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Jumpstart our Business Strength (JOBS) Act - Continued

Location: Washington DC


Mr. McCAIN. Mr. President, the amendment is rather straightforward. It strikes the energy tax provisions in this bill which are estimated to cost nearly $18 billion. I read from an April 19 article from the Washington Post:

Congress's task seemed simple enough: Repeal an illegal $5 billion-a-year export subsidy and replace it with some modest tax breaks to ease the pain on United States exporters.

This article is entitled "Special-Interest Add-Ons Weigh Down Tax-Cut Bill."

But out of that imperative has emerged one of the most complex, special-interest-riddled corporate tax bills in years, lawmakers, Senate aides and lobbyists say. The 930-page epic is packed with $170 billion in tax cuts aimed at cruise-ship operators, NASCAR track owners, bow-and-arrow makers, and Oldsmobile dealers, to name a few. There is even a $94 million break for a single hotel in Sioux City, Iowa. Even one of the tax lobbyists involved in drafting it conceded the bill "has risen to a new level of sleaze."

I agree with that lobbyist. This has risen to a new level of sleaze.

The lobbyist goes on to say:

"I said a few months ago, any lobbyist worth his salt has something in this bill," said the lobbyist, who would only speak on condition of anonymity. "Now you see what I'm talking about."

The Wall Street Journal, Wednesday, May 5, in an article entitled "Export Tax Follies:"

But instead of solving the problem, congressmen are engaging in one of their epic tax-bidding wars . . . including a $482 million sop to the insurance company, $189 million in "transitional assistance" for Oldsmobile dealers, and an $8 million tax break for makers of children's bow and arrows.

Not only that . . . $15 billion in energy tax breaks were thrown in as an added sweetener. The Senate couldn't pass the energy bill as a stand alone measure, so he's looking for any shipwrecks that will sail this year. The measure includes an overhaul of tax treatment for ethanol and subsidies for "clean" fuels. . . .
Mr. President, there is an abundance of media coverage of this legislation. It reaches, as the lobbyist said, in my view, a new level of sleaze.

We have to consider what we are doing. We had a $170 billion tax break, which really is $170 billion that will not go into the U.S. Treasury. So Alan Greenspan, last week, says the greatest threat to our Nation's economy is the deficit, and that a free lunch you don't have to pay for hasn't been invented yet. Yet here we are with $170 billion worth of tax breaks, tacking on to it $18 billion in tax breaks on an energy bill that this body could not pass.

It is remarkable, with a half trillion deficit, and we are enacting new tax credits, for-guess who-the oil and gas industry in America which, the last time I checked, is doing pretty well.

The majority of my colleagues on this side of the aisle just voted against an extension of the unemployment benefits for Americans who remain unemployed and haven't profited by this reemerging and strengthening economy. My God, we won't give them an extension of their unemployment benefits. But if the ethanol people of Archer Daniels Midland need it, by God, we will give it to them. Mr. President, $170 billion in tax credits but no extension of unemployment benefits for people who have been out of work, it is a remarkable commentary.

Out of all the provisions that have been added to this bill since it was first brought to the floor of the Senate on March 3, I find the energy tax title the most egregious. That is why I am offering this amendment to strike it. What do these provisions have to do with the underlying bill? Nothing. What do they have to do with ensuring that tariffs that have been placed on our Nation's manufacturers since March 1 are lifted? The answer is nothing.

I understand how sweet this is-how sweet this is-for these lobbyists who are doing so well here in Washington. But if the Senate is to consider an energy tax incentive bill or an energy authorizing bill, we should be following regular order, bringing legislation to the Senate floor, and debating it in its own right. Instead, a 319-page energy tax title was incorporated without a vote.

The proponents of this bill contend it is "revenue neutral" and that all the tax cuts in the bill are paid for with offsets. How many times have we played that game? How many times have we used the same old offsets on the same old bills, and somehow, with all these offsets, we now have a half-trillion-dollar deficit? It is hard to imagine. For example, 66 provisions of offsets are identical to provisions that were included in the highway bill. So we are using the same offsets for the highway bill, the same offsets for the energy bill. And as some more pork comes rolling in here-squealing in here-we will probably use those same offsets again. I understand the duplicative offsets total about $5 billion. Of course, if these bills ever get to conference and conference agreements are reached, only one measure could include these offsets.

Again, the amendment I am offering would strike title VIII of the pending bill.

By the way, I have no illusion as to how this vote is going to turn out. The Senator from Michigan just came up to me and said: Well, don't take away my tax break. I want to take away every tax break, I say to the Senator from Michigan.

The oil and gas subsidies are estimated to cost about $5 billion and are illustrative of what TIME magazine referred to as the great energy scam on the American taxpayers. This graphic is from an investigative report on synthetic fuel credits which appeared in the October 2003 issue of TIME magazine. While synthetic fuel credits are only one indefensible part of this energy tax title, the entire oil and gas subtitle is a shameless scam that benefits the already enormously profitable oil and gas industries with little or no benefit to the American public.

I would like to highlight a few provisions that defy both fiscal and common sense. First, there is about $835 million provided to wealthy oil and gas corporations to write off the cost of looking for domestic oil and gas reserves. As if the oil and gas companies do not have sufficient incentives or resources of their own, we are going to make the taxpayers pay for the basic cost of doing business. This provision sweetens the already generous tax treatment and would allow businesses to recoup their costs for both successful and unsuccessful projects. So failure will be as financially sweet as success.

I suppose some of my colleagues may maintain that providing this opportunity for greater riches to oil and gas corporations could result in more supply for the American public. Well, the Energy Information Administration reports that such claims are not backed by the facts. According to a February 2004 EIA report, these subsidies do not impact supply. The EIA report states:

The tax provision is expected to have a negligible impact on oil and gas production because . . . year-to-year cash flow can be at least 35 times larger than the tax value and consequently the provision is unlikely to appreciably sway drilling decisions.

In other words, these companies are too rich to pay attention to a paltry $835 million.

Another provision of this bill, which is perhaps even more egregious than picking up the tab for oil and gas exploration, would provide nearly $2 billion for the extension and modification of tax credits for producing fuel from a nonconventional source. "Nonconventional" is the operative word when we talk about synthetic fuels. There is nothing conventional about this so-called fuel, a creation of Congress in 1980. Now that this tax credit scam has been exposed by not only TIME but by our own IRS, Congress has no excuse to perpetuate this expensive hoax, which has cost the taxpayers $4 billion since 1999.

If there is anyone who does not know how synthetic fuel is made, the process conjures up images of Rumplestiltskin turning straw into gold, except in this case it is not turning something into anything different. But this is not a fairytale.

Here is how the process goes. First, you start with coal, and then, since IRS rules require a chemical change to occur, you must spray the coal with something other than water-usually it is diesel fuel or pine tar-and, magically, you now have a "synthetic fuel," which sounds better than "sprinkled" coal, I guess. The company then sells the coal to a user, such as a powerplant, for a slightly lower cost than untreated-or unsprinkled-coal and claims a huge tax credit for "manufacturing a synthetic fuel." If anyone missed a step of this miraculous process, it is coal, to sprayed coal, to gold.

I would like to show you how golden this tax credit can be. This graphic shows the reduced tax rate of one multinational hotel corporation that also produces synthetic fuel. This corporation is not the biggest beneficiary of the synthetic shelter, but it is illustrative of the point that one does not need to be in the oil or gas business to strike it rich with synthetic fuels.

The IRS has struggled mightily with this tax shelter that grows ever more expansive and expensive. It has undertaken two formal reviews of synthetic fuel production and testing facilities and concluded that there is not any synthetic fuel being produced. This remarkable finding is presented in a November 2003 IRS bulletin, and I quote:

The Service believes that the processes approved under its long-standing ruling (that a synthetic fuel must differ significantly in chemical composition from the substance used to produce it) do not produce the level of chemical change required.

Incredibly it goes on to say:

Nevertheless, the Service continues to recognize that many taxpayers and their investors have relied on its long-standing ruling to make investments.

So basically the IRS is going to give this lucrative hoax a "wink and a nod" while it waits for Congress to end this sham, which is very unlikely.

Another objectional provision would provide subsidies for the highly profitable gas production method called coalbed methane. According to the Department of Energy, coalbed methane accounted for 57 percent of the growth in U.S. natural gas production between 1990 and 1999. Coalbed methane wells are proliferating in western coalfields and wherever else coalbeds exist, without a tax incentive.

As you can see from these tables, the number of wells drilled in the Powder River Basin in Wyoming has skyrocketed. The tremendous growth in production from 1993 to 2002, with 10,718 wells in this Wyoming field, occurred without a tax credit, and the BLM expects that another 40,000 new wells will be drilled in this area over the next decade. So I think it is clear that this industry has not been waiting around for taxpayer dollars.

If any of my colleagues believe that by making a very profitable industry even more profitable, these tax breaks will help increase gas supply and bring down prices, they are wrong. According to the Congressional Research Service:

[V]irtually all of the added gas output (from coalbed methane) has substituted for domestic conventional gas rather than imported petroleum, meaning that the credit has basically not achieved its underlying policy objective of enhancing energy security.

In other words, the gas industry has turned from conventional production to coalbed methane with its higher margin of profitability without an increase in total supply.

Additionally, the Congressional Research Service found:

that from an economic perspective, the Sec. 29 credits compound distortions in the energy markets rather than correcting for preexisting distortions due to pollution, oil import dependence, "excessive" market risk, and other factors.

Therefore, one must ask, what is the American public actually receiving from these tax incentives? Economic distortions which translate into higher gas prices. I am certain my colleagues do not want to perpetuate the perverse price effect of this tax credit.

In the Western U.S., most lands operate on the doctrine of "split estates" with different owners of the surface property rights and underlying mineral rights. As the number of coalbed methane wells has skyrocketed, the conflicts with thousands of property owners has intensified. That is due to the extensive environmental damage caused by coalbed methane production, which involves pumping massive volumes of groundwater to release the methane held by hydraulic pressure.

Clean coal. The energy tax title would provide an estimated $1.6 billion for the so-called clean coal program. Since 1984, the Department of Energy has already invested $1.8 billion in the clean coal program to "explore technologies," making it the largest environmental technology development effort the Federal Government has ever conducted. But we cannot stop there. This bill would provide an additional $1.6 billion toward the development of still more clean coal technologies. Before we require the taxpayers to pay even more for this program, should we not first consider what we have received in return for the first $1.8 billion?

According to the Department of Energy, the $1.8 billion worth of investments went to Bechtel, Westinghouse, General Electric, Texaco, and other companies that produced technology patents and products that have been sold around the world, generating billions of dollars for these companies. Besides the enormous profits these companies made by using taxpayer dollars for their research and development, serious deficiencies in the program explain why a new project has not been added in the last 5 years, and why this program should not be funded again.

One of the primary goals of the clean coal program was to produce technologies that scrub emissions from powerplants that result in cleaner air. However, according to a 2001 GAO report, new technologies produced from the $1.8 billion allocated for new clean air technologies have "limited potential for achieving nationwide emission reductions when used at existing coal-burning facilities."

The clean coal program management shows more deficiencies. The GAO reports many of the clean coal technology demonstration programs have shown severe problems in meeting costs, schedule, and performance goals.

Biomass. Nestled within the provisions of this bill is one of the more ironic and bizarre U.S. policies to be considered. Under the false guise of exploring environmentally friendly alternative energy sources, this bill extends and expands a subsidy offered to facilities that burn animal droppings. I realize a handful of States are facing legitimate environmental challenges stemming from massive amounts of poultry manure and need to find a way to manage the toxic substances that are a byproduct of these droppings. I favor determining the most effective method of addressing this environmental concern within the proper land management context. However, it would be ironic indeed if, in ordinary to satisfy the need for a clean, renewable energy source, the Senate passes legislation subsidizing the burning of animal droppings, a process which has been found to emit toxic heavy metals such as lead, mercury, and arsenic.

No less green an organization than Friends of the Earth opposes burning these droppings as an energy source because the process "cause[s] serious environment and community health problems." Moreover, EPA studies have suggested these facilities have the potential to cause more air pollution than a coal plant. On top of all this, these facilities drive up prices on natural fertilizers used on American farms, actually detracting from an environmentally friendly farming process that requires no Government subsidy.

Why on earth are we wasting valuable money on such a ridiculous, irrational program, especially when such dire financial and energy needs are facing this country today?

Another interesting provision concerns the proposed Alaska natural gas pipeline. There is a good deal of support for this new pipeline from Alaska to the lower 48 States, but to what extent are we willing to mortgage the Federal budget to help ensure its reality? The energy tax title would provide a huge subsidy to the natural gas companies proposing the construction of the Alaska natural gas pipeline. In the case of a drop in the price of natural gas, the energy title establishes a price floor-how many manufacturers in America would like to have a price floor for their product?-of $1.35 per thousand cubic feet. If the market price falls below that amount, the Federal Government would have to pay the difference to the private companies for a maximum benefit of 52 cents per thousand cubic feet. The credit would be in effect for the next 25 years. Even the conferees on the energy conference committee refused to include this provision in its final agreement on H.R. 6, which, considering the wasteful special interest giveaways included, should make one wonder about the merits of this provision.

I could go on and on about this bill. I could cite many examples, such as dog-track owners and all the other provisions. But this is probably the most egregious we have and it is quite remarkable. It is a very unfortunate way of doing business, because if we establish this precedent of tacking on anything we want to legislation that is totally irrelevant, then I fear the process has broken down even more badly than I first suspected.

Let me again put this in the context of the environment in which we exist today. This bill, which was designed to provide $5 billion in order to satisfy our European friends' concerns, has now grown into a $170 billion "Christmas tree" of goodies for every conceivable special interest. When we are running multitrillion-dollar surpluses, I guess you could argue it wasn't such a bad idea.

Last week Alan Greenspan said the greatest danger to America's economy is these burgeoning multitrillion-dollar deficits. We have never enacted tax cuts while we are in a war. If one thing has been made abundantly clear, it is the cost of the Iraq war is going to be incredibly high-far higher than we ever anticipated. Around here, it is business as usual-well, it is not business as usual; this is probably about the worst I have seen.

I won't say the worst because I probably could think of something. It is as bad as anything I have ever seen. We have no fiscal discipline in this body, and our kids are going to pay a very high price for it. When the bow-and-arrow manufacturers and all of the other things that are stuffed into this, such as horse and dog-track owners, and all of the others-cars, automobiles, Oldsmobiles, all of these things are now amassing. I urge my colleagues to vote for the amendment.

I yield the floor.

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