^A. S. Hrg. 104-652
\^ S. 1376, THE CORPORATE SUBSIDY REVIEW,
REFORM AND TERMINATION ACT OF 1995
Y 4. G 74/9: S. RS. 104-652
S.1376i The Corporate Subsidy Revie...
HEARING
BEFORE THE
COMMITTEE ON
GOA^RNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
SECOND SESSION
ON
S. 1376
TO TERMINATE UNNECESSARY AND INEQUITABLE FEDERAL
CORPORATE SUBSIDIES
MARCH 5, 1996
UPERIfJreiBENTOFDODijtou:^^^*!
Printed for the use of the Committee on Governmental Affairs—-
ENBEWTOFDt
OEPOSffORY
JAN 1 6 1997
U.S. GOVERNMENT PRINTING OFFICE '^
WASHINGTON : 1996
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-053723-1
S. Hrg. 104-652
\^ ' S. 1376, THE CORPORATE SUBSIDY REVIEW,
REFORM AND TERMINATION ACT OF 1995
Y 4, G 74/9:5. RG. 104-652
S.1376, The Corporate Subsidy Revie...
HEARING
BEFORE THE
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
SECOND SESSION
ON
S. 1376
TO TERMINATE UNNECESSARY AND INEQUITABLE FEDERAL
CORPORATE SUBSIDIES
MARCH 5, 1996
Printed for the use of the Committee on Governmental Affp irg — ^^
SUPERIfJTENBENiTOFDOeiiiS
OEPaSffORY
JAN 1 6 1997
U.S. GOVERNMENT PRINTING ePPICE
WASHINGTON : 1996
For sale by the U.S. Government Printing Office
-Superintendent of Docmnents. Congressional Sales Office, Washington, DC 20402
ISBN 0-16-053723-1
COMMITTEE ON GOVERNMENTAL AFFAIRS
TED STEVENS, Alaska, Chairman
WILLIAM V. ROTH, Jr., Delaware JOHN GLENN, Ohio
WILLIAM S. COHEN, Maine SAM NUNN, Georgia
FRED THOMPSON, Tennessee CARL LEVIN, Michigan
THAD COCHRAN, Mississippi DAVID PRYOR, Arkansas
JOHN McCAIN, Arizona JOSEPH I. LIEBERMAN, Connecticut
BOB SMITH, New Hampshire DANIEL K. AKAKA, Hawaii
HANK BROWN, Colorado BYRON L. DORGAN, North Dakota
Albert L. McDermott, Staff Director
Christine Schabacker, Counsel
Leonard Weiss, Minority Staff Director
Michal Sue Prosser, Chief Clerk
(II)
CONTENTS
Opening statement: Page
Senator Stevens 1
Prepared statement:
Senator Levin 49
WITNESSES
Tuesday, March 5, 1996
Hon. John McCain, U.S. Senator from the State of Arizona 1
Hon. Fred Thompson, U.S. Senator from the State of Tennessee 4
Stephen Moore, Executive Director, Cato Institute 8
Robert J. Shapiro, Founder and President, Progressive Policy Institute 16
Martha Philhps, Executive Director, Concord Coahtion Citizens' Council 29
Ann McBride, President, Common Cause 35
Alphabetical List of Witnesses
McBride, Ann:
Testimony 35
Prepared statement 37-38
McCain, Hon. John:
Testimony 1
Prepared statement 3
Moore, Stephen:
Testimony 8
Prepared statement 10
Phillips, Martha:
Testimony 29
Prepared statement 31
Shapiro, Robert J.:
Testimony 16
Prepared statement 18
Thompson, Hon. Fred:
Testimony 4
Prepared statement 6
APPENDIX
Text of S. 1376 53
(III)
S. 1376, THE CORPORATE SUBSIDY REVIEW,
REFORM AND TERMINATION ACT OF 1995
TUESDAY, MARCH 5, 1996
U.S. Senate,
Committee on Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 9:31 a.m., in room
SD-342, Dirksen Senate Office Building, Hon. Ted Stevens, Chair-
man of the Committee, presiding.
Present: Senators Stevens, Thompson, McCain, and Levin.
OPENING STATEMENT OF CHAIRMAN STEVENS
Chairman Stevens. Good morning. This morning we are going to
hear from Senator McCain, Senator Thompson, and others who are
here to discuss S. 1376. This bill would create a Corporate Sub-
sidies Termination Commission with a tight timetable for identify-
ing, reviewing, and advising the President and Congress on cor-
porate subsidies and tax advantages which should be retained,
modified, or terminated. The aim is to reduce expenditures and
Government programs for businesses and abolish unfair tax advan-
tages, which some term as "corporate welfare."
The process under S. 1376 calls for the President's nomination of
an 8-member commission. Each Government agency would submit
to this commission a list identifying its programs which fall under
the broad criteria outlined in the bill. The commission reviews and
may revise all identified subsidies and tax advantages at public
hearings. Then it must make recommendations to the President re-
garding the retention, modification, or termination of these sub-
sidies and tax advantages.
If the President approves the commission's recommendations, he
may submit them for congressional review. Congress at that time
may make revisions to the subsidies list approved by the President,
but it must move the legislation in less than 1 month's time. The
timetable for this entire process is 1 year.
I thank you very much for coming today, and I want to shorten
the introduction so we can get to the hearing. Gentlemen, I appre-
ciate the fact that you are very prompt, and. Senator McCain, you
are first.
TESTIMONY OF HON. JOHN McCAIN, U.S. SENATOR FROM THE
STATE OF ARIZONA
Senator McCain. Thank you very much, Mr. Chairman, and
thank you for holding this hearing.
(1)
Mr. Chairman, I recognize that this is a very controversial issue,
and I know that when we address it, there are a lot of sacred cows
and special interests that are deeply offended by this proposal and
proposals that Senator Thompson and I have made in the past.
I will get right to the point, Mr. Chairman. We are asking Ameri-
cans all across this country to sacrifice in order to stop the Nation's
fiscal bleeding. We all know about the size of the annual deficit and
the accumulated debt, and we are having to make savings in pro-
grams that previously we had never considered, such as Medicare
and other social welfare programs. And I am one of the strongest
supporters of doing that. I think that we have a moral obligation
to ensure that the corporate sector shares in the burden.
Mr. Chairman, the Cato and Progressive Policy Institutes, which.
I might add, are viewed as being at different ends of the political
spectrum, have identified 125 Federal programs that subsidize in-
dustry to the tune of $85 billion every year. The Progressive Policy
Institute found an additional $30 billion in tax loopholes to power-
ful industries.
We cannot continue to shell out billions in corporate subsidies as
we tighten the belt on everyone else and at a time when executive
salaries are skyrocketing, while thousands of workers are being
laid off in corporate downsizing.
Mr. Chairman, I have been out on the campaign trail, and I have
watched Presidential candidate Pat Buchanan strike a responsive
chord with lots of Americans. And one of the issues that he has
raised is this laying off people from jobs while corporate executives
make large amounts of money. In the case of AT&T, they dismissed
40,000 workers, while Mr. Allen got a $3 million salary and $16
million additional. And others, it goes on.
Senator Thompson and I and others introduced bipartisan legis-
lation to establish a Corporate Subsidy Reform and Termination
Commission, and, Mr. Chairman, you described it, so I will not be
redundant here except to say that I don't like commissions. I don't
think that the chairman likes commissions. I think it clearly takes
responsibilities from the Congress and gives it to commissions. But
I don't know any other way that we can attack this issue.
We spend millions for the Marketing Promotion Program, tens of
millions in Federal R&D for wealthy industries, hundreds of mil-
lions for unrequested military construction projects, billions in
spectrum give-aways. And the list goes on. I believe that an inde-
pendent commission with privileged and expedited procedures to
ensure congressional action would depoliticize the process, guaran-
tee that the pain is shared, and might be the only realistic means
of achieving the meaningful reform that the public and our dire fis-
cal circumstances demand.
Mr. Chairman, I would ask unanimous consent that the dozen
amendments that Senator Thompson and I and Senator Feingold
and others and Senator Kerry introduced — which lost, by the way,
by a vote of 25-74 — be made part of the record. ^
Senator McCain. And, Mr. Chairman, I thank you for holding
this hearing.
[The prepared statement of Senator McCain follows:]
iSee page 77.
PREPARED STATEMENT OF SENATOR McCAIN
Thank you, Mr. Chairman and members of the Committee for the opportunity to
testify today.
Mr. Chairman, I will get right to the point. We are asking millions of Americans —
from families who receive food stamps to our men and women in uniform — to sac-
rifice in order to stop the nation's fiscal bleeding.
As a matter of simple fairness, we have a moral obligation to ensure that cor-
porate interests share the burden. The Cato and Progressive Policy Institutes, have
identified 125 federal programs that subsidize industry to the tune of $85 billion
every year, and PPI found an additional $30 billion in tax loopholes to powerful in-
dustries.
The public cannot understand why we continue to shell out billions of dollars in
subsidies to powerful corporate interests, when we simply cannot afford such lar-
gesse, and at a time when many corporate CEO's are earning bonuses that are larg-
er than the budgets of most school districts.
Last week, we learned that Robert Allen the Chief Executive Officer of AT&T re-
ceived a salary of over $3 million and an additional $16 million in stock options last
year, at the same time the company dismissed over 40,000 employees. Walter Ship-
ley of Chemical/Chase Manhattan received a salary of nearly $2.5 million while the
company laid off 12,000 employees. Charles Lee, CEO of GTE Corporation made
over $2 million in salary while 17,000 workers were told to take a hike. And the
list goes on.
Corporate pork cannot be justified in such an environment and it has no place
in a diminishing federal budget. This hearing will help us examine one way — per-
haps the only way — we might eliminate the fat.
Last November I was pleased to join with Senators Feingold, Thompson, Kerry,
Kennedy and Coats to announce a bi-partisan initiative to eliminate "corporate
pork" from the federal budget by establishing an independent Corporate Subsidy Re-
form and Termination Commission.
The eight member panel, styled after the Base Closing and Realignment Commis-
sion, would review all federal subsidies to private industry, including special inter-
est tax provisions. The commission would identify those which are unnecessary, un-
fair or not in the clear and compelling public interest; and recommend them for ter-
mination or reform. Congress would be required to consider and vote on a com-
prehensive reform package by the end of 1997.
Some believe that corporate pork is a thing of the past. Sadly that's not so. While
some gains were made this year in trimming the fat, the effort has been disappoint-
ingly anemic.
We still subsidize the overseas advertising of multi-million dollar companies
through the Marketing Promotion Program; hundreds of millions are earmarked for
unrequested hometown military construction projects; we still coddle wealthy pea-
nut and sugar growers with anachronistic production quotas and tariff restrictions;
billions remain in the pipeline for highway demonstration projects which are not
even considered priorities in the States where they will be built; and the biggest
and most obscene example, we still plan to give away billions of dollars in publicly
owned electro-magnetic spectrum to affluent communications companies; and that
list goes on and on.
Last November, I offered an amendment along with Senator Thompson and others
to eliminate and reform 12 of the most celebrated and egregious forms of corporate
pork identified by CATO and PPI. The fact that 74 Senators voted against the
amendment is ample testimony to the problem.
Mr. Chairman, corporate pork wastes resources, increases the deficit, distorts
markets and has no place either in a free market economy or in a budget where
we are asking millions of Americans to sacrifice for the good of future generations.
As the Progressive Policy Institute observed, "The President and Congress can
break the current impasse and substantially reduce both spending and projected
deficits ... if they are willing to eliminate or reform scores of special spending pro-
grams and tax provisions narrowly targeted to subsidize influential industries."
"If we are willing?" That's the million dollar question, Mr. Chairman. Billions of
dollars in corporate pork programs are sustained year after year. Congress after
Congress, because they have influential corporate constituencies and powerful Con-
gressional patrons. I'm not certain that Congress, no matter what party is in the
majority, is institutionally capable of addressing the problem.
Let me conclude, Mr. Chairman, by admitting that I don't really like the idea of
commissions. We know where the pork is and what can and should be eliminated,
but the reality is that. Members will not gore their own ox, unless others are forced
to do the same. As with miUtary base closures — the mentaUty is — we either all go
together or we don't go at all. Perhaps that is the only fair way to do it.
An independent corporate pork commission with privileged and expedited proce-
dures to ensure Congressional action would depoliticize the process, guarantee that
the pain is shared, and might be the only realistic means of achieving the meaning-
ful reform that the public and our dire fiscal circumstances demand.
I thank you for holding this hearing.
Chairman STEVENS. Thank you very much. We will print your
statement in full in the record and the material you have just iden-
tified.
Senator McCain. Thank you.
Chairman Stevens. Senator Thompson?
TESTIMONY OF HON. FRED THOMPSON, U.S. SENATOR FROM
THE STATE OF TENNESSEE
Senator Thompson. Thank you, Mr. Chairman. And I, too, appre-
ciate your having these hearings today. The fact of the matter is
that there are many people who believe that Government often op-
erates for the benefit of the few and the privileged. People need
only to look at what appears to be dozens of special spending and
tax benefits enjoyed by profit-making entities to be convinced that
they are pretty much correct in their assessment. They believe the
system does not operate fairly, and their lack of confidence in us
affects our ability to enact the reforms and make the hard decisions
which must be made if we are to get our country back on the right
track again.
This Congress has done a pretty good job of examining thousands
of items of Government spending. We have identified areas of
spending which should be reformed because they don't work as well
as they should, and we have identified those which should be ter-
minated because their existence cannot be justified. In each case,
we have asked several questions: Does this spending promote a
useful public purpose? If so, can Government afford it? Should the
effort and the money for it be transferred to the state or local level,
where it is closer to those it is supposed to benefit?
As part of this process, we have examined some programs whose
primary beneficiaries are profit-making enterprises — businesses of
all sizes. In several such cases we have made progress on incre-
mental reforms. For example, the Senate passed an amendment to
the agriculture reform bill to restrict the Marketing Promotion Pro-
gram through which $110 million is spent annually to underwrite
advertising in foreign countries by some of our largest corporations.
But these efforts and others that are ongoing are necessarily
piecemeal. We can cut out or restrict a corporate subsidy here and
leave another one untouched. And we may end up further distort-
ing the market by ending the subsidy for one commercial interest
while leaving those enjoyed by a competing commercial interest in
place.
Last year, as part of an effort to highlight the issue of Federal
subsidies to profit-making enterprises, a bipartisan group of col-
leagues and I proposed, with Senator McCain's leadership, reform-
ing 12 specific programs which are characterized by some element
of corporate subsidization. We chose these examples to demonstrate
that such programs exist in virtually every industry, from military
construction, to energy production, to consumer product advertis-
ing. While all the sponsors were not uniformly enthusiastic about
each of the 12 examples, we believed the package as a whole un-
derscored an important point and demonstrated our willingness to
examine Government spending in every area. They were only a
sampling of such programs. The Cato Institute and the Progressive
Policy Institute have identified 100 items that they term "corporate
pork."
Senator McCain offered this package of 12 items as an amend-
ment to the reconciliation bill, where it received the support of only
a fourth of the Senate, as Senator McCain pointed out.
Clearly, this problem needs to be attacked in a different way,
which is why we introduced this legislation to establish a Cor-
porate Subsidy Termination Commission.
The commission is charged with identifying spending programs
or tax policies which provide unwarranted benefits or inequitable
tax advantages for profit-making enterprises. The commission is
fashioned after the BRAC Commission, with expedited legislative
procedures similar to those provided for the congressional budget
resolution. Our bill establishes a process which allows input and
change by both the President and the Congress.
Why establish a commission and a new process to do what we
could and should do directly?
First, and most important, this commission will do what we can-
not do well; that is, make an overall informed assessment of all the
programs on both the spending and the revenue sides at one time.
Over the years we have created an intricate, interwoven system of
subsidies, taxes, and exemptions. For example, a Tennessee utility
which would have been affected by the spending cuts we proposed
last year pointed out to me that they in turn are competing against
other energy providers who receive subsidies in the form of Federal
tax exemptions.
Second, our experience last year demonstrated that voting hit or
miss on individual items is not going to be successful. One person's
pork is another's prize. And no one wants to give up their prize
program if there isn't shared sacrifice. With the commission ap-
proach, we will know that all programs have been examined and
those which provide unjustified subsidies exposed.
Third, the members of the commission will be appointed specifi-
cally for this purpose by the President and the Congress. They will
possess the expertise, authority, and stature necessary to do the
job.
Fourth, the commission's recommendations will not be buried in
the corner of a Federal agency or a congressional committee. While
the President and Congress will be able to propose amendments to
or outright reject the commission's recommendations, they must
address them.
We should require no less of profit-making enterprises than we
ask of all Americans. It is a matter of fairness and shared sacrifice.
At a time when the national debate is focused on getting control
of the budget, now and in the future, we cannot afford to provide
corporate subsidies which undermine our efforts and which distort
the free market. Perhaps most importantly, enactment of this legis-
lation will demonstrate that Congress and the executive branch are
serious about addressing and correcting a system which the Amer-
ican public as a whole sees as benefiting the few witl H
influence rather than serving the general public good.
Thank you, Mr. Chairman.
[The prepared statement of Senator Thompson follows:]
PREPARED STATEMENT OF SENATOR THOMPSON
Mr. Chairman, thank you for convening this hearing o >. legislation which Sen.
McCain, I and others of our colleagues have introduced to establish a corporate sub-
sidy review, reform and termination commission.
I think it is very important that we address the issue of v. hat is called "corporate
pork" directly, thoroughly and honestly.
My travels through Tennessee, if nothing else, have conviu I me that the Amer-
ican people have little faith in their elected leaders in Washi "on. Part of the rea-
son for this lack of faith is that people believe that governi nt often operates to
the benefit of the few and privileged. People need only to I ok at what appear to
be dozens of special spending and tax benefits enjoyed by profit making entities to
be convinced that they are correct in this assessment. They believe the sv^t: m .i ..^s
not operate fairly, and their lack of confidence in us affects our ability t;
reforms and make the hard decisions which must be mad* if we are to ge
try on the right track again.
This Congress has done a thorough and, I believe, ad^nirable job ol' examining
thousands of items of government spending. We have ide itified areas of spending
which should be reformed because they don't work as tVoy should. And we have
identified those which should be terminated because thei existence cannot be justi-
fied. In each case we have asked several questions: Doe; this spending promote a
useful public purpose? If so, can government afford it? hould the effort and the
money for it be transferred to the State or local level, % here it is closer to those
it is supposed to benefit?
As part of this process we have examined some prog :ns whose primary bene-
ficiaries are profit-making enterprises — businesses of all ./:.es. In several such cases
we have made progress on incremental reforms. For instance, the Senate passed an
amendment to the agriculture reform bill to restrict he Marketing Promotion Pro-
gram through which $110 million is spent annually ' underwrite advertising in for-
eign countries by some of our largest corporations.
But these efforts and others that are ongoing ; .■ necessarily piecemeal. We can
cut out or restrict a corporate subsidy here, and leave another one untouched. And
we may end up further distorting the market b^ . nding the subsidy for one commer-
cial interest while leaving those enjoyed b> competing, cgrthnercial interest in
place. *y-<'^->%
Last year, as part of an effort to highligh line issue of iede"^^ subsidies to profit-
making enterprises, a bipartisan group oi -oileagues ancf ,1 p^pcf^e^i reforming 12
specific programs which are characterized v some elemeh'tof Cerporate subsidiza-
tion. We chose these examples to demonst a:- thafc^SRchc-pro^ams jexist in virtually
every industry, from military construction ■ ^■2^'gy prpi&uction, to c(5nsanier prod-
uct advertising. While all the sponsors wf rioi unifo/hily.-,ent!TusiastiC about each
of the 12 examples, we believed the pack ,,^0 as a.wholeuftderscm-ed an' important
point and demonstrated our willingness t,o ^x^mine government spendi^i^<irii^very
area. They were only a sampling of all aiich pj;6OTam&T--'the GATO Iilfstitofe 'gjid^the
Progressive Policy Institute have identifiec^ jb\%?QHne ^t(^k^e'^p^s mey tepfi'^'^fepr-
porate pork". ^ ■,'^^r^^^4; % -Cc^^-r'fc'^'^ ^ "^o "^ •"•<>
Sen. McCain offered this package of 12 iteifvf; as ^ aifienatttent %. th^Rec^^^
ation bill, where it received the support of only a foiirthof the-§e;nate/?^ \ %-'^-o-Sj,
Clearly this problem needs to be attacked in a diffe^rent^v^YiJ^'hicb, is^i^y '*we<p.'7j
introduced this legislation to establish a Corporate Subsidy '^e^jn&j^^ Q,<^tc\\§-%.
sion. ■ 1^, #- -^^ ■> O, P^^ ^^'^<^%
The Commission is charged with identifying spending programs or tax :poli6|fiS ^>'^<^
which provide unnecessary benefits or inequitable tax advantages to profitrmakin^ %. ■
enterprises. The Commission is fashioned after the BRAC Commission, with-^xpe^tS- '^
dited legislative procedures similar to those provided for the Congressional Budget ^
Resolution. Our bill establishes a process which allows input and change by both
the President and the Congress.
Why establish a Commission and a new process to do what we could conceivably
do directly?
First, and most important, this Commission will do what we cannot do well: make
an overall informed assessment of all programs, on both the spending and revenue
sides, at one time. Over the years we have created an intricate, interwoven system
<^
of subsidies, taxes and exemptions. For example, a Tennessee utility which would
have been affected by the spending cuts we proposed last year pointed out to me
that they are in turn are competing against other energy providers who receive sub-
sidies in the form of federal tax exemptions.
Second, our experience last year demonstrated that voting hit or miss on individ-
ual items is not going to be successful. One person's pork is another's prize. And
no one wants to give up their prize program if there isn't shared sacrifice. With the
commission approach, we will know that all programs have been examined and
those which provide unjustified subsidies have been exposed.
Third, the members of the Commission will be appointed specifically for this pur-
pose by the President and the Congress. They will possess the expertise, authority
and stature necessary to do the job.
Fourth, the commission's recommendations will not be buried in the corner of a
federal agency or a congressional committee. While the President and Congress will
be able to propose amendments to or outright reject the Commissions recommenda-
tions, they must address them.
We should require no less of profit-making enterprises than we ask of all Ameri-
cans. It is a matter of fairness and shared sacrifice. At a time when the national
debate is focused on getting control of the budget, now and in the future, we cannot
afford to provide corporate subsidies which undermine our efforts and which distort
the free market. Perhaps most importantly, enactment of this legislation will dem-
onstrate that Congress and the Executive branch are serious about addressing and
correcting a system which the American public as a whole sees as benefiting the
few with access and influence, rather than serving the general public good.
