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S. HRG. 109–801

THE FUTURE OF THE GULF COAST: USING TAX

POLICY TO HELP REBUILD BUSINESSES AND

COMMUNITIES AND SUPPORT FAMILIES AFTER

DISASTERS

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 6, 2005

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

on Finance ............................................................................................................ 1

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 3

ADMINISTRATION WITNESS

Snow, Hon. John W., Secretary, U.S. Department of the Treasury, Washington, DC ............................................................................................................. 5

WITNESSES

Kemp, Hon. Jack, founder and chairman, Kemp Partners, Washington, DC .... 28

Reeves, Hon. Tate, State Treasurer, State of Mississippi, Jackson, MS ............. 30

Bolen, Dianne, executive director, Mississippi Home Corporation, Jackson,

MS ......................................................................................................................... 32

Connick, Harry, Jr., honorary chair, Operation Home Delivery, Habitat for

Humanity International, Washington, DC ......................................................... 32

Gravelle, Dr. Jane, Senior Specialist in Economic Policy, Congressional Research Service, Library of Congress, Washington, DC ..................................... 35

Kelly, James R., chief executive officer, Catholic Charities, Archdiocese of

New Orleans, New Orleans, LA .......................................................................... 37

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 3

Bolen, Dianne:

Testimony .......................................................................................................... 32

Prepared statement .......................................................................................... 43

Responses to questions from committee members ......................................... 48

Bunning, Hon. Jim:

Prepared statement .......................................................................................... 52

Connick, Harry, Jr.:

Testimony .......................................................................................................... 32

Prepared statement .......................................................................................... 53

Grassley, Hon. Charles E.:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 57

Gravelle, Dr. Jane:

Testimony .......................................................................................................... 35

Prepared statement .......................................................................................... 59

Responses to questions from committee members ......................................... 69

Kelly, James R.:

Testimony .......................................................................................................... 37

Prepared statement .......................................................................................... 77

Responses to questions from committee members ......................................... 82

Kemp, Hon. Jack:

Testimony .......................................................................................................... 28

Prepared statement with attachment ............................................................. 84

Reeves, Hon. Tate:

Testimony .......................................................................................................... 30

Prepared statement .......................................................................................... 95

Responses to questions from committee members ......................................... 97

Page

IV

Rockefeller, Hon. John D., IV:

Prepared statement .......................................................................................... 101

Smith, Hon. Gordon:

Prepared statement .......................................................................................... 103

Snow, Hon. John W.:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 105

Responses to questions from committee members ......................................... 111

Snowe, Hon. Olympia:

Prepared statement .......................................................................................... 137

Wolf, Hon. Frank:

Prepared statement .......................................................................................... 140

COMMUNICATIONS

American Chemistry Council .................................................................................. 141

American Forest & Paper Association ................................................................... 146

Mortgage Bankers Association ............................................................................... 150

Travel Business Roundtable and Travel Industry Association of America ......... 154

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THE FUTURE OF THE GULF COAST: USING

TAX POLICY TO HELP REBUILD BUSINESSES AND COMMUNITIES AND SUPPORT

FAMILIES AFTER DISASTERS

THURSDAY, OCTOBER 6, 2005

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:06 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Also present: Senators Lott, Snowe, Kyl, Santorum, Bunning,

Baucus, Lincoln, and Schumer.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. I call this hearing to order.

Last week, this committee focused on our second phase of tax relief with respect to the aftermath of Katrina. The committee has

responded quickly and decisively to the hurricane.

Ten days ago, President Bush signed into law the immediate tax

relief package, and I thank Senator Lott for his input, as well as

that of Senators Landrieu, Vitter, Cochran, Shelby, and members

of this committee—most importantly, Senator Baucus—for working

with me in a bipartisan way on that.

Now we hope to pass the immediate health care and income security package as well. Unfortunately, we have run into a Senate

speed bump. A few Senators are blocking the bipartisan Finance

Committee immediate health care and income security package.

If they were lone rangers, we would have cleared the package by

now, at least through the Senate. Unfortunately, the White House

is working against me behind the scenes, and I resent that, considering how I have delivered for the White House so much over the

last 5 years.

Now, Senator Baucus and I are working together on that package, and we will continue to do so. I appreciate the determination

and focus of Senator Baucus. He has put a lot into moving these

two immediate packages.

He has heard from the Gulf Coast region, and so have I. What

the people there are telling us, is to move very quickly. They especially want us to move quickly on this package of tax relief. As the

Governors who appeared before this committee last week told us,

time is wasting.

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We cannot dilly-dally on Capitol Hill as people in the region face

real-world decisions. And that is not just about their immediate

health concerns or whether they have a job, but are they going to

come back to Louisiana or Mississippi or are they going to stay

someplace else, and then that region will suffer longer if they do

not go home.

So, to the people of the Gulf Coast, I promise that we will move

expeditiously. So I am directing staff to ready the next Finance

Committee package for our return from the Columbus Day recess.

We intend to continue to work on this package in a bipartisan

manner, so I promise to expeditiously move forward.

At the same time, I promise to move with an eye towards the

best use of taxpayers’ dollars. We need to marry our compassion for

the displaced persons and damaged communities with our attention

to fiscal discipline.

We need to find the most efficient and effective ways to use the

Federal resources under this committee’s jurisdiction to carry out

the overall policy of rebuilding.

I would like to reiterate four principles designed to guide our

consideration of the next phase of the hurricane relief, and these

are principles that I also stated to our Governors.

Number one. Market forces are going to have to be the prime

mover in getting the region back on its feet. Whatever policy initiatives we look at should be designed to speed up market forces that

are already in play.

Number two. Ascertain and deal only with uninsured losses. The

taxpayers should not be bailing out insurance companies or underwriters. This principle is a corollary to the first principle. That is,

market forces ought to work their will, and losses ought to be borne

by those who undertook risk.

Number three. Within the category of uninsured losses previously referred to, we should focus limited Federal resources on

those who are most in need. We should focus on small business. In

the Gulf region, like most of the rest of America, small businesses

were creating most of the new jobs.

Now, that does not mean that large corporations, even multinational corporations, should not be considered in our proposal. It

does mean, however, the incentives and loss recovery should not be

designed to duplicate what major corporations, multinational or

otherwise, are predisposed to do on their own.

Number four, and last. The incentives and loss recovery should

be front-loaded and should be time-sensitive. We should send signals to business and others to move aggressively and to move

quickly, and for them to feel free to come back to the region, that

they will have support.

There should be a distinct beginning and a distinct end to the

policies that the Finance Committee is considering. This principle

is important for fiscal discipline as well.

Now, in recent days, reports of mismanagement and excessive

payments have continued to come from the relief effort. American

taxpayers are compassionate, but they rightly expect their hardearned tax dollars to be spent very wisely.

Now, Congress has hastily approved an open-ended appropriation

in excess of $60 billion. That well-meaning but quickly approved

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open-ended appropriation has produced many tales of wild and

wasteful spending.

That bill, of course, was not in this committee’s jurisdiction. It

was not under our watch. It does not mean, from this committee’s

standpoint, that the Federal Treasury door should be swung wide

open for every conceivable tax cut or spending proposal related to

the Gulf Coast region. So, as Secretary Snow will be our first witness, I hope he can give me some assurances on that latter point.

Senator Baucus?

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman. Thank you for your

leadership. As a true leader, as the Chairman of the Finance Committee should, you stepped up when you saw the dire straits in

Louisiana and the Gulf Coast and worked with me, and you fashioned a bill which directly helped the people in Louisiana.

You did what was right. You did not listen to those who have bureaucrat reasons why something should not pass, delays that are

easily put in place. You were not swayed by politics, you were not

swayed by some who were seeking political advantage. Rather, you

just stepped up and did what was right, working aggressively and

hard to put together, first, a tax package, and second, a health

package.

I commend you for that, and I know the people in Louisiana and

the Gulf Coast commend you for that. Frankly, I think most people

in the country who know about your efforts also commend you for

it, and I just want to thank you personally for what you have done.

As you know, Mr. Chairman, 2 weeks ago in this very hearing

room we focused on lessons learned from rebuilding in the past,

that is, what worked and what did not work. Today, with that perspective, we will examine what specific steps need to be taken to

get people in the Gulf Coast communities back on their feet.

As we move forward, I believe we should keep track of three

points. The most basic point is, we should put people first. Even

before the storm, the affected States represented some of the poorest in America.

Twenty-two percent of Louisianans and 23 percent of Mississippians lived in poverty. About 1 in 5 Louisianans lacked health insurance. Mississippi has the highest percentage of elderly with

Medicaid coverage. Texas, the State with the largest number of

evacuees, has the highest percentage of uninsured in the country.

Many victims of Katrina did not have the resources to relocate.

Many lived in housing that was more susceptible to damage. Thousands of victims, now housed in shelters across the country, lacked

the basic safety nets that many Americans take for granted: a savings account, an IRA account with cash to draw on.

Nearly 70 percent of the adult Katrina evacuees surveyed in

Houston did not have a bank account, savings account, or a checking account from which they could withdraw money. Seventy percent.

Our primary goal in reconstruction should be how to help these

people get back on their feet through various tax measures such as

Earned Income Tax Credit, Child Credit, Work Opportunity Tax

4

Credit, Housing Credits, and other appropriate means, whatever

works and what would be pragmatic and practical.

Further, when it comes to helping the working poor, we should

consider going beyond the immediate area affected by the hurricanes so that all across the country, the poorest Americans, are not

hurt so badly by the next emergency.

Second, when it comes to business incentives, we should focus

tightly on the core problems: on infrastructure, transportation,

communication, on small businesses that need to rebuild and reinvest, and on natural resource industries like energy, forest products, and agriculture that have suffered huge losses.

I have personally visited the Gulf. I did so a couple of weeks ago.

I have staff on the ground today. One person from my staff reported to me just yesterday that employers in St. Bernard Parish

have already laid off 10 percent of their employees. With more layoffs expected in the coming months—and we will have more—we

have to make sure that these employers have incentives to keep

employees and to hire again.

Third, we must spend money wisely. The American people are

justifiably angry that their tax dollars seem wasted on a relief effort that, in the first few days, was too little and too late. We must

not repeat that experience during the rebuilding.

Montanans are good neighbors. All Americans generally are good

neighbors. They want to help, especially in times of need. But they

also want there to be a sound plan, coordination among various

agencies, and accountability, and that is why Senator Grassley and

I sent a letter to the inspectors general that will be charged with

overseeing the rebuilding, requesting that they provide recommendations as to what Congressional oversight model will be

the most effective in preventing waste, fraud and abuse.

In 1871, in the charcoal shadow of a city that had been leveled

by a fire, Francis Test wrote: ‘‘Our houses may be burned, but our

energies are just the same. They cannot be destroyed.’’ That is

what Francis Test wrote after he survived the Great Chicago Fire.

He lost his home, his business. He witnessed a disaster of Biblical

proportions, and yet he did not lose hope.

Today, the Gulf region stands in a similar crossroads; much of

the Louisiana and Mississippi coastline has been damaged. But the

people of the Gulf region are determined to rebuild. We are determined to help them.

So my message to the people in the Gulf is, we are there with

you. We are determined to help rebuild the region. We want to do

it right. The only thing is, if you are going to do something, do it

now. If you do it now, you do it right the first time. We intend to

do it right the first time. I look forward to hearing from our witnesses to see how we can accomplish that.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much.

We now have Secretary Snow, Secretary of the Treasury, to tell

us about the administration’s Gulf Opportunity Zone and how that

is seen to help revitalize a region devastated by Katrina.

We appreciate your perspective for the administration. We recognize the efforts of the administration in responding to the needs of

5

those in the Gulf region, and appreciate the time that you take to

be with us.

Secretary Snow, unrelated to your appearance here today, because I know you travel overseas some to represent our government on economic issues, I want to tell you, I watch what you do

over there very closely in the Group of Eight, and other meetings

you have.

It seems to me you have spent an awful lot of time on international aspects of things affecting our economy, and I think you

do a very good job. I just wondered if I could take this opportunity

to say to you not only that I think you do a good job there, but

when and if you ever see the Chinese again, tell them that I do

not think that they have really moved according to the spirit of

what they wanted to lead us to believe they were doing with their

currency back there in July when they announced that. It seemed

to me like it was going to move very quickly, or that there would

be adjustments, and I have not seen much benefit from that policy

change.

Do you want to proceed now with your testimony for today? I do

not expect you to comment on what I said. [Laughter.] Because

that is not the purpose of this hearing. I just want to take advantage of your good work overseas; if they care what we in Congress

say, I have said it.

STATEMENT OF HON. JOHN W. SNOW, SECRETARY,

U.S. DEPARTMENT OF THE TREASURY, WASHINGTON, DC

Secretary SNOW. Thank you very much, Mr. Chairman, Ranking

Member Baucus. It is a pleasure to be here. Senator Bunning. I always enjoy the opportunity to appear before the Finance Committee. Let me say that I have reviewed, Mr. Chairman, your statement.

