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THE

RIpON F ORUM Contents

VOLUME 36 · NUMBER I · SPRI NG 2()()!

Publisher The Ripon Society

New Beginnings .................... .................................................... ... 3 Pn:1>dent H on. Bill Frenzel

Executive Di rector Lori HlI.~u

A R ipon E ditorial

Burying the Death Tax .... ...... ...... ........................................... ... ... 4 US. R epresentative Jennifer D unn

Cornrnaniaarion Oiftcrw, Edi tor fuhleigh Roberti

Design!An Direction Christina F. Vali,

A Ripon Interview with Arlen Specter The Power of The Pardon ....... ............ .......................................... 6 A shleigh R oberts

Cover Photognph M arioTama

Production

Congressional Inaction Threatens U.S . Companies ........... ...... ... .. 9 Kenneth j K ies

CCI www.«i-scrvicel .oom

The Global Agenda ................................. .................................... 12 Us. Trade R ep resentative R obert Z oellick Cl 2001 by The Ripon Society All Rights Reserve.:!

A Ripon Interview with Senate Majority Leader Trent Lott A 50-50 Senate: Will It Work? ................................................ .... 17

One Year Subscription: S20.00 indi\iduaIJ SIO.OO$Wdeml

A shleigh R oberts

Periodicah pottage ~id

Putting People First ... ... .................. ...... ...................................... 20

at Washington, D.C. and additional mailing offica.

US. R epresentative J im Kolbe

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New

Beginnings

subtle. but significant change has occu rred in Washington. The Republican Party is growing up. The back-bench bomb throwers ate gone, replaced by thin but determined Republican majorities. T he l07,h Congress exhibits a quiet maturity. marked with new confidence and a long-overdue sense of unity. By moving quickly on P resident Bush's tax plan, Republicans have demonstrated the strength with wh ich they plan to govern. l'vlcmbers are focusing more o n inclusion and less on the divisions that have derailed Republican efforrs in the pas!. This style is highl ighted by the CO P's se rious effor! to support its President and to enact the cornerstone of the Bush agenda. The newfound Republican unity is a sign to the country and the world that the Grand Old Party is ready to govern. By late March, the U.S. House of Represematives had passed unanimously the centerpiece of President Bush's budget plan, a 5958 billion l O-year across-the-board cut in income tax rates. Shortly thereafter, it passed the second portion of Bus h's plan and approved a 5400 billion tax cur for married couples, including the child tax credit. The bill quickly moved to the U.S. Senate. While the chamber surprised some when it passed a S1.28 tri llion budget resolu tion, observation of the legislative process teaches that compromise usually accompanies reform and relief. SenRipon Fon..m • Spong 2001

are acrion was no different, and our working majority provided a Republican victory. Compro mise is a natural part of " II legislation, and Republicans still have much to be happy about. T he fact rhat Democrats acknowledge that a tax cut will be enacted is a testament to a more mature Republican Party. The tax debate is no longer a debate whether Americans will have tax cuts. It is now a discussion over how much and what kind of tax relief will he enacted. Republicans have struggled long enough with thei r message and their differences. And, it appears as though the internal shakedown is over. The Republican unity that was able to pass significant tax relief in both houses underscores the Party's discipline and readiness to lead the nation. T he message is simple. When Republicans work tOgether, they can drive public policy. T he diversity and independence of Republicans makes unity difficult, but the lO7'h Congress has so far proved it is not impossible. That's good news for Anlcrica. Adult leadership in both the executive and legislative branches will do much to restore the public's fa ith in government. The new Republican marurity is producing a major win for the Parry and for America. Maintaining that unity will be the key to legislative victories in the 107m Congress. If the trend is continued, America has great things ahead in this legislative session. J


CA1/grwwomu1/ }mniftr DU1/1/

on Root is the principal owner of GM Nameplate, 2n equipment supply company based in Seattle, Washington. Over the last four decades, he and his partners employed hard work, perseverance, risk and skill to turn a 14 ~ employee business into an enterprise that supports 1,000 workers and their families. He has paid his fair share of taxes and is an active participant in the community. Yet, at 65, eve rything he has built is threatened by the estate tax, better kn own as the death tax, which will be levied against the value of hi s busi~ ness above $675,000 at a confisca tory 55 percent rate. H e wou ld like to pass the business along to his chi ldren, but since he cannot afford the estate plan that would be required to pay this high tax he is not optimistic. I t shou ld not come to this. Bernreen t 797 and the late t BOOs, the death tax was instituted on three separate occasions to fund wars. In each case, it was quickly repealed. ]n 1916, however,

the death tax reappeared to help finance World War I and has remained with us ever since. As is the case with ~tempo~ rarl taxes, the federal government con~ tinues to justifY the death tax by redefining its social intent. What was once a temporary tax [Q fund a war became a means to prevent the accumulation of wealth or [Q meet other government ob ligation s. The t ruth is that there is no social value to the death tax because it underm ines the principles on which our country was founded and the principles on which our country has thrived: hard work, ri sk~ tak­ ing and saving. Pre sident George W. Bush ad~ dressed the nation in February and pre~ sen ted his plan to relieve the tax burden on American families. Central to this plan is the elimination of the death tax, which looms like a sword of Damocles over family-owned businesses and fa rms. Those who suppOrt the confiscation of a person's legacy are already working to keep this unfair tax by arguRipon Fonm • Spring 2001


LEGISLATIVE UPDATE On ApriI4,lOOI'" U.s."-., .... ",,1IIi... possed ........ fa If...... tioo Ad. fiIItti&IIt IIIMocnu joiooI ll6 ......... in Ioadci" ... ,..,.w 10 pIoaIIy npaI'" III ~ 1011. PftIi· doot .... issoood • 1hI 11410 154 Haase .... -. ¥icsIry lor lair· ""'and ..... Iar_icpuwdL· The bill ... heatIs 10 IhI !nit.

,taI'.'.......

mg thal its repeal will jeopardize resources needed for other gove rnment programs, result in the n:-e mergcnce of a permanent oligarchy, or threaten contributions to charities. They are wrong on an points. ve n after funding all programs of gove rnm en t and accoun ting for inflationary adju s t men t s. the fe deral gove rnmen t will run a 55.7 trillion surplus over the next tcn years. If one sets aside $3. 1 trillion for debt reduction, Social Security and M edicare, as t he president and Congress have agreed to do already, that leaves 52 .6 trillion in overpaid taxe s fr om Americans. Only those who reflexively support hi g h taxat ion a nd higher government spen ding can argue that resources do not exist to eliminate the unfair death tax.

E

Ripon Fon.m • Spring 200 j

Recen tly, a group of ou r nation's wealthiest fam ilies began a cam paign to save the death tax on the grounds that it is needed to prevent Ihe accumulation of wealth. BUI , what would the), suggest the children of the fami ly-business owner or farmer do to pay this tax? Should they sel1 part of t he busi ness or farm? How many people do they suggest be laid off for the sake of this redistribution of wealth ? Of course, the owner can simply sell the business before he or she dies and then have to pay the 20 percent capital gai ns tax. This is what thc Frank Russel l Company in Tacoma, Washington and Ben Bridge Jewelers in Seattle, Washington dccided to do after calculating their death tax li abilities. As Mr. Root will attest, there is no societal benefit in any of these scenarios. To bolster their case fo r the death tax, some have also argued that its repeal would threaten c haritable contributions. Aside from the fact that

argumen t implicitly questions the motives of our nation's mOst ge nerous citizens, there is simply no evidence to suppon this. Time and again, A mericans have shown that more discretionary fu nds resuit in more charitable giving. With the increas ing number of businesses being created, the appreciation in home values and the prevalence of 401 (K)s and other retirement savings plans, more and more middle- income people arc being forced to pay rhe un fair death tax. I believe its time the American Dream is honored, not taxed.