Chairman STEVENS. Thank you very much, gentlemen. I hope
you will join me here at the Committee table for the rest of the
hearing to the extent you may have time to remain. I know you
have other committees.
I do want to state to you we had an indication yesterday that we
probably had not publicized the hearing well enough, and it may
be necessary at a future hearing to review the perspective of busi-
nesses affected by this bill and seek their comments on the me-
chanics. We did not go out to solicit persons who might either op-
pose the bill or question the mechanics, but I think we will leave
the subject open to see if there is a formal request, as I indicated
yesterday there might be.
I would be happy to have you join me. Our next panel is going
to be Stephen Moore, the executive director of the Cato Institute,
and Robert Shapiro, the Founder and Vice President of the Pro-
gressive Policy Institute.
I am told those witnesses are not here yet, so let's go to Panel
3: Martha Phillips, Executive Director, Concord Coalition, and Ann
McBride, President, Common Cause. Are you here?
The witnesses are not here. We will stand in recess for a few mo-
ments and see if there is some problem about notification.
[Recess.]
Chairman STEVENS. I am informed there are some traffic jams.
We set the meeting early because of other conflicts and other hear-
ings, gentlemen. I am sorry about that. But we will see what hap-
pens.
[Recess.]
Chairman STEVENS. I am informed Mr. Moore is here now. Mr.
Moore, would you be willing to proceed now? Yes, come up and just
start your statement, please. We have a panel, but we might as
well proceed with it. I apologize for the problem of setting the hear-
ing early.
Thank you very much, Mr. Moore.
TESTIMONY OF STEPHEN MOORE, EXECUTIVE DIRECTOR, THE
CATO INSTITUTE
Mr. Moore. Thank you, Senator.
First of all, I think would like to commend this Committee, and
especially the work of you, Mr. McCain, for introducing this legisla-
tion, S. 1376, on corporate welfare. Let me just give you a little bit
of background about how we got involved in this issue and why I
feel it is such an important issue in terms of dealing with the budg-
et deficit problem that is perplexing our country right now.
Last year, you may recall that Labor Secretary Robert Reich is-
sued a challenge to groups like the Cato Institute and the Progres-
sive Policy Institute — I understand my friend, Robert Shapiro, will
be here a little later — the Heritage Foundation and others to come
up with a list of corporate welfare subsidies that could be reduced
out of the budget.
We took Mr. Reich up on his challenge, and we started to really
scour through the budget to try to determine just how much cor-
porate welfare is in the budget. Now, we were concentrating mainly
on the spending side of the equation. We went through every de-
partment, every line item in the budget, and tried to determine
what that figure was.
Now, many groups have come up with different types of figures.
We came up with a figure of about $85 billion per year in special
corporate welfare subsidies that go to mostly large business in
America. These subsidies tend to be found in virtually every Cabi-
net agency. The agencies that are most commonly found with cor-
porate welfare would include the Agriculture Department and the
Commerce Department.
Now, late last year, we decided to look at what actions Congress
actually took to reduce some of this corporate welfare. I should say
that there have been some real heroes in this fight. Senator
McCain obviously is one of them. John Kasich on the House side
has really made a high commitment to attack corporate welfare
wherever he found it.
Unfortunately, our assessment is that last year's budget did not
do a very good job of attacking corporate welfare, to put it very
frankly. At the back of my testimony, if you have a copy, we put
together a chart of the 25 to 30 major corporate welfare programs
in the budget. These are probably the programs that are the most
abusive or programs that almost everyone would agree come under
the rubric of corporate welfare.
What we found was that when you look at this sample of pro-
grams — again, these are the most abusive — the spending on these
programs was $9.3 billion in 1995. Congress appropriated $7.8 bil-
lion for these programs, so that was a half-decent job. What we
found was about a 15 to 16 percent cut in corporate welfare sub-
sidies.
Interestingly enough, the administration had actually proposed
an increase in these programs — in fact, a 4 percent increase in the
25 or so programs that are the biggest abuses of corporate welfare.
I would have liked to have seen a larger cut in those programs.
I am sure that you all on this Committee would have liked to have
seen larger cuts in these programs. But it was a half-decent start,
and the question is: What are we going to do now?
Now, the one thing that has frustrated me is that throughout
this last year, we at the Cato Institute really made this a very high
priority to attack corporate welfare, and we came out with our re-
port last year called "Ending Corporate Welfare As We Know It."
After that report came out, we must have been called by three or
four dozen corporate lobbyists from every large Fortune 500 com-
pany that you can think of, and the interesting thing was that in
every conversation that I would have with these K Street lobbyists,
they would make the same point: We are all in favor of cutting the
deficit; we are all in favor of downsizing the budget; but you have
to understand this particular program that we get a benefit from
is a very special program, and this program should really be spared
the budget knife.
You know, that explains why it is so difficult to cut the budget
in general: No company wants to cut spending for the programs
that they get benefits from. And the reason I am telling you all this
in background is that it illustrates the point of why it is so difficult
to cut spending in general and corporate welfare in particular.
This has become an area of parochial spending, and when you
come down to the key votes to get rid of these programs, we often
find that even the most committed deficit hawks vote the wrong
way. So this is why I believe that Senator McCain is quite correct
when he calls for a bipartisan commission. As I understand, it
would be modeled after Dick Armey's base-closing commission. I
believe this should be a bipartisan commission. I believe that you
should give it a targeted amount of spending reduction to come up
with. And the third thing that I would recommend — and I will end
my testimony with this — is that I would recommend that this com-
mission be targeted towards looking at the spending side of the
equation.
The interesting thing I found about corporate welfare is that cor-
porate welfare has become like pornography. Nobody knows exactly
what it is, but they know it when they see it. And this has raised
a lot of problems because I have often noticed when I deal some-
times with my friends on the liberal side of the aisle, when we are
talking about corporate welfare, we are talking about different
things. They would, for example, say that if you cut the capital
gains tax, that is corporate welfare. And I would strongly disagree
with that. I think that corporate welfare is a specific targeted bene-
fit that the Government is giving to a specific company or a specific
industry.
I don't think it is corporate welfare, for example, if this Congress
or any Congress were to cut the corporate income tax rate, because
that is something that would provide a level playing field and a tax
cut for all companies.
I would like to leave the issue of corporate loopholes aside, and
the reason for that is that next year there is a very high prob-
ability that this Congress is going to be taking up the issue of tax
reform, radical tax reform, either a flat tax or something like what
Mr. Archer wants, a wholesale consumption tax. And we ought to
leave this issue of fixing the Tax Code for when we do radical tax
reform. And when we still have somewhere in the neighborhood of
$70 billion of spending cuts to address, I think this commission
should be restricted to those issues.
10
So I would like to commend this Committee for holding these
hearings and you, Mr. McCain, for introducing this very important
legislation. I would be very happy to answer any questions you
might have.
[The prepared statement of Mr. Moore follows:]
PREPARED STATEMENT OF STEPHEN MOORE
Thank you for the opportunity to testify before the Senate Government Affairs
Committee on S-1376, the Corporate Subsidies Review, Reform and Termination
Act of 1995. I support the concept of creating a Commission to examine the cor-
porate safety net programs in the budget, and identify the vast amount of taxpayer
savings that could and should be realized by eliminating these subsidy programs.
I believe it would be best of all if Congress unilaterally exercised its fiduciary duty
to the taxpayers of the country to weed out corporate welfare wherever and when-
ever it appears in the budget. We should not need a commission for such a straight-
forward task. Unfortunately, only a handful of members of Congress, including most
prominently Senators McCain and Feingold, have shown the courage to take on the
K St. lobbyists and defend the taxpayers.
But since Congress — and even more so the Clinton Administration — has dem-
onstrated in recent years very little serious commitment toward cutting corporate
pork, perhaps a commission, modeled after the Armey military base closings com-
mission, is needed to prod Congress to do what it ought to feel honor bound to do:
cut the tens of billions of business subsidies that have become encrusted on the fed-
eral budget.
Just how large is Uncle Sam's corporate social safety net today?
Last year Dean Stansel and I released a study entitled "Ending Corporate Welfare
As We Know It." In this study we identified roughly $75 billion each year spent by
the Federal Government on more than 125 programs that provide direct taxpayer
assistance to American businesses. Recently, the General Accounting Office verified
our numbers, by calculating a corporate subsidy total that was only slightly lower
than ours.
To put the cost of these subsidies in perspective, if all federal assistance to busi-
ness were purged from the budget, the budget deficit could be cut in half Alter-
natively, if Congress were to eliminate all these corporate spending subsidies, this
would generate enough savings to entirely eliminate the capital gains tax and the
federal estate tax. Reducing the deficit or eliminating these anti-growth taxes would
do far more to benefit American industry and U.S. global competitiveness than ask-
ing Congress to pick industrial winners and losers.
Just what is corporate welfare? To some, it is like pornography: they can't define
it, but they know it when they see it. Some groups have mis-identified corporate
welfare labelling such things as a capital gains tax cut for all companies to be a
"corporate subsidy." A universal tax cut for business is not "welfare." We define cor-
porate welfare as the use of government authority to confer special benefits or privi-
leges to specific firms or industries where there is no corresponding societal benefit.
Last year the new Republican Congress pledged to "attack corporate welfare" as
part of its quest to enact a 7-year balanced budget plan. The Clinton administration
also seemed eager to terminate unwarranted government handouts to business. The
administration even challenged the GOP Congress to identify and eliminate "aid to
dependent corporations."
How much was actually cut? Out of the $75 billion pie, we estimate about 15 per-
cent was reduced, or about $10 to $12 billion. Eighty-five percent of the corporate
welfare safety net survived intact. The attached Table shows a summary of the cuts
made to the 25 most indefensible corporate welfare programs in 1995.
• Congress did eliminate or substantially eliminate the following corporate welfare
programs: the Travel and Tourism Administration; the Department of Commerce
Advanced Technology Program; the Pentagon's Technology Reinvestment Project;
Sematech; the Bureau of Mines; highway demonstration projects; and the Penn-
sylvania Development Corporation.
• Conversely, some very expensive corporate subsidy programs were reduced mini-
mally, or not at all. These programs include: the Department of Commerce; agri-
culture research service; the International Trade Administration; the Federal Hous-
ing Administration; fossil energy R&D; the Bureau of Reclamation; the Office of
Commercial Space Administration; the Overseas Private Investment Corporation
(OPIC); and the Export Import Bank. Spending was actually increased for the Agri-
culture Marketing Promotion Program, which subsidizes the foreign advertising of
U.S. corporations such as Pillsbury, Dole, and Jim Beam.
11
We rate Congress' first-year performance on this issue a mild disappointment and
the size of the cutbacks minimal. Some cuts were made — indeed, far more than were
ever enacted by previous Democrat Congresses — but huge amounts of the corporate
welfare state went untouched.
But if the Congress' performance was a disappointment, the Clinton Administra-
tion's was dismal. With few exceptions, the administration has shown itself hostile
to even the modest corporate welfare cutbacks proposed by Congress. In fact, we
find that of the 25 worst offender corporate welfare programs, the administration's
1996 budget actually requested a 4 percent increase in spending (versus the 15 per-
cent cut enacted by Congress). In addition, the President's vetoes of the GOP budg-
ets target corporate welfare cuts as being too deep. Clinton has, at least for now,
helped torpedo GOP efforts to shut down techno-grant programs, such as the Ad-
vanced Technology Program; to make even minor reductions in agriculture price
support programs; to end costly and inefficient Department of Energy research
projects; and close agencies such as the Department of Commerce, the nerve center
of the federal corporate welfare state.
Over the past 18 months, the Clinton administration proved itself to be corporate
welfare's best friend.
What should Congress do this year in the wake of its disappointing performance
on corporate welfare in 1995? I would recommend the following steps:
(1) Congress should immediately enact a budget recision spending bill that could
be entitled "The Corporate Welfare Elimination Act."
This budget bill should terminate at least 20-25 business subsidy programs with
a 7-year savings of at least $75 billion a year. The bill can be crafted in a bipartisan
fashion by identifying those programs that have been universally targeted for ex-
tinction by groups such as the Cato Institute, the Heritage Foundation, the Progres-
sive Policy Institute, and even in some cases the Nader group Essential Information.
This should be a central element of any "deficit downpayment budget" strategy.
Spending programs included in this recision should include, but not be restricted
to:
The Export Import Bank
The Small Business Administration
The Advanced Technology Program
Forest Service Road Building
Federal Housing Administration subsidies to mortgage lenders
The Agriculture Marketing Promotion Program
Manufacturing Extension Program
National Technical and Information Administration
International Trade Administration
Department of Energy R&D funding
The Maritime Administration
Overseas Private Investment Corp. (OPIC)
Agriculture Research Service
Minority Business Development Administration
Economic Development Administration
Sugar price supports
The peanut program
(2) Corporate tax loopholes should be dealt with in the context of an overhaul of
the tax system .
Raising the overall tax burden on corporations does nothing to reduce the size of
the corporate welfare state. In some ways, in fact, corporate tax hikes only raise the
stakes for businesses to carve out special tax exemptions and loopholes. Similarly,
a generalized tax cut for businesses is not equivalent to expanding corporate sub-
sidies.
This issue has been a repeated source of confusion. For example, the Center on
Budget and Policy Priorities reported that the House tax reduction bill that passed
last year "increased business subsidies by $74 billion over 7 years." The Center con-
cluded that "there is a chance that business subsidies could increase as a result of
this year's [1995's] budget decisions." But it turns out that the Center was scoring
many elements of the GOP tax cut bill as "business subsidies," including the capital
gains tax cut, and the more generous depreciation allowances for business capital
purchases. Cutting business taxes across the board is most assuredly not corporate
welfare.
There are several reasons why Congress should not focus this year on closing cor-
porate tax loopholes. First, there is still at least $60 billion a year in direct taxpayer
12
subsidies that have not been terminated on the expenditure side of the budget.
Since the direct spending of taxpayers' dollars is the most offensive feature of the
corporate welfare state, the expenditure subsidies should be the top priority of this
Congress. Second, almost all of the corporate loophole closings are being proposed
instead of cutting the budget, rather than in addition to it. Every dollar of corporate
tax increases in the context of balancing the budget has been a dollar more that
Congress will spend in other areas of the budget — in many cases on business sub-
sidies.
Finally, corporate welfare in the tax code should be eliminated in its entirety in
the context of the revolutionary change in the tax code that is expected in 1997. Ma-
jority Leader Dick Armey's flat tax bill would eliminate all corporate welfare from
the tax code in exchange for a single low rate tax system. Bill Archer's proposal for
a national consumption tax to replace the income tax would immediately and for-
ever end income tax preferences for businesses. Either of these proposals would lead
to a far more equitable and efficient allocation of economic resources in the econ-
omy. If corporate loopholes are eliminated before the flat tax or the sales tax is en-
acted, the tax rate would have to be correspondingly higher.
In sum, corporate loophole closings should be achieved in exchange for lowering
tax rates for all individuals and businesses. To the extent corporate welfare is a def-
icit reduction theme, it should be in the context of cutting business subsidy expendi-
tures.
(3) Congress should consider forming a bipartisan commission to terminate cor-
porate welfare spending.
A corporate welfare termination commission as recommended by Senator McCain
should address the business subsidy programs that Congress has refused to elimi-
nate through the appropriations process. My recommendation is that the commis-
sion should:
• Be required to target at least $75 billion in subsidy reductions over 6 years.
• Be focused only on spending programs, not tax increases.
• Be chartered to examine three particular areas of business subsidies: farm price
support programs, export assistance programs, and high technology grant pro-
grams.
As with the Armey base closings commission, the corporate welfare termination
commissions' recommendations should be voted on as a package with no amend-
ments by Congress within 60 days of the Commission's final report.
I applaud the members of this Committee for moving forward with this important
budget saving idea. My only reservation is that I hope that the formation of a com-
mission is not used as an excuse for Congress to move forward and make significant
cuts in corporate subsidies right now. Americans want a balanced budget that cuts
spending in a fairminded and evenhanded way. The GOP budget has been attacked,
with justification, for not cutting the corporate social safety net.
S-1376, the Corporate Subsidies Review, Reform and Termination Act of 1995
would be a first step in finally getting business off the federal dole.
13
How Major Corporate Welfare Programs Fared in the FY1996 Budget Process
(millions of dollars)
1996
1996 Presi-
1995 Appro- Percent dent's Percent
Actual priatlon Change Proposal Change
Agriculture Department
Agricultural Research Service $758 $740 -2 $740 -2
Cooperative State Research, Education & Ex-
tension Service 932 908 -3 870 -7
Economic Research Service 54 53-2 55 2
Foreign Agricultural Service 118 125 6 130 10
Forest Service— Road and Trail Construction 131 115 -12 130 -1
Market Promotion Program 86 110 28 110 28
National Agricultural Statistics Service 81 81 90 11
Commerce Department
Advanced Technology Program 431 -100 491 14
Economic Development Administration 410 349 -15 439 7
International Trade Administration 266 265 280 5
Manufacturing Extension Partnerships 91 80 -12 147 62
Minority Business Development Agency 44 32 -27 48 9
U.S. Travel and Tourism Administration* 16 2 -88 16
Defense Department
Sematech 90 39 -57 90
Technology Reinvestment Project 443 195 -56 500 13
Energy Department
Energy Information Administration 85 72 -15 85
Energy Supply, Research and Development 3,315 2,727 -18 3,397 2
Fossil Energy Research and Development 424 417 -2 437 3
Power Marketing Administrations 273 313 15 361 32
Transportation Department
Essential Air Service Program 33 23 -30 -100
Maritime Administration — Differential
Subsidies 214 163 -24 163 -24
Independent Agencies and Other
Export-Import Bank 782 743 -5 780
Overseas Private Investment Corporation t .... 58 98 69 106 83
Tennessee Valley Authority 143 109 -24 141 -1
Trade and Development Agency 45 40-11 67 49
TOTAL $9,323 $7,799 -16 $9,673 4
•Amount appropriated by Congress is to cover the costs of terminating the program.
t OPIC figures refer to the total subsidy, operating, and administrative costs, excluding insurance fees and other
offsetting collections.
Source: Pi' 1996 Congressional Appropriations Bill Reports.
Chairman Stevens. Well, Mr. Moore, I don't want to get into an
argument about the individual programs per se, but I would like
to get at one problem here. Take, for instance — and this doesn't
really affect my State because we don't get operating differential
subsidies for Jones Act trade to Alaska in vessels. But the operat-
ing subsidies are paid to the Merchant Marine because there is a
requirement that in certain instances the vessels be constructed in
the United States. I am sure you realize that.
But if you decide to eliminate the operating differential sub-
sidies, what are you going to do about the restrictions that brought
about that program? The restrictions are the American-built ves-
sels. In order to be involved in some of our trade, you must have
American-built vessels. In our Jones Act trade, you cannot take
goods from port to port in the United States except on an Amer-
ican-built ship with an American crew, and the differential operat-
23-121 - 96 - 2
14
ing subsidies really are related to the differential cost of construc-
tion and differential operation.
Now, I am not going to argue about the issue, but how do you
get in with this commission to looking at the cause of the program?
Or take essential air service. At the time that the CAB was elimi-
nated; which could require any airline to go and serve an area that
wanted service and we eliminated that. We put in a provision that
said a community that does, in fact, have at least three trips per
week, under the CAB mandate, if it loses its airline service, can
apply as a community base. The community gets the subsidy, but
it is paid to the airline.
Again, I don't want to argue on issues, but how do you get to the
underlying cause of the program to determine whether it is needed,
in the commission approach?
Mr. Moore. Well, first of all, I think this is exactly the kind of
issue that the commission needs to sort out. You are quite right
that not every program that provides money to a corporation is
necessarily corporate welfare. For example, when the Defense De-
partment buys airplanes from Boeing, that isn't necessary cor-
porate welfare if we actually need
Chairman Stevens. But I think they are on your list. These are
programs you have already — you have told us that you believe they
are corporate welfare. But knowing the background of it, I believe
they are compensatory programs to deal with other Government
decisions enacted by Congress, approved by the President. You can
only use an American ship with an American crew from port to
port in the United States.
Now, if you eliminate the subsidy, how are you going to get — you
are putting the burden of ship construction on the people who buy
the goods that are shipped port to port in the United States.
Mr. Moore. Well, in that case, I would recommend the repeal of
the Jones Act. I think it is nonsensical that we require
Chairman Stevens. Does your commission have the ability to do
that, though? Does it have the ability to come in and say you can
take this out if you do that? But if you take out the subsidy but
you don't take out the cause of the subsidy, then you have had a
discrimination, in my judgment, against one sector of the economy.
It is not corporate welfare in my judgment.
There is nothing in the commission suggestion here that says you
can look at the root cause of the problem.
Mr. Moore. Well, this is something that I — I mean, I think you
raise a very good point. Senator, and in this kind of case I would
recommend that the commission look at these kinds of root causes
and that it be able to recommend, for example, when you are talk-
ing about these shipping subsidies, that if the root cause of them
is a regulation like the Jones Act, that perhaps it be able to rec-
ommend the repeal of this act.
I am not familiar with every nuance of the shipping industry,
Senator, but I do think in this case it would make much more
sense if we got rid of the subsidy and then also got rid of the Jones
Act rather than continue our current system of subsidy.
Chairman Stevens. Well, I only offer the suggestion. I think one
of the reasons the initiative Senator McCain offered didn't get the
approval it probably should have in terms of the overall approach
15
to reducing unnecessary expenditures is that there was no mecha-
nism for getting rid of one side of the ledger. It is hke a double-
entry bookkeeping system, and you get rid of the credit but you
leave the debit.
Mr. Moore. Right.
Chairman Stevens. You know, how do you take care of some-
thing that has got to balance. I think we need to explore that.
Senator Thompson?
Senator Thompson. Thank you very much, Mr. Chairman. I
think you do point out a good question. Under the statute, the
members of the commission would represent a broad array of ex-
pertise covering, to the extent practical, all subject matter, pro-
grams, and policies the commission is likely to review.
I think it is very important that that criteria be followed, because
you are absolutely right, you know. In determining what is pork,
ask the question — and I think that you point out, Mr. Moore, in
your statement here that you define corporate welfare as the use
of Government authority to confer special benefits or privileges to
specific firms or industries where there is no corresponding societal
benefit. And the question is: What is that corresponding societal
benefit?
