amount not in excess of 25 percent of the (1) Section 6159(a) (relating to authorization duction, or credit if the taxpayer— amount collected under any qualified tax collec- of agreements) is amended— ‘‘(i) has a reasonable basis for its treatment of tion contract for the costs of services performed (A) by striking ‘‘satisfy liability for payment such item, and of’’ and inserting ‘‘make payment on’’, and ‘‘(ii) reasonably believes that the Secretary under such contract. The Secretary shall keep (B) by inserting ‘‘full or partial’’ after ‘‘facili- also has a reasonable basis for disallowing the adequate records regarding amounts so retained tate’’. taxpayer’s treatment of such item. and used. The amount credited as paid by any (2) Section 6159(c) (relating to Secretary re- ‘‘(B) 30-DAY LETTER.—The term ‘30-day letter’ taxpayer shall be determined without regard to quired to enter into installment agreements in means the first letter of proposed deficiency this subsection. certain cases) is amended in the matter pre- which allows the taxpayer an opportunity for ‘‘(d) NO FEDERAL LIABILITY.—The United ceding paragraph (1) by inserting ‘‘full’’ before administrative review in the Internal Revenue States shall not be liable for any act or omission ‘‘payment’’. Service Office of Appeals. of any person performing services under a quali- (b) REQUIREMENT TO REVIEW PARTIAL PAY- ‘‘(4) RATE OF INTEREST.—The rate of interest fied tax collection contract. MENT AGREEMENTS EVERY TWO YEARS.—Section allowable under this subsection shall be the ‘‘(e) APPLICATION OF FAIR DEBT COLLECTION 6159, as amended by this Act, is amended by re- Federal short-term rate determined under sec- PRACTICES ACT.—The provisions of the Fair designating subsections (d), (e), and (f) as sub- tion 6621(b), compounded daily. Debt Collection Practices Act (15 U.S.C. 1692 et sections (e), (f), and (g), respectively, and in- ‘‘(e) USE OF DEPOSITS.— seq.) shall apply to any qualified tax collection serting after subsection (c) the following new ‘‘(1) PAYMENT OF TAX.—Except as otherwise contract, except to the extent superseded by sec- subsection: provided by the taxpayer, deposits shall be tion 6304, section 7602(c), or by any other provi- ‘‘(d) SECRETARY REQUIRED TO REVIEW IN- treated as used for the payment of tax in the sion of this title. STALLMENT AGREEMENTS FOR PARTIAL COLLEC- order deposited. ‘‘(f) CROSS REFERENCES.— TION EVERY TWO YEARS.—In the case of an ‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be ‘‘(1) For damages for certain unauthorized agreement entered into by the Secretary under treated as returned to the taxpayer on a last-in, collection actions by persons performing services subsection (a) for partial collection of a tax li- first-out basis.’’. under a qualified tax collection contract, see ability, the Secretary shall review the agreement (b) CLERICAL AMENDMENT.—The table of sec- section 7433A. at least once every 2 years.’’. tions for subchapter A of chapter 67 is amended ‘‘(2) For application of Taxpayer Assistance (c) EFFECTIVE DATE.—The amendments made by adding at the end the following new item: Orders to persons performing services under a by this section shall apply to agreements entered ‘‘Sec. 6603. Deposits made to suspend running of qualified tax collection contract, see section into on or after the date of the enactment of this interest on potential underpay- 7811(a)(4).’’. Act. ments, etc.’’. (2) CONFORMING AMENDMENTS.—

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00043 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.041 S03PT1 S2062 CONGRESSIONAL RECORD — SENATE March 3, 2004 (A) Section 7809(a) is amended by inserting PART V—MISCELLANEOUS PROVISIONS ‘‘or’’ at the end of clause (i), by adding ‘‘or’’ at ‘‘6306,’’ before ‘‘7651’’. SEC. 491. ADDITION OF VACCINES AGAINST HEPA- the end of clause (ii), and by inserting after (B) The table of sections for subchapter A of TITIS A TO LIST OF TAXABLE VAC- clause (ii) the following new clause: chapter 64 is amended by adding at the end the CINES. ‘‘(iii) of any patent, copyright, trademark, following new item: (a) IN GENERAL.—Section 4132(a)(1) (defining trade name, trade secret, know-how, software, ‘‘Sec. 6306. Qualified Tax Collection Con- taxable vaccine) is amended by redesignating or similar property, or applications or registra- tracts.’’. subparagraphs (I), (J), (K), and (L) as subpara- tions of such property,’’. (b) TREATMENT OF CONTRIBUTIONS WHERE (b) CIVIL DAMAGES FOR CERTAIN UNAUTHOR- graphs (J), (K), (L), and (M), respectively, and DONOR RECEIVES INTEREST.—Section 170(e) is IZED COLLECTION ACTIONS BY PERSONS PER- by inserting after subparagraph (H) the fol- amended by adding at the end the following FORMING SERVICES UNDER QUALIFIED TAX COL- lowing new subparagraph: new paragraph: LECTION CONTRACTS.— ‘‘(I) Any vaccine against hepatitis A.’’. ‘‘(7) SPECIAL RULES FOR CONTRIBUTIONS OF (1) IN GENERAL.—Subchapter B of chapter 76 (b) CONFORMING AMENDMENT.—Section PATENTS AND SIMILAR PROPERTY WHERE DONOR (relating to proceedings by taxpayers and third 9510(c)(1)(A) is amended by striking ‘‘October RECEIVES INTEREST.— parties) is amended by inserting after section 18, 2000’’ and inserting ‘‘May 8, 2003’’. ‘‘(A) DISALLOWANCE OF DEDUCTION.—No de- 7433 the following new section: (c) EFFECTIVE DATE.— (1) SALES, ETC.—The amendments made by duction shall be allowed under this section with ‘‘SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAU- respect to a contribution of property described THORIZED COLLECTION ACTIONS BY this section shall apply to sales and uses on or PERSONS PERFORMING SERVICES after the first day of the first month which be- in paragraph (1)(B)(iii) if the taxpayer after the UNDER QUALIFIED TAX COLLECTION gins more than 4 weeks after the date of the en- contribution has any interest in the property CONTRACTS. actment of this Act. other than a qualified interest. ‘‘(a) IN GENERAL.—Subject to the modifica- (2) DELIVERIES.—For purposes of paragraph ‘‘(B) CONTRIBUTIONS WITH QUALIFIED INTER- tions provided by subsection (b), section 7433 (1) and section 4131 of the Internal Revenue EST.—If a taxpayer after a contribution of prop- shall apply to the acts and omissions of any per- Code of 1986, in the case of sales on or before erty described in paragraph (1)(B)(iii) has a son performing services under a qualified tax the effective date described in such paragraph qualified interest in the property— collection contract (as defined in section 6306(b)) for which delivery is made after such date, the ‘‘(i) any payment pursuant to the qualified to the same extent and in the same manner as delivery date shall be considered the sale date. interest shall be treated as ordinary income and shall be includible in gross income of the tax- if such person were an employee of the Internal SEC. 492. RECOGNITION OF GAIN FROM THE SALE Revenue Service. OF A PRINCIPAL RESIDENCE AC- payer for the taxable year in which the payment ‘‘(b) MODIFICATIONS.—For purposes of sub- QUIRED IN A LIKE-KIND EXCHANGE is received by the taxpayer, and section (a)— WITHIN 5 YEARS OF SALE. ‘‘(ii) subsection (f)(3) and section 1011(b) shall ‘‘(1) Any civil action brought under section (a) IN GENERAL.—Section 121(d) (relating to not apply to the transfer of the property from 7433 by reason of this section shall be brought special rules for exclusion of gain from sale of the taxpayer to the donee. against the person who entered into the quali- principal residence) is amended by adding at the ‘‘(C) QUALIFIED INTEREST.—For purposes of fied tax collection contract with the Secretary end the following new paragraph: this paragraph— ‘‘(i) IN GENERAL.—The term ‘qualified interest’ and shall not be brought against the United ‘‘(10) PROPERTY ACQUIRED IN LIKE-KIND EX- means, with respect to any taxpayer, a right to States. CHANGE.—If a taxpayer acquired property in an ‘‘(2) Such person and not the United States exchange to which section 1031 applied, sub- receive from the donee a percentage (not greater shall be liable for any damages and costs deter- section (a) shall not apply to the sale or ex- than 50 percent) of any royalty payment re- mined in such civil action. change of such property if it occurs during the ceived by the donee with respect to property de- ‘‘(3) Such civil action shall not be an exclusive 5-year period beginning with the date of the ac- scribed in paragraph (1)(B)(iii) (other than remedy with respect to such person. quisition of such property.’’. copyrights which are described in section ‘‘(4) Subsections (c), (d)(1), and (e) of section (b) EFFECTIVE DATE.—The amendment made 1221(a)(3) or 1231(b)(1)(C)) contributed by the 7433 shall not apply.’’. by this section shall apply to sales or exchanges taxpayer to the donee. ‘‘(ii) SECRETARIAL AUTHORITY.— (2) CLERICAL AMENDMENT.—The table of sec- after the date of the enactment of this Act. tions for subchapter B of chapter 76 is amended ‘‘(I) IN GENERAL.—Except as provided in sub- by inserting after the item relating to section SEC. 493. CLARIFICATION OF EXEMPTION FROM clause (II), the Secretary may by regulation or TAX FOR SMALL PROPERTY AND CAS- other administrative guidance treat as a quali- 7433 the following new item: UALTY INSURANCE COMPANIES. fied interest the right to receive other payments ‘‘Sec. 7433A. Civil damages for certain unau- (a) IN GENERAL.—Section 501(c)(15)(A) is from the donee, but only if the donee does not thorized collection actions by per- amended to read as follows: possess a right to receive any payment (whether sons performing services under a ‘‘(A) Insurance companies (as defined in sec- royalties or otherwise) from a third party with qualified tax collection con- tion 816(a)) other than life (including inter- insurers and reciprocal underwriters) if— respect to the contributed property. tract.’’. ‘‘(II) EXCEPTIONS.—The Secretary may not ‘‘(i) the gross receipts for the taxable year do (c) APPLICATION OF TAXPAYER ASSISTANCE treat as a qualified interest the right to receive not exceed $600,000, and ORDERS TO PERSONS PERFORMING SERVICES any payment which provides a benefit to the ‘‘(ii) more than 50 percent of such gross re- UNDER A QUALIFIED TAX COLLECTION CON- donor which is greater than the benefit retained ceipts consist of premiums.’’. TRACT.—Section 7811 (relating to taxpayer as- by the donee or the right to receive any portion (b) CONTROLLED GROUP RULE.—Section sistance orders) is amended by adding at the of the proceeds from the sale of the property end the following new subsection: 501(c)(15)(C) is amended by inserting ‘‘, except that in applying section 1563 for purposes of sec- contributed. ‘‘(g) APPLICATION TO PERSONS PERFORMING ‘‘(iii) LIMITATION.—An interest shall be treat- tion 831(b)(2)(B)(ii), subparagraphs (B) and (C) SERVICES UNDER A QUALIFIED TAX COLLECTION ed as a qualified interest under this subpara- of section 1563(b)(2) shall be disregarded’’ before CONTRACT.—Any order issued or action taken graph only if the taxpayer has no right to re- the period at the end. by the National Taxpayer Advocate pursuant to ceive any payment described in clause (i) or (c) CONFORMING AMENDMENT.—Clause (i) of this section shall apply to persons performing (ii)(I) after the earlier of the date on which the section 831(b)(2)(A) is amended by striking ‘‘ex- services under a qualified tax collection contract legal life of the contributed property expires or ceed $350,000 but’’. (as defined in section 6306(b)) to the same extent the date which is 20 years after the date of the and in the same manner as such order or action (d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years be- contribution.’’. applies to the Secretary.’’. (c) REPORTING REQUIREMENTS.— ginning after December 31, 2003. (d) INELIGIBILITY OF INDIVIDUALS WHO COM- (1) IN GENERAL.—Section 6050L(a) (relating to MIT MISCONDUCT TO PERFORM UNDER CON- SEC. 494. DEFINITION OF INSURANCE COMPANY returns regarding certain dispositions of do- TRACT.—Section 1203 of the Internal Revenue FOR SECTION 831. nated property) is amended— Service Restructuring Act of 1998 (relating to (a) IN GENERAL.—Section 831 is amended by (A) by striking ‘‘If’’ and inserting: termination of employment for misconduct) is redesignating subsection (c) as subsection (d) ‘‘(1) DISPOSITIONS OF DONATED PROPERTY.— amended by adding at the end the following and by inserting after subsection (b) the fol- If’’, new subsection: lowing new subsection: (B) by redesignating paragraphs (1) through ‘‘(e) INDIVIDUALS PERFORMING SERVICES ‘‘(c) INSURANCE COMPANY DEFINED.—For pur- (5) as subparagraphs (A) through (E), respec- UNDER A QUALIFIED TAX COLLECTION CON- poses of this section, the term ‘insurance com- tively, and TRACT.— An individual shall cease to be per- pany’ has the meaning given to such term by (C) by adding at the end the following new mitted to perform any services under any quali- section 816(a)).’’. paragraph: fied tax collection contract (as defined in section (b) EFFECTIVE DATE.—The amendment made ‘‘(2) PAYMENTS OF QUALIFIED INTERESTS.— 6306(b) of the Internal Revenue Code of 1986) if by this section shall apply to taxable years be- Each donee of property described in section there is a final determination by the Secretary ginning after December 31, 2003. 170(e)(1)(B)(iii) which makes a payment to a of the Treasury under such contract that such SEC. 495. LIMITATIONS ON DEDUCTION FOR donor pursuant to a qualified interest (as de- individual committed any act or omission de- CHARITABLE CONTRIBUTIONS OF fined in section 170(e)(7)) during any calendar scribed under subsection (b) in connection with PATENTS AND SIMILAR PROPERTY. year shall make a return (in accordance with the performance of such services.’’. (a) DEDUCTION ALLOWED ONLY TO THE EX- forms and regulations prescribed by the Sec- (e) EFFECTIVE DATE.—The amendments made TENT OF BASIS.—Section 170(e)(1)(B) (relating to retary) showing— to this section shall take effect on the date of certain contributions of ordinary income and ‘‘(A) the name, address, and TIN of the payor the enactment of this Act. capital gain property) is amended by striking and the payee with respect to such a payment,

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00044 Fmt 4624 Sfmt 6333 E:\CR\FM\A03MR6.041 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2063 ‘‘(B) a description, and date of contribution, as so many people who watch the Sen- 19 to 2 this bill was voted out of the of the property to which the qualified interest ate regularly know, the Senate, unlike Senate Finance Committee. Our bill is relates, the House of Representatives, can’t a bipartisan balance of domestic tax ‘‘(C) the dates and amounts of any royalty function if it does not function in a bi- relief and international tax reforms, payments received by the donee with respect to such property, partisan way. all meant to strengthen American busi- ‘‘(D) the date and the amount of the payment So we proceed, then, with this bipar- ness. Not as an end in itself, but as pursuant to the qualified interest, and tisan bill: the Jumpstart Our Business business strengthens, jobs are created. ‘‘(E) a description of the terms of the qualified Strength Act. If I refer to the acronym We are talking about jobs for Ameri- interest.’’. JOBS, it is jumpstart our business cans. (2) CONFORMING AMENDMENTS.— strength. Most importantly, this bill is revenue (A) The heading for section 6050L is amended Since March 2000, long before Presi- neutral. That is important, when we by striking ‘‘certain dispositions of’’. dent Bush took office, the manufac- read in the newspapers about facing a (B) The item relating to section 6050L in the turing sector has been under signifi- budget deficit. This bill then will not table of sections for subpart B of part III of sub- cant economic pressure. Obviously, chapter A of chapter 61 is amended by striking add one dime to the Federal deficit. ‘‘certain dispositions of’’. that has affected manufacturing work- The JOBS bill will repeal the current (d) ANTI-ABUSE RULES.—The Secretary of the ers. A recent CBO study estimates that FSC/ETI regime and use all the money Treasury may prescribe such regulations or going way back to March 2000, an esti- from repeal to provide a 3-point tax other administrative guidance as may be nec- mated 3 million workers have lost their rate cut on income from U.S.-based essary or appropriate to prevent the avoidance manufacturing jobs. manufacturing. I emphasize U.S.-based of the purposes of section 170(e)(1)(B)(iii) of the The Congressional Budget Office at- manufacturing. We start those cuts Internal Revenue Code of 1986 (as added by sub- tributes this job decline to the reces- phasing in next year. This 3-point rate section (a)), including preventing— sion that began in November 2000 and (1) the circumvention of the reduction of the cut is only for manufacturing and only the weak economy in demand that fol- for manufacturing in the United charitable deduction by embedding or bundling lowed, part of it a result of September the patent or similar property as part of a chari- States. This bill will not help Amer- 11 and recovery not coming as normal table contribution of property that includes the ican manufacturers that want to man- as recoveries do. patent or similar property, ufacture offshore. But we always tend to look at bad (2) the manipulation of the basis of the prop- I point out how our bill would ap- news. Bad news tends to make the erty to increase the amount of the charitable de- proach this effort to help create jobs in duction through the use of related persons, front pages of the newspaper. Good American manufacturing and do it on pass-thru entities, or other intermediaries, or news tends to make the back pages, if American soil as opposed to the way through the use of any provision of law or regu- there is good news printed at all. lation (including the consolidated return regula- There is good news on the horizon. that the Ways and Means Committee of tions), and That is, that new manufacturing or- the other body, and even other bills (3) a donor from changing the form of the pat- ders, just this past December, surged to that will be offered in the upcoming de- ent or similar property to property of a form for their highest levels in 50 years. They bate, would face these issues. Our bill which different deduction rules would apply. reducing taxes applies to all that man- (e) EFFECTIVE DATE.—The amendments made haven’t been that high since July of 1950. And January was the sixth con- ufacture in America. by this section shall apply to contributions made I wish to make clear to our col- after October 1, 2003. secutive month that manufacturing ac- leagues this is a bill to help manufac- SEC. 496. REPEAL OF 10-PERCENT REHABILITA- tivity expanded. In December, the man- TION TAX CREDIT. ufacturing employment index grew for turing in the United States. American Section 47 is amended by adding at the end the second consecutive month, but the companies that manufacture overseas the following new subsection: overall economy during that month will not get the benefit of the cor- ‘‘(e) TERMINATION.—This section shall not added 1,000 jobs only. That was, of porate rate reduction. Foreign corpora- apply to expenditures described in subsection course, disappointing. But it wasn’t tions that want to come over here to (a)(1) incurred in taxable years beginning after America and build plants and employ December 31, 2003.’’. disappointing from the standpoint of the manufacturing employment index people in this country would get the SEC. 497. INCREASE IN AGE OF MINOR CHILDREN benefit. But this bill is about helping WHOSE UNEARNED INCOME IS growing because it seems that is the TAXED AS IF PARENT’S INCOME. lagging sector of this recovery. American manufacturing that takes (a) IN GENERAL.—Section 1(g)(2)(A) (relating I believe we are on the right path for place in the United States of America. to child to whom subsection applies) is amended a strong recovery. In fact, there has I wish to differentiate the approach by striking ‘‘age 14’’ and inserting ‘‘age 18’’. been a recovery underway since econo- we use from the approach the Ways and (b) EFFECTIVE DATE.—The amendment made mists ruled that the last recession Means Committee uses. by this section shall apply to taxable years be- Unlike the pending Ways and Means ginning after December 31, 2003. ended October 1, 2001. But when a re- covery ends, it is not always visible. Of bill, and other bills that will be offered The PRESIDING OFFICER. The Sen- course, it is visible in most segments of during the upcoming debate, these cuts ator from Iowa. the economy by very strong indices apply to all who manufacture in Amer- Mr. GRASSLEY. Mr. President, I that are there to prove that. But one ica, regardless of size. So this is going suggest the absence of a quorum. area that is not is manufacturing em- to include sole proprietors, partner- The PRESIDING OFFICER. The ployment. We do now have those 2 con- ships, farmers, individuals, family clerk will call the roll. secutive months of increased employ- businesses, multinational corporations, The assistant legislative clerk pro- ment. and foreign companies that set up man- ceeded to call the roll. I believe we are on the right path to ufacturing plants in the United States. Mr. GRASSLEY. Mr. President, I ask strong recovery, but we must do more All of these enterprises will benefit as unanimous consent that the order for to ensure manufacturing stays on the long as they manufacture. the quorum call be rescinded. path of recovery. Manufacturing is so So the objectives of this bill are pret- The PRESIDING OFFICER. Without vital to the overall health of our econ- ty simple. Three: Jobs, jobs, jobs, objection, it is so ordered. omy, including follow-on sectors that meaning jobs that pay money because Mr. GRASSLEY. Mr. President, I am benefit: the service and financial sec- of manufacturing in America. happy to be, once again, on the floor tors. Manufacturing is important to all with a very important piece of legisla- As government policymakers, which States, and I want to point out some tion. With the cooperation of the we are, we have to act to revitalize the benefits. For my State of Iowa—the Democratic leadership of the Senate manufacturing sector. Today we have figures I have are for 2001—Iowa’s gross Finance Committee, Senator BAUCUS, some good news on manufacturing, and State product was $91 billion. Of that, we bring to the floor a bill that was that is, the legislation we bring to the $19 billion or 21 percent of the State’s voted out of committee 19 to 2. Senator Senate, because it is going to help en- wealth was created by manufacturing. BAUCUS and I always work together as hance employment in the manufac- From 2001 to 2002, Iowa’s exports grew much as we can—that is, most of the turing sector. by nearly 15 percent. We shipped nearly time—to bring to the Senate a bill that As I have said previously, but I can- $5 billion of goods out of Iowa, and that can get through the Chamber because not emphasize too much, by a vote of was during the year 2002.

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00045 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.041 S03PT1 S2064 CONGRESSIONAL RECORD — SENATE March 3, 2004 In Iowa, we have 222,000 jobs in manu- Union to impose up to $4 billion a year Domestic law has made that possible facturing. So that shows how impor- of sanctions against U.S. exports. within the United States. We need to tant it is for the United States to be The European Union has already support a regime that does the same competitive in manufacturing both started this because March 1, this year, thing in international trade because we home and abroad because of 222,000 jobs was the date to do it. The sanctions have seen under that regime of rule of just in my State. Those kinds of export start at 5 percent of the $4 billion, and law in international trade for the last numbers translate into very good and they are going to increase 1 percent for 50 or 60 years the expansion of the lasting jobs at home. Many of our each month if we do not repeal the world economic pie. country’s manufacturing jobs are de- FSC/ETI provisions. They are going to We are not talking about something pendent upon the current FSC/ETI cap out at 17 percent. So by November, that is just good for the United States. international taxing regime. these sanctions will be 12 percent. How It is good for the United States. But we I have a map behind me that makes are we going to compete when the tax are talking about something that is this very clear. It shows by State the benefits that were supposed to level the good for the entire world. jobs that are existing today because of playing field are not only used, but the We have a growing world population. the current FSC/ETI provision: South European Union, in a legal way under If you don’t have a growing world eco- Carolina, 47,000 jobs; my State of Iowa, our trade agreements, is levying sanc- nomic pie, there will be less for more 35,000 jobs; California, 429,000 jobs; tions. Just as the United States when people and less for more people means Texas, 262,000; New York, 215,000; Illi- the European Union lost a case on our political, economic, and social insta- nois, 156,000; Washington State, 107,000 beef—they did not take our beef—we bility, and chaos. jobs generated by FSC/ETI. leveled sanctions against European So we have seen under this regime of As my colleagues probably know, products that are coming into this rule of law in international trade that FSC/ETI stands for Foreign Sales Cor- country, all in a legal way but not nec- the world economic pie has grown tre- poration, extraterritorial income. This essarily in the best way to conduct mendously, and to a great extent be- is what was determined to be contrary international trade. cause of international trade. The United States has led the way. to our international trade agreements, So eventually, these sanctions are We need to continue leading the way. and that is why we have this legisla- going to get up to 17 percent, and at There are some lobbyists who are sug- tion before us because if we do not do that point the European Union will re- gesting this is no big deal, this doesn’t something about this issue, these num- view the effectiveness of the sanctions, have to be done now, it can be done to- bers of jobs that are dependent upon and further increases are possible. morrow, it can be done next year, and this legislation are in jeopardy because The European Union has been con- somehow these sanctions don’t mean our manufacturing will not be competi- sistent in its message, that the FSC/ anything. They do mean something be- tive with our foreign competition. ETI must be repealed; the same way cause they are going to make our prod- Of course, what this is all about is that we were insistent upon Europe and ucts uncompetitive and then we can’t passing legislation that will be in we won a case in the World Trade Orga- sell. If these were put on John Deere agreement with our trade agreements nization that they take our beef. tractors in Waterloo, IA, one-fourth of and, consequently, still protect Amer- This is a serious threat against the jobs could go. American manufacturing, and Europe ican manufacturing as the FSC/ETI has One-fourth of the jobs at John Deere knows where to hit us. One of those is done over the last 25 to 30 years. tractor in my home State are related FSC/ETI reduces the income tax on agricultural products, plus paper prod- to trade. But we do have to abide by goods manufactured in the U.S. and ucts, and also a number of important the rule of law in international trade sold overseas. FSC/ETI is critical to manufacturing industries, and they are unless we want chaos, unless we want the manufacturing sector. It can re- hitting us right now in our soft under- the jungle. duce taxes on exports by as much as 3 belly. These lobbyists say sanctions don’t to 8 tax rate percentage points. These sanctions are going to under- matter. They argue: After all, sanc- The nonpartisan Joint Committee on mine the economic recovery that is un- tions only start at 5 percent. They Taxation says that 89 percent of the derway, as I indicated before—under- would say: There has been a decline in Foreign Sales Corporation benefits go way with 2 months in a row of a posi- the dollar. That is going to take care of to manufacturing companies. Many of tive upturn in the manufacturing that problem. With a decline in the dol- those companies are the largest manu- index. So I believe it is important for lar, add on 5 percent, no difference. facturing employers in the Nation. the United States to fulfill its obliga- But I will bet these lobbyists who are This reduced rate of tax on exports of tions under our trading rules. spreading this word that Congress U.S.-manufactured goods keeps our Now, it so happens that we win a lot doesn’t have to act don’t represent companies competitive in the inter- more cases than we lose, and it also is anybody—any workers or any firms— national marketplace. It allows our true that the United States has been a on this retaliation list. But for those companies to compete with the Euro- leader—in fact, the entire world recog- industries that I have already talked pean Union countries, which happen to nizes us as a leader, and they wait for about, and there are a lot more, sanc- have a taxing system where they get a us sometimes—in reducing trade bar- tions do matter because they will not rebate on their value-added tax on ex- riers around the world. We have shown be able to export if they can’t compete. ports. leadership for the last 60 or 70 years in Five percent right now, and for sure 17 If we did not have the Foreign Sales this area going back to the reciprocity percent a year from now, is going to Corporation, we would be exporting agreements of the 1930s of reducing make a big difference. more of our taxes, making us uncom- trade barriers. In regard to the lower value of the petitive with the European Community As we expect Europe to import our dollar against the euro, that somehow that has a different taxing system, beef when we win a case, it seems to merely restores the status quo of the value-added tax, that they do not ex- me that we must show leadership in 1990s for a lot of American companies port. complying with these rules. What the so they can export more. The recent Several years ago, the European World Trade Organization is all about decline in the dollar helped these com- Union filed a claim with the World is to bring the rule of law to what panies regain lost market share in Eu- Trade Organization challenging FSC/ would otherwise be a jungle of inter- rope, and we have lobbyists saying ETI as an illegal export subsidy. Hence, national trade. That is because we get they ought to be back in that position we are here repealing such an impor- more business activity when there is that they were in just a year ago, not tant provision because under trading predictability and understanding of being able to sell because of the high rules, according to the decision, we how we are going to do business. Just cost of the dollar? cannot have a subsidy if it is contin- as that is true in our domestic policy Why would Congress want to deprive gent upon the act of exporting. The for business expansion, it is true in these companies and their employees, World Trade Organization ruled that international trade; if there is predict- where these are good American jobs, of the FSC/ETI is an illegal export sub- ability, we will get more business ex- the opportunity to export? That is be- sidy and has authorized the European pansion around the world. yond me. These are good jobs, because

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00046 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.019 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2065 statistics show conclusively that jobs Even if it were possible, I am not There would be a benefit to inter- connected with exports pay 15 percent going to suggest on the Senate floor national companies that come here to above the national average. that the United States taxpayers ought create jobs in America in manufac- Besides, there is no guarantee that to be writing a check to the country of turing. Our 3-point rate reduction is the value of the dollar will not go up France. I, for one, don’t think Congress not export contingent under the World tomorrow because our official policy is is going to buy these arguments that Trade Organization rules. Unlike the a strong dollar policy. Our official pol- we don’t have to deal with this now and FSC/ETI regime, this 3-point rate re- icy is also to let the marketplace de- there are other ways around. These duction applies to goods manufactured cide the value of the dollar. But if it proposals are shell games expounded by in the United States and which are sold does go up, it is going to leave Amer- Washington lobbyists trying to confuse domestically in the United States, or if ican exporters in even a worse situa- Congress, confuse the public, and thus they are exported for sale outside the tion than they are today with that 5 avoiding a real permanent solution to a United States. If you make it here, we percent and next month 6 percent. longstanding FSC/ETI dispute with the cut your taxes regardless of whether It is plain wrong for us in Congress, European Union. This is not realistic. you are a U.S. or foreign corporation— when we can do something about it— They will not stop the imposition of bringing those manufacturing jobs, and this bill does something about it— European sanctions. then, to the United States of America. to gamble the future of these American People suggesting these alternatives The JOBS bill starts phasing in the 3- working men and women on the vola- ought to face facts. Gambling Amer- point percentage tax rate reduction im- tile international currency market. ica’s exports on the volatile currency mediately in 2004. There is another fancy suggestion market won’t work. Cutting govern- If you look at this next chart behind from these high-paid lobbyists, that all ment checks to U.S. exporters won’t me, you see on average, European we have to do is cut a Government work. Transferring taxpayers’ money Union manufacturing income is taxed check to these U.S. exporters that are to foreign governments such as France at 21 percent but U.S. manufacturing hurt by the sanctions. won’t work. These are shell games. income is taxed at 24 percent. As you That suggestion is just as stupid as There is only one real solution for can see, the 3-point rate cut on manu- the previous one. First, it is likely that American workers. This is something facturing income in the JOBS bill the World Trade Organization would that has been worked out in a bipar- keeps us even with the European Union find such a scheme to be a prohibited tisan way for the Senate to consider by on manufacturing tax burdens. export subsidy anyway, just as they the Senator from Montana and this We included in the JOBS bill several originally did. That would continue the Senator. This is the JOBS Act that is international tax reforms that are cycle of noncompliance and retalia- before us, and the best solution is to aimed specifically to help manufac- turing. The whole JOBS bill is slanted tion. pass the JOBS Act now. I hope my Sen- towards manufacturing. Flaws in our These birds don’t believe in the rule ate colleagues and our counterparts in international tax rules seriously under- of law on international trade. They the House of Representatives will act mine America’s ability to compete in like the jungle of international trade. on the Finance Committee’s FSC/ETI the global marketplace. International In fact, most lobbyists like a jungle be- legislation. It is all of our responsi- tax reform, like doing something with cause they are the ones who think they bility—Democrat and Republican are smart enough to sort it out. We are FSC/ETI, is long overdue. alike—to pass this bipartisan legisla- Our current system is built upon a not going to allow that jungle to grow tion. framework dating back to President just so lobbyists can prosper. If we, as a body, fail to act, American Kennedy in the early 1960s. We clean up But this scheme, as the original sug- workers will suffer with fewer jobs, and problems that cause foreign earnings gestions, is unworkable. It would prob- the United States will lose an oppor- to be double taxed by the United States ably require a new government bu- tunity to rejuvenate and remain glob- and the foreign countries where those reaucracy to administer. You know ally competitive in the mainstay of its profits are earned. We reform subpart what. This JOBS bill is about creating economy—the manufacturing sector of (f) to ensure that active foreign busi- manufacturing jobs, not jobs in a gov- our economy. nesses are taxed when the money is ernment bureaucracy. Our majority leader, Senator FRIST, brought home and not when the United It has also been suggested that the should be commended for bringing this States companies are locked in battle U.S. Government could simply pay bill to the floor so that the Senate can with foreign companies that do not pay compensation to some foreign govern- act now to end sanctions before they taxes. ment rather than comply with our seriously damage the economy and be- You will hear a lot of noise in the up- international trade obligations. I sup- fore they damage our transatlantic re- coming debate about these inter- pose, in the era of foreign aid, you lations. The bill needs to be passed so national provisions. But let me tell you might say that suggestion is theoreti- we can end the sanctions as soon as right now that the international provi- cally possible. But it is not very real- possible. sions in our bipartisan JOBS bill are istic. Repealing FSC/ETI raises around $55 targeted to benefit U.S. manufacturing Under the World Trade Organization billion over 10 years. Eighty-nine per- companies. Members may be surprised dispute settlement system, there is cent of it comes from jobs in the manu- to learn our international provisions only one way, just one way, a nation facturing industry. If that money is can actually harm a company’s expan- can bring itself into compliance with not sent back to help the manufac- sion in the United States of America an adverse ruling, conforming with the turing sector to be competitive with where we want companies to expand so WTO-inconsistent measure, and that is Europe, FSC/ETI repeal will be a $50 that jobs are created here and so that with a report adopted by the dispute billion tax increase on manufacturing. those jobs are not exported. It is a sim- settlement body. That would dictate The old rule of economics is if you tax ple thing to do. Just fix our tax laws so that as long as FSC/ETI is not re- something more, you get less of it. So that jobs are created in America as op- pealed, the United States remains in there is going to be less jobs in manu- posed to overseas. violation of these international trade facturing. We will have plenty of opportunity to commitments. So paying compensation I think we can all agree that a $50 talk about that issue in the upcoming to some government, in my reading of billion tax increase on manufacturing debate. the obligations under the trade com- will not stimulate job growth in that In an era of expanding global mar- mitments, is not going to bring the sector. That is why the JOBS bill kets, in an era of falling trade barriers, United States into compliance. passed by the Finance Committee uses and in an era of technological innova- Furthermore, it has to be remem- every penny from the FSC/ETI bill re- tions that melt away traditional no- bered that compensation in lieu of re- peal. To give this 3-percentage tax rate tions of national borders, it is critical taliation is only a viable option if the cut on all income derived from manu- that our international tax laws keep prevailing parties agree. facturing—that is done in the United pace with these new business realities. I think that is something the Euro- States—there is no benefit to American We also include a provision for manu- pean Union is not inclined to do. companies manufacturing overseas. facturing that is not making money