I listened intently to Senator Baucus’s statement. I think you

have provided, both of you, in your statements, an excellent framework for proceeding, a framework that recognizes the need to size

the problem properly.

We need to be fiscally responsible, but we do need to respond. We

need to respond in ways that really help the victims and focus the

relief on the victims. If we are going to rebuild the area, as certainly is the case, as you are committed to doing, as the President

is committed to doing, if we are going to help people rebuild their

lives as you are committed to doing, and as we are committed to

doing, then we have to rely heavily on incentives to the private sector, because the surest way to rebuild those communities, the surest way to help people rebuild their lives, is to get the private sector investing, creating jobs, and growing and expanding.

That is the idea, basically, behind the Gulf Opportunity Zone.

That is the core idea behind the GO Zone, that by providing shortterm tax incentives in these zones for the affected area, both small

business—through the section 179 expensing, raising the expensing

levels from $100,000 to $200,000 for a couple of years, and then the

50-percent expensing generally for structures and for equipment—

and the energy of the private sector will be unleashed and ignited.

And as the energy of the private sector is unleashed, the rebuilding

process will be accelerated.

6

Now, that is the core idea. Complementary ideas, of course, are

found in our other proposals for the homesteading, for the credits

for employers who hire people in the region, and this very good

idea of worker recovery efforts.

They all fit together, and they all tie to your opening statement,

Mr. Chairman, that we should target on the real victims. We

should employ market forces to encourage the rebuilding. We

should focus Federal resources where they do the most good and

where they are most needed. We should remember the deficit. This

will, for a period of time, elevate the deficit.

But it does not need to take us off the path that we were on to

reduce the deficit significantly over the next few years. I think if

we manage all of this well, we can help people rebuild their lives.

We can help the communities come back. We can also do it in a

fiscally responsible way that allows us to achieve our deficit reduction goals.

We will only do that, though, Mr. Chairman, if the principles you

laid out, and that Senator Baucus articulated, are adhered to as

this process goes forward. With that, I thank you for the opportunity to appear before you.

[The prepared statement of Secretary Snow appears in the appendix.]

The CHAIRMAN. You were a lot shorter than I thought you would

be. [Laughter.]

Senator BAUCUS. That is the new sort of technique, be short.

The CHAIRMAN. All right.

Mr. Secretary, once again, thank you for your being here and

doing a good job.

There are a number of tax provisions that could be implemented

in the Gulf Opportunity Zone in order to encourage investment and

development. What makes the provisions that the President has

proposed, like bonus depreciation and increased section 179 expensing, the preferred tax provisions for this purpose? And that is not

an effort to denigrate it, because I do not disagree with those. But

I think we need to flesh out why you think those ought to be a primary tool.

Secretary SNOW. Mr. Chairman, I think there are a couple of reasons why they should be the primary tool. One, they are good tax

policy. They use the tax code to create incentives in a way that is

consistent with good tax policy.

They, in effect, lower the cost of capital. They make returns on

investing capital higher. We know we always get more of everything we tax less. Here, we want more capital in the area because

more capital leads to more jobs.

These are tried and true measures. They have worked. We have

seen them work. They were incorporated in the legislation that

came through this committee, Mr. Chairman, that has put the

American economy on this strong path of consistent elevated GDP

growth for the last 21⁄2 years, 27 months or so of straight job pickup, prospects for non-inflationary growth going forward.

What lies at the heart of this extraordinarily good performance

that revived the recovery that we are enjoying are the tax policies

that came through the Finance Committee that drew on the idea

of lowering the cost of capital.

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Expensing for small business was part of the 2003 tax proposal.

The 50-percent bonus depreciation was part of the proposals that

came through in 2002, as I recall, to help get the economy moving

again. They have worked.

They are tried and true. We know they work. I am confident

that, if we apply them here, that the prior experience will be replicated, and we will see them energize rebuilding efforts in the region.

The CHAIRMAN. Yes. Secretary Snow, the President’s proposals

on tax incentives, they also fit into a larger plan for Federal relief

for the Gulf region. Some of those obviously do not come under

your jurisdiction, so maybe I should not expect you to testify.

But I assume you have been in some intra-cabinet discussions of

other areas. That is a very broad question that you can give a

broad answer to, and I want a broad answer, but also I would like

to have you look at other plans that the administration might be

figuring in the area of housing.

If you could, tell us how there is interaction between the tax policy and expenditures for housing, so that what we do in this committee would complement, rather than duplicate, efforts.

Secretary SNOW. Yes, Senator. The housing, of course, is provided for, as a measure of initial impression, through the Stafford

Act, with the provision for up to $26,000, I think it is, depending

on the circumstances, to be available to people who have lost their

housing.

The CHAIRMAN. But that is meant to be for temporary housing,

right?

Secretary SNOW. Well, it is a sum of money to help them get

through.

The CHAIRMAN. So it could be for a permanent place as well.

Secretary SNOW. It could assist them on that as well.

The CHAIRMAN. All right. Sure.

Secretary SNOW. Then, of course, there is insurance. Many people

have access to insurance—flood insurance, housing insurance,

mortgage insurance, and so on—which will help them deal with

this situation.

Then there is the broad importance, I would say, of a recovering

region where people have opportunities to have jobs, make a good

living. If we create an environment in which people can make a living, can have jobs, they will be able to borrow and get mortgages,

and go to the banks, and savings and loans, and thrifts, and credit

unions.

It is critical that we get the region going forward with economic

activity, because that will create the jobs; it creates the wherewithal to have the borrowing to rebuild the housing stock in the

region. So, I think it all sort of fits together here, Mr. Chairman.

I think it is important as we go forward that we avoid duplication. One of the things I worry about, following on your good statement and Senator Baucus’s good opening statement, is that we not

look at these things in isolation.

Because if we look at things in isolation, we will be spending

money here, and we will be spending money here, and we will be

spending money here, and they will be duplicating each other and

raising the bill for the taxpayers of the country, or drawing on the

8

credit of the country, in some way, in ways that go beyond what

really is needed.

So, I would follow your opening statement and suggest we really

target what we are trying to accomplish, focus on the needy, focus

on those who were not insured, and the neediest among them, and

make sure that the relief that is being provided is provided in a

way that is efficient, effective, targeted, tailored, and not larger

than required. We do not want to waste money here.

The CHAIRMAN. Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Secretary, I have two questions. I would like to ask them

both, then you respond to both of them after I ask them both.

First, how are we going to measure how well we, the Federal

Government, Governors, and so forth, are doing in recovery? What

are the metrics? How are we going to quantify, how are we going

to measure, whether or not we are doing what we want to do?

In that regard, I might point out, how are we going to measure

whether the poor people in the Gulf region get helped, especially

because, even though you cite GDP growth, average incomes, and

so forth, if you look at the real-wage income of people in that area

of the country, in the last couple of years, their wages have actually fallen.

Adult workers’ wages have actually fallen. Female full-time

workers’ wages have fallen. The same with families. The poverty

rate has increased during the 3 years after the tax cut. The economy may be doing well at some levels, but for an awful lot of people, they are in worse shape.

So when we talk about recovery, my first question is—and then

I will ask a second question later—is how are you going to measure

this, and how are we going to focus on poor people who really are

a disproportionately high population in that part of the country?

The second question gets to your efforts—the administration’s efforts—contrary to those of this committee, and most of us in the

Senate, on how to provide health care benefits.

We have legislation that we think makes good sense, legislation

that, if passed, would get health care benefits to people right now.

The administration has opposed that. The administration says no—

waivers. The administration says, well, we could grant waivers to

States under current Medicaid law, and that will provide the

health care benefits.

In correspondence between Senator Grassley, myself, and the administration, the administration fails to cite any statutory authority under which they think they can give uncompensated care benefits to hospitals whose uncompensated bills are clearly very high

due to the disaster.

Second, the administration has said to us, in correspondence, we

will work with you to try to make the States whole with respect

to Medicaid reimbursement, admitting that they do not have legislative authority to do so.

So on the one hand, the administration talks about waivers to

help people. The administration cannot cite statutory authority for

waivers with respect to uncompensated care. It cannot do it; it is

against the law.

9

Second, having admitted that it is against the law, they need

Congressional support with respect to making States whole under

Medicaid reimbursement. So, those are the two basic questions.

Secretary SNOW. Right. Senator, on the first, of course, it is a

question that encompasses, but goes way beyond, the people in the

Katrina region. You know the statistics as well as I do. There has

been a long-term trend suggesting that too many people are not

moving up fast enough who are at the lower income levels, and

that is contributing to concerns about income inequality.

The fundamental issue there, I think—we have talked about this

before—is education, and having an education system that really

works, to make sure that everybody gets access to an education

that makes them employable, that gives them the skills that are

valued in our economy.

It is an economy that is one that is changing and putting greater

emphasis on skills, on intellectual skills, which calls for higher

commitments to education. The administration, as you know, has

some initiatives on that score. This will not change things immediately. It is generational.

But I do think, as we confront the nature of the world and the

forces that are at play in a globalized economy, we need to make

sure that the citizens of the United States have the skills, the education, the capacity to learn, that will equip them to deal with this.

That is at the center of this income inequality, because the marketplace will reflect the value of people’s skills in the marketplace.

If they do not have skills, they will not get reflected. The other

thing is, you have to keep the economy strong, because where we

do not have a strong, growing economy, we do not create jobs. If

there are not jobs, it is the poor who suffer the most.

So, here in the Katrina-affected area, I think, as the Chairman

said in his opening statement, putting a major emphasis on market

forces to incentivize small businesses—which are the engine of job

creation—to incentivize small businesses to rebuild or to start up,

come in, take administration of the 179 credits—and they are very

generous credits, twice the standard of what is available generally.

Senator BAUCUS. My time is running out. Could you address the

second question, please?

Secretary SNOW. Yes. I am not really familiar with the issue. I

think it is more in Secretary Leavitt’s lane than mine. But I will

reflect your concerns, as expressed here, to Secretary Leavitt when

I see him, in fact, scheduled later today.

Senator BAUCUS. I think you will find the facts are as I stated

them to be. The administration does not have the statutory authority.

The CHAIRMAN. If you are going to see Secretary Leavitt, tell him

to get the White House to back off of our bill. There are people

hurting down there, and we need to get some help to them.

Secretary SNOW. Mr. Chairman, I will reflect those views to Secretary Leavitt, and otherwise.

Senator BAUCUS. And I know my time has expired, Mr. Chairman. But what are the metrics? What criteria? How are we going

to measure whether we are getting the job done down there?

Secretary SNOW. Senator, right now there are an awful lot of unemployed people down there. There are an awful lot of businesses

10

that are shuttered, that are not open. I think we are going to see

a good recovery, probably. We want to front-end load it, as I think

you and Senator Grassley said. The measure will be, are businesses

opened? Do they put out ‘‘Help Wanted’’ signs.

Senator BAUCUS. Mr. Secretary, you were a good businessman. I

know when you ran your company that you had to have certain

standards that had to be met, certain numbers had to be met in

certain categories. I just urge you to come up with those categories

and those benchmarks, those numbers, so we can measure whether

or not we are doing the job. Thank you.

The CHAIRMAN. Senator Bunning?

Senator BUNNING. Thank you, Mr. Chairman.

Secretary Snow, it seems to me that one of the first challenges

is going to be getting a workforce back in place. Obviously, this is

a different challenge than we faced in Lower Manhattan after September 11.

In that instance, while there was disruption of the business community in the localized area, the general workforce was not displaced, so businesses were able to find workers once they were up

and running and ready to employ folks.

Is there anything this committee should be considering that

would help to address this workforce challenge?

Secretary SNOW. Senator Bunning, that is a very, very good point

you are raising. We have, in the package we sent forward, a proposal to provide employers with credits. These credits, I think, are

30 percent of wages up to $6,000, or something like that.

Senator BUNNING. Yes. But they have to have somebody to employ.

Secretary SNOW. The hope is, and I think the expectation borne

out by prior experience is, if we incentivize small business to come

back into the region, they will come in. There are thousands of people who were displaced who want to come back.

I met a number of them, as maybe you did, traveling to Houston,

traveling to those communities where the displaced people are.

They want to go back. As businesses come back up, the businesses

will need employees.

Senator BUNNING. Well, they have to have places to live, Secretary. Right now, the place cannot house anyone. You can

incentivize all the businesses you want to relocate in a depressed

area, but you have to have a workforce to handle that business.

Secretary SNOW. Senator, it will take some time, and it will occur

by businesses setting up, looking for people, people wanting to

come back, finding temporary housing, going to banks and getting

funding and using proceeds of insurance policies to rebuild.

People are intent on rebuilding and going back. I have seen this

countless times in conversations with the displaced people. They

want to go back, Senator. There is a will here to rebuild.

Senator BUNNING. Well, we will see if they do, and if they can.

Secretary SNOW. There is a will to rebuild.

Senator BUNNING. There is a short window that we are going to

have to really accelerate the business community, incentivizing the

business community, and then having a workforce.