Some people put the oil and gas industry on the list, but yet in
the Foreign Relations Committee, we hear year after year wit-
nesses coming in and saying that our dependency on foreign oil is
not only bad, but it is affecting our national security. So how do
you balance that off?
Research and development, a lot of people are concerned that we
are not doing enough there. So I think the idea is we for sure are
not doing a decent job of balancing these considerations off now.
They are considered piecemeal in a reconciliation bill or something
like that. We are doing a terrible job now of weighing all that. At
least with a commission, it would be laid on the table, and people
with the proper background would consider these things not only
with some appreciation of all the benefits, but in relation to other
items so that no one sector would get the benefit without the other
sector getting the benefit or the cut or the detriment.
So I think that is a real challenge to do what this commission
is designed to do. And I think another question that we have got
to address is whether or not these agencies under the act will vol-
untarily submit these programs and come up with — it is going to
be interesting to see what list they come up with. It is going to be
even more important to the commission, if the agency does not
come up with a proper list, that the commission have the internal
expertise and knowledge to self-generate items that ought to be on
the list.
Do you have any comment on that? Is that a valid assessment,
do you think, of where we are?
Mr. Moore. Yes. It is. Let me
Senator McCain. Excuse me. Mr. Chairman, Mr. Shapiro is here,
and he is part of this. Could he respond also before his statement
if there are any comments like that? Would that be agreeable, Mr.
Chairman?
16
Chairman STEVENS. I was going to suggest now that Mr. Shapiro
is here that we might go to him, but I didn't want to cut you off.
Senator, do you want to hsten to Mr. Shapiro?
Senator THOMPSON. Sure.
Mr. Moore. Could I just answer the question and then
Chairman Stevens. You can answer the question first.
Mr. Moore. While it is fresh in my mind.
First of all, having worked for a year-and-a-half at the Office of
Management and Budget under President Reagan, I wouldn't hold
your breath waiting for agencies to come forward with suggestions.
The interesting thing about this issue is — you know, you have
Rob here from the Progressive Policy Institute. I am from Cato; we
are more on the right. We did press conferences last year with
Nader groups, and the amazing and surprising thing about this
issue is really how much agreement there is among groups on the
left, center, and right about what constitutes corporate welfare.
Now, you are certainly right. Senator Thompson. There are some
programs that are on the fringe. One group might consider it cor-
porate welfare; another might suggest that it is a valid subsidy.
But let's start with the easy things. I mean, there are probably 50
programs that Rob and I could agree on right here at this table
that I think most people in this room would agree are unjustified
subsidies that only persist because of the political muscle of cor-
porate lobbyists. And so it seems to me that if we start with the
easy things — and this is what the Base Commission did. I was in-
volved in that a little bit when I worked for Congressman Armey.
Yes, there were a lot of bases that were marginal, where some peo-
ple said it should stay open and others said it should stay closed.
But what we did with that Commission was we did the easy ones
first. And I think that is what I would recommend with this com-
mission, that it find a targeted amount, maybe 50 programs, where
there is general broad agreement. And I think Rob might probably
agree with that, that we could sit down with a group of left, right,
and center organizations and find a solid list that would provide
you with substantial budget savings.
Chairman Stevens. I will get back to you.
Go ahead, Mr. Shapiro.
TESTIMONY OF ROBERT J. SHAPIRO, FOUNDER AP^ VICE
PRESIDENT, PROGRESSIVE POLICY INSTITUTE
Mr. Shapiro. Thank you, Mr. Chairman and members of this
Committee. I want to thank you for the opportunity to discuss the
Corporate Subsidy Review, Reform and Termination Act.
First, I want to salute the chief sponsor. Senator McCain, and
his principal cosponsors, Senator Thompson, as well as Senators
Kerry, Feingold, Kennedy, and Coats. We at the Progressive Policy
Institute find this proposal very gratifying.
In 1991, we first urged Congress and the President to re-examine
industry-specific spending and tax subsidies and to phase out those
serving no compelling social or economic purpose. In January 1994,
we published a list of subsidies that we considered candidates for
repeal, with savings of $200 billion over 5 years. And at that time,
we also proposed that Congress create an independent commission,
modeled on the base-closing effort, to carry out this purpose. Since
17
then, we have expanded our hst and provided advice to staff pre-
paring the bill being considered today.
The current impasse over the deficit strongly reinforces the need
for just the kind of approach Senator McCain has proposed. It is
always hard to deny benefits to businesses that have long enjoyed
them, especially when the affected business has substantial influ-
ence with Congress. The very existence of most major spending and
tax subsidies demonstrates the influence of those benefiting from
them because they already have survived the numerous rounds of
budget cuts and tax reforms of the last 15 years. The commission
created by S. 1376 would enable Congress to finally repeal many
of these hardy survivors of past budget deficit reduction efforts.
The challenge presented here is not simply to cut the Govern-
ment or even to cut the deficit, however, but to do so in the specific
ways that can best help make the American economy more produc-
tive and more efficient.
Until Congress and the President are prepared to tackle broad
reforms for Medicare and Social Security, the best path to a
growth-oriented budget is to repeal these subsidies because they
tend to reduce the economy's productivity, efficiency, and growth.
First, these subsidies, acting much like trade protections, weaken
market incentives for firms to become more efficient and produc-
tive. This happens because subsidies artificially raise an industry's
rate of return, shielding the firm from normal competitive pres-
sures to upgrade their products and production methods.
Second, industry subsidies weaken the American economy by
placing every unsubsidized sector and firm at a disadvantage.
From farm supports and tax breaks for oil and gas firms, to tax-
payer financing for FAA services, and the business entertainment
deduction for professional sports tickets, these special industry en-
titlements force taxpayers, consumers, and businesses to transfer
more resources to an influential sector than the market would oth-
erwise require and consequently leave less capital and less labor
for everybody else who doesn't enjoy the subsidy.
And it is interesting to note that current subsidies largely ignore
the critical industries in an information-based economy. Nearly
two-thirds of spending subsidies, for example, are concentrated in
agriculture, energy, and transportation. Current subsidy policies, in
short, focus generally on sectors central to the commodity- and
manufacturing-based economy of the past.
Finally, these subsidies are socially regressive. The direct bene-
ficiaries are shareholders in the industries whose rates of return
have been artificially subsidized. Now, this policy may preserve
jobs in an industry, but any job gains are offset by job losses in
firms and industries forced to compete on an uneven playing field.
I have estimated that the $53 billion in average annual spending
and tax subsidies which we have proposed to repeal currently pro-
vide more than $16 billion a year in net benefits to the top 5 per-
cent of Americans, while costing the lower four-fifths of Americans
nearly $7 billion a year.
Cutting subsidies would end these regressive transfers, leave
each industry's full cost to be borne by its customers and by its
shareholders, who would earn a market return on their invest-
ments instead of a taxpayer-supported return. And if the resources
18
now claimed by subsidies were redirected to investment, most firms
and workers would stand to gain even more through a more pro-
ductive economy and lower interest rates.
In our judgment, the best way to begin this process now is to cre-
ate a base-closing-t3T)e commission empowered to systematically re-
consider the value and the expense of these policies, much as the
bill you are considering today would do.
Thank you.
[The prepared statement of Mr. Shapiro follows:]
PREPARED STATEMENT OF ROBERT J. SHAPIRO
Mr. Chairman and members of the Committee, thank you for this opportunity to
discuss with you S. 1376, the Corporate Subsidy Review, Reform, and Termination
Act. This legislation would create an independent commission authorized to review
Federal Government subsidies, tax benefits or other financial advantages provided
to profit-seeking individuals and businesses, and establish a process by which, on
the commission's recommendation, such subsidies, tax benefits or other advantages
would be reformed or terminated.
First, I want to salute the chief sponsor of S. 1376, Senator McCain, and his prin-
cipal co-sponsors, Senator Thompson, Senator Kerry, Senator Feingold, Senator
Kennedy and Senator Coats. We at the Progressive Policy Institute (PPI) find their
proposal very gratifying, in part because the legislation has been based on rec-
ommendations fashioned by PPI. In 1991, PPI first called on Congress and the
President to reexamine all industry-specific spending and tax subsidies and phase
out those which serve no overriding social or economic purpose. In January 1994,
PPI provided a list of such subsidies that we considered proper candidates for re-
form or repeal, at a savings of some $200 billion over 5 years. At that time, we also
proposed that Congress create an independent commission, modeled on the base-
closing commission, empowered to carry out this purpose. Subsequently, PPI has
further expanded the list of subsidies which we believe Congress should substan-
tially reform or repeal. In addition, we have provided advice to staff from the offices
of Senators McCain, Thompson, Feingold, Kerry, and Kennedy as they prepared the
legislation under consideration today.
The current impasse over deficit reduction only reinforces the pressing need for
the kind of fiscal-policy innovation represented by S. 1376. The process has stalled,
because it is always difficult to deny businesses benefits which they have long en-
joyed, especially when they receive the benefit as members of a specific industry and
that industry enjoys substantial influence with members of Congress. The fact that
the major spending-subsidy programs in the current budget, and the major tax-sub-
sidy provisions in the current tax code, generally benefit the most influential indus-
try interests is demonstrated by their very existence, for they have now survived
the numerous instances of broad budget reduction and substantial tax reform of the
last 15 years. The commission created by S. 1376 could enable Congress to finally
repeal many of these remaining subsidies, in effect, by reversing the presumption
that these subsidies will continue indefinitely. This would be accomplished by forc-
ing the President and the Congress to reexamine large numbers of subsidies all at
once and by requiring them to take positive steps in order for them to continue.
The challenge presented by the deficit is not simply to reduce it, but to figure out
how to reform fiscal policy in the specific ways that can help make the American
economy more productive and efficient, and ultimately, help restore income growth
for average Americans.
As a general proposition, the deficit debate has offered two approaches to a more
economically-productive budget. First, shift economic priorities away from support-
ing personal consumption and towards economic investment. In practice, that means
providing less health care and income support mainly to elderly people, by reform-
ing Medicare in ways that would reinforce competition and cost-containment in the
health-care industry, and Social Security in ways that would reduce benefits for
higher income people and perhaps over the long-term require everyone to save more
for themselves. We could do something of that sort as the Entitlement Commission
proposed, and I assume that eventually we will. But Congress and the President do
not yet seem ready to take such steps.
Until that occurs, the best path to a growth-oriented budget is to repeal scores
of special spending programs and tax provisions that today are narrowly targeted
to subsidize influential industries. This approach not only could provide substantial
resources for deficit reduction and therefore private investment; it also would make
19
the economy more efficient and strengthen the forces of market competition which
drive economic innovation and productivity.
There are serious reasons to be concerned about the efficiency, productivity and
innovative capacities of our economy. For a generation, the U.S. economy has been
stuck in a form of substandard equilibrium that precludes mass upward mobility.
When we look at how fast, on average, productivity, net investment, and overall out-
put have grown since the end of World War II, we find that over the last genera-
tion — the 1970s, 1980s and early 1990s — these average annual rates have ratcheted
down by one-third to one-half from their levels in the 1950s and 1960s. This devel-
opment has been systemic; it has persisted from business cycle to business cycle;
it has affected virtually every sector of the economy; and it has been largely unaf-
fected by changes in policy, even very major ones such as the 1981 tax cuts.
Here are the real results. From 1950 to 1970, the average American family dou-
bled its income, even after adjusting for inflation, by working hard for the 20 years.
But from 1970 to 1990, the average family that worked hard through that time in-
creased its family income by less than 15 percent, after inflation. That's the dif-
ference between real upward mobility and a stagnating standard of living.
To be sure, not everyone has been affected in this way. Professionals, entre-
preneurs, and managers — roughly the top 15 percent of the work force — continued
to score strong income gains through the 1970s and 1980s and into the 1990s. But
since overall average income gains were very modest, healthy income growth by
highly skilled people has left even less for everyone else.
That's the ultimate social policy reason behind the need for fiscal policy reform.
If the purpose of budget reforms is to lift incomes by driving higher productivity and
growth, we should begin by eliminating those specific spending and tax provisions
which tend to reduce productivity and growth.
Market economics identifies one particular class of spending and tax provisions
which meet this criterion: industry-specific subsidies.
In a world of international markets, global production, and worldwide trade —
where U.S. growth and incomes depends on our firms' and workers' capacities to in-
novate efficiently and upgrade their productivity — industry spending and tax sub-
sidies weaken our economy in four major ways.
First, these subsidies^ — much like trade protections — weaken market incentives for
firms to become more efficient and productive. This occurs because subsidies artifi-
cially raise an industry's rate of return, shielding its firms from normal competitive
pressures to upgrade their products and production methods. In this context, sub-
sidies and protections ultimately harm those they intend to benefit.
Second, industry subsidies weaken our economic prospects by placing every
unsubsidized sector and firm at a disadvantage. From farm supports and tax breaks
for oil and gas firms, to taxpayer financing of FAA services for airlines and air trav-
elers, and the business entertainment deduction for professional sports tickets and
skybox rentals, these special industry entitlements force taxpayers, consumers and
businesses to transfer more resources to influential sectors than markets would oth-
erwise require — and therefore leave less capital and labor for everyone else. The re-
sult is less efficient capital and labor markets, and lower growth and income gains.
And in a global economy, firms forced to operate at a disadvantage at home will
often move some of their operations abroad, reducing domestic employment.
Far from contracting the economy, then, spending restraints and tax reforms can
spur growth if they target those programs and provisions that weaken the economic
forces driving economic efficiency and productivity. Cutting spending and tax sub-
sidies can thus improve the quality as well as the quantity of private investment,
as intensified competitive pressures drive firms and workers to make the most of
the new resources for investment released by deficit reduction.
This analysis recognizes that some subsidies do serve compelling social purposes.
Growth policy does not necessarily dictate that government stop supporting the im-
munization of children, end all tax incentives for home ownership, and suspend
health and safety regulation. Becoming more productive requires phasing-out provi-
sions that artificially raise returns for industries with political clout, but for no over-
riding social purpose — and reforming social regulations protecting health, safety and
environmental quality, so their legitimate ends are achieved at the least cost to pro-
ductive investment.
Third, virtually all current subsidies come not from economic logic, but from polit-
ical influence first exercised long ago. It is an interesting side-note that current sub-
sidy policies largely ignore the industries and firms most critical to an information-
based economy. Nearly two thirds of all spending subsidies, for example, are con-
centrated in agriculture, energy, and transportation. Current subsidy policy, in
short, is antiquated as well as counterproductive, focusing government policy on in-
dustries central to the commodity- and manufacturing-based economy of the past.
20
Finally, subsidies are socially regressive. The direct beneficiaries are shareholders
in the industries whose rates of return have been artificially subsidized. These poli-
cies may also preserve jobs in an industry, but any such job gains are offset by job
losses in firms and industries forced to compete on an uneven playing field. I have
estimated that the $53 billion in average annual spending and tax subsidies which
PPI has proposed to eliminate or reform, currently provide more than $16 billion
a year in net benefits to the top 5 percent of Americans, while costing the lower
four-fifths of Americans nearly $7 billion a year.
By contrast, cutting subsidies would be genuinely progressive as well as economi-
cally-sound. It would end the regressive transfers embedded in current subsidies,
leaving each industry's full costs to be borne by its customers and by its sharehold-
ers, who would earn a market return on their investments instead of a taxpayer-
supported return. And if the resources now claimed by these subsidies are redi-
rected to investment, most firms and workers stand to gain more, through a more
productive economy and lower interest rates.
It is important to recognize that the imperative to reorient fiscal policy towards
the goals of economic productivity and efficiency is becoming more urgent, not less
so. This urgency comes from the basic pattern of growth in the global economy. For
the last 25 years, the world's non-advanced economies have achieved average an-
nual growth rates that are more than double those of the advanced economies. Both
sides of this pattern^ — strong growth in the developing world, relatively slow growth
in the advanced world — are significant. The sobering implication for the United
States and other major economies is that we no longer generate sufficient internal
demand to drive higher growth — and a decade of high budget deficits throughout the
advanced world proves that the old solutions don't work anymore either. As a con-
sequence, we will have to tap demand where it does grow fast, in the developing
world, through expanded foreign investment and trade.
But there's a catch: Trade is a two-way street. Gaining access to the markets of
the developing world entails opening our own markets to their producers, a relation-
ship which is already a factor in the very slow income gains of our own less-skilled
workers. In effect, globalization has vastly expanded the effective supply of low-
skilled labor available to many corporations, bidding down the price of low-skilled
labor at home. The best solution available is to enhance the productivity of our own
less skilled workers— which involves greater private investment in capital equip-
ment, through deficit reduction; greater public and private investment in education
and training, and strengthened competition, to ensure that workers and firms make
the best use of their capital and human investments.
None of this will be possible unless we finally reform industry spending and tax
subsidies — and the major entitlement programs as well. In PPI's view, the best way
to begin is to create a base-closing type commission empowered to drive a process
of systematically reconsidering the value and the expense of these subsidies.
Thank you very much.
Chairman STEVENS. Thank you.
Mr. Shapiro, I am interested in the Hst that has come from Cato.
I don't know if you have seen it. But, for instance, not picking on
my friend here from Tennessee, but the Tennessee Valley Author-
ity, I notice that the Western Authorities are involved in marketing
Columbia River power. How do we deal with the successful pro-
grams of the past that are still carrying on? The question is wheth-
er they go on in the future.
Let me just give you a footnote to that. In 1971, I suggested that
the Alaska Power Authority be sold and made available to the peo-
ple of Alaska to buy. It took 25 years to get Congress to approve
that, and the reason it was stalled was that one Senator insisted
that there be restrictions put on who could buy that power from a
series of dams — well, one principal was built by taxpayers' money.
The offer was to pay back what the taxpayers had put into the
dam, but the restrictions on the use of power from the dam were
to be perpetual. It took us 25 years to get away from that concept
and say we will sell it, but the Federal Government can't control
it anymore after it is sold.
21
Now, you have got the Tennessee Valley Authority, for instance,
here. You don't have the others, as I mentioned, or he does. How
do you get away from the regional discriminations that could come
about by such a list?
Mr. Shapiro. Well, in our list, we do have the Power Marketing
Administrations, all of them, and propose that at least
Chairman Stevens. Well, they are up there on his, too. But Bon-
neville is not there and several of the others.
Mr. Shapiro. And the Tennessee Valley Authority as well. But
you raise an important question and that is a program created to
serve a legitimate public purpose. Once it has served that purpose,
by continuing becomes a subsidy, an artificial subsidy. And I think
frankly that TVA is a very good example of that, created for a le-
gitimate purpose to electrify the Tennessee Valley, and likewise the
Power Marketing Administrations.
Chairman STEVENS. The Power Marketing Administration pro-
posal has been defeated at least five times in Congress.
Mr. Shapiro. That is correct.
Chairman STEVENS. The Tennessee Valley Authority, if you are
going to cut off the funding for it, you are going to have to be will-
ing to sell it. That again gets back to what I asked Mr. Moore. You
cannot just cut off TVA's money unless you are prepared to put a
price on it and sell it. How do you handle that with such a commis-
sion? Do you say we are not going to put it up and here is the price
for it? Or are we going to cut it off when we do sell it? Until it is
sold, you couldn't cut off Tennessee Valley Authority users.
Mr. Shapiro. Of course not. As in any activity where the Govern-
ment withdraws from an activity, there is a necessary transition,
and we do this every time we change the tax law. We change the
arrangements on which business arrangements have been made,
and we provide the investors an opportunity to adjust to the
change. Likewise, in selling an existing asset which is no longer —
which has become a way of transferring resources from normal tax-
payer, from average taxpayers to the people who happen to benefit
geographically from a previous investment by the Government. You
have to have a transition period.
But certainly let me say I certainly appreciate how difficult it is
to ever withdraw any of these benefits. That is, of course, why we
have $200 billion deficits.
Chairman Stevens. I am just worried about the balance, like I
asked Mr. Moore. I don't think you can say stop paying the money
to TVA unless you at the same time say it is available for someone
to purchase and continue its operation.
Mr. Shapiro. I agree with that.
Chairman STEVENS. But the proposal is just to cut off the annual
expenditure money, not to go to the underlying cause of the ex-
penditure of the money. The same thing I was talking to you about,
Mr. Moore.
Mr. Shapiro. Well, I can't speak to Cato's proposal. I am sure
that Steve will. But the point certainly of our effort and of Cato's
effort has been to draw the attention of the public and the Con-
gress and the administration to activities which, in effect, are per-
verse economically. They not only maintain a larger deficit, but
they undermine the productivity of the economy by doing so, by
22
their very activity, and to draw the attention of Congress to make
a provision for phasing out the Government's, the taxpayers' in-
volvement in these activities.
But you are absolutely right that there are many activities
which, in order to withdraw our Government, the taxpayers' invest-
ment, we can't simply end the appropriation. We have to recognize
the way in which that activity has become embedded in the com-
mercial life of the region where it is situated and create transition
arrangements, much as we do in every tax bill. Senator.
Mr. Moore. Yes, let me just add to that, Senator. Many of the
items on our list, when we say they should be eliminated, we don't
address how they should be eliminated. And you are quite correct
that with things like the Tennessee Valley Authority, many of the
things on this list, Export-Import Bank could be privatized, OPIC
could be privatized. And so, you know, maybe the route to getting
rid of these things is to put up the assets for sale or to simply allow
that activity to be done by a private company. OPIC and Export-
Import Bank right now, to some extent, compete with private in-
surance companies.
Chairman Stevens. Well, I don't want to prolong it, but I am.
But, anyway, I want to support this concept of creating some com-
mission to look at unnecessary expenditures that deal with advan-
tages for the corporate structure, call it whatever you want. But
the difficulty is that in looking at the lists that have come up, you
look behind those lists to find out what caused those expenditures,
and the policy decision to get rid of the expenditures is an enor-
mous one on different issues.
Take, for instance, the Forest Service. You have got Forest Serv-
ice roads on yours. The road and trail construction, I don't know —
any purchaser of timber would prefer to build their own roads. The
reason the Forest Service does it, they want different standards,
they want larger culverts, they want those roads to be permanent
so there will be recreational access, areas available for a longer pe-
riod of time, much longer than you would have if you just build a
road, go in and cut timber and get out there for 70 years.
The decision as to who is going to — under what conditions you
can get those roads constructed in these areas for recreational ac-
cess, I don't think you would say to knock out recreational trails.
You have said knock out road and trail construction. But those that
are constructed by the Forest Service have a secondary purpose,
and that is, the lasting benefit for recreation or access for flood con-
trol, whatever it might be.
Now, how do you get to the secondary issue? That is what I am
asking you both. How do you get to the secondary issue first and
eliminate the need for the money before you just say let's just cut
ofl" the money?
Mr. Shapiro. Senator, under Senator McCain's legislation, the
recommendations of the commission would then be referred, as I
understand it, to the appropriate authorizing committees, and I
would suggest that that would be the place where the underlying
issues would be examined and some kind of appropriate either
transition treatment or additional changes, because, as you say, in
many cases they are — like in the Maritime Administration pro-
23
grams, the subsidy, in fact, reflects a — is in part a response to an-
other provision, and that that would be the appropriate place.
Mr. Moore. And one way of dealing with perhaps the issue that
you addressed, the road building, is to charge the timber companies
essentially a user fee. In other words, the Forest Service could con-
tinue to build the roads if they are needed for recreational pur-
poses, as you suggest; but when they are also being used for pur-
poses of hauling out timber, then why not charge — I mean, we
know that the timber companies are getting a subsidy from these
roads, so why not charge them some kind of fee?
Chairman Stevens. No, I disagree with you. They are not get-
ting subsidies. As a matter of fact, as I told you, in almost every
instance I know they could build them a lot cheaper than the Grov-
ernment could build them, and you don't go into those areas for
timber except once every — in our State, it is 104 years before you
can go back to an area and cut it again.
Now, no one in his right mind is going to build a road to last for
104 years. He is just going to build it for that one time, temporary
access, and get out. But that is not sufficient for the purposes of
other uses of the Forest Service.
But, again, I don't want to debate the issue. How do you — the
proposal before us just gets to eliminating what people t5T)ify as
being — whether the commission members or us — corporate pork.
But if you look underneath the corporate pork, you find the reason
for it is another policy decision made by a prior Congress and a
prior administration.
Now, how do you get to that basic underlying cause? That is the
thing that I am arguing about.
Senator McCain. Mr. Chairman, could I respond to that just
briefly?
Chairman Stevens. Sure.
Senator McCain. The reason why we departed in this legislation
from the Base Closing Commission procedure, which just provides
the Congress with an up or down vote, is that this legislation pro-
vides for these recommendations to be referred to the authorizing
committees so the authorizing committees can address the very
valid concerns that you raise.
If the Jones Act needs to be repealed in order for the maritime
subsidies to make sense, then the authorizing committees should
act in that fashion. If the TVA needs to have a gradual procedure
for being sold off, its assets, at the maximum benefit to the tax-
payers, then the authorizing committee would address that. And if
they can't, if there is — I don't think there is a situation, but if there
is a situation where they say, look, if we repeal this particular sub-
sidy, that is going to destroy the market or throw thousands of peo-
ple out of work or something, then you just don't do it.
Chairman STEVENS. Well, I am not raising, John, that question,
but I am raising the question of why shouldn't there be a burden
on the commission to examine the history and the reason for the
program being in place and to analyze the basic underlying root
cause of the expenditure before they come up and tell us you are
in favor of corporate pork if you don't eliminate it? That is the
problem I have got.
24
Senator McCain. Mr. Chairman, could I just respond very quick-
ly to that? In the legislation, it says "all actions, circumstances,
and considerations relating to or bearing upon the recommenda-
tions and to the maximum extent practicable, the estimate effect
of the recommendations upon the policies and programs for which
they are recommended." The commission, I believe, would be
tasked to take that into consideration as well, according to this leg-
islation.
Thank you, Mr. Chairman.
Chairman Stevens. Senator Thompson?
Senator Thompson. Yes, I think that is contemplated by the act.
I think this discussion is a great one because it points up the need
for a commission. I don't think we can prejudge any of these acts
before we have a forum whereby they can all be laid on the table,
pros and cons, by people who are supposed to know what they are
doing. Then the Congress has got a bite at the apple; the President
has got a bite at the apple. It is not like anything is going to slip,
we are going to do away with a lot of corporate subsidies under
cover without anybody knowing about them. I don't think that has
been the problem historically around here.
Put them all on the table. Let them justify themselves. TVA re-
ceived — we are talking about the non-power part now, because the
Power Administration doesn't affect the taxpayer anyway. The
ratepayers pay for that. So we are talking about the non-power
part. And the last appropriations reduced 1995 appropriations by
24 percent. So there has already been a 24 percent reduction in the
non-power part.
As you say, you are going to have to look at the whole picture
because part of what they are doing is maintaining the lakes and
grounds and everything down there. And if they don't do it, a lot
of people say the Corps of Engineers will have to do it, and it will
be the same cost to the Government.
Those are all the kinds of things that a commission would put
on the table. I just get the impression that historically these items
have been considered piecemeal as a part of other larger bills. We
have probably had more debate today on some of these things than
we have had in the past. This is the way to get a lot of them on
the table. Let's have that debate. And if they can be justified, so
be it. Not everything that has gone on somebody's list historically
is necessarily a subject for elimination.
I just have one question of Mr. Shapiro. You bring an additional
point to the table that I think is not usually brought up when dis-
cussing this. That is the question of growth. There is an awful lot
of talk about that right now, and I think we are finally coming to
the conclusion that this is something that we are going to have to
spend a whole lot more time on.
Do you really think that this is an element of that picture? Is it
minuscule? Is it substantial? Would it increase our competitiveness
if we made some major headway? Is this really a legitimate part
of the growth debate that I believe is going to be a major debate
in this country from here on out? We are talking about, as you
know, 1 and less than 2 percent growth. I think maybe you pointed
out these under-developed countries are eating our lunch as far as
25
growth is concerned. Is this a legitimate and substantial part of
that overall picture you paint?
Mr. Shapiro. I think so. I think certainly if you expand your con-
cept of subsidy, of industry subsidy, to take in not only the direct
spending and tax subsidies, but also trade protections which sub-
sidize an industry by insulating it from competition, and certain
forms of regulatory insulation that, in effect, subsidize industries,
the telecom bill is a very good step, I think, in general away from
that, a deregulatory step away from a kind of subsidy for some
parts of the existing telecommunications industry.
If you look at all the dimensions of subsidy, then I think you are
probably talking about something that can have a more than mar-
ginal impact on the underlying growth rate of the economy. We are
talking here about affecting the distribution of capital resources to
the tune of $50 to $100 billion a year. That is roughly equal to
rates of business fixed investment. So we are talking about some-
thing that is quite substantial with regard — I mean, you know, as
a matter of scale in the economy.
No single provision has a significant effect on the macro econ-
omy. But when you layer, when you encrust the economy with
layer upon layer of these subsidies, insulating more and more sec-
tors from the basic need that markets create to figure out how to
be more productive and how to be more innovative
Senator THOMPSON. Another form of industrial policy or part of
an industrial policy approach to things.
Mr. Shapiro. Well, it is an industrial policy without a principle.
Industrial policy is bad enough, and then this is one without a
principle at all. It is industrial policy according to the distribution
of political influence. Senator.
Mr. Moore. Can I just add one thing to that? That is, if you ac-
cept that the size of the corporate welfare pie is somewhere in the
neighborhood of $50 to $100 billion, which is the estimates by the
General Accounting Office and Cato and PPI, think of that number
in these terms: We raise about $30 to $35 billion a year from the
capital gains tax, and one of the things I asked my business friends
who support many of these programs is, look, which would be bet-
ter for your business: if we had no capital — in other words, if we
could get rid of just half of the corporate welfare in the budget, we
could eliminate the entire capital gains tax.
Now, Senator, which would be better, you know, for our economic
growth rate — to have a capital gains tax or to have targeted sub-
sidies to several businesses? Or to put it another term, we could
reduce the tax burden on corporate America by over a third if we
could get rid of just these spending subsidies.
So when you are talking about economic growth, I think there is
no question that we can substantially increase our growth rate and
also substantially reduce the budget deficit, which I think everyone
agrees, whether they are on the left or right or the middle, is a
substantial deterrent to economic growth right now.
Mr. Shapiro. Let me give you one other example that is not fi"om
the corporate tax side. We have all estimated $50 to $100 billion
a year. For about $9 billion a year, you could replace current pro-
grams for tuition support for higher education with a commitment
that the Federal Government would pick up the tuition at a state
26
university of any high school graduate with a B average; that is,
the current Georgia Hope program could be nationalized, could be
provided to every high school graduate who graduated with a B av-
erage. The Federal Government could pick up the tuition at a state
university in their state for $9 billion. So, I mean, we are talking
about a potentially enormous investment in either capital invest-
ment through the kinds of tax provisions that Steve is talking
about or human capital investment for a relatively small share of
the amount currently given to influential industries in subsidies.
Chairman Stevens. Tremendous policy decision there. Think of
the number of people who really didn't blossom in college and have
become our leading thinkers and inventors, and you would say only
if you got a B average, a freshman in college, would you continue
to get any assistance?
Mr. Shapiro. No, well, I am saying
Chairman Stevens. The policy judgments behind what you gen-
tlemen are suggesting are enormous.
Mr. Shapiro. I am just giving you a sense of dimension, Senator,
of the kind of alternative uses of resources. If you chose to main-
tain current programs, current Federal programs, you could still
provide this for less than $9 billion. It is just a matter of scale.
Chairman Stevens. I think targeted tax benefits are, without
question, a form of corporate pork. But if you get down into — for
instance, on Mr. Moore's list is the Minority Business Development
Agency, without which we would not have broken the glass ceiling,
without which we would not have had the advent of Indian partici-
pation in telecommunications businesses, without which you would
not have had a lot of the change in our society that we have seen.
Now, there, again, today it may be considered corporate pork, but
in the days when there wasn't a black member on any corporate
board and the days when you didn't have any women participating
and you had no Indian businesses, it was an absolute necessity. As
a matter of fact, Dixon did it.
Now, when you look at it, has it lived too long? Has it lived so
long now it is called corporate pork? So my friends here and I dis-
agree about that. But, again, I am not worried as much about the
issues that I am worried about we are going to have a commission
coming up here and dumping on our lap something that says that
is corporate pork, when those of us with an institutional memory
know that it was not intended to be. That is the problem.
Gentlemen, any more questions?
Senator McCain. Thank you, Mr. Chairman.
Chairman Stevens. I shouldn't be arguing from this pulpit,
John; is that what you will tell me, John?
Senator McCain. No, sir. No, sir. I thank you, Mr. Chairman,
and I think you have raised some very legitimate concerns. But I
also would suggest that unless we address this in a way that is im-
mune from the influence of special interests, then I don't think we
are going to address it. And when we buy a B2 bomber which has
no earthly use in the post-Cold War era, when we fund a highway
demonstration project in some powerful Senator's or Congressman's
district, when we subsidize the sale of military equipment to over-
seas purchasers — which, by the way, from time to time we have
ended up fighting those same people that purchased those weapons
27
systems — when we have a Jones Act which requires only domesti-
cally owned ships to carry commerce to our domestic ports, there
is only one person that suffers from all this. There is only one per-
son that doesn't get anything from this, and that is the average cit-
izen, who right now has a huge tax burden, who right now has
voiced their concerns about the fact that they are working harder
and not able to keep up. I would suggest the primary reason for
that is the crushing tax burden which they carry. And yet we con-
tinue to support programs which help particular individuals and
corporations and companies that have a lot of influence here in the
Capitol.
Yet I never get to see at the witness table the person who says,
gee, you know, back in 1950 my parents sent one out of every $50
that we made in the form of taxes to Washington, and now today
I am sending one out of every $4 that I earn to Washington in the
form of taxes.
I don't know why the B2 bomber, just because it is built in Cali-
fornia, which has a large number of electoral votes, should be nec-
essary for me to spend my tax dollars to the tune of $18 billion
over 7 years, when the Pentagon says they don't want it, every
thinker that I know of militarily says that we don't need it, when
we have an Export-Import Bank that basically subsidizes large cor-
porations and not small business that you are talking about. And
you referred to Native Americans. There is one thing that I have
become convinced of, is that with all these subsidies and payments
and socialistic attitude that we have had toward Native Americans,
we have harmed them a heck of a lot more than we have helped
them.
There is a tribe down in Mississippi that was just written up in
the last couple of days in one of the major newspapers — I think it
was the New York Times — called the Cherokee Nation, that they
have decided the heck with all these subsidies, the heck with all
of this BIA heavy-handedness, we are going to start a free enter-
prise system on our reservation. And guess what, Mr. Chairman?
They are doing fine.
Chairman Stevens. I don't disagree with that. Don't argue with
me about that.
Senator McCain. I guess my point is that we need to understand
that it distorts the market to provide these special benefits to ear-
marked special interests, but we also harm the taxpayer. The tax-
payer who really doesn't benefit from any of these programs really,
although certain small numbers of them may, but overall they are
the ones that are hurt by it. And when we brought up this bill.
Senators Thompson and Feingold and Kerry and myself, I knew
full well it would lose. I was just curious by how much. We got 24
votes.
The interesting thing about that amendment was that we have
the Cato Institute and PPI here, who are really, in the judgment
of most, at different ends of the spectrum politically, who are cer-
tainly not — let me put it a better way. They are not in tune philo-
sophically on many major issues, yet they were able to come to-
gether and come up with a dozen programs that they both were in
strong agreement that we should eliminate as a beginning. And,
Mr. Chairman, there was a famous executive who had a sign on his
28
wall that said, "The Lord so loved the world that he didn't send a
commission." And I am sure you could put the word "committee"
in place of that, and I don't like the Committees. I didn't like it
when the base-closing commission reported out that they were
going to close Williams Air Force Base, which I thought was the
finest air training facility that the Air Force had. But I also knew
that no other base was going to be closed if we didn't leave it in
the hands of the commission, because we had proven over the last
30 years or so that we weren't going to be able to close a single
military base in America. And I view this as the same problem we
are facing with corporate pork.
And let me just say again, Mr. Chairman, your corporate mem-
ory is far in excess of mine and Fred's, and I think you bring up
some very important points here. I really do, because we don't want
to put people out of work, we don't want to destroy family busi-
nesses that people have been in for a long time. But I would hope
that the commission's charter would say that these things have to
be taken into effect.
I am not so naive as to believe we could make these changes
overnight. Some of them would have to be extremely gradual. Fred
pointed out that there has been a reduction in TVA funding, and
hopefully there will be in others.
So I would just ask one question of the witnesses, and that is,
do you think from your experience that we could count on Congress
to enact some of these reforms, or would we need some kind of com-
mission concept?
Mr. Moore. Senator, interesting that you should ask that ques-
tion, because I remember it was about 6 months ago that I first got
together with your staff, John Raidt and others, and they sug-
gested this idea of a commission. And I have to confess to you that
originally my attitude was very negative towards it. I said. What
do we need a commission for? We know what to do. Take some of
the programs on this list and the PPI list, and it should be
straightforward.
Quite frankly, it is a sad commentary that we do need a commis-
sion for this kind of thing. But as we went through the first year
of a Republican Congress dedicated to cutting spending, I saw all
of these programs surviving. And I think the last straw was when
the Agriculture Marketing Program survived, which, you know, ev-
eryone virtually agreed was a terrible subsidy program, where you
had in the House of Representatives conservative Republicans in
California voting to sustain these programs.
And so I have come around begrudgingly to concede that this
probably is the only way to get rid of some of these subsidies. It
is a sad commentary that we need to have an independent body,
because Congress should be able to do these things themselves.
But, unfortunately, the history of the last 12 months and 12 years
is that unless there is some kind of commission that comes up with
a list, I think that 5 years from now many of these programs will
still exist.
Mr. Shapiro. I certainly agree. As PPI was developing this origi-
nal analysis years ago, we began looking at the particular pro-
grams. And the thing that was most striking was the longevity of
these programs.
29
The first one I had thought of as an economist was, fi-ankly, farm
supports. This is farm supports — the current program has had vir-
tually no support in the economics profession for decades. And yet
it is — and I think Congress has taken an important step this year,
incidentally, and they deserve credit on it. But it was clear that
these subsidy programs don't exist because they can make a sound
economic case. And in many cases, it was clear there was not much
of a social case. And so we concluded that it was — the reasons they
exist precluded Congress from cutting them on a one-by-one basis.
And we have seen it so many times in the past, and I had a little,
some small hopes that 1995 would be a Httle different. But, frank-
ly, those hopes were disappointed very quickly when the House
protected the Archer Daniels Midland's break, the ethanol break,
a billion-dollar-a-year tax subsidy, $800 miUion of which goes to
one single corporation to produce something that the market would
never produce. And I concluded that
Senator McCain. Is that an argument to move the Iowa caucus
to a later date? [Laughter.]
Mr. Shapiro. I think it is an argument for a lot of things, Sen-
ator, a lot of changes in current politics. So, yes, I think the com-
mission is — the commission idea recognizes, as you have described
it, the nature of the political problem and addresses it directly.
Senator McCain. Thank you very much, Mr. Chairman. Again,
I want to thank you for holding this hearing today.
Chairman STEVENS. Yes, sir. Well, we are going to continue with
the hearing, but I just hope you understand what I am sajang. I
don't see that it does any good to give us a commission to give us
a chance to vote again on a series of things that have been voted
down because they weren't getting at the cause of the expenditure,
they were just getting at the expenditure. I hope we can find some
way to deal with that.
I am not opposed to a commission. I think many of us would
favor one. But I don't think many people are willing to go back and
look at what started these programs, what has to be changed to
make the program unnecessary. That is the problem.
Thank you very much, gentlemen.
Mr. Moore. Thank you.
Mr. Shapiro. Thank you.
Chairman Stevens. Martha Phillips and Ann McBride, are you
here now, please? I appreciate your coming at the odd hour, by the
way.
Ms. Phillips, you are first on my list. Will you start off, please?
TESTIMONY OF MARTHA PHILLIPS, EXECUTIVE DIRECTOR,
CONCORD COALITION CITIZENS' COUNCIL
Ms. Phillips. Thank you. I am Martha Phillips. I am with the
Concord Coalition, which is a grass-roots movement formed to bal-
ance the Federal budget. It is chaired by Paul Tsongas and Warren
Rudman. It is a bipartisan organization, and we have chapters
across the country of citizens who are trying to mobilize support for
a balanced budget.
Why balance the budget? Concord says not for its own sake or
out of a petty bookkeeping concern. Despite all of the attention fo-
cused on the budget since 1990, our nation is still borrowing more
30
than $1 trillion in every Presidential term of office. This borrowed
money drains off savings from the economy that should instead be
available for investment in making us more productive and increas-
ing our nation's economic well-being. So the bottom line for the
Concord Coalition is that we support balancing the budget as the
foundation for other policies that will help the economy grow.
Balancing the budget is tough. All the so-called easy decisions
have long since been made, and now the remaining options are far
less attractive and they involve spending your political capital, an-
gering constituents, alienating contributors, and irritating col-
leagues and allies.
It will be possible to make tough budget decisions, we believe,
only if the principle of shared sacrifice is adopted. This is what
makes tough choices also be seen as fair choices.
The Concord Coalition runs a 2-hour program called "Debt Bust-
ers" in towns and cities across the country. People come in and
work out their own versions of the balanced budget and debate,
argue back and forth, make trade-offs. One thing that we have no-
ticed in program after program, almost without exception, is that
people are willing to do their share to balance the budget. But they
don't want to be chumps. They don't want to be the only one called
on for sacrifice. They want to feel that everybody else is also doing
a fair share. When opponents of balancing the budget come in and
haul up one group that is not doing its share, such as so-called
large corporations, it makes average people feel that maybe they
are being taken to the cleaners and other people aren't helping.
They want to know that, other than the truly needy, no group
or interest has been deemed too special or too precious to have to
participate. Therefore, we do support the idea of setting up a com-
mission and a process to systematically review corporate subsidies.
But I have to add a note of caution. Setting up a commission and
process does not necessarily guarantee success. Process changes
perhaps can help, but they don't replace the necessity sooner or
later of making the tough choices and burning up that political cap-
ital.
The commission will be taking on what political scientists call
the "iron triangles": the agencies whose administrators are gearing
up to most efficiently help their clients, the corporations that are
receiving the subsidies in some cases; the congressional patrons,
some of whom invented the programs or inherited the programs
and who see themselves as the protectors of the programs; and the
organized interests, several of whose representatives hands I shook
as I walked in the door to this hearing, who monitor the process
to protect the program. These triangles make a very cozy relation-
ship. They are what this commission is being asked to take on. It
is a daunting job, a very tough job.
Just to take a current example that was already mentioned, ask
about how this commission will deal with agriculture programs.
First, as you have set it up, the agency will make a list of rec-
ommendations, a review of their programs. Well, will the USDA
recommend termination or reform of special subsidies for sugar,
peanuts, cotton, or dairy producers or manufacturers? And if they
do not make those recommendations, will the commission add those
recommendations? And if the commission adds the recommenda-
31
tions, will the President go along? And if the President goes along
and it comes back to Congress as legislation, will the Agriculture
Committee go along? And if the bill gets to the floor, what will hap-
pen in the amendment stage on the floor and in conference?
It is a long, long road that you are setting up. You could ask the
same questions about subsidies to oil, gas, coal, ethanol, and non-
conventional fuel producers, extractive industries, timber-producing
corporations, manufacturers, builders of low-income housing and
office buildings, publishers, multinational corporations, insurance
companies, credit unions, and defense builders, to name a few.
I did look over the bill, and I had a couple of ideas that you
might want to consider if you are looking for ways to improve it.
I wonder whether you intend to send up the recommendations from
the agencies to Congress as one single bill or as a series of bills.
One single bill probably would work better, and I think that you
might want to think about setting up a procedure to incorporate
that one single bill into the reconciliation process if there is a rec-
onciliation bill moving in a particular year.
You might want to think about separate waves. I am not sure
that one pass of a commission or a bill will get the job done.
There is a bill in the House that is similar, and it sets up dollar
targets, and the targets, as I recall, were quite low. I would not rec-
ommend setting up dollar targets or minimums, because minimums
have a way rapidly of becoming ceilings. And if you do establish a
target and you don't quite make it, the headlines will cry, "Failure,
failure," even though you might have done a pretty substantial
amount of heavy lifting.
As has already been mentioned, the bill permits the legislation
to be amended in committee and on the floor. This is a strength
of the bill, but it is also a weakness at the same time because it
sort of is an invitation to de-fang any sharp teeth that have been
put into the bill.
So it is with some reservations that the Concord Coalition Citi-
zens' Council says we think the proposed Commission is a good
idea in general. We generally believe putting too much attention on
process diverts attention and energy away from just doing the job,
tackling the deficit, and we usually, like Steve Moore mentioned a
few moments ago, scoff at setting up yet another commission to do
the unpleasant part of the job that Representatives, Senators, and
Presidents were elected to do. But in this case, we believe the Cor-
porate Subsidy Commission offers the promise of at least making
some progress, some substantive progress, in an area that has been
notoriously difficult, either through its own actions or at least by
focusing the spotlight and bringing up these programs for another
review and examination and public scrutiny. And that alone would
probably be worth the effort.
[The prepared statement of Ms. Phillips follows:!
PREPARED STATEMENT OF MARTHA PHILLIPS
SUMMARY
1. Balancing the federal budget is necessary in order to increase long-term eco-
nomic growth.
2. Shared sacrifice is required — both the perception as well as the reality. Other
than the truly needy, no sector of the economy or population is too precious to be
excluded from participating in balancing the budget. If it appears that one sector
32
is escaping scot-free, it is all the harder to ask others to shoulder their part of the
burden.
3. Balancing the budget is said to involve hard choices. But it also requires
undoing many choices that were made in the past — repealing programs, subsidies
and tax breaks.
4. Corporate program and tax subsidies should not be exempt from the budget
balancing process. The Commission would create a highly visible process that poten-
tially could help make sure that the corporate sector is fully participating. It would
help remedy the perception that balancing the budget falls only on the backs of "lit-
tle people" and not on highly profitable corporations.
5. We are pleased that the Commission is specifically charged with reviewing tax
subsidies as well as program subsidies. But the official tax subsidy list should be
only the beginning point. Some subsidies, such as deductibility of corporate owned
life insurance, do not appear on the list. They come about because of the way cor-
porations use one or more provisions of the tax code, not because the code bestows
specifically defined subsidies.
6. It's important not to let expectations get too high for what such a commission
can accomplish. It is taking on the age-old "iron triangles" that have for literally
generations locked in programs. The very agencies and legislators whose task it will
be to end some of the subsidies may turn out to be among the strongest proponents
for keeping the subsidies.
7. Defining what is an unnecessary subsidy and what is a necessary investment
is often not a clear cut decision but rather involves various shades of gray. What
some analysts label as outrageous squandering of taxpayer dollars on narrow vested
interests, others describe as provisions vital to protecting national interests.
8. The criteria spelled out in Section 2002(b)(2) of the bill are broad enough to
allow dedicated "subsidy-busters" to identify the provisions that most informed citi-
zens would agree should be modified or terminated. The problem is making sure
that the people whose responsibility it is to apply these criteria will do so in the
way intended.
Will the Department of Agriculture recommend termination of programs that pro-
vide special subsidization of sugar, peanuts, cotton, or dairy producers or manufac-
turers?
If they do not, will the commission add such recommendations on its own or
strengthen tepid ones made by the Department?
If the commission so recommends, will the President agree to leave the rec-
ommendations in his report?
If the President sends recommendations to Congress to eliminate or modify these
agricultural subsidies reach Congress, will the Agriculture Committees agree to
them without amendment? And what will happen on the floor and in conference?
The same series of questions could be asked about subsidies to oil, gas, coal, etha-
nol and nonconventional fuel producers, extractive industries, timber producing cor-
porations, builders of low income and other housing, publishers, multi-national cor-
porations, insurance companies, credit unions, or the defense industry — just to name
a few of the areas that have been repeatedly targeted only to escape with most sub-
sidies intact.
9. Suggested modifications:
• The corporate subsidy recommendations should be transmitted to Congress as
a single bill and should be processed- by Congress as a single bill.
• A procedure should be spelled out for incorporating the corporate subsidy bill
into a budget reconciliation bill if the budget resolution has called for one that
year.
• Consideration should be given to successive waves of corporate subsidy reviews.
One pass may not be enough to get the entire job done.
10. Generally, Concord believes putting too much attention on budget process
changes diverts attention and energy away from the actual task of balancing the
budget. And we usually scoff at the idea of setting up yet another commission to
perform some unpleasant part of the job Representatives and Senators and Presi-
dents were elected to do. In this case, however, we believe that a corporate subsidy
commission offers promise of making progress in an area that has been notoriously
difficult in the past.
The Concord Coalition Citizens Council is pleased to respond to your invitation
to testify on S. 1376. Balancing the federal budget is the immediate mission of our
organization. We believe that, with some modifications, the approach outlined in the
bill would help to balance the federal budget and keep it in balance.
33
Why balancing the budget is so important
Concord is a grass roots citizens movement with chapters in all 50 States and
most towns and cities across the country. Our mission is to strengthen the American
economy and increase the rate of long-term economic growth. As we see it, economic
growth works through a sort of "food chain" that leads back to deficit elimination.
Robust long-term sustainable economic growth depends on constantly increasing
amounts or quality of the goods or services produced by American workers. In-
creased productivity, in turn, requires investment in human capital, plants, equip-
ment and processes, research and development and in our national transportation
and communications infrastructure. These investments, in turn, cannot be made
without heavy reliance on foreign capital unless our own nation has savings that
can be invested. Unfortunately Americans are notoriously poor savers, and our sav-
ings rate has steadily declined decade after decade. We now trail far behind most
nations in this regard. What's worse, half or more of the paltry savings that Amer-
ican do amass are used to finance our federal budget deficits. Therefore one of the
surest ways we can make more money available for investments needed to make
our economy grow is to balance the federal budget.
Thus, Concord does not advocate balancing the budget for its own sake or because
of a petty bookkeeping mentality. We believe that a balanced federal budget is the
foundation for building the kind of robust economic growth that once characterized
the United States and that will be required again as we begin to shoulder the bur-
den of supporting the baby boom generation through its retirement years. As long
as we continue to borrow more than a trillion dollars in each presidential term and
use the borrowed funds for current consumption, the vibrant economy we want for
the future will remain only a dream and not a reality.
Tough choices
Important as it is to balance the budget, it is not easy — as the last year's impasse
demonstrated. It is sometimes said that balancing the budget requires making hard
choices. But it also requires undoing many choices that were made in the past. Re-
pealing programs, subsidies, and tax breaks.
It has been observed, not entirely in jest, that in the past when Congress had to
choose between spending money on X or Y, it usually said, "Yes." Those days are
long past, and now, it is necessary not only to set priorities regarding what precious
few new initiatives will be undertaken, but also to go back and reexamine the wis-
dom and affordability of the choices that were made years ago. We now must ask,
"If this program or subsidy were not already on the statute books, would we create
it today?" And, "What would we give up to make room for it?"
Shared sacrifice
Balancing the federal budget will be accomplished only if it is undertaken as a
program of shared sacrifice. It is extremely important that both the perception and
the reality be that, other than the truly needy, no group, no sector and no interest
is too precious to be spared from making sacrifices to achieve this goal. A prime tac-
tic used by opponents of deficit reduction is to emphasize the pain one economic or
geographic sector feels from program cuts while at the same time pointing out other
sectors that seem to be getting off scot-free. No individual or group wants to be
taken for a chump and singled out for a disproportionate part of the burden. But,
as Concord has discovered in public forums and "debt busters" programs held in
towns and cities across the nation, most citizens are ready and willing to do their
share if they believe that everyone else is also doing their fair share.
That is why bills like S. 1376, the Corporate Subsidies Review, Reform and Ter-
mination Act of 1995, are important. This legislation would establish a system for
an intensive review and re-evaluation of corporate subsidies, many of which have
been on the books for half a century, and some for even longer. Many hearken back
to bygone industrial era concerns that have little or waning relevance to today's
economy. To the extent that there is a public perception that programs being tar-
geted to balance the budget affect only "little people" while fat cats and corporations
escape unscathed, the highly visible commission and procedures proposed by S. 1375
could provide an antidote.
Corporate tax subsidies
It is particularly commendable that S. 1376 proposes a review and reexamination
of tax subsidies as well as direct programmatic subsidies. The official list of tax ex-
penditures — which Concord believes should really be called "tax entitlements" since
they operate in a way almost identical to direct spending for entitlements, contains
some 75 separate provisions affecting corporations. That list should be viewed as
only a beginning point, however. Some corporate tax subsidies and inequitable ad-
34
vantages do not show up on the official "tax expenditures" lists. For example, almost
every balanced budget proposal in 1996 called for curbing interest deductions for
corporate-owned life insurance policy loans, the so-called COLI provision. However,
it is not listed as a separate tax expenditure.
Can the commission defeat iron triangles?
Once programs have become well enough established to develop "iron-triangles"
of interlocking relationships of Congressional advocates, Administration proponents,
and organized non-governmental interest groups, it becomes extraordinarily difficult
to trim or terminate them. Doing so one at a time is a formidable undertaking, as
the survival of many such subsides over decades despite repeated targeting by im-
partial analysts attests.
The system set forth in S. 1376 could fall victim to such triangles. First, it re-
quires agencies to evaluate their very own programs, determining which represent
undue degrees of subsidization. In many instances, agencies will be far from impar-
tial observers and will have a bias toward justifying the status quo. Then, the agen-
cies, whose very mission in many instances, is to make the programs run well and
which may have been "reinvented" to serve their corporate clients even more effi-
ciently, must recommend whether to retain, modify or terminate their own pro-
grams. Nothing in the bill requires them to recommend termination or modification.
Even if the commission, with the help of the Government Accounting Office,
catches such inadvertent blind spots, when the proposals reach Congress they again
could fall prey to "iron triangulation." It appears that the President's recommenda-
tions will be transmitted as separate legislative proposals, which will be parcelled
out to the appropriate committees of jurisdiction. Again, it could turn out that some
members of some of these committees will see themselves more as the protectors
and advocates for the programs than as vigilant subsidy-busters. Since S. 1376 per-
mits amendments, commission legislation could be "defanged" at the Committee
stage or at subsequent floor or conference stages.
Moving to specific examples makes the dilemma clear.
Will the Department of Agriculture recommend termination of programs that pro-
vide special subsidization of sugar, peanuts, cotton, or dairy producers or manufac-
turers?
If they do not, will the commission add such recommendations on its own or
strengthen tepid ones made by the Department?
If the commission so recommends, will the President agree to leave the rec-
ommendations in his report?
If the President sends recommendations to Congress to eliminate or modify these
agricultural subsidies, will the Agriculture Committees agree to them without
amendment? And what will happen on the floor and in conference?
The same series of questions could be asked about subsidies to oil, gas, coal, etha-
nol and nonconventional fuel producers, extractive industries, timber producing cor-
porations, builders of low income and other housing, publishers, multi-national cor-
porations, insurance companies, credit unions, or the defense industry — to name
only a few of the areas that have been repeatedly targeted only to escape with most
subsidies intact.
One of the reasons that the answer to most of these questions will be "no" is that
unjustified subsidies are in eye of the beholder. What some analysts label as out-
rageous squandering of taxpayer dollars, others will describe as not only desirable
but necessary provisions to protect vital national interests or to promote the kind
of productivity-enhancing investments that are required to spur economic growth.
Conclusion
The fact that the process will be difficult does not mean that it should not be un-
dertaken. The Concord Coalition Citizens Council commends the sponsors of S. 1376
for this initiative and believes that a process along these general lines would be
helpful. However, we believe that even if the Corporate Subsidy Review, Reform and
Termination Commission is created, the chances are that it will succeed in making
only a small inroad in the first attempt. There have been several rounds of the mili-
tary base closing commissions and recommendations. Although the process achieved
much more than could have been accomplished piecemeal, the process was messy
and incomplete. More should have been done.
Generally, Concord believes that too much attention to changing budget processes
only diverts attention and energy away from working directly on eliminating the
deficit. And we usually scoff at the idea of setting up yet another commission to per-
form some unpleasant part of the job Representatives and Senators and Presidents
were elected to do. Among the commissions proposed in recent months are a com-
mission to recommend Medicare reform, a commission to study how to accurately
35
measure CPI, another entitlements commission with teeth, a commission to weed
out national park sites, and a commission to recommend Executive Branch restruc-
turing. Voting for process changes and commissions is popular because eliminating
the deficit requires spending political capital— angering constituents, alienating con-
tributors, and irritating colleagues. That helps explain why the goal of balancing the
budget is so elusive. The "easy" targets were picked off years ago. It is now nec-
essary to go after the well protected, well triangulated, areas.
On balance, we think that, with some modifications, the commission approach of-
fers promise of making some progress.
What the bill would do
S. 1376 would establish a Corporate Subsidy Termination Commission, with 8
members and not more than 25 staff, to be appointed no later than January 31,
1997 and to end no later than December 31, 1997.
Federal agencies would, no later than January, 1997, submit a list of programs
and policies under their respective jurisdictions that "provide direct payments, serv-
ices, or benefits to entities and industries engaged in profitmaking enterprise." For
each program or policy, agencies are to provide a detailed description, a statement
detailing its magnitude, and a recommendation regarding whether the program or
policy should be terminated, modified or retained. By April 15, the Comptroller Gen-
eral would transmit to Congress and the commission a detailed analysis of the agen-
cies' recommendations.
The commission's task is to review the listed subsidy programs to determine if
such payment, service, or benefit predominantly serves the pecuniary interest of a
specific entity or industry rather than a clear and compelling public interest; pro-
vides an unfair competitive advantage to one entity within an industry or market
segment, or to one particular industry; or has the effect of creating any other inequi-
table federal direct or indirect subsidy.
Similarly, the commission would review the tax system to determine if current
laws and practices result in inequitable tax advantages that provide financial bene-
fits to an entity or industry in excess of that intended by the applicable law; or ben-
efits to an entity or entities that are disproportionate to those available to similar
entities within the same industry; or benefits to an industry or industries that are
disproportionate to those available to comparably sized industries that are not eligi-
ble for such benefits and which create an undue tax advantage for such industries;
or the creation of any other inequitable tax benefit or advantage.
The commission is to report to the President, no later than July 1, 1997, its find-
ings and recommendations for termination, modification or retention of all the items
submitted. If the commission determines that the agency deviated substantially
from the guidelines for submitting their lists, after conducting public hearings the
commission can add or delete subsidies to the termination list or to the modification
list. It can also increase or decrease the extent of modification recommended by the
agencies. (It is reassuring to see that the bill was drafted so that the commission
cannot add programs to the retention list.)
The President, not later than July 15, 1997, is to transmit to the commission and
Congress a report recommending approval or disapproval of the Commission's rec-
ommendations. In the case of disapproval, the commission has until August 15, 1997
to transmit a revised list of recommendations to the President.
If the President agrees to the commission's recommendations, the entire package
of recommendations is then transmitted to Congress in legislative form, along with
justifications, budget and economic impact estimates. If nothing is submitted to Con-
gress by September 1, 1997, the process terminates.
S. 1376 provides for expedited consideration of the corporate subsidy package
through both Houses. However, the package can be broken into separate bills and
the bills can be amended in committee and on the floor. Thus, a House-Senate con-
ference could very well be required, and the procedures for expediting conference
agreements are spelled out in the bill.
Chairman Stevens. Ms. McBride?
TESTIMONY OF ANN McBRIDE, PRESIDENT, COMMON CAUSE
Ms. McBride. Thank you, Mr. Chairman. I am Ann McBride. I
am President of Common Cause, and I appreciate so much the op-
portunity to testify today and appreciate your holding these hear-
ings.
36
I also want to thank Senator Thompson and Senator McCain for
cosponsoring this bill, bringing it forward, and bringing this issue
into the public debate.
This issue has, interestingly, broad cosponsorship, broad biparti-
san support, and from all parts of the political spectrum. It is true
from our previous panel which shows that a range of the outside
groups that are concerned about corporate welfare. But it has also
been a problem that is a bipartisan problem. It has not been a Re-
publican problem or a Democratic problem or a problem simply of
the Congress, but also of the Presidency.
While Congress and the President have failed to reach a final
agreement on the budget, there has been agreement on a goal of
a balanced budget in 7 years, and reaching this goal is going to re-
quire some tough decisions and tough setting of priorities.
The American people, I believe, are concerned about fiscal re-
sponsibility. But they are also concerned about fairness, and what
has happened in this last budget process. While significant cuts
have been made and have been proposed, in many areas the part
of the budget that has been left virtually untouched is the area of
corporate welfare.
Colin Powell said, "You see a lot of politicians attacking welfare
queens, but you see them a little reluctant to attack the welfare
kings on K Street" — referring, of course, to the corridor where most
Washington lobbyists reside.
Failure, as I said, to address the corporate welfare problem is not
simply a congressional problem. We are talking about why do you
need a commission. What is a story that might tell the real reason
why we have believed that you do need a commission like that pro-
posed by Senator McCain and Senator Thompson and others? That
is one that was raised earlier, and that was what happened on eth-
anol during the budget process.
What happened is that Congressman Archer very courageously
came forward and proposed ending the ethanol subsidy. An oil
newsletter reported on September 25th, "Archer Tax Bill Ends Eth-
anol Tax Breaks." A week later, the newsletter's headline read, "At
Behest of Gingrich, Archer Shifts on Ethanol."
What happened in the intervening time was enormous influence
and pressure put on the entire Congress by an industry that in the
period 1988 through 1994, Dwa3nie Andreas and ADM contributed
$1.6 million in soft money to the Republican Party and $814,000
in soft money to the Democratic Party.
What you have then is the President not coming forward and
fighting for this, but instead the President also continuing to ask
for full funding of the ethanol subsidy. What you have is a system
which has not been addressed, which for years has not been ad-
dressed, and which has really been pointed up and come to center
stage as there are cuts being made in the budget. And we think
something needs to be done.
I know, Mr. Chairman, this is not a hearing about campaign fi-
nance reform, but I would only say there is no question in my mind
and in the minds of many that the campaign finance system has
served to buoy, defend, and protect the corporate welfare system.
The average citizens that Senator McCain has been talking about
do not have a PAC, do not have a lobb3rist here in Washington,
37
and, therefore, are not able to compete with the power of money
and the power of special interest. And what happens is these issues
do not get discussed; they do not get debated; they get tucked in
somewhere in a bill. And when an effort is made, as was made re-
cently to knock out just a tiny portion of them, they receive very
few votes.
I understand the question that you raised, Mr. Chairman, about
how this process would work. I think that this commission is im-
portant because what it will do is bring these programs to light by
people, one presumes, who have expertise in these areas, who bring
independence and credibility. And then it shifts to the Congress.
I don't think and I would hope that these things would not be
made just because they appeared on the list. What I see the spon-
sors doing is trying to establish a serious process for attempting to
deal with a very difficult problem by highlighting it and then let-
ting the legislative process work. It has its pitfalls, but it also, I
think, has a flexibility that could begin to address these issues.
We support the commission. We, of course, would love to work
and continue to work with the sponsors to improve it. And we also
would hope and believe that one of the most important decisions
that could be made in this Congress to break the deadlock of cor-
porate welfare is to pass the bipartisan campaign finance reform
bill, S. 1219, which is also sponsored by Senators McCain, Thomp-
son, and Feingold.
Thank you very much.
[The prepared statement of Ms. McBride follows:]
Common Cause,
Washington, DC, March 7, 1996.
Hon. Ted Stevens,
Chairman, Senate Governmental Affairs Committee, Washington, DC.
Dear Chairman Stevens: Thank you for the opportunity to testify at the hearing
on March 5 regarding S. 1376, the Corporate Subsidy Review, Reform and Termi-
nation Commission Act of 1995. I request that this letter be included in the record
of the hearing along with my prepared statement and my spoken remarks.
As I said at the hearing, Common Cause believes a corporate welfare commission
could be an effective approach to addressing wasteful programs in the federal budg-
et. As other witnesses noted, over the past year, as Congress engaged in a broad
effort to reduce federal spending, most corporate welfare programs were left un-
touched.
We believe that S. 1376 represents a useful starting point for developing a process
which will bring Congress to confront directly, and in a comprehensive manner,
these wasteful and often outdated programs.
However, Common Cause shares your concerns about generalizing the commission
approach to any difficult issue facing this Congress. In particular, we would strongly
oppose establishing a commission this year on the issue of campaign finance reform.
The issues of campaign finance reform and corporate welfare are quite differently
situated. While a commission approach could well be an effective way to expedite
action on cutting corporate welfare, a commission would serve only to delay and un-
dermine efforts to deal with campaign finance reform.
Congress has a unique opportunity in the coming months to pass a strong cam-
paign finance reform measure. Fair and comprehensive legislation with bipartisan
support has been introduced in both the House and Senate, and has growing sup-
port from the public.
As you know, the campaign finance issue has been thoroughly debated both at the
Committee level and on the floor of both the House and Senate over the past three
Congresses. Campaign finance reform should not be delayed until the next Congress
by appointing a commission. Indeed, there is an urgent need to restore the public's
trust in Congress by enacting strong bipartisan campaign finance reform legislation
before end of this session.
38
As I stated in my testimony, the first and most important step this Congress
should take to eUminate corporate welfare is to quickly pass a strong, comprehen-
sive campaign finance reform bill.
Sincerely,
Ann McBride,
President.
PREPARED STATEMENT OF ANN McBRIDE
Mr. Chairman, Members of the Committee:
I appreciate the opportunity to testify on behalf of Common Cause. We applaud
Senators John McCain (R-AZ), Russell Feingold (D-WI), Fred Thompson (R-TN),
Edward Kennedy (D-MA), and Daniel Coats (R-IN) for raising the public visibility
of the corporate welfare issue by introducing S. 1376, the Corporate Subsidy Review,
Reform, and Termination Commission Act of 1995. We commend the Committee for
holding this hearing on this critically important issue.
Secretary of Labor Robert Reich has characterized corporate welfare as "business
subsidies that don't make sense." Corporate welfare comes in various guises: direct
payments to companies, provision of public goods or services at below-market value,
federal purchases of goods or services at above-market value, federal tax breaks,
and exemptions from otherwise applicable laws. While there is no single set of uni-
versally accepted criteria that can be used to identify just what constitutes corporate
welfare, most definitions revolve around several standards:
• Whether the program is difficult to justify economically and whether it provides
the government with a fair return on its investment;
• Whether the beneficiaries of the program are wealthy interests not in need of
federal subsidization;
• Whether the program undervalues resources, which encourages exploitative or
environmentally destructive activity; and
• Whether the program conflicts with other federal policies.
Corporate Welfare and the Budget
While Congress and the President have yet to reach a final agreement on a bal-
anced budget, they have agreed on the goal of a balanced federal budget in 7 years.
Reaching that goal will require serious reductions in many federal programs. It is
a goal that will be reached only after many pitched battles over the nation's prior-
ities.
Already in this Congress, there have been substantial cuts in funding for edu-
cation programs, children's nutrition, Medicaid and many other federal programs.
But one area of the budget has thus far remained largely untouched — corporate wel-
fare: direct subsidies, tax breaks and other benefits for some of the nation's wealthi-
est corporations.
As Colin Powell has said, "You see a lot of politicians attacking welfare queens
but you see them a little reluctant to take on the welfare kings on K Street."
According to a study by the Center on Budget and Policy Priorities in October
1995, "Congress is failing to reduce the overall level of corporate subsidies and is
charting a course that could increase such subsidies over time." The study, based
on a conservative estimate of federal subsidies to businesses by the Congressional
Budget Office (CBO), concluded that legislation passed by the House of Representa-
tives by late October 1995 would achieve only an $8 billion savings over 7 years,
of an estimated "$722 billion in corporate subsidies the Federal Government is slat-
ed to provide over the next 7 years."
The Center's director, Robert Greenstein, said, "Although reducing corporate sub-
sidies could help balance the budget, these subsidies are essentially receiving a free
ride. Congressional rhetoric to cut corporate welfare is not being matched by Con-
gressional action."
In the House of Representatives, these special provisions continue to be included
in legislating changes in tax law. When the House Ways and Means Committee
passed a tax bill as part of the budget reconciliation process in fall 1995, a report
in The Wall Street Journal noted, "The giant budget bill the House passed ... in-
cludes special tax favors for a handful of companies that lobbied hard for tailor-
made changes. Such favors are hardly unusual. But these come amid much Repub-
lican boasting that their bill largely avoids special-interest breaks, particularly for
corporations."
39
The Clinton Administration also has left most corporate welfare programs un-
touched. For example, the Administration has continued to recommend full funding
for two of the most glaring and well-publicized examples of corporate welfare — the
Agriculture Department's Market Promotion Program, a subsidy that pads the for-
eign advertising budgets of huge corporations, and the funding of ethanol subsidies.
As Stephen Moore, director of fiscal policy studies at the CATO Institute, recently
noted, "One of the lessons we've learned this [past] year is that the corporate lobby
is extraordinarily powerful in this town. What we found is their strength is in direct
proportion to the amount of subsidy they get from these programs."
Examples of Corporate Welfare
Corporate welfare programs have been detailed and analyzed by a number of or-
ganizations, including the CBO, CATO Institute, the Progressive Policy Institute
and a coalition of groups who authored the Green Scissors reports.
Agribusiness giants, commercial ship owners, huge defense contractors and count-
less other special interests reap billions of dollars in taxpayer-financed subsidies,
tax breaks and perks.
One program provides $3.6 billion over 5 years in highly controversial subsidies
to the manufacturers of ethanol — an alcohol-based fuel. The primary recipient of
this subsidy is Dwayne Andreas, a huge campaign giver and soft money donor to
both the Republicans and the Democrats.
The mining industry earns nearly $300 million every year from the minerals it
extracts from federal lands — royalty free. Tobacco interests receive millions of dol-
lars to help administer their price supports program. And wealthy companies like
Sunkist, Gallo Winery, Pillsbury and others share in a $100 million a year subsidy
that allows them to pad their overseas advertising budgets with federal funds. An-
other federal program provides about $95 million annually to construct new forest
roads that are built primarily to benefit private timber interests.
Congress must find a way to assure taxpayers that corporate welfare programs
will be given the same close scrutiny as other programs, and that they will receive
their fair share of cuts.
Corporate welfare programs often survive criticism because of the strong influence
of special-interest money.
By contrast, many other federal programs for the disadvantaged and for average
Americans do not have powerful special interests supporting them with expensive
lobbying activities and huge campaign contributions. In the past year, these pro-
grams have been the prime targets of congressional budget cutters.
Americans rightly distrust a government that is not fair, that gives special access
and influence to powerful interests. Congress' failure to address the problem of cor-
porate welfare can only lead to further erosion of its standing with the American
people.
The Ethanol Switch — A Story of Corporate Welfare
Last year, as the tax bill began to move forward in the legislative process, lobby-
ists descended on the Capitol and rescued at least one well-known corporate tax
break in an episode that illustrates why corporate welfare remains virtually un-
touched.
Headlines in an oil industry newsletter explained, in a nutshell, the difliculties
faced by opponents of corporate welfare. On September 25, the newsletter reported
that "Archer Tax Bill Ends Ethanol Tax Breaks." A week later, the newsletter's
headline read, "At Behest of Gingrich, Archer Shifts on Ethanol."
Ethanol is a corn-based gasoline additive whose primary manufacturer is Archer
Daniels Midland (ADM), a company owned by Dwayne Andreas. In the period 1988
through 1994, Andreas and ADM contributed $1.6 million in soft money to the Re-
publican Party and $814,000 to the Democratic Party.
Ethanol is touted as an environmentally sound and renewable source of fuel
which will reduce the nation's reliance on a limited supply of oil. But many critics
claim it does not reduce pollution and is economically viable only because of federal
tax breaks for its producers.
Senator Bill Bradley (D-NJ), who with Senator Don Nickles (R-OK) has intro-
duced legislation to phase out the ethanol tax subsidy, said the ethanol industry
"has been living off the public dole long enough. The billion-dollar tax break is noth-
ing more than a gift to a single, politically connected industry."
According to the oil industry newsletter, "Gingrich has previously opposed the eth-
anol incentive, and as recently as 2 months ago lambasted the ethanol subsidy to
a natural gas group: 'It appears corn growers and ADM (Archer Daniels Midland,
the United States' largest ethanol producer) are more clever than natural gas . . .
they got a gimmick and got it passed,' he said."
40
But, pressure from the ethanol lobby was enough to move Speaker Gingrich to
make an about-face on the issue and order the Ways and Means Committee to do
the same. The ethanol tax break was preserved. As The Washington Post noted,
"The ethanol subsidy is proving to be a life form as sturdy as antibiotic resistant
bacteria; everyone from Gingrich to the White House winked at its resuscitation."
Campaign Finance Reform and Corporate Welfare
Key leaders of the effort on behalf of S. 1376 — Senators McCain, Feingold and
Thompson — are also providing courageous leadership in the effort to reform the
campaign finance system.
We believe these issues go hand-in-hand. Corporate welfare remains an intracta-
ble part of the federal budget in large part because campaign contributions flow to
Members of Congress from those special interests that benefit from corporate wel-
fare programs.
The connection between campaign finance reform and an end to corporate welfare
has been noted by those with widely diverse points of view. The conservative CATO
Institute said,
Much of what passes today as benign industrial policy is little more than
a political payoff to favored industries or businesses. Taxpayer dollars that
are used to subsidize private firms are routinely returned to Washington
in the form of political contributions and lobbying activities to secure even
more taxpayer dollars.
The Clinton Administration's Secretary of Labor Robert Reich agreed, saying,
There's a direct connection between unwarranted tax breaks and the prob-
lems that we have in our current system of campaign finance and lobbying.
Ninety percent [of corporate welfare], if not 100 percent of it, is a result
of lobbying and campaign donations by particular companies and indus-
tries.
These special interests are using the influence money game to their advantage.
Their campaign contributions to Democratic and Republican Members of Congress
and their huge donations to both political parties have helped to ensure that hun-
dreds of millions of dollars in federal corporate welfare keeps flowing their way.
The first and most important step this Congress should take to eliminate cor-
porate welfare is to quickly pass a strong, comprehensive campaign finance reform
bill. We urge the full Senate to act soon to pass S. 1219, the Senate Campaign Fi-
nance Reform Act of 1995.
Ending Corporate Welfare
An independent commission on corporate welfare and an expedited process for im-
plementing that commission's recommendations that would be established by S.
1376 is one way to ensure that these powerfully backed programs are subject to the
same scrutiny as other budget items. For a commission to be effective, it must have
a strong mandate to examine these programs, and to make specific recommenda-
tions on reducing or eliminating corporate welfare benefits in the federal budget.
The commission established by S. 1376 is styled after the successful Base Realign-
ment and Closure Commission, with some differences.
The commission would make a set of recommendations on provisions which should
be eliminated or reduced from the budget and tax code. The commission's report
would be sent to the President, who could approve it as a whole or make revisions
and return it to the commission. If the President makes revisions, the commission
may or may not accept those revisions and then return it to the President. If at that
point, the President disapproves the revised report, the process ends.
If the President sends the report to Congress, the House and Senate would have
expedited procedures for considering the report — but would be allowed to amend it —
and when passed, the report would be returned in legislative form to the President
for his signature.
We believe it is especially important, as Senator McCain pointed out in his state-
ment introducing the legislation, that the final stage of the process be as free as
possible from "opportunities for parochial interests to influence the process."
Conclusion
At a time when leaders in Congress are telling the American people that we must
make difficult choices in the federal budget. Congress must fairly address the bil-
lions of dollars spent on corporate welfare.
We applaud Senators McCain, Feingold, Thompson, Kennedy and Coats for rais-
ing this critical issue and for introducing S. 1376.
41
ATTACHMENT
THE COST OF CORPORATE WELFARE
The range of our government's corporate welfare programs is vast. All told, budget
experts estimate that corporate welfare programs will cost taxpayers $265 billion
over the next 5 years. Here are just a few of the programs that cost American tax-
payers billions of dollars.
#1— ARCHER DANIELS MIDLAND
Archer Daniels Midland (ADM) enjoys an enormous tax subsidy that benefits
producers of ethanol, an alcohol-based fuel. ADM has cornered about 80 percent
of the ethanol market.
ADM is a multimillion-dollar campaign contributor. In addition to generous
PAC giving to congressional candidates, ADM gave more than $480,000 in soft
money to the Democrats and more than $345,000 in soft money to Republicans
during the 1994 elections alone.
COST TO TAXPAYERS: $3.6 BILLION OVER 5 YEARS
#2— WEALTHY SHIP OWNERS
Commercial ship owners who agree to make their vessels available to the gov-
ernment during wartime are eligible for enormous federal subsidies, even
though the Pentagon and others agree that the program no longer serves a use-
ful purpose. Ships in the program receive on average $3.5 million each in yearly
federal subsidies, according to the Los Angeles Times.
Despite concern from the Pentagon and others, Congress has yet to scrap the
questionable program. The maritime industry has been particularly generous to
Congress — giving nearly $17 million in PAC contributions to congressional can-
didates during the last decade.
COST TO TAXPAYERS: $1 BILLION A YEAR
#3.— PROMOTING CHICKEN McNUGGETS©, PRUNES & ORANGE
JUICE
McDonald's, Pillsbury, ConAgra and Tysons Foods are just some of the giant
food corporations and agribusiness powers that benefit from huge corporate wel-
fare programs that cost taxpayers billions every year.
One tax subsidy — the Market Promotion Program — helps wealthy corporations
advertise their products overseas. McDonald's has received more than $1.6 mil-
lion since 1986 to advertise its fast food products abroad; Sunsweet Prunes
pulled in nearly $23 million; and Sunkist has received more than $76 million
since 1986 to promote its oranges in Asia.
The subsidies are huge, but there's been little outcry from Congress. Agri-
business and food corporations contributed nearly $50 million in PAC contribu-
tions to congressional candidates during the past decade.
COST TO TAXPAYERS: $6.2 BILLION A YEAR
Sources: Common Cause, Progressive Policy Institute, Los Angeles Times, The Cato
Institute, the Green Scissors Report
Chairman Stevens. Thank you very much.
I am at a loss and probably should keep quiet, but as I recall,
we have had a vote on power marketing agencies. We have had a
vote on ethanol. We have had a vote on, I think, the MPA, Market-
ing Promotion Program, whatever they call that, not MPA, the Ag-
riculture Marketing Program. We had separate votes, I think, on —
at least a third this Congress so far on the list that was presented
to us by Mr. Moore from Cato.
Now, somehow or other people think if those same issues come
up in a bill from a commission that the Congress will change its
mind. Tell me, how do you think Congress is going to change its
mind on ethanol after what you described?
Ms. McBride. Well, Mr. Chairman, I think one of the things is
that a commission that is separate from the money and special in-
fluence that is very evident in this town, I think
42
Chairman Stevens. Well, Archer proposed it, Ms. McBride. How
is this commission going to get any further than having the chair-
man of the Committee propose the amendment?
Ms. McBride. Well, Mr. Chairman, what happened then obvi-
ously was that an enormous amount of political influence came to
bear, and you are not free of this in this process. But what you
start out with is a presumption, a presumption that people free
from this process, free from money, should be able to sit back and
make the public case and the reasons why this should be elimi-
nated. That presumption has to be overcome. There are no guaran-
tees in this process that it will be overcome, but there will be an
independent voice and a strong and public case made by those sep-
arate from the process.
Chairman Stevens. I would just ask you one last question. Take
my friend Warren Rudman, my friend Paul Tsongas, and ten an-
gels along with them, and they are on a commission and they rec-
ommend all these things and have one bill and they come up here.
Tell me what is going to happen different to that, their suggestions,
and happen to Archer's suggestion. Why should we use the tax-
payer money for a commission to do something we ought to do
again and again and again until we get it done. As I said, it took
me 25 years to get the Alaska Power Administration sold, but I did
get it done. I wouldn't have got it done under term limits, by the
way, but I would have got it done. [Laughter.]
Senator THOMPSON. Somebody else might have, though.
Chairman Stevens. I don't know. Maybe you could have done it
better. I guess that is true.
I don't see how this is going to help getting a decision by Con-
gress on these issues within a commission when Congress has re-
fused time and time and time again to — I voted with him on most
of these things, although I wish he had mentioned the Seawolf in-
stead of the B2. Thompson said it. One man's pork is another
man's prize or person's prize, you know.
Senator McCain. May I make a quick response, Mr. Chairman?
Chairman Stevens. Yes. Well, she wants to answer first.
Senator McCain. Could I, Ms. McBride, just one second?
Ms. McBride. Certainly.
Senator McCain. I think the same reason why we couldn't close
a base until we had a commission that recommended a package
that Congress could accept. I think it is pretty clear that when the
Pentagon would say we will close Elmendorf Air Force Base in
Alaska, people would rally around with respect and affection for
whatever Senator it may be and say, OK, we won't vote this down.
But when a credible commission of people who were credentialed
and who had the reputation of non-partisanship, nor anj^thing ob-
jective except what was best for our nation's defense, they came
forward with a package, and those packages would be accepted. I
think that is the difference. At least, I hope it is, Mr. Chairman.
Ms. McBride. Let me just add, Mr. Chairman, that I also believe
that this would be a much easier task, that you would not have the
problem of the ethanol switch and many of the other protections of
corporate welfare if, when this commission reports back in 1997,
we have had fundamental campaign finance reform. I believe the
commission will play a major role in creating a package, creating
43
a presumption, but we also in this country have to break the stran-
glehold of money on the Congress and on these kinds of decisions.
And so I would hope that in 1997 we come back with a package
of powerful amendments by a group of people who are committed
to changing and dealing with these in a hard-nosed, realistic way,
and that you will also have a Congress that is no longer so depend-
ent on the money that protects these perks and corporate benefits;
and that, therefore, Congress will be freer to make positive deci-
sions that will benefit the average citizen.
Chairman STEVENS. Ms. McBride, you sound like you are cam-
paigning for Bob Dole and a Republican-controlled Congress. Is
that what you are telling us?
Senator McCain. Sure, she is. [Laughter.]
Chairman STEVENS. Thank you. Go ahead. Senator Thompson.
Senator THOMPSON. Well, I don't like these commissions that do
jobs for us that we ought to do ourselves either. But we went
through this with the balanced budget amendment debate. We all
said all we need to do is the right thing, we don't need the amend-
ment; and we see how close we are now to a balanced budget still.
But I have decided that some of our problems are becoming so
intractable. On the economic side, for example, if we bankrupt this
country, you know, future generations are not going to be all that
caught up in how we did it and what procedure we used. And I
think the same thing is true here, and it has to do, I think, with
public confidence.
I would like for both of you to address that. I was looking again
yesterday at some figures of people's attitude toward Congress, and
after going up a little bit, you know, it is right back down where
it has always been, which is lower than a snake's belly. It looks to
me like that after all is said and done, we can talk about these in-
dividual programs, we can talk about how we attack them and all
of that. But the fundamental issue here is one of public confidence.
I get the feeling that there is a broad feeling out there, and it
is manifested in Ross Perot, Pat Buchanan, Forbes, public opinion
polls, the esteem of Congress or lack of it. I mean, it hits us over
the head, and we refuse to recognize it, of broad cynicism and lack
of trust with what goes on up here. And it looks to me like that
this is a part of that package.
Now, am I drawing too broad a picture here on that, or do you
agree with that?
Ms. Phillips. Well, I think that if you set up a commission to
do this job and you fail, you will heighten that distrust and mis-
trust. So it is a gamble that you are taking. I hate to be the skunk
at the garden party and be such a pessimist. The Concord Coali-
tion's "Zero Deficit Plan" recommended terminating or reducing
sharply a number of subsidies to corporations on both the spending
and revenue sides. We found it to be very, very hard work to get
people to embrace these decisions.
Commissions are not magic. Lord knows we have had commis-
sions and commissions and commissions. There is a long list of
commissions, listed in my formal testimony, that are currently
being proposed to do everything from reform Medicare to figure out
which national parks should be trimmed back or closed.
44
Commissions aren't magic. If you set one up, you are going to
have to invest a lot into making it work. It won't be easy. If you
pull it off, I think it will do an enormous amount to heighten the
esteem and credibility of Congress. And if you don't pull it off, peo-
ple will say, you know, the same as usual.
Ms. McBride. Senator Thompson, I strongly believe that this
issue is part of the piece that concerns people, and in many ways
it has become a symbol because it brings together what they are
concerned about. In the last year since I became president of Com-
mon Cause, I have traveled all over this country and listened to
thousands of people, and they are deeply concerned, as you talked
about in your statement. And I think what this issue brings to-
gether for people is the concern that I am not being represented;
there are powerful voices that are being heard and protected while
the things that I am concerned about are not; that my voice can't
be heard; and that money and power have too much influence in
Washington.
So I think this is an important part of the piece, an important
symbolic piece and an important piece of reality about how the
American people feel. And, you know, none of us loves commis-
sions. If we are honest, this is not the preferred way to go. The pre-
ferred way to go was, Mr. Chairman, when those votes came up
and these were programs that had outlived their usefulness, that
they would be voted down. Unfortunately, this has not happened,
and I think this approach is worth trying, because I do believe this
is an important part. The American people are deeply concerned.
But I believe that underneath their anger and their cynicism,
they desperately want a Government they can be proud of. They
desperately want a Government that works. They desperately want
to have a sense of community and pride in their public officials.
And I think that that, you know, underlies this and underlines oth-
ers of the issues that you are raising.
Senator THOMPSON. You know, it occurs to me that as part of
this education process it could work more than one way. Some of
these things that are on some of these lists, after a public airing
and discussion by an independent body, we may decide that there
is a public good that is being served, even though it is only one
small segment of society, maybe, who can carry it out, whether it
be research and development or keeping us from our oil depend-
ency and all of that.
The other part of the equation would be for people like us and
the two of you to acknowledge that perhaps these are justified. The
process wouldn't be just totally a one-way deal that anything that
is on somebody's list has got to go. But there would be some public
agreement as to what really did serve the national interest and
what was corporate pork.
That is all I have.
Ms. McBride. Yes, and that was the concern raised by Senator
Stevens, that, in fact, this process could provide a real evaluative
process to reach consensus in the country. So thank you.
Chairman Stevens. Well, I disagree with you both. I can see the
headlines in my home town and several other towns in Alaska to-
morrow: Stevens questions commission to eliminate pork. You
know, all you have to do is to suggest some of these things, and
45
if you ask even a question about them, you face such a barrage
today in the pubUc you can't beheve it.
Now, again, I tell you, I think eliminating corporate pork is one
thing, but trying to analyze what caused a Federal expenditure and
seeing whether that is justifiable is entirely different than coming
up with a list like all of you today have come up with, just elimi-
nate these things, they are pork, apparently because they don't
serve anyone that is on the list that suggested them.
I really question seriously whether Congress ought to create com-
missions to do a job the public knows we ought to do ourselves.
And if you are right, Ms. McBride, that issue ought to be brought
up again and again and again until people realize that you are
right. But I don't think having a commission suggested to it is
going to be any stronger to the Congress than having Chairman
Archer suggest it. I just still wonder why we need a commission to
tell us what we ought to do anyway. If we should do it, we should
do it. But those of us who try to look at the background of why
something is being spent, why money is being spent — and I can go
on for years about — look at the West. Look at the Constitution.
There is not a thing in the Constitution that says the Federal Gov-
ernment can own property other than for bases, for magazines and
post offices and a few other things. But the Federal Government
owns the West. And you spend more money every year in about 11
agencies to deal with ownership of land in the West than you can
imagine.
But any of us that suggest maybe we ought to think about that,
we're suddenly tarred with a brush, that we are challenging the
national park system or something. This system today has gotten
to the point where anyone who wants to think out loud is in trou-
ble. I am in trouble right now.
Senator Levin?
Senator McCain. Mr. Chairman, would Senator Levin — could I
have his indulgence? I have to go to the same hearing that Senator
Levin just came from, if he would allow me just a couple minutes.
Chairman Stevens. I have to go to one, too.
Senator McCain. Mr. Chairman?
Chairman Stevens. Yes, sir.
Senator McCain. Thank you, Mr. Chairman.
Ms. Phillips, I appreciate your comments and your recommenda-
tions, and I think that they are very valid. I think we ought to look
very carefully at them, and we appreciate your testimony.
Ms. McBride, thank you for your very cogent remarks, and every-
thing around here is anecdotal, but you brought up the ethanol
issue. I am a C-SPAN junkie, and I was watching when Senator
Dole went over and spoke to the National Governors' Association,
not the Republican Governors, all the Governors, and they had
come up with a bipartisan — the Governors had — agreement on ad-
dressing the Medicare and the Medicaid issue. It was 2 or 3 weeks
ago. And so Senator Dole gave some remarks, and then there were
a few questions from the assembled Governors, most of them focus-
ing on the agreement on Medicare and how Senator Dole was going
to present this to the Congress and whether the President would
agree and that kind of thing. And the last question was from the
Governor of Iowa, who said, "What's your position on ethanol?"
46
This is before the Iowa caucuses. So Senator Dole had to say — and
I am supporting Senator Dole. Senator Dole had to say, "I am for
ethanol 100 percent. I am behind it. It is the greatest thing since
sliced bread," blah, blah, blah. Because clearly if Senator Dole had
said anything else, it would have affected what happened in the
Iowa caucuses.
I saw special interest at work right there on C-SPAN. And so I
respectfully disagree with my distinguished chairman that we are
able to address this issue.
Ms. Phillips, you mentioned with great clarity that we are taking
a risk. I agree we are taking a risk. But my question to you, Ms.
Phillips: Do you think the status quo is going to work? Do you
think that things are going to change greatly under the status quo
if we don't do something like a commission?
Ms. Phillips. I not only don't think things will change under the
status quo, I am not convinced that they will change under a com-
mission either. What I am trying to say is that we encourage you
to launch a commission, but we caution that you are going to have
to invest a great deal of political capital, energy and time into mak-
ing the commission work. It is not enough to just appoint a com-
mission and walk away.
Senator McCain. Your point is
Ms. Phillips. Recently we saw the entitlements commission.
Senator McCain. Exactly.
Ms. Phillips. It got appointed, but, you know, it did not have the
full backing in a lot of places where it needed to be backed in order
to succeed. Nevertheless, it was useful. The public is now aware of
entitlement realities that were not widely before. But nothing
much happened as a result of all of that expenditure of time and
energy. So, a commission is only the beginning; it is not the solu-
tion.
Senator McCain. I agree with you, and for every commission
that has succeeded, there are probably 10 that have failed. I am
agreeing with you. But there have been some, for example, the So-
cial Security Commission that basically gave Congress the back-
bone to make the decisions to save Social Security back in 1983.
Ms. Phillips. The difference with the Social Security Commis-
sion is that when they finally reported, they were in actually the
month when there was not enough money in the trust fund to pay
the benefits. They had to do something. This issue of corporate sub-
sidies, unfortunately, could go on and on and on until the end of
time, and so you don't have that kind of deadline.
Senator McCain. I understand that. I was just citing it as an ex-
ample. Let me give a better example. We didn't close a base for 30
years until we had a Base Closing Commission. Now, those bases
would have gone on and on and on and on, in my view, if we had
not had a commission that would then give us the cover, very
frankly, the political cover, to vote for a package rather than a sin-
gle base being closed or kept open.
Ms. Phillips. But in your bill, you are not going — as I read it —
now, I may have misread it. You are not going to have a package,
so people could still line up and pick them off one by one.
Senator McCain. There will be a package that comes out of the
commission, Ms. Phillips. I am sure you read that in there also.
47
Now, it may go to the Committees, yes, because I think they are
trying to address the deep and vaUd concern that Senator Stevens
has. If you do away with the maritime subsidies, then it seems to
me you have got to look at the Jones Act and take other legislative
action as well. But, you know, that is why we have these hearings,
and that is why we have people like you here.
Ms. Phillips. I wonder if, after you went to the Committee proc-
ess, if there was a way that you could bring it back to a single
package. After the Committees have done their best work, repack-
age it, and then say, OK, the whole thing stands or falls; you can't
continue picking at it.
Senator McCain. I think that is a very valid point.
Did you want to say anything, Ms. McBride.
Ms. McBride. No. Thank you.
Senator McCain. Thank you, Mr. Chairman.
Chairman Stevens. Thank you very much. Senator.
Senator Levin?
Senator Levin. Mr. Chairman, I will be brief because I know it
is late. I think the bill as it is intended is well intended. I think
we have to look at the whole host of programs. I think it is, how-
ever, way broader than what its intent is, and that is something
which we have to be concerned with. At least I am concerned with
it.
So I applaud the sponsors and the supporters for proposing that
we look for a mechanism to take a look at some of these programs.
But when you analyze the bill itself and look at the breadth of the
bill, it seems to me it is overly broad, to say the least.
As I read this bill, we would be investing in the President and
eight of the President's appointees, a majority of which would be
five, the power to look at any program that directly or indirectly
benefits any profit-making entity, any mom-and-pop store or any
partnership, any sole proprietorship. This isn't just big corporations
we are talking about. We are talking about any entity that is in
business.
Those five people representing a majority picked by a President
would then be able to make a proposal on literally thousands of
programs, and maybe tens of thousands, but literally thousands of
programs, and submit them to a Congress in a package. Presuming
the President would agree, because he made the appointments.
These are all Presidential appointees. These are not congressional
appointees. Congress can give advice to the President, but they are
Presidential appointees.
That package then comes to the Congress. If a committee does
not disapprove of its piece of the package within a very limited
number of days, then it goes to the floor, and there are 20 hours
of debate. And you could literally have thousands of changes in
vital programs.
You could have a school-to- work program. This is a vocational
education program that I have been looking at it very closely. I
think it does a tremendous amount of good. It surely has a direct
or an indirect benefit for business. It helps to provide skills to stu-
dents who are then utilized by businesses. And I don't know what
"inequitable" means in this language exactly, but somebody can
argue it doesn't fall equitably.
48
Do you know how many programs are covered by the bill, by the
way, and tax expenditures? Do you have any idea if it is 1,000,
10,000, or 50,000?
Ms. McBride. I don't.
Ms. Phillips. My impression is that there aren't that many pro-
grams. It depends on whether you mean programs, projects, or ac-
tivities as defined under the Budget Act. But there is a finite list.
Senator Levin. Do you know what that would be as defined by
this bill, how many?
Ms. Phillips. It was not defined, as I recall.
Senator Levin. Do we have any idea as to how many programs,
potentially?
Senator Thompson. Cato identified 125.
Chairman Stevens. That is their list, though.
Senator THOMPSON. That is just their list.
Senator Levin. That is the list of the ones they want to get rid
of.
Chairman STEVENS. Right.
Senator Levin. No, no. I am talking about how many are poten-
tially covered by the commission. I would think it would be tens
of thousands. It would be every program and tax expenditure,
which anybody could argue
Senator THOMPSON. It depends on what you mean by covered by
the commission. The only ones that will be identified by the com-
mission will be ones that do not have a clear and compelling public
interest. So it is not just every entity that happens to be on some-
body's list.
Senator LEVIN. But I think almost any program could be argued
to have the effect of creating an inequitable, indirect subsidy. I
don't know of too many programs that someone couldn't argue
against as not being in the public interest.
Once it is defined that broadly, it seems to me almost every pro-
gram and every expenditure then is covered. This isn't a finite list
that is going to a commission that has limited powers. This is a list
of any program or tax expenditure which anybody can argue has
an inequitable, indirect subsidy.
Let me tell you, I don't know of too many programs that someone
couldn't argue that — that someone doesn't disagree with, basically.
Now, that is a huge mandate to an appointed commission in the
executive branch, which then has a very restricted congressional
review. It is a very time-limited committee review, and then it is
a 20-hour debate on the floor. That is potentially a huge shift of
power.
Now, I happen to agree there are a whole bunch of what we call
corporate subsidies I would like to see changed, by the way. So I
know what the sponsors are getting at, I think, and I think they
are doing the right thing by forcing an analysis of those subsidies.
But this bill goes beyond that. This gives some very large powers
to a commission and narrows the congressional review of whatever
that commission comes up with.
Every farm price support program, I assume — I don't know if
that is on the Cato list or not, but every single one of those, every
farmer in business, presumably. Now, maybe they all ought to be
looked at. I don't doubt that. But we just had a farm bill. That was
49
a debate which took days. That was on one bill. And every single
farm support program, arguably, provides an indirect subsidy
which someone can say is inequitable to a business that is called
farming. But you multiply that by 100, that is just farm subsidies.
I think there are more than 125 of them, maybe. I don't know.
So if this were a matter of creating a commission which would
review and make a recommendation with a tighter standard, I
would be a lot more comfortable. But when you go to a very broad
standard, and then restrict severely the congressional review and
when you give the executive branch — I don't care who controls it,
but the President and eight appointees of the President that kind
of power, it seems to me it is potentially too great a shift in real
power. Not just a tool of analysis, but, again, a real shift of power.
I think that the sponsors are doing us a service here by forcing
a review of these subsidies. I think, however, we have got to be
careful that anything we adopt is a balanced view.
The bill ought to, I think, have a greater legislative input in
terms of appointments. Its mandate, I think, ought to be narrower.
I think the word "inequitable" is too general a word, and "direct"
and "indirect" opens it to everything. We may want to either enu-
merate some or — and then at the end, perhaps. I don't think we
ought to use the model of the base-closing commission, because this
is all the programs and tax expenditures basically of the United
States, because they all indirectly, arguably, benefit somebody who
is in business.
I will leave it at that. My full statement, Mr. Chairman, I would
like to be made part of the record.
Chairman STEVENS. Without objection, we will make your state-
ment part of the record.
[The prepared statement of Senator Levin follows:]
PREPARED STATEMENT OF SENATOR LEVIN
In this era of declining budgets, Congress has a moral obligation to examine every
federal program and tax expenditure to determine whether the cost justifies the
benefits and whether the American taxpayer ought to be asked to pay for it. The
bill before us today is an attempt to meet that obligation, and I commend my col-
leagues for attempting to address an issue of great importance.
But I am concerned that S. 1376 appears to go far beyond what I believe to be
the authors' limited purpose and, if enacted, could permit the President and a few
individuals of his choosing to cause possibly sweeping changes across government,
with very limited opportunity for congressional action.
First, the bill is not limited to corporations. It covers all "individuals or organiza-
tions engaged in profitmaking enterprises." That means the bill reaches every mom-
and-pop store, partnership, farming operation, and business of any type set up to
make money.
Second, the bill covers not only government "subsidies," but also any federal "pro-
gram," "tax," "benefit," "payment," "service" or Tinancial advantage," that provides
a "direct or indirect" benefit to a profitmaking enterprise. That's broad language.
Farm price supports, medical research programs, low-income housing tax credits,
health insurance regulations, worker training programs, even public schools — all
provide benefits to profitmaking enterprises in one way or another and could be
within the scope of this bill.
Third, the bill is not limited to government benefits that advantage one company
or a small number of companies over their competitors. The bill goes after any fed-
eral program or tax expenditure that is "inequitable." The problem, however, is that
"inequitable" is not defined, and it's anybody's guess as to what it means.
Who decides what is inequitable? Under this bill, eight individuals whom the
President appoints at will, after consulting congressional leaders. Five of the eight
could form a commission majority to determine which of thousands of federal pro-
50
grams and tax expenditures should be terminated, which should be modified and
which should be left intact.
The bill places no restrictions on the modifications that could be proposed to gov-
ernment programs or tax expenditures, by the way, except to prohibit the creation
of a new program or tax. The open-endedness of this provision alone, allowing unre-
stricted modifications of existing programs and taxes, raises serious questions.
The problems posed by the bill's broad scope are compounded by unrealistically
short time frames that leave little room for deliberation. Agencies would be required
to come up with an initial list of recommendations by January 1997, 2 months after
the Presiaential election. The proposed commission would then have only 6 months
to analyze agency suggestions, hold hearings, and construct its own recommenda-
tions. The President would have all of 2 weeks to evaluate the commission's rec-
ommendations and come up with legislative language to be submitted to Congress.
Congressional committees would then have less than 3 weeks to report a bill, and
each House would then have only 20 hours to debate the issues and offer amend-
ments, even if faced with thousands of proposed changes to existing law.
This is not a base-closing commission recommending the closure of a limited num-
ber of military facilities. It is a commission whose recommendations could affect
every profitmaking enterprise in this country. There is no need or justification for
limiting Congressional judgment so sharply. In addition, I don't believe any rep-
resentative of the business community, the community that would be most affected
by this bill, was invited to testify today. I assume we will hear from them in later
hearings.
Many programs and tax expenditures that benefit business legitimately support
jobs, greater competitiveness and a healthy economy. It takes time and judgment
to separate the chaff from the wheat in this area, and reasonable people may dis-
agree. This bill would turn over the process of evaluating these programs and tax
expenditures to an unelected commission, answerable to no one, with very abbre-
viated Presidential and Congressional review. The bill's time restrictions could lead
to Senators having to vote on sweeping changes to thousands of federal programs
and tax expenditures after only a few minutes of debate on a handful of the sug-
gested changes. I don't believe that is the aim of the bill sponsors, but that appears
to be what the bill would require.
Those are my concerns, and I look forward to working with the Committee to ad-
dress them.
Chairman Stevens. Ladies, we do appreciate your courtesy. I get
a little excited about some of these things once in a while. I really
want you to know that my basic problem with this commission is
probably highlighted by the experience on the entitlements com-
mission. That was a lot of time and effort, and everyone involved
went away frustrated, and they went away frustrated because, as
you know, the commission itself split. I don't know how you could
envision people that knew anything about this subject that
wouldn't be split on almost every one of those issues in one way
or another. I think it is the political process, Ms. McBride. We tried
to get statehood from 1913 to 1958. Did you know that? And we
finally got it. But we finally changed enough votes, really enough
opinion in the country. I think you are part of the political process,
and I admire what you are doing. But I don't think that there is
a way under our constitutional system to give a carte blanche to
something, to put it all together so it will pass.
I agree with Senator Levin. The base closure example was the
follow-on from a basic decision we made to downsize the military
from 23 division to 8, from 600 ships to 240 or 340. We made basic
decisions first, and then we had to allocate that with the funds that
would be involved in maintaining that kind of a force structure as
compared to what we had at the height of the Cold War.
Now, I don't see how you can get a commission that would be
similar to that. I am willing to try. I am really willing to try to see
if we can get a commission that would review some of these things
and come back with a report and say. Is the underlying reason for
51
these expenditures still valid? But I would not want to support a
commission that would just go look at the expenditures and say
they are invalid without looking at the base root cause for the ex-
penditures involved in the system.
Do you have any further comments, Senator?
Senator Thompson. No, Mr. Chairman, and I agree with what
you are saying. I do think this all presumes a basic problem that
needs to be addressed. And if you don't believe in that, then you
are not going to believe in this concept. I believe that there is a
substantial problem. Every independent institute that has taken a
look at this has come to the basic same conclusion, that not only
is there a problem that something should be done about, but that
it is intractable under current circumstances.
I believe there is a growing cynicism among the American people
that things like this are for the benefit of those who have the influ-
ence and not themselves. I think it is part of a much bigger prob-
lem. So I see a pretty substantial problem, and it is like the base
closure commission. You are right. The approach was preceded by
sort of a unanimity of opinion that there was something that had
to be done. And I think that in this debate we are going to have
with this bill that is going to be the starting point. Is there a sub-
stantial problem of reality and perception among the American peo-
ple that needs in some way to be addressed in a different way? And
I look forward to that debate.
Chairman Stevens. We thank you very much. We are going to
keep this record open and pursue the question of whether there are
any further witnesses who wish to testify pertaining to the bill and
its underlying objection.
Thank you very much.
[Whereupon, at 11:25 a.m., the Committee was adjourned.]
APPENDIX
104th congress
1st Session
S. 1376
To terminate unnecessary and inequitable Federal corporate subsidies.
IN THE SENATE OF THE UNITED STATES
No\t:mber 1, 1995
Mr. McCain (for himself, Mr. Thompson, Mr. Kerry, Mr. Feingold, Mr.
Kennedy, and Mr. Coats) introduced the follo\\ing bill; which was read
tA\nce and referred to the Committee on Governmental Affairs
A BILL
To terminate unnecessary and inequitable Federal corporate
subsidies.
1 Be it enacted by the Senate and House of Representa-
2 tives of tJie United States of America in Congress assembled,
3 TITLE XX— CORPORATE SUBSIDY REVIEW,
4 REFORM AND TERMINATION COMMISSION
5 SECTION 2001. SHORT TITLE AND PURPOSE.
6 (a) Short Title. — This title ma}- be cited as the
7 "Corporate Subsidy Review, Reform and Termination Act
8 of 1995".
9 (b) Purpose. — The purpose of this title is to estab-
10 lish a fair process that ^^^ll result in the timely review,
(53)
54
2
1 reform, and elimination of unnecessary subsidies, benefits,
2 or financial advantages provided by the Federal Govern-
3 ment to individuals or organizations engaged in profit-
4 making enterprises.
5 SEC. 2002. THE COMMISSION.
6 (a) Establishment. — There is established an inde-
7 pendent commission to be knoAvn as the "Corporate Sub-
8 sidy Termination Commission". The Commission shall be
9 composed of 8 members appointed as provided in sub-
10 section (e)(3).
1 1 (b) Duties. — The duties of the Commission are to
12 examine Federal programs based on the following criteria:
13 (1) To examine the programs of the Federal
14 Government and identify such programs that provide
15 direct payments, services, or benefits to entities and
16 industries engaged in profitmaking enterprise. In re-
17 viewing such programs the Commission shall deter-
18 mine if such payment, service, or benefit —
19 (A) predominantly serves the pecuniary in-
20 terests of the specific entity or industry rather
21 than a clear and compelling public interest;
22 (B) provides an unfair competitive advan-
23 tage to one entity \vithin an industry or market
24 segment, or to one particular industry; or
S 1376 IS
55
3
1 (C) has the effect of creating any other in-
2 equitable federal direct or indirect subsidy.
3 (2) To examine the tax system of the Federal
4 Government to determine if current laws and prac-
5 tices result in —
6 (A) inequitable tax advantages that provide
7 financial benefits to an entity or industry in ex-
8 cess of that intended by the applicable law;
9 (B) benefits to an entity or entities that
10 are disproportionate to those available to simi-
1 1 lar entities within the same industry; or
12 (C) benefits to an industry or industries
13 that are disproportionate to those available to
14 comparably sized industries that are not eligible
15 for such benefits, and which create an undue
16 tax advantage for such industries; or
17 (D) the creation of any other inequitable
18 tax benefit or advantage.
19 (3) To report programs which satisfy any of the
20 conditions stated in paragraph (1) or paragraph (2)
21 to the Congress with specific recommendations for —
22 (A) termination;
23 (B) modification; or
24 (C) retention.
S 1376 IS
56
4
1 (4) Exclusion. — This Act is not intended to
2 result in the creation of new progi'ams or taxes, and
3 the Commission estabhshed in this section shall limit
4 its activities to reviewing existing programs or tax
5 codes wnth the goal of ensuring fairness and equity
6 in the operation and application thereof.
7 (c) Appointment. —
8 (1) Nominations. — The President shall trans-
9 mit to the Senate the nominations for appointment
10 to the Commission by no later than Januaiy 31,
11 1997.
12 (2) Failure to appoint. — If the President
13 does not transmit to Congress the nominations for
14 appointment to the Commission on or before the
15 date specified in paragi-aph (1), the process estab-
16 lished under this Act shall be terminated.
17 (3) Members. — In selecting individuals for
18 nominations for appointments to the Commission,
19 the President should consult A\ith —
20 (A) the Speaker of the House of Rep-
21 resentatives concerning the appointment of 2
22 members;
23 (B) the majority leader of the Senate con-
24 cerning the appointment of 2 members;
S 1376 IS
57
5
1 (C) the minority leader of the House of
2 Representatives concerning the appointment of
3 1 member; and
4 (D) the minority leader of the Senate eon-
5 cerning the appointment of 1 member.
6 (4) Chairman. — ^At the time the President
7 nominates individuals for appointment to the Com-
8 mission the President shall designate 1 such individ-
9 ual who shall sei've as chairman of the Commission.
10 (5) Background. — The members should rep-
1 1 resent a broad array of expertise covering, to the ex-
12 tent practical, all subject matter, programs and poli-
13 cies the Commission is likety to review.
14 (d) Terms. — Each member of the Commission in-
15 eluding the Chairman shall serve until the termination of
16 the Commission, not later than December 31, 1997.
17 (e) Meetings. —
18 (1) Initial meeting. — The Commission shall
19 meet during calendar year 1997.
20 (2) Open meetings. — Each meeting of the
21 Commission, other than meetings in which classified
22 information is to be discussed, shall be open to the
23 public. All proceedings, information, and delibera-
24 tions of the Commission shall be available, upon re-
S 1376 IS
58
6
1 quest, to the chairman and ranking member of the
2 relevant committees of Congress.
3 (f) Vacancies. — A vacancy on the Commission shall
4 be filled in the same manner as the original appointment,
5 but the individual appointed to fill the vacancy shall sei-ve
6 only for the unexpired portion of the term for which the
7 individual's predecessor was appointed.
8 (g) Pay and Travel Expenses. —
9 (1) Pay. — Each Commissioner, other than the
10 chairman, shall be paid at a rate equal to the daily
1 1 equivalent of the minimum annual rate of basic pay
12 for level IV of the Executive Schedule under section
13 5315 of title 5, United States Code, for each day
14 (including travel time) during which the member is
15 engaged in the actual performance of duties vested
16 in the Commission.
17 (2) Chairman. — The chairman shall be paid
18 for each day referred to in paragraph (1) at a rate
19 equal to the daily equivalent of the minimum annual
20 rate of basic pay payable for level III of the Execu-
21 tive Schedule under section 5314 of title 5, United
22 States Code.
23 (3) Tra\^l expenses. — Members shall receive
24 travel expenses, including per diem in lieu of subsist-
S 1376 IS
59
7
1 enee, in accordance with sections 5702 and 5703 of
2 title 5, United States Code.
3 (h) Director of Staff. —
4 (1) Qualifications. — The Chairman shall,
5 Avithout regard to section 5311(b) of title 5, United
6 States Code, appoint a Director who has not served
7 in any of the entities that the Commission intends
8 to review during the 1 year period preceding the
9 date of such appointment.
10 (2) Pay.— The Director shall be paid at the
1 1 rate of basic pay payable for level IV of the Execu-
12 tive Schedule under section 5325 of title 5, United
13 States Code.
14 (i) Staff. —
15 (1) Additional personnel. — Subject to para-
16 graphs (2) and (4), the Director, ^\^th the approval
17 of the Commission, may appoint and fix the pay of
18 additional personnel.
19 (2) Appointments. — The Director may make
20 such appointments without regard to the provisions
21 of title 5, United States Code, governing appoint-
22 ments in the competitive service, and any personnel
23 so appointed may be paid without regard to the pro-
24 visions of chapter 51 and subchapter III of chapter
25 53 of that title relating to classification and General
S 1376 IS
60
1 Schedule pay rates, except that an individual so ap-
2 pointed may not receive pay in excess of the annual
3 rate of basic pay payable for GS-18 of the General
4 Schedule.
5 (3) Detailees. — Upon request of the Director,
6 the head of any Federal department or agency may
7 detail any of the personnel of that department or
8 agenc}^ to the Commission to assist the Commission
9 in accordance \vith an agreement entered into with
10 the Commission.
11 (4) Restrictions on personnel and
12 detailees. — The following restrictions shall apply
13 to personnel and detailees of the Commission:
14 (A) Not more than one-third of the person-
15 nel detailed to the Commission may be on detail
16 from Federal agencies that deal directly or indi-
17 rectly with the programs and policies the Com-
18 mission intends to review.
19 (B) Not more than one-fifth of the profes-
20 sional analysts of the Commission staff may be
21 persons detailed from a Federal agency that
22 deals directly or mdirectly with the programs or
23 policies the Commission intends to review.
24 (C) No person detailed from a Federal
25 agency to the Commission may be assigned as
S 1376 IS
61
9
1 the lead professional analyst with respect to an
2 entity the Commission intends to review if the
3 person has been involved in regTilatoiy or pol-
4 icy-making decisions affecting such an entity in
5 the 12 months preceding this assignment.
6 (D) A person may not be detailed from a
7 Federal agency to the Commission if, within 12
8 months before the detail is to begin, that person
9 participated personally and substantially in any
10 matter within that particular agency concerning
11 the preparation of recommendations under this
12 Act.
13 (E) No member of a Federal agency, and
14 no officer or employee of a Federal agency,
1 5 may —
16 (i) prepare any report concerning the
17 effectiveness, fitness, or efficiency of the
18 performance on the staff of the Commis-
19 sion of any person detailed from a Federal
20 agency to that staff;
21 (ii) re\iew the preparation of succ r*-
22 port; or
23 (iii) approve or disapprove such a re-
24 port.
S 1376 IS-
62
10
1 (F) There ma,y not be more than 25 per-
2 sons on the staff at any one time.
3 (G) No member of a Federal aofency and
4 no employee of a Federal agency may serv-e as
5 a Commissioner or as a paid member of the
6 staff.
7 (5) Assistance. — The Comptroller General of
8 the United States shall provide assistance, including
9 the detailing of employees, to the Commission in ac-
10 cordanee with an agreement entered into with the
11 Commission.
12 (j) Other Authority. —
13 (1) Experts and consultants. — The Com-
14 mission may procure by contract, to the extent funds
15 are available, the temporaiy or intermittent services
16 of experts or consultants pursuant to section 3109
17 of title 5, United States Code.
18 (2) Leasing. — The Commission may lease
19 space and acquire personal property to the extent
20 that funds are available.
21 (k) Funding. —
22 (1) In general. — There are authorized to be
23 appropriated to the Commission such funds as are
24 necessary to carry out its duties under this part.
25 Such funds shall remain available until expended.
S 1376 IS
63
11
1 (2) Appropriation. —
2 (A) Funding requirement. — Such funds
3 as are deemed necessary to support the oper-
4 ation of the Commission shall be appropriated
5 in the Legislative Branch Appropriations Act.
6 (B) Failure to appropriate. — If no
7 funds are appropriated to the Commission by
8 the end of the second session of the 104th Con-
9 gi'ess, the Secretaiy of the Treasurj^ may trans-
10 fer, during calendar year 1997, to the Commis-
11 sion funds from the general fund. Such funds
12 shall remain available until expended. Funds
13 not expended shall be returned to the Treasury
14 upon termination of the Commission.
15 (1) Termination. — The Commission shall terminate
16 on December 31, 1997.
17 (m) Prohibition Against Restricting Commu-
18 NICATIONS. — Section 1034 of title 10, and section 7211
19 of title 5, United States Code, shall apply \\ith respect
20 to communications with the Commission.
21 SEC. 2003. PROCEDURE FOR MAKING RECOMMENDATIONS
22 TO TERMINATE CORPORATE SUBSIDIES.
23 (a) Agenci" Plan. —
24 (1) In general. — No later than the date budg-
25 et documents are submitted to Congress in January
S 1376 IS
64
12
1 1997 in support of the budgets of each Federal
2 agency or department, the head of each agency or
3 department shall include a list identifying all pro-
4 grams or policies that in their own view satisfy the
5 conditions stated in Section 2002(b) (1) and (2).
6 (2) Contents. — Such a list shall include —
7 (A) a detailed description of each program
8 or policy in question;
9 (B) a statement detailing the magnitude of
10 the consistency of the program or policy with
11 section 2002(b)(1) and (2); and
12 (C) a recommendation to the Commission
13 regarding actions to be taken under section
14 2002(b)(3).
15 Such list shall also be submitted to the Commission
16 upon the confirmation of the Chairman.
17 (b) Review and Recommendations by the Com-
18 MISSION. —
19 (1) Re\^ew and HEARINGS. — ^After receiving
20 the recommendations from the agency pursuant to
21 subsection (a), the Commission shall conduct public
22 hearings on the recommendations. All testimony be-
23 fore the Commission at a public hearing conducted
24 under this paragraph shall be presented under oath.
25 (2) Report of commission. —
S 1376 IS
65
13
1 (A) Report to president. — The Com-
2 mission shall, by no later than July 1, 1997,
3 transmit to the President a report containing
4 the Commission's findings and recommenda-
5 tions for termination, modification, or retention
6 of progi'ams and policies reviewed by the com-
7 mission.
8 (B) Changes in recommendations. —
9 Subject to subparagi'aph (A), in making its rec-
10 ommendations, the Commission maj'^ make
11 changes in any of the recommendations made
12 by an agency if the Commission determines that
13 the agency deviated substantially from the cri-
14 teria in section 2002(b) (1) and (2).
15 (C) Changes. — In the case of a change in
16 the recommendations made by the agencies, the
17 Commission may make the change only if the
18 Commission —
19 (i) makes the determination required
20 by subparagraph (B); and
21 (ii) conducts public hearings on the
22 proposed changes.
23 (D) Application. — Subparagraph (C)
24 shall apply to a change by the Commission in
25 an agency's recommendation that would —
S 1376 IS
66
14
! (i) add or delete a program or policy
to the list recommended for termination;
3 (ii) add or delete a progi'am or policy
4 to the list recommended for modification;
5 or
6 (iii) increase or decrease the extent of
? a recommendation to modify a program in-
cluded in an agency's recommendation.
(3) Justification. — The Commission shall ex-
10 plain and justify in its report submitted to the Presi-
\ ant pursuant to paragi-aph (2) any recommendation
12 I lade by the Commission that is different from a
13 r '•ommendation made by an agency pursuant to
14 - section (a).
15 (4) Report to congress. — After July 1,
\(j 1997, when the Commission transmits recommenda-
' to the President the Commission shall prompt-
18 ly pr /ide, upon request, to any Member of Congress
19 infor ition used by the Commission in making its
20 reeo«iinendations.
2\ '^- "Comptroller general. — The Comptrol-
22 ior L-t'iJc . of the United States shall —
23 (A) assist the Commission, to the extent
'\.v 3Sted, in the Commission's review and anal-
._!l6 IS
67
15
1 ysis of the recommendations made by agencies
2 pursuant to section 2003(a); and
3 (B) by no later than April 15, 1997, trans-
4 mit to the Congress and to the Commission a
5 report containing a detailed analysis of the
6 agencies' recommendations.
7 (c) Review by the President. —
8 (1) In general. — The President shall, not
9 later than July 15, 1997 transmit to the Commis-
10 sion and to the Congress a report containing the
1 1 President's approval or disapproval of the Commis-
12 sion's recommendations submitted under subsection
13 (b).
14 (2) Approval. — If the President approves all
15 the recommendations of the Commission, the Presi-
16 dent shall transmit a copy of such recommendations
17 to the Congress, together with a certification of such
18 approval.
19 (3) Disapproval. — If the President dis-
20 approves the recommendations of the Commission in
21 whole or in part, the President shall transmit to the
22 Commission and the Congress the reasons for that
23 disapproval. The Commission shall then transmit to
24 the President, not later than August 15, 1997, a re-
25 vised list of recommendations.
S 1376 IS
68
16
1 (4) Revision. — If the President approves all of
2 the revised recommendations of the Commission
3 transmitted to the President under paragi'aph (3),
4 the President shall transmit a copj^ of such revised
5 recommendations to the Congress, together Avith a
6 certification of such approval.
7 (5) Approval of entire pacivage. — The
8 President may only submit an approval certificate
9 that pertains to the entire package of recommenda-
10 tions submitted by the Commission, pursuant to
11 paragraph (b)(2) or (c)(3).
12 (6) Failure to transmit. — If the President
13 does not transmit to the Congress an approval and
14 certification described in paragi'aph (2) or (4) by
15 September 1, 1997, the process established under
16 this Act shall be terminated.
17 SEC. 2004. CONGRESSIONAL CONSIDERATION.
18 (a) Presidential Special Message. — After receiv-
19 ing the recommendations of the Commission, if the Presi-
20 dent chooses to fonvard them to the Congi-ess consistent
21 with the guidelines stated in section 2003(c), such rec-
22 ommendations shall be forwarded in legislative form for
23 congressional action, with information specifying —
24 (1) the reasons and justifications for the rec-
25 ommendations;
S 1376 IS
69
17
1 (2) to the maximum extent practicable, the esti-
2 mated fiscal, economic, and budgetary impact of ac-
3 cepting the recommendations;
4 (3) the amount of projected savings resulting
5 from each recommendation; and
6 (4) all actions, circumstances, and consider-
7 ations relating to or bearing upon the recommenda-
8 tions and to the maximum extent practicable, the es-
9 timated effect of the recommendations upon the poli-
10 cies and progi'ams for which they are recommended.
11 (b) Transmission of Recommendations to
12 House and Senate. —
13 (1) Submission to congress. — The rec-
14 ommendations submitted by the President to the
15 Congress under this Act shall be submitted to the
16 House of Representatives and the Senate on the
17 same day, and shall be delivered to the Clerk of the
18 House of Representatives if the House is not in ses-
19 sion, and the Secretary of the Senate if the Senate
20 is not in session. The recommendations shall be de-
21 livered in legislative form and shall be printed as a
22 document in each House.
23 (2) Federal register. — Any recommenda-
24 tions transmitted under this Act shall be printed in
S 1376 IS
70
18
1 the first issue of the Federal Register after such
2 transmittal. '
3 (e) Referral to Committee. —
4 (1) In general. — The recommendations shall
5 be referred to the appropriate committees of the
6 House of Representatives and the Senate.
7 - (2) Discharge. — If, after 20 days, any com-
8 mittees to which the recommendations have been re-
9 ferred have not reported a bill to the appropriate
10 house ^\^th recommendations, those committees Avill
11 be automatically discharged, and the sections of the
12 bill which were referred to those committees in the
13 form submitted by the President, ^vill be placed on
14 the legislative calender of the appropriate House.
15 (d) Procedure in House of Representatrtes
16 After Report of Committee; Debate. —
17 (1) Motion to consider. — ^When the relevant
1 8 committees of the House of Representatives have re-
19 ported a bill under this title, it is in order at any
20 time after the fifth day (excluding Saturdays, Sun-
21 days, and legal holidays) following the day on which
22 the reports upon such legislation by the relevant
23 committees have been available to Members of the
24 House to move to proceed to the consideration of the
25 legislation. The motion is highly privileged and is
S 1376 IS
71
19
1 not debatable. An amendment to the motion is no
2 in order, and it is not in order to move to reconsider
3 the vole by which the motion is agreed to '>r '^"
4 ag^-eed to.
5 (2) Debate. — General debate on a bill in l:
6 House of Representatives shall be limited to ■:
7 more than 10 hours, which shall be di\dded equa'- '
8 between the majority and minority parties. A motion
9 further to limit debate is not debatable. A morion
10 postpone debate is not in order. A motion to recorn-
I'l mit the bill is not in order, and it is not in order
12 to move to reconsider the vote by which the bill is
13 agreed to or disagreed to.
14 (3) Terms of consideration. — Considerati>;
15 of a bill by the House of Representatives shall 'oe
16 the Committee of the Whole, and the legislbiio.
17 shall be considered for amendment under the f;-'
18 minute rale in accordance with the applicable p!'>
19 sions of ruk; XXIII of the Rules of the Housf
20 Representatives. After the committee rises and -
21 ports the bill back to the House, the previous <]';.■
22 tion shall be considered as ordered on the bill a-'
23 any amendments thereto to final passage wth'out
24 tervening motion.
S 1376 IS
72
20
1 (4) Limit on debate. — Debate in the House
2 of Representatives on the conference report on a bill
3 shall be limited to not more than 5 hours, which
4 shall be divided equally between the majority and
5 minority parties. A motion fin'ther to limit debate is
6 not debatable. A motion to recommit the conference
7 report is not in order, and it is not in order to move
8 to reconsider the vote by which the conference report
9 is ag:i'eed to or disa^-eed to. A motion to postpone
10 is not in order.
11 (5) Appeals. — Appeals from decisions of the
12 Chair relating to the application of the Rules of the
13 House of Representatives to the procedure relating
14 to a bill shall be decided wthout debate.
15 (e) Procedure in Senate After Report of Com-
16 mittee; Debate; Ajviendments. —
17 (1) Debate on bill. — Debate in the Senate
18 on a bill under this title, and all amendments there-
19 to and debatable motions and appeals in connection
20 there^vith, shall be limited to not more than 20
21 hours. The time shall be equally divided between,
22 and controlled by, the majority leader and the mi-
23 nority leader or their designees.
24 (2) Debate on amendments. — Debate in the
25 Senate on any amendment to a bill shall be limited
S 1376 IS
73
21
1 to 1 hour, to be equally divided between, and con-
2 trolled by, the mover and the manager of the bill,
3 and debate on any amendment to an amendment,
4 debatable motion, or appeal shall be limited to 30
5 minutes, to be equality divided between, and con-
6 trolled by, the mover and the manager of the bill, ex-
7 cept that in the event the manager of the concurrent
8 resolution is in favor of any such amendment, mo-
9 tion, or appeal, the time in opposition thereto shall
10 be controlled by the minority leader or his designee.
11 (3) Limit op' debate. — ^A motion to further
12 limit debate is not debatable. A motion to recommit
13 is not in order. A motion to postpone debate is not
14 in order.
15 (4) Action on conference reports in the
16 SENATE. —
17 (A) Motion to proceed. — A motion to
18 proceed to the consideration of the conference
19 report on a bill may be made even though a
20 previous motion to the same effect has been dis-
21 agi-eed to.
22 (B) Time limitation. — During the con-
23 sideration in the Senate of the conference re-
24 port (or a message between Houses) on a bill,
25 and all amendments in disagreement, and all
S 1376 IS
74
22
1 amendments thereto, and debatable motions
2 and appeals in connection therewith, debate
3 shall be limited to 5 hours, to be equally divided
4 between, and controlled by, the majority leader
5 and minority leader or their designees. Debate
6 on any debatable motion or appeal related to
7 the conference report (or a message between
8 Houses) shall be limited to 30 minutes, to be
9 equally divided between, and controlled by, the
10 mover and the manager of the conference re-
11 port (or a message between Houses).
12 (C) Defeat of report. — Should the con-
13 ference report be defeated, debate on any re-
14 quest for a new conference and the appointment
15 of conferees shall be limited to 1 hour, to be
16 equally di^^ded between, and controlled by, the
17 manager of the conference report and the mi-
18 nority leader or his designee, and should any
19 motion be made to instmct the conferees before
20 the conferees are named, debate on such motion
21 shall be limited to one-half hour, to be equally
22 divided between, and controlled by, the mover
23 and the manager of the conference report. De-
24 bate on any amendment to any such instruc-
25 tions shall be limited to 20 minutes, to be
S 1376 IS
75
23
1 equalh^ divided between and controlled by the
2 mover and the manager of the conference re-
3 port. In all cases when the manager of the con-
4 ference report is in favor of any motion, appeal,
5 or amendment, the time in opposition shall be
6 under the control of the minority leader or his
7 designee.
8 (D) Ajviendments in disagreement. — In
9 any case in which there are amendments in dis-
10 agreement, time on each amendment shall be
1 1 limited to 30 minutes, to be equally divided be-
12 tween, and controlled by, the manager of the
13 conference report and the minority leader or his
14 designee.
15 (f) Rules of the Senate and House. — This sec-
16 tion is enacted by Congi-ess —
17 (1) as an exercise of the rulemaking power of
18 the Senate and House of Representatives, respec-
19 tively, and as such it is deemed a part of the iTiles
20 of each House, respectively, but applicable only with
21 respect to the procedure to be followed in that
22 House in the case of a resolution described in sub-
23 section (a), and it supersedes other rales only to the
24 extent that it is inconsistent ^\^th such niles; and
S 1376 IS
m
M
1 (2) with full recognition of the constitutional
2 right of either House to change the iiiles so far as
3 relating to the procedure of that House at any time,
4 in the same manner, and to the same extent as in
5 the case of any other mle of that House.
Q
S 1376 IS
77
104th Congress
ist Session
SENATE RECORD VOTE ANALYSIS
Vote No. 511
October 26, 1995, 10:36 p.m.
Page S-15828 Temp. Record
BALANCED BUDGET RECONCILIATION/Additional Savings
SUBJECT: Balanced Budget Reconciliation Act of 1995 . . . S. 1357. McCain motion to waive section 305(b)(2) of the
Budget Act for the consideration of the McCain amendment No. 2971.
ACTION: MOTION REJECTED, 25-74
SYNOPSIS: As reported, S. 1357, the Balanced Budget Reconciliation Act of 1995, will result in a balanced budget in seven
years, as scored by the Congressional Budget Office (CBO). The bill will also provide a $245 billion middle-class
tax cut. $141.4 billion of which will be to provide a $500 per child lax credit.
The McCain amendment would provide for the following (for $60 billion in savings over 7 years):
• the elimination of the Market Promotion Program;
• the termination of the ."Advanced Light- Water Reactor Program;
• a requirement that a contractor who purchases timber on Federal land must pay a fair pro rata share for the construction and
maintenance of any road necessary to get to that timber;
• the termination of the United States Travel and Tourism Administration;
• a requirement for the Defense Department to seek recoupment from any overseas military equipment sales ofany nonrecurrmg
costs it incurred for research development, and production of that military equipment;
• the elimination of authority and funding to conduct highway demonstration projects,
• a prohibition on direct and guaranteed electric and telephone loans by the Rural Utilities Service absent a substantial need;
• limitations on the Export-Import Bank;
• a ban on the National Aeronautics and Space Administration conducting research and development activities related to the
performance of aircraft, unless those activities were paid for by the private sector;
• the allocation by competitive bidding of electromagnetic spectrum (with exceptions);
• the prohibition of procurement of additional B-2 bomber aircraft; and
• the termination ofany fossil fuels program research and development project that did not have at least 75 percent of Its costs
paid for by a non-Federal source by 1 year after the date of enactment of this Act.
(See other side)
RFPUBLICANS
DEMOCRATS
NOT VOTING
Voting Yea
VoHng Nay
Voting Yea
Voting Nay
(IS or 28%)
(38 c
)r 72%)
(10 or 22%)
(36 or
78%)
Republicans (0) Demt
Abraham
.Ashcroft
KcmpUiome
Biden
Akaka
Hefiin
Brown
Bennett
Kyi
Bradley
Baucus
Hollings
Coals
Bond
Lon
Feingold
Bingaman
Inouye
Cohen
Bums
Lugar
Kennedy
Boxer
Johnston
Dole
Campbell
Mack
Kerry
Breaux
Kerrey
Faircloth
Chafce
McConneli
Kohl
Bryan
Leahy
Gramm
Cochran
Murkowski
Lautenberg
Bumpers
Levin
GraiTis
Cr,. erdell
NicUes
Movnihan
Byrd
Lieberman
Grassley
Craig
Pressler
Pelf
Conrad
Mik-ulski
Gregg
D"AmaIo
Santorum
Robb
Daschle
Moseley-Braun
Hutchison
DeWine
Shelby
Dodd
Murrav
Jeffords
Domenici
Simpson
Dorgan
Nunn'
McCain
Frist
Smith
Exon
Pryor
Rolh
Gorton
Snowe
Feinstein
Reid
Thompson
Hatch
Specter
Ford
Rockefeller
Hatfield
Stevens
Glenn
Sarbanes
Helms
Thomas
Graham
Simon
Inhofe
Thurmond
Harkin
Wellslone
Kassebaum
Warner
Compiled and wriRen by the staff of the Republican Policy Committee — Don Nickles, Chairman
BOSTON PUBLIC LIBRARY
78 III
3 9999 05984 390 2
VOTE NO. 51 1 OCTOBER 26, 1995
Debate on first-degree amendments to reconciliation bills is limited to 2 hours each. By unanimous consent, debate on the McCain
amendment was further limited. Following debate. Senator Exon raised the point of order that the amendment violated section
305(b)(2) of the Budget Act for adding non-germane matter. Senator McCain then moved to waive that section for the consideration
of the amendment. Generally, those favoring the motion to waive favored the amendment; those opposing the motion to waive
opposed the amendment.
NOTE; A three-fifths majority (60) vote of the Senate is required to waive section 305(b)(2). Following the vote, the point of
order was upheld and the amendment thus fell.
Those favoring the motion to waive contended;
The libertarian CATO mstirute and the liberal Progressive Policy Institute joined forces to identify egregious forms of corporate
welfare in the Federal budget. They came up with a series of expenditures, which, if eliminated, would save over $60 billion over
the next 7 years. We have taken their list and presented it as the McCain amendment. Senators are familiar with the corporate welfare
items that would be stricken by the McCain amendment. Many of them, such as the Market Promotion Program, have been debated
and voted on many times in the past. Previous auempts to eliminate them h::ve failed, but we hope to do better this time because of
the context of this debate. The bill before us will bring America's budget back into balance by restraining entitlement programs.
With the massive and painful changes that are being made, we think it will be more difficult for Senators to vote in favor of the
spending that would be stricken by the McCain amendment. We are also made more hopeful by the fact that in the highly polarized
debate that has emerged on this bill we have been able to attract strong bipartisan cosponsorship of this amendment. We hope that
a majority of our colleagues, even if they support one or rwo of the items that would be stricken by this amendment, will look at
the larger picUire of $60 billion m additional savings, and will thus join us in voting to waive the Budget Act.
While favoring the amendment, some Senators expressed the following reservations;
We will vote m favor of the motion to waive with extreme reluctance. Some of the programs in here, such as the program to
make rural utility rates affordable, should not be subjected to cuts. To save money, though, we will vote in favor of the amendment.
Those opposing the motion to waive contended;
Senators are presented with a complicated decision by the McCain amendment. In the few minutes available, they must weigh
the merits of a dozen separate spending cuts, and they then must balance those cuts they favor against those they oppose to fmd if
they can support this amendment. For our part, we believe that the ill-effects outweigh the benefits, so we will accordingly vote
against the motion to waive.
>
o
\
ISBN 0-16-053723-1
9 '780160"537233
90000
TVNews
OpenLibrary