In March, Jen nifer Dunn introduced the Death Tax Elimination Act 0/2001 (HR 8) along with U.S. Representative John Tanner (D- Tenn.). The bill pham out the death tax over ten years. Dunn passed similar legislation last year. It passed both hoults States Congress by majoritits, but died

5


The Power of The Pardon A R ipon I nterview with Senator Arlen Sp ecter By AshIcigh Ilobcrts

a passion for justice and a candid demeanor, many Americans know Arlen Specter for his ualous questioning during U.S. Senate confirmation and investigation hearings. The threeterm Republican from Pennsylvania has a comp licated political legacy that has provoked the ire of conservat ives and liberals alike. H e offers a mix of fiscal conservatism and sociallibcrtarianism. H e is known for his tough stances on crime and spending. But the Senator is also a dedicated advocate for women's rights and works tirelessly to secure funding for women's programs. As a former district attorney of Philadelphia, fighting crime has always been his passion. On March 15,2001, Senator Specter discussed his latest investigation on fo rmer President Clinton's controversial pardons and how they wiU affect future Presidents.

were killed. By the time we got all of the facts together, we made the FBI change their rules on the use of deadly force:.

RF: In fonne r President C linton's recent op-ed response to the Marc Rich pardon and others, he said his pardons were no mo re questionable than other presidenti31 pardons. H e cited George Washington's pardon of the leaders of the Whiskey Rebellion, Nixon's commutation of the sentence ofJames Hoffia and Carter's pardon of Vietnam War draft resisters. Senator Specter, do you agree with former President C linton or is there something that makes these pardons different?

RF: Throughout your Senate career, many have referred to you as the Senate "Perry Mason." Ou t of 311 of your invcstigations, which ones stand out in your mind? Smalor Ar/~n Sperter: When I was an assistant D istrict Attorney, I conducted an investigation of corrupt teamster offici31s in Philadelphia. I started off with evidence compiled by the McClellan Committee in the Senate, when Bobby Kennedy was their general counsel. After further investigation, I convicted them all and sent them to jail. In the Senate, my most interesting investigation dea1twith Ruby Ridge. A man named Randy Weaver was charged with gun violations and they sent a virtual army up to Ruby Ridge. They had a firefight, a deputy marshal was killed and Weaver's wife and son 6

Senator Spltler ta/h 'With RF Editor Ashleigh Roberts.

Ripon Forun • Spring 200 I


Senator Arlen Specter: No, I don't agree

Another statutory provision that I am going to push will require public disclosure of contributions or pledges of S5,OOO or more to presidential libraries. So there is a vel)' important purpose when taking a look at these last minute pardons.

with him at all . When you have Washington's pardons that you referred to, he was trying to bring the cou ntry together. There were disparate factions at work. That was really one of the purposes of the pardon . You could forgive transgressions and bring the country together. When President Nixon pardoned Jame s H offa, Hoffa had served hi s sen tence. H e wasn't a fugitive like Marc Rich . On the Vietnam pardons, that was a time of great controversy in America with a very unpopular war. Carter was t rying to reunite the country. I think what President Clinton said was a very lame excuse .

RF: So would you agree that there is a need for a Constitutional amendment? SenatorArien Specter: Myinc1ination

is to favor one. The objections that were raised at the hearing were that they would politicize the process. But Senators and members of the H ouse are representatives of democracy and they are supposed to pay attention to what their constituents want. It is ve ry hard to get a twoRF: Since Presidential pardons are an thirds vote to override the president un reviewable Co nstitutional power -" ~ on legislation. I believe we only granted to the president, what was the overrode President C linton once, original purpose of the Congressional Smator Arlen Specter discussu the pardon pr()((ss. and I know that we only overrode hearings? President George Bush once on Senator Arlen Specter: First of all, there was consideration to about 25 or 30 vetoes he issued between 1989 and 1993. whether there might be a Constitutional amendment. A very RF: Some experts say the Constitutional framers were more interesting Constitutional amendment had been proposed by then Senator Walter Mondale in about 1975, to overturn a presidential worried that Presidents would pardon those convicted oftreason rather than with the sale of pardons for money, favors or pardo n on a two-thirds vote in bot h the U.S. H ouse of Representatives and the U.S. Senate. We held a hearing in the votes. Do you think your legislaton will curtail what some have called a co nstitutional loophole? Senate Judiciary committee on that point. The general fcelingwas that PrcsidentClinton's pardon was so aberrational as not to go so far as to have a Constitutional amendment. But that still could come up. he investigation has really been taken over by U.S. Attorney Mary Jo White in the Senator Arlen Specter: The founding fathers did not rule out southern district of New York. A constitutional amendment still bribery. That is still very much in place. I t would be very could be a consideration. I am also about to propose legislation hard to prove because a quid pro quo bribe has to be a paythat could affect the pardon process by requiring people like ment of something of value in return fo r an official act. It is Jack Quinn, Hugh Rodh am or Roger Clin ton to register as figuratively referred to as the Latin expression quid pro quo, lobbyists. They tried to do everything very secretly. H ad they so that would be hard to prove, but that is very definitely a been registered as lobbyists, people would have known what possibility. The power of impeachment does not preclude prosthey were doing and there would have been such a public protest ecuting a President for crimes. I don't think you can do it that I think Clinton would n't have ac tuall y during his te rm, although that 's never been decided. But you done that.

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T

Ripoo f orum ¡ Spring 200 I

"I think that Congress will probably pass legislation like I am suggesting. I think that there will be a very heavy black mark on President Clinton's record."

7


ing to furure presidents not to be reckless, which I think Clinton was reckless in pardoning a guy who was a fugitive and then keeping it a secret. Beth Dozorer-L, the fonner finance director for the Democratic National Committee, was told about the pardon at 11:00 pm on January 19'i't 2001. The pardon attorney, Roger Adams, didn't even find out about it until 1:00 am. When he called the White House to get information about Marc Rich and Pincus Green, he was told they were, 'traveling abroad.' When that was mentioned in the hearing room, a loud laugh erupted. You don't exactly say that fugitives are on a pleasure cruise or traveling abroad. nd then Mary Jo White might fi nd something. It will be tricky water when she talks to Denise Rich and wants to grant her immunity. It will be the same when she talks with Beth Dowren and H ugh Rodham . What did H ugh Rodham say to President Clinton? What did Roger Clinton, the president's half-brother say to President Clinton? When I was a D istrict Anorney and ran grand juries, we frequently would find people willing to implicate higher ups. I think that is candidly unlikely, I"'!"I but it's possible. I.tr.I

A

can certainly prosecute him for criminal conduct after he leaves office.

RF: Would not the logical solution have been fo r the president simply to come before the committee and testify as former President Ford had done when he pardoned Nixon?

AJhleigh Rob"tJ ;J the editor o/The Ripon Forum.