In your written testimony, you expressed opposition to the Federal Government acting as a backstop for local and municipal bond

11

issuances. Can you address this concern more fully? What proposals have you heard that cause you concern, and why are you opposed to those proposals?

Secretary SNOW. Senator, this issue is an awfully important one.

Some of the proposals we have seen would have the credit of the

U.S. Government extended to State and local issuances, to State

and local bonds.

That would be a serious mistake. It would be a serious mistake

because the investors in U.S. treasuries are investing in treasuries

with the expectation that they will not be obligated for State and

local bonds.

Senator BUNNING. But is it not true that State and local bonds

have a cap? The municipal bond issuances in each State and local

area have caps on the amount of money that they can issue bonds

for.

Secretary SNOW. They do. But none of that obligation is the responsibility of the general taxpayer.

Senator BUNNING. I am not saying it should be. But I think in

this instance, in this type of tragedy, we ought to look at the caps

that the Federal Government puts on these local communities and

take a look at raising those caps so that they can do for themselves

what is needed to be done.

Secretary SNOW. In the context of 9/11, there was some relief

granted along those lines, on the private activity bonds and other

things. As a matter of general tax policy, we frown on such things,

but in extraordinary circumstances like 9/11, they were utilized.

Senator BUNNING. I believe, in tragic displacement and the ability to rebuild, I think this is an event that is just as bad, if not

worse.

Secretary SNOW. Senator, it is devastating. This event is devastating. What we are trying to do, and you and the members of

the Finance Committee are, is to come up with the right set of policies that are appropriate to these circumstances that do not put the

general Treasury or general taxpayers at undue risk.

We want to work with you to help the rebuilding of both the communities and the lives, but consistent with those sorts of principles

that the Chairman articulated in his opening statement.

Senator BUNNING. Thank you.

Senator BAUCUS. Mr. Snow, I do not want this hearing to leave

the impression that this is the legislative process as usual. That is,

we have an emergency here. It has been 6 weeks since Katrina hit,

and yet this country is not responding.

The administration, in my judgment, is just not responding in

near the way it did after 9/11. After 9/11, this country responded

right away, the Congress did, the administration did. We sprung

into action.

The Medicaid Katrina health provisions, as the Chairman and I

have worked on, we have worked with all the members of this committee on this legislation, we have worked with all the States affected, the Senators of States affected, the Senators as well as the

Governors, both sides of the aisle, they all want this legislation

passed, and passed now.

The Medicaid benefits that this Congress enacted to help the victims associated with 9/11 was passed right away. We are sugVerDate 11-MAY-2000 15:08 Feb 20, 2007 Jkt 095484 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 32882.000 SFIN1 PsN: SFIN1
12

gesting the same eligibility requirements for Katrina victims. It

has been 6 weeks now. Where is the administration? Where is it?

Six weeks.

The administration does not have the authority to do what needs

to be done. It is slow-walking, it is opposing, it is obfuscating, it

is delaying, it is not acting. We are a country of good people. We

want to help people in need. We want to do what is right. We want

to respond to people in need.

I must say, I am dumbfounded at the inability, it seems, of this

administration to stand up and work to get it done. Again, obfuscation, delay. Not the case with 9/11. With 9/11, boy, we were there.

The administration was there.

What is the difference between New York and the Gulf Coast?

What is the difference? Why is the administration not responding

to the victims of the Gulf Coast?

Secretary SNOW. Senator, I think we are responding.

Senator BAUCUS. No, you are not, Mr. Secretary. You are not

when it comes to health care. I am talking about health care needs.

You are not, and we must.

Secretary SNOW. Senator, $62 billion——

Senator BAUCUS. Now, Mr. Secretary, I am not going to let you

slide off and not answer the question. I want you to directly, if you

can, answer the question with respect to health care needs. The

$62 billion. First of all, most of that is not spent. Most of that is

not spent. About $20 billion is.

In fact, many of us in the Congress are saying, well, maybe you

can take the cost of Katrina out of the remaining roughly $40 billion of the $62 billion that was appropriated. But we are talking

about lower-income people. We are talking about States that need

to address their health care needs under Medicaid because of all

the huge burdens on those States.

The administration does not have the authority to address those

health care needs. I just want you to know, I think this committee

has a great sense of urgency. We have acted right away. We did

it the right way, and we did not waste time. We thought a bit before we acted. Now we want to act, and the administration is saying no.

Secretary SNOW. Senator, I think the Congress has been very responsive.

Senator BAUCUS. I am talking about the administration.

Secretary SNOW. Well, the administration has worked with the

Congress to produce the responses that you have legislated.

Senator BAUCUS. It has not. It has stopped the Katrina health

care bill.

Secretary SNOW. Senator, I will look into the health care issues.

They do not fall directly in my lane.

Senator BAUCUS. Well, that is what I am talking about right

now, is health care.

Secretary SNOW. That falls under Secretary Leavitt. I told you

earlier, I will be pleased to speak with him to reflect your concerns

there. But I do not have enough knowledge of the specifics of these

waivers to be able, really, to elucidate on that subject very well.

But I will reflect your concerns.

13

Senator BAUCUS. Well, I appreciate that, Mr. Secretary. You are

the Secretary of Treasury, not Secretary of HHS. However, you are

part of the administration.

Secretary SNOW. Right.

Senator BAUCUS. You are part of that team.

Secretary SNOW. Right.

Senator BAUCUS. And I just urge you very strongly to carry the

message, and carry it forcefully.

Secretary SNOW. But I would hope you would agree that, outside

of this area, you have seen a very responsive administration. We

worked with you on the $62 billion. We worked with you on the individual tax proposals that came through here a week or so ago

that were well-conceived legislation. We have sent you our proposals for the GO Zones.

Senator BAUCUS. Right. I understand all that, and that is all

good. But I can just tell you, there are also health care needs.

Secretary SNOW. I will look into it.

Senator BAUCUS. If you could pass that on forcefully, aggressively.

Secretary SNOW. I will, Senator.

Senator BAUCUS. Say, hey, you guys, we have to get something

done here.

Secretary SNOW. I will.

Senator BAUCUS. Thank you.

The CHAIRMAN. Senator Lincoln?

Senator LINCOLN. Thank you so much, Mr. Chairman. I apologize

for running late today. I thank the Chairman and the Ranking

Member for bringing us here today, because we have to discuss the

issues that have befallen our Nation after Hurricane Katrina and

the other disasters that have hit the Gulf, and how we move forward from here, not just in the response to these natural disasters,

but also the evidence that it has brought us in terms of where we

are as a Nation and the volume of people in this country who are

working so desperately to keep their heads above water—no pun

intended—in terms of what we have just seen, but certainly the

idea of being able to work, to raise a family, and to make a contribution to our American family.

We are one big American family, and the fabric of that family is

dependent on whether or not these working families can provide for

their children, can provide a home life.

I have to say, as a working mother myself, the one thing—the

one, single thing—if we could give to Americans from the U.S. Congress, it would be time. It would be time, Mr. Secretary.

If we could give mothers and fathers the kind of time to spend

with their children and their families to create the kind of values

in those American families that would then structure and strengthen our American fabric, it would be so critical.

But we have families working two and three jobs just to make

ends meet, to make sure their children not only can get to school,

but maybe have that one after-school activity, whether it be Scouts,

or softball, or what have you.

So, I guess I have already deviated here, but I would like to just

bring attention to one thing particularly here in regard to the natural disasters, Mr. Secretary, and that is, it was exactly 1 month

14

ago today since I began my quest to provide the health care coverage to Katrina survivors through Medicaid.

The Chairman and the Ranking Member have been unbelievably

helpful. They have been forceful, they have been strong, they have

been willing to work with everybody to try and come up with something that is going to make sense.

We have providers in our State, a month ago, who have been

working 24/7, and started working 24/7, who were there, working

all throughout Labor Day weekend to be able to provide the kind

of care that these dislocated members of our American family

needed.

They still do not have the peace of mind to know whether or not

they are going to get reimbursed, whether they are going to get

adequately reimbursed, whether they are going to have to go to the

State and humiliate our State and have our State humiliate the

States that are suffering in order to get that reimbursement.

So, Mr. Secretary, I would just say, I have tried hard. I withdrew

my amendment in good faith, and certainly believing in my Chairman and Ranking Member here, and they have done everything,

and are continuing to do that.

But to my colleagues, and certainly to this administration, I am

not giving up. This is not just the other members of our American

family from Louisiana, Mississippi, Texas, and Alabama. It is our

States, too, because we already are a State where we have high

Medicare, high Medicaid provider situations.

If we find that we are not going to get the kind of reimbursements we need, we are going to put in jeopardy the services available to Arkansans. So, I just plead with you, Mr. Secretary. We

have not gotten there yet. We will be continuing to offer what we

can, but we are going to need your help. It is going to need to be

real.

We are going to have to face the reality of what people are seeing

in terms of their needs of care, and what providers have been willing to do, without being asked. Without being asked, they have

been there and provided what their fellow Americans needed.

So, I sure hope that, as a Nation and as a Federal Government,

Mr. Secretary, you can work with the other members of the administration and really come forward to work with us to provide what

they need.

But switching gears back to some of the other things that we

would like to talk about here today, Mr. Secretary, in the wake of

this experience that we have had, it is so important for us to work

in a bipartisan spirit for some innovative solutions, for the really

unprecedented challenges that we face in our Gulf region.

I really am hopeful that, in the weeks and months ahead, that

government at all levels will be able to work in a collaborative effort to address the needs of those who have been so immediately

impacted by this disaster.

Secretary SNOW. I agree.

Senator LINCOLN. If we cannot be a ‘‘we’’ country at this time,

we should be ashamed of ourselves. If all we are going to focus on

is the ‘‘me,’’ and who gets credit, and who gets the political win for

whatever happens here, we should all be ashamed of ourselves.

15

I think it is so important that we take seriously our responsibility to address the broader policy issues that these natural disasters, Hurricanes Katrina and Rita, have brought to light, such as

emergency preparedness, obviously, community development, and

the fact that today, in 2005, in the greatest country on the face of

this earth, poverty is still so pervasive, particularly across the

South, and indeed across our Nation.

So, Mr. Secretary, America and the world saw the face of poverty

very clearly in the aftermath of Katrina. We saw a situation where

many of our poorest families were left to fend for themselves, not

even able to afford a bus ticket out of town. And I do believe that

we have an opportunity here to lift these fellow members of our

American family up and give them an opportunity.

We have tried hard, and through the leadership of these two gentlemen in welfare reform and some of the initiatives we have taken

with TANF, we have really done, I think, an excellent job in recognizing the unbelievable challenges many of these families face,

most of which are working, Mr. Secretary. They are working. They

are out there.

In 2001 and 2003, Senator Snowe and I worked together with the

President to make sure that working families of many low-income

children were included in the Child Tax Credit. You probably are

familiar with the debate and how ongoing it has been.

Unfortunately, a recent report highlighted this weekend in the

New York Times, issued by a nonpartisan tax policy center, showed

that almost one-third of the children in this country do not qualify

for the Child Tax Credit because their families’ earnings are too

low.

This is a point I tried to make desperately for 3 years. And when

you break the findings down by race, it is even more disheartening.

About half of all African American children and half of all Latino

children are left out of the full Child Tax Credit because their family earnings are too low to qualify.

In response, Senator Snowe and I have introduced legislation

that would build on our previous effort to make this credit work

for those who need it really the most, Mr. Secretary.

We would lower the income qualification thresholds to $10,000.

Some wanted to go to $7,500, because there are people earning that

little, Mr. Secretary. This would allow the children of a single

mother making minimum wage, working 40 hours a week—every

week of the year, mind you—to qualify for this credit.

Under the current version of the Credit in 2004, a single or widowed mother in my State of Arkansas, working full-time at minimum wage, which is $5.15 an hour, brings home a gross income

of $10,712 a year to take care of her family, and that comes to a

threshold.

So I want to know, Mr. Secretary. Can we count on the administration to work with Senator Snowe and myself to correct this inequity and ensure that those low-income, hardworking families

that really need this credit to reinvest in their children, in the Nation’s future, in the leaders of tomorrow, can we count on the administration to help us with that, that refundability of that child

tax credit?

16

The CHAIRMAN. Mr. Secretary, you can answer that question, but

I want that answer to be considered outside the confines of the purpose that we are talking about, helping people with reinvestment

and creating jobs. Go ahead and answer it, and then I will go to

Senator Schumer.

Senator LINCOLN. Mr. Chairman, I have to say, these are working families that can reinvest.

The CHAIRMAN. I do not disagree with you. In fact, I helped you

on that at one time.

Senator LINCOLN. Yes, sir.

The CHAIRMAN. And then we had to back off when we could not

get it through the House. So, I do not dispute the facts that you

have. But I want to make sure that we are talking about immediate relief because of Katrina, and we would not be having this

hearing if it had not been for Katrina.

Answer her question, then I will go to Senator Schumer.