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00047 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.021 S03PT1 S2066 CONGRESSIONAL RECORD — SENATE March 3, 2004 right now. We allow a 3-year net oper- about is moving things to the center, ufacturing, help us pass a bill to create ating loss carryback. This will allow to get a consensus to get something jobs for American men and women in companies to reclaim prior taxes paid. passed. In the process, there is never manufacturing, which is slow to re- This will give them cash liquidity to complete agreement. cover. They have an opportunity to weather the current storm. For instance, some Members did not help with bipartisanship in the other I understand there may be some ef- favor including this Homeland Rein- body because there are bills in the fort to expand this 3-year carryback to vestment Act which Senators SMITH, other body, but they are short of the a 5-year carryback. ENSIGN, and BOXER have written. We number of votes they need. Part of the The JOBS bill also includes the have included it in this bill. So we may reason is maybe the other body does Homeland Reinvestment Act sponsored have votes on that. not see the need to pass a bipartisan by Senator SMITH of Oregon, Senator Our bill contains a temporary hair- bill as we do in the Senate. There are ENSIGN of Nevada, and Senator BOXER cut on the rate reduction some Mem- Republicans and Democrats in the of California. That is a bipartisan bers would like to remove and others other body who are working on a way group to which anybody ought to be would like to retain. We will probably to do this, a way that is not far re- drawn. have that divisive issue before the Sen- moved from our legislation. This subpart of our JOBS bill, which ate. Some Members prefer a reduction If we have a real strong vote over is sponsored by Senators Smith, En- in the top corporate rate in place of all here and we get this done quickly, we sign, and Boxer, is intended to encour- these international tax reforms and might be able to help the House of Rep- age companies to bring their foreign manufacturing rate cut deductions. resentatives pass some legislation and earnings back to the United States by Now, that is a more simple approach to do it in a bipartisan way. Helping to temporarily providing the reduced rate than we have, but this approach misses pass legislation in a bipartisan way is of tax. This bill will tax foreign earn- a couple of factors. not a bad goal for Senators, since we ings at 51⁄4 percentage points instead of First, the top level rate cut would practice that. the 35 percent that would normally only go to the biggest corporations of Also, those 39 Democrats will have an apply. America. It would not go to the local opportunity to help the Senate Finance Advocates of this Homeland Invest- family-held S corporation or partner- Committee do something we want to do ment Act claim that those moneys will ship as our finance bill does. We think because we can get it done in this bi- be invested overseas instead of the we ought to help small business in the partisan way and it is not exactly the United States, if we don’t tax them at process. way the White House wants us to get it a lower rate than the 35 percent. Second, FSC/ETI repeal will not cre- done. Here again, we share governing These colleagues view this measure ate a large tax increase on the service responsibilities with the President and as I do, very much stimulative to the industry. That repeal will be a $50 bil- with the House of Representatives, and economy and helping with our unem- lion tax increase on manufacturing. If so Democrats working with Senator ployment problem. we redirect the FSC/ETI repeal money BAUCUS and myself, Democrats who are One last point I will make is that our to an across-the-board corporate cut, not on the committee, can help get a bipartisan manufacturing tax bill is as a couple of my colleagues will offer bill to the President, help the Presi- revenue neutral. I don’t think it does an amendment to do, then the manu- dent to see maybe the aspects about harm to emphasize, sometimes we pass facturing sector will be the revenue this bill they do not like, they ought to a tax bill and less money comes into offset for the services sector of tax take a second look at to see the good the Federal Treasury and we might cuts. It is a fact that we have a strug- work, and help get a bipartisan bill have a bigger deficit. This bill does not gling manufacturing sector and I don’t through the House of Representatives. I don’t say that in a defensive way do that. Not one dime is added to the think a sector of our economy that is because I don’t know of any reason the current deficit. slowly recovering ought to be hit with other 39 Democrats do not want to help Thank God, the President has been in this sort of a revenue offset for the us accomplish what we want to accom- the forefront of this, asking for a bill benefit of the service industry. We have plish. What I have just said is not for that would be revenue neutral. We have to face what is the current crisis in that purpose, but only said for the pur- delivered for our colleagues who be- manufacturing. pose of those Democrats who are not lieve in revenue neutrality of tax bills. Working families are living in finan- on this committee, there is a larger as- We have delivered for the President. cial fear. We owe a secure future to pect than just the language of the leg- The JOBS bill provides over $112 bil- these hard-working men and women. islation that is before the Senate. It lion in business tax relief which is paid For them, we have a secure future. benefits them for a lot of goals they for by shutting down tax shelters and Their employers must be able to com- want to accomplish that sometimes by closing abusive loopholes. Let me pete and thrive both at home and cannot be accomplished as a minority emphasize that because people are abroad. Then their future is secure. part of this body. reading about this every day in the Their employers cannot thrive if these The PRESIDING OFFICER. The Sen- newspaper, companies setting up shell companies are burdened with excessive ator from Montana. corporations overseas, with nothing tax rates at home and international Mr. BAUCUS. Mr. President, I would but a cabinet and maybe an address, a tax barriers abroad. like to make a few remarks about the post office box, for the sole purpose of Our bipartisan JOBS bill presents the JOBS bill before the Senate. With this avoiding taxation. They dash and stash best opportunity to end that burden bill, we join in the work of improving the cash, whereas we have all these and to make a downpayment on put- the economic well-being of Americans. other patriotic companies staying in ting Americans back to work. Let’s This bill is about creating good jobs America. hope the Senate gets to work, puts in America. This bill is about improv- There are other schemes I will not go American manufacturing back in the ing the standard of living of all Ameri- into, but we deal with those schemes in game. That is why I am here, urging cans. this legislation, bringing in additional my colleagues to support a bipartisan Let me begin with the economic con- revenue that can be used, then, to JOBS Act and cooperate to get this bill text for this bill. In a series of state- make our international taxing regime on the President’s desk. ments over the coming week, I will ad- more fair and do it in a way that cre- In closing, I have one message for the dress particular aspects of the legisla- ates jobs in the United States of Amer- 39 Democrats who are not on the Fi- tion. We begin with the dignity and im- ica, not overseas. nance Committee and may not see this, portance of work. Our jobs often define It is a fact of life with most bills that other than just a piece of legislation who we are. They are where we spend come to the Senate, there is never voted out of the Senate Finance Com- much of our waking hours. As the complete agreement on an approach. mittee. I say to the 39 Democrats who preacher teaches in the book Eccle- There is always 20 percent on the right are not on the committee, they have an siastes, ‘‘A man can do nothing better and 20 percent on the left that might opportunity to help us very quickly than to . . . find satisfaction in his disagree with something that comes to move a bill to the other body, very work. This . . . I see, is from the hand this Senate. What this Senate is all quickly help us pass a bill to help man- of God. . . .’’

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00048 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.024 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2067 Job creation is fundamental to our The American economy has, on aver- It is no secret that in the past few ability to live a good life. It is through age, created more than a million net years the engine of American job cre- the creation of good jobs that Ameri- new jobs every year since 1900. Since ation has ground to low gear; manufac- cans have come to enjoy remarkable 1935, we have done better; America has turing has been particularly hard hit. advancements in income and comforts. created 1.5 million jobs every year. This next chart shows the story of The American job creation machine That is a net figure. private sector job creation in the makes our shores the shores to which America’s economic growth springs American economy over the last dec- immigrants swarm. We don’t see people from our people, our freedom, our ade. Beginning in March of 1993, here at heading for the door. Rather, people unity. The American people are smart the lower left, the American economy from around the world want to live in and as hard working as any in the steadily created new jobs throughout America. world. Our free market has given this the rest of the decade. The economy Ours is a dynamic economy. This eco- great people the freedom to achieve grew. People had jobs and families had nomic growth is the key to our Na- their best potential. Our unity has pro- more money in their pockets. In fact, tion’s success. tected its huge internal market from from January of 1993 to January 2001, I point out this chart. I will raise it robbers, foreign and domestic. about 20 million—net jobs—were cre- up so people can see it. This chart We are lucky to be Americans, very ated in America. shows the picture I have just basically lucky. Our Nation is still a magnet for Private sector employment peaked at described. In 1900, in the wake of the immigrants. This country is still a bea- 111.6 million jobs in December of 2000. industrial revolution, America already con to countries around the world. The Bureau of Labor Statistics reports stood at the pinnacle of the world econ- We can pride ourselves in our inde- that since the end of the year 2000, the omy. Already in 1900, believe it or not, pendent judiciary, which helped make private sector of the American econ- we had the highest per capita income this country strong. We can be proud of omy lost 3 million jobs. You can see in the world, slightly more than Brit- our system of government—this long- that on the chart. Our peak was here in ain or Australia, and almost double lived democracy. We have a dynamic, 2000 and we have lost jobs—3 million. that of France or Germany. mobile society. Three million jobs were lost in the But even adjusted for inflation in to- In a number of ways, America has it American economy since that peak in day’s dollars, not 1900 dollars, Amer- right. More times than not, Americans December of 2000. In January of this ica’s per capita GDP—a rough measure have struck about the right balance be- year—the month for which we have the of our average income—was only about tween government protections and pri- latest statistics—the American econ- $5,000 a year in today’s dollars. Meas- vate freedoms, to contribute to eco- omy employed 108 million private sec- nomic growth. ured by today’s standards, we lived in tor workers, which means 1 out of Our society provides an environment poverty: Walking and horseback was every 40 private sector jobs have dis- for success. Bill Gates, for example, how one got around; electricity lit only might be a pauper in Sri Lanka. But appeared since the end of 2000. 3 percent of homes in 1900; only one- The manufacturing sector has dis- America provides the environment and third of Americans had running water; proportionately borne the brunt of infrastructure and, of course, the polit- only 15 percent had flush toilets; life these job losses. ical system and markets where a Bill expectancy was 47 years. This next chart shows the story. This In 1900, America had one of the best Gates can succeed. We should not take is manufacturing jobs from 1993 to 2004. this lesson for granted. This is not true educated populations in the world. But We can see the dramatic decline in in all countries. Our society, economy 1 in 10 were illiterate. The typical roughly 2001, since July of 2000. and, yes, the Government contributed adult had left school after the eighth Since July of 2000, the American to the successes of people such as Bill grade. There were only 382 Ph.Ds economy has lost 3 million manufac- Gates. turing jobs. That is a net loss. The Bu- awarded in the entire country in 1900. Government does have a role to play, Even though in 1900 our economy was reau of Labor Statistics reports that in for good or evil, either to foster or to at the top of the world, Americans had January, America employed 14.3 mil- impede this economic growth. an average income then that the aver- Government can impede growth. By lion workers in manufacturing, and age person in Mexico has today. running large continuing budget defi- that is down from the 42nd straight If our economy had not grown, our cits, the Government can suck vital month from the high of 17.3 million in standard of living would be unaccept- capital out of the economy, robbing in- July of 2000. That is a drop of 17.5 per- able by today’s measures. Economic dividuals and businesses of funds that cent in manufacturing employment. growth made a huge difference. can be used for investment. More than one in every six American Because of economic growth, infla- Thus, the record budget deficits that manufacturing jobs has disappeared tion-adjusted, our per capita income the Government is now running pose a since July of 2000. Again, one in every today is roughly seven times now what threat to our Nation’s economic six manufacturing jobs in America has it was 104 years ago. growth. We have to recognize that. disappeared since July of 2000. With economic growth, electricity These deficits decrease national sav- Manufacturing jobs have disappeared became available across the country, ings, decrease private sector invest- in all 21 industries that constitute the and automobiles made us a mobile na- ment, and raise interest rates. The re- manufacturing sector. It is in all sec- tion and made much more of the Na- sulting slower economic growth and in- tors. We lost jobs in computer and elec- tion within reach of work. creased cost of borrowing harm busi- tronics products. We lost jobs in trans- It is incredible to see how much we nesses, large and small. portation equipment. We lost jobs in have grown in real per capita GDP Foreign governments can impede our machinery. We lost jobs in fabricated since 1900. You can see a dip on the growth when they deny Americans ac- metals. We lost jobs across the board. chart in 1929. But we have grown at a cess to their markets, when they don’t My home State of Montana has suf- rapid rate. let us sell products in their country, fered more than most. It has had a 19- The next chart is very interesting as when they artificially depress the percent reduction in manufacturing well. This is private sector employ- value of their currency, flooding our jobs since January of 2000. ment. American economic growth cre- lands with their imports and denying This next chart also shows job losses ated 108 million new jobs, net, since our exports a fair opportunity to com- happening all across the country; not 1900. In 1900, the American economy pete. just across all manufacturing sectors employed 27 million people in its civil- Our Government can foster growth but all across America. Every State in ian labor force. By January 2004, 104 by investing in education, by opening the Nation but one has lost manufac- years later, the American economy em- markets at home and abroad, and by turing jobs since July 2000. The darker ployed almost 140 million Americans. removing barriers to our economic the shade, the greater the job loss; the Two-thirds of Americans participate greatness. We can foster growth in lighter the shade—orange and yellow— in the labor force—substantially higher America. there is less job loss. But every State rates than in Europe. That is up from That is what this bill is about—re- in the Nation has lost jobs, except one. 55.5 percent in 1900. Americans are moving barriers to economic growth The manufacturing jobs we are losing hard-working people. We work. and creating jobs. are good jobs. This next chart shows

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00049 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.027 S03PT1 S2068 CONGRESSIONAL RECORD — SENATE March 3, 2004 manufacturing jobs pay more than tax of higher borrowing costs for busi- The PRESIDING OFFICER. Without service jobs on the average. We all ness. objection, it is so ordered. know we are moving from a manufac- This is an important bill. It comes Mr. BAUCUS. Madam President, I turing society to a service job society. none too soon. American manufac- have a few more comments I would like Regrettably, those new jobs, service turing is calling out for help. This bill to make about this bill. I hope, though, jobs, pay quite a bit less than manufac- is part of the answer. we can get an agreement put together, turing jobs, and that has been true To ensure continued prosperity and a list of several amendments that from 1994 all the way up through the well-being, the American economy would then be in order. I know various current date. needs to start growing again, and this Senators and leadership are now dis- This next chart shows manufacturing bill is part of that solution. cussing that. It would be my hope we employment is now at its lowest abso- This bill is an important first step to could reach that agreement fairly soon lute level since July of 1950. Fewer address the economic circumstances in so we can get on with this bill. Americans are employed in manufac- which we find our country. Over the Let me just discuss for a few minutes turing today than at any time in more days to come, I look forward to work- what this JOBS bill is really all about. than half a century. We can see from ing with my colleagues on this bill. I It is a bill which the Finance Com- particularly thank the chairman of the the line from 1950 to today there is es- mittee reported last November. It is committee, Chairman GRASSLEY, who sentially the same number of jobs. something we simply must pass due to has done a terrific job in putting this Clearly, we are not doing very well. the WTO decision. I hope we can get it bill together in a way that focuses di- Why do I mention all this? First, it is enacted into law as soon as possible. rectly on the problem. I think this bill is important for fact. Second, we have to deal with it. We know we are here in large respect three reasons. First of all, it will cut We have to do something about it, and because of the WTO ruling which says that brings us to the bill before us, the we must repeal the so-called FSC/ETI taxes for domestic manufacturers. JOBS bill. We have targeted the provi- regime because it is WTO illegal and That is important. The bill will also sions of this bill directly at manufac- replace it with a system that helps our simplify taxes for American companies turing employment. Why? Because that domestic manufacturers in a way that operating overseas. That, too, is impor- has been the greatest problem. is legal under WTO. There are various tant. And it will bring us into compli- This bill will not be a complete solu- ways to fashion a replacement bill, and ance with an unfavorable ruling of the tion. By no stretch of the imagination the other body has a replacement bill World Trade Organization—no small will this bill be a complete solution to which gives the break to American cor- matter. The JOBS bill, the bill before job loss in America. To help create and porations, C corporations, big corpora- us, reduces the tax rate for domestic keep manufacturing jobs, we also need tions. We have a different bill. Our bill manufacturers by 3 percentage points. to do many other things in addition to says if you are a C corporation, if you So if you are in the top bracket, it is 3 passing this bill. We need to open for- are an S corporation, sole proprietor- percentage points. If you are a com- eign markets to American goods much ship, partnership—whatever—if you pany or corporation in a lower bracket, more aggressively than we have done manufacture products domestically in it is still about the same. Actually, it in the last couple of years. We need to the United States of America, whether is a 9-percent deduction for the cost of improve education, to preserve the you export is irrelevant. You get the producing or manufacturing products comparative advantage of American same reduction in your tax rate. That in the United States, which translates workers. Clearly, we have to be the is to help small business as well as big to about a 3-point reduction. Cutting smartest—hopefully at least try to be business. So business together across taxes for domestic manufacturers will the smartest—in the world. To do that, the board is helped, not just big busi- help prevent layoffs. It will help pre- we have to educate our kids and keep ness. serve jobs. As we all know, this coun- education at all levels, and to retrain We all know that is important be- try has lost 3 million—think of that, 3 workers. cause most new jobs are created by million—manufacturing jobs since July We also need to make health care small businesses. There are many more of 2000. That is net loss. We have lost a more affordable. Health care costs in small business people in this country lot more and gained some, but the net the United States are too high. They than there are big business. Small busi- loss is 3 million manufacturing jobs place a big burden on employment, on ness tends to be more creative in cre- lost since July of 2000. businesses. The cost of health insur- ating new jobs and expanding rather When I talk to manufacturers in my ance and the cost of health care is way than big corporations. home State, as I know the Presiding too high and should be lowered. We I will stop here. There is much more Officer does in her own State, they say also need to provide assistance to dis- to say about this bill. the rising cost of doing business is one placed workers. They need to be re- One final point. I mentioned it is paid of the biggest impediments to business. trained. for. It is paid for by measures which in It is a big problem business has. By This bill will do two things that will themselves should be good public pol- cutting the cost of doing business, this icy and we should pass, anyway. What make an important contribution to bill will help alleviate the job loss. creating and keeping manufacturing are they? They are corporate tax loop- This bill will help companies do their jobs in America. This bill will con- hole closures. They are shelters legisla- job. This bill helps small businesses as tribute to economic growth and in- tion. They are post-Enron provisions well as larger businesses. The Tax Code creased demand. This bill will help re- that have not yet been enacted into treats different kinds of businesses dif- law. There is something else called duce manufacturers’ tax burdens. It ferently, as we all know. C corpora- silos, to shut down another abusive will reduce the tax rate for domestic tions, as you well know, are companies manufacturers by 3 percentage points. international transaction. Not only is this bill paid for, it is that exist as a separate entity from Basically, it is a 9-percent reduction paid for in ways that will help restore their owners, thus limiting the owners’ for domestic manufacturing income, consumer and investment confidence in liability. The corporations can be lia- which translates to about a 3-percent- American business which, in and of ble for various actions, but the stock- age point break for corporations. The itself, will help create and keep jobs in holders themselves, the owners, are JOBS Act will thus help all manufac- America. not. That is the reason why companies turers who produce goods in the United I yield the floor. organize themselves, very often, in States. Mr. GRASSLEY. I suggest the ab- that manner. Cutting taxes for domestic manufac- sence of a quorum. This chart shows about 26 percent of turers will help prevent layoffs. It will The PRESIDING OFFICER. The companies in the United States are or- help. It will not solve the entire prob- clerk will call the roll. ganized as C corporations; that is, they lem, but it is going to certainly help. It The assistant bill clerk proceeded to limit their owners’ liability, the share- will help preserve jobs, and this bill is call the roll. holders themselves. The owners are not paid for. It will not contribute to the Mr. BAUCUS. Madam President, I liable. deficit. It thus will not raise interest ask unanimous consent that the order Sole proprietorships and partnerships rates. It thus will not levy that hidden for the quorum call be rescinded. are businesses where the owners of the

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00050 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.029 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2069 business are fully liable for its debts. S tax credits. Foreign tax credits prevent budgets of the administration and the corporations are smaller businesses income from being taxed twice. There Budget Committee, which will be com- that are incorporated for liability pur- is a repatriation provision that encour- ing before the floor on Monday, will poses but taxed as a partnership. The S ages companies to bring back overseas not include the cost of the war in Iraq. corporations, partnerships, and sole profits for investments in the United It will not include war costs. In fact, proprietorships are collectively known States. There is also a provision that defense spending is going to be cut a as passthrough entities. These are gen- will ease the tax compliance burden for little bit. One might wonder why, when erally smaller businesses, while C cor- small businesses looking to gain access costs are going up. My guess is the ad- porations are larger concerns. to overseas markets. These are worth- ministration will come back with a Why do I mention all of that? I men- while, and they are measures that will supplemental next year with a big in- tion all that because, as I earlier stat- help restore fairness and integrity to crease in Iraq costs and war costs. This ed, about a quarter of companies are our American tax system. budget does not include that and it organized as C corporations, but about As I mentioned, the bill repeals the should. That would be more honest. three-quarters of American companies current FSC/ETI laws. Why? To bring Second, the budget does not include are organized differently, either as sole us into compliance with WTO obliga- the cost of making expiring tax cuts proprietorships, as partnerships, or as tions. Our bill replaces a tax incentive permanent. That is the view of the ad- S corporations. We want to make sure that was dependent on exports with a ministration, that they should be per- that not just standard, garden-variety tax incentive that is not dependent on manent. The budget does not include C corporations get the benefit of this exports. A company can utilize this tax that. bill but that all companies that manu- benefit in this bill whether the product It doesn’t include providing alter- facture domestically get the benefit of it manufacturers is exported. So long native minimum tax relief. We all this bill, so we have changed the under- as it is manufactured in the United know this Congress is going to have to lying bill. States, that company qualifies. We will enact alternative minimum tax relief Currently, today, under the FSC/ETI partially offset the loss of tax benefits soon, and it is very expensive. That regime, which has been declared illegal to U.S. exporting companies, therefore, also is not included, to say nothing of by the WTO, the C corporations are the by the repeal of the current law, which the cost of paying for the baby boomers ones that get the benefit of the tax I said is inconsistent with WTO, and when they start to retire in the not too break. It helps them export products will also provide benefits to all Amer- distant future. overseas. But in the Finance Com- ican manufacturers, providing a needed Deficits are going to be a lot larger mittee, we felt, not just big companies boost to our economy. than contemplated in either the admin- but all companies should get the ben- Another point: This legislation is istration budget or the budget resolu- efit of reduced taxes. completely paid for. Repealing the old tion that will come to the floor. Nearly three-fourths of the manufac- FSC/ETI regime will cover most of the I say that because it is all the more turers in this country are S corpora- cost for the new tax incentive. By re- reason why this bill must be budget tions, partnerships, and sole propri- pealing the current law, that almost neutral. I say that also because there etorships. About three-quarters of all pays for what we are doing here. are other Members of Congress who new jobs that are created are by these The international provisions are paid have a different view about that. They small businesses. This chart shows for; that is, the additional provisions of would not like this to be budget neu- that. About one-half of all employees the bill are paid for with offsets that tral. They would like there to be fur- in this country are employed not by curb abusive tax shelters. We have off- ther tax cuts but not paid for. I think big C corporations, they are employed sets in this bill. They will not just cre- that is not wise. Frankly, psycho- by the other passthrough entities I ate revenue, but they are also good logically, as well as actually, the mentioned. About three-quarters of all provisions, good tax policy in and of American people will appreciate us the jobs created and held in the United themselves—clamping down on shel- having a budget-neutral bill and trying States are not by the big companies ters, the inversions provisions, post- to work toward a balanced budget. but by all the other smaller companies. Enron reforms, something else called That means people around the country That is why we have extended this SILOs, which is a gimmick, frankly, are saying those guys and gals in bill to include so-called passthrough that international American compa- Washington maybe have their heads entities. Our smaller businesses are the nies are using to shelter their income. screwed on straight. Maybe they are backbone of my State’s economy and All that is shut down, and that pays for doing something right back there. certainly the backbone of the economy the rest of the bill. Again, these shelter Maybe they are not frittering away of the Presiding Officer’s State. I think provisions are absolutely critical to be taxpayer money. they deserve tax relief just as much as enacted. The more we do what is right, by larger businesses do. Let me mention in a little bit more keeping this budget neutral, not suc- In addition, by including partner- detail the three reasons for supporting cumbing to the siren song of lowering ships and sole proprietorships, more of this bill. I mentioned it is fully offset taxes but not paying for them, the bet- our agricultural producers will become and the revenue goes to manufac- ter off we will be in so many respects. eligible for this tax relief. turing. I think that is a principle we Another point: We have a heck of a The JOBS bill that is before us also should maintain. We should not put in- job ahead of us, a huge challenge. What includes long overdue international tax centives in this bill or change this bill is it? It is how to create more jobs in reform. We are not just talking about in a way that deviates from that. We America, how to keep jobs in America, the domestic manufacturing reduction should also not change this bill in any and how to help those who have lost rate; we are also talking about inter- way that reduces or diminishes stop- jobs—no easy task. It is extremely dif- national tax simplification. That is for ping the abuses of tax shelters. That is ficult. We all know the statistics. bigger American companies that do op- a principle we should absolutely main- Three million manufacturing jobs lost erate overseas. We want to make sure tain. in the last several years. We have to do our American companies are com- I might say something about our something about that. The real ques- peting on equal ground with rivals budget deficit. Our current budget def- tion is, what do we do? What is the from other countries. One way to do icit is projected at about $521 billion right thing to do? Some say it is OK. that is to limit double taxation. When this year. We all know that is basically That is the way things are. That is our companies are taxed twice, that an understatement. It is going to be international competition. That is makes them less competitive. We have much worse. Why? Because the admin- globalization. It just happens. In the included international tax simplifica- istration’s budget, as well as the budg- long run we are all better off. Some say tion and reform provisions that will et resolution pending in the Senate that. help American companies compete Budget Committee, does not include Essentially that was a statement of with foreign companies overseas. several factors which more accurately Mr. Mankiw the other day that has A number of provisions will help reflect the true deficit our country is been bandied about so much. He said companies better utilize their foreign facing. What are those? First, both the that is the way it is. There will be new

VerDate jul 14 2003 01:29 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00051 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.031 S03PT1 S2070 CONGRESSIONAL RECORD — SENATE March 3, 2004 technologies. Companies will be able to we can sell products overseas. When we These aren’t abstract numbers. They compete better. They have to lower start selling products overseas, that have real world, dramatic impacts in their costs, and they can lower their means more jobs in America. It is pret- South Dakota and across our country. costs if they can compete any place in ty doggone simple, but it is not being And the millions of affected families the world. If that means jobs overseas, done. are looking to us for answers. They lowering costs, that makes American I might also add that there are other don’t want hand-outs; they want jobs. companies more competitive. things we could be doing that we are Unfortunately, American has lost I have a different view. I think we not doing. I mentioned education. We manufacturing jobs every month since have to face up to the challenge of cre- are cutting education in this country. this administration took office—every ating more jobs and retraining Ameri- We are not fully financing No Child single month. This is unprecedented. cans so they can have jobs, and keeping Left Behind. How are we going to com- It’s also dangerous for our economy. those jobs in America. That is, we can- pete in the world if we don’t give full Manufacturing is more productive, it not be passive. We have two choices: due to education? We have all gone pays higher wages, and provides more try or do nothing. overseas and visited high schools in benefits than other sectors of the econ- I say we try to create more jobs in countries worldwide. I have. The grad- omy. Manufacturing jobs are the kind America; we try to keep more jobs in uates in Pusan, Korea, are bright as of jobs you can raise a family on. America; we try to retrain people and the dickens, and they are hungry. They’re the kind of jobs that make it help people who have lost jobs. We have We have great schools and great possible for middle-class families to to do something about it. teachers. But there is so much more we put their kids through college, and put The administration thus far has been can do. In my State—and this may be something away for retirement. passive. It has gone AWOL. It does not true in other States—teachers are leav- We have clear choices in facing this seem to really care. I do not see any af- ing because their salaries are so low. problem. We can let jobs move over- firmative programs to create jobs in They cannot teach. A lot of schools in seas—or we can fight to keep them America. We need them. It is a hugely the country are cutting back on gifted here. We can try to create jobs here, or complex problem in both the short children programs. They don’t have we can do nothing in the face of term and long term. In the long term, any money. Why are we cutting back globalization. it is education—science, math, engi- on gifted kids? That certainly helps all We can provide help for workers who neering. Did you know we don’t grad- kids, including the underprivileged. are losing their jobs, or we can look uate nearly as many engineers as does Madam President, I will yield the the other way. And we can strengthen Japan, Europe? And China graduates floor because I see our Democratic worker protections, or we can strip about three times the number of engi- leader in the Chamber. He has a lot to away overtime and other benefits that neers we do. Did you know that? How tell us. Certainly, it will add im- have been a hallmark of the American long can we continue that? In the long mensely to this discussion. I urge us to workplace. term, we cannot. It is unsustainable. think critically about the real prob- A couple of weeks ago, President I must also say the amount of finan- lem. We cannot close our borders and Bush and his economic advisors cial aid or the amount of support in put our heads in the sand. We have to weighted in on this issue and told basic research has dropped tremen- meet this challenge head on. This is Americans it was a good idea to ship dously in America. The number of engi- part of that effort. jobs overseas and we ought not worry I yield the floor. neers who graduate in America is now The PRESIDING OFFICER. The about it. I don’t see it that way, and I about 30 percent less than it was not Democratic leader is recognized. know people in South Dakota don’t see too many years ago. The figure is Mr. DASCHLE. Madam President, I it that way. And we need to do some- worse than that. We are not going to be compliment the Senator from Montana thing about it. able to compete in the long run if we for his words. I have not heard all of Today’s legislation is the second step continue that. It can’t be done. There his remarks this morning, but I could in this process. The first step was the are lots of other long-term measures not agree more that this is a problem creation and the passage of a very im- we have to undertake. that has to be addressed head on. As he portant highway bill, which will create There are also in the midterm things noted, this legislation gives us an op- hundreds of thousands, if not millions, we could be doing and we are not. What portunity to do so. It may not be the of new jobs over the course of the next are they? No. 1, we are not opening for- ultimate solution, but it is a critical 6 years. This is the second step. eign markets. Look at India, look at building block in our effort to restore The foreign sales corporation regime other countries in the world that are the economy and create new jobs. was created to counterbalance provi- closed to America, particularly the I hope that very shortly we can get sions in the Tax Code that create in- country of India. We hear about all the on with the debate. We had an agree- centives to move operations overseas. call centers going to India. We don’t ment not to offer amendments, of It provided tax advantages for Amer- hear about goods being exported to course, until people have had a chance ican companies that keep their jobs in India for a very good reason: India is to make opening statements. I intend America and ship their products over- by and large closed. They are closed to to make a short one. I hope in the not seas. intellectual property rights, closed to too distant future we can begin the But the World Trade Organization so many markets, so many products. real debate. We don’t have a lot of has decided that these advantages were India is closed. What are we doing time. We have 3 days. Senator FRIST is an unfair subsidy and needed to be about that? Not much. right that we have a lot to do in a eliminated. And if they weren’t elimi- The same can be said for other coun- short period of time. If we are going to nated, international sanctions would tries—China. Remember the WTO? maximize the use of these 3 days, it is follow. Those sanctions kicked in be- They are a member of the WTO. We time to get on with amendments. I ginning March 1. gave them PNTR. China has a lot more know Senator HATCH is prepared to The question before us is what to re- to do. offer the first one. We hope that cer- place the old export tax regime with? What are we doing in trade? Basi- tainly before the end of this noon hour, The Bush administration is com- cally looking to countries—with no dis- we will have offered the first amend- pletely focused on overseas activities respect—such as Bahrain and Morocco. ment. and has proposed nothing to encourage These smaller countries don’t have Mr. President, these are very dif- manufacturing job creation at home. huge commercial benefit to the United ficult times for millions of American But thanks to Chairman GRASSLEY States. It is easier to reach trade families. and Senator BAUCUS, we have another agreements with those countries. It is Nine million Americans can’t find solution before us. much more difficult to go after where jobs. We have the highest long-term The centerpiece of their legislation is the real problem is. As I mentioned, unemployment rate in 20 years. And in creating tax incentives for manufac- this country is not doing that, and it the last 31⁄2 years, our economy has lost turers that will keep and create good should do that. It should start working 2.9 million jobs; 2.8 million of those jobs in America. Their proposal is one more aggressively to open markets so jobs were manufacturing jobs. of the most important opportunities we

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00052 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.034 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2071 will have this year to begin addressing In the short term, we have to work member has talked about how impor- America’s manufacturing crisis. together to restore fiscal sanity to the tant it is, and we are doing nothing. We Just as importantly, this bill gives us budget. have a gentleman’s agreement that an overdue opportunity to do more. The Federal deficit this year will be this would be for debate only, but I We need to accelerate and increase half-a-trillion dollars—with no end in think the Democratic leader would domestic manufacturing tax incen- sight to the red ink. This debt could agree with me, and I think everybody tives, and establish a strong job cre- cripple our economy and destroy our should be put on notice that this can- ation tax credit. children’s future. not go on all day long, that this is ri- We need to prohibit tax deductions In the longer term, our Government diculous; would the Senator agree to for outsourcing expenses, and require should assist people with education and that? notice to employees about outsourcing training so they can seize the opportu- Mr. DASCHLE. Madam President, I plans. Every community has a right to nities that rapid change creates. We respond to the Senator from Nevada, know how many employees are losing need to help people who are displaced the distinguished assistant Democratic their jobs, why then are losing their by change, and we need to make sure leader, that the schedule is clear. We jobs, and where those jobs are being America remains on the cutting edge of have this afternoon, we have tomor- sent. innovation. row, and, let’s face it, honestly, we We need to restrict outsourcing of The administration is not facing ei- only have Friday morning, and we will government contracts. ther of these challenges. We have the be under great pressure, I am sure, not We need to help workers who are largest budget deficits in all of Amer- to have any amendments offered be- hurt by outsourcing, and make sure ican history, and the administration is yond midmorning on Friday. they have access to training and health drastically underfunding training and So for all intents and purposes, we care while they get back on their feet. education. have a little bit more than a day to de- And we need to reverse some of the bate this critical legislation prior to Bush administration’s worst policies— The President’s budget recommends $9.3 billion less for the President’s own the time the majority leader has al- like eliminating overtime for 8 million ready indicated we are going to be workers, including veterans who have educational reform plan than the new law calls for. moving to the budget, setting aside been given training in the military and this legislation. are now ineligible for overtime pay as By choosing tax cuts for those at the top over assistance for States, the We are going to be assessed $4 billion a result of this regulation. We need to in tariffs beginning this week if we do do that. American workers have the President has forced drastic increases in tuition at public colleges and uni- not correct the current situation. So same rights they have always had. this legislation is urgent. It needs to be That fact needs to be reemphasized versities. The administration has fought Demo- addressed. with the legislation we will offer on I think we have some very critical cratic efforts to help dislocated work- this bill. amendments that ought to be offered ers upgrade their skills at community We can’t wait until next year to in this very narrow window to accom- colleges. make these improvements. Millions of modate concerns on both sides of the At a time when other countries are American families need them today. aisle. I hope we can do so. Frankly, as feverishly trying to challenge Amer- And I have seen firsthand, in South Da- the Senator suggests with his question, ica’s preeminence in critical tech- kota, why this is so important. we need to do it soon. I recently toured a manufacturing nology, the administration, through The PRESIDING OFFICER. The Sen- plant in Sioux Falls. Graco Incor- neglect and politicization has weak- ator from Nevada. porated is the world’s leading manufac- ened America’s science and technology Mr. REID. Madam President, it is turer of fluid-handling systems and infrastructure and undercut America’s true also, is it not, that we have equipment. They’ve been in business scientific edge. made—and I would like to hear the for 78 years. They employ about 165 The decline in American manufac- Democratic leader respond to this—a people. turing isn’t just happening on Presi- fair response? The majority has an The plant manager showed me two, dent Bush’s watch. It is happening in amendment they want to offer, spon- nearly identical parts. The first was part because of President Bush’s poli- sored by Senator HATCH, dealing with made in Sioux Falls. The other—made cies. extension of some tax credits. We then overseas—wasn’t quite as high-quality, Our choices are clear. We can follow said we would like to offer an amend- but it cost a little less because the peo- the administration’s path and make it ment to stop what—it is not a crime ple who made it were paid less, with no easier and cheaper for companies to but it is close to it in our country benefits. ship American jobs overseas, or we can today with all the outsourcing of all The manager showed me those two fight to keep good jobs in America. We these contracts, and we want to make parts. Then he introduced me to the can turn our back on millions of work- sure the U.S. Government contracts workers who would lose their jobs if ers and families who cannot find jobs, are not outsourced unless there are Graco took the easy, offshoring route. or we can help them get back on their certain limitations placed upon them. He said, ‘‘I don’t want to be the one to feet and get back to work. Then they would come back with an- have to tell them they don’t have jobs It is our hope that, in a bipartisan other amendment sponsored by Sen- anymore.’’ way, we can find ways to ensure that ator BUNNING. Then we would come The people at Graco are resisting the these goals can be achieved, not only back with another amendment spon- temptation to export their workers’ with this legislation but certainly be- sored by Senator HARKIN dealing with jobs. They’re doing everything they ginning with the amendments we will overtime, and this is no secret; this is can think of to be good, responsible offer throughout the debate on this bill an issue about which we have great corporate citizens of my State. The and hopefully with final passage ac- concern as to what the administration last thing the Federal Government corded this legislation someday soon. is doing with American workers with should do is make that job any harder. I yield the floor. overtime. Our responsibility is to make it easi- The PRESIDING OFFICER. The Sen- Is there anything in this agreement er for Graco and thousands of other ator from Nevada. the Democratic leader sees that should companies to keep and create jobs here Mr. REID. Madam President, before prevent us from moving forward on at home. the distinguished Democratic leader this critical legislation? We have even As I said, this bill is one step in a leaves the floor, I would like, through agreed to time limits; is that not true? long process. By itself, it will not com- you, to pose this to him: We have been Mr. DASCHLE. The Senator from Ne- pletely reverse the unpredecented de- here now for approximately 2 hours on vada is correct. We have agreed with cline in American manufacturing that this very important legislation. The our Republican colleagues to limit the has occurred since 2001. That will re- Democratic leader has talked about amount of time devoted to each of quire a comprehensive plan and sus- how important it is, the distinguished these amendments. tained bipartisan cooperation over a chairman of the committee has talked I see the distinguished chair of the period of time. about how important it is, our ranking Finance Committee, and it looks as if

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00053 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.008 S03PT1 S2072 CONGRESSIONAL RECORD — SENATE March 3, 2004 he may be about to propound a unani- from West Virginia because I already To describe this commission as inde- mous consent request. Perhaps we can made arrangements for him to speak pendent is to turn that word’s defini- yield the floor to accommodate his in- before we completed this agreement. tion on its head. In fact, the deeper one terests in doing so. I think we all hope Mr. REID. Madam President, I pro- delves into the text of the Executive to achieve the same goal. Let’s move pound that in the form of a unanimous order that creates the President’s so- this bill forward. Let’s have a good de- consent request, with the under- called independent commission, the bate about amendments, up or down, standing that the first amendment be more one finds that the commission is and let’s see if we can complete our offered as soon as he finishes. That will ill-equipped to discover just what went work on this legislation in a timely be good. wrong with the prewar intelligence on way. The PRESIDING OFFICER. Without Iraq. I yield the floor. objection, it is so ordered. The Senator At first glance, the charter of the The PRESIDING OFFICER. The Sen- from West Virginia. President’s commission appears very ator from Iowa. Mr. BYRD. Madam President, I broad. It is to assess whether the intel- Mr. GRASSLEY. Madam President, I thank the distinguished Democratic ligence community of the United ask the following unanimous consent whip and I thank the distinguished States is sufficiently authorized, orga- request. We have perfecting amend- chairman of the committee for his nized, equipped, trained, and resourced ments that have been cleared on both courtesy. to tackle the threats of terrorism and sides. Therefore, I ask unanimous con- INDEPENDENT COMMISSIONS ON NATIONAL weapons of mass destruction. As part sent that the first-degree and second- SECURITY ISSUES of that goal, the commission is to com- degree perfecting amendments that are Most of us are familiar with the pare prewar intelligence on Iraq with at the desk be considered and agreed to Aesop’s fables, having read some of what has so far been discovered. en bloc and that the motions to recon- them at one or more times during our That mission sounds like a mouthful, sider be laid upon the table; provided lives. Aesop once told the story of a but it really misses the point of why further that the committee substitute jaybird that ventured into a yard the American people are calling for a be agreed to and considered as original where peacocks used to walk. There commission to investigate in this mat- the jay found a number of feathers fall- text for the purpose of further amend- ter. en from the majestic birds when they ment. I further ask unanimous consent The public has a right to know why had last molted. He tied them all to his that the next first-degree amendments our intelligence on Iraq was so wrong, tail and strutted toward the peacocks. in order be the following: a Senator how the administration may have mis- His cheat was quickly discovered, and Hatch and Senator Murray amendment represented its intelligence, who is the peacocks harassed the imposter on R&D, with a Bingaman second-de- going to be held accountable for mis- until all his borrowed plumes had fall- gree amendment which is relevant to leading our country into war, and what en away. When the jay could do no the first degree; then Senator DODD will be done to fix the problems with more than return to his own kind, hav- dealing with outsourcing; then Senator our intelligence. Those are exactly the ing watched him from afar, they were questions an independent intelligence BUNNING and Senator STABENOW deal- equally affronted by the jay’s actions. panel should be investigating, and yet ing with accelerating manufacturers’ The moral of the story, said Aesop, is tax cut; and then the fourth amend- that it takes more than just fine feath- the President’s commission only skirts ment will be Senator DASCHLE or his ers to make fine birds. those key issues. designee. It is an age-old lesson that the Con- What is more, even though the Presi- The PRESIDING OFFICER. Is there gress should hold in its mind as we con- dent promised that his commission will objection? The Senator from Nevada. sider how best to investigate the dis- investigate current intelligence on Mr. REID. Madam President, reserv- torted and misleading intelligence that North Korea, Iran, and Pakistan, his ing the right object, I wish to express the administration used to build its Executive order, in fact, does not both- my appreciation to the chairman of the case for war in Iraq. er to direct the commission to review committee. He, in the statement he has On February 6, the President an- intelligence on those countries. In- made so far, along with the ranking nounced the creation of his own com- stead, the President’s Executive order member, underscored the importance mission to investigate our intelligence directs the commission to focus its en- of moving this legislation, and this is agencies to find out, in the words of Dr. ergies on Libya and Afghanistan. Libya movement in that direction. David Kay, why we were almost all and Afghanistan are not countries that As we indicated in the dialog between wrong about the administration’s pre- the President has labeled as part of his Senator DASCHLE and this Senator, we war claims of huge Iraqi stockpiles of axis of evil. A real independent intel- will agree on time limits anytime the weapons of mass destruction. If Con- ligence commission would shine new Senator wants to work something out gress is serious about getting to the light on how we assess the threats of in that regard. We will be happy to do bottom of this apparent intelligence North Korea and Iran, not be distracted that. This is a very good first step, and failure and the administration’s rush by sideshows that will keep the com- we do not object. to war, we must realize that once mission busy until March 31, 2005. The PRESIDING OFFICER. Without stripped of its dazzling plumage, the The President has carefully drafted objection, it is so ordered. White House proposal for its own so- this Executive order to allow himself The amendment (No. 2646) was agreed called independent commission is a to serve as the gatekeeper on what in- to. real, honest to goodness turkey. It is formation the so-called independent (The amendment is printed in today’s not only fine feathers that make fine commission might have access to. RECORD under ‘‘Text of Amendments.’’) birds. While the President directs Federal The amendment (No. 2645), as amend- The President has described the agencies to cooperate with this com- ed, was agreed to. panel that he created as being an inde- mission, he also has created a giant (The amendment is printed in today’s pendent commission. Well, nothing loophole that would prevent the most RECORD under ‘‘Text of Amendments.’’) could be further from the truth. This important intelligence products from The committee amendment in the commission is 100 percent under the being read by his commission. nature of a substitute, as amended, was thumb of the White House. Who cre- The Executive order reads as follows: agreed to. ated the panel’s charter? The Presi- The President may at any time modify Mr. REID. Madam President, we now dent. Who chooses the panel members? the security rules or procedures of the have an amendment that will be of- The President. To whom does the panel commission to provide the necessary fered as soon as Senator HATCH arrives. report? The President. Whom shall the protection to classified information. Senator BYRD saw we were not doing a panel advise and assist? The President. I was born at night but not last lot on the floor, and he asks, through Who is in charge of determining what night. All of America knows that the me, that he be able to speak for up to classified reports the panel may see? White House is in a dispute with the 20 minutes at this time. The President. Who gets to decide September 11 Commission over intel- Mr. GRASSLEY. Madam President, I whether the Congress may see the pan- ligence reports that were read by the feel as if I owe that to the Senator el’s report? The President. President. The commission wants

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00054 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.039 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2073 them. The White House will not give The revelation by Dr. Kay that he served as Chairman of the Senate Intel- them. The Executive order drafted by does not believe any stockpiles of ligence Committee, could resign be- the President to create an intelligence weapons of mass destruction existed in cause of the administration’s refusal to commission makes sure that his own Iraq has dealt a blow to the President’s let the Commission do its work. What commission will never see documents case for war. It has shaken the Amer- could possibly be the reason for this that the President does not want them ican people’s faith in their Govern- stonewalling by the White House? to see. ment. We owe it to the American peo- It is as if a whole swath of the Wash- At least the 9/11 Commission has the ple to get to the bottom of what went ington establishment has completely power to issue subpoenas for critical wrong with our intelligence agencies forgotten the horror of the terrorist at- information. The President’s intel- and whether the administration mis- tacks that killed 3,000 innocent people. ligence commission does not even have used the intelligence that it was pro- But the American people have not for- that power. The deck is being stacked vided. gotten. The American people have against a full and open inquiry on the The President has simultaneously their priorities straight. They place prewar intelligence on Iraq. Congress is promised a commission to investigate getting at the truth of how that trag- not even assured of having access to these matters and stacked the deck edy was carried out above election year the commission’s report. against the independence of his very politics. The President has required that the own panel. That is not the right way to Enough with the stonewalling. commission send its report to him in gain the confidence of the American Enough with the foot dragging. Enough March 2005 and then within 90 days the people in their Government. It is yet with the election year politics. The President will consult with the Con- another in a string of attempts by this Senate acted correctly a few days ago gress concerning the commission’s re- White House to mislead the American to extend the life of the 9/11 Commis- port and recommendations. people on issues of national security. sion so that it can get its work done, Why can the Congress not simply Congress must step in and correct and the House should promptly follow read the commission’s report? Why the grievous error that the President suit. Now Congress should act quickly should the White House be given the has made in creating a commission to create an independent Iraq intel- opportunity to reword, reshape, redact, that is not equipped properly to do its ligence commission. The confidence of or even flat out censor the so-called job. Congress should use the inde- the American people in their Govern- independent commission’s report be- pendent 9/11 Commission, a commission ment, the people’s government, hangs fore Congress can get their hands on it? that has shown itself to be fair, inde- It is quite possible that if this so- in the balance. pendent, and bipartisan, as a starting Madam President, I yield the floor called independent commission is al- point for how to create an independent lowed to proceed as the President has and I suggest the absence of a quorum. panel to investigate the Iraq intel- The PRESIDING OFFICER (Mr. directed, Congress will never have the ligence failures. If the administration HAGEL). The clerk will call the roll. chance to review the commission’s is serious about getting to the bottom The assistant legislative clerk pro- work. Tucked away in the President’s Exec- of this debacle, this new commission ceeded to call the roll. utive order is a provision that intends might even be created in just a matter Mr. HATCH. Mr. President, I ask to exempt this commission from judi- of days. unanimous consent that the order for cial review. Let us not forget that the The American people deserve answers the quorum call be rescinded. Office of the Vice President fought on why the administration relied on The PRESIDING OFFICER. Without tooth and nail in Federal courts, and is faulty intelligence to take this country objection, it is so ordered. still doing so, to keep the General Ac- to war without presence of an immi- AMENDMENT NO. 2647 counting Office, an arm of the Con- nent threat. A commission that is de- Mr. HATCH. Mr. President, I send an gress, from learning about the meet- signed to keep the inquiry under the amendment to the desk. ings of the Vice President’s energy thumb of the same White House that The PRESIDING OFFICER. The task force. misled Congress and the public about clerk will report. Could this provision be an attempt to the nature of the threat from Saddam The assistant journal clerk read as hide the work of the President’s intel- Hussein will never be able to operate follows: ligence commission from Congress? I independently. So Congress should not The Senator from Utah [Mr. HATCH], for would not put such a scheme beyond allow the President to get away with himself, Mrs. MURRAY, Mr. BAUCUS, Ms. the White House, which has already posting a fox at the door to the hen CANTWELL, Mr. SMITH, Mr. BUNNING, and Mr. demonstrated its zeal for secrecy. house. GRASSLEY, proposes an amendment num- The administration’s case for war in The structure of the 9/11 Commission bered 2647. Iraq appears to have been built upon is a solid foundation upon which to Mr. HATCH. Mr. President, I ask cherry-picked intelligence, produced conduct an inquiry into the adminis- unanimous consent that reading of the and massaged to hype the American tration’s prewar intelligence claims. amendment be dispensed with. people into going along with a war of The 9/11 Commission has been doing The PRESIDING OFFICER. Without choice. The President’s so-called inde- yeoman’s work in digging into all of objection, it is so ordered. pendent commission would allow the the events that led up to those cata- The amendment is as follows: White House to do the exact same num- strophic attacks on New York and (Purpose: To extend and modify the research ber on the commission’s report as it Washington. In fact, the only real prob- credit) did on prewar intelligence and anal- lem that the 9/11 Commission has faced At the end of subtitle A of title III add the ysis; namely, pick out only the parts is the lack of cooperation from the following: that it wants the public to see and bury White House. SEC. ll. EXTENSION AND MODIFICATION OF RE- the rest. After refusing to meet with the full SEARCH CREDIT. It is bitter irony that a report on membership of the 9/11 Commission, (a) EXTENSION.— the President and Vice President have (1) IN GENERAL.—Section 41(h)(1)(B) (relat- whether the administration covered up ing to termination) is amended by striking evidence that contradicted a rush to reluctantly proposed to meet only with ‘‘June 30, 2004’’ and inserting ‘‘December 31, war might itself be covered up under the chairman and vice chairman of the 2005’’. the terms of the President’s Executive panel. And for how long? Just 1 hour. (2) CONFORMING AMENDMENT.—Section order. The National Security Adviser has 45C(b)(1)(D) is amended by striking ‘‘June 30, So what is next? An independent flatly refused to participate in any 2004’’ and inserting ‘‘December 31, 2005’’. commission to investigate the Presi- public discussions with the Commis- (b) INCREASE IN RATES OF ALTERNATIVE IN- dent’s own commission? Is that so? I sion. The White House position on deal- CREMENTAL CREDIT.—Subparagraph (A) of wonder. Let us not make the mistake ing with the 9/11 Commission is so un- section 41(c)(4) (relating to election of alter- native incremental credit) is amended— of ignoring the shortcomings of the reasonable that the administration is (1) by striking ‘‘2.65 percent’’ and inserting White House’s version of an intel- drawing criticism from both sides of ‘‘3 percent’’, ligence commission on Iraq, only to be that panel. There is even talk that (2) by striking ‘‘3.2 percent’’ and inserting haunted by those problems later. former Senator Bob Kerrey, who once ‘‘4 percent’’, and

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00055 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.043 S03PT1 S2074 CONGRESSIONAL RECORD — SENATE March 3, 2004 (3) by striking ‘‘3.75 percent’’ and inserting the current research credit expires in ment has joined in partnership with ‘‘5 percent’’. just a few weeks, on June 30, 2004. businesses, large and small, in those in- (c) ALTERNATIVE SIMPLIFIED CREDIT FOR I believe that if we fail to act to ex- dustries to ensure that the research QUALIFIED RESEARCH EXPENSES.— tend this credit, we surely will see the dollars were expended in the United (1) IN GENERAL.—Subsection (c) of section negative effects manifest in lower eco- States so that the jobs were created 41 (relating to base amount) is amended by redesignating paragraphs (5) and (6) as para- nomic growth, fewer jobs, fewer inno- here. We as a nation have reaped the graphs (6) and (7), respectively, and by in- vative products, and opportunities lost benefits of that research. serting after paragraph (4) the following new as research is taken from this country It seems clear to me that if we want paragraph: to other nations that offer more at- to keep our Nation and our economy ‘‘(5) ELECTION OF ALTERNATIVE SIMPLIFIED tractive incentives. strong and growing, it is vital that we CREDIT.— Our colleagues many times have ex- maintain and even enhance our posi- ‘‘(A) IN GENERAL.—At the election of the pressed their resounding support for tion as the world leader in techno- taxpayer, the credit determined under sub- the research credit and I hope they will logical advances. Our Nation simply section (a)(1) shall be equal to 12 percent of again. This amendment not only would must continue to invest in research so much of the qualified research expenses extend the credit for 18 months, until for the taxable year as exceeds 50 percent of and development, especially in the pri- the average qualified research expenses for December 31, 2005, but also would allow vate sector. And, the Federal Govern- the 3 taxable years preceding the taxable businesses to choose a new way to cal- ment must affirm its role as a partner year for which the credit is being deter- culate the credit so that more re- in those private-sector endeavors. mined. search-intensive companies can lower I believe the best way to ensure that ‘‘(B) SPECIAL RULE IN CASE OF NO QUALIFIED their costs of U.S.-based research ac- private-sector investment in R&D con- RESEARCH EXPENSES IN ANY OF 3 PRECEDING tivities. tinues at the health rate needed to fuel TAXABLE YEARS.— The American taxpayer relies on us further productivity gains is to extend ‘‘(i) TAXPAYERS TO WHICH SUBPARAGRAPH to make the right policy choices for the current-law research credit and APPLIES.—The credit under this paragraph the long-term health of our economy. make that credit more widely avail- shall be determined under this subparagraph We have faced and are still facing if the taxpayer has no qualified research ex- able. Ideally, the credit should be made penses in any 1 of the 3 taxable years pre- major challenges both to our national permanent. ceding the taxable year for which the credit security and to our economic security. I have long advocated a permanent is being determined. Time and again we have looked to the credit and this body is overwhelmingly ‘‘(ii) CREDIT RATE.—The credit determined industries on the cutting edge of new on record for a permanent research under this subparagraph shall be equal to 6 and improved technologies to help us credit. During the Senate’s debate on percent of the qualified research expenses for meet those challenges. the 2001 tax cut bill, I offered an the taxable year. My home State of Utah is a good ex- amendment to provide for such a per- ‘‘(C) ELECTION.—An election under this ample of how State economies benefit manent credit that the Senate adopted. paragraph shall apply to the taxable year for from the research tax credit. Utah is Unfortunately, that provision was which made and all succeeding taxable years unless revoked with the consent of the Sec- home to a large number of firms that dropped in conference and we lost a retary. An election under this paragraph invest a high percentage of their rev- great opportunity. may not be made for any taxable year to enue on research and development. Given our budget deficit situation, I which an election under paragraph (4) ap- In Utah, 5 percent of the workers— do not believe it is possible politically plies.’’ 51,000 people—work in the research-in- to make the research credit permanent (2) COORDINATION WITH ELECTION OF ALTER- tensive high technology sector. That on this bill. Ironically, though, a per- NATIVE INCREMENTAL CREDIT.— includes over 10,000 people working just manent credit costs no more than one (A) IN GENERAL.—Section 41(c)(4)(B) (relat- to design computer systems, and over that is regularly extended. Because of ing to election) is amended by adding at the 6,000 producing medical equipment. the urgency and importance of this end the following: ‘‘An election under this And there is a lot of R&D taking place paragraph may not be made for any taxable matter, however, this amendment year to which an election under paragraph outside of Utah’s high-tech sector. seeks only a temporary extension. (5) applies.’’ Just to give one example, more than Let me point out a few key points for (B) TRANSITION RULE.—In the case of an 7,000 people work in Utah’s chemical our colleagues so they can understand election under section 41(c)(4) of the Internal industry, and workers in that industry the importance of the research credit. Revenue Code of 1986 which applies to the benefit from research and development These are according to the staff of the taxable year which includes the date of the taking place in Utah and throughout Joint Committee on Taxation. enactment of this Act, such election shall be the country. Aerospace and the phar- The primary category of expendi- treated as revoked with the consent of the maceutical industries are two more ex- tures that qualify for the research Secretary of the Treasury if the taxpayer amples of big Utah employer groups credit are wages paid to employees per- makes an election under section 41(c)(5) of forming research in the Unites States. such Code (as added by paragraph (1)) for that reap the benefits of R&D. such year. I want Utah companies to be able to In 2001, more than 15,000 taxpayers (f) EFFECTIVE DATES.— buy better manufacturing equipment, claimed the research tax credit—42 per- (1) SUBSECTION (a).—The amendments made more reliable electronics, and have ac- cent of these businesses were engaged by subsection (a) shall apply to amounts paid cess to more efficient quality control in manufacturing. or incurred after the date of the enactment techniques. The workers who use new However, of the total $6.5 billion in of this Act. inventions will get just as many bene- research credits claimed in 2001, 66 per- (2) SUBSECTIONS (b) AND (c).—The amend- fits as workers who create those new cent of those dollars were claimed by ments made by subsections (b) and (c) shall inventions. And the evidence clearly manufacturers. When you look at the apply to taxable years beginning after De- shows, that the research credit will in- size of the companies claiming the cember 31, 2004. crease innovation. credit in 2001, you see that 68 percent of Mr. HATCH. Mr. President, the In short, there are tens of thousands the firms claiming it had assets of $10 amendment I am offering today is an of employees working in Utah’s thou- million or less. important and appropriate one for any sands of technology based companies, The research credit translates into bill that has the word ‘‘jobs’’ in its with tens of thousands more working real jobs in the United States and, as title. It is a bill to extend and expand in other sectors that engage in R&D. the statistics show, it is our small- and a tax provision that is central to cre- Beyond that, practically all of Utah’s medium-size domestic manufacturers ating and retaining U.S. jobs—the re- hundreds of thousands of workers ben- that most benefit from the research search credit. I am joined in this effort efit from higher productivity coming credit. by Senators MURRAY, BAUCUS, CANT- from the innovations that researchers A great deal of the reason our econ- WELL, SMITH, BUNNING, and GRASSLEY. both inside and outside of Utah omy grew so rapidly in the second half This bipartisan amendment will help produce. Research and development is of the last decade was because of a to ensure that businesses continue to clearly the lifeblood of our economy strong surge in our productivity rate. increase research activities—and to throughout the Nation. This surge is continuing into the create new jobs—in the United States. Since 1981, when the research credit present and has been a marvel to most As many of our colleagues are aware, was first enacted, the Federal Govern- economists.

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00056 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.006 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2075 This increase in productivity has al- now. I wish it were permanent. But starting in January of 2005; and finally, lowed the economy to continue to grow under the circumstances, this is the again starting in January of 2005, it at a rapid pace without the increase in best we can do. I have every confidence provides an alternative simplified cred- inflation that usually accompanies my fellow Members of the Senate will it to encourage even more research-in- such growth. Moreover, increases in vote for this amendment. tensive businesses to spend more on re- productivity growth are the key to fu- I yield the floor. search in the United States. ture economic security, particularly in The PRESIDING OFFICER. The Sen- The R&D tax credit is a great exam- light of the huge entitlement chal- ator from Washington. ple of how we make the Tax Code work lenges we face in the coming years. A Mrs. MURRAY. I rise today to join for American workers and American very large factor in that productivity with Senator HATCH to strengthen and families right here at home. growth is innovation, which of course, extend the research and development I have a letter from the R&D Tax requires R&D. tax credit. We are all concerned about Credit Coalition, and I ask unanimous As I mentioned, this amendment our slow economy. Every day we learn consent to have it printed in the would extend the current credit until of more American jobs that are being RECORD after my remarks. December 31, 2005, giving businesses shipped overseas. We worry about The PRESIDING OFFICER. Without that utilize this important incentive American companies losing out in the objection, it is so ordered. some certainty in the short-term so global marketplace and the impact (See exhibit No. 1) that they can hire the needed per- that has on our workers and on our Mrs. MURRAY. Mr. President, this sonnel to take research activities off economy. letter is actually signed by over 500 the drawing board now. Today, we are offering a way to fight companies and associations and urges Over the years, the research credit back and help our workers and compa- Congress to permanently extend the has proven to be a powerful incentive nies continue to lead the world in inno- R&D tax credit and make the modifica- for companies to increase their re- vation. Today, I am proud to offer an tions contained in S. 664. search and development activities. Un- amendment that will support high- I share with my colleagues a portion fortunately, it does not work perfectly. wage jobs for American workers at of the letter: Part of the reason is that this is an in- home and make our products more The technological innovations made pos- cremental credit, designed to reward competitive around the world. sible by the R&D Credit enable companies to extra research efforts, not just what a Anyone who wants to support good- bring more products and services to market, company might do anyway. From a paying American jobs, and anyone who increase employment, and raise the standard of living for all Americans. good tax policy point of view, I believe wants to help American companies R&D helps manufacturers and services this is the best way to provide an in- compete and win in the global market- companies with U.S. operations maintain a centive tax credit. place should vote for the Hatch-Murray competitive edge over lower-cost foreign However, it is difficult to craft an in- amendment. We all know research and competitors. cremental credit that works as it development is a critical part of any It allows a small, medium or large com- should in every case. While the regular business’s success, but investing in pany to reduce its financial risk in expen- credit works very well for many com- R&D is not cheap. Our foreign trade sive, labor-intensive R&D investments. Since the credit was created in 1981, invest- panies, it does not help some other competitors offer substantial tax and ments in technology and innovation have firms that still incur significant re- financial incentives to encourage spurred economic growth and contributed search expenditures. This is because American companies to make their re- greatly to our country’s high standard of liv- the credit’s base period of 1984 through search investments elsewhere. But we ing. Continued R&D spending is a necessary 1988 is growing more distant and some need those jobs in the United States element in our country’s ability to invest for firms’ business models have changed. and this amendment gives us a chance our future. There is no good policy reason why to support American workers in the This is not some abstract economic research should be more expensive for face of foreign competition. principle. It is a real incentive that some industries than it is for others. That is why the R&D tax credit is so creates jobs and helps workers in To partially solve this problem Con- important. It provides a real incentive America. I have seen it firsthand at gress enacted the alternative incre- for companies to increase their invest- companies throughout Washington mental research credit, AIRC, in 1996, ment in U.S.-based research and devel- State. This year, Microsoft plans to in- and now we propose a way to address opment. The credit helps stimulate in- vest $6.8 billion on R&D. Because this the rest of that problem. novation, wages, and exports which all tax credit is targeted almost exclu- In addition to increasing the AIRC contribute to a stronger economy and a sively at wages, the credit will trans- rates, this amendment allows tax- higher standard of living for American late into additional jobs in Washington payers to elect, in lieu of the regular workers. State and in the United States. That credit or the AIRC, an alternative sim- This is about investing in America. will mean jobs not just at Microsoft plified credit that is based on a rolling Because this tax credit is only avail- but at many other local companies. average of the prior 3 years’ qualified able for R&D performed in the United In fact, according to a February 25, research expenses. This provides com- States, it provides a discount on quali- 2003, article in the Seattle Times, one panies that are increasing their R&D fying expenditures, and it is a proven study found that every job at Microsoft with another way to take advantage of incentive for U.S. companies to in- supports 3.4 other jobs in the economy. the credit when the 20-year-old base pe- crease their R&D investment in the It also found that from 1990 to 2001 riod proves to be irrelevant. United States. Microsoft was responsible for more This is an important amendment. It Unfortunately, the existing research than a fourth, 28.3 percent, of King is important to our economy, both now and development tax credit will expire County’s growth. That is an example of and in the future. It is important to this June. Unless we take action, in how one company’s investment in R&D good, high paying jobs in the United just a few months we will be throwing is supporting good family wage jobs States. away one of the best incentives for throughout the region. We need to continue to be the world’s spurring investments at home. I have That is just one company. There are leader in innovation. We cannot afford always supported making the R&D tax many other companies engaged in R&D to allow other countries to lure away credit permanent, but because of budg- in Washington State and in the United the research that has always been done et constraints, we are not in a position States. Their investment in R&D will in the United States. We cannot afford to do that today. But we can do the help our workers and help our econ- to have the lapses in the research pipe- next best thing and extend and omy. line that would result if we do not take strengthen this incentive. I want to share some other figures care of extending this credit before it The Hatch-Murray amendment does that show the importance of R&D in- expires on June 30. I urge all of my col- three things: First, it extends the tra- vestment, especially in Washington leagues to support this amendment. It ditional credit for 18 months through State. is the right thing to do. We have done December 31, 2005; second, it increases In the year 2000, companies per- it before. We certainly should do it the alternative incremental credit rate formed almost $200 billion in R&D; $9.8

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00057 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.012 S03PT1 S2076 CONGRESSIONAL RECORD — SENATE March 3, 2004 billion of that research was performed and provide an alternative simplified credit country, people come up to me to talk in Washington State. calculation. about this overtime issue. They know Let me shed some light on types of Mr. HATCH. Mr. President, I suggest now what the administration is trying employers that are doing that work. the absence of a quorum. to do. They are upset. Working families Thirty-three percent of the research The PRESIDING OFFICER. The are angry and they want action. They done in Washington State was per- clerk will call the roll. want us to take action to stop the im- formed by manufacturers. We have The assistant journal clerk proceeded plementation of these new rules that seen a terrible loss of manufacturing to call the roll. will take away their protection so that jobs over the years, and this credit is Mr. HARKIN. Mr. President, I ask they can get time and a half when they one way to help them stem the tide. unanimous consent that the order for work overtime. Mr. President, 11.4 percent of the re- the quorum call be rescinded. Frankly, at this point the adminis- search done in Washington State was The PRESIDING OFFICER. Without tration has zero credibility on this done in the professional, scientific, and objection, it is so ordered. issue. The Department of Labor claims technical service industries. Mr. HARKIN. Mr. President, just a that it simply wants to give employers This is about moving our economy parliamentary inquiry: I understand we clear guidance as to who is eligible for forward. Technological innovations are on the FSC bill, and we are on an overtime pay. But ordinary Americans have accounted for more than one- amendment that has been laid down; is are not buying this happy talk. They third of our Nation’s economic growth that correct? know that the administration is pro- during the last decade. We know inno- The PRESIDING OFFICER. The Sen- posing a radical rewrite of the Nation’s vation is critical to sustained growth ator is correct. overtime rules. They know these new in the future. Mr. HARKIN. I thank the Chair. rules will strip millions of workers of Extending and improving the R&D America is stuck in a jobless recov- their right to fair compensation. tax credit is one of the most important ery and this jobless recovery is not an The people are right. They are cor- steps we can take right now to foster accident. It is in large measure the re- rect. Plain and simply, the new over- investment at home and job creation sult of failed economic policies, poli- time rules are a frontal attack on the throughout the country. cies that the administration stub- 40-hour workweek, pushed aggressively I urge my colleagues to give Amer- bornly clings to despite the loss of by the administration without a single ican workers a fair shot in the global nearly 3 million private sector jobs public hearing. Yes, that is correct. marketplace by voting for the Hatch- over the last 3 years. Last year these proposed rules came Murray amendment. This administration has embraced out, drastically changing our overtime Mr. President, I yield the floor. outsourcing. It is against extending un- pay protections, the rules that had employment insurance for the long- EXHIBIT 1 been implemented since 1938, without term unemployed. It is adamant one public hearing anywhere in the R&D CREDIT COALITION, Washington, DC, February 9, 2004. against raising the minimum wage. United States. Hon. BILL THOMAS, And it is determined—any day now—to These new proposed rules could effec- Chairman, Committee on Ways and Means, eliminate time-and-a-half overtime pay tively end overtime pay in dozens of House of Representatives, Washington, DC. for millions of American workers. occupations, including nursing, police Hon. CHARLES GRASSLEY, It is time for Congress to step in and officers, firefighters, clerical workers, Chairman, Committee on Finance, U.S. Senate, chart a new course. It is time for Wash- air traffic controllers, social workers, Washington, DC. ington to listen to ordinary working journalists. Indeed, the new criteria for Hon. CHARLES RANGEL, Americans. They are telling us loudly excluding employees from overtime are Ranking Member, Committee on Ways and Means, House of Representatives, Wash- and clearly that their No. 1 issue is deliberately vague and elastic so as to ington, DC. economic security. They are telling us stretch across vast swaths of the work- Hon. MAX BAUCUS, that they fear losing their jobs, health force. Ranking Member, Committee on Finance, U.S. care, and retirement. Listen to Mary Schlichte, a nurse in Senate, Washington, DC. Now they also fear losing their right, Cedar Rapids, IA: DEAR CHAIRMEN THOMAS AND GRASSLEY, which has been their right since 1938, Many nurses just like me work long hours AND RANKING MEMBERS RANGEL AND BAUCUS: to time-and-a-half compensation for in a field with very stressful working condi- We urge you to make the enactment of a per- work over 40 hours a week. They fear, tions and little compensation. . . . Our pa- manent research tax credit (R&D Credit) with good reason, that under the De- tients rely on us. Our families depend on us. with the modifications contained in com- We need overtime pay so we can stay in the panion bills H.R. 463/S. 664 an early legisla- partment of Labor’s new rules, they profession we love and still make our ends tive priority in 2004. will be obligated to work a 50-, 55-, 60- meet. As you know, the technological innova- hour week with zero additional com- Ms. Schlichte told me about her tions made possible by the R&D Credit en- pensation. For millions of working Cedar Rapids nurse colleagues who also able companies to bring more products and Americans and their families, this is rely on overtime pay. One nurse is services to market, increase employment, unacceptable. It is, indeed, the last and raise the standard of living for all Amer- married to a struggling farmer. She re- straw. lies on her overtime pay to cover their icans. R&D helps manufacturers and services Accordingly, at the appropriate time, companies with U.S. operations maintain a insurance premiums. They already fear competitive edge over lower-cost foreign I will offer an amendment to this bill losing their farm, and now they fear competitors. It allows a small, medium or that will stop the administration from losing their health care coverage also. large company to reduce its financial risk in implementing its proposed new rules to Dixie Harms is a longtime trainer of expensive, labor-intensive R&D investments. eliminate overtime pay protection for nurses in Des Moines. Ms. Harms told Since the credit was created in 1981, invest- millions of American workers. me: ments in technology and innovation have This amendment will be very famil- spurred economic growth and contributed If overtime is changed for hospital nurses, iar to my colleagues. Late last year a we will see a mass exodus of registered greatly to our country’s high standard of liv- similar amendment I offered passed the ing. Continued R&D spending is a necessary nurses from the hospital setting because element in our country’s ability to invest for Senate by a vote of 54 to 45. It was en- they will get fed up and refuse to volunteer our future. dorsed in the House by a vote of 226 to so many hours to what they really love The growth of our economy is inextricably 203. It also won the overwhelming sup- doing. tied to the ability to companies to make a port of the American public. Yet de- Two and a half years ago, after the sustained commitment to long-term re- spite this clear expression of the will of terrible September 11 attacks, many in search. Congress has consistently dem- Congress and of the public, my over- this body spoke eloquently about the onstrated support for the R&D credit. This time amendment was stripped from the heroism of our firefighters, police offi- year, in order to provide stability and to en- omnibus appropriations bill in con- cers, public safety workers. Ever since, sure that all companies performing intensive research in the United States are able to ference. America’s first responders have worked benefit from the credit, Congress should Today this overtime amendment is long hours to protect us from terrorists make the credit permanent, increase the Al- back by popular demand. It amazes me threats. But now the administration ternative Incremental Credit (AIRC) rates, that wherever I travel, anywhere in the apparently wants to deny them time-

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00058 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.048 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2077 and-a-half compensation for those that is all well and good. But, in so However, the word ‘‘customarily’’ means longer hours. Simply put, this is doing, the administration has put out that the exemption is also available to em- wrong. technical advice to employers on how ployees in such professions who have sub- Since passage of the Fair Labor they can get around paying the lowest stantially the same knowledge level as the degreed employees, but who attained such Standards Act in 1938, overtime rights paid workers time and a half. knowledge through a combination of work and the 40-hour workweek have been For example, the department sug- experience, training in the Armed Forces, at- sacrosanct, respected by Presidents of gested in writing that an employer tending a technical school. both parties. But nothing, it seems, is might cut a worker’s hourly wage so Et cetera, et cetera. These words, sacred to this administration when it that any new overtime payments will ‘‘training in the Armed Forces’’ have comes to workers’ rights. not result in a net gain to the em- never been in the rules before. In other For 65 years, the 40-hour workweek ployee. It also recommends if the work- words, since 1938, we have gone through has allowed workers to spend time with er’s salary is close to the threshold, World War II, the Korean war, cold their families instead of toiling past you might want to raise their salary war, Vietnam war, the gulf war, Do- dark and on weekends. At a time when slightly to meet that threshold and minican Republic war, Grenada, and a the family dinner is becoming an then their protection for time and a whole bunch of other things. And our oxymoron, this standard is more im- half would end, and then they could be veterans—people who have served in portant than ever. exempt. the military, who went in there, who This is kind of disgraceful. This These radical revisions are the Army asks to ‘‘be all that you can would be like the IRS putting out ad- antiworker and antifamily. Given the be in the U.S. Army.’’ How many ads vice to would-be scofflaws, or people or fact we are stuck in a jobless recovery, do we see enticing young people to entities that might want to get around the timing of this attack on overtime come into the military because they paying their fair share of taxes, telling could not be worse. It is yet another in- can get training which will increase them how to avoid paying their taxes, stance of this administration’s eco- their ability to earn more money later saying here is how you can effectively nomic malpractice. on in life, after they get out of the cheat. What would we say if the IRS Bear in mind that time-and-a-half military—specialized training that will started putting out advice to employ- pay accounts for some 25 percent of the make them more desirable in the work- ers, saying here is how to get around total income of Americans who work force? overtime. With average U.S. incomes paying your fair share of taxes? Well, guess what. They are running That is what they are doing on over- declining, the proposed changes would those same ads to be all you can be, time. They are putting out advice to slash the paychecks of millions of learn a specialized training, and be employers, saying here is how you get American workers. more valuable in the workforce, and at around it. It is disgraceful. There is Moreover, the proposed new rules are the same time the administration is one part of this new proposed rule that all but guaranteed to hurt job creation promulgating a rule saying: Wait a I find probably more disgraceful than in the United States. This is basic minute, if you get training in the just about anything. I know that when logic. If employers can more easily Armed Forces, guess what. You are I say this, people are going to say: deny overtime pay, they will push their now covered under this new rule that HARKIN, this cannot be right, this can- current employees to work longer says you can be exempted from the not happen. hours without compensation. The more I dig into the nuts and overtime pay protection because now With 9 million Americans currently bolts and fine print of this proposed you fall into the same kind of category out of work, these proposed regulations rule for changing overtime, the more as lawyers and architects and people will give employers yet another dis- astounded I am at what we are finding, who went to school for a long time to incentive to hire new workers. Why in terms of who is now being exempted, receive specialized training. hire a new worker if you can get your or trying to be exempted from over- Again, don’t take my word for it. present workers to work overtime and time pay. Read it. ‘‘Training in the Armed not have to pay them time and a half? Would you believe it if I told you Forces’’—those five words have never That would be cheaper than hiring a that the administration, for the first been in the rules before, never. We said new worker. time since 1938, is changing the rules to before if you get training in the Armed It is bad enough to deny 8 million make it harder for veterans to get Forces, you can now be exempt from workers their overtime rights, but overtime pay than their counterparts overtime pay. That is what is coming what is really striking about these pro- who did not serve in the military? Let down the pike. That is what is in these posed rules is the mean-spiritedness of me repeat that. Mr. President, gen- rules. That is why so many of us feel so the language included in these pro- erally, people would not believe me if I strongly that this proposed overtime posed rules from the Department of told them this administration, in their rule should not be adopted. Labor. proposed rules, is making it harder for According to the proposed rules, em- For example, the department is offer- a veteran to qualify for overtime than ployers can consider specialized train- ing employers what amounts to kind of someone who didn’t serve in the mili- ing and knowledge gained in the mili- a cheat sheet—helpful hints on how to tary. People say: HARKIN, that cannot tary as equivalent to what is learned in avoid paying overtime to the lowest be right. professional schools. This will allow paid workers, the same workers who Read the proposed regulation. I have employers to reclassify veterans as in- are supposedly helped by the new rules. the old one. Here is the old rule that eligible for overtime. I started looking Let me be clear about this. There is covers overtime pay. There is a section at some of the comments made regard- a part of the proposed changes that we called ‘‘Learned Professions,’’ and it is ing this. I wondered where it is coming all support, and that is raising the talking about who basically would be from. Here are comments on behalf of minimum pay level by which a worker not barred from exemption. It talks the Boeing company: would not be exempt from any over- about members of the professions, such Boeing observes that many of its most time rules. For example, right now, if as graduates of law school and different skilled technical workers received a signifi- you make below about $7,000 a year, no things like that. It says here the word cant portion of their knowledge and training matter what your job is, you cannot be ‘‘customarily’’ implies that in the vast outside the university classroom, typically exempted from overtime, from over- majority of cases a specific academic in a branch of the military service, where time rules—even if you are a profes- through a combination of classroom training training is a prerequisite for entrance and field experience they become ‘‘learned sional or if you fall into one of the ex- into the profession. It makes the ex- experts’’ on very sophisticated aerospace empt categories. If you make below emption available to the lawyer, the products or services. Oftentimes, such ex- about $6,900 or $7,000 a year, you have chemist, and things like that. But it perts are actually more knowledgeable than to be paid time and a half overtime, no does not in any way mention veterans colleagues with advanced degrees— Mas- matter what your job is. The adminis- in the old rule. There is no mention of ter’s degrees and Ph.D.s. tration is proposing to raise that to veterans. and are viewed by the customers as the com- about $21,900, close to $22,000 a year. It Here is the new rule. I have it blown pany’s experts on the product. Boeing thus has not been raised for a long time, so up on the chart. It says: supports the Department’s—

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00059 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.050 S03PT1 S2078 CONGRESSIONAL RECORD — SENATE March 3, 2004 That is the Department of Labor— come back home from Iraq or wherever port signed by the President explaining focus on the knowledge used by the employee to resume their civilian jobs, they are why we should welcome the in performing her job, rather than the source going to find that if they received spe- ‘‘offshoring’’ of U.S. jobs. The Presi- of the knowledge or skill. cialized training in the military, they dent’s top economic adviser assured us What Boeing is saying is we have a have been stripped of their right to that the outsourcing of high-end, lot of people who work for us who got time-and-a-half overtime pay. white-collar jobs to Asia is ‘‘a plus for their training in the military. They It is punishing veterans precisely be- the economy in the long run.’’ have become skilled in their profes- cause they were dedicated soldiers who The President’s economic report sion. But because they did not go to pursued specialized instruction and praises the virtues of a ‘‘level playing graduate school, because they got their training while in the military. The De- field for goods and services,’’ arguing training in the military, we still have partment of Labor is preparing quite a that when a good or service is produced to pay these people overtime. We have welcome home present for many of the more cheaply abroad, it makes more to pay them time and a half, and we do guardsmen and reservists returning sense to import it than to make or pro- not want to pay them time and a half. from Iraq. It might read this way: vide it domestically. That is from the We want to treat them just like Ph.D.s Dear Returning Veteran: While you were President’s report. and all those other people. So, there- away we reclassified your job so that you no We have a very serious question to fore, they support the proposed rule longer qualify for time-and-a-half overtime ask ourselves: Do we really want Amer- pay. Thank you for serving our country. change that would allow them, Boeing, ican workers competing on a ‘‘level to reclassify these former veterans as There is another group I talked about playing field,’’ head to head with fac- being exempt from overtime pay pro- last year—and it is still true this tory workers in China working for 20 tections. year—who are disproportionately cents an hour, with software engineers This is a letter from Thomas Corey, harmed by the proposed new overtime in India working for $10,000 a year, the national president of the Vietnam rules—women. going head to head with countries that The fact is, women tend to dominate Veterans of America: employ abusive child labor to make in retail services and sales positions products? Therefore, we would like to make you which would be particularly affected by aware that the proposed modification of the In reality, is this not a race to the rules would give employers the ability to the new rules. Married women in Amer- bottom, with nations competing to prohibit veterans from receiving overtime ica increased their working hours by slash salaries and benefits in order to pay based on the training they received in nearly 40 percent from 1979 to 2000. As win more jobs? Outsourcing is not the the military. . . . The proposed rule changes women have increased their time in the only thing hurting job creation and will make these veterans and their families paid labor market, their contribution suppressing wages. These new overtime unfairly economically vulnerable in com- to family income has also risen. These parison with their non-veteran peers. rules will have the same effect. Eight contributions are especially important million workers will be stripped of Let me repeat that: to lower and middle-income families— their right and their protection to The proposed rule changes will make these important for housing, health care, overtime pay. veterans and their families unfairly eco- heating bills and, of course, for sending nomically vulnerable in comparison with Of course, the employers can deny kids to school. overtime pay. As I said, they simply their non-veteran peers. We hope you will Yet now the administration’s new push their current employees to work agree that the men and women who have rules would take away overtime pro- longer hours without compensation. served our Nation so well in military service tections from millions of American should not be penalized for having served. This is a powerful disincentive to hire women. Women in the paid workforce new workers. So as with outsourcing, That is Thomas Corey, national would be forced to work longer hours the idea of sending so many of these president, Vietnam Veterans of Amer- for less pay and, of course, this means jobs overseas, where they are paying 20 ica. I think that is the crux of it. You more time away from families, more could have two people, both skilled in a childcare expenses with no additional cents an hour, no health benefits, no certain area, let’s say aerospace or compensation. Not surprising, promi- retirement benefits, no Social Secu- whatever it might be. One got his nent women’s groups are adamantly rity, no environmental protections, training in the military and one got his opposed to the new overtime rules. killing overtime pay is the same thing. training in some other way outside the The American Association of Univer- Just keep in mind if an employer can military. So the person outside the sity Women, the National Organization work an employee more than 40 hours military would be covered under over- of Women, the National Partnership and not pay time and a half, we can see time. The person who served in the for Women and Families, the YWCA, that an employer would then say, well, military would not be covered by over- and Nine to Five, and the National As- why should I hire new workers? I will time. sociation of Working Women are all just work my present workers longer. I wish someone would make some strongly supporting my amendment to If I can get 4 or 5 more hours a week sense out of that. It is just a slap in the stop the administration from imple- out of each employee and not pay time face to the men and women who served menting these new overtime rules. and a half overtime, that is better than in the military and were told: Be all There is a broader context to this hiring somebody else. you can be, get specialized training in discussion of overtime. There is a big- That is exactly what this proposed the military, but what they are not ger picture. As I said, the No. 1 issue overtime rule is all about. It is terrible telling them is once you do that, they for Americans today is economic secu- for job creation. I do not know why are going to take away your right to rity, and with good reason, because it this administration does not see that. overtime pay once you get out of the is abundantly clear that America is Yet in the face of facts, in the face of military. stuck in a jobless recovery. all of the reports we have gotten, in This is outrageous—outrageous not Since this administration took of- the face of what Americans are saying, just to our veterans but to most Amer- fice, nearly 3 million private sector which is that they want their overtime icans. Veterans organizations are deep- jobs have been lost, including one in protected, the administration is surg- ly disturbed by this, not just the Viet- every seven jobs in manufacturing. ing ahead. They are going to strip peo- nam veterans but all veterans organi- George W. Bush has presided over the ple in this country of their right to zations. largest job loss of any President since overtime pay. Picture this: The Commander in Herbert Hoover. Yet the President re- Since we have had no public hearings Chief has mobilized thousand of reserv- mains wedded to policies that are mak- on it, we are not certain why the ad- ists and National Guard troops from ing the problem worse. He remains ministration is doing this. Why are Iowa and from across America. They wedded to policies that are destroying they moving ahead with the most pro- left their regular jobs as police officers, jobs, driving down wages, and threat- found change in our overtime laws firefighters, nurses, clerical workers, ening the economic security of the since 1938? Now, I use my words care- on and on, and are deployed in Iraq for American people. fully. I said the ‘‘most profound a year or more. But if the administra- A couple of weeks ago, the White change.’’ There have been changes in tion has its way, when these troops House issued its annual economic re- overtime rules and laws since 1938,

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00060 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.053 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2079 since the Fair Labor Standards Act Moreover, such a recovery, if it even The Senator from New Mexico [Mr. BINGA- was passed, of course. Many occupa- could take place, is not desirable. As MAN] proposes an amendment numbered 2651 tions that existed then no longer exist, one individual said, my time with my to amendment No. 2647. and they were taken off. I understand. family in the evenings and on the Mr. BINGAMAN. I ask unanimous New occupations came in like com- weekends is premium time. Yes, I work consent the reading of the amendment puter software writers, computer engi- during the week to make a living, but be dispensed with. neers, which were not around in the the time with my family is premium The PRESIDING OFFICER. Without late 1930s, 1940s, 1950s, or 1960s. So there time. If I am going to be asked to give objection, it is so ordered. have been changes. up my premium time with my family, The amendment is as follows: Every time we have made a change in do I not deserve to have premium pay, (Purpose: To expand the research credit) the overtime rules, we have done it time and a half, something out of the At the end of the amendment add the fol- through open hearings, through open ordinary? lowing: ll collaboration between the administra- As this person said to me, I get my SEC. . EXPANSION OF RESEARCH CREDIT. wages, which are ordinary, for my ordi- (a) CREDIT FOR EXPENSES ATTRIBUTABLE TO tion and Congress and labor, all work- CERTAIN COLLABORATIVE RESEARCH CON- nary working hours that I have agreed ing together to do what is right for our SORTIA.— people and our country. to work, but I should not get ordinary (1) IN GENERAL.—Section 41(a) (relating to So, yes, we have made a number of pay for my premium time, which is the credit for increasing research activities) is changes since 1938, but as far as my re- time I spend with my family. That is amended by striking ‘‘and’’ at the end of search shows, this is the first time why I say a recovery that means that paragraph (1), by striking the period at the since 1938 that an administration has our American workers are going to end of paragraph (2) and inserting ‘‘, and’’, and by adding at the end the following new made this profound a change, and it is work longer, spend more time away from their families, and not get paid paragraph: the first time since 1938 that the ad- ‘‘(3) 20 percent of the amounts paid or in- ministration has proposed these any more for it is not a desirable recov- curred by the taxpayer in carrying on any changes without having one public ery. trade or business of the taxpayer during the hearing. It is the first time since 1938 A true recovery must include all taxable year (including as contributions) to that any administration, Republican or working Americans. It can only be a research consortium.’’. Democrat, has proposed changes such built on a foundation of good jobs with (2) RESEARCH CONSORTIUM DEFINED.—Sec- good wages in America, not overseas. It tion 41(f) (relating to special rules) is amend- as this in the overtime rules without can only be built on a foundation that ed by adding at the end the following new consultation and working closely with includes a minimum wage that is a liv- paragraph: Congress to develop a consensus as to ing wage, not a poverty wage. It can ‘‘(6) RESEARCH CONSORTIUM.— what has to be done. ‘‘(A) IN GENERAL.—The term ‘research con- I am left with, perhaps, some conclu- only be built on a foundation that pre- sortium’ means any organization— serves American workers’ rights to sions: The administration really does ‘‘(i) which is— time and a half overtime pay. not want to create a lot of new jobs; ‘‘(I) described in section 501(c)(3) and is ex- Shortly, I will be offering this empt from tax under section 501(a) and is or- that by driving down labor costs, per- amendment. Obviously, this FSC bill is ganized and operated primarily to conduct haps we can increase corporate profit- touted as a JOBS bill. That is all well energy research, or ability. It allows corporations to ex- and good. Let us have an open and good ‘‘(II) organized and operated primarily to port cheap labor overseas with discussion about that. We have some conduct research in the public interest (within the meaning of section 501(c)(3)), outsourcing. The administration puts amendments to offer that a number of pressure on U.S. workers to accept ‘‘(ii) which is not a private foundation, us believe will help increase jobs in ‘‘(iii) to which at least 5 unrelated persons lower wages, less generous benefits, this country. The one I will be offering longer working hours. This is true of paid or incurred during the calendar year in will be protecting the overtime rights which the taxable year of the organization outsourcing, and it is true of elimi- of American workers. So I am hopeful begins amounts (including as contributions) nating overtime. we can move on to that. to such organization for research, and Right now, American workers work On this issue, the administration ig- ‘‘(iv) to which no single person paid or in- longer than any workers in any indus- nores the pleas of the public. It has curred (including as contributions) during trialized country in the world. We now brushed aside the clear wishes of both such calendar year an amount equal to more than 50 percent of the total amounts re- work longer than workers in Japan, Houses of Congress. Last year, we Germany, Great Britain, and our ceived by such organization during such cal- passed the amendment in the Senate to endar year for research. neighbor to the north, Canada. Guess disallow the Bush regulations on tak- ‘‘(B) TREATMENT OF PERSONS.—All persons what we are being told. Guess what our ing away overtime pay protections. treated as a single employer under sub- workers are being told by this adminis- The House emphatically approved of section (a) or (b) of section 52 shall be treat- tration. That they are going to work that. Yet it was stripped out in con- ed as related persons for purposes of subpara- even longer, and they will not have any ference. Again, this is not acceptable. I graph (A)(iii) and as a single person for pur- right to overtime pay. hope we can have a strong bipartisan poses of subparagraph (A)(iv).’’. (3) CONFORMING AMENDMENT.—Section There is more. The President refuses vote in support of my amendment that to extend benefits for the long-time un- 41(b)(3)(C) is amended by inserting ‘‘(other would disallow taking away overtime than a research consortium)’’ after ‘‘organi- employed, and opposes any increase in pay protection for American workers. zation’’. the minimum wage. It has been frozen We can save the administration from (b) REPEAL OF LIMITATION ON CONTRACT RE- at $5.15 an hour for years. This is not a making a terrible mistake. We can pro- SEARCH EXPENSES PAID TO SMALL BUSI- living wage; it is a poverty wage. It tect American workers’ time-honored NESSES, UNIVERSITIES, AND FEDERAL LABORA- TORIES.—Section 41(b)(3) (relating to con- keeps downward pressure on wages all right to overtime compensation, and across the spectrum. tract research expenses) is amended by add- we can support an economic recovery ing at the end the following new subpara- All this means, again, is fewer jobs that includes all Americans, a recovery graph: for U.S. citizens. It means downward that respects and preserves the Amer- ‘‘(D) AMOUNTS PAID TO ELIGIBLE SMALL pressure on wages for all of our work- ican way. BUSINESSES, UNIVERSITIES, AND FEDERAL LAB- ers. I yield the floor. ORATORIES.— Something is missing. What is miss- The PRESIDING OFFICER (Mr. ‘‘(i) IN GENERAL.—In the case of amounts ing is ordinary, hard-working Ameri- SUNUNU). The Senator from New Mex- paid by the taxpayer to— cans are not participating in this so- ico. ‘‘(I) an eligible small business, ‘‘(II) an institution of higher education (as called economic recovery. More and AMENDMENT NO. 2651 TO AMENDMENT NO. 2647 more Americans live in fear of losing defined in section 3304(f)), or Mr. BINGAMAN. Mr. President, I ‘‘(III) an organization which is a Federal their jobs, their health benefits, and send an amendment to the desk and laboratory, losing their retirement. The truth is, ask for its immediate consideration. for qualified research which is energy re- we cannot build a sustainable recovery The PRESIDING OFFICER. The search, subparagraph (A) shall be applied by by exporting jobs, by driving down clerk will report. substituting ‘100 percent’ for ‘65 percent’. wages, and by making Americans work The assistant legislative clerk read ‘‘(ii) ELIGIBLE SMALL BUSINESS.—For pur- longer hours without compensation. as follows: poses of this subparagraph, the term ‘eligible

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00061 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.055 S03PT1 S2080 CONGRESSIONAL RECORD — SENATE March 3, 2004 small business’ means a small business with have sent to the desk which Senator Mr. REID. No objection. respect to which the taxpayer does not own DOMENICI and I have been working on The PRESIDING OFFICER. Without (within the meaning of section 318) 50 per- would correct this and would encour- objection, it is so ordered. cent or more of— age this type of private research Mr. ENSIGN. Mr. President, I under- ‘‘(I) in the case of a corporation, the out- stand the Senator from Tennessee is standing stock of the corporation (either by teaming. vote or value), and The second part of the amendment going to seek recognition. I ask unani- ‘‘(II) in the case of a small business which would be to get rid of a restriction that mous consent that following the Sen- is not a corporation, the capital and profits allows companies to only consider 65 ator from Tennessee, I be recognized to interests of the small business. percent of their research expenses for speak on the R&D amendment. ‘‘(iii) SMALL BUSINESS.—For purposes of purposes of calculating their tax credit Mr. REID. Reserving the right to ob- this subparagraph— when the funds are paid to an outside ject, we have no problem with that ex- ‘‘(I) IN GENERAL.—The term ‘small busi- party such as a Federal laboratory or cept we now have an hour and 10 min- ness’ means, with respect to any calendar university or a small business. utes. We don’t want those two Senators year, any person if the annual average num- to use the entire 70 minutes so we ber of employees employed by such person Again, as with consortiums, this pro- during either of the 2 preceding calendar vision makes no sense as it exists in should have some idea how long they years was 500 or fewer. For purposes of the current law. In many if not most cases are going to speak. preceding sentence, a preceding calendar it is far more efficient and economical Mr. ENSIGN. For myself, I would year may be taken into account only if the for a company to have their research only need 5 minutes. person was in existence throughout the year. done at a facility that is already Senator ALEXANDER? ‘‘(II) STARTUPS, CONTROLLED GROUPS, AND equipped to do this type of experimen- Mr. REID. I think it would be appro- PREDECESSORS.—Rules similar to the rules of tation and development. We ought to priate if my friends agree the time be subparagraphs (B) and (D) of section 220(c)(4) be encouraging businesses to utilize equally divided between now and 3:30 shall apply for purposes of this clause. between the proponents and opponents ‘‘(iv) FEDERAL LABORATORY.—For purposes these resources instead of discouraging that use. For this reason, the amend- of the measure. of this subparagraph, the term ‘Federal lab- The PRESIDING OFFICER. Under oratory’ has the meaning given such term by ment would allow a company to con- section 4(6) of the Stevenson-Wydler Tech- sider 100 percent of all of their expenses the order, the time is equally divided. Mr. ENSIGN. I ask to be recognized nology Innovation Act of 1980 (15 U.S.C. when contracting with a lab or univer- after Senator ALEXANDER. 3703(6)), as in effect on the date of the enact- sity or small business to handle their The PRESIDING OFFICER. Without ment of the Energy Tax Incentives Act of research projects. 2003.’’. The amendment would come into ef- objection, it is so ordered. Who yields (c) EFFECTIVE DATE.—The amendments fect at the end of the year. It would time? made by this section shall apply to amounts Mr. ENSIGN. I yield to Senator AL- continue for as long as the R&D provi- paid or incurred after December 31, 2004. EXANDER. Mr. BINGAMAN. Mr. President, I sions are in effect which, under the Mr. ALEXANDER. Mr. President, my thank my colleagues, Senator HATCH Hatch-Murray amendment which is intention was to ask unanimous con- and Senator MURRAY, for their leader- what this proposal would amend, is the sent to speak as in morning business ship on extending and strengthening end of 2005. for 7 or 8 minutes, which may not be I look forward to working with my the research and development, R&D appropriate at this moment. tax credit. The ability of our Nation to colleagues, Senators HATCH and MUR- The PRESIDING OFFICER. Under remain a world leader in technology RAY, on their R&D amendment. I very controlled time that is the Senator’s and innovation is directly related to much appreciate their support for right. The Senator is recognized. the investment we make in research these small changes Senator DOMENICI Mr. ALEXANDER. I ask unanimous and development. The R&D tax credit and I would like to see made in this consent to speak as in morning busi- is an important component of this bill. ness for up to 7 minutes. strategy as it creates an incentive for I yield the floor. The PRESIDING OFFICER. Without The PRESIDING OFFICER. The Sen- private companies to invest in research objection, it is so ordered. ator from Nevada. they might not otherwise have in- (The remarks of Mr. ALEXANDER are Mr. REID. Mr. President, I suggest vested in but for that tax credit. This printed in today’s RECORD under the absence of a quorum. is an efficient way to accomplish a goal The PRESIDING OFFICER. The ‘‘Morning Business.’’) in our society that is increasing fund- Mr. ALEXANDER. I thank the Chair. clerk will call the roll. ing for research. The assistant legislative clerk pro- I yield the floor. Senator DOMENICI and I have been The PRESIDING OFFICER. The Sen- ceeded to call the roll. working here for the last several years Mr. ALEXANDER. Mr. President, I ator from Nevada is recognized. to make some changes in the R&D tax ask unanimous consent the order for Mr. ENSIGN. Mr. President, I want credit law. The amendment I have sent the quorum call be rescinded. to speak on the R&D tax credit that is to the desk incorporates those changes The PRESIDING OFFICER. Is there in this bill—the proposal to extend we have worked on. The amendment is objection? that tax credit which is scheduled to based on legislation we filed in each of Mr. REID. I object. expire. I want to talk about some of the last several Congresses, most re- The PRESIDING OFFICER. Objec- the benefits. cently S. 515 in the 107th Congress. tion is heard. This is a tax credit that has been This amendment addresses two weak- Mr. ENSIGN. Mr. President, I ask supported by both sides of the aisle and nesses in the current R&D tax credit. unanimous consent the order for the by both bodies. There are many bene- The first part of the amendment pro- quorum call be rescinded. fits to keeping this R&D tax credit as vides participants in a research consor- The PRESIDING OFFICER. Without part of our Tax Code; first of all, the tium with a flat 20-percent research objection, it is so ordered. industries that benefit from this tax credit. A consortium is defined as a Mr. ENSIGN. I ask unanimous con- credit. I am the chairman of the Re- group of five or more unrelated compa- sent the time until 3:30 be equally di- publican High-Tech Task Force in the nies which are working together on a vided in the usual form and that if the Senate, and I hear about this issue all specific type of mutually beneficial re- Bingaman amendment has not been the time from very important parts of search. Under current law, these com- previously disposed of, the Senate our economy and how important it is panies are unable to take advantage of would then vote in relation to the to the creation of jobs. the full R&D tax credit. That does not Bingaman second-degree, to be fol- The industries that benefit from this make good sense. We should be encour- lowed immediately by a vote in rela- include—it is not limited to the aero- aging companies to work together to tion to the Hatch first-degree, as space industry—the agriculture indus- share the costs of research instead of amended if amended, provided further try, biotechnology, chemical industry, requiring that each of them bear the no additional second degrees be in electronic, energy, information tech- full capital expenditure to which they order prior to the vote. nology, manufacturing, medical tech- would be entitled in order to get the re- The PRESIDING OFFICER. Is there nology, pharmaceuticals, software and search tax credit. The amendment I objection? telecommunications, as well as others.

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00062 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.015 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2081 It is not just big business that bene- ment, Senator HATCH, and I have intro- other sectors. Most of the R&D effect is fits from this R&D tax credit; it is also duced many times over many years. I manufacturing, and manufacturing has many small businesses. The companies have been a cosponsor of this amend- a very high multiplier effect, which is that perform significant amounts of ment for years. Senator HATCH has all the more reason to get this passed. R&D perform that research and devel- been a cosponsor of this amendment for Workers employed in manufacturing opment in the United States. They pay years. It is critically important that plants with more technologies also very good wages to the people who do we finally get a major research and de- earn 63 percent more than workers in the research and development. velopment tax stimulus enacted into plants using lower level technologies. This tax credit should be made per- law. This provision has been in law for It is a question not only of the number manent in the long run. That is my various years, but it has always been of jobs but the wages the jobs pay, the goal—to someday make this tax credit extended—on and off again. It has been amount of income those workers will permanent. We keep extending it. I a yo-yo tax provision—a yo-yo incen- receive. think it has been extended 10 different tive. Sometimes companies get it, I can go on at great length as to why times over the years. It was allowed to sometimes they don’t. Sometimes we this is so important. I am not going to actually lapse once, but it has never enact it—all the way back to the expi- expand anymore on it because I think been made permanent. I believe it ration previous times—sometimes we Senators realize how important it is. I should be made permanent. Unfortu- don’t. It is very irresponsible, in my expect this to pass by a very large mar- nately, we can’t do that in the context judgment, for this Congress not to give gin, and well it should. of what we are doing today. But we permanent research and development Once we pass this amendment, it is should at least make sure that R&D tax credit to American companies. incumbent upon us to start looking for tax credit is extended for the 18 months Other countries do. The Government of other ways we can help give stimulus the bill calls for. Canada, for example, has a R&D tax and help American companies keep Why is it important? New vaccines, credit which is much more generous jobs in America. I am certainly going faster Internet, and other communica- than the one we give to American com- to be a part of this. It is something we tions capabilities, safer transportation, panies. desperately have to do. enhanced energy-efficient appliances, There are other countries that also What is the remaining time? higher quality entertainment, better have stimulus incentives to research The PRESIDING OFFICER. The ma- homes, improved national security. and development—more generous than jority has 27 minutes remaining and The list of societal benefits as a result we have in our country. the minority has 30 minutes remaining. of R&D is endless. I urge adoption of this amendment. Mr. BAUCUS. I yield the floor. R&D is the lifeblood of the U.S. econ- I also agree with my good friend from The PRESIDING OFFICER. The Sen- omy. We really should encourage not Nevada. This provision should be per- ator from Wyoming. only adoption of the extension but also manently extended. It makes no sense Mr. ENZI. I will talk about an eventually making permanent this tax not to be permanently extended. It amendment that has not been laid credit. should be a permanent fixture in the down. There were comments about The revenue analysis, according to law. overtime a while ago, and I want peo- the economic benefit of the R&D tax I say that because the stakes are get- ple to know the rest of the story. credit prepared by Coopers & Lybrand ting so high. We are losing jobs to over- The bill we are on has the catchy in 1998 says: seas companies in lots of ways. name of FSC/ETI. What we are trying In the long run, $1.75 of additional tax rev- One way to create jobs in America is to do is comply with some World Trade enue would be generated for each dollar the to have a very aggressive research and Organization requirements that allow Federal Government spends on the credit, development tax credit for research penalties to be put on our exports over- creating a win-win situation for both the and development in America. It is clear seas and agricultural products are a big taxpayers and the government. that jobs tend to be where the research one. They always get targeted when I will conclude with this: We should is. The more research we have in Amer- this sort of thing happens. We need to do the right thing for the economy and ica, the more likely it is we will have correct our law so we are not being pe- allow companies some level of predict- more jobs in America. It will also help nalized, so we do not eliminate busi- ability. We keep telling them we are to maintain jobs. ness that the United States can have. going to extend it, we are going to ex- We do not want jobs to go overseas. Penalties went into effect on March 1 tend it. But, frankly, it is hard when This will help us maintain jobs in and go up 1 percent per month on U.S. research and development is usually America. We should not erect barriers businesses if we do not change the law. planned long term. It is hard to do that to our companies going overseas. We We are trying to change the law. It when we keep coming up to the dead- should not stick our heads in the sand. needs to be done quickly. It should be line and then finally extending the tax That does not work. We are facing an done pretty cleanly. It obviously is not credit. immense challenge, and one good way going to be. I encourage us to do what we are is to pass this amendment. We keep talking about jobs, but our doing today—extending it for 18 In addition to passing the underlying actions do not match our words. I point months but also be looking for ways to bill, this JOBS bill before the Senate is out one very important jobs program make this R&D tax credit permanent. not going to be the silver bullet many we have that affects Americans who I yield the floor. would like but it will help signifi- want to improve their skills and get a Mr. BAUCUS. Mr. President, I yield cantly. better job. We have the Workforce In- myself about 10 minutes. With respect to the R&D credit, 62 vestment Act, and that has the poten- The PRESIDING OFFICER. The Sen- percent of total industry research and tial each and every year to retrain ator is recognized for 10 minutes. development is performed in manufac- 900,000 people so they have the skills Mr. BAUCUS. Mr. President, I ask turing industries. That includes com- and talents to handle the jobs avail- my friend from Wyoming how much puter and electronic products, trans- able, the well-paying jobs available in time he has. It is my understanding portation, equipment, and chemicals. this country that we are having to fill that there was an agreement before I It is disproportionately helpful to man- from overseas. came to the floor. ufacturing jobs. We clearly want more Do you know what has happened to The PRESIDING OFFICER. Under manufacturing jobs in this country. that bill? Let me give Members a brief the previous order, the time until 3:30 Manufacturing jobs are important to history. We passed it out of the Health, is equally divided between the major- the entire economy. Education, Labor, and Pensions Com- ity and minority leader. The multiplier effect in manufac- mittee unanimously. How often do you Mr. BAUCUS. Mr. President, I will be turing jobs is extremely high. For think that happens in that committee? very brief. every 16 million manufacturing jobs in It can be a very contentious com- I am very happy to be supporting the this country, another 9 million are cre- mittee. It passed out of the committee pending amendment. This is an amend- ated in retail, wholesale, finance, and unanimously. What happened in the ment that the author of the amend- other sectors. That is not as true in Senate? We passed it in the Senate by

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00063 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.060 S03PT1 S2082 CONGRESSIONAL RECORD — SENATE March 3, 2004 unanimous consent. That means not There is no question that the work- They need to know. They should not one person in the Senate wanted to place has dramatically changed during have a bunch of different criteria that amend the bill; not one person in the the last half century. The regulations they need a special accountant or at- Senate wanted to vote against the bill. governing white-collar exemptions re- torney to interpret for them so they It was unanimous. That is as bipartisan main substantially the same as they can tell whether they are violating the as we can possibly get. were 50 years ago. The existing rules law. Where is that bill now? We cannot take us back to the time when workers This rule, the one proposed—pro- appoint a conference committee. That held titles such as straw boss, key- posed; it is not finalized yet—by the is the committee made up of Repub- punch operator, legman, and other oc- Department of Labor will make it easi- licans and Democrats who would meet cupations that no longer exist today. er for businesses to know when they with Republicans and Democrats from Our economy has evolved. New occu- are complying. the House to work out differences be- pations have emerged that were not By undermining the administration’s tween what they passed and what we even contemplated when the regula- efforts to better protect lower income passed. We cannot have a conference tions were written. A 1999 study by the workers, who will this amendment pro- committee to do that. General Accounting Office rec- tect? The supporters of the amend- That is 900,000 jobs in this country ommended that the Department of ment—the amendment that is going to that are being stalled out; 900,000 op- Labor: Comprehensively review current be laid down, I guess—claim that an es- portunities we are not going to give to regulations and restructure white-col- timated 8 million workers will become Americans. Instead, we are going to lar exemptions to better accommodate ineligible for overtime under the pro- talk about a whole bunch of amend- today’s workplace and to anticipate fu- posed rules. However, this estimate is ments to this bill that are going to ture workplace trends. That is pre- based on a study by the Economic Pol- slow down this bill and increase pen- cisely what the Department of Labor’s icy Institute, and it is riddled with er- alties on American businesses trying to proposal to update and clarify the rors. For example, the study includes ship goods overseas. In fact, all Amer- white-collar regulations will do. in its calculations at least 18 percent of ican businesses. While the Department’s proposal will the workforce who work 35 hours or Keep that in mind. If we want to take update and clarify, this amendment less a week. These part-time workers care of jobs in this country and make will do neither. Instead, it will set the do not work more than 40 hours a week sure jobs stay in this country, we clock back to 1954 and try to force the and, therefore, they do not receive would get a conference committee ap- square peg of the 21st century jobs into overtime in the first place. pointed on the Workforce Investment the round hole of the workplace of 50 The study also claims the proposed Act and get that thing resolved and get years ago. rule will deny overtime pay to white- people trained and to work. I am a former shoe salesman and I collar employees earning more than One of the examples of what will hap- know how to tell when something will $65,000 a year. However, not all the em- pen on this is the overtime amendment not fit. This just will not fit. It is like ployees earning over $65,000 are exempt that we have been promised. I could trying to force a size 10 foot into a size under the proposed rules—only those wait until it actually came up, but 6 shoe. It will not fit no matter how performing office or nonmanual work there were some comments made and hard you try. and one or more exempt duties. This there is a need to respond on the 40 Through the course of the debate on means workers, such as police officers, minutes we have already heard about overtime over the next several days, we firefighters, plumbers, Teamsters, car- the overtime amendment. will hear a lot of numbers. Some of penters, and electricians will not—will It is time to strip the rhetoric from them are statistics and we know how not—lose their overtime pay. The De- the reality and consider who is really statistics work. I am an accountant so partment of Labor acknowledges the helped and hurt by this amendment I will try to give some good numbers possibility that 644,000 highly educated which prohibits the Department of and hope you will put up with me with workers making over $65,000 a year Labor from updating the rules exempt- the numbers, but there are numbers might lose their overtime. Mr. Presi- ing white-collar employees from over- you need to know. dent, 1.3 million get picked up on the time pay. It is not all that simple. Let us be clear about what this bottom end; 644,000 drop out on the top. When I am back in Wyoming, I like amendment will do. The amendment Supporters of this amendment claim to hold town meetings to find out what will undermine the Department of La- that the proposed rules will strip over- is on the minds of my constituents. At bor’s efforts to extend overtime protec- time pay for first responders and each town meeting, there is usually tion to 1.3 million low-wage workers. nurses. If we look behind the rhetoric, someone in attendance who is quite Under the current rules, only those we find there will be virtually no concerned about government regula- rare workers earning less than $8,060 a change in status for first responders tions. I am often told to rein big gov- year are protected for overtime pay. and nurses under the Department of ernment in, keep the rules and regula- That is how old this rule is. You are Labor proposal. Under both the current tions simple, keep them current and re- protected if you are making less than and proposed regulations, only reg- sponsive, and make sure they make $8,060 a year. Now the administration’s istered nurses are exempt from over- sense in today’s ever changing work- proposed rule will raise that threshold time pay. place. to $22,100 a year. Supporters of this amendment claim Most of the people I talk to are small Doesn’t that sound more common that military personnel and veterans businessmen, but that is most of busi- sense in today’s market? Doesn’t that will lose their overtime pay under the ness in this country. They are being sound like a number that covers more proposed rules. However, military per- killed by the rules and regulations, people? If the old rule covered those sonnel and veterans are not affected by and, in some cases, by trial attorneys. making less than $8,060, a new rule, the proposed rules by virtue of their Today we are reviewing an amend- covering those making less than military status or training. Nothing in ment that takes the opposite approach. $22,100, would cover more people. the current or proposed regulation Instead of keeping it simple and cur- As a result, 20 percent of the lowest makes any mention of veteran status. rent, it will prohibit the Secretary of paid workers would be guaranteed Who will this amendment protect, if Labor from updating the rules exempt- overtime pay. The overtime provisions not low-income workers, first respond- ing white-collar employees from the of the Fair Labor Standards Act were ers, nurses, veterans, or millions of Fair Labor Standards Act and overtime originally intended to protect lower in- other working Americans? The anti- requirement in some cases, an attempt come workers. The proposed rules will quated and confusing white-collar ex- to reject the new, turn back the clock, provide lower income workers with the emptions have created a windfall—a and look to yesterday for the answer to protection they deserve. windfall—for trial lawyers. Ambigu- tomorrow’s problems. It is an approach That also makes it easier for busi- ities and outdated terms have gen- that is doomed to failure before it is nesses to know when they are com- erated significant confusion regarding even applied. I am opposed to the plying with the law. And that is impor- which employees are exempt from the amendment. tant, particularly for small businesses. overtime requirements. The confusion

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00064 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.063 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2083 has generated significant litigation and respond by changing the rule, or re- coalition opposed to any legislative ef- overtime pay awards for highly paid, spond by letting the people know how forts to stop outsourcing is coming up white-collar employees. Wage and hour that will not work or how it is covered with some new language. They don’t cases now exceed discrimination suits a different way. We have to have that like the word, ‘‘outsourcing,’’ so they as the leading type of employment law process work. are calling it worldwide sourcing, to class action. Let me repeat that again. Now, I hope if there are substantial take some of the sting out of the lan- Wage and hour cases now exceed dis- changes it gets put out one more time guage. They may succeed in taking the crimination suits as the leading type of for comments. There is not anything sting out of the language by changing employment law class action. around that says they cannot reissue the vocabulary, but you cannot take This amendment—the amendment them for comment. The public com- the sting out of finding out that your that Senator HARKIN is going to put ments are what help us get it right. We job has been lost and that others off- in—will not preserve overtime for mil- do not do these jobs, so we do not know shore are taking those jobs because it lions of working Americans. The all the right answers. But the people enhances the bottom line in a quar- amendment will not help employers out there working on them do. The an- terly report someplace. We need to ad- and employees clearly and fairly deter- swers can be made right. dress that. mine who is entitled to overtime. The Now, if the final rule has gone I fully understand that outsourcing only clear winners from this amend- astray, after all of this process, we can to some degree is going to go on. I ex- ment will be the trial lawyers who will use the Congressional Review Act to pect that to be the case. But I don’t continue to benefit from the current reverse it. And we have done that be- think the Federal Government ought state of confusion. We are spending fore. That is where we say: You did not to be subsidizing that effort. I am one taxpayers’ dollars sorting through pay attention to the process. You did who has believed in and supported free what could be solved with clarity. not pay attention to the comments. We and fair trade agreements over the I stress that these are proposed are going to jerk you back to reality. years. I take great pride in that. In a rules—proposed rules. The Department But now is not the time or the vehicle global economy, you have to do that. of Labor has received, and is currently for making that determination. But I also understand if we don’t have reviewing, around 80,000 comments to I hope my colleague will not put the services or provide the manufac- their proposed regulations. We should down the amendment, but if he does, I tured goods with which to trade glob- allow the regulatory process to con- hope my other colleagues will support ally because we have given up a signifi- tinue and give the Department a me in allowing the Department to cant part of our manufacturing base or chance to complete its review of the move forward with the review and re- given up a critical area of technology proposed rules. Once the review is com- sponse that they need to be doing. in the service areas, for instance, we pleted, the Department will align the They do need to be paying attention to are necessarily going to be great com- white-collar regulations with the reali- all of this debate. But we do need to petitors in a global marketplace in the ties of the 21st century workplace, the bring that rule into the current cen- 21st century. intent of the Fair Labor Standards tury and make sure people are working Act, and—this is most important— at jobs and the rules are understand- You may say we are nowhere near what they have learned from the com- able, particularly with small busi- that yet. The rest of the world doesn’t ments. nesses that are trying to provide a even come close to producing the qual- They have 80,000 comments. I expect service, not figure out Government reg- ity and high value goods we do in the them to read those. I expect them to ulations. United States. They can’t come close react to those, and make sure that it I yield the floor and reserve the re- to providing the high technology we becomes a part of the rule. mainder of my time. do. Now, supporters of this amendment The PRESIDING OFFICER. The Sen- I think we have all learned over the are, in effect, denying the public a ator from Connecticut. last number of years that technology voice in the regulatory process. This Mr. DODD. Mr. President, I ask unan- and productivity is highly portable, amendment will deny the Department imous consent to yield myself such and it is moving at warp speed. What of Labor an opportunity to respond to time as I may consume from the time was true a year ago, 5 years ago, cer- public comments. I happen to believe under the control of the Democratic tainly 10 years ago, is no longer the that public comments play a critical side. case. I suspect this rate of speed of role in the regulatory process. The PRESIDING OFFICER. Without change is going to continue to grow. I will tell you, I go back to Wyoming objection, it is so ordered. At this particular juncture, I think it most weekends. I go out on Friday, Mr. DODD. Let me say to those who is important that we speak to this travel to a different part of the State, may be listening in the offices of Mem- issue and that we try to find some bal- and come back on Sunday. It is the bers who want to come over and wish ance on how we maintain our global most valuable thing I do around here, to be heard on this matter, I will be leadership role, continue to provide op- and that is because I get to talk to the prepared to yield some time. I am here portunities for American workers, person who has the problem firsthand. to discuss an amendment that will while simultaneously not allowing the Do you know what? They are working come up after 3:30. I thought I would exportation of jobs overseas. on that all day, every day. And the ad- move things along while we have this vantage is they have usually thought dead time, while we are waiting for I was terribly disheartened to read a of some kind of a solution. Now, when this vote to occur, to discuss upcoming report, the Economic Report of the I bring it back, quite often, the com- amendments and encourage those who President, February 2004, just last ment is: It is too simple. It will never may want to participate in some of month, this publication that comes work. Where did you come up with a those debates to come to the floor and out. It is designed to give an overall crazy idea like that? And I have to ex- share some of their thoughts. economic report of the Nation, with plain: From the guy with the problem I will be offering at the appropriate various suggestions and ideas. I am not who works on this every day and knows time, sometime after 3:30, an amend- making up these quotes from some the commonsense approach to solving ment that deals with the outsourcing news article or some demagogue or that problem. of jobs. I note the presence of the Pre- pundit out there when talking about Those are the people writing in with siding Officer who comes from the these issues. These are actual conclu- comments. Those are the people who same region of the country I do. We sions reached by the top economic ad- are saying: This is where it is right. have all been feeling it in our States, visers to the President of the United This is where it is wrong. Fix it where not just in the Northeast, but across States when it comes to the issue of it is wrong. Leave it in the new context the country, the tremendous pinch manufacturing and outsourcing. where it is right. That is how the proc- that is occurring as a result of job loss First on outsourcing, chapter 12, on ess is supposed to work. and the growing number of jobs that page 229 of this economic report of We want the Department of Labor to are being outsourced. I am told by President Bush and his economic team, look at those comments and respond— those who cover these issues that the it says:

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00065 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.066 S03PT1 S2084 CONGRESSIONAL RECORD — SENATE March 3, 2004 When a good or a service is produced more In F2003, ValiCert agreed to be acquired by home, except for the smaller cubicles and In- cheaply abroad, it makes more sense to im- Tumbleweed Communications Corp., a dian designs on the partitions. There were no port it than to make or provide it domesti- maker of antispam software with its own off- savings on the rent. At $1 a square foot, it cally. shore operation in Bulgaria. Today, the com- matched what ValiCert paid for its Mountain I would suggest that is a conclusion bined Tumbleweed is growing, and again hir- View, Calif., home offices, amid a Silicon ing software architects in Silicon Valley Valley office glut. with which some economists may Misunderstandings started right away. agree. Some have drawn the conclusion with six-figure salaries, as well as engineers overseas. Without India, Mr. Vigouroux says, U.S. executives wanted programmers with that that is inherently a far better ‘‘I don’t know if we’d be around today.’’ eight to 10 years of experience, typical of idea, just thinking in terms of quarters ValiCert’s experience offers important in- ValiCert’s U.S. employees. But such ‘‘career or yearly reports, I suppose, and the sights into the debate over the movement of programmers’’ are rare in India, where the bottom line. That may be OK. But if service jobs to lower-cost countries, such as average age of engineers is 26. Most seek you are worried about generational India. Such shifts can save companies money management jobs after four or five years. and hurt U.S. workers. But the process is dif- Expertise is security technology, key to change, if you are worried about trying ValiCert’s products, was even rarer. to establish a bedrock of job opportuni- ficult, and the savings typically aren’t as great as a simple wage comparison suggests. By contrast, Mr. Vutukuri quickly assem- bled a group to test ValiCert’s software for ties, stability, and security in the 21st Some jobs cannot easily or profitable be ex- bugs, tapping a large pool of Indian engi- century, then it absolutely makes no ported, and trying to do so can risk a cus- neers that had long performed this mundane sense to export that job rather than to tomer backlash: In recent months, Dell Inc. work. provide it domestically. and Lehman Brothers Holdings Inc., for ex- But the Indian manager heading that I note in this morning’s Wall Street ample, moved several dozen call-center and group ran into resistance. It was ValiCert’s Journal—so you don’t think these help-desk jobs back to the U.S., after em- first use of code-checkers who didn’t report ideas are merely being spouted by a ployee and customer complaints. to the same managers who wrote the pro- Democrat in disagreement with the Founded in 1996, ValiCert specializes in grams. Those U.S. managers fumed when the software to securely exchange information team in India recommended in June 2002 de- President’s economic report—a March over the Internet. Banks use ValiCert’s soft- 3, 2004, article, ‘‘Lesson in India.’’ I ask laying a new product’s release because it had ware to safeguard electronic funds transfers, too many bugs. unanimous consent to print the full ar- health insurers to protect patient medical By midsummer, when Mr. Vutukuri had ticle in the RECORD. records. Although still unprofitable, enough programmers for ValiCert to begin There being no objection, the mate- ValiCert conducted an initial public offering sending bigger assignments to India, U.S. rial was ordered to be printed in the in July 2000, in the dying embers of the dot- managers quickly overwhelmed the India RECORD, as follows: com boom. In two months, the stock doubled team by sending a half-dozen projects at [From the Wall Street Journal, Mar. 3, 2004] to $25.25. once. In 2001, however, sales growth slowed, as Accustomed to working closely with vet- LESSON IN INDIA: NOT EVERY JOB TRANSLATES corporate customers reduced technology pur- eran engineers familiar with ValiCert’s prod- OVERSEAS chases. ValiCert had projected that it would ucts, the U.S. managers offered only vague (By Scott Thurm) break even with quarterly revenue of $18 mil- outlines for each assignment. The less-expe- When sales of their security software lion, according to Srinivasan ‘‘Chini’’ rienced Indian engineers didn’t include ele- slowed in 2001, executives at ValiCert Inc. Krishnan, founder and then-chairman. Quar- ments in the programs that were considered began laying off engineer in Silicon Valley terly expenses had grown to $14 million, but standard among U.S. customers. U.S. pro- to hire replacements in India for $7,000 a revenue was stalled at less than half that fig- grammers rewrote the software, delaying its year. ure. Executives began considering shifting release by months. ValiCert expected to save millions annu- work to India. The ‘‘motivation was pure In India, engineer grew frustrated with ally while cranking out new software for survival,’’ says Mr. Krishnan, who left the long silences, punctuated by rejection. banks, insurers and government agencies. company after the Tumbleweed merger. Suresh Marur, the head of one programming Senior Vice President David Jevans recalls India was a natural choice because of its team, worked on five projects during 2002. optimistic predictions that the company large pool of software engineers. Moreover, All were either cancelled for delayed. Pro- would ‘‘cut the budget by half here and hire both Mr. Krishnan and ValiCert’s then-head grammers who had worked around the clock twice as many people there.’’ Colleagues of engineering grew up in India and were fa- for days on one project quit for new jobs in would swap work across the globe every 12 miliar with large tech-outsourcing firms. Bangalore’s vibrant market. Of nine people hours, helping ValiCert ‘‘put more people on Some, including Mr. Jevans, harbored on Mr. Marur’s team in mid-2002, only three it and get it done sooner,’’ he says. doubts. The Apple Computer Inc. veteran still work for ValiCert. ‘‘The first time peo- The reality was different. The Indian engi- says he preferred ‘‘small teams of awesome ple understand,’’ he says. ‘‘The second time neers, who knew little about ValiCert’s soft- people’’ working closely together. Nonethe- people understand. The third time it gets to ware or how it was used, omitted features less, that summer, ValiCert hired Infosys be more of a problem.’’ Americans considered intuitive. U.S. pro- Technologies Ltd., an Indian specialist in In the U.S., executives lurched from crisis to crisis, as ValiCert’s revenue dipped fur- grammers, accustomed to quick chats over contract software-programming, to supply ther. Each quarter brought more layoffs. By cubicle walls, spent months writing detailed about 15 people in India to review software year end, the California office, which once instructions for overseas assignments, delay- for bugs, and to update two older products. employed 75 engineers, was reduced to 17; the ing new products. Fear and distrust thrived With no manager in India, ValiCert em- India office, meanwhile, swelled to 45. Engi- ployees in the U.S. managed the Infosys as ValiCert’s finances deteriorated, and co- neers ‘‘felt the sword of Damocles was swing- workers directly, often late at night or early workers, 14 time zones apart, traded curt e- ing above their cube,’’ recalls John Thielens, in the morning because of the time dif- mails. In the fall of 2002, executives brought a product manager. back to the U.S. a key project that had been ference. ValiCert also frequently changed Executives knew they could save more assigned to India, irritating some Indian em- the tasks assigned to Infosys, prompting money by exporting more jobs. But they ployees. Infosys to shuffle the employees and frus- were developing a keener sense of how crit- ‘‘At times, we were thinking, ‘What have trating ValiCert’s efforts to build a team ical it was to keep core managers in the U.S. we done here?’’’ recalls John Vigouroux, who there. who knew ValiCert, its products, and how joined ValiCert in July 2002 and became chief Within a few months, ValiCert abandoned they were used by customers. ‘‘Even if you executive three months later. Infosys and created its own Indian sub- could find someone’’ with the right skills in Shifting work to India eventually did help sidiary, with as many as 60 employees. Most India, says Mr. Krishnan, the ValiCert found- cut ValiCert’s engineering costs by two- employees would be paid less than $10,000 a er, ‘‘it wouldn’t make business sense to move thirds, keeping the company and its major year. Even after accounting for benefits, of- the job.’’ products alive—and saving 65 positions fice operating costs and communications Frustrations came to a head in September which remained in the U.S. But not before links back to the U.S., ValiCert estimated 2002, when a prospective customer discovered ValiCert experienced a harrowing period of the annual cost of an Indian worker at problems with the log-on feature of a instability and doubt, and only after its ex- roughly $30,000. That’s about half what ValiCert program. The anticipated purchase ecutives significantly refined the company’s ValiCert was paying Infosys per worker, and was delayed, causing ValiCert to miss third- global division of labor. less than one-sixth of the $200,000 comparable quarter financial targets. The India team The successful formula that emerged was annual cost in Silicon Valley. had recently modified the program, and the to assign the India team bigger projects, To run the new office in India, ValiCert glitch prompted U.S. managers to question rather than tasks requiring continual inter- hired Sridhar Vutukuri, an outspoken 38- ValiCert’s entire offshore strategy. action with U.S. counterparts. The crucial year-old engineer who had headed a similar Relations had long been strained between jobs of crafting new products and features operation for another Silicon Valley start- the U.S. and Indian product teams. John stayed in Silicon Valley. In the end, export- up. He set up shop in January 2002 in a Hines, the Netscape Communications Corp. ing some jobs ultimately led to adding a ground-floor office in bustling Bangalore, veteran who headed the tight-knit U.S. prod- small but important number of new, higher- the tech hub of southern India. The office uct team, thrives on quick responses to cus- level positions in the U.S. looked much like ValiCert’s California tomer requests. As his team shrank to six

VerDate jul 14 2003 02:24 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00066 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.068 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2085 engineers from 20, Mr. Hines was assigned Tumbleweed’s customers. Since July, Mr. to make millions because of laid-off three engineers in India. But he viewed the Lourie’s U.S. team has grown to nine engi- American workers and you hire some- Indians’ inexperience and the communica- neers, from six. one 8 or 10 time zones away, has been, tion delays, as more a hindrance than a help. Tumbleweed’s fourth-quarter revenue grew certainly in the case of this particular ‘‘Things we could do in two days would take 69% from a year earlier, as its net loss a week,’’ he says. shrank to $700,000, and cash increased by $2.4 company, proven to be untrue. Mr. Vigouroux, who became CEO in Octo- million. Shares have risen five-fold in the So to the point that when a good or ber 2002, admits to a touch of ‘‘panic’’ at this past year. service is produced more cheaply point. ValiCert’s cash was running low. ‘‘We Brent Haines, 36, is a new hire. He joined in abroad, it makes more sense to import didn’t have a lot of time,’’ he says. He con- October as a $120,000-a-year software archi- it than to provide it domestically, I ferred with Mr. Hines, who said he wanted to tect, charged largely with coordinating the would suggest that the people who be rid of India, even if it meant a smaller work of the U.S. and India teams. That often wrote the economic report for the team. Mr. Vigouroux agreed to hire one engi- means exchanging e-mail from home with President may want to talk to the peo- neer in California. When he learned of the engineers in India between 11 p.m. and 3 a.m. decision, Mr. Vutukuri says he felt as if he California time, as Mr. Haines reviews pro- ple at ValiCert. I don’t suspect that is had failed. gramming code and suggests changes. Such one company. I suspect that is true of By contrast, Matt Lourie, who heads collaboration requires extensive planning, he many companies. So it is not Biblical. ValiCert’s other big programming group, says, ‘‘something very unnatural to people in I agree that in certain cases you will welcomed additional help in India. He was software.’’ make a lot more money by firing peo- struggling to keep pace with customer de- ‘‘Nine months ago, people would have said ple in the United States and getting rid mands for new features on his product and [moving offshore] was the biggest . . . dis- of them. Why should you worry about new versions for different types of com- aster,’’ says Mr. Thielens, the product man- that? Your job is to provide a bottom puters. ager. ‘‘Now we’re starting to understand how line. That is your job. At the same time, ValiCert executives we can benefit.’’ were streamlining operations and changing My job is a little different than your how they divided work between California Mr. DODD. This is a story written by job. My job, as a Senator, is to not only and India. They gave the India team entire Scott Thurm. It is about a company, watch out for you and your company, projects—such as creating a PC version of a ValiCert, that learned key roles must to make sure you live in an environ- program initially built for bigger remain in the U.S. for outsourcing to ment where you can make a profit, I workstations—rather than small pieces of work. And the thrust of the article is have an obligation to those people who larger projects. U.S. managers began writing this company rushed, like everybody work for you as well. I didn’t get elect- more detailed specifications for each assign- else. Forty percent of the top 1,000 ment to India. ed to the Senate just to guarantee you ValiCert also killed its three smallest-sell- companies in America are now a bottom line. My job is setting public ing products to focus resources on the re- outsourcing their jobs, sort of like policy, not quarter by quarter, not just maining two. To improve morale in the U.S., chasing into Mexico back in the 1980s bottom line and yearly report to yearly Mr. Vigouroux crowded the remaining em- when the financial service sector report, but longer than that. That is ployees into one corner of the half-vacant of- thought that was the place to be, with- what we are supposed to do in a Cham- fice and installed a ship’s bell that he rang out much thought. Once these trends ber such as this, to think a little each time ValiCert recorded $10,000 in rev- begin, they are sort of like sheep fol- longer, to worry about this country, enue. He made sure the India employees re- lowing one after another without much ceived company-wide e-mails, and conducted those who are the children of the 21st multiple sessions of monthly employee meet- thought involved. century and what kind of a Nation are ings so the India group could listen at a con- This company ValiCert went racing they going to inherit after you and I venient hour. Engineering-team leaders off to outsource its jobs, reduced its have left. They are going to ask us began conferring twice a week by telephone, employment, saved a lot of money, ac- about what we did at the beginning of shifting the time of the calls every six cording to the article, expected to save the 21st century when we saw the trend months so that it’s early morning in one of- millions annually while cranking out lines reaching out to cause literally fice and early evening in the other. new software for banks. millions of people to lose their jobs. Toward the end of 2002, Mr. Vigouroux I am quoting from the article now: began to ring the bell daily, as customers One report indicates that in the next such as Washington Mutual Inc. and When sales of their securities software 10 years or so we may lose as many as MasterCard International Inc. purchased slowed in 2001, executives at ValiCert began 4 million jobs, a loss of $140 billion in ValiCert’s software. laying off engineers in Silicon Valley to hire wages, just by outsourcing alone. By early the next year, ValiCert executives replacements in India for $7,000 a year. That number may be low, according believed the company had stabilized. Rev- ValiCert expected to save millions while cranking out new software for banks and in- to those who have done this. I will get enue increased to $3 million in the fourth to the charts in a minute and identify quarter of 2002, up 27% from the previous surers and government agencies. Senior Vice quarter. Expenses declined, and the company President David Jevans recalls optimistic the source of that. I will get to the neared profitability. Investors detected a predictions that the company would ‘‘cut the amendment at an appropriate time and pulse, and the stock rose to 46 cents on the budget by half here and hire twice as many talk about the specifics of it. I know I Nasdaq Stock Market at the end of January, people there [in India].’’ Colleagues would am going to hear that your amendment from a low of 20 cents in August 2002. swap work across the globe every 12 hours, goes too far, it is too heavyhanded, be- But with just $3 million in cash, ValiCert helping ValiCert ‘‘put more people on it and cause I am going to suggest that get it done sooner,’’ he says. remained precarious. Mr. Vigouroux started maybe the use of Federal tax dollars— meeting with potential new investors and The reality was different. The Indian engi- began talks with Tumbleweed CEO Jeffrey C. neers, who knew little about ValiCert’s soft- we ought to have second thoughts Smith. ware or how it was used, omitted features about subsidizing this rushing to go Tumbleweed also had been through signifi- Americans considered intuitive. U.S. pro- overseas to outsource. I cannot stop a cant layoffs and retrenchment, and in Feb- grammers, accustomed to quick chats over private company with its own dollars ruary 2003, the companies agreed to merge. cubicle walls, spent months writing detailed deciding to do that. You can make it The combined Redwood City, Calif., com- instructions for overseas assignments, delay- less of an attractive thing through the pany’s 150 engineers today are almost evenly ing new products. Fear and distrust thrived, Tax Code or more attractive for people and ValiCert’s finances deteriorated and co- divided among California, the Tumbleweed to stay here, but I certainly cannot operation in Bulgaria, and the India office workers, 14 time zones apart, traded curt e- started by ValiCert. In Bulgaria, engineers mails. In the fall of 2002, executives brought stop you from doing it. write and test software, and scan millions of back to the U.S. a key project that had been But I ought to be able to say some- e-mails daily for traces of spam. In India, en- assigned to India, irritating some Indian em- thing about how American taxpayer gineers test software, fix bugs and create ployees. money is being used. If their money is new versions of one product. Last Sep- ‘‘At times we were thinking, what have we being used to cause somebody to lose tember, Tumbleweed released its first prod- done here?’’ ... their job and to hire someone for the uct developed entirely in India, a program The article goes on; I won’t read all attraction of the salary someplace else, that lets two computers communicate auto- of it; the point being sort of buyer be- maybe taxpayers have a right to be matically and securely. Mr. Marur’s team had worked on it for over 18 months. ware. This notion that you might be heard on this issue. This amendment Core development for new products re- hiring people for a fraction of what it says Federal tax, for the purpose of mains in California, where engineers are would cost to hire someone in the Sil- outsourcing—with the exceptions of closer to marketing teams and icon Valley and it is going to allow you national security and other provisional

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00067 Fmt 4624 Sfmt 0634 E:\CR\FM\A03MR6.019 S03PT1 S2086 CONGRESSIONAL RECORD — SENATE March 3, 2004 waivers, which I will explain—ought istration’s economic policy. In bold ment used in some of our most sophis- not to be something we are supporting. print in this economic report they sug- ticated defense and nondefense prod- If you want to do it as a private com- gest there is a legitimate question over ucts. So when I see these jobs and these pany, that is your business. I don’t whether or not working at McDonald’s businesses going, I have to be reminded think you ought to necessarily have a or Burger King flipping hamburgers that we are not going to create this right to Uncle Sam’s taxpayer money ought to be classified as a manufac- overnight. You don’t reconstitute the to do that at the expense of critical turing job. If you don’t think we are in manufacturing base overnight. Again, I jobs that are important for this Na- trouble on these issues, just read that. accept we have to make changes and tion’s future. That is an example of the kind of ter- you cannot say we are going to stop I will go on in this economic report ribly naive at best, at worst rather cal- this altogether. But I think we have an because I may not have time, when we lous, thinking when it comes to talk- obligation to express our concerns and get to the amendment, to talk about it. ing about the importance of manufac- worries about where we are headed, if I cited chapter 12, page 229, where you turing. I don’t belittle a job somebody we don’t speak up and begin to address have this emphatic statement that it holds down working in a fast food res- what this may mean for our country. automatically, in every case, as I read taurant. For many people out there, I am very worried about where these this, makes more sense to import. that is the only job they can get to trend lines are going and what it may They don’t talk about outsourcing. provide for themselves and their fami- mean. If we end up continuing to lose They act as if it were a good or a serv- lies. They would be the first to tell you jobs and manufacturers, I am con- ice. I know economists like to suggest that they hardly think of themselves cerned about what it may mean for our that is all it is. But I think people in as being in the manufacturing busi- country if we end up having to import Ohio, Connecticut, or Pennsylvania are ness. Yet, in the administration’s offi- not only the jobs but the products more than a good or a service. They cial report, it raises the question of themselves. That is another subject may have a family, a home mortgage whether or not it is a manufacturing matter we can discuss later. We ought they are trying to pay, and they may job. At least this Member gets a sense to worry about it as a country. If we have other obligations; and they worry they are lost on this issue, when they don’t do something soon in this area, about their future retirement and raise questions as foolish as that. that is going to be a continuing prob- health care. So to have the cold eye of Let me go to some of these charts, if lem. an economist saying a person out there I may. Let me just give you a sugges- Let me point out further, to give who has a job in America may find it tion of what is happening on the issue some idea of where this is all hap- gone because the quarterly report of manufacturing. The first chart I pening, because it is not, as I men- would look a lot better if we can hire raise here points to the fact that in the tioned, just my State of Connecticut. I that person for $7,000 a year rather last 36 months, we have now lost in the mentioned my friend and colleague, than paying you $40,000, $50,000, $60,000, United States of America 2.8 million the Presiding Officer, comes from New or $70,000 a year, and you are really manufacturing jobs—since January Hampshire up in our area. Just to high- nothing more than a good or a serv- 2001, up until now, the winter of 2004. light, his small New England State as ice—I think many of us here believe That is 2.8 million manufacturing jobs well had some 22,300 jobs in the manu- otherwise. that have gone in this country. I be- facturing sector lost in New Hamp- These are not just goods or services; lieve that is the single largest loss of shire. In my State of Connecticut, it is these are human beings who help to manufacturing jobs that has occurred about 32,800, about 10,000 more. That is strengthen this country, provide us the since the Great Depression. I under- in the last 36 months. The trend lines are: Pennsylvania, kinds of liberties and opportunities we stand transitions in the economy. 132,000; Ohio, 153,000 jobs have been enjoy as Americans. I think it is about Things happen and move in different lost; California, 272,000 manufacturing time we stood up for them and what directions. But I don’t think you can jobs lost; the State of Washington, their interests may be—not at the ex- wash your hands of this and say I am 59,000; Oregon, 21,000; Texas, 149,000; pense of others, but to merely strike a sorry, but that is the trend line and Florida, 52,000; Georgia, 67,000; 142,000 balance. This is not about being that is the way life is—sort of a laissez- jobs lost in the small State of North against trade, being an isolationist at faire approach. all. It is merely saying strike some bal- We ought to analyze why things are Carolina. This is all in the last 36 months. ance before this sort of giddy trend, happening, where are the jobs going, I won’t go through State after State, where company after company is sort and what are the implications for our but you get some sense of this. It is not of playing follow the leader and runs country. I understand where the CEO of isolated to our corner in Connecticut, amuck as they send these jobs willy- a company is coming from, and the our small State, or the area of New nilly offshore; we ought to say let’s board of directors or the administra- England: New York State, 115,000 jobs; look at what we are doing and at what tion of a company. Their concern is the Michigan, 121,000; Wisconsin, 168,000; Il- ultimate price we may pay. bottom line and whether you have a linois, 115,000 jobs. It is a worrisome The second point I want to make out profit to show the next quarter. I think trend. It is going on all across the of this economic report is a reference Members of Congress ought to have a country. with regard to what is manufacturing. different set of questions from whether Again, we cannot say this is transi- I don’t have the page number, unfortu- the quarterly report is all right— tional, I am sorry, America, you are nately, on this, but I will get it before whether this trend line is going to con- going to have to live with this. We I finish my remarks. It is a highlighted tinue, and what it means to our coun- ought to respond in a way that ac- box, and the title of the box that is try. If this trend line continues and we knowledges this trend and tries to offer framed out here is ‘‘What Is Manufac- end up losing a manufacturing sector, some ideas on how we might turn this turing?’’ This economic report says the we will deeply regret it. trend around. definition of a manufactured product, I come from a State where I have I will be glad to share with my col- however, is not straightforward. When 5,400 small manufacturers—or I did—in leagues, if they are curious about their a fast food restaurant sells a ham- Connecticut. Most of them are small States—I will not go through all 50 burger, for example, is it providing a operators, with 5, 10, 15 people, third States, but there is not a State in the service or manufacturing a product? and fourth generation, producing not country that has not lost manufac- You may say that is only a question. just flowers or some other item but, turing jobs. Some have lost very few. You know, if this is your question and rather, significant products, many of The State of Wyoming lost 700 jobs; the example you would cite in your which are used in the aircraft engine North Dakota, 500. That may be the question, what are you thinking of? Do industry of my State, the manufacture lowest. Arizona, 34,000; New Mexico, you think it is a debatable item as to of the sophisticated submarines we 5,000; Colorado, 37,000; Kansas, 19,000; whether or not producing a hamburger produce in Connecticut, or other high Arkansas, 29,000; Missouri, 38,000. These or a hot dog involves manufacturing? value products. These manufacturers job losses have been very painful. This is not some op-ed piece; this is the employ highly skilled people, pro- We talk about these jobs, and I think official economic report of this admin- ducing very valuable pieces of equip- the tendency is to talk about them in

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00068 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.070 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2087 and of themselves, the job loss in any anyone from using Federal tax dollars necticut a year ago—people from the manufacturing sector in any given to ship jobs offshore in three different manufacturing sector, from labor State. Each manufacturing job sup- ways. First, the Federal Government unions, and the private sector coming ports three other U.S. jobs. When we may not use Federal taxpayer dollars together. They differ on a lot of issues, end up losing these jobs in the manu- to procure goods or services to fulfill but on this one they are joined in com- facturing sector, there is a ripple ef- contracts that use overseas workers at mon cause. They recognize what we are fect. the expense of American jobs. experiencing is different from what we I won’t dwell on this, but I think Second, we tell State and local gov- experienced before. most of my colleagues are aware of this ernments that any Federal dollars they Today, advances in technology and already. When someone loses their receive in the form of a grant or in the fewer trade restrictions have made it source of income in the area of manu- form of an appropriation by formula or far easier to move goods, information, facturing, the effects are felt in retail in any other way are not to be used to and jobs around the globe. Foreign trade, personal/business services, and promote the loss of American jobs. countries are aggressively enticing other manufacturing sectors with the I point out that today 40 States American businesses with promises of inability of people to purchase goods. outsource jobs. I am told that in the lower wages, lax worker protections, It is not as if these jobs exist or, when State of Minnesota, if you lose your job and weak environmental laws. Coun- they are lost, the only people paying and you call up the unemployment of- tries such as India and China have fig- that price are the people who lost the fice, you are going to talk to someone ured out if you want to compete in the job. In effect, it is being felt across the in India about what your rights and global marketplace in the best jobs, economy as well. benefits are. I do not need to tell you you need to invest in the best edu- Mr. President, 14 million additional the reaction of those people in that cation and training of your workers. jobs are in danger. State who lost their job and they are Rather than trying to find a meaning- Now we get into the question of jobs talking to someone offshore to tell ful way to address these new cir- going offshore. I want to give some in- them what their benefits are. cumstances, this administration would dication of what is happening. Let’s get The third way is, any agency seeking rather pretend the world is still func- back to the outsourcing question. I to privatize a government contract tioning as it always did and actually mentioned manufacturing because a being paid with U.S. taxpayer dollars that our economy is on a path to recov- lot of these jobs are moving in that may not enter that contract if it again ery. As a matter of fact, our country is area. displaces American workers in favor of hemorrhaging jobs at an alarming rate. We are told—and this is from Time offshore workers. As I mentioned already, according to magazine in their February 22 issue— In all these cases, we have exceptions one estimate, by the year 2015, 3.3 mil- that by the year 2015, more than 3 mil- on the grounds of national security and lion, close to 4 million jobs and $136 bil- lion American jobs are projected to be we allow the Governor or a Federal lion in annual wages will have moved shipped overseas. We begin to see these agency head to, in effect, waive these offshore if we do not do something trend lines. In 2005, it moves up to provisions if there is bona fide lack of about it. Four hundred of the largest 588,000 which will be outsourced over- goods and services in the United 1,000 companies are already sending seas. A few years later that number of States. There is an escape clause here. jobs offshore, with more planning to do jobs goes to 1.6 million, and projections The obvious question arises, one, on so every single day. are, with no effort being made to national security, or, two, if no one is In a short time I will get a chance to change this direction, the number gets producing these goods and services go into this in more detail as to why I up to 3 million. We are worried that if here, what are we supposed to do? think this is an important amendment we do not speak up now and do some- Rather than have the President have to and why I hope my colleagues will sup- thing about this trend, we are going to waive the provision, we allow a Gov- port it. find a continued erosion and continued ernor or head of an agency who would I realize it is a loud shout at this mo- loss of these jobs overseas. be in charge of this particular area to ment, and I know others will argue Let me point out where they are do so. that maybe it is louder than it need be, coming from because this may be help- Let me take a few minutes to explain but I do not know any other way to ex- ful as well to those interested in this why this is a timely amendment and press my deep concern about what is subject matter. There are 14 million why it is deserving of our support. A happening in my State and all across additional jobs in danger of being gentleman by the name of John Bow- this country if we do not begin to say shipped overseas, as I mentioned. man dedicated 25 years of his life to be- that at least with taxpayer money you Where are they coming from? Office coming an information technology pro- are going to have to act differently. support areas, some 8 million jobs; fessional, and he was very good at it, I You may decide to do it on your own business and financial support, 2 mil- might add. He, like hundreds of thou- dime, but you are not going to do it on lion; in the area of computer and math sands of Americans, lost his job be- the dimes of my taxpayers, to send jobs professionals, close to 3 million; in the cause of outsourcing. John looked overseas when they are not necessary. area of paralegal, legal assistance, di- around and realized what happened to You do not need to do that in order to agnostic support, medical tran- him was not an isolated incident. It survive. scriptions and the like, the numbers was part of a massive trend, and he de- I see my colleague from Montana in are in the thousands, to give some idea cided to do something about it. the Chamber. I yield the floor and at where we are going with all of this. John will tell you he would be the an appropriate time I will come back It isn’t just these low-wage jobs that last person in the world leading a to this discussion. are going. They are also going in the grassroots organization that has prac- The PRESIDING OFFICER. Under more sophisticated areas as well. I tically become a grassroots movement the previous order, the time for the mi- mentioned earlier the story in the Wall in this country, not just in my State nority has expired. The majority con- Street Journal talking about ValiCert. but all across the Nation. These are trols an additional 9 minutes 20 sec- They were talking about jobs in Silicon white-collar professional people, highly onds. Valley. I guarantee you we are not trained, who are watching their jobs Who yields time? talking about low-wage jobs at all. lost day after day, flying offshore, Mr. GRASSLEY. I suggest the ab- Those are jobs that are fairly well paid, being outsourced. sence of a quorum and that it come off and they are being lost. The trend lines Fortunately, John is now being of our time. are not good in just raw numbers, but joined in this fight from people of all The PRESIDING OFFICER. The also in sectors of the economy where walks of life—labor unions, small busi- clerk will call the roll. these jobs are being lost. ness owners, Republicans and Demo- The assistant journal clerk proceeded At the appropriate time, I will offer a crats alike. I had a meeting in my to call the roll. very specific amendment to address the State a few days ago on this issue. I Mr. HATCH. Mr. President, I ask issue. Very briefly, the amendment had people in the same room that I unanimous consent that the order for would do the following: It will restrict could not put in the same town in Con- the quorum call be rescinded.

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00069 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.072 S03PT1 S2088 CONGRESSIONAL RECORD — SENATE March 3, 2004 The PRESIDING OFFICER. Without Mr. REID. I announce that the Sen- Mr. DODD. Mr. President, I ask unan- objection, it is so ordered. ator from Louisiana (Mr. BREAUX), the imous consent that the reading of the AMENDMENT NO. 2647 Senator from North Carolina (Mr. ED- amendment be dispensed with. Mr. HATCH. Mr. President, there are WARDS), the Senator from Florida (Mr. The PRESIDING OFFICER. Without several aspects of U.S. job creation and GRAHAM), the Senator from South Da- objection, it is so ordered. retention on which many of us may kota (Mr. JOHNSON), the Senator from The amendment is as follows: Massachusetts (Mr. KERRY), and the (Data not supplied.) disagree. I do not believe, however, Mr. DODD. Mr. President, I offer this Senator from Florida (Mr. NELSON) are that the need for an effective research amendment on behalf of myself, Sen- credit is one of them. It will do more necessarily absent. ator COLEMAN of Minnesota, Senator for workers, more for jobs, more for I further announce that the Senator KENNEDY, Senator CORZINE, Senator from Delaware (Mr. BIDEN) is absent on high technology, more for opportuni- MIKULSKI, and others. ties, and more for the economy than official business. I further announce that, if present Let me say to the floor managers, if most anything else we could pass. In I may, I know they are interested in and voting, the Senator from South this jobs bill it seems very appropriate the time. I am prepared to agree to a 1- Dakota (Mr. JOHNSON) and the Senator for us to add this particular amend- hour time agreement. I do not nec- from Massachusetts (Mr. KERRY) would ment to it. essarily expect to take the hour. I each vote ‘‘yea.’’ This amendment has strong support know there are others who may want The PRESIDING OFFICER (Mr. from both sides of the aisle. It has the to be heard. I know you want to move CORNYN). Are there any other Senators unified support of the whole business things along, so I am prepared to have in the Chamber desiring to vote? community. It is the right thing to do a time agreement and move on my The result was announced—yeas 93, for U.S. workers, for the U.S. economy, amendment, give my remarks, and nays 0, as follows: and for our children and our grand- then others can speak, and then vote children. This amendment will open a [Rollcall Vote No. 31 Leg.] on it, if you would like. door for small businesses, where most YEAS—93 The PRESIDING OFFICER. The Sen- of the jobs are created anyway, to cre- Akaka Dodd Lott ator from Montana. ate more jobs, more opportunities, Alexander Dole Lugar Mr. BAUCUS. Mr. President, with Allard Domenici McCain more good products, more high tech- Allen Dorgan McConnell this amendment, we are moving along nology, more ways of keeping the Baucus Durbin Mikulski on this bill. I very much appreciate the United States at the forefront, eco- Bayh Ensign Miller Senator’s generosity in suggesting a Bennett Enzi Murkowski time agreement. At this point, appar- nomically, in this world than almost Bingaman Feingold Murray anything else we could do. Bond Feinstein Nelson (NE) ently, that is not advisable. But I This jobs bill, which itself is an ex- Boxer Fitzgerald Nickles thank the Senator for making his gen- cellent bill that will do a lot for jobs, Brownback Frist Pryor erous offer and for proceeding never- Bunning Graham (SC) Reed will be much better for having this Burns Grassley Reid theless. amendment added to it. I hope my col- Byrd Gregg Roberts The PRESIDING OFFICER. The Sen- leagues will all vote for it. It is a Campbell Hagel Rockefeller ator from Connecticut. worthwhile thing to do. It is something Cantwell Harkin Santorum Mr. DODD. Mr. President, I will move Carper Hatch Sarbanes that every one of us ought to vote for. Chafee Hollings Schumer forward. If, at any moment you would I thank those who have cosponsored Chambliss Hutchison Sessions like to have a time agreement, let me this with me, those who have amended Clinton Inhofe Shelby know and I will try to accommodate Cochran Inouye Smith you so you can move on to other mat- it with their excellent suggestions and Coleman Jeffords Snowe the members of the Senate Finance Collins Kennedy Specter ters. Committee who have been champions Conrad Kohl Stabenow I have already spoken about the of this for many years. I believe over Cornyn Kyl Stevens amendment during the time between Corzine Landrieu Sununu 2:30 and around 3:30, describing, in a the long run this type of amendment is Craig Lautenberg Talent going to pay off in great dividends. Crapo Leahy Thomas sense, what the amendment would do I yield the floor, and I suggest the ab- Daschle Levin Voinovich and the rationale for the amendment. I Dayton Lieberman Warner will be glad to go back over this sence of a quorum. DeWine Lincoln Wyden The PRESIDING OFFICER. The amendment again for my colleagues clerk will call the roll. NOT VOTING—7 and then engage in any debate or dis- The assistant journal clerk proceeded Biden Graham (FL) Nelson (FL) cussion about it. Breaux Johnson In a sense, I am preaching to the to call the roll. Edwards Kerry Mr. REID. Mr. President, I ask unan- choir when I talk about this issue to imous consent that the order for the The amendment (No. 2647) was agreed my colleagues on both sides of the aisle quorum call be rescinded. to. because we all painfully know what has Mr. GRASSLEY. I move to recon- The PRESIDING OFFICER. Without happened in the last 36 months in our sider the vote. objection, it is so ordered. country. We have lost around 2.8 mil- Mr. BAUCUS. I move to lay that mo- lion manufacturing jobs in the United VOTE ON AMENDMENT NO. 2651 tion on the table. States. I have laid out on this chart I The PRESIDING OFFICER. Under The motion to lay on the table was have in the Chamber how that breaks the previous order, the hour of 3:30 hav- agreed to. down State by State across the coun- ing arrived, the question is on agreeing The PRESIDING OFFICER. The Sen- try. to amendment No. 2651. ator from Connecticut. In my home State of Connecticut, we The amendment (No. 2651) was agreed Mr. DODD. Mr. President, may I in- have lost some 32,000 jobs in the manu- to. quire what is the business before the facturing sector; California, 272,000; VOTE ON AMENDMENT NO. 2647 Senate? Ohio has lost around 153,000 jobs; in Il- The PRESIDING OFFICER. The The PRESIDING OFFICER. The bill, linois, 115,000; Texas—the Presiding Of- question is on agreeing to amendment as amended, is currently pending. ficer’s State—150,000 jobs. No. 2647, as amended. AMENDMENT NO. 2660 So certainly we all appreciate the Mr. BAUCUS. I ask for the yeas and Mr. DODD. I send an amendment to fact there has been a tremendous ero- nays. the desk and ask for its immediate con- sion in a very critical area in our econ- The PRESIDING OFFICER. Is there a sideration. omy. sufficient second? The PRESIDING OFFICER. The We also know there is another phe- There appears to be a sufficient sec- clerk will report. nomena occurring, and at an acceler- ond. The assistant legislative clerk read ated pace; that is, the outsourcing of The clerk will call the roll. as follows: many jobs, including some manufac- The assistant journal clerk called the The Senator from Connecticut [Mr. DODD] turing jobs, around the globe, and it is roll. proposes an amendment numbered 2660. accelerating at warp speed.

VerDate jul 14 2003 04:01 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00070 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.075 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2089 We now know there are literally 400 ago on this issue. I am talking about So I am deeply concerned that if we of the top 1,000 companies in the my chambers of commerce, my manu- do not say something, particularly United States outsourcing their jobs to facturing associations, and my labor with U.S. taxpayer money that is being India or China or other nations around unions—all coming together saying: used to subsidize this outsourcing of the globe. Mr. President, 40 of the 50 When is Washington going to say some- jobs, then we are failing to understand States now outsource jobs. thing about this outsourcing that is what is going on across this country. In My amendment simply says—and going on? State after State after State, the trend there are waivers in here and the like. If we continue to allow these jobs to lines are there in manufacturing. It is I understand, although I do not like it, flow out of our country, then I think also occurring in other sectors in the if a company decides on its own dime it we run the risk, at critical junctures, economy. is going to outsource a job. I disagree of having the human talent necessary Let me share with my colleagues, as with that. I think they are wrong to do for us to provide those services and to shown on this chart, indication of it, but it certainly is their right to do produce those goods which will allow where the outsourcing of these jobs is it. We can offer tax incentives to en- us to compete effectively in the 21st occurring. Presently, it is occurring in courage people to stay here, tax dis- century. Once you lose jobs, particu- areas such as office support. The esti- incentives so they do not go offshore, larly in the manufacturing sector, or mate is 14 million additional jobs, by but ultimately a company can decide some of the high-skilled areas, it is the way, will be lost and shipped over- for itself. very difficult to go back and re-create seas over the next several years. The It is another matter with taxpayer those jobs, to re-create those manufac- estimates are about 8 million will money, with the money that American turing centers. occur in office support areas; in com- taxpayers send to Washington. The Let me point out an article that ap- puter and math professionals, close to 3 idea that we would use their dollars to peared in the Wall Street Journal this million jobs lost in that area; business outsource an American job is some- morning. In fact, I have already in- and financial services, over 2 million thing on which I think we ought to cluded it in the RECORD. But the jobs; paralegals, diagnostic support speak loudly and clearly. We ought to ValiCert company—and I think this is services, medical transcriptions, over say: Look, we disagree with that. We a front-page story or nearly a front- 94,000. don’t think you ought to be able to do page story in the Wall Street Journal— So it is not just low-wage, low-salary that. discovered that outsourcing was no jobs that are going but very sophisti- So this amendment, in three dif- great success for them. They did it and cated, high-technology jobs that could ferent areas, very simply says: First, discovered that the value they were be leaving our country as well. That the Federal Government may not use getting for the jobs and products being makes us weaker. It is not in the na- Federal taxpayer money to procure produced did not equal that produced tional security interests of the United goods and services to fulfill contracts here in the United States. They have States to be losing these critical jobs that use overseas workers at the ex- reversed that decision. at a time when we need them most in pense of American jobs. Second, we tell So when you read in this economic order to provide for the economic State and local governments that any report, prepared for the President of growth of our own Nation. So while I understand, from a busi- Federal dollars they receive in the the United States, last month, in Feb- ness perspective, your job is to look at form of a grant, in the form of an ap- ruary— and I will quote the report for quarterly reports, to try to improve propriation, or any other way, that my colleagues where they state, in ab- the bottom line, our job in the Senate they are not to use those Federal dol- solute terms, on page 229 of this report: and the Congress of the United States lars to promote the loss of American When a good or service is produced more goes beyond looking at quarterly re- jobs for the creation of offshore jobs. cheaply abroad, it makes more sense to im- ports. And, third, we say any agency seeking port it than to make or provide it domesti- cally. We should look generationally. I to privatize a Government contract don’t want my generation to be the Well, tell that to the ValiCert com- being paid with U.S. taxpayer dollars first generation of Americans which pany. They did not discover that. Cer- may not enter into that contract if it, leaves the coming generation less well tainly, while that may be true of a bot- again, displaces American workers in off than every other succeeding genera- tom line of a company, if you are try- favor of offshore workers. tion has left their children and their ing to preserve jobs in this country, Now, very quickly, in anticipation of grandchildren. We are at risk of doing which is a responsibility we bear in some of the arguments we may hear, that if we don’t step up at this juncture this body, and not just to those compa- we provide waivers and exceptions on and say we need to stop or at least dis- nies but to the people who work for grounds of national security, and we courage this outsourcing of jobs that is also allow Governors or Federal agency them—an American job is not just a occurring at a rapid pace every single heads to waive these provisions if there good or a service. An American job has day. is a bona fide lack of comparable goods implications that go beyond just the It is hard not to pick up a U.S. news- or services in the United States. dollar amount lost of income in wages paper in any city and read where one In this legislation, we also, of course, or salaries. It means also that a family corporation, one business after an- make it clear that the Government may not pay their home mortgage and other, is making the decision to procurement agreements between the may not be able to provide the goods outsource more jobs. I think we ought United States and some 27 other na- and services that allow our economy to to say, let’s slow down. Let’s have tions, that are predominantly Western grow and expand. It means families are some balance. Let’s not use taxpayer Europe countries, are not affected by under more strain and stress because money to allow these jobs to be lost. the prohibitions contained in this bill. they have lost the source of income to That is the thrust of the amendment. Those 27 nations do not include, I provide for themselves. I hope we will have overwhelming would point out, India or the People’s So this ought not be a partisan issue. support for this idea. This bill is an ap- Republic of China. This ought to be something on which propriate place to be debating it. It is So the major sources of outsourcing we stand united. This is not being an something that could make a huge dif- are not affected by those provisions. isolationist. I am a free trader. I have ference for those who are worrying Thus, we are in complete compliance been so in the years I have been here. whether we are paying attention at all. with the WTO and every other formal I have supported many, many free We have just debated over the last 5 agreement we have. We are not in vio- trade agreements, and I opposed some weeks medical malpractice, providing lation of any of those agreements as a as well, but I honestly believe if you immunization for gun manufacturers. result of this amendment. are going to be an effective trader, a We have had a bill on pensions. But we Now, I had a meeting in my State— free and fair trader in the 21st century, have not spent 5 minutes debating the and I assume my colleagues may have then you ought not squander and give issue of what is happening to America’s had similar kinds of gatherings—where up the very jobs that make it possible jobs. That is the big issue. people came together who you could for you to compete in this global econ- Look at any survey right now. Ask not have put in the same county a year omy. the American people what they worry

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00071 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.077 S03PT1 S2090 CONGRESSIONAL RECORD — SENATE March 3, 2004 about the most. It is the loss of jobs. ports three other U.S. jobs. So when we I am one who has supported and sup- They are outraged we have nothing to lose these jobs, we also feel it in the re- ports expanding markets. I understand say when it comes to outsourcing of tail trade, in the professional services, the importance of trade in terms of jobs to other nations, and we are not and in manufacturing as well. growing jobs. This initiative is not de- standing up and defending our own I apologize if I get heated about this signed to step in the way of our efforts workforce. subject, but it is painful to read some to expand and broaden our capacity to In this same economic report I cited of this cold-eyed analysis that suggests find new markets for our products. On earlier, to give you some idea of why somehow you just have to stomach this the contrary, what it does is ensures people get discouraged, I mentioned or weather this, that this is just one of those firms which have exemplary earlier the quote suggesting it was an these cyclical or structural occur- goods and services to sell have a fair automatic thing that outsourcing of rences in the national economy, and shake at contracts involving Federal jobs was good or, as they call it, im- these statistics, as troublesome as they dollars. porting of jobs. That is the way they are, are nothing more than that, statis- This issue has come up in Minnesota. describe it. I mentioned already a com- tics. From conversations with my Governor, pany identified in a Wall Street Jour- Behind every one of those statistics, it is clear—and I understood this when nal article this morning, ‘‘Lesson in behind every one of those numbers I I was a former mayor—we have an obli- India, Not Every Job Translates Over- cite, is usually a head of household or gation to get the best possible value for seas.’’ I encourage my colleagues to people trying to keep their families to- taxpayers. We have to look at the bot- look at that article as one example of gether. They are not just statistics. tom line. But at the same time we have a company that discovered outsourcing These are American citizens. These are to be concerned about the impact on was bad for business, not good. human beings who are doing every- our State and national economy of for- In this same economic report pre- thing they can to live by the rules and eign offshoring when other options are pared by the President’s top economic provide for their families. They want available, when the work can be done advisors, they raised the following to know whether their Congress—they here. question: don’t identify themselves when they I call this commonsense legislation. The definition of a manufactured product, get up in the morning as a Democrat or Again, I support trade as a way to cre- however, is not straightforward. When a fast Republican; they get up in the morning ate wealth and jobs. But for a govern- food restaurant sells a hamburger, for exam- and worry about their families and ment at any level to contract out with ple, is it providing a service or inputs for their future—gets it, if we understand foreign entities for delivery of feder- manufacturing a product? it, and whether we are willing to do ally funded U.S. programs is tanta- If this was some sort of cartoon in anything about it. mount to Detroit, MI buying a fleet of This is an attempt by myself and my the paper, I might have laughed at it, foreign-made squad cars. It doesn’t colleague from Minnesota and others but it is part of an official document, make any sense. It flies in the face of to say at least when it comes to your an economic report prepared by the common sense. tax dollar, we are going to say to the President’s top economic advisers Recent news reports noted that under States, localities, and other businesses which suggests through the question a $16.8 million contract with an Ari- with waiver provisions here, you are that flipping a hamburger or cooking a zona firm, calls to a Minnesota toll- not going to use those dollars to hot dog is a manufacturing job. You free number for help with lost and sto- outsource an American job, not on our get some idea and sense of where the len food stamp cards are being routed watch. You may decide to do it with outrage of the American public is com- to Bombay, India. Under a $13.3 million your own money, but you will not do it ing on why we are unable to speak to contract, software programs in India with American taxpayer money. That this issue. are helping build a Web-based system is why we offer this amendment. Again, I don’t care if you are a Demo- to automate eligibility for Medicaid crat or Republican, what your politics I yield the floor to my colleague from Minnesota for any comments he would and other health care benefits to low- or ideology is. We have to stand up and like to make. income Minnesotans. defend our country in a moment like The PRESIDING OFFICER. The Sen- The administration of U.S. Govern- this. I worry about losing these jobs. ator from Minnesota. ment programs ought to be done here I mentioned earlier I had some 5,400 Mr. COLEMAN. Mr. President, I rise at home in the U.S. Even if some of the manufacturers in my State employing in support of the amendment offered by work is outsourced to private vendors, well over 240,000 people. We have lost my colleague from Connecticut. I am the thought of our Medicaid or food about 35,000 jobs in the last 36 months. proud of working with the President to stamp programs being run out of some- My manufacturers produce critical grow jobs. I firmly believe, from my place in India would offend most Min- components for some of the most so- days as a mayor, when you cut taxes, nesotans’ sensibilities, and it offends phisticated defense technologies in the you shape an environment in which mine. Nation. If you lose that manufacturing folks invest. And when they invest, We have an opportunity to talk base, it is not just the loss of a manu- mom and dad have a job. The best wel- about what we do with taxpayer dol- facturing job or the loss of a good little fare program is a job. The best housing lars. Would you use those taxpayer dol- company, it is also a critical issue program is a job. Access to health care lars in a way that fosters the growth when it comes to national security comes with a job, most often. So we and development of American jobs or needs. Many of these small manufac- have to do what is necessary to grow do we send them overseas? I think com- turers produce critical components and jobs. We are moving in that direction. mon sense says we use them here. parts for some of the most sophisti- Clearly, more needs to be done. My colleague and I may disagree at cated defense technologies in our Na- Changing the economy at times re- times on tax policy or on a range of tion. minds me of turning around one of issues. But this is an issue that should I mentioned earlier my friend and those oar boats in Lake Superior: You cut across partisan lines. We have an colleague from Texas. The number of have to get it moving in the right di- interest in growing jobs in this country jobs there, 150,000. I know this Senator rection. I believe we are moving in the and this is a way to make common- has many of these small companies right direction, but more has to be sense use of taxpayer dollars. I am that are producing those parts for de- done. proud to stand in support of my col- fense companies, defense technologies. We have an opportunity with the league’s amendment to this bill. There is a ripple effect. We know as Dodd amendment to do more, to make I yield the floor. well, beyond the implications for our sure we use taxpayer dollars wisely, in The PRESIDING OFFICER. The Sen- national security, for every one of a way that prevents the outsourcing of ator from New Jersey is recognized. these jobs that are lost in the manufac- American jobs and grows jobs here. Mr. CORZINE. Mr. President, I also turing sector, there are jobs lost in The underlying bill we are dealing rise to support the amendment of the other sectors. It is not just that job with, the Jumpstart JOBS Act, is mov- Senator from Connecticut. It is very that is lost or that family that is af- ing us in that direction. We have to do hard for people in my State and across fected. Each manufacturing job sup- more. We are doing it right here. this country to read the President’s

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00072 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.080 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2091 economic report and hear economic is absolutely essential the American bottom line. Here is an example of a theory that is pronounced in economics people know we are fighting for their company which had a very different ex- 101, that somehow or another 19th cen- best interests at home on the floor of ample. Aside from the obvious reduc- tury comparative advantage is the the Senate. This is the most direct, tion in payroll by hiring people in an- basis on which we ought to be working clear method of pushing back against other country to do the job, and firing jobs in this country. what is a very wrongheaded approach Americans, are there also examples Folks are very concerned when they to creating jobs in America. where this kind of activity has actu- don’t have work. That is a very simple Again, I am pleased to be a cospon- ally been bad for business and not nec- principle of economics. We are seeing sor. essarily automatically good for busi- so many of our manufacturing jobs go, Mr. DODD. If my colleague will yield, ness, as suggested by this report? and now 40 out of 50 of our States are I thank my colleague from New Jersey Mr. CORZINE. Well, the Senator taking jobs that are government jobs for his support, and my colleague from from Connecticut raises a good point and shipping them overseas and under- Minnesota as well. because I think when business decides mining our economy here. That is not My colleague from New Jersey is no it wants to outsource 14 time zones highfalutin economics. That is taking stranger to these issues. I made note away or 12 time zones away, there are money out of the pockets of people who before of what is happening in Min- enormous synergies in business that drive our economy and make a dif- nesota and other States. In Con- are lost—the ability for people to work ference in our communities. It has all necticut, we have lost 32,000 manufac- in similar space, to get the economies those multiplier effects other econo- turing jobs. New Jersey has lost over of the consolidation of ideas, working mists might talk about. Then you 55,000 manufacturing jobs. with people. It doesn’t work nearly as don’t collect tax revenues, you don’t Mr. CORZINE. If the Senator will well. As a matter of fact, a lot of busi- have people spending money back into yield for a quick statement, on Friday, nesses are consolidating so they can the economy and driving it. A Senator we closed the last Ford production fa- make a lot of their operations much talked about manufacturing jobs, but cility in New Jersey, and we are on more sympathetic with each other. there is a leverage or multiplier effect track to have complete closure of the These are business principles a lot of on government jobs as well. auto industry in New Jersey, which folks follow. This is really out of touch with the used to be one of the heartlands of auto I don’t think it is as obvious as is American people, when we believe our production, outside of Michigan. It is commented in the economic report of policy ought to be to encourage very much reflected in the kinds of the President, but I guarantee some- outsourcing. Here, with taxpayer dol- numbers the Senator is talking about. times the short-term benefits that lars, in the Federal Government, we We were supposed to be replacing somebody might see on a quarterly re- have an opportunity to say, no, this is those jobs with technology, informa- port, because they have lowered their not the direction we ought to take. We tion systems and telecommunications loss, are grossly offset by long-term should not be moving jobs overseas equipment, and now we see those jobs costs because they lose the techno- that would be very properly done here moving offshore just as much, and logical innovation of having people at home. We see it in the manufac- some are reflected in those numbers. work together. They lose the econo- turing sector. I am not sure I totally That is why it is so important to mies of scale, and the potential long- agree we ought to let everybody look stanch some of that movement by the term costs, aside from the social costs at their quarterly bottom line and kind of action that would be taken in the Senators from Connecticut, Min- nesota, and New Jersey have been talk- move. I think we need to understand reflection of the amendment of the ing about, are huge. there are national security interests at Senator. Mr. DODD. I thank my colleague for stake on jobs we have right here at Mr. DODD. I mentioned earlier there was an article in this morning’s Wall those comments. They are very en- home. We need to make sure we have a lightening. It is further indication that manufacturing sector that can actually Street Journal entitled ‘‘Lesson in India: Not Every Job Translates Over- these trend lines are moving forward. produce steel, manufacture the weap- There has been a report in Time mag- ons that protect our men and women seas.’’ I want to ask my colleague a question. Because of his background in azine that indicates we are looking at, when they go to war. We need to have some indicate over the coming years as that strength and it needs to be sub- business, he understands those issues better than most of us. This reads: many as 14 million, 15 million jobs to stantial. be outsourced if we do not begin to do When sales of their security software We need to work to make sure our something about it. In the near term, I technology is under our control, the slowed in 2001, executives at ValiCert Inc. began laying off engineers in Silicon Valley think the number is between 3 and 4 privacy of the information that flows million with a loss, by the way, just in. I think we ought to push back to hire replacements in India for $7,000 a year. looking at revenue loss, of wages lost— against all this outsourcing for a lot of It says: forget everything else, forget what reasons that don’t just deal with eco- happens when a person loses their job nomics. But it is absolutely The reality was different. The Indian engi- neers, who knew little about ValiCert’s soft- and the ripple effects that occur—just unfathomable that we would take ware or how it was used, omitted features in lost wages it is about $140 billion. State and local folks, Federal Govern- Americans considered intuitive. U.S. pro- We know what kind of budget deficit ment people, and ship their jobs over- grammers, accustomed to quick chats over we are in already. I don’t think this seas at the cost of not being able to cubicle walls, spent months writing detailed figure has been projected onto those have the overall economic impact of instructions for overseas assignments, delay- numbers at all. We look at revenues this. I think, particularly with the ing new products. Fear and distrust thrived coming in, and we look at what expend- waivers the Senator from Connecticut as ValiCert’s finances deteriorated, and co- itures for which we have to account, has built into these programs, we have workers, 14 time zones apart, traded curt e- mails. In the fall 2002, executives brought and a loss of $136 billion to $140 billion a program that will make a difference. back to the U.S. a key project that had been in wages, lost because of outsourcing It is not enough to talk about trans- assigned to India, irritating many Indian over the next decade or less, ought to lating hamburger-flipping jobs into re- employees. be a matter of deep concern, even if classifying manufacturing as a means ‘‘At times, we are thinking, ‘What have we you are not affected or moved by what to solve an outsourcing problem. It is done here?’’’ recalls John Vigouroux, who happens to families or heads of house- incredible, absolutely incredible, the il- joined ValiCert in July 2002 and became chief holds who are trying to provide for the logic we see running through this eco- executive three months later. needs of their families. nomic report. Tell me a bit about this. I think the The fact that we lose that much sal- I think the Senator from Connecticut assumption is made automatically, and ary and wages going out ought to be of has put together a response that makes certainly in this economic report pre- great concern. I mention that as an ad- sense. We are going to use U.S. tax- pared for the President by his adminis- ditional implication of what is caused payer dollars to make sure when we tration, it makes a categorical state- by outsourcing. have Government jobs, they stay here. ment that outsourcing of jobs is always Again, I said earlier, we can offer in- I am proud to be a cosponsor. I think it a good thing because it improves the centives for people to stay, we can offer

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00073 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.083 S03PT1 S2092 CONGRESSIONAL RECORD — SENATE March 3, 2004 disincentives in the Tax Code for them These happen from a structural agreements, particularly with large not to go, but I don’t know, for the life standpoint. But when you allow it to economies—we are not going to see of me, why we ought to be taking go on with Federal money being used— even the theoretical benefits coming American taxpayers’ money—we insult again, as I say, I would not be party, as back of open trade markets. The situa- the taxpayer to say, I am going to use much as I may object, to companies tion is very true in the old industry your money to fire someone in this that want to do this. I think they are that I worked in, financial services. It company and hire someone someplace wrong to do it. They are making a mis- is very hard to penetrate these large else to do the job at a fraction of the take. It is harmful to our country. On economies about which the Senator has cost because it is going to improve their dime, I guess they have a right to talked. your bottom line. do it. But on our dime, they ought not So we give up the jobs in I don’t know how the Senator feels, have the right to do it, and this is the outsourcing, but we are not getting the but the societal implications are pro- American taxpayers’ dime. ability to actually provide the services found. Our job is not only to make sure I don’t think we ought to be saying that would make up for some of those there is wealth creation in the country, to them, You can take your Federal jobs back here at home. but also we bear a responsibility be- taxpayer money and pay somebody off- It goes back to a miscast presen- yond quarterly reports to see to it, shore to do it, losing an American job tation of a concept that is fine in Eco- from a generational standpoint, that that could be done here. I don’t think nomics 101 books on comparative ad- we are going to leave this country at that is right, and that is the purpose of vantage but makes no sense in the ev- least as in good a shape as we inherited this amendment. I thank my colleague. eryday lives of working men and from our parents. Mr. BAUCUS. My good friend from women in America. Mr. CORZINE. Will the Senator New Jersey has to leave the floor. I Mr. BAUCUS. The point I am trying yield? compliment the Senator for what he is to make is, we Americans pride our- Mr. DODD. I will be happy to yield. trying to do. This clearly is the issue, selves on being fair and open, but I Mr. CORZINE. The $140 billion the the problem that faces our country as don’t know that other countries are as Senator from Connecticut spoke about it will certainly for the rest of the year fair and open when it comes to trade. We are not pure. We do not wear a with regard to salaries on the chart the and probably for the indefinite future. Senator previously showed, there is a I am wondering, in addition to the white hat. Other countries are not nec- essarily Darth Vaders and wear black multiplier effect. It is almost three approach suggested today—and there hats. But I think it is also true the times that value to the economy. The probably are additional proposals, too. shade of gray of our hat is a lot lighter Senator had the chart which showed This is a complex problem and requires shade of gray than the shade of gray of the full implications. It is remarkable a complex solution. It reminds me of a their hats. They do not agree to fair what is given up when our Nation loses quote I am fond of making. H.L. Menc- trade in the main. I am talking about these jobs overseas. It is not just those ken once said: For every complicated the bigger countries. India is the best salaries. When you take the full impli- problem there is a simple solution, and example, the most blatant example. cation, because you also have to look it is usually wrong. Mr. DODD. I thank my colleague at the tax revenues that come back In my judgment, this administration from Montana, as well, for his com- into the coffers of State, local, and not only is sort of laissez-faire but kind ments. I think they are poignant. Federal governments, these numbers of going AWOL on this issue. I don’t While we do not specifically address could be even larger. This is just show- see a plan. I don’t see a way to deal those issues, he is absolutely correct. ing the impact of what the multiplier with job loss that passes the smell test. It is another piece of this puzzle on effect is for the economy. In addition, wouldn’t it help to be which we need to do a far better job. I These numbers are huge. So the un- much more aggressive in enforcing our have had some recent discussions with dermining of the well-being of our trade laws? ambassadors from some of the Latin economy by this outsourcing element One thing that bothers me, frankly, American countries and have suggested is just way more profound than I think is that we are going about getting to them they ought to start talking to is being discussed and is an extraor- trade agreements with minuscule us about having labor standards and dinary misrepresentation and a mis- economies. The big bang for the buck is environmental standards from their take for the administration to believe enforcing our trade laws, say, with re- perspective. that this is something we ought to be spect to India or China or maybe the Mr. BAUCUS. Absolutely. embracing and encouraging. European Union. There are lots of ex- Mr. DODD. If free and fair trade is to There is another element that needs amples. work well, it ought to be raising the to be thought about. Every time those We hear about all the call centers in quality of life and the level of wealth outsourcing jobs cost an American job, India. We don’t hear much about many accumulation by people in these coun- then that individual has to compete for products by American companies being tries with whom we are about to enter another job. Right now, for all but the sold in India, and the Indians are very into trading agreements. That is good top 20 percent of our economy, we are much violating the intellectual prop- for us, and it is good for them. Instead seeing declining real wages. erty agreements. Billions of dollars are of us having to fight for it here, they The fact is, people are competing for being lost to American companies that ought to be fighting for it and insisting lesser quality jobs that pay less than could be spent in America because upon it on behalf of their own constitu- the jobs that are leaving. I think we other countries are not living up to ents. have seen estimates that it is about 20 their international obligations. Mr. BAUCUS. Let me ask the Sen- percent less that an individual makes I was wondering if the Senators agree ator a question on that same point. in the next job they take after they that is one of the additional ways we Would the Senator agree that in the have been laid off. It is profoundly can take to keep more jobs in America? main, most of the countries we are wrong for the administration to em- Let’s open up markets in other coun- talking about—we are talking about brace such a dangerous idea both for tries so we can export more. environmental standards and labor the economic power and also the real Mr. CORZINE. The Senator from standards in these countries—generally hurt that I think it brings to the indi- Montana is exactly right, some of the do not most of those countries want to vidual loss. regulatory restrictions or ability to ac- sign free trade agreements with the Mr. DODD. I thank my colleague. It tually penetrate some of these mar- United States because it adds to their is worthwhile to make the point that kets, while they may meet the letter of prestige; it helps them market their actually watching the buying power, the law with regard to trade agree- products and helps them gain standing the wealth of individuals being re- ments, are virtually impossible, par- in the world? Would the Senator agree duced, overall our country suffers from ticularly in the services where we sup- with that? that—obviously the families do—but posedly have the comparative advan- Mr. DODD. I say to my friend from when you reduce that buying power, tage. Montana, it is as obvious as anything. that wealth, implications are being felt I think unless we are prepared to deal These are the shelves—this is the mar- throughout our economy. on all fronts—enforcing our trade ketplace you want to be. If you are any

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00074 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.086 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2093 other country in the world, you want people in this Chamber calling for well. So the implications, in addition to be able to access the greatest con- these kinds of things, but, in fact, peo- to laying someone off—as we see now sumer market in the history of man- ple in these other countries are going the thousands of jobs that have gone— kind, which is the United States of to be insisting upon it as well. the Senator from Montana is very ac- America. This is the most inviolable Mr. BAUCUS. I do not know how curate in pointing this out when look- place to which you can sale your serv- much time the Senator has, but I ing at this issue. ices and your goods. might ask, if the Senator does not Here we are taking Federal taxpayer Mr. BAUCUS. Would the Senator also mind, to address another subject with money. That is what my amendment agree that it is the case that most of respect to jobs. Would the Senator addresses. It says: With Federal tax- these countries probably want to enjoy agree, as we try to find a solution to payer money you can lay someone off the status or the prestige of having a this problem, that one of the issues we and hire someone else and pay them free trade agreement with the United have to face and have to focus on is basically with Federal dollars. So we States? Certainly we are not going to high health care costs that American are, in a sense, not only causing that negotiate an agreement that gives companies pay and face? It is a very person to lose their job in this country away the store. This is a bargain for an complex problem, clearly, but a lot of but also their health care benefits and exchange. Is it not also true that it companies unfortunately are lowering other benefits they may have, not to therefore is a mistake for the United their employee health benefits or their mention what it does to a family. States to in effect be negotiating retiree health benefits because they Talk about keeping families to- against itself; that is, for some in the say it is necessary in order to do busi- gether, the single largest reason why administration to say, no, we do not ness; the world is just so competitive. families break up is economics. Every want those labor standards, we do not The first casualty is those who lose study in the world that has been done want those environmental standards, their health benefits. They are scared on that institution says it is econom- whereas in truth those countries, to death, frankly, about lowered health ics. frankly, are the ones we should be benefits or no health benefits. On top As a matter of Federal policy, in ef- talking with because they themselves of that, it is partly, it seems to me, be- fect we are saying we are going to want these agreements and would be cause we do have high health care costs outsource these jobs, causing a great much more willing to agree to them? in America. disruption in America and families’ Mr. DODD. Absolutely. The whole In fact, the last study I saw is that lives. The Senator from Montana is so point of these trading agreements, be- we pay twice as much per capita on right to point out that the health care cause we are a high value country, ob- health than does the next highest implications, because we have not yet viously, and we do not want to dumb country. I do not know if we are twice sorted this out, are huge. down our system, we want to see im- as healthy as people in other countries, Again, I come back to the point, I do proving quality products, you need to but we pay a lot, and that has to be the not accept it, I do not like it, but if sell them to somebody. If the countries cost of doing business. someone on their dime wants to lay What I am getting at, is part of the with whom you are entering trading someone off and hire someone else, I do solution of this some way to address ef- agreements do not have a population not like it and I wish I could do some- ficiencies in health care and quality of that can afford to buy your higher thing about it and I certainly want to health care, recognizing that employ- value goods and services, then the trad- support measures that I know of the ing arrangement is going to be all one ees of companies in other countries have their health covered by the gov- Senator from Montana and the Senator way and not the other. So it is very from California, such as giving tax in- much in our own interest, from a larg- ernment, where that is not true in our country; that that, too, is a part of the centives to encourage people to stay er perspective, to be able to have it. here, but when someone does it with Too often it is U.S. interests that are problem here? If we are honest with Uncle Sam’s nickel, with the tax- insisting that labor and environmental ourselves, we are going to have to fig- payers’ money, then I say, no. I have agreements not be included because ure out some way to get our hand on they want to be able to enter those that one, too. some control over that. I am offering an amendment today markets and hire people at those de- Mr. DODD. I appreciate the com- that says when it comes to U.S. tax- pressed wages and be able to operate ments of my colleague from Montana. payer money, you are not going to lay plants that do not face environmental He is absolutely correct. I did not even regulations. So they see it as advan- get into the issue of what happens somebody off and hire somebody else 12 tageous for them. They then turn here. Obviously, when you fire some- time zones away to do the job. You around and sell those goods back here. one, lay someone off, you hire someone may do it on your dime but not on They are not thinking about an offshore to do the job, there is abso- their dime. American corporation that wants to lutely no requirement that the fired or I will mention one other subject mat- sell its quality product there. It is very laid-off worker is necessarily going to ter that I know my colleague from shortsighted and, of course, it only be able to get any kind of health care Montana and my colleague from Cali- leads to further encourage the coverage from the former employer. fornia care about, and that is privacy. outsourcing of jobs, which is exactly Even when you have retired with full That is one of the things we have not what is going on. benefits there is no guarantee, as we talked about at all on this issue. Mr. BAUCUS. The point being that learned through the discussion of the I pointed out earlier—I apologize to the other countries themselves are Medicare bill that was before us only a my colleague from California because much less concerned about this. few months ago. she cannot see this chart, but I was Mr. DODD. And they should be more So in addition to the lost jobs and talking earlier about where these jobs concerned about it. wages—that is all I have been talking are going, from what sectors of our Mr. BAUCUS. Exactly. about today—there are benefits that economy they are coming from, the 14 Mr. DODD. My colleague would be in- are incredible, and when people lose million additional jobs in danger of terested to know, in my conversations, those benefits it adds to the roles of being shipped overseas. One of the very informally at this point, but I am the 44 million people in this country areas we are talking about is in the finding a great deal of receptivity to who have no health insurance. area of medical, diagnostic and medical the point the Senator from Montana is They get health care. It might be services. This covers a little more than making; that, in fact, they should be showing up in an emergency room, almost 300,000 jobs in that area. insisting upon these points. The poli- which increases the costs of everyone We all know what is happening. tics of their own countries are chang- else who has health care, as we all Today, with information technology, x- ing and they are insisting if you are know. Fortunately, in this country if rays can be transmitted at the speed of going to enter these agreements, that people get sick they can show up some- light or faster. this be a part of it as well. place and get some kind of coverage. Mr. BAUCUS. We are going to give Mr. BAUCUS. Absolutely. Mr. BAUCUS. Usually that is true. you a Nobel Prize for that. Mr. DODD. We may be looking at a Mr. DODD. It is not free, and it adds Mr. DODD. All sorts of medical infor- new era where it is not going to be just tremendously to the cost of others as mation.

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00075 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.089 S03PT1 S2094 CONGRESSIONAL RECORD — SENATE March 3, 2004 We have provisions of law in this As we work to alleviate food shortages ex- I thank you again for your leader- country that say you cannot share cer- perienced by the Iraqi people, we have a ship. tain private medical information with unique opportunity to assist our own farm- Mr. DODD. My staff gave me some insurance companies or employers ers. I request USDA reconsider this decision other information. I have mentioned and instead purchase the needed quantity of without consent. Medical information rice from U.S. farmers. In the future, USDA others. Tax experts now say Indian- is now being processed by someone who should use taxpayer dollars to purchase U.S. chartered accountants, the subconti- has been hired 12 time zones away—all rice before it spends taxpayer dollars on for- nent version of certified professional of a sudden that information is no eign commodities. accountants, will prepare somewhere longer well-protected. So as we see the I wrote this letter on February 24. I between 150,000 and 200,000 tax returns increase in these diagnostic support am so pleased. I discussed this with this year. That is up from 20,000 last services and medical transcriptions your staff. Your amendment would year. going offshore, then the very protec- cover this. I am not making up these numbers. tions we ought to have as Americans Here we have the sons and daughters The trend lines are moving at a very are also being lost. I don’t cover that of America’s working people, including rapid pace. In this case here I am not in my amendment here, but we may people on the farms for sure, going off suggesting these are necessarily being offer some language on this bill at to Iraq and putting their lives on the paid for with Federal tax dollars. I some point that would say you have to line. Now their families either see their don’t know that. If it is not, obviously give people at least the opportunity to jobs going abroad or in this case they we are not covering the situation and say I don’t want my medical records are ready and willing to feed the Iraqi these firms that want to continue being processed or handled by someone people. They are excited about it, they doing it unfortunately will be able to offshore. I want it kept in the United have great products, they have sur- continue. But if they were doing it States because I don’t want someone to pluses, and our administration, the with Federal tax money, I say no, just be able to go in and find out highly Bush administration, goes outside. as my colleague from California says sensitive information about me and my I wanted to first of all ask if you no. family that could be used against me. were aware of this issue, and, second, If someone with their own dime Today the laws of the United States say to you whether you were or you wants to decide they are going to ship do not adequately protect you when were not, I thank you on behalf of the rice or whatever products and use this information is being processed and people who make a living from agri- someone else offshore, that is one handled offshore. That is one of the culture, because we have our serious thing. But when they are using tax- major areas we are seeing these jobs problems. We have the best products in payer money to do that, that is when moving. the world and we have farmers who are we have an obligation to stand up and Mrs. BOXER. Will my colleague yield ready to feed the hungry. say no. for a question? Mr. DODD. Let me say to my col- Mrs. BOXER. Thank you. Mr. DODD. I am happy to yield. league I was not aware of it. I apologize Mr. DODD. I appreciate her very Mrs. BOXER. First let me say how for not being aware of it. much for raising that issue. happy I am to hear you and our rank- I know agriculture is a huge industry Let me say I see my colleague from ing member have this conversation. in the State of California, particularly Iowa on the floor, and others. This Sen- This is so important. In a way it is in the area of rice. It is significant. So ator is prepared to vote. I talked about kind of a problem that snuck up on us. I am pleased to know we are covering this. I have had colleagues come over I took a look at the loss of manufac- this kind of activity as well. and share some thoughts on it. I know turing jobs in California and my heart Again, this is not being isolationist. there are other matters. I know Sen- sank. Mrs. BOXER. No. ators want to move on. I am certainly Mr. DODD. There were 272,000 jobs Mr. DODD. Every time you try to not engaged in any filibuster. I am pre- lost. stand up for an American job you are pared to ask for the yeas and nays and Mrs. BOXER. Think about it, 272,000 called an isolationist. There is a new vote on this amendment and move on jobs. coalition. They want to change the lan- to other questions. Is there some op- There is one area covered in your guage, by the way. There was an arti- portunity? I don’t want to go into a amendment. Since no one has men- cle this morning that says, ‘‘Business quorum call if other Members want to tioned it, I want to read into the record coalition rewrites lexicon for jobs come over and discuss other matters, a letter and then answer the comment, outsourcing.’’ They point out, they say but if we want to vote on it, I would and then I am done with my role here the coalition is now rallying around like to do it. What chance do we have, today other than to say thank you ‘‘worldwide sourcing’’ as a less provoc- I ask my friend from Iowa? again for your leadership. ative term. Mr. GRASSLEY. I will be glad to re- This is an interesting issue. It is cov- I apologize for sounding provocative, spond to that. Some Members on our ered. Your amendment is not reflected but we didn’t make this up. What side have not studied the amendment on the charts because it deals with ag- ought to be provocative is the fact that as much as they felt they should and riculture, something in your State you people like my colleague from Cali- have some questions about it. I would don’t have as much of as I have. fornia have constituents who are losing say there are two things. One is under- I want to read a letter I just wrote to their jobs because we are not doing standing completely the impact of your Ann Veneman. I believe this will get enough to protect these jobs—not from amendment, which obviously is a le- you a lot of votes from agriculture a protectionist standpoint, but protect gitimate concern. The other is that country. them when in fact there is no loss to be kind of makes a determination whether DEAR MADAM SECRETARY: I was shocked to learn that the U.S. Department of Agri- incurred as a result of standing up and some Members on our side would want culture purchased 70,000 metric tons of rice saying we ought to be doing what we to take some action, maybe with an for the Iraqi people from abroad rather than can to protect these positions in our amendment to the amendment. That purchasing this product from U.S. sources. country. I commend her for it. decision has not been made. My guess At a time when U.S. farmers are facing in- I thank you for raising it. It is an im- is that decision is not going to be made creased economic pressures and food sur- portant point and I am glad our amend- today. That decision will be made to- pluses, our taxpayer money should be spent ment covers it. morrow. on U.S. commodities, not the commodities of Mrs. BOXER. I will talk to those Mr. DODD. I appreciate that. other nations. from agriculture states because they California, like many other States across Mr. GRASSLEY. Maybe I am being our nation, is experiencing a surplus of com- may not be aware this administration more candid than a Republican ought modities such as rice that could provide val- is taking the dollars this body voted to be, but that is the way it looks to uable nutrition to the Iraqi people while al- on—I had problems with voting on it, me. You have always been transparent leviating potential crop losses for our na- but most people voted for it—they are with me. I think I ought to be trans- tion’s farmers. taking that taxpayer money and tak- parent with you. Then I talk about California’s high ing it right out of this country. It is Mr. DODD. I thank my colleague and quality of rice. outrageous. the manager of this bill for his candor

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00076 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.092 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2095 on the subject matter. He will cer- them out with somebody because you If you are unemployed in a State and tainly understand if I share with him— have been here a long time. There is no you call up your unemployment office I know these were not his views, he is one who is more patient and more will- to find out about your rights, and you expressing the views of others who ing to sit down and figure things out. are talking to someone 14 time zones didn’t understand the impact of this But I have a feeling it is deeper than away to find out your rights, that is of- amendment. Let me say to him, my that. I have a feeling you have touched fensive to people in this country. They good friend—and he is a good friend. a nerve today which is a very impor- want to know what we are going to do We have been in Congress together for tant nerve to be touched. I think it is about it. Do we understand what they many years—the impact of not doing being touched in the Presidential cam- are going through? something here is huge, on workers los- paign. I think it is being touched in the This is the first opportunity we have ing their jobs. I know my colleague campaigns across our country, and it is had since we have been back over the knows that and shares my concern being touched here today. last 5 or 6 weeks to raise the one issue about it as well. If we don’t stand up and do some- here. Night after night, Lou Dobbs on It is not terribly complicated what I thing about this, as my friend pointed CNN, to his great credit, is talking am suggesting here. It is straight- out in his very chilling chart—and say about this issue. He is not talking forward. It says when it comes to tax- there is some complication, there is a about it and speaking to an audience payer money, it can’t be used to sub- message being sent, it may be too late. that is not interested. The audience sidize someone offshore at the cost of I say to my friend, if he is willing and across this country is deeply interested an American job. if there is some concerns around the in this subject matter. They want to I know the coalition of the Chamber edges which can be worked out, I just know whether or not anybody is doing of Commerce and the National Associa- hope he won’t back off this amendment anything about it. I can’t stop a pri- tion of Manufacturers and some other in a substantial way. If there is a dif- vate company from outsourcing with groups out there don’t particularly like ference between the parties, bring it their own money. But I can stop you this amendment because 400 of the top on, I say. This is what people care from using Federal taxpayer money to 1,000 corporations are now outsourcing about in my State, and I know also in fire somebody here and hire somebody jobs, and I am sorry if they are dis- my friend’s State. Can he give me a 14 time zones away. That I can try. I appointed by this amendment, but sense of the thinking on how he is may not win, but I can try to do it. there are an awful lot of people losing going to proceed since the majority And that is what we are trying to do. their jobs. will not allow a vote today? Mrs. BOXER. I am really relieved to That is the only reason I raise it. I Mr. DODD. I will make two points. hear my friend’s response to the Sen- I appreciate my friend from Iowa have to wait until tomorrow. We will ator from Iowa. As I understand his telling me what the substantive con- have to wait, obviously. I am dis- amendment, he has already gone a very cerns are about the amendment, one appointed because I thought it was long way in answering the concerns which I think we have addressed. pretty straight forward. Nonetheless, I On the second question he raised, we that were raised. I hope we will stick appreciate my friend’s candor. included language which very specifi- with it. I think the people in this coun- I see my colleague from California. cally makes clear that the government try are watching. They are not only Mrs. BOXER. Mr. President, I wanted procurement agreements between the watching CNN, but they want to know to ask a question of my friend. I would United States and 27 other predomi- what we are doing. It is an amendment be happy to defer. nantly western European countries that I have been looking forward to for Mr. GRASSLEY. Mr. President, I would not be affected by this legisla- a long time. We have to make a stand, think maybe I answered too casually tion. India and China are not part of and I think what my friend is doing is when I answered the Senator’s ques- that problem. The major culprit in all not overreaching. tion—that maybe I have a feeling there of this is outsourcing of jobs. But my I rise to say thank you to the Sen- were not legitimate concerns by people colleague from Montana raised the ator for sticking with it, and I will do on my side. There are a couple legiti- question that we could be found in vio- all I can to help him get it passed. mate concerns. No. 1, the Senator’s lation of World Trade Organization The PRESIDING OFFICER (Ms. COL- amendment does have some mandate policies, if we didn’t include this lan- LINS). The Senator from Iowa. Mr. GRASSLEY. Madam President, on States. That creates a lot of con- guage. So I think we addressed the con- first of all, the Senator from Con- cern—I will bet not only on my side cerns about whether or not we are necticut has been right in the sense but on his side as well. That is a very going to run afoul of some inter- that we have raised some concerns, and philosophical point of view of the im- national agreements to which we are a we are working with him. He has made pact which we make in the Senate on signatory. 50 States, and how many subdivisions I The second part about mandating some modifications. We are still hear- don’t know. The other one is the extent States, if you are going to use Federal ing about some more concerns. I have to which this might lead to legitimate money to lay off workers in your State expressed two of those already. I would legal retaliation as a result of the Sen- and hire someone 12 time zones away like to express another concern that I ator’s amendment. That seems to me to do the job, I don’t consider that a have heard. to be a reasonable, free, and fair trade mandate. That is Federal money. If Yes, it preserves jobs in America if consideration in any action this body you want to do it with State money, I there is not outsourcing of service jobs takes. can’t keep you from doing that. That is that are involved. But this is a legiti- I want to make clear that it is not your choice. If you are going to do it mate concern on our side: The extent strictly political. There are some con- with Federal money that comes from to which there might be retaliation by cerns about his amendment. I enun- grants and so forth, I think the Amer- countries that outsource some things ciated at least two. ican taxpayer would like to know that to the United States. That goes on as Mr. DODD. Mr. President, I yield to Federal dollars are being used to lay well. We want to make sure if we are my colleague from California. off one person in your State and hire losing jobs, we don’t have a greater Mrs. BOXER. I have a question of my someone 12 time zones away. You can loss of jobs in retaliation for Ameri- friend, Senator GRASSLEY. call that a mandate, but I call it com- cans who are already employed by a While the Senator was out, I was tell- mon sense at this particular juncture. company outside the United States ing the Senate that I had written to I think we have gone as far as we can which is using the services of American Ann Veneman because with taxpayer go on this issue. We have covered the people in America. dollars the USDA went out and bought ground. These are concerns that need to be rice from a foreign country instead of I thank my colleague from Wis- addressed. These are things that will be from my rice farmers. I think that is consin, Senator KOHL, for joining me in brought out in debate, and it may be wrong. a bipartisan fashion on this amend- possible to work on continuing modi- I ask this question of my friend: If ment. fications of the Dodd amendment so there are legitimate concerns, I am Today, 40 States outsource jobs. That that hopefully we can get it passed sure my friend will sit down and work is pretty alarming. without a great deal of opposition.

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00077 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.094 S03PT1 S2096 CONGRESSIONAL RECORD — SENATE March 3, 2004 At this point, we are not prepared to disagreement on this point that necticut has spoken passionately and vote. outsourcing is a good thing. eloquently about our concern about job Mr. DODD. Madam President, I don’t These are not just goods and services loss in this country and certainly it is believe I yielded the floor. to be tradable in the open marketplace. something we are all concerned and The PRESIDING OFFICER. The Sen- These are critical jobs which mean a want to do something about. But I am ator from Connecticut has the floor. huge difference to the families af- sure none of us would want to endorse Mr. DODD. My colleague from Ne- fected. We bear no greater responsi- a cure which is worse than the disease vada is in the Chamber. I didn’t know bility in this Chamber than to do what or cause other problems that perhaps if he wanted to speak. we can to protect American families. we have not thought through or that Mr. REID. If I could make a brief When they are being threatened by un- are not intended. statement without the Senator losing necessarily shipping their job overseas, I do detect a whiff of politics. I notice the floor—— it is our obligation to speak out and the chart says manufacturing jobs lost The PRESIDING OFFICER. Is there try to do something about it that is re- under President Bush. Perhaps since objection? Without objection, it is so sponsible. the time when we had primarily an ordered. I made the point over and over again, agrarian economy, we have seen tre- Mr. REID. For the minority, the ma- and I will make it again, I have sup- mendous shifts in our economy because jority leader has indicated there will ported far more free trade agreements of the efficiency of a flow market sys- over my course of service here than not be no votes tonight. Everyone should tem that is far more efficient than the because I believe that is where you know that. command-and-control economy that is have to be in the 21st century. But they Mr. GRASSLEY. That is what my used in other parts of the world that is have to be fair agreements. We have to Blackberry said 5 minutes ago. inefficient and stifles competition and Mr. DODD. For the purposes of those negotiate them far better. The Senator from Montana and I innovation and the productivity that who don’t know what a Blackberry is, we have in this country. we will explain that. have talked about how we might achieve those desired results. I don’t I certainly would not want to see us I do not know whether my colleague do anything that would harm the good from Texas has a question of me or not. subscribe to the notion that it is isola- tionist or protectionist to stand in the things we had going on in the economy I know he would like to speak on the in the effort to address a real problem issue. Does he have a question for this Senate and say I think it is wrong to use Federal taxpayer money to cause but perhaps with the wrong solution. Senator on the subject matter? someone in this country to lose their I appreciate the Senator from Wyo- Mr. CORNYN. If the Senator will job and hire someone 14 time zones ming mentioning this is something I yield, I will have a brief response but away. I don’t think that is a good idea. and no doubt other Members would like not so much a question at this time. Others may say that is their right, but to study a little further to see exactly Mr. DODD. I will wrap up myself. I we will have a vote on whether you what the details may be before we were would like to come back, if I could. think it is right. asked to vote on it. Again, maybe I am wrong. But every Examine it until you are blue in the I am not an economist. I do under- survey I have seen over the last num- face and try every cockamamie idea to stand why companies outsource, to find ber of weeks has indicated that peo- undermine what we are doing, but it is a cheaper way of producing their prod- ple—even people who have jobs—are a bad idea to federally subsidize the ex- uct. Even though the distinguished worried about this issue. portation of jobs that ought to be kept Senator from Connecticut says it is a To give you some indication of the here, not for protectionist reasons but bad idea, I am not sure what you can disconnect that occurs when it comes if we provide services and jobs in the do or what we could do, short of erect- to this issue, I quote from the Los An- global marketplace in the 21st century, ing a wall around this country and say- geles Times story, which appeared else- you better have the people here who ing we are no longer interested in where, but talking about this question, can do it. international trade. I don’t know what it says: If we give up that kind of human cap- we can do to avoid companies who are ‘‘The movement of American factory jobs ital that is so critical to our long-term seeking to produce a cheaper product and other white collar work to other coun- success of people, we are putting our tries is part of a positive transformation in a more competitive environment Nation in jeopardy. It is not a great from outsourcing some of those jobs. I that will enrich the United States economy quarterly answer. For that company over time even if it causes short term pain do think there is an answer, but I am and dislocation,’’ the Bush administration which wants to make more money next not sure the answer is what the distin- said the other day. quarter, this is a dreadful idea. But if guished Senator from Connecticut is you are thinking more than quarters, if It goes down and says from the eco- proposing. you are thinking down the road about nomic report: In fact, by prohibiting the what kind of a Nation we will be leav- outsourcing of jobs we are basically ‘‘Outsourcing is just a new way of doing ing the next generation who will in- international trade,’’ said Gregory Mankiw, saying the American taxpayer has to habit these seats we hold today as Chairman of the President’s Council of Eco- pay a higher price than they would Members—we have an obligation to nomic Advisers. otherwise have to pay. Certainly, that them, as well. We owe an obligation, They prepared the report. is something we need to explore, just as others who sat in these seats whether the higher price is worth the More things are tradable than were bore an obligation to us and left us a tradable in the past, and that is a good proposed cure. pretty decent country—not a perfect thing. one, but a good one. We should see to it Also, the Senator from Iowa men- The article goes on. that coming generations have the tioned we are a country that has a pol- I remember the statement being equal opportunity to bear the fruits we icy of free and fair trade. Of course, made; Mr. Mankiw apologizing. He said have provided for two centuries. there is a question of retaliation. But it was a bad choice of words, and we We do not do it by remaining silent the truth is, we have seen a loss of certainly accept his apology. The prob- or giving phony reasons about why jobs manufacturing jobs in this country for lem is, it was not the words. It is not are being outsourced unnecessarily a lot of reasons other than outsourcing a bad choice of words; it is a bad idea. around the globe. That is why I bring it or competition with China, India—now The idea of saying I am sorry I said up and that is why I hope we can have with the movement of white-collar jobs only indicated to me they were sorry a vote and move on it. It is not that particularly in the service sector to they said it out loud. They did not difficult to understand. that country—and that is simply be- change their mind about the subject I yield the floor, as I know my friend cause we have increased productivity. matter but merely said we got caught from Texas wants to be heard. Technology has made it possible to do at something we should not have said The PRESIDING OFFICER. The Sen- the same or, indeed, more work using because it was bad politics to say it. I ator from Texas. less people. That is just a fact of life. I misspoke politically but not sub- Mr. CORNYN. Madam President, the don’t think anyone would want to go stantively, and there is a fundamental distinguished Senator from Con- back to the last century and say we are

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00078 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.097 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2097 not going to seek further improve- tion issues in this country. I will note what has transpired in recent weeks ments in technology or innovation be- that there are not people trying to get with this administration. Senator cause we do not want to put people out out of the United States of America be- DODD has brought to the Senate’s at- of work. cause things are so bad. To the con- tention one issue; that is, a high-rank- The truth is, the solution is, we need trary, people are risking life itself to ing member of this administration has to make sure we continue to educate come here because we are still a beacon said that outsourcing jobs—what does our workforce and not for minimum- in terms of the opportunities provided, it mean? Shipping jobs overseas—is wage jobs but for good high-paying in terms of the freedom, in terms of the good for our economy. That is what he jobs. Members may recall the Presi- ability of people, working hard in this said. Well, if that were the end of it, dent addressed this issue in his State of country, to have a good standard of liv- you could well say, maybe that was the Union speech and talked about the ing and a better quality of life. just somebody who made a mistake. importance of Americans competing in I hope the election year does not con- Then we have today Tommy Thomp- a global economy by educating and per- sume us so much that we look at the son who says: We should not have haps retraining our workforce for new glass always as half empty rather than Americans be concerned about all the and better-paying jobs. half full, or look at something as a money we are giving to Iraq to estab- He mentioned his initiative, working lemon rather than an opportunity to lish a health care system because we with community colleges. I took the make lemonade. really have, in the United States, a President’s words to heart because I I think the President is exactly on universal health care system because am concerned—as no doubt all 100 the right track. I think if we commit those people who have no insurance get Members of this body are—about job resources to train the American work- taken care of. That is what a Cabinet loss in this country. I went to the com- er to be part of the innovation that has officer of this President said. munity colleges in my State. I said, always characterized and been the hall- Now, should we stop there? Let’s go Tell me what you are doing to train mark of the American economy and on and talk about what another Cabi- the American worker or perhaps to re- the business providers in this country, net officer said 2 weeks ago, the Sec- train the American worker for good, to make sure those workers are trained retary of Education. The Secretary of high-paying jobs. I went to Amarillo in in this constantly evolving economy, Education said, to a group of assembled the Panhandle where I found that Bell which is very efficient, and sometimes Governors, that the National Edu- Helicopter and the Amarillo College brutal, but to make sure we are there cation Association were terrorists. He helped create a curriculum to train and are working with local and State did not say it once to the Governors people to work on the V–22 Osprey and Federal governments to do every- but twice. I have talked to Governors which is produced in that plant. thing we can to assist business part- who were there: The National Edu- I remember a young woman, a single ners and the education community to cation Association are terrorists; the mom, Hispanic woman, with two chil- train the American worker for good, largest teacher organization in the dren, formerly working as a prison high-paying jobs, I think we have noth- world, based in the United States, are guard making about $9 an hour. As a ing to fear. terrorists. result of this program with Amarillo Finally, where I was raised we were I think that is something I cannot College and Bell Helicopter—this is taught that we would get our formal comprehend: How the Secretary of just one example—she is now working education and then we would go to Education can say this about teachers. on a production line, contributing to work and maybe even stay in the same Someone I went to high school with— the transformation of our military and job for the rest of our adult life. But we played baseball together; we were also improving her standard of living, the truth is, today that is just not pos- on the first State championship base- making about $16 an hour in a good job. sible. We need to change our frame of ball team in the history of the State of I have done the same thing in Austin mind so that we teach our younger peo- Nevada; He was a pitcher; I was a where I went to the Austin Community ple, look, learning is a lifetime endeav- catcher—Reynaldo Martinez and I have College and learned about partnerships or, and it may be that you will change been friends for these many years. He they had entered into to train nurses, jobs at different times during your was my chief of staff in the Senate. He surgical techs, dental hygienists. At adult life because you want to improve retired a few years ago. He was a long- the San Jacinto Community College your circumstances, you want to get a time organizer for the National Edu- near Houston they have partnerships better paying job to better provide for cation Association. To call Rey Mar- with Boeing and NASA and others to your family, and you can do it in a free tinez a terrorist because he was a mem- train people for good, high-paying jobs. country where there is an opportunity Now, I realize we are in the political ber of that organization is difficult for to retrain, to get an education me to comprehend. season, and I understand that perhaps throughout the course of your life. nothing said in this body or anywhere For me personally, what is tran- I firmly believe now is not the time spiring in Congress, because of the po- else in Washington is perhaps totally for the American people to lose faith in devoid of politics, but the truth is, sition the administration has taken re- the good thing we have going in this garding highway transportation—the Americans can and will always be will- country, and that, as I said a moment ing to compete and win in the global former chairman of the Environment ago, is the envy of the entire world. I and Public Works Committee, the competition in this new economy. believe our focus ought to be on that Now is not the time for us to wring former chairman of the Finance Com- education, lifetime job training, and mittee, now the ranking member of the our hands and say: Oh, woe is us. We not on erecting barriers around this just can’t quite do it. We have to erect Finance Committee, has worked, as I country or perhaps other solutions, al- have worked, on a number of highway protectionist walls. We have to come though well intended, which will have up with solutions which, perhaps bills. There is no bill we do in the Sen- a detrimental impact. ate, in the Congress, that is more im- maybe actually increase prices to the With that, Madam President, I yield portant than a highway bill. It creates American consumer while not actually the floor. solving the problem that we are all Mr. DODD. I suggest the absence of a millions of jobs over a 6-year bill. We concerned about; that is, job loss. quorum. produced a bill based on the budget we So I say as part of this debate—and, The PRESIDING OFFICER. The passed a year ago. We have there, in again, I know the Senator from Con- clerk will call the roll. the bill that we were able to report out necticut has the best of intentions, and The assistant journal clerk proceeded of committee, in keeping with the we share the same concern—now is not to call the roll. budget, and as passed the Senate of the the time for the American worker or Mr. REID. Madam President, I ask United States, a bill that is a very good for the Members of the Congress to lose unanimous consent that the order for bill, that does not raise one penny of faith in free markets and the capitalist the quorum call be rescinded. taxes, that takes care of transit and economy which has made this Nation The PRESIDING OFFICER. Without highways. The President says he is the envy of the world. objection, it is so ordered. going to veto the bill. We are talking now again, thank- Mr. REID. Madam President, I think Outsourcing is good; 44 million Amer- fully, about addressing our immigra- the American people need to look at icans, don’t worry, you have universal

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00079 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.099 S03PT1 S2098 CONGRESSIONAL RECORD — SENATE March 3, 2004 coverage because if you get sick, you burger might actually be a manufac- Mr. REID. As I was saying, Senator can go to an emergency room, if you turing job. My colleague from Nevada DODD and I were looking at this earlier are lucky, if there is one there; the Na- is absolutely right to raise this point. today. We don’t need to go through all tional Education Association personnel Mr. REID. Mr. President, I have only of this, about the 14 million jobs, some are terrorists; and he is going to veto talked about what has happened in the of which have already been shipped the transportation bill. Is there some- last few weeks: Outsourcing is good, overseas and some going overseas. Di- body in the bowels of the White House teachers are terrorists, veto the trans- agnostic support services, we already trying to destroy the President? I can- portation bill. We have universal cov- know what these are. They are actu- not imagine the President would come erage in America because if you are ally shipping medical records to other up with these ideas himself. I certainly one of the 44 million, you get taken countries and having them catalogued. hope not. care of some day somewhere. That is But they are also having some of these I commend and applaud my friend universal coverage. That was the Sec- medical records reviewed. Take, for ex- from Connecticut, the senior Senator retary of Health and Human Services ample, a CAT scan. Ship it overseas. from Connecticut. He has brought to who said that. And now they are trying They can have somebody there review the attention of the Senate the impor- to develop a new category of manufac- it very quickly. Take, for example, an tance of focusing on the disastrous loss turing. X-ray, a simple X-ray, ship it overseas. This reminds me of my friend Greg of manufacturing jobs. Since this They can do it quickly. You will get Maddux. In Las Vegas we are so proud President has been in office, our Nation the results back soon. I don’t feel very of him. He has won the Cy Young has lost a total of 2.8 million jobs. good about that. I go to my doctor in Award 4 years. He is slightly built and Every single month, with no exception, Las Vegas or Reno, Boulder City, Elko my size. He is one of the greatest pitch- manufacturing jobs are lost. in Nevada. They are shipping the X- ers of all size. His hands are smaller I guess I should be leading the cheers rays they take of my body to India or here because out of the 50 States, the than mine. He is now going to Chicago. He needs to win 11 more games to be- some foreign country to have some- great State of Nevada is the only one body over there call my doctor or the in white on this chart. We hold the come a 300-game winner, which is a big deal in baseball. Just a handful of peo- hospital staff and tell them what is record. We created 200 new jobs in the ple have done that. So he needs 11 more wrong with me? I don’t think so. last 31⁄2 years. That is certainly better The additional problem with that, games. Based on the President’s as- than losing 200, and it is certainly bet- just from a basic fairness standpoint, I sumption of how we can create manu- ter than the State of Texas, which has facturing jobs, maybe we can get him won’t disclose the Senator’s name, but lost 150,000 jobs, or the State of New to 11 more quickly. What I suggest is a Senator told me she had two com- York, 115,000 jobs. Even a small State having four strikes instead of three. plaints from constituents in that State such as Wyoming lost 700 jobs. Cali- With four strikes—he has great con- that privacy was being violated, people fornia has lost 273,000 jobs. So 200 may trol—I guarantee you, even though he had information that came from over- not look like much, but for us in Ne- will be 37 years old next month, I think seas about her health condition. I hope vada, we will take it. the people making these decisions for Two hundred manufacturing jobs in he could win his 11 games much more quickly. our President were not trained during 31⁄2 years were created in the State of That is what is going on with this ad- the Reagan years. Nevada—not much, until you compare ministration. If you don’t like what Reagan, for whom I have the highest it to the rest of the country. Then we goes on, change the rules. respect, didn’t continue this. He are doing pretty well. We are the only I have said before, I have two broth- learned early on it was not a good idea State in the Union that had a net gain ers older than I. One of them was work- when someone in his administration of manufacturing jobs during this Pres- ing in a Standard station in a place said, let’s have ketchup considered a idency. called Ashfork, AZ. He wanted to take vegetable for the school lunch pro- Where have these jobs gone? Some his little brother away from Search- grams. Maybe that person is still are gone forever, but lots of them have light. So we went to what I thought around here someplace and giving gone overseas. Our country cannot re- was the big town of Ashfork, AZ. these great recommendations to this main strong if we can’t manufacture Frankly, it was not a lot of fun for me administration. I hope not. Or if it is steel, automobiles, airplanes, and ap- because my brother had a girlfriend, true that that person is around, maybe pliances. I am very happy that we do and he didn’t spend a lot of time with they should put a stop to it. We do not wonderfully well with our service in- me. So I was pushed off on his want people who are being X-rayed, dustry. No place represents that better girlfriend’s brother. I could not beat medical records, lawyers who research than the State of Nevada, especially him at anything. It didn’t matter what cases and write briefs, technological Las Vegas. But we cannot remain the it was. I never beat him at anything specialists to keep virtually every superpower of the world by flipping because he always changed the rules in company running—all these jobs are hamburgers, which is something I for- the middle of the game. That is what is fleeing America in a mad global case got to mention. going on here with the administration. for cheap labor. Somebody in the administration sug- We are going to change the definition Every time a job goes overseas, it gested 2 weeks ago that we should cre- of manufacturing. hurts an American family. ate a new manufacturing category; The loss of jobs in our country is It used to be that if you lost a job, that is, people who work in fast food very bad. If it were only manufacturing you would find one pretty quickly. Now restaurants. I am not making that up. jobs that were going overseas, I would the average time for getting a new job They want to turn people who work in not like it, I would complain about it. after losing a job in America is almost McDonald’s preparing meat patties, But this has been compounded because 1 year. Losing the job is bad enough be- putting the sandwiches together, into the loss of manufacturing jobs is not cause you lose self-esteem, you lose a manufacturers. the only problem. The Senator from sense of pride, you believe you have not Mr. DODD. If my colleague will yield, Connecticut and I were looking earlier been appreciated, even though you in chapter 2, page 73 of the Economic today at a chart. I am sure he has were doing the best job you could, but Report of the President—this was pre- shown it. This chart talked about some also that family probably loses their pared by the President’s economic ad- of the diagnostic procedures that were health insurance because they cannot visors—they raise the issue here as if it going overseas. Look at some of these pay for the COBRA; they don’t have were a legitimate question. They say: things: 14 million jobs in danger of money to do so. The definition of a manufactured prod- being shipped overseas. My son left to go to Vegas, and he uct, however, is not straightforward. Mr. DODD. These charts belong to needed coverage of insurance for 2 When a fast food restaurant sells a Senator KENNEDY. He feels very strong- weeks. It cost him $2,200. He is mar- hamburger, for example, is it providing ly about these charts. I wanted to ried, has two little girls, his wife was a service or is it manufacturing a prod- make sure the record reflects we are pregnant. He had no choice. He had the uct? They think that is a legitimate borrowing Senator KENNEDY’s charts. money to pay for it. If he had not had question, that manufacturing a ham- They are very good charts. it, I would have helped him. That is not

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00080 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.101 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2099 the way it is with everybody. Many by the skyrocketing cost of health about changing the rules. I have wor- people are not able to buy insurance care. Their deductibles and copayments ried about that, when all of a sudden— for periods of time when they don’t keep going up, and they wonder wheth- and I have seen it happen in the past— have it. Maybe they are buying a home er they are going to lose coverage en- you don’t like the numbers you have, or were going to buy one and they lose tirely. so you come up with a whole new defi- the sense of a dream of owning a home. There are 77,000 people on strike in nition and expand the numbers. That is What about college? College is so ex- California who work in grocery stores. what it looks like when you start talk- pensive. It used to be that when I was They are not on strike because of ing about what clearly are fast food growing up, I could work in the sum- working conditions, not because of service jobs, manufacturing jobs, and mers and during the school year to pay wages or hours; they are striking for we have seen those efforts being made. for my education. My parents were not one simple reason, health benefits. This wasn’t the first administration in a position to help me, and I basically They could not make ends meet by trying games like that. We have had educated myself with a few little schol- having to pay what they were going to others in the past doing that. I appre- arships I had. You cannot do that any- be told by their employer they had to ciate his comments, and I thank him more. You cannot work during the off- pay for health costs, so they went on for his support as well. season—unless you rob banks—to pay strike—one of the longest strikes in I have just a couple of other points. for a college education. It is too expen- modern history. My friend and colleague from Texas sive. So that is another thing a family All these problems are deeper than cited earlier some of the efforts in the would lose—the ability to prepare for the business cycle. They all demand a area of job training, vocational edu- their children to attend college. That real economic plan, and part of that cation. I wanted to respond by saying I is why the loss of American jobs is a plan is the amendment offered by the don’t disagree. I think that is an im- crisis in our country. We need a real Senator from Connecticut. It is not ev- portant element. But the problem is plan to address that issue. We cannot erything. If we had the opportunity, we that one of the frustrations is the afford to wait until the next business could come up with a better plan. This outsourcing of jobs that is occurring at cycle because the flight of jobs over- is a step in the right direction. What a rather remarkable rate now, and it seas is a result of powerful economic we have to do in Congress today is un- seems to be accelerating and very little forces. derstand that we are not going to com- is being offered to try to do something American workers are not afraid of pletely rewrite Superfund, endangered about this. fair competition. I am not against species, clean air and clean water, or In fact, even in the area of protecting that, but I am against the mentality of the economic situation this country manufacturing jobs and doing some- chasing cheap labor around the globe faces. But we have the ability to do thing about retraining, let me share with no regard to long-term implica- things to improve Superfund and en- with my colleagues what is going on. tions. When American companies dangered species. We can do a little In the manufacturing extension part- choose cheap labor, they are saying our here and a little there to help the eco- nership, which is a very important environment doesn’t matter. They are nomic situation in this country. issue for the manufacturing firms of saying conditions for their own work- The amendment by the Senator from this country, this is going to mean less ers do not matter, and they are forget- Connecticut is a good amendment. It is help to an estimated 11,000 small busi- ting the great lesson learned from a step in the right direction. That is nesses; 28,000 workers will either lose Henry Ford. Henry Ford was not a per- why we chose this as our first amend- their jobs or not be hired as a result of son I liked everything he did or said, ment. It sends a message to the Amer- these cuts. but he was a good businessman. He re- ican people that we want to do some- So there is cutting back in this area. alized in order for his company to sell thing to stop the outflow of these jobs. Outsourcing is going to have a huge cars, the people who build them should Focusing on Federal Government impact on the manufacturing sector. be able to also buy those cars. In other outsourcing is one of the things at The Small Business Administration words, workers are also customers. A which we need to take a closer look. is being cut by $79 million, hurting worker who earns a decent living can We can start trying to improve our hundreds of thousands of small busi- afford to buy the products and services economy now, today, by cutting off nesses struggling to create jobs for American companies are selling. So Government contracts to companies Americans. There is a cut of $316 mil- every time a so-called American com- that plan to outsource their work. Two lion for vocational education. This is in pany chases cheap labor by moving years ago, the State of Florida ordered addition to the more than $1.5 million jobs overseas, we are all diminished. a $280 million contract to a company in proposed cuts to job training and vo- The market for goods and services in that outsources its work to India. If cational education made over the last 3 our country is damaged. Florida wants to do that, it is their years. We are also cutting $448 million As I have said, the President’s top business. But when the American tax- for the Workforce Investment Act pro- economic advisers said the outsourcing payers hire somebody to do a job, it grams. of jobs is a good thing. Every day should be done by an American worker My point is, as we watch these someone in the administration says the who is also a taxpayer. outsourcing of jobs and the loss of 2.8 economy is getting better. It might be For the fourth time in the last few million manufacturing jobs, I would be looking up to those who have the Wall minutes, I commend Senator DODD for heartened if I thought we were making Street Journal and the Financial this amendment and urge all of my col- an effort at least to commit additional Times delivered to their homes but not leagues to support it. I also say this to resources to help provide training for to middle class Americans. They feel the majority: If tomorrow, when we people who find themselves under nor- that inside something is happening come back in session, there is an effort mal cyclical circumstances losing a that goes beyond the normal business made to prevent the Senator from Con- job, but here we are in an abnormal sit- cycle. necticut from having a vote on this, we uation where there is an extraordinary Middle class Americans are deeper in are going to keep offering it and offer- loss of manufacturing jobs occurring debt than ever. Consumer debt is at an ing it until we get a vote on it. If we across the country in the last 36 all-time high. Middle class Americans don’t get it done on this bill, we will months and we have an extraordinary are afraid the Social Security benefits get it done on the next bill. If we don’t acceleration of outsourcing of jobs oc- will be swallowed in the sink hole of a get it done on the next bill, it will be curring over the same period of time— half-trillion-dollar deficit. And they offered on the next bill. This is our No. I pointed out that now 400 of the top are right. The debt would be much big- 1 amendment, and we are going to con- 1,000 businesses in America are ger for the 3 years that this President tinue pushing it. outsourcing, 40 of the 50 States, all for has been in office but for the fact that The PRESIDING OFFICER. The Sen- a very obvious reason. You can save a the debt is being disguised by the So- ator from Connecticut is recognized. lot of money right off the top by doing cial Security surplus. Middle class Mr. DODD. Madam President, I it. When you can hire somebody in Americans are worried their jobs might thank my colleague from Nevada for India at $7 a day as opposed to paying be outsourced. They are being hit hard his comments. He is absolutely right someone a salary in Silicon Valley, you

VerDate jul 14 2003 01:41 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00081 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.104 S03PT1 S2100 CONGRESSIONAL RECORD — SENATE March 3, 2004 do not have to have a Ph.D. in mathe- Democrats who want Bush’s job were quick computer programming and medical matics to know the outcome. to challenge his claims. diagnostics. I understand the motivation behind Sen. John F. Kerry of Massachusetts, the ‘‘Maybe we will outsource a few radiolo- it. The question I have is, are we going front-runner for the Democratic presidential gists,’’ Mankiw told reporters. ‘‘What does to sit back and allow this to continue nomination, supports a rollback of Bush’s that mean? Well, maybe the next generation tax cuts for the wealthiest Americans and of doctors will train fewer radiologists and at the expense of losing the kind of backs the creation of tax incentives for com- will train more general practitioners or sur- human investments that we ought to panies that keep jobs in the United States— geons.... Maybe we’ve learned that we be making to guarantee that we have a although he supported the North American don’t have a comparative advantage in radi- workforce capable of doing jobs and Free Trade Agreement, which many union ologists.’’ providing the services that America members say is responsible for the migration Government should try to salve the short- ought to be providing in the coming of U.S. jobs, particularly in the auto indus- term disruption by helping displaced workers years? try, to Mexico. obtain the training they need to enter new In addition to that, even if we were Campaigning Monday in Roanoke, Va., fields, such as health-care, Mankiw said, not not doing an amendment or were not Kerry questioned the credibility of the ad- by erecting protectionist barriers on behalf ministration’s job-creation forecast. going to support language that would of vulnerable industries or professions. ‘‘The ‘‘I’ve got a feeling this report was prepared market is the best determination of where say that Federal taxpayer money by the same people who brought us the intel- the jobs should be,’’ he said. ought not be used for this purpose, I ligence on Iraq,’’ Kerry said. ‘‘I don’t think Bush’s quick visit to Missouri—his 15th to would like to think that in the area of we need a new report about jobs in America. a state considered a critical election battle- vocational education, small business I think we need a new president who’s going ground—was the first of several events this assistance, manufacture extension to create jobs in America and put Americans week intended to underscore recent eco- partnerships, and certainly Workforce back to work.’’ nomic gains. Although U.S. job creation re- Investment Act—all of these areas— In an evening appearance at George Mason mains relatively sluggish, the nation’s un- University in Fairfax, Va., Sen. John Ed- employment rate fell from 6.4% in June to that the administration would say: wards of North Carolina mocked the Bush Look, this is our answer to this. We 5.6% in January, and the economy grew at administration’s economic report. the fastest pace in 20 years during the last don’t agree with you, Senator, about Edwards, who also supports repealing tax half of 2003. not using Federal funds. cuts for the richest Americans and offering The format of his visit to SRC Auto- Madam President, I ask unanimous incentives to corporations that create new motive—one that he particularly likes—in- consent that an article from the Los jobs in the United States, said it would come volved several employees and local business Angeles Times be printed in the as a ‘‘news bulletin’’ to the American people owners sharing the stage with the president RECORD. that the economy was improving and that to discuss their perspectives on the economy, There being no objection, the mate- the outsourcing of jobs was good for Amer- with Bush elaborating on their stories to em- ica. phasize particular aspects of his economic rial was ordered to be printed in the ‘‘These people,’’ he said of the Bush admin- RECORD, as follows: program. istration, ‘‘what planet do they live on? Today, Bush is scheduled to meet with eco- [From the Nation; Feb. 10, 2004] They are so out of touch.’’ nomic leaders at the White House. On Thurs- BUSH SUPPORTS SHIFT OF JOBS OVERSEAS The president’s 411-page report contains a day, he goes to Pennsylvania’s capital, Har- (By Warren Vieth and Edwin Chen) detailed diagnosis of the forces the White risburg—in another swing state that he has WASHINGTON.—The movement of American House says are contributing to America’s already visited more than two dozen times factory jobs and white-collar work to other economic slowdown and a wide-ranging de- since becoming president. fense of the policies Bush has pursued to countries is part of a positive transformation Mr. DODD. The headline in the Los that will enrich the U.S. economy over time, combat it. even if it causes short-term pain and disloca- It asserts that the last recession actually Angeles Times—it is a viewpoint—says: tion, the Bush administration said Monday. began in late 2000, before the president took ‘‘Bush Supports Shift of Jobs Over- The embrace of foreign outsourcing, an ac- office, instead of March 2001, as certified by seas.’’ It goes on to talk about the re- celerating trend that has contributed to U.S. the official recession-dating panel of the Na- port that I talked about all afternoon, job losses in recent years and has become an tional Bureau of Economic Research. this economic report prepared by the issue in the 2004 elections, is contained in Much of the report repeats the administra- tion’s previous economic prescriptions. Council of Economic Advisers, where the president’s annual report to Congress on they conclude that the outsourcing of the health of the economy. For instance, it says the Bush tax cuts ‘‘Outsourcing is just a new way of doing must be made permanent to have their full jobs is a good thing. The author of that international trade,’’ said N. Gregory effect on the economy. language apologized for his use of those Mankiw, chairman of Bush’s Council of Eco- Social Security also must be restructured words, but he has not apologized, and I nomic Advisers, which prepared the report. to let workers put part of their retirement understand why, because he believes it ‘‘More things are tradable than were funds in private accounts, the report argues. is good economic policy to be Doing so could add nearly $5 trillion to the tradable in the past. An that’s a good thing.’’ outsourcing. The report, which predicts that the nation national debt by 2036, the president’s advi- will reverse a three-year employment slide sors note, but the additional borrowing There are some of us—I do not know by creating 2.6 million jobs in 2004, is part of would be repaid 20 years later and the pro- if it is a majority—who disagree with a weeklong effort by the administration to gram’s long-term health would be more se- that conclusion, that outsourcing is highlight signs that the recovery is picking cure. necessarily good. up speed. Bush’s economic stewardship has The report devotes an entire chapter to an I cited already from the Wall Street become a central issue in the presidential issue that has become increasingly trouble- Journal companies that painfully dis- campaign, and the White House is eager to some for the administration: the loss of 2.8 covered when they outsourced, while million manufacturing jobs since Bush took demonstrate that his policies are producing they thought they were going to save results. office, and critics’ claims that his trade poli- In his message to Congress on Monday, cies are partly to blame. money, it actually cost them dearly. It Bush said the economy ‘‘is strong and get- His advisors acknowledge that inter- is not only not good, but it fails to ting stronger,’’ thanks in part to his tax cuts national trade and foreign outsourcing have take into account—watching some- and other economic programs. He said the contributed to the job slump. But the report body’s job be lost because there is a nation had survived a stock market melt- argues that technological progress and rising cheaper labor pool that you don’t have down, recession, terrorist attacks, corporate productivity—the ability to produce more to pay health care benefits to, despite scandals and war in Afghanistan and Iraq, goods with fewer workers—have played a big- the fact the person here is going to lose and was finally beginning to enjoy ‘‘a ger role than the flight of production to mounting prosperity that will reach every China and other low-wage countries. them—if it is really good for America. corner of America.’’ Although trade expansion inevitably hurts I am suggesting while this rush is oc- The president repeated that message dur- some domestic workers, the benefits eventu- curring that we ought to put on the ing an afternoon discussion about the econ- ally will outweigh the costs as Americans brakes and stop, look, and listen so we omy at SRC Automotive, an engine-rebuild- are able to buy cheaper goods and services will not necessarily be caught up in a ing plant in Springfield, Mo., where he and as new jobs are created in growing sec- situation where a year or two or five lashed out at lawmakers who oppose making tors of the economy, the report said. from now we will look back and say: his tax cuts permanent. The president’s report endorses the rel- ‘‘When they say, ‘We’re going to repeal atively new phenomenon of outsourcing Why didn’t somebody say something or Bush’s tax cuts,’ that means they’re going to high-end, white-collar work to India and do something when we knew this was raise your taxes, and that’s wrong. And other countries, a trend that has stirred con- happening, when we could sit, watch, that’s bad economics,’’ he said. cern within such affected occupations as and read on a daily basis the pouring of

VerDate jul 14 2003 02:50 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00082 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.107 S03PT1 March 3, 2004 CONGRESSIONAL RECORD — SENATE S2101 jobs out of this country to 14 time created by certain domestic manufac- The new jobs pay on average $8,000 less zones away, depriving people of bene- turers. than jobs lost in the Bush economy. In fits and income they needed for their Mr. KENNEDY. Madam President, we 48 of the 50 States, jobs being created families; what did you do on your call this bill the ‘‘Jumpstart Our Busi- pay 21 percent less than had been paid watch? What did you do? ness Strength Act’’—the JOBS Act, be- by industries losing jobs. If the answer is we thought it was a cause that is exactly what we are de- Employees have smaller paychecks, good thing for the American economy, bating this week—the critical issue and are even less able to keep up with then I think we will be suffering an in- facing so many millions of Americans, the rising costs of education, let alone dictment historically. the lack of jobs. pay the bill for food, rent and health I see my colleague from Kentucky To hear President Bush, you would care. who wants to move on to matters of never know there was a problem with A big part of the job problem is the the day. I yield the floor, with the jobs. According to the Bush adminis- worsening crisis in manufacturing. We right to be recognized at the conclu- tration, everything is sunshine and have lost nearly 3 million manufac- sion of his remarks. roses. turing jobs since the Bush administra- Mr. MCCONNELL. I say to my friend Over and over again, the President tion took office. It is a nationwide from Connecticut, he will hardly have says things that show he is out of problem, affecting almost every State to hold his breath and he will be back touch with the lives of ordinary Ameri- in the Union. Forty-nine of the 50 up waxing eloquent to all of our col- cans and can’t understand the eco- States have lost manufacturing jobs leagues who I am sure, back in their of- nomic hardships they are facing. Happy under this President. fices, are watching his speech and lis- talk about economic recovery doesn’t That is only part of the story. Four- tening carefully to every word. jibe with the daily lives of the people teen million other jobs are newly at risk of being sent overseas as well. ELIMINATING THE ‘‘HAIRCUT’’ PROVISION on Main Street. Mr. SMITH. Madam President, I rise In his State of the Union Address in Every day, we hear more stories about today in support of S. 1637, the JOBS January, the President said ‘‘. . . this how white collar jobs and service sec- Act, which will halt European Union economy is strong, and growing strong- tor jobs in health care, financial serv- trade sanctions against American in- er . . . Productivity is high, and jobs ices, and information technology are dustries and provide immediate tax re- are on the rise.’’ going to other countries. What is the President’s response? lief for domestic manufacturers. A week later he said: ‘‘The economy More empty rhetoric and broken prom- U.S. manufacturing has experienced is growing, people are finding work. ises. Last year on Labor Day, the a crisis over the last three years due to There’s an excitement in our economy President met with workers and prom- the global economic downturn, sharply . . . You can tell I’m upbeat, and I’ve ised to appoint a manufacturing czar to diminished capital spending, global got reason to be. Not only the numbers deal with the loss of manufacturing overcapacity, and steady price declines say things are looking pretty good, the jobs. How typical of the President to for manufactured goods. S. 1637 pro- American people are telling me they make a promise like that on Labor Day vides a strong incentive for companies feel pretty good.’’ and then forget all about it. to keep and create jobs in the U.S. Then came his annual economic re- Six months later, there is still no However, I believe we can improve S. port and its ringing endorsement of manufacturing czar. Administration of- 1637 by eliminating the ‘‘haircut’’ pro- sending jobs overseas. ficials say they’re working on it, but vision that increases the taxes on U.S. At the National Governors Associa- the economy is still hemorrhaging manufacturers for their U.S. companies tion meeting last Monday, he said he manufacturing jobs. merely because these companies also thinks the 5.6 percent unemployment American workers deserve better manufacture products abroad. This rate is ‘‘a good national number.’’ than this. They deserve better than to concept is totally at odds with the pur- Yesterday, Vice President CHENEY have their jobs exported with the pose of this legislation—to cut taxes on said, ‘‘The economy’s in very good President, as cheerleader in chief, wav- manufacturers that employ American shape, and going forward there’s every ing good bye. workers. U.S. companies with global reason to be optimistic that we will We need to do more, to encourage operations employ more than 23 mil- have the kind of growth that we need good-paying manufacturing jobs to lion Americans—9 million of which are to create jobs out there.’’ stay here, and discourage corporations manufacturing jobs. Foreign-owned In fact, he went on to say that if from sending jobs and new investment companies with U.S. operations employ ‘‘Democratic policies had been pursued overseas. more than 2 million manufacturing over the last two or three years. . . . This bill contains provisions to en- workers in the U.S. we would not have had the kind of job courage manufacturing in the United The haircut is structured so that the growth that we’ve had.’’ States, and I commend Senator GRASS- more a company manufacturers Job growth? Someone should tell the LEY and Senator BAUCUS for their bi- abroad, the less of a manufacturing Vice President that we have lost over partisan work on this bill. But we can rate cut it gets. The ‘‘haircut’’ makes two million jobs in the Bush economy. do more and we must do more. the U.S. a less competitive location for The reality of the Bush economic We need to provide incentives now current and future investment. Thus, it record is very different from the rhet- for companies to keep and create man- is less likely that multinational manu- oric. ufacturing jobs in the United States. A facturing companies will site new Just a few weeks ago, the President key weakness in this bill is that the plants and new high-paying jobs in the said in his economic report that the tax benefits for domestic manufac- U.S. economy will create 2.6 million new turing are phased in too slowly. These Furthermore, I am concerned that jobs this year. The reality is that no companies and their workers need help the ‘‘haircut’’ invites mirror legisla- one in the White House or the Cabinet now. tion in other countries. In this time of will endorse the 2.6 million number. We need to stop rewarding multi- crisis for the U.S. manufacturing in- President Bush said his first tax cuts national corporations that send jobs to dustry, we cannot afford to let any in 2001 would create 800,000 additional other countries. more manufacturing jobs slip away, jobs by the end of 2002. The reality is, This bill not only fails to do that, it particularly due to bad tax policy. we lost 1.9 million jobs instead. creates $35 billion in new or larger tax With my colleague, Senator BREAUX, His 2002 economic report predicted 3 breaks for companies doing business I am offering an amendment to the million jobs would be created in 2003. abroad. Why on earth do we want to JOBS Act which will eliminate the Instead, more than 300,000 were lost. make exporting of American jobs more ‘‘haircut’’ and provide an equal tax He said the tax breaks enacted last attractive to corporations? These benefit for all manufacturers that em- year would create 510,000 additional international provisions should be re- ploy American workers. Congress jobs by the end of the year, but we lost moved from the bill, and the tax dol- should be in the business of rewarding 53,000 jobs last year. lars should be used to make the tax all well-paid manufacturing jobs that Even the few jobs being created are benefits for domestic manufacturing are created in the U.S.—not just those not as good as the jobs we have lost. more robust.

VerDate jul 14 2003 02:50 Mar 04, 2004 Jkt 029060 PO 00000 Frm 00083 Fmt 4624 Sfmt 0634 E:\CR\FM\G03MR6.108 S03PT1 S2102 CONGRESSIONAL RECORD — SENATE March 3, 2004 In many respects, the tax code al- My amendment would resolve some more aware of our Americanness, that ready gives a greater subsidy to profits of this inequality by extending to com- our appetite for the new has been whet- from foreign operations over domestic mercial fishermen the same income ted, and that we have leaned on one an- plants. We ought to change that too, averaging benefit given to farmers. It other for support, often organizing new instead of kowtowing to the clout of would also fix a technical error in the forms of communities to deal with new multinational corporations. Our cor- original provision that has led to some circumstances. Boorstin believed porate tax laws should be rewritten to farmers being caught under alternative America works community by commu- increase the cost of exporting jobs and minimum tax. nity. He argued that the prototype decrease the cost of maintaining jobs I thank the chairman for his leader- early American was not the solitary in America. ship on this issue in the past and in- trailblazer but a wagon train commu- And what about the urgent needs of cluding this important provision in his nity. Americans who have already lost their bill, the Tax Empowerment and Relief Despite his erudition and his Pul- jobs and their long-term unemploy- for Farmers and Fishermen, TERFF, itzer, Dr. Boorstin was not especially ment benefits too? Act. I am pleased to see that portions popular with professional historians. Solid majorities in the Senate and of the TERFF Act were incorporated Perhaps it was because he was such a the House have already sent a message into the bill now before us, and I am booster, as have been most Americans. loud and clear to the White House and hopeful that we will be able to address Perhaps it was because he contented the Republican leadership in Congress the issue of income averaging for fish- himself with being an ‘‘amateur’’ histo- that we want to reinstate those bene- ermen also at this time. rian, not shackled by the ruts along fits, which expired on December 31st. Our farmers and fishermen represent which professionals often trudge. Or, Ninety thousand workers a week have an important sector of our economy. perhaps it was because he was a mem- lost their benefits and still can’t get a Unfortunately, they and their families ber of a diminishing band of public fig- job. They’re moving in with friends or often have to deal with more than their ures—the late Senator Pat Moynihan family, giving up health care, and fair share of challenges. Making the and American Federation of Teachers struggling to pay every bill. Yet our Tax Code more consistent and more re- President Albert Shanker were two Republican colleagues say, in their flective of the variable nature of re- others—who believed passionately in best imitation of Marie Antoinette, source industries will also make it American exceptionalism. A growing ‘‘let them eat cake.’’ more fair and provide some measure of number of history professionals today They tell the unemployed to look stability for these hard working indi- reject this idea of exceptionalism. To harder for work. They treat them as viduals. them, our country is fortunate, rich I encourage the Senate to consider slackers, and say they won’t subsidize and large, but not more exceptional and pass this important amendment. their idleness any longer. That atti- than many other countries. These pro- The PRESIDING OFFICER (Mr. AL- tude is wrong. The unemployment in- fessionals prefer social studies to U.S. EXANDER). The Senator from Kentucky. surance extension we enacted when the history. They take snapshots of our na- economy began to decline has expired, f tional experience instead of teaching and I urge my colleagues to fix it, be- MORNING BUSINESS the steady drumbeat of a work in fore these hard-working employees who Mr. MCCONNELL. Mr. President, I progress toward grand goals. In their have lost their jobs through no fault of ask unanimous consent that the Sen- enthusiasm for overlooked victims, their own suffer any longer. ate now proceed to a period for the they themselves overlook heroes. I also urge my colleagues to join me transaction of morning business, with Because of their growing influence in strengthening this legislation. We Senators permitted to speak for up to we now find American history courses must improve incentives in the manu- 10 minutes each. watered down, the great controversies facturing industries and give working The PRESIDING OFFICER. Without of race and religion ‘‘sensitized’’ from Americans a chance for the jobs and objection, it is so ordered. textbooks. Civics is often dropped en- the better future they deserve. f tirely from the curriculum. As one re- Mr. SMITH. Madam President, I will sult, our high school seniors score offer an amendment which would allow COMMEMORATING DANIEL worse on U.S. history tests than on any commercial fishermen to use income BOORSTIN other subject. tax averaging to help mitigate the neg- Mr. ALEXANDER. Over the weekend, Daniel Boorstin’s writings have re- ative effects of their fluctuating in- the United States of America lost one minded us of what is truly exceptional comes. of its great teachers of what it means about America, warts and all. He em- Progressive tax systems, like the to be an American. Daniel Boorstin phasized that our greatest accomplish- Federal income tax, often penalize died at the age of 89. He served as Li- ment is that, more than any other farmers and others whose incomes vary brarian of Congress and director of the country, we have united people from greatly from year to year. Recognizing Smithsonian Institution’s National everywhere into a single nation, united this fact, Congress, in 1997, gave farm- Museum of Science and Technology. by beliefs in a few principles rather ers the option to calculate their taxes Daniel Boorstin’s books about the than by race, creed, and color. He by averaging their income over a 3- American experience earned a Pulitzer taught that we may be proud of where year period. This was an important Prize in 1974. He believed America’s we came from, but should be prouder to change in the Tax Code and has helped success came largely because we have be Americans. many in our agriculture communities been free from the ‘‘virus of ideology,’’ He left us one other very special in- weather the up-and-downs of a some- free to be flexible and responsive, ‘‘free sight. In an essay written in 1962, Dr. times erratic farm economy. to take clues from the delightful, unex- Boorstin foresaw that television would Like farmers, our fishermen are often plored and uncongested world around create a world in which we would have subject to dramatic swings in income. us.’’ Free from ideology, being an a hard time telling the difference be- Whether it’s changing ocean condi- American became its own ideology. tween heroes—those worth paying at- tions, harvest restrictions, or bad Daniel Boorstin celebrated Ameri- tention to because we might learn from weather that keeps them in port, the cans for always trying the new. He be- their nobility—and celebrities who are change in income can be severe and be- lieved we have been at our best when ‘‘famous primarily for being famous.’’ yond their control. For example, fish- we have been ‘‘on the verge,’’ encoun- He invented the term pseudo event, ermen in Coos Bay, OR have struggled tering new territory—whether it was which most of us will recognize as to- with regulatory restrictions and re- creating new schools, new crops, new day’s photo opportunity. duced stocks over the last several planting techniques, new towns, a new My favorite of Daniel’s Boorstin’s years. Unfortunately, our Tax Code form of the English language, new books was not his Pulitzer winner. It doesn’t allow for flexibility, and fisher- technologies, new cars and trains, or was The Discoverers, a stream of sto- men, who experience both good and bad John Winthrop’s new City on the Hill. ries about men and women in history years, are forced to pay more taxes He observed during these encounters who challenged dogma and created a than if they had steady income levels. with new circumstances, we have been better life for mankind.

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