VITAL STATS: ARLEN SPEaER

Smator Arlm Spttter: I think he should have. I made the sugges-

tion a couple of times. On the Ford model, the committee was reluctant, really unwilling, to invite him in because of the sensitivity of calling a former president. After consulting with Senator Lott, Senator H atch and some of my colleagues on the Judiciary Committee, I wrote to the president and suggested that he submit to questioni ng by myself and a Democratic Senator on the Judiciary Committee. I suggested in my letter to President Clinton that this would avoid the circus-like atmosphere of a public hearing with a lot of television cameras. It would be done in a professional way in a private office, his office if he wanted. And after we had a chance to review the transcripts, we would make them public. We weren't going to keep this a secret, but we would do it in a more professional way than these highly-publicized Congressional heuings.

RF: What do you think is going to happen ? When everything is said and dOlle, what is the logical outcome of this situatio n? Smator Arlm Speller: I think that Congress will probably pass legislation like I am suggesting. I think that there will be a very heavy black mark on President Clinton's record. It will be a warn8

Birth Date: ftbnwJ 12, 1910 Pony: !epublian Political Philosophy: Consemtiw DO K ..... ia; liberal DO SO<iaI issues. Hot I.sue: (rime

Home: Philadelpll~ FamllJ: IIarried to Joan L Ie¥y; 2diIdron IIeIIpn: jewisb Educadan: UoMristy oIl'toosJMoia.l.A. (1151); IaIo uw !dIooI.lU. (1956) .......1IanaI ~. s.n.U.!.lenut(I98I. ,......); District ~ PIoiIadeIpioia (1966-74); Auimnt c-.I. Wamo Conomissioo (1964); Assimnr Disrricr ~ Philadelphia (1159-61); UJ. Army (1951·51) E-mail Addna: ......._spemr@spemr........""

Ripon FO!'\IITl • Spring 200!


Congressional Inaction Threatens U.S. Companies US. financial services companies face legislative obstacle Ily Kennel h J. Kics

he ability of US. fi nancial services companies to compete in the global economy will depend, in no small pari, on a seem ingly obscure - bur extremely important provision of the Internal Revenue Code that is scheduled to expire at the end of this year. T he issue involves the timing of US. tax on income earned abroad by U.S. financial services companies. Without action by Congress, U.S. financial services companies after 2001 will begin to be taxed on income earned overseas by their affiliates, regardless of when this income is repatriated. This change is contrary to longstanding tax policy principles and would create an unwarranted distinction between US. financial services companies and all other types of American businesses whose US. tax liability on overseas income will continue to be deferred until the income is repatriated. The principle of deferral has been imbedded in the United States corporate income tax since its inception more than 90 years ago. In 1986, however, a significant lapse in tax policy logic resulted in the repeal of deferral for financial services companies. Congress corrected this mistake in 1997. but only on a tempornry basis. Globally engaged U.S. banks, securities firms, insurers and fmance companies are pushing hard for legislation to make permanent the application of deferral to the acrive financial services RJ pon Fon.m â&#x20AC;˘ Spnng 2001

income. They stress that the uncertainties created by the temporary narure of Ihe rules has hindered their ability to compete with foreign-based financial services companies in overseas markets. The home coumries of these foreign-based companies generally do not impose tax on income earned abroad. Disrurbing new data support these competitiveness concerns.

THE 1986 LAPSE From the inception of the corporate income tax in 1909 until 1962, income earned by foreign affiliates of US. companies was not subject to current U.S. tax until the foreign earnings were distributed to the United States. This rule of deferral applied regardless of whether the income was derived by manufacturing operntions or by active financial services operations. In 1962, Congress enacted a regime - referred to as Qsubpart F ~ - that sought to narrow the scope of deferral in response to revenue concerns. Specifically. Congress was concerned that some taxpayers might be able to shiff easily moveable assetS offshore and use those assets to generate passive income that would escape current U.S. tax. The subpart F rules opernTe to tax currently passive income earned overseas. T here was no intention at that time to interfere WiTh the availability of deferral in situations involving income earned overseas through active business operations.

,


RUNAWAY HEADQUARTERS

I n 1986, Congress amended subpart F to treat all types of financial income as if it wefe passive, thus eliminating the prin-

FinanciaJ services providers are subject to intense world\vide

ciple of deferral for active financial services income. No compelling policy justification was advanced at the time in support of this change. Congress did not scale back the deferral rules that continued to apply to manufacturing or to other services income earned overseas.

competition. U.S. and foreign- based financial services companies compete to provide services to globaJ customers on a global basis, and must be able to provide these services on razor-thin profit margins. Tax costs can materially impacr profit margins. If a U.S.based company bears a significantly higher tax burden than a

ongress in 1997 recognized the error of the 1986 changes and restored the historic treatmem of active fi nancial services ( income, providing that subpart F does not ap ply to income derived overseas by a U.S.-controlled foreign corporation in the

German- based fi rm with respect to its operations in South America, for example, then the U.S.-based company will be squeezed out of this market. In the absence of the subpart F provision for active financiaJ services income, U.S. companies rou-

active conduct of an insurance, banking, financi ng, or similar business. The Clinton Administration at the time acknowledged that the "primary pur pose of the provision was proper. ~ However,

tinely will face a h igher tax burden than their fore ign counterparts, most of which are not taxed at all by their home countries on their overseas earnings. The ~on-again, off-again~ nature of the subpart F provi-

due to revenue constraints, the provision was made effective for only one year. The U.S. financial services community fought hard to have the subpart F provision extended again in 1998 and 1999. In

sion, in many important respects, is nearly equivalent to no provision at all. T he pattern of temporary extensions has meant that U.S. financial services co mpanies cannot plan their

conjunction with these extensions, Congress enacted substantiaJ safeguards to ensure that the subpart F active financiaJ services provision applies only to active business income and cannot be

activities - which are long-term in nature and not easily stopped and started on a year-to-year basis - with any cer-

circumnavigated to defer current tax on passive-type income. The extension enacted in 1999, as discussed above, expires at the end

tainty. Meanwhile, foreign-based com panies can depend on not being taxed by their home countries on activities under-

of this year.

taken ove rseas.

u.s. TAXATION OF FOREIGN ACTIVE FINANCIAL SERVICES INCOME: HISTORICAL SUMMARY Foreicn ActM filancial lomas , _ SubjKt To

eu..., U.t 1M IoaI Tu Sobpart F Ena<I1d

IIOt

'-~---------------...."..-

1961

Fortip ActiYt FiAancial Servim IIKOIIIe 8m Subject To Current U.S. Tu

~

I

1916

./

I I '"7

2001

Ly--J

Hiuoric: TrtalmeRllemnd F" hRip laM FiIwIciaI Senices II'ICOIIf

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Ripon Forum â&#x20AC;˘ Spring 200 I


COMPANY CROSS-BORDER ACQUISITIONS OF FINANCIAL SERVICES COMPANIES (TRANSACTIONS OVER $500M)

Item

Number

% of Total

Total Value ($M)

% of Total Value

2000 ACQUISmONS (JANUARY - NOVEMBER)

Foreign acquisitions of U1 Financial services compatlfes

12

7S.0

$48,091

79.8

U.S. acquisitions of foreign Financial services companies

4

2S.0

Sl2,140

201

8

88.9

Sll,796

96.1

ILl

SI,l70

1.9

1999 ACQUISmONS

Foreign acquisitions of U.S. financiil services companies U.S. acquisitions of Foreign FinalKial services companies 1998 ACQUISmONS

fomgn acquisitions of U.S. financial services companies

12

80.0

SII,l16

76.1

U.S. acquisitioRS of Foreign Financial services companies

1

20.0

Sl,SSI

2J.9

A reflection of the increasingly competitive and globalized financial services industry is a dramatic growth in cross-border mergers and acquisitions. Recent data show that U.S. -based financial services companies arc being taken over by foreign competitors at an alarming mte.

Of the 16 cross-border acquisitions of financial

services companies that occurred in the first 11 months 0(2000, thn:cquarters involved foreign acquisitions of U.S. finns. Results from 1999 and 1998 are similarly disrurbing. The upshot is that there are fev,rer and fC\VCf U.S.-headquartered financial services companies. he life insurance industry illustrates this trend. Today, 13 of the top 50 United States life insurance companies are foreigncontrolled. Moreover, today on ly 9 of the top 30 life insurers worldwide are based in the United States. This "runaway headquarters~ phenomenon may be explained in part by the specter of uncertainty over the subpart F active financial services provision. Investors may be concerned about the prospect that a U.S.-headquartered global financial services firm will be subject to U.S. tax on its overseas operations. Headquartering a combined firm outside the Uni ted States generally eliminates this tax cost with certainty.

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p,jpon

Fon.m â&#x20AC;˘ Spring 2001

ACTION IN 2001 In light of these concerns, the U.S. financial services industry is strongly advocating a permanent subpart F provision for active financial services income and is committed to seeking its passage thi s year. In this regard, the industry was pleased by a recent show of support by the Bu sh Administration for the sub part F active financial services provISIon. It is up to Congress to act, to make permanent what has been a staple of the law fo r most of the corporate income tax's history. A permanent rule will mean more financial services companies will be headquartered in the United States, which will support more high-value U.S. jobs and ensure criti- r."I cal financing for U.S. ventures abroad. ... Ken Kin is a Managing Partner of the PricewaterhouseCoopers Washington Nfltional Tax Services office and Chair of the firms FedemlTax Policy Group. Prior lojoining PricewaterhouseCoopers in 1998, Mr. Kies served as Chief of Staff of the Congressional Joint Committee on Taxation.

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u.s. Trade foreign policy

,

By Robert Zoellick

Edilori Nolt:Prior to being nominated and conjirmdhylhe US. Sma/em tJxnro; Trade

THE AMERICAS: GETTING SERIOUS ABOUT HEMISPHERIC FREE TRADE

R1>resenlativefor 1m Un;ltd Statts, Robert Zoel/id: gave the optning addms for the Trans-AI/an/it Polity Ne/work in Vtniu,

gling to show results for their citizens. Unforrunately, Latin America can no longer rally support to face these problems

Ila!yin Dtctmba ManyobJerwn nQ'Wv;n.v his Temar/iS as a lorunst for fhe Bush Adminislralions national security, trade and foreign poliry. The highlights of his spmh

by pointing to a vision of hemispheric free trade because the Free Trade of the Americas (FTAA) has slowed to a crawl. When the western hemispheric leaders meet in

follow:

he President will need to devote much attention to building the

OJlebec City within the new U.S. Administration's first 100 days, the Latin Americans will be watching closely for signs ofcommitment from Presidem Bush. They will be most interested in th e

basis for governing at home. But, the world will intrude. Indeed, the

calendar o f already scheduled events will require President Bush to have

an active foreign policy and nalion al security agenda. According to lhe calendar, the Presi-

still on trial. The Andean region has been engulfed in crises. Throughout all of Latin America, elected governments arc strug-

Presidem 's willingness to proceed with a legislative effort to regain trade promotion authority (TPA), as the prerequisite to restoring the free trade negotiations. Movement on the trade agenda is the vital sign for the Latins. First, historically,

dent wiU attend summits in three regions of principal st ra tegic inte rest for the United States: the Americas, Europe and

First, the countries of the Western Hemisphere will convene the Summit o f the Americas in Qaebec City in April.The American neighborhood ofTers great op-

East Asia. The fourth region that is critical to America's strategic posture, the Middle East and the Persian Gulf, is on

portunities for the United States, but troubles are brewing there as well. Over the past 15 years, much of Latin

broader

the brink of sliding into deep dangers that witi also command President Bush's attention.

America has moved towards democracy and more open economies and societies. But democracy and market economies arc

in, the region. Second, within Latin America, hemispheric trade initiatives have been inte-

"

even dating back to the early 19th cenrury, U.S. interest in free t rade with Latin America has been the cornerstone of a

u.s. policy of respect for, and interest

Ripon Fon.m â&#x20AC;˘ Spnng 200 I


grally linked to overarching goals of promoting economic growth and political reform. Third, the Latins will wonder, with some justification, that if the United States, with all its advamages, is unwilling to face vested interests that are opposed to open markets, how can they and other developing democracies be expected to do so. s a result, if President Bush comes to Quebec City with good intentions but without a commitment to TPA and a trade agenda, the Latin Americans will be polite, but conclude that the United States is not serious. Of course, a new

A

pres idential t rade agenda will require working closely wilil Congress, including attendees at this meeting. Over the past years, the basis for bipartisan support for trade has been present in the US. Senate, but has been eroding in the US. House of Representatives. I expect that the next Congress will want the President to outline a broader trade strategy, extending beyond Latin America. The Administration will need to thread the needle on issues such as training and adjustment assistance, enforcement of agreements, protecting the environment, and support for labor concerns within the United States and abroad.

year. First, there is the semi-annual EUUS. summi t during the Swedish presidency.1 t is in the first half of the year, when it is the turn of the EU to be the host. 1 would guess that if President Bush makes this trip, he would also try to arrange a stop at the North Atlantic Trade Organization (NATO). The other trip is haly's G - 7 economic summit in Genoa next summer. These summits will give the President an opportuniry to outline his views and to hear directly from America's closest allies, on both economic and securiry topics.

A NEW ECONOMIC RELATIONSHIP

EUROPEAN ALLIES

Let's look fust at the economic agenda with Europe. 1nevitably the negotiations, or worse, the legal conflicts on individual cases (such as bananas, beef hormones, or the Foreign Sales Corporation legislation) will influence the tone and context of the U.S.-European economic relationship. TIlese cases loom larger than the value of trade involved. They go to the heart of the political reliance on the World T Tade Organi'l..ation (WID) dispute resolution systems. The real issues in the transatlantic economic relationship, or course, extend far beyond these cases. The corporate restructuring taking place, especially in Europe, is helping to create a de facto, inte-

Second, President Bush will take one or perhaps even two trips to Europe next

grated transatlantic market. For example, last year, European firms announced S241

Ripon Forun â&#x20AC;˘ Spring 200 I

billion in merger.; and acquisitions deals with the United States, and U.S. firms reported S97 billion dollars of activity in Europe. TIle new executives in Europe are n..x:ognizing that a strong strategic position requires a foothold in both the United States and Europe. European companies not only want the link to U.S. business, consumer and financial markets, but they need to stay abreast of the American adaptation to make use of these new technologies. Yet we do not know whether the transatlantic political leadership will work together to get ahead of, or even catch up with, the social dislocation and anxiety created by this deeper integration. These concerns are often lumped under the term globalization, bur the changes stem from technology and fmance as much as global competition and integration. Therefore, I believe the larger transatlantic economic agenda has three components. First, we still have the challenge ofovercoming some of the traditional trade barriers: tariffs, quotas and the use of allegedly defensive laws that slip into process protectionism. Agricultural trade still remains very constrained by barrier.; and subsidies. Second, we wiU have to deal with the intersection of deeper economic integration \vith topics that our governments have traditionally considered areas of domestic regulation. These might include competition policies, health and science regulation and privacy protection. Once differences in these areas slide into conflicts with political battle lines drawn, it becomes very hard to work out compromise arrangements that can meet the core objectives of numerous parties and constituencies on both sides of the Atlantic. EU Commissioner for Tmde, Pascal Lamy, has made a similar observation. H e has called for anticipatory efforts to identifY and possibly address these issues. For 13


example, the U.S.-EV safe harbor on infonnation privacy may offer an example of negotiating a solution before a conflict. Others can contribute to this problemsolving approach, including transatlantic businesses and legislative groups. For example, it will be difficult to overcome the European fearof genetically modified organisms (CMOs) as long as Euro-

Similarly, with the fall of Milosevic, the EU and the United States have a real opportunity to reintegrate the Balkans and reconnect it with the democratic and economic trends with the rest of Europe. I am not saying this will be easy. Countries like Romania pose se ri ous problems. Given the antipathy between the Serbs and Kosovars. the region will remain a secu-

"Frankly, the tougher security questions in the transatlantic relationship will pertain to Europe's periphery." pean publics have cause to distrust their own health and regulatory authoritics. Third, the U.S. and the EU will need to decide whether their larger, global interests in an open, dynamic world system warrant cooperation to set standards for a global agenda. Obviously, a new global neg06ating round in the WTO has little prospect of success if the United States and EV cannot agree on how to lead together while still addressing their specific political and economic considerations.

FOCUSING ON SECURITY President Bush will also have a significant security agenda to discuss with his European colleagues. The European issues on that agenda will necessitate care, but I believe they can be handled successfully. For example, most American officials recognize the possible benefits of the European Rapid Reaction Force if the plans are matched by real resources. European armies need these resources to acquire the military capabilities necessary to become more mobile forces. Increasingly, Americans will look to Europeans to take the responsibility of insuring that the European military force supports, and does nOt unde rmine , NATO cooperation and interopcrability. 14

rity protectorate fo r many years. But if the EU can act coherently and follow through on practical policies connected to a long-term strategy, the magnetic pull of the EU can be powerful. These countries want to be part of the new Europe. Frankly, the tougher security questions in the transatlantic relationship will pertain ro Europe's periphery. Indeed, a characteristic of the post-Cold War world is that U.S. attitudes toward Europe will be increasingly influenced by the narure of European cooperation with, or opposition to, U.S. ap proaches toward problems outside of Europe.

ingly, related to the oullook inculcated by the KGB. hile he wants to strengthen the Ru ss ia n state, it is probably through the mistaken means of recentralization at a time when the rest of the world is moving toward distributed and intcgra.ted networks. President Putin also wants to reassert Russia's influence over its neighbors. But it is probably without the Itt:ognition that Russia would be bener off with independent, secure a nd prosperous neighbors. H e also signals that he wants to revive Russia's economy, but probably without giving up prerogatives of state control. True democratic competition and a free press are, unfortunately, probably impediments to Putin's plan to restore Russia. President Putin's attacks

W

on media are not a good sign. Nevertheless, Putin and his ilk are hardheaded and practical men. They recognize Russia's problems. They don't want a con front ation with the United States and Europe because they cannot afford it, and because they appreciate that Russia's economy needs ties to the wider world. As a result, I expect President Putin to seize openings to advance his inter-

NEW LEADERSHIP IN RUSSIA The first case is perhaps an in-between exa mple: Ru ss ia. President Putin may not have a clear strategy, but he is demonstrating some strong inclinations and instinct, not surpris-

flopon Forum â&#x20AC;˘ Spong 2001


in a calculating fashion. But he can be influenced, especially if the U.S. and EU aCI together to signal that Russia will pay a price for ce rtain actions. For the United States, and I hope the EU, one of the most sensitive topics will be (SIS

America might not have been able to rely

plain its strategy better and perhaps meet

on European support if London, Paris,

some European and Russian concerns.

Berlin and Rome were potential targets for Saddam H ussein's missiles. And we might

CHINA: U.S. PDLlCY BEYDND WTD

not have been able to win Congressional amhorization (it was a close vote in the

Russian support for the proliferation of

US. Senate) if it involved the risk of a

weapons of mass destruction and missiles.

nuclear attack on the US. by a Saddam H ussein with his back against the wall.

MISSILE DEFENSE

Recall the anxiety and dangers in Is-

The subject of missiles raises what I

rael caused by Iraqi scud missiles armed with

expect will be the security issue that will require the most sensi tive handling bet\vecn the Uni ted States and Europe in

conventional weapons during the GulfVVar

2001: missile defense. J recognize that some European s only associate missile defense with President Bush and the Republicans. bur I think this is a misrakcn assumption. Especially with Iran's missile

and multiply it many fold. That is why Is¡ rael takes missile defense very seriously, and has developed with the U.S., an effective missile defense system called the Arrow. Given this strategic logic for missile The President 's third major trip will

defense, the U.S. needs to develop systems that can reduce the threat to US. forces

be to Shanghai in November for the APEC

ab road, our allies and at

summit. This visit will enable the Presi-

home. It is not enough

dent to meet the Chinese leadership with-

just to defend the U.S.

out all of the formalities and expectations

"Missile defense is not motivated by an American fear that a dictator will wake up one day and decide to take out a U.S. city."

Funhermore, we

associated \vith a one-on-one state visit. It

need to examine the pros-

also sets a time frame within which the

peets for diffcrcm types of

Administration will need to shape its

m issile defense systems,

China policy.

such as sea- based and

Both countries can "map bacbvards"

dc\'c1opmcll(, reports from Iraq and (he

boost-phase defenses. These systems

to plan what actions they might take to set

turmoil in the greater Middle East. Any

might be more appealing to allies and oth-

up the summit. 1 can assure you thar Chi-

American administration will press ahead

ers, because they ca n target defenses

nese diplomats arc already thinking precisely

on missile defense.

against localized dangers and help protect

in these terms. There is a need for a new

allies.

framework for Sino-Amcrican rclations. fu

On the othe r hand, I believe that the US. has not done a good job explaining

I also think it would help to place

the Members of Congress can tell you, both

the strategic logic for missile defense.

missile defense in a larger context by mov-

Missile defense is not motivated by an

ing more quickly to cut offensive weap-

parties and Members across the whole political spectrum, have a strong interest in U.S.

American fear that a dictator will wake up

ons. The U.S. and Russia are no longer

policy towards China.

one day and decide to take out a U.S. city.

nuclear enemies. We don't need huge ar-

Instead, the concern is that some fu-

senals to fulfill targeting plans based on a

ture Saddam H ussein, or even the present

balance of terror. There cerrainly are signs

P

resident Bush is going to need [0 build his China policy on the foundation

of support from a core bipartisan

one, will threarcn security interests in a key

from Russia that it would like to cut of-

group in Congress. In doing so, he will no

location and then use missiles anned with

fensive nuclear forces ra pidly, betlusc it

longer be able to employ China's accession

weapons of mass destruction to checkmate

cannot afford its current strategic rocket

to

a U.S. responsc. IfSaddam Hussein had had lo ng-

forces. And Russia may also have an in-

counterweigh t. In fact, the inevitablc

range missiles armed with bio logical

In sum, I believe the President will pUI'"

of in 'NTO agreement are likely to produce

or nuclear weapons 10 yea rs ago, we

sue missile defense, but he can do so much

cou ld have nOt rel ied on plans to bring

more adroitly with Europeans and Russians.

frictions. Therefore, the Administration will

half a million troops though Saudi ports.

VVe may not agree fully, but the U.S can ex-

need to consider how to adj ust the alli-

Ripon Forum â&#x20AC;˘ Spong 200 I

terest in boost-phase missile defense.

wro as a rallying point for a positive

complaints about China's implementation

15


anee relations with Japan and South Korea, given the changes taking place in both coun-

had come to term s with the idea of a Palestinian state and a withdrawal from

aity, circumvented mOst of the sanctions and eroded the international coalition.

tries. It will also have to consider how the adjustmems with these fWO kt.'Y parOlers will relate to security relalions with C hina.

Lebanon. sraelis were then shocked by Araf.n's unwilljngness to Baf2k's offers, the

Then: arc regular reports about its missile

I also suspect that uneasy relations between Taiwan and Beijing will continue to create tension between Wash-

outbreak of vio le nce , and mos t significantly, the hostility of Arabs within Israel irsel£ No one will do the Palestinians

glonal instability serves Saddam's interests.

ington and Beijing. T he good news is that Beijing is no longer maki ng threateni ng so unds toward s Taiwan and its

any favors by suggesting that the United Nations, or anyone el se, will save the Palestinians from the need to make hard

It is hard to believe that the next four years will not witness a major challenge to peace and security in the Middle East,

new Preside nt, Chen Shu i- Bian. T he

compromises.

Persian Gulf, or both. W hich brings me

bad news is that Beijing does not trust C hen or h is party, the O P P, and is trying to wea ken both so tha t the O PP will fail in next year's legi slative elections. A more flexibl e and self-confident leadershi p in Beijing could have picked up o n Chen's early offerings. They could have then moved beyond them to reshape rela-

I

program. Iraq's nuclear program only lacks the necessary fissionable material. And re·

THE NEED FOR PARTNERSHIP

"It is hard to believe that the next four years will not witness a major challenge to peace and security in the Middle East, Persian Gulf, or both."

tions and created a reciprocal process in areas like arms control, economic and even

I have begun to wonder whether the Palestinians face even a bigger problem .

back to my principal point about the President and Europe.

international politic al relati ons. But Beijing is limited by its own politics of political succession leading up to the 16m party in congress in 2002.

Unlike Israel, whose democracy d ebated these issues and provided a b asis o f le-

President Bush will face a number of international economic and security chal-

gitimacy for comprom ise, the Palest inia ns do not have a legitimate political process through which the public can participate, debate and resolve differ· ences peacefully.

lenges in key regions around the globe, starting early next year. H is relations, and indeed America's relations with Europe will increasingly be based on U.S. - EU ability, o r inabi lity, to frame common ap-

As a result, the Palestinian leaders are wary of the reaction, or even violence, from

proaches to this global agenda. Good transatlantic relations arc necessary, but not sufficient.

INCREASING TENSIONS IN THE MIDDLE EAST AND PERSIAN GULF Finally, President Bush will face unhappy prospects in the M iddle East and Persian G ulf region. Anti-American and Anti- Israeli sentiment is intensifYing in the Arab countries. A recent poll conducted by Bir Zeit University reported that 73 percen t of Palestinians support some sort of military operations against U.S. targets in the region. Th is sentiment has spread to varying degrees in the Arab world, a world that is weakened by its stagnant economies' continued reliance o n oil prices, and internal challenges to legitimacy. On the other hand, the Israeli public has undergone a number of blows, the implications of which will be clarified in next year's election in Israel. After ten years of difficult debate, Israel's democracy

"

their own public. Furthermore, the public has no sense of civic responsibility to compromise, which is developed through participatory politics. In lran, the forces associatt.-rl with Presi· dent Khatami have been embattled on do· mestic issues and certainly have not challenged Iran's foreign and serurity policies. Iran conlinues to deny Israel's right to exist, and it conlinues to develop long-range missiles and nuclear weapons. Iran also refuses talks with the United States despite an offi· cial offer. Indeed, Iranian fundamentalists arc quick to attack anyone who suggests im· proved relations with the United States. I n I raq, Saddam H usse in ha s thrown ou t the inspectors without pcn-

As Euro pe's capabilities grow, as I believe they will, and as regional economic and security issues become more interconnected around the world, the EU and the United States will need to do more together. They will need to become partners, or at least cooperative colleagues, on a global agenda.

m

R ohut Zot/lick was rtuntly appointtd Unittd Statts Tradt Rtprtstntati'IJr. Brfort acupting this position, IN was afollow attht Gtrman Marshall Fund, a Washington think tan k (1999-2001) and str'fJtd as fht CEOdrsignate lor (ht Center oj Straltgic and Intt matioua! Sludits (1998-99). Ro pon Forun • Spnng 2001


A50-50 Senate: Will It Work? A Ripon Interview with Majority Leader Trent Lott Ily Ashlcigh Ilobcrls

he 50-50 split in the United States Senate is unprecedented in modern political history. Last month,

The Ripon Forum discussed the historic power-sharing agreement with Majority Leader Trent Lott (R-Miss). M any have touted the broad framework. which equally split committee space, staff and funds ben'lccn Republicans and

Democrats, as the bellwether on how the 107'h Congress will operate.

RF: Mr. Leader,howwouldyoudefine me 50-SO split as it stands today? What does it mean in practical tenns?

Majority Leader Lott: What it really means is that every vote in the United States Senate will be a challenge for both sides of the aisle to come up with a winning margin. Just yesterday, on the 6'"

of M arch, we voted on an important disapproval resolution to stop a ~ri~s of regulations that Former President Clinton implement~d right before he left office. The regulations were not based on good science and were going to cost the country's business and industry sector billions of dollars. We w~re able to pass that resolution by a bipartisan vote, with aliSO Republicans and six Democrats. So, as you can sec, it's tough to make it work. But, in a unique way, it may force the Senate to work together more than we have in the past when one side or the other had a signifi cant margin. RiJXln FQo'UTl â&#x20AC;˘ Spring 200 I

MQjrm'ty !JudO' Tunf Loll disCI4m fix 107fh JtJsion.

RF: Press accounts described the process by which you reached an agreement as difficult, with strong opposition from both parties. W hat is your recollection with a month's hindsight? Majority L tadtr L oti: It was very difficult. It was probably

one of the two or three most difficult things thai I have had to do since becoming M ajority Leader. When J was first elected Senate Majority Leader back in 1996, the U.S. Senate was com pletely balled up. It was a presidential election year. 17


Our Leader, Bob D ole, was running for Presiden t and the Dem oc rats did not want him to have any suc cesses. Nevertheless, we were trying to move his agenda and basi cally everything was just completely stopped. Part of the p roblem and, the key legi slative iss ue, was what should be done with minimum wage. I had to find a way to get the Senate not only back up and standing, but also moving forwa rd in order to deal with thi s difficult issue. We needed to do the right thing and figure out what amount could be passed. The year before last, the Senate had to get through the Impeachment trial in a way that fulfilled our Constitu tional responsibi liti es . We had to find a way to

"In my opinion, the trial should have resulted in the removal of the President from office, but that did not happen and more to the point, I knew it was not going to happen."

reac h a reasonable conclusion wit hout doi ng dam age to the Senate or dragging the matter our endlessly. In my opinion, the trial should have resulted in the removal of the President from office, but that did not happen and more to the poim, I knew it was not going to happen. So, I had to figure out a way to do my job, protect the Senate and fu lfill the requirements of the United States Constitution. I think we did that, not to everyone's satisfaction, but I think we did that.

"

The third toughest thing that I have had to deal with since I've been Leader brings us back to the current 50-50 divide and how you pass a system of rules that permit the Senate to function as a legislative body in a politically JUSt way. Frankly, a lot of our people didn't want to deal with it. Some were in denial that we had lost some seats, that in fact we were in a temporary minority and that we were going to have to deal with the Democrats in a different way than we had in the past. ile everyone else was worrying about the Presidential election results, I worked for weeks and months trying to figure out the best course of action for the Senate. I was reading the rules, writing papers and exchanging proposals with Minority Leader Tom Daschle, and trying to come to grips with what we were going to have to do. When I presented

W

that to the Republican Senate Conference, they did not like what they heard nor did they want to pursue our current course of action. There were quite a few people who said, 'No, we'll do it our way and the Democrats will just have to like it.' WeU, that wasn't going to be possible. Ripon Forun â&#x20AC;˘ Spnng 2001


u.s.

Senator Trent lott is the Senate's 16th Majority leader. He is the first Mississippian ever to hold the Senate' s top leadership post. Senator lott was elected Majority leader on Wednesday, June 12, 1996.

] was also concerned that an inside the beltway rules fight in the Senate would be a distraction from our new Presiden t 's agenda. I did not want to open the United States Senate's 10Th session with a rules fight and a filibuster over Rule 25, part h. I thought a meaningful discussion ahout education, defense, tax relief, social security and other issues the American people really care about was in order. There were a few good men and women in the conference that stood up and said, 'Let's get rC:l1. This is where we arc. This is what we arc going to have to do, whether we like it or not, and the most imponanr thing is how we are going to pass the agenda of the President, the Congress and the American people.' think that we did the right thing. And, I think that even the people who resisted at that rime, in retrospect, realize that I did t he best I could given the political hand we were dealt. It was the right thing to do.

RF: Are you as optimistic with regard to the budget and the proposed tax cut? Majority !..Lader Loll: I think the fact that we dealt with this prob-

lem tllkes that disagreement and fight off the tllble and allows us to focu s on the tax cut. Without question, having a 50-50 Senate will make the tax cut debate and the results very difficult to achieve. That is not because of what we did with the rules., but because we have a 50-50 Senate. With the Vice- President we actually have a 51 -50 Senate. But, t believe that if we can get Senators to do their work and focus, then we can win these tough issues.

RF: Is there an understanding that the current agreement is in place for the remainder of this session, regardless of possible change in the Senate? Majority Lead" IAtt: No. there is not. If the numbers change, either way, then the rules could very wcll have to be fC-vis ited. Some committees, however, have reached an agreement for the balance of

this session. Who knows what providence will provide. good or bad. 'The bst time we had a similar siruation, there were nine senators who died in the next two years and yet the majority never changed hands.

RF: Will you be that lucky? Majority Leader Lott: Wcl1, we'U just have to see.

m

Rohtrls iJ lhe editor ofThe Ripon Forum.

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I

RF: Has thi s ne w arra ngeme nt made "political gridlock" more difficult and how is it working with regard to the individual committees and their legislative timetables? Majo rity Leader Lott: It has changed the process. Again, we must have unity and reach across the aisle. That takes a lot of work. If we do that it may well be we wil l have less gridlock

on the big issues and keep the little ones off the table. It's going to be difficult. Every committee is divided 50-50, with some more partisan than others. While it won't be easy, t believe we can make it work.

RF: H ow will the 50-50 divide affect the Bush agenda? Majority L eader Lott: Well first, to even co nsider President

Bush's agenda, we had to p:l.SS the rules, the committees had to come to agreement regarding funding and then there were their individual rules. I think now, with that behind us, it will al low us to con tinue to focus on the substantive issues and the president's education and tax relief initiatives. Ripon Fon.rn • Spnng 200 I

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Putting People First Congressman Jim Kolbe pushes to modernize the nation's outdated and inefficient Social Security program. By u.S. Itcprcsenlalivc Jim Kolbe

Congressman}im Kolin

20

or too long, my colleagues and predecessors have cons idered Social Security the Third Rail of politics. My experience, both as a Member of Congress and as CoChairman of the National Commission on Retirement Policy, has convinced me t hat [he American public is ready and willing to discuss the need to modernize Social Security, albeit in a constructive, responsible manner. It is essen tia l that we address not on ly the financial shortfal ls looming in Social Secur ity, but that we al so modernize the program so that Social Security is as good a deal for today's worke rs as it was for yesterday's workers. Soc ial Security's benefit structure is based on an outdatt!d portrait from tht! 1930s: a husband as tht! so le wage t!a rnt!r with a dept!ndt!nt wife who remains a t home. As two-carner househo lds becomt! the norm and the ~typ i cal" famil y becomes harder to define, Social Security has not adapted.

Thi s failure has resulted in gla ring inequalitie s between si ngle and dual earne r fam il it!s , younger and ol dt!r workers, and among married, divorced and widowed retirees.

PERSONAL ACCOUNTS ARE A POWERFUL TOOL As the co-architect ofhvo Social Se curity reform proposals, I know firsthand how persona l accounts, whe n structured prope rly, can be a powerful tool in reducing the financial burden Social Security will impose on our children. Moreover, personal accounts are an effective way to reduce and/or eliminate the generational and familial inequitit!s perpetuated by the current sj'itern. SpecificalJy, personal accounts art!: Flexiblt! - Unlike the current Social Security program, with personal accounts your retirement savings work for you while you are working or staying at home . Equitable - A modernized Social Ripon Fon.xn â&#x20AC;˘ Spring 200 I


Security system incorporating pe rsonal accounts wou ld correct many of the inequalities co nce rning di vorce, dual-earner families and widows' benefIts. Portable - Personal accounts go with you as you change jobs, change s pou ses and enter and exit the workforce. Empowering - Personal accounts provide low- income Americans the opportunity to create wealth by using their exist ing tax dollars. They also insulate retirement benefits from political risk. Finally, personal accounts would establis h pro perty rights to a portion of your Social Security benefits. Safe - Every pe rsonal account plan introdu ce d in Cong ress provide s workers with the choice to invest in safe, ri sk- free T reasury securit ies. No one should be fo rced to invest in the stock market. F iscally responsible - Using current payroll taxes to pre- pay a portion of future benefits will help reduce the $11.3 trillion and currently unfunded obligation looming over Social Security. hile individual accounts are not a magic bullet, they can be a powerful tool in restoring fiscal stability and ge ne rational equity to the Social Security program. T he bipartisan leg islation I have introduced with Representative Charlie Stenholm (DTexas), H R 1793,establishes personal accounts that are carved out from existing payroll taxes, enhances the p rogressive benefit formula of the curre nt sys tem and actually strengthens the government safety net by increasing the defined benefit for low-income workers. Our plan

W

Ripon Forum • Spong 200 I

21ST CENTURY RETIREMENT SECURITY ACT A Bipartisan Plan to Save Social Security Congressman Jim Kolbe (R-Ariz.) and Charlie Stenholm (O-Teus) The Higt1ligt1ts of the Bill

Scored by the actuaries of the Social Security Administration as restoring 15year solvency to the Social Security program.

• Has bipanisan, bicameral support.

• • •

Contains no tax increases. Preservts the existing benefit promises for current and near retirets. Increases the rate of return for all workers.

• Enhances the government safety net.

Reduces Social Security's S1.4 trillion unfunded liability betwetn 2014-2034 by more than 50 percent.

• •

Dots not rely on accounting gimmickry. Does not rely on projected surpluses to create new general fund liabilities.

• Establishes the opportunity for all Americans to create wealth.

Provides individuals with ownership of and control over their retirement assetsincluding the freedom to invest in safe, risk-free Treasury securities.

Rewards work.

preserves current law benefits for existing and near- retirees, eliminates publiclyheld debt by 2014 and place s Social Security on sound fiscal footing in perpetuity.

WHAT IS THE KOLBE-STENHOLM PLAN! The Kolbe-Stenholm Social Security reform plan is based on the concept of "pre-funding." Currently, the federal govern ment is running a surplus of Social Security. This bill would use the surplus to pre-pay a portion of future benefits to workers now, and thereby re-

duce our obligation in the future. The 21st Century Retirement Security Act provides payroll tax relief for all working individuals under the age of 55 by diverting two percent of Federal Insurance Contributions Act ( F ICA ) taxes into personal Ind ividual Security Accounts. Wo rkers would be allowed to make additional voluntary co ntributions of up to 52,000 a year to their individual account. Th e legisla tion also provides a savings subsidy to help low- income workers build their individual accounts. The individual accounts in our plan would be modeled on the federal government's Thrift Savings Pl an 21


A RESPONSE TO ISSUES AND CONCERNS

Q.

Why is it bfttfr [0 allow indiYiduais to inmt in tht sUKk marktt~ Why not Itt dtt in the marttt~

pmmflll ilMSt tht SÂŤQJ Securiry trust fund

A.

Government investment dots not addrm the national cry for pmonal ownership and conlfol. Polls demonstrate that Americans want their own stake in the U.S. Kanomy, and more (ontrol oyer their retirement brodin. The current symm provides only a statulory right to benefits that (ongrm may adjust at any lime. Only penonal iccounu offer workers ownmhip of (onnitutionally protemd property. "oreovu, inmting the trun fund in equities would cauu risk to permute the en¡ tire ,ynem. This is &tUUSf the symm's solvency, and the ability to provide basic Social Security btnefits. will rise and fall with the performance of the nock market If the market suffers a downturn in a year in which the trust fund ratio already is low, the ability of the Social St<urity symm to provide benefits would be jeopardized.

Undel the 21n Century Retirement Act, the Social St<urity Trun Fund's ability to provide bene fin is not afft<ttd, enn if the market has a bad year. Once the federal gonrnment's balance shut depends on the performance of the equities market, influencing the market up will become an unavoidable aspect of day-to-day t<onomic decision making in Washington. Political influences will be brought to bear on the choice of Social Security investments. Acquiring significant ownmhip stakes in a large number of corporations has significant consequenm. Moreover, government innnment in private companies would conflict dirtctly with the federal government's role as a regulator of industry. lastly, simply moving the Irun fund into equities to duck tough choices will not add to national savings. If Social Security did get a higher rate of relUrn , it would be at the COil of lower rates of return in the private savings symm. In other words. it would jun be a hidden til on other invtstments 10 fund current benefit promises of the federal government.

(TSP). In TSP, individuals pe rsonally choose inve stmen t options, including a stock index fu nd, a bond index fund and a Treasury securities index fund. Unlike other proposals, our plan would provide individuals with owne rship and con trol over their retirement assets, including the freedom to invest in safe, ri sk-free T reasury securities. It does not force anyone

to invest his or her Social Security funds in the stock market. It 's your money, it's you r choice. Th e b ill also strengthens Social Security's safety net by creating a guaranteed minimum benefit that is more substantial than what the current law provides low- income workers. Moreover, thi s benefit is given

regard less of other factors. Consequently, any in co me from the individual accounts would supplement, not replace, the enhanced guaranteed Soc ial Secu rity benefit fo r low-income workers. Our plan make s chan ges in the defined benefit, but in a progre ssive manner that in s ulate s vu ln erable populations. These benefit adjustments large ly affect mid-to - high income individuals who would benefit di sproportionately from the individual accounts. Oli cyma kers may debate the details of the perfect solution for Social Secu rity, but all of us mu st share a commitmen t to address ing the issue he ad-on. There are few issues more i mportant for C o ngr ess and the p resident to tac kle than finding a b ipa rt isan consensus to s tr engt hen Social Security for our ch ildren and the ge nerations that will follow. No matter where one stands on these ideas, we must begin to tal k honestly a nd directl y, without resorting to partisan attacks and demagoguery. If Congress an d the Wh ite H ouse do noth ing, by 2030 the annual cash defi ci t in Social Security will reac h $814 billion (in 1999 dollars). To help close thi s gap, th is legislation slowly phases in other changes that would reduce the cash shortfall and eliminate over 50 perce nt of the 57.4 trillion unfunded liability. While some of these provisions involve some tough choices, as a recent Government Accounting Office report illustrated, they are necessary to ensu re that Social Security survives for the next generation of r."I ret irees and beyond . ....

P

us. RtprmntativtJim Kolbt isa Rtpublican rtprmnting thtfifth District ofArizona. Ht urvtS as a mtmbtr of tht Appropriations Commit/U. RJpon Fon.m - Spring 2001


At Fannie Mae, we're turning the roadblocks to

homeownership into picket fences.

You can see Fannie Mae at work all across the country. A family in the Midwest

lives their dream of owning a home. A neighborhood on the East Coast is revitalized after decades of decline. A family with past credit problems is finally able to affor d a home of their own. Our

lender partners are able to utilize our technology to save time and money. And there are countless other examples.

~ FannieMae

www.fanniemae.com Because every day, we work with our mortgage lender

partners and other housing leaders to fulfill a goal. To knock down the barriers to homeownership. To lower costs

andincrease opportunities for low- and moderate-income families.

To make affordable rental housing available to all Americans. How do we do this? As the nation's largest source of mortgage funds , we put our financial strength and innovation to work to make sure that low-cost mortgage funds are readily available so that our lender partners can help more working families live the American Dream of homeownership. We believe that when more Americans have safe places to call home, it strengthens families, communities, and our nation as a whole. lower rates. Lower costs. Increasing homeownership opportunities. Fannie Mae at work.


B(' a Part of till' Bipoll

1

So('i(·t~

The annual Rough Riders Award Dinner is May 1, 2001 at the Willard Hotel in Washington, D.C. Ripon is proud to award Senator Don Nickels, HHS Secretary TommyThompson, Congressman Michael G . Oxley and Congresswoman NancyJohnson with the Teddy Roosevelt Rough Rider saber for their achievements in public service.

QmK"mman Clay Shaw (R-FIIl.) sharts highlighls.from fix Ripon 'fIiial, "Rt!al PlOplt. Rial Progrw" with Ripon mtrnMrs.

THE

RIpON F ORUM 501 Capi/ol Court, NE, Sui/e 300 Washington , D.C. 20002

Clara NdxJI, un altn7lllltdtltgalt.from NnDJrruy. lath with Congrasiof/al Athlisf)ry Board mt!mbffS &nattlr Susan Collins (R-Maint!) Qnd Congrtu'WOmanJenniJtr Dunn (R- Wash.) a/lhe 2000 IUpublieon National Conwntion.

Sma/or Chuck Hagrl (R-Ntb) disctmesflrrign pdirywilh.formn' &prtsn/tQliw and Ripon Srxi(ty Pmidml Bill Frenul.

SECOND-CLASS

Profile for The Ripon Society

Ripon Forum Spring 2001  

Ripon Forum Spring 2001