Secretary SNOW. Yes, Senator. We appreciate your comments,

and particularly your talk about the outstretched arm of America.

I have seen that outstretched arm of America. All parts of America

have reached out to help the victims.

Senator LINCOLN. They have.

Secretary SNOW. They really have.

Senator LINCOLN. It has made me proud.

Secretary SNOW. Me, too. It has been a bipartisan effort. I applaud everybody for the way Congress has responded, for the way

the business community has responded, the generosity of people in

all parts of the hospital community, the NGOs.

On the Child Tax Credit, let me look into it. We will have a conversation with you and Senator Snowe and see if we cannot find

some way to work together on it. Generally, indexing ensures, as

I understand it, that the intent of a provision keeps pace with inflation, and de-indexing would violate that principle.

But you made an argument that goes beyond that. You are not

arguing for Katrina, you are arguing it generally, so we should

have a general discussion on that in the context of a broader policy

than Katrina, and I will look forward to that.

Senator LINCOLN. Right. I would just remind you, as we talk

about de-indexing, these people’s wages have not risen and they

have stayed stagnant for almost 7, 8 years now.

I would just remind you that a single or widowed parent that is

working full-time—full-time, Mr. Secretary—does not even qualify

for this benefit to reinvest in their families and in their children.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Schumer, just a moment. You are going

to think this is very unfair. Hear me out, first. I have been very

liberal with the time because there were only two or three of us

here, and I did not know a lot of other people were going to come

in.

So, could I ask you to make your statement, but get your first

question in before the fifth minute has evaporated, and then he can

answer your question? Because I have five or six other people

whom Senator Baucus and I are going to have to live with when

everybody else runs for the woods.

17

Senator BUNNING. Mr. Chairman, some of us have more questions.

The CHAIRMAN. Well, since Senator Baucus had a second round,

you will get a second round.

Senator BUNNING. Thank you.

The CHAIRMAN. Go ahead.

Senator SCHUMER. Thank you. Since I come from Brooklyn, I am

not running for the woods yet. We do not have any woods left.

The CHAIRMAN. All right.

Senator SCHUMER. First, Mr. Secretary—and thank you for being

here—my question is about all this tax relief as a way to help in

the Gulf. Normally, I am sort of agnostic as to which works better,

spending or tax cuts. In certain places, one works better, in certain

places, the other. I do not have this doctrinaire view that it always

has to be tax cuts or it always has to be spending.

But I will tell you this. Our experience in New York, which is

not totally analogous, was that the spending programs worked

much better than the tax cuts, for several reasons.

First, most of the businesses that were hurt were so badly hurt,

they did not have any income. To give them tax relief would not

matter. Most of the other businesses that you wanted to lure down

there with some tax cuts, they were not enough.

There are very few businesses that went back downtown because

of tax relief. The one place where tax relief was effective, which

really does not apply in New Orleans—it may apply in some other

areas—was keeping businesses that were ongoing from leaving.

While we were not totally successful with that—we had some

success—but as a result, with the help of both Senator Grassley

and Senator Baucus, of the $20 billion New York City received, $15

billion was in spending, and that has been spent wisely.

Of the $5 billion in tax cuts, we have $2.5 billion that were unused. We are now asking that they be recycled, as I said, with our

two leaders’ help, into transportation spending.

When I see these numbers bandied about, $40 billion in tax cuts

here, $60 billion here, I wonder if anyone has taken into account—

and I am not saying you, Mr. Secretary, but some of the people

from the Gulf whom I understand want to help their people—what

works.

I do not think we should just have a grab bag and say, do everything. We just cannot afford it, given our deficit. So that was my

first question. Do you have sympathy with that notion?

Secretary SNOW. Senator, I have broad sympathy with the idea

that you target tax cuts. Anything like the numbers that you have

cited there would be disproportionate to the situation. The tax cuts

we have proposed have a cost to the Treasury of only, I think,

something on the order of $1.5 billion. I think beyond that, no, I

would agree with you, it would not be efficacious.

Senator SCHUMER. All right. Good.

The second question, since I did not get into the woods yet on

my 5 minutes, is this one. It relates to Katrina, but it relates in

general to the deficit problem that we have, which many of us are

very worried about. I think we on this side of the aisle get a bum

rap.

18

In other words, most of the debt that has piled up in this country

has been under Republican presidents, and the one Democratic

president we have had in the last while actually had an admirable

theory on debt.

Somehow, folks on the other side of the aisle do not think tax

cuts—and maybe even this administration—contribute to the deficit. Well, again, I am agnostic. Entitlement programs and spending contributes to the deficit, and tax cuts contribute to the deficit.

It is pretty objective.

The numbers I have here are that three-fourths of the publicly

held debt in this country, in the history of the country, has been

added under the last three Republican presidents.

How can the administration, given the Katrina relief that we are

looking at, given the debt situation, given the fact that with the

economy not going great, but Greenspan still feels he has to raise

interest rates, in part because of the debt situation, how can we

justify further tax cuts?

I am not talking to Katrina, targeted in the limited amount that

you are talking about, but the overall tax cuts. Given all the spending needs we have and given the inability, when we cut back on

spending, for every dollar we cut back on spending, it is much easier to add $5 to the deficit on tax cuts. Can you tell me how you

can justify the administration asking for further tax cuts, given the

deficit?

Secretary SNOW. Outside of Katrina?

Senator SCHUMER. Yes. Outside. Yes.

Secretary SNOW. General tax policy. What the administration’s

proposal is, is to simply extend the provisions that would expire in

2008, the dividends.

Senator SCHUMER. But that makes things worse, does it not, sir?

Secretary SNOW. The dividend and the capital gains, Senator,

this is a long philosophical debate. But what we know is that today

the revenues of the U.S. Government are rising at a rapid rate.

The revenues, the receipts of the U.S. Government, are up some

$100 billion over what was foreseen a year ago.

The reason is, the economy is performing at such a good clip. It

is growing way above trend line. Businesses are more profitable.

More people are working, some 4 million more working since that

tax relief was provided in May of 2003.

So I think the evidence here is pretty clear that what we have

is a growing and expanding economy with more people working,

with businesses more profitable, directly because of the tax relief

that the Congress provided in May of 2003.

Senator SCHUMER. The tax relief has helped create the deficit,

has it not?

Secretary SNOW. Senator, no. I think what we have now is the

tax relief leading to a strong economy, leading to more receipts,

which are critical for closing the gap.

Senator SCHUMER. We have heard that since 1981. As I mentioned to you, three-quarters of the debt has occurred in the three

administrations that have had the philosophy that tax cuts lead to

so much more growth, that it does not contribute to the deficit.

19

The facts, sir, are just the opposite. Look at how much the deficit

has gone up since George Bush became President. And the bottom

line is, the majority of it occurred because of tax cuts.

Secretary SNOW. Senator, I would disagree. I think the

majority——

The CHAIRMAN. Senator Schumer, I hope you are going to help

us cut taxes to encourage investment down there in Louisiana and

Mississippi. That is what we are trying to find out.

Senator SCHUMER. This is a separate question, Mr. Chairman.

The CHAIRMAN. I know it. But you are talking like you do not

want tax cuts for investment in Louisiana and Mississippi.

Senator SCHUMER. No. I want them targeted so that they work.

The CHAIRMAN. All right.

Senator SCHUMER. In New York, we did not do as many as are

being proposed here, and most of them, or half of them, did not

work.

The CHAIRMAN. All right. Go ahead an answer his question. Then

I will call on Senator Bunning.

Secretary SNOW. I was going to say, Senator, and I will not belabor the point, but if you do an analytical review of expenditures

and receipts over the last 5 years since the President took office,

what you find is that the biggest contributor to the deficit is the

economy itself, the weak economy the President inherited that led

to a recession, then 9/11, which hurt economic activity and led to

lots of homeland security rebuilding costs, and then the collapse of

the equity markets, which took so much, $7 trillion, out of the equity values of the country and hurt the tax collection side on capital gains and options and so on. That is really where these numbers come from.

As I say, I think now, with the tax cuts working to create prosperity, we are seeing the receipts rise at a good level. I would be

ashamed to lose that because it is going to help close the deficit.

Senator SCHUMER. Thank you.

The CHAIRMAN. Thank you.

If I could take Chairman’s privilege here, just for a minute.

There was $580 billion to pay down the national debt when the Republicans controlled Congress. Mr. Greenspan says that this great

expansion we have had in money coming into the Federal Treasury

and our economy is directly related to the tax cuts of 2001 and

2003.

Lastly, under this tax policy and under the leadership that Senator Baucus and I have had of this committee—and maybe we have

not always agreed on all the tax policies, but we sure agreed on the

2001 tax policy—we have, I think, $220 billion more coming in this

year than we anticipated just 8 months ago.

Senator Bunning?

Senator BUNNING. Thank you, Mr. Chairman. The fact is, the

number is $230 billion, but that is all right; give or take $10 billion

here, it is not a big deal.

The fact of the matter is, during the Republican administrations,

the proposed tax cuts also were accompanied with spending reductions that were never enacted by our good friends on the other side

of the aisle that controlled the House and the Senate at the time.

So, there is enough blame to go around.

20

I have two questions for you. A concern has been raised that

some companies may not be able to take full advantage of accelerated depreciation or expensing provisions that are being proposed.

One remedy that has been suggested is to extend the loss carryback period. Is this proposal one that the administration would endorse?

Secretary SNOW. Senator, that was utilized, I think, in 9/11, a 5-

year carry-back. It does help get at the problem that you are addressing here. We would be prepared to work with the committee

to tailor a proposal along those lines that worked.

Senator BUNNING. All right.

Could you comment on the proposal made by Governor Barbour

last week? In particular, he suggested unlimited expensing of investment costs for small businesses, a zero capital gain rate, and

a $50,000 tax credit to rebuild or purchase a new home.

Secretary SNOW. I have not seen the proposals or had a chance

to price them out. There is some merit in this idea of lowering capital gains. There is just no doubt about it.

Senator BUNNING. We are talking, just for the area.

Secretary SNOW. I am agreeing. But I am saying, generally, lowering capital gains is a good thing. I think lowering capital gains

should——

Senator BUNNING. What about for building homes, a $50,000 tax

credit for those that need to rebuild a home that has been destroyed by Hurricane Katrina or Rita?

Secretary SNOW. Senator, I would want to look at that and price

it out and see the cost of it and how it would affect the other things

that are being done, because, as I said earlier, I think it is important to look at things in conjunction with the other things we are

doing. But we would be prepared to look at it and give you our assessment.

Senator BUNNING. Well, we do have a package that we have been

dealing with on Medicare and Medicaid, particularly for Katrina,

and we do not seem to be able to come to a conclusion on it.

We will get Secretary Leavitt in the room and make sure that

he understands what we are talking about.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Snowe?

Senator SNOWE. Thank you, Mr. Chairman.

Welcome, Mr. Secretary. A couple of questions. I also chair the

Small Business Committee, and one of the concerns that I have

had is making sure that the small business applications are expedited in the Gulf region.

We have already gotten estimates of more than 1.4 million applications that have been referred; received: 59,000, pending: 37,000,

and very few applications have been approved: just 478. So, obviously, we need to do a better job in expediting those applications.

The point is that, what would assist in this process in making

it more efficient is to ensure that we have IRS personnel co-located

with the small business personnel so that we could expedite the

process of applications. It is important to have those forms readily

available to the people to make some decisions, because otherwise

people who are applying do not have the documentation that has

been destroyed.

21

So I, the Chairman, and the Ranking Member of this committee

sent a letter to the Internal Revenue Service, and Mr. Everson responded by saying, ‘‘We will convey our willingness to provide onsite assistance to their disaster assistance workshops.’’

What I am asking you for today is assurance that that will happen. Are they physically present now?

Secretary SNOW. I do not think so, Senator, but I am told—and

this is hearsay—that the IRS has worked out a process with the

SBDCs to expedite, in accordance with what you are seeing here,

the transmittal of tax receipts to them so the loan process can

move faster. But there is an effort under way to move the loan

process along.

Senator SNOWE. I know. But I do not understand. Can we have

people on-site to do this, to make it more efficient, just to have the

actual approval and verification of their tax documents and

records, because that will be the only records available?

I mean, I think it really is essential. We have to get beyond, well,

it is going to happen, it might happen, they are doing it. We just

have to get this done. Frankly, rebuilding the small business component of the area is going to make all the difference in restoring

their economic lifeline.

When I see what is pending here for applications, and we only

get 478 approved, it tells me we have a huge problem and a major

gap. We have to get it done, and IRS can be pivotal in that respect.

So can we have them co-located in the Gulf region and make it efficient with the Small Business Development Centers?

Secretary SNOW. I do not see why not, but there may be something I do not understand. We will look into it and see if we cannot

do everything possible to expedite this process so these loans can,

as you say, get accelerated. We need to get them moved along.

Senator SNOWE. Yes. It is absolutely vital. I mentioned it to some

of your people last week here. I really do think it is crucial. We

have to move this process along, and I am very concerned about it.

If this is the one means to do it, we ought to be providing it. I just

do not see why it would be so difficult.

Secretary SNOW. I will get back to you on that.

Senator SNOWE. Would you, please?

One other question on emergency housing tax credits. Is that

something you are giving any consideration to as a way of building

available housing, using the housing tax credit, increasing caps for

States so that they can be eligible to have a pool of money available

so we can expedite that process of building?

Secretary SNOW. It may be in the deliberative processes, but I

have not seen a review of that proposal yet.

Senator SNOWE. Well, I would hope that that would be something

that could be considered as part of the overall package, because I

think it really would be useful. It works well now currently, so I

think that we could use that model as a basis for rebuilding housing in the region.

Secretary SNOW. Senator, we are prepared to look at a lot of

things here. As I said in response to Senator Bunning’s question,

we have to make sure as we proceed that we take into account

what the size of the problem is, what we are trying to fix, and

make sure we do not have duplicative approaches, but rather tarVerDate 11-MAY-2000 15:08 Feb 20, 2007 Jkt 095484 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 32882.000 SFIN1 PsN: SFIN1
22

geted and tailored approaches to get it done. So we have to look

at this as a totality, but we will certainly look at this.

Senator SNOWE. Yes. I think, frankly, using working models

might help in this instance. It would, I think, prove to be efficient.

Thank you, Mr. Secretary.

The CHAIRMAN. Senator Santorum?

Senator SANTORUM. Thank you, Mr. Chairman.

Just to pick up on where Senator Snowe left off, I just want to

commend to you the bill that Senator Kerry and I have introduced

called the Community Development Home Ownership Tax Credit,

which is S. 859, a piece of legislation that I think would help a lot

for home ownership for low-income, affordable housing.

I would encourage you to take a look at that as you put together

your proposals to try to help both in rehabilitation, as well as home

ownership, as we try to reinvest in the Gulf Coast. So, I commend

that to you. I do not know if you have a position on that or whether

you would comment on that.

Secretary SNOW. Senator, is this the legislation that Secretary

Jackson is a champion of and has showed up in the budget? I think

we are talking about the same thing, the affordable single-family

housing legislation.

Senator SANTORUM. Yes. Yes.

Secretary SNOW. That was part of our original budget. I have

heard Secretary Jackson speak positively of it, and it is certainly

something we are prepared to work with you on.

Senator SANTORUM. Thank you. I appreciate that, Mr. Secretary.

As we watch the recovery efforts in the Gulf Coast, one of the

things that I was struck with—and certainly in talking to people

who are evacuees from that area, as well as others who have been

working down there—is the incredible role that charities played in

the recovery effort. While the bureaucracy may not have responded

well, certainly charities did, and people of faith, the churches, in

particular, did an outstanding job, and continue to do an outstanding job.

So, I just want to suggest that we consider the CARE Act, which

is the charitable giving bill, as part of this recovery effort. If we

are going to rebuild communities and neighborhoods, we are going

to have to have strong input from the nonprofit sector, from

churches, from community groups, civic organizations.

Rebuilding communities is not just putting up houses and starting businesses, it is connecting people, building civic associations,

building communities, real communities where people interact and

have social capital.

So, I would strongly encourage the administration to get behind

the charitable giving provisions of the CARE Act and come forward

with something that is supportive of that.

Mr. Secretary, do you have a comment on that?

Secretary SNOW. Well, we are broadly supported, Senator, as you

know. The administration is eager to expand charitable giving and

provide support for organizations that help serve Americans in

need.

That is basically what the CARE Act is all about. So the broad

purposes of it, the broad objectives, are something we are in full

concert with. You know we tried administratively to do some things

23

through the IRS and the Treasury Office of Tax Policy to make it

easier for people to give, and we want to continue to talk with you

and work with you on the CARE legislation. We are in full support

of its objectives. There were some technical issues, I think, that our

staffs have been talking about.

Senator SANTORUM. Well, I would specifically refer to one provision which I know is not all that popular in some quarters, and

that is the non-itemizer deduction. I know that there are many who

do not believe that that will raise a lot of money or encourage a

lot of charitable giving. I happen to hold a contrary view, depending on how it is constructed.

But the idea that 80 percent of taxpayers in America do not get

any tax benefit for giving to charities and are given no incentive

to give to charities, to me, ignores a very powerful force out there

in giving, and we need to create, in my opinion, and hopefully

yours, greater incentives for those who just do not happen to either

make a lot of money, or have complex taxes—and a blessing in

many respects that they do not have complex taxes—and happen

to fill out the short form.

Secretary SNOW. I will look forward to working with you. I agree

with the broad objectives here. Absolutely.

Senator SANTORUM. Thank you.

One other, final point. Senator Lieberman and I, when we introduced the CARE Act, included in the CARE Act proposals for Individual Development Accounts. One of the things that, again, if we

are trying to build the ownership society the President talks about,

again, I would encourage you to look at not only home ownership,

but savings, investment, and ownership so we can begin to build

folks who have financial literacy, which is a big problem in a lot

of our poorer communities, people who have savings accounts, have

investments, and are able to use that investment to start a small

business or help them with that down payment for the home.

Thank you. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Kyl?

Senator KYL. Thank you, Mr. Chairman.

Mr. Secretary, I understand you had an opportunity to visit with

Senator Schumer a little bit about the effect of the capital gains

and dividends. It seems to me just a slight review of that is good

before I ask you this question.

Much of what I learned, I learned from one of the people who is

going to be on the next panel, so I will give you an opportunity to

rebut to Hon. Jack Kemp if you would like to do so.

But what I learned from him was that sometimes reducing tax

rates actually stimulates economic activity, even to a point at

which you end up, if you are interested in revenues to the Federal

Treasury, getting more revenue than you would have at the high

rates.

Now, when he explained to me that a 100-percent tax rate probably would not generate a lot of tax revenue, the light bulb went

on and I got the point.

Now, this President, after 9/11, wanted to stimulate our economy. With the tax cuts of 2001, and then 2003, we have clearly

done that. The numbers reveal that, over the last year, we are

going to be collecting to the Federal Treasury $262 billion more in

24

Federal revenues than we did last year. It is now about $80 billion

more than projected, and probably it will be closer to $100 billion

by the time the year is out.

I have been talking to some folks that represent the investment

community. Their view is that we will get over Katrina, from an

economic standpoint, relatively quickly, and in fact should have a

pretty good fourth quarter.

But the real concern is the signals that some in Congress are

sending that, just maybe in the reconciliation bill, we will not do

as we projected in the budget, to extend the capital gains and dividends rates currently in effect for 2 more years beyond 2008.

Now, here is the predicate for my question. Some say, well, since

they do not expire until then, we can wait to act until then.

The first part of my two-part question is, in terms of an investment horizon, is it the fact that investors are looking maybe 4 and

5 years out to earn the return on their investment, and they are

just a little bit interested in what the tax rate is at that time, so

that it is important for us to conform the tax rate here to the individual rate and get it until the end of 2010, number one?

Second, as I think you responded to Senator Schumer, with respect to alleged revenue lost to the Treasury, not only does the

lower capital gains rate increase revenue to the Treasury, but is it

not also true that any savings that would occur, we would not see

theoretical savings for 2 years anyway, so it is not something that

would be used to pay for Katrina today, this year, or next year, all

of which argues, it seems to me, for moving forward to extend the

rates for another 2 years on capital gains and dividends. That is

my two-part question to you, Mr. Secretary.

Secretary SNOW. Senator, thank you very much. Like you, I have

studied under the tutelage of Professor Kemp and agree, obviously,

with what you say. The evidence is all before us. The President inherited an economy in steep decline.

The 2001 and 2003 tax reductions, of which the dividends, capital gains, and lower marginal tax rates are the critical parts, put

us on a whole different course, a course today where 4 million additional people are working, we have had well above trend line

growth for 21⁄2 years, and American companies are highly profitable, businesses are profitable and have strong cash flow, and they

are investing. The economy has turned around. The economy, in

steep decline, that the President inherited has been turned into an

en economy of rising prosperity across our land.

And the important point is, the deficit is coming down. Because

as more people are working, as businesses are more profitable, as

they are expanding and growing, tax receipts go up. That is when

you get tax receipts. When equity markets perform well, when

businesses perform well, when people are working and have better

jobs and wages are rising, tax receipts rise. So, absolutely.

I think you know our position, the administration’s position, the

Treasury position, is we need to make the tax cuts extended. Make

them permanent if you can, but extend them for sure, because the

time horizon of investors is always out in the future.

That uncertainty about whether or not those lower marginal tax

rates, on whether those dividend rates and capital gains rates will

be available to them undermines their investment behaviors. We

25

do not want to undermine investment behaviors, we want to encourage good investment behavior.

Senator KYL. So the worst thing we could do for the economy

generally, and also for rebuilding the economy in the Gulf Region,

would be to increase taxes.

Secretary SNOW. In my view, that is absolutely the case.

Senator KYL. Thank you. Thank you, Mr. Secretary.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Lott?

Senator LOTT. Thank you, Mr. Chairman, for holding this very

important hearing. I know that we have had Secretary Snow before

the panel for a long while, and I do not want to drag this out too

long because we do have other witnesses. But I want to thank Secretary Snow for being here, for the job he does, and for his comments this morning.

Also, it is good to see my good friend, Jack Kemp, here again.

I know he will have some interesting things to say. He is passionate about his positions, as always.

If you think I could be described as the Al D’Amato of Mississippi

in the past, you ain’t seen nothin’ yet. [Laughter.] I am just getting

started. I want to work on how we can help people who need help.

Senator BAUCUS. And knowing the Senator and watching him

the last couple of months, I will second that. [Laughter.]

Senator LOTT. But thank you for being here.

I am also very proud that the second panel will include two outstanding individuals from my own State of Mississippi, Tate

Reeves, who is our State treasurer, and Dianne Bolen, who is the

executive director of the Mississippi Home Corporation. They are

very familiar with our needs in Mississippi regarding bonding and

housing issues, respectively, and I will look forward to hearing

from them.

I also want to thank our Chairman and Ranking Member for

their efforts to be of help to us with the Katrina situation, including passing the Emergency Tax Relief Act of 2005 that is now in

effect.

It is providing critical assistance in the form of cash flow relief,

employment incentives, housing incentives, taxpayer assistance,

and charitable giving incentives. It is helping. It is the most positive thing that we have done in Congress so far.

We have had a lot of good talk, but not a lot of good action yet,

but I believe we are going to get it done. I firmly believe that we

need to do this in a thoughtful way. We need innovation. We need

to do some things differently from what we have done in the past.

I am really intrigued and supportive of the idea of a Gulf Opportunity Zone, a GO Zone. I support that and will offer legislation

which I hope the Chairman and the Ranking Member will take up,

and that we will push aggressively through the Congress.

We do need to increase the $100,000 cap on section 179 small

business expensing for investment and equipment. The bonus depreciation for purchase of equipment is a necessary feature and one

which was employed with success after 9/11.

We do need the investment tax credits to help businesses rebuild,

and there are a number of provisions in the GO Zone proposal that

I am very excited about and I believe will attract business back,

26

reinvestment, as well as getting those that were there to move forward aggressively.

As I have looked at our situation in Katrina, at some point you

have to begin to get in some order. The number one thing we need

is to get people back to work. Once they get a job, we will find

them a place to live. Some of them are living and sleeping on their

front porches and in tents, and we are trying to get berthing

barges, we are trying to get temporary housing.

But once they get a job, everything begins to settle down. We will

help them find a place to live. Then their kids will get back in

school, and then the clean-up will be completed, and then we will

begin construction. So this is so important. We have to have those

incentives in there. I do not want to go into more specifics because

I want to move on to the next panel.

Just two questions, though, for you, Mr. Secretary. One concern

I have is a proposal from some that would exclude certain businesses that are vital in importance to recovery of the Gulf Coast,

such as gaming, from the benefits of the GO Zone provisions. I

want to be clear that your proposal does not discriminate against

various businesses on the Coast. Is that correct?

Secretary SNOW. That is absolutely correct, Senator.

Senator LOTT. And I am saying that as a Southern Baptist, but

also as somebody who acknowledges that that industry employed

17,000 people in the Mississippi Gulf Coast before this hurricane,

and they have been very responsible in the aftermath.

They have kept their workers on the job. They are helping with

the clean-up. The hotels are back open. The State legislature has

addressed the issue. We are on track to have them back in business

very soon, so I want to make that clear.

Now, the other thing is that the New Market Tax Credits are an

existing Treasury program that incentivizes private sector investment in these distressed areas. With minor changes, we could

make that applicable to the Gulf Coast. Would you be supportive

of that? Have you looked at that?

Secretary SNOW. Yes, Senator. Treasury administers the New

Market Tax Credits. We have done two things that I think will be

very helpful to the Gulf Coast. You may want to think of things

beyond that. But, one, in effect, bonus points for applicants within

the zone, within the Gulf zone.

Two, waiver of some application dates, recognizing that people in

the area have other things on their mind. That combination of, in

effect, bonus points if you are in the zone, with extra consideration

for applicants from the zone, will lead to more of the Gulf Zone

area applicants being successful. But certainly we would be willing

to work with you to talk about other modifications. Those were

done administratively, and other things could be done legislatively.

Senator LOTT. Right. Right. Thank you, Mr. Secretary. Our people are hurting and need help. They need incentives. I believe one

of the best ways to do it is through the programs that you administer. I look forward to working with you.

Secretary SNOW. Thank you.

Senator LOTT. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Schumer?

Senator SCHUMER. Thank you, Mr. Chairman.

27

Just one final question. As you know, Mr. Secretary, myself, Senator Graham, and others have been concerned with currency manipulation in China. This is our last opportunity to talk to you before you go over to China in about, I guess, a week.

So let me just say that when you last presented the currency report, you said that you would find manipulation if their behavior

did not change in the coming months.

Now, China did revalue by 2.1 percent, but to Senator Graham

and I the big saving grace there was that market forces could

allow, as fluctuation, as much as 0.3 percent a day.

It was our belief that that would expand the 2.1 percent, because

you know the markets, if not manipulated, if the Chinese are not

forcing the currency to stay where it is, would have probably gone

up.

Instead, what we have found is that, over the 10 weeks since the

Chinese announced this policy, the yuan has appreciated less in 10

weeks than China said it would allow it to appreciate in a single

day. To me, that is greater evidence of currency manipulation.

I would just like to know your views. What is going to happen

on the trip? Will you, if they do not do anything else, stick by your

statement that you will find currency manipulation by China?

Clearly they are not letting market forces take hold. They are

afraid to let go.

Secretary SNOW. Senator, you are right. The Chairman opened

with some observations on that same point.

Senator SCHUMER. And that is why I felt I could take the liberty

of bringing it up as well.

Secretary SNOW. We will be meeting with the Chinese authorities

on economic policy and political leadership to make the case that

it is time to see greater flexibility, that the commitment has been

made, the initial step was made, but we need to see more flexibility

incorporated into the currency, reflecting real demand/supply market forces.

Senator SCHUMER. So if they did nothing else, your view that

they are manipulating their currency would be likely to be found

in the next report stands? You are not backing off?

Secretary SNOW. Senator, what I said then, I stand by. I want

to continue to evaluate the situation.

Senator SCHUMER. All right. Well, I am glad you stand by what

you said. Thank you.

Thank you, Mr. Chairman. I appreciate the extra question.

The CHAIRMAN. Mr. Secretary, I want to thank you for appearing, not only for the Treasury Department, but for the Small Business Administration, HHS, and all the other departments you sat

in for today.

We are going to call our second panel now, so would the second

panel come to the table at this point?

We have a distinguished second panel today to explore how tax

relief can help in the rebuilding after Katrina and Rita. We have

witnesses that will have particularized knowledge related to the

use of enterprise zones.

We are also pleased to have witnesses who bring us firsthand

knowledge about the needs of those impacted by the tragedy, and

how tax policy might assist in meeting those needs.

28

As I have noted before, we have a responsibility to use the taxpayers’ resources judiciously. I expect our panel this time to help

us explore that fiscal responsibility.

We are first going to have Jack Kemp, founder and chairman of

Kemp Partners, and honorary co-chairman of the Free Enterprise

Fund, who will discuss the potential effectiveness of the Gulf Opportunity Zone. He was a long-time member of Congress before becoming Secretary of HUD.

Then we are going to have the treasurer of Mississippi, already

referred to by Senator Lott, Tate Reeves, to discuss the State’s economic situation.

Next, Ms. Dianne Bolen, executive director, Mississippi Home

Corporation, who will provide us insights on how tax relief will assist in addressing the current housing situation.

Then we will have Mr. Harry Connick, Jr., honorary chair, Operation Home Delivery, Habitat for Humanity International, who will

provide us with insights on the housing situation of the impacted

area.

Dr. Jane Gravelle, Senior Specialist in Economic Policy of the

Congressional Research Service, will speak on enterprise zones.

Last, Mr. James Kelly, chief executive officer, Catholic Charities,

Archdiocese of New Orleans, will give us a view as he sees it there.

We will start with Secretary Kemp.

STATEMENT OF HON. JACK KEMP, FOUNDER AND CHAIRMAN,

KEMP PARTNERS, WASHINGTON, DC

Mr. KEMP. Thank you, Mr. Chairman. I understand I have 5

minutes. I can go 5 minutes without using a verb. [Laughter.]

As usual, befitting Jack Kemp, I have a rather lengthy testimony

that I would like to have included in the record, and I will just

read two pages that will summarize the five points that I would

like to make today.

First of all, it is a pleasure to be with you. Thank you so much,

you and Senator Baucus, for holding these hearings. Thanks to

Trent Lott, John Kyl, and Olympia Snowe, old friends from my

days in the House of Representatives.

I was thrilled that President Bush announced that his father and

President Clinton will lead the relief effort, pleased that Harry

Connick, Jr., is leading an effort to put money into Habitat for Humanity, its Operation Home Delivery.

He and I were on the ‘‘Today’’ show a couple of weeks ago and

made that announcement, and it is a tremendous effort. Twentyfive million dollars has been raised. But I will let Harry talk about

that.

I truly believe this crisis, this catastrophe, is of Biblical proportions, but it has within it the seeds of a great opportunity for the

Congress, on a bipartisan basis, to use progressive market-oriented

solutions, not only that can work in this challenging moment in

history, but will have applicability to similar problems of poverty,

despair, and destitution wherever they are, or whenever they might

occur in the future.

The huge problem I believe, Mr. Chairman, and members, is of

such magnitude that it requires us to think in terms of Abraham

Lincoln, and perhaps Franklin Delano Roosevelt, thinking about

29

the agenda of ownership and shareholder society, where access to

education, access to capital, access to a job, access to home ownership is accessible to all people.

One is reminded of the Lincoln Homesteading Act of 1862, his

Freedman’s Bureau of 1864, Franklin Roosevelt’s FHA and GI bill

after World War II, and during World War II, actually.

They fit into, I believe, a strategy of combatting poverty and encouraging enterprise, expanding ownership opportunities, and

using public/private partnerships, market-oriented solutions to the

vexing problems of poverty and despair, particularly in the Gulf.

Keeping Lincoln and Roosevelt in mind, I want to suggest five

things real quickly, and then open it up, I guess, to the other people to testify, and then we can answer some questions.

First, a 21st-century urban homesteading act would allow lowincome families to homestead on Federally owned properties and

those that are under eminent domain. I think that Federal agencies, number two, GSCs such as the Federal Home Loan Bank

Board, Fannie Mae, Freddie Mac, FHA, could pool resources, 3 percent of their profits, 5 percent of the profits, to buy out low-income

property owners and use these Federal properties available for lowincome people to homestead.

Third, it would not be a Kemp testimony if I did not bring up

investment capital and getting capital flowing into this green-lined

area of our country, at least in the next 5 to 10 years.

President Bush has declared the entire delta, the entire Gulf

Port region, an opportunity, empowerment, or enterprise zone,

whichever you choose to declare it. We need to flesh out the idea,

but here is how I think it might work.

I think, Mr. Chairman, instead of a tax credit—with all due respect, and I do support the New Market Tax Credits—I would

eliminate the capital gains tax on any man or any woman who

would put his or her surplus savings and capital into the Gulf Port

region that would create jobs for people in the Gulf Port region of

America.

All investment in new machinery, technology, equipment, and

plant should be expensed. Why just do it for a very small business?

Why not allow, for 10 years, all investment in the Gulf Port region

to be expensed?

Fourth, Mr. Chairman, SBA, the Minority Business Development

Agency, CDBG, and other Federal and State monies could be targeted to both urban and rural poverty-stricken areas to be greenlined for special development initiatives. I support the Bush New

Market Tax Credits. It could be used for housing ownership, shelter, real estate, and business development.

Fifth, Mr. Chairman, in order to rise above some of the interagency turf competition, we might think of appointing proven leaders of national stature, like former Mayor Andy Young of Atlanta,

former Mayor Mark Moriall, the president of the Urban League,

Bruce Gordon of the NAACP, Colin Powell, Henry Cisneros, former

Secretary of Housing. I am chairman of Speaker Hastert’s Saving

America’s Cities task force. I would love to help in any way I can.

I would just make two last points. These are not new ideas. They

are not Kemp’s ideas. I stole them from Bobby Kennedy in BedfordStuyvesant in 1968. He took it from Abraham Lincoln’s HomeVerDate 11-MAY-2000 15:08 Feb 20, 2007 Jkt 095484 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 32882.000 SFIN1 PsN: SFIN1
30

steading Act of 1862. Joe Lieberman, Trent Lott, Connie Mack, Eleanor Holmes Norton, Spencer Abraham, Charlie Rangel, Bobby

Garcia. There are men and women on both sides of the aisle, Democrat and Republican, who have all advocated doing something extraordinarily big in urban America. Let us apply that to the Gulf

Port.

And when it works—and I believe it will work—I think it will be

a model for other ghettos and barrios in America where people are

really hurting for jobs and access to capital. The single biggest

problem for a minority businessman or woman is lack of access to

available capital. Thank you very much.

The CHAIRMAN. Thank you, Jack.

[The prepared statement of Mr. Kemp appears in the appendix.]

The CHAIRMAN. Mr. Reeves?

STATEMENT OF HON. TATE REEVES, STATE TREASURER,

STATE OF MISSISSIPPI, JACKSON, MS

Mr. REEVES. Thank you, Chairman Grassley, Ranking Member

Baucus. Let me begin by saying thank you for your bipartisan support of legislation that is already going to help the Mississippi Gulf

Coast rebuild.

Thank you for giving me the opportunity to speak to you today

regarding Federal tax policies that may be utilized to expedite the

process of getting citizens of South Mississippi back to work, their

kids back to school, and the economic engine that drove my State’s

economy back in gear.

The damage caused by Katrina’s path is unimaginable, not just

in our coastal counties, but throughout our State. Our infrastructure has been deeply damaged, but our fortitude has only strengthened.

I spent this past Monday with local officials in Harrison and

Jackson Counties, the latter of which happens to be the home county of Senator Lott. These places are being led by true leaders, some

of the finest men and women America has to offer.

They are not complaining. They are not deserting their constituents. They are simply working day and night to help rebuild their

communities in what otherwise would be part-time jobs. They are

ordinary people doing extraordinary things.

I do not come before you today asking for a hand-out. Mississippi

simply needs a helping hand. While I recognize that this hearing

is regarding taxation policy, I would be remiss if I did not ask you

to consider the great challenge individuals face with respect to

housing.

I would be remiss if I did not urge you to consider the consequences of those in the uninsured and under-insured categories.

These people are our friends, our neighbors, our family. They are

Americans in need of help from Congress.

I must remind you of the great need for State and local governments to receive direct fiscal aid to help them get through the

weeks and months ahead. The State of Mississippi has created a

loan program through the Mississippi Development Bank that will

guarantee our local governments access to capital.

However, in lieu of direct fiscal relief from the government, the

ability to repay those loans will be a major issue for many of our

31

political subdivisions which have lost a large percentage of their

tax base.

I believe that an allowance for a second advance refunding would

be crucial for our State and local governments in the intermediate

term. The cost to the U.S. Treasury of such an act would be minuscule in comparison to the benefits derived for our local communities.

Generally, one would refinance their debt to achieve net present

value savings. In this instance, our State and local governments

should be allowed to restructure their debt, possibly delaying several years of principal and interest, until a reasonable time when

their tax bases could be reestablished.

In addition, I would encourage you to consider relaxing certain

limitations on tax-exempt financing for working capital needs.

While I appreciate the financial commitment that has been, or

will be, made by the President, Congress, FEMA, and other Federal

agencies, I believe the private sector is the key to Mississippi’s renaissance.

For our Gulf Coast region to rebuild as the beautiful place it once

was, we must work together to create an environment that encourages the private sector to invest in our communities.

One way to accomplish this goal is through the allowance of $15

billion in tax-exempt private activity bonds that should be classified as bank-eligible with no limitations. I would encourage you to

expand the types of eligible entities allowed under the Liberty

Bond legislation.

I would also encourage Congress to consider a special allowance

for accelerated depreciation up to 50 percent in the first year for

capital investments made in the affected areas.

To fully understand this request and the justification behind it,

one must take a step back and consider the types of industries that

are located on the Mississippi Gulf Coast: oil refineries, ship building companies, utilities, tourism attractions, defense and aerospace

companies, just to name a few.

While the jobs created by these employers are essential to my

State’s economy, their finished products are essential to keeping

America safe. The one common theme within each of these industries is the extent to which they depend on capital investment. We

must create incentives to encourage these capital-intensive industries to rebuild.

Many of the items I have outlined today have a precedent in

Congress, some do not. An unprecedented disaster requires an unprecedented response.

My Governor, my U.S. Senators, the local elected officials, and

most importantly the citizens of my State, have made me proud to

be a Mississippian. We have shown resilience in the face of the

worst natural disaster in our Nation’s history.

We will rebuild our State 1 day at a time, no matter how long

it takes. With your help, we will rebuild in a manner that will

make all of you proud of what we accomplish together. Thank you.

The CHAIRMAN. Thank you.

[The prepared statement of Mr. Reeves appears in the appendix.]

The CHAIRMAN. Now we go to Ms. Bolen.

32

STATEMENT OF DIANNE BOLEN, EXECUTIVE DIRECTOR,

MISSISSIPPI HOME CORPORATION, JACKSON, MS

Ms. BOLEN. Thank you, Mr. Chairman, Senator Baucus, and distinguished members of the committee. My name is Dianne Bolen.

I am the executive director of the Mississippi Home Corporation.

The Mississippi Home Corporation is the State’s housing finance

agency. Our mission is to provide the opportunity for safe, decent,

and affordable housing. We accomplish this mission through the

programs that we administer, such as the Mortgage Revenue Bond

program, the Mortgage Credit Certificate program, and the LowIncome Housing Tax Credit program.

I appreciate this opportunity to appear before this committee to

discuss the housing needs of Mississippi as a result of Hurricane

Katrina, and how Congress can assist in the rebuilding of the Gulf

Coast.

While over half the State felt the wrath of Katrina, the Gulf

Coast suffered catastrophic damage. The 20- to 35-foot tidal surge

covered 80 miles of coastal land, going as far inland as several

miles.

Some towns were completely wiped off the map, such as

Waveland, MS, with a population of 10,000. Infrastructure gone.

Debris removal is a daunting task. What used to take a friend of

mine 20 minutes to get to work now takes an hour and a half on

a good day.

Access to the coast is very limited and restricted in certain areas.

Many people lack basic services. Some are living in tents. We can

conservatively estimate that a third of the housing stock on the

coast was destroyed. Based on the 2000 census, that would come

to 31,000 owner-occupied houses and 14,000 rental units. The majority of home owners did not have flood insurance.

Housing prices are going up as we speak. A house selling for

$100,000 before Katrina now sells for $119,000. Labor to repair

houses is in short supply. Mold is a big issue.

The need for housing is great. Mississippi needs more revenue

bond cap and low-income housing tax credits, with greater flexibility. I have supplied a series of recommendations in my written

testimony for your consideration.

The Mortgage Revenue Bond program and the Low-Income Housing Tax Credit programs are proven tools with a proven delivery

system. They are a prime example of public and private partnerships that work. They have a system of accountability that is already in place. These tools are essential to the rebuilding of the

Gulf Coast. Thank you so much.

The CHAIRMAN. Thank you very much.

[The prepared statement of Ms. Bolen appears in the appendix.]

The CHAIRMAN. Now we go to Mr. Connick.

STATEMENT OF HARRY CONNICK, JR., HONORARY CHAIR, OPERATION HOME DELIVERY, HABITAT FOR HUMANITY INTERNATIONAL, WASHINGTON, DC

Mr. CONNICK. Thank you, Mr. Chairman and members of the

committee. I am honored to be here today to present testimony in

hopes of trying to remedy one of the most difficult domestic situations I think we have ever faced as a Nation.

33

I am not an expert on development, I am not an expert on construction, and certainly not on tax policy, as you probably are already aware, but I am a native New Orleanian who is deeply concerned about the future of the city, and the other post-hurricane affected areas.

I have had the opportunity to visit my hometown. And by the

way, I use New Orleans as sort of an example representing the

whole Gulf Coast region, but New Orleans is the place I am most

familiar with.

I had the opportunity to go there several times since Hurricane

Katrina, the first of which was within 2 days of landfall. What I

saw there were things that I hope to, but probably will never be

able to, erase from my mind.

I saw babies who had not eaten or had anything to drink for

days. I saw dead bodies. I saw senseless abandonment by government, desperation. These are things that, as a citizen of this country, you are supposed to see on an international news broadcast.

They are certainly not things that you are supposed to see in our

country, much less in your own neighborhood. What profoundly

confused me was that these people had the same accent that I

have, they ate the same food, they listened to the same music.

Well, over the last few weeks my reason for involvement has become a lot more clear. I think a lot of people have a question as

to whether the region should be rebuilt. My question is not whether we should rebuild the region, but rather how to rebuild it and

do it in an economically effective and socially acceptable way.

Also, how can we protect this region from any future natural disasters, but at the same time responsibly and respectfully acknowledge the value of human life? In other words, I do not think money

should be an object when it comes to keeping these people safe, just

because they happen to live in a low-lying area.

I have been named the honorary chairman for Habitat for Humanity in the Gulf Coast relief efforts, which is a great honor for

me. I think the Habitat home is a perfect model for the situation

that we are in right now. Jack, you could go on and on about the

low-cost mortgages, and the no-profit model, and all of that stuff.

What impresses me the most about it is that the people who are

going to be occupying these homes are tax-paying, job-holding citizens who are going to help, through sweat equity, build their own

houses.

I met a woman in Slidell just 2 days ago who is being presented

with a new house. I would be proud to have this woman live next

door to me in my neighborhood. I think a lot of people are real

freaked out about that.

They are real scared about that. They are scared of the working

class, the poor people, perhaps the black people. I have never quite

understood that, being raised by parents who are color blind, but

I think it is something that needs to be addressed.

I have three suggestions regarding how we can rebuild our community. The first, and this is probably the most confusing to me,

is there are over 300,000 families that have been displaced. I guess

there are over a million people.

That is the largest displacement in America since the Civil War.

Three hundred thousand families. I am sure a great number of

34

members of those families would love to get back to work and rebuild their own communities.

I think that you all have the power to convey to other people in

authority: give these people a chance to get the jobs first. Give

them job training. Let them have the opportunities to rebuild their

own communities as opposed to passing it off to people not only out

of State, but out of the country. I do not understand that.

The second point I would like to make is, as you sit down to your

negotiating table, there are a lot of chairs around that table. Pull

up a few extra chairs for some local voices to be heard. These people are voiceless.

When I went to the Astrodome and sat down with as many people as I sat down with, they do not feel like they are being represented on this level of government. They feel abandoned. What

are they thinking? I mean, they are sitting on a cot, they are sleeping in a stadium. They think they are going back home.

I went to the ninth ward and saw the first Habitat house I had

anything to do with. It was called Harry’s House on Music Street,

because it was on Music Street, and a single mother and her children inhabited this house. It is probably going to have to be torn

down, along with acres and blocks and miles of other neighborhoods.

What are these people in the Houston Astrodome thinking right

now, and the other evacuees? What are they going to go back to?

Who better knows the problems of our city and the patterns that

need to be broken than the locals? Give them a chance to speak,

too. I venture to say you would be pleasantly surprised at some of

their ideas.

The last point is, I think it is important that these poor people

are not priced out of these neighborhoods as they are rebuilt. I said

before I would be proud to live next to these people. I truly believe

that.

We need to start thinking in modern terms. We need to get away

from this black/white thing, lower-class/higher-class thing. We need

to start thinking in terms of, these are members of our community.

These are taxpaying, good citizens.

When I walked into the convention center and I saw 15,000 predominantly black, angry, desperate, hungry people, I did not walk

around with a shotgun and a bullet-proof vest. I walked in there

and said, I am going to try to get this message out.

One guy even came up to me and said, can you get them to drop

some water on us, please? I said, well, you must be so thirsty. He

said, no, I want to clean the bathroom. We have a sense of pride

here. It was so disgusting in that convention center. This guy just

wanted to clean up. These are the types of people we have in New

Orleans. They are responsible, good people.

Ironically, the convention center is the same place where we get

ready to launch our Mardi Gras parade every year, Orpheus, which

is the first interracial, intergender parade in Mardi Gras history.

The same black people and white people, men and women that I

want in my parade were sitting there in disgrace and humility for

days and days and days. They were completely let down on so

many levels.

35

I am not here to point fingers and blame. I just want to be a

voice for these voiceless people and plead with you to help find a

solution. Again, I am not an expert on all of the things that you

know about. I sit here in great awe of you and the institution of

government in this great country of ours.

I was in Barcelona for a press event not long ago. Every single

journalist from Poland, to Greece, to Russia, to Italy, said, ‘‘What

the hell happened in your country?’’ I was embarrassed.

Recently I sang the National Anthem at the Saints game. I am

a diehard Saints fan. Do you know anything about football?

[Laughter.] I am a diehard Saints fan. I sang the National Anthem.

When I got to the line of, can you see the flag over the land of the

free and the brave, I am saying, how brave are we right now? I was

embarrassed and disgusted at that particular point.

My kids. I have three kids. I think about the Pledge of Allegiance, when they talk about ‘‘one Nation.’’ Man, we are not acting

like one Nation right now. We need to forget this. We need to treat

people with dignity and respect and get these communities back together, black, white, rich, poor. I am proud to be associated with

Habitat, and I hope that you will take that under consideration.

Thank you.

The CHAIRMAN. Yes. Thank you, Mr. Connick.

[The prepared statement of Mr. Connick appears in the appendix.]

The CHAIRMAN. Now, Dr. Gravelle?

STATEMENT OF DR. JANE GRAVELLE, SENIOR SPECIALIST IN

ECONOMIC POLICY, CONGRESSIONAL RESEARCH SERVICE,

LIBRARY OF CONGRESS, WASHINGTON, DC

Dr. GRAVELLE. I would like to thank you for the opportunity to

be here today.

Direct tax incentives for business have some advantages for rebuilding areas because they work through market mechanisms and

therefore will induce the most productive additional investment.

But they are complicated. Because they cannot be received by individuals and firms with no tax liability, it may be difficult to publicize to less-sophisticated taxpayers and can complicate tax administration.

Now, most existing geographically targeted incentives have been

directed to chronically depressed areas, often referred to as enterprise zones. The economic efficiency rationale for enterprise zones

does not necessarily transfer through a Gulf Zone subsidy, which

involves rebuilding a whole area.

The usual rationale that economists suggest for enterprise zone

provisions really addresses a labor demand and supply imbalance.

The poor areas of the city have unemployment, while businesses located in the suburban fringe have trouble finding employees, so

these provisions are designed to encourage businesses to locate in

the poor areas.

This philosophy is very different from the justification for rebuilding after a disaster. One argument for subsidies after a disaster is to spread the risk of extraordinary disasters to the country

as a whole because imperfect insurance markets prevent firms

36

from insuring against the loss of business—the absence of customers, the absence of labor—while an area recovers.

Another argument for rebuilding is to preserve the unique cultural heritage of the area. Another is as part of a general social

safety net.

A significant body of economic studies of the effects of enterprise

zones, largely at the State level, actually has not indicated that enterprise zones have been very effective in inducing investment.

Now, this is the evidence we have. It is not necessarily true that

that evidence would transfer to rebuilding a whole area, like the

Gulf Zone.

The justifications that I have suggested do provide some insight

into how subsidies might be designed. The labor imbalance in enterprise zones would suggest that subsidies be made for hiring

labor rather than investment. Indeed, investment subsidies, in theory, could actually reduce labor demand by encouraging investment

in labor-saving devices.

If the rationale for the Gulf Opportunity Zone is instead insurance against catastrophic risk, the subsidies might appropriately

include both labor and capital subsidies to deal with labor- and

capital-intensive businesses.

The insurance argument also suggests that aid should be concentrated on preexisting businesses whose gross receipts were predominately in the disaster area. This would include, but not necessarily be limited to, small businesses.

The cultural preservation argument might suggest incentives for

preserving or restoring buildings, and specifically for aiding the

service industries.

There are two basic types of tax subsidies that might be considered: direct subsidies to firms and indirect subsidies through private activity taxes and bonds, such as the low-income housing credit whose target is really ultimately for renters and not business,

and the New Markets Tax Credits.

Of the direct subsidies, investment subsidies tend to have the

most bang for the buck compared to capital gains relief, for example. These investment subsidies can be provided through bonus depreciation or through investment credits.

Now, bonus depreciation is neutral if applied to all assets, and

that is an important feature for permanent tax policy. But the

magnitude for a short-run incentive of bonus depreciation is constrained by the present value of depreciation.

For most equipment investments, 50-percent bonus depreciation

is equivalent to reduction of no more than 2 to 3 percent of the cost

of the investment. It would be much larger, around 12 percent, for

buildings. Section 179 expensing only applies to business equipment investment at the moment.

These tax subsidies provide immediate benefits only for those

firms with current or recent tax liability. Now, since many of these

firms may not do well this year or may not do well in future years,

a possible revision is to extend the carry-back period for these

firms or to allow firms to elect a longer carry-back period and a

shorter carry-forward period for net operating losses.

The Work Opportunity Tax Credit has already been provided for

small employers in the recent bill. That subsidy might be expanded

37

to larger employers who are already present in the area and derive

most of their income from the area, a change that would be consistent with this insurance rationale.

Businesses and individuals without tax liability can benefit from

indirect subsidies that are channeled through taxable investors,

such as private activity taxes and bonds, low-income housing credits, and the New Markets Credits.

All of these provisions, however, have two very important limitations: they add to complexity and administration costs in structuring some of these investments, particularly, and they can

produce windfall gains—indeed, very high gains, high returns—in

some cases, for the taxable investors.

Thank you very much.

The CHAIRMAN. Thank you, Dr. Gravelle.

[The prepared statement of Dr. Gravelle appears in the appendix.]

The CHAIRMAN. Now, Mr. Kelly?

STATEMENT OF JAMES R. KELLY, CHIEF EXECUTIVE OFFICER,

CATHOLIC CHARITIES, ARCHDIOCESE OF NEW ORLEANS,

NEW ORLEANS, LA

Mr. KELLY. Thank you, Chairman Grassley, Ranking Member

Baucus, Senator Bunning, for inviting me here today. I am humbled. Please know how much I appreciate all you are doing to assist

us in this tremendous crisis. I come on behalf of the victims of

Katrina and Rita, and also on behalf of the poor, both old and new.

Since 1727, the Catholic Church in Louisiana has been providing

care to the poor and vulnerable. In fact, Catholic health, education

and charities all trace their roots back to the Ninth Ward of New

Orleans and the Ursuline nuns.

This past year, Catholic Charities’ dedicated staff and volunteers

provided services and care to over 125,000 people in the archdiocese in the greater New Orleans area.

Catholic Charities operates 30 programs and services, addressing

such issues as hunger, poverty, unemployment, abuse, violence,

homelessness, and mental illness. These are all issues and problems that have affected the hundreds of thousands of victims of

Katrina, the poor of the past, together with the vulnerable of the

present.

Let me tell you about Sherry Jackson, a records administrator,

a mother of two, the wife of a New Orleans police officer, who just

this past week moved into an apartment after having spent the

past 5 weeks in a shelter.

She spent that opening week worrying about her two children

and worrying about the safety of her husband. Finally, with the

evacuation over, with the violence decreased, he was safe. But as

any mother, she continued to worry about her children.

He was afforded a stay on the ships on the 5 nights that he

would be working, but on the 2 days that he had off, he would

come to Baton Rouge and live and sleep in the shelter with his

family. Sherry, by the way, is an employee of Catholic Charities.

Prior to Katrina, we, along with church and city officials, urged

folks to leave. Gordon Wadge, my partner in leadership, and I

spent Saturday and Sunday helping our residential programs for

38

the homeless, for the abused, for the mentally ill, and for the mentally retarded, to climb on buses and to evacuate.

Then we decided, as Indians, not as chiefs, to go to the dome to

be with the poor. The first 24 hours, we helped transport and administer to the medically fragile. The second 24 hours, we took care

of missing and lost children. We waded out of the dome on Tuesday, realizing that we needed to change our roles and begin organizing a massive response and relief effort.

Thanks to our sister agency and Deborah Roe, in Baton Rouge,

we were able to set up shop and to begin responding, at first sending counselors to minister to the frail and the sick in Armstrong

Airport, reorganizing our Second Harvest Food Bank, and soon

shipping 400,000 pounds a day, mobilizing a team of doctors,

nurses, and professionals to care for first responders who were in

trauma and shock: the police and the firefighters. Subsequently,

that team moved on to other fragile populations in other shelters.

Of course, each morning people lined up at the door beginning

at 2 or 3 o’clock in the morning, seeking whatever emergency assistance we can provide, like Mary from New Orleans who was

flooded out, who was living in a house with 20 other people, four

families, looking for a job and a place to live. Also, like Alan, who

broke his arm fixing his roof and was laid off, and his wife Tracy,

who lost her job at the Hyatt, the hotel without any windows.

Now they wonder how they will get by, how they will eat, how

they will pay a mortgage. Hundreds of thousands of victims of

Katrina and Rita are in need of a comprehensive array of housing,

services, and assistance. FEMA, the Red Cross, the Salvation

Army, churches, State, local government, we have all been overwhelmed by the sheer numbers.

Today, over 47,000 people are living in shelters in Louisiana, 35

days without privacy and without dignity. That does not count the

thousands living with family, friends, and in motels.

How can we begin to help people put their lives back together—

a job, child care, schooling for their kids, medical assistance, and

the critical mental health assistance that is so desperately needed—if they do not have a place to call their own, if they do not

have a place to begin healing?

They are in dire need of trailers, of waivers, of options. Their

brave spirits cannot last another 35 days. I wanted to thank this

committee for its development of the bipartisan Health Care Relief

Act which provides streamlined access and temporary Medicaid

benefits for Katrina’s survivors, both inside and outside the region.

The 100-percent federally funded provision is essential to covering

the physical and mental health care so desperately needed.

I am delighted that you included childless adults, who often do

not fit into one of the narrow Medicaid boxes or categories. I spent

two hours the Monday night of the hurricane with a mentally ill

woman who had become lost from her group, wandering the Superdome. I saw all of the Superdome that evening, for those two hours,

and we never found her group.

In addition to housing and health care, there is a need for jobs

and temporary assistance. The TANF and unemployment benefits

in the hurricane States are among the lowest in the country, especially for people who have nothing left.

39

The additional TANF assistance and unemployment insurance in

your bill will greatly assist, but by no means will be enough. Prior

to the hurricane, 22 percent of our State’s citizens lived below the

poverty line, 30 percent of our children, 47 percent of African

Americans. We had one of the highest rates of the uninsured. This

was prior to Katrina.

Despite many approaches to create economic enterprise zones

and increase employment through business tax credits, it is clear

that the Gulf Coast region will need to receive much more Federal

assistance to help us rebuild individual lives, families, and communities.

The hurricanes of the past month have reminded us that, in our

Nation, too many Americans live in poverty, that tremendous inequalities still exist. The President has called us to reexamine

these problems and to reconnect ourselves to finding solutions.

While our safety net has some gaps and too many Americans lack

economic and educational opportunities, we do have a critically important program that works.

May I end with prayer? But how to pay for all of this, I hope is

not on the backs of the poor. The burden of financing and funding

programs for the least should fall on those of us blessed with the

most. It is not the hungry, the homeless, and the unemployed.

While the stories and photos paint a grim picture, their hopes

rest in the faith in God, in our country, and in each one of us

today. In Ephesians, we are called to come together to form one

body, one spirit, one hope.

To be successful, we will need God’s grace and God’s speed, and

a special spirit of humility, resulting in true collaboration and a

real quantifiable success. I pray for your discernment, I pray for

your success. I am certain that God will bless you, your families,

and your staff for your efforts to help the good and the great people

of the Gulf Coast. Thank you.

The CHAIRMAN. Thank you.

[The prepared statement of Mr. Kelly appears in the appendix.]

The CHAIRMAN. Mr. Connick, I had several questions I wanted to

ask you. One, because you will be rebuilding homes, if you want

to say how many that is, that was one of my questions. But the

most important thing I wanted to get from you is, we are grappling

with this policy of where to rebuild, and it is a very sensitive issue.

So what is Habitat for Humanity’s policy in regard to that?

Mr. CONNICK. Well, as far as how many homes are going to be

rebuilt, it depends on how much money we raise.

The CHAIRMAN. All right.

Mr. CONNICK. I am very, very involved in raising as much money

as we can. With regard to the issues that you are talking about,

maybe we should take some cues from Holland when they had that

flood in 1953. They said, you know what? We are not going to put

a price tag on how important our citizens are. We are going to

spend 25 years and $8 billion to make sure that these people are

safe.

I feel the same way about the people in the Ninth Ward. I went

back to my house I grew up in Lake View, LA. I had not been in

there since I was 12. The door was open, mold all over the place.

They are going to have to tear it all down.

40

Will people want to move back to those neighborhoods? Of course

they will. It is just a question of, how can you do it? Is there a scientific way to improve it? I do not know those answers.

The CHAIRMAN. In other words, your nonprofit organization is

not dealing with that question now.

Mr. KEMP. Mr. Chairman, I am national chairman of Habitat for

Humanity.

The CHAIRMAN. All right. Go ahead.

Mr. KEMP. More Than Houses campaign. We have raised a halfbillion dollars in 5 years to build 100,000 homes in low-income

communities. There are Habitat chapters in every low-income community and every city in the United States.

They do an assessment, they do their diligence, and they make

sure that the family, the home, the property, the city all are involved in the decision as to where it goes, how it is built, and who

becomes the taxpayer, as Harry pointed out. So they are on the

ground right now, getting ready for the good work the campaign

that Harry talked about is going to do for the Gulf Port region.

The CHAIRMAN. All right.

Then my question to you was, of all of the tax incentives we

might be talking about, maybe one or two that you would put at

the top of the list from your own personal point of view.

Mr. KEMP. Yes. Well, I think the greatest impediment to wealth

creation and risk taking is to tax it directly, as in capital gains

taxes. I am very disappointed that Dr. Gravelle suggests this is a

tax subsidy.

That assumes that the government owns the profit and what it

gives back as a lower tax rate on risk taking is a subsidy. I refuse

to believe that. It is directly a tax on not the rich; the rich are already rich. It is the poor who cannot get rich on wages. You have

to get rich, or richer, or create wealth and start an enterprise and

hire people by earning, saving, and investing.

If you look at the low tax, low barrier to entry cities in the

United States and in the world, they all point to the fact that enterprise zones, called empowerment zones in Harlem and enterprise zones in DC, supported by Mayor Williams, the Conference of

Mayors, the Conference of Black Mayors, the Conference of Black

Legislators, the National Governors Conference, all support the

idea of a radical surgery on the tax code targeted towards the poorest of the poor to attract capital.

I frankly believe that it would cost absolutely very little because

you are creating enterprise, jobs, and expanding the tax base as opposed to just subsidizing people.

The CHAIRMAN. All right.

Mr. Reeves, your use of the tax-exempt bonds. What would you

see as the two or three greatest needs there for the use of those?

Mr. REEVES. With respect to the private activity bonds, as I mentioned in my testimony, if you look at the industry that really dots

our landscape on the Gulf Coast, you are looking at capital-intensive industries, such as ship builders.

Our largest employer on the Gulf Coast is a major ship builder

for the U.S. Government. Our tourism industry employs directly in

the gaming industry 14,000 employees. The major ship builder employs 12,000. So, obviously those two areas.

41

Our oil refinery over in Senator Lott’s hometown is another possibility, where the infrastructure of these privately owned facilities

was destroyed. We must create an environment whereby we attract

the private sector to rebuild their facilities so that we can get individuals back to work so that they can, quite frankly, start providing for the economic rebirth of the region.

The CHAIRMAN. All right. I had other questions, but there is a

vote on. I am going to have to defer to Senator Baucus for his questioning, and then I will go vote. I will not come back, so I am saying thank you to all of you. When Senator Baucus gets done, the

hearing will be adjourned.

Thank you all very much for your participation.

Senator BAUCUS. Thank you, Mr. Chairman.

I would like to focus on Habitat for Humanity. I have helped

build two homes. I was very impressed with the program. Loved it.

Working with people there, banging my thumb, everything that

goes into building homes. Is there some way we could just build on

that and radically expand that? Because I think it is a good model.

It is something that is in place, that is working.

Mr. KEMP. Could I make a humble suggestion?

Senator BAUCUS. Yes. Sure.

Mr. KEMP. I have not discussed this with Harry, but as the GSE

legislation moves through the House, you might consider allowing

the secondary mortgage market to bring Habitat into its fold. Right

now, Fannie, Freddie, and Federal Home Loan Bank cannot guarantee or buy down those mortgages.

How about amending the legislation to let Habitat for Humanity

participate in the secondary mortgage market? That would be a

huge process of liquefying their portfolio, which is close to a halftrillion dollars of mortgages. They then could use that for more

homes, not only in the Gulf Port, but in other parts of this country.

Senator BAUCUS. That is an interesting idea. What else comes to

mind, if we are going to build on the program?

Mr. KEMP. In my opinion, I was at HUD in 1989, I think, when

we amended the Federal Home Loan Bank Board to require them

to take 10 percent of their profits and put it into affordable housing. It is very controversial in the House of Representatives. Some

of my conservative friends are very much opposed to it. They are

afraid it will go to lobbying or something.

You can draw the restrictions at Fannie and at Freddie to make

sure that the money does not go to lobbying or to consultants, but

goes directly into affordable housing.

So, there is an attempt by Barney Frank of Massachusetts, and

I think Mike Oxley of Ohio, to take 3 to 5 percent of Fannie and

Freddie’s profits and have it dedicated towards affordable housing.

You can draw the restrictions in such a way as to make sure that

it is free of the lobbying or consulting that everybody seems to be

concerned about.

And what other purpose is there for Fannie and Freddie than to

help low-income people get a shot at affordable housing? It would

also help the banks with their Community Reinvestment Act

points.

So, I would urge your staffs on both sides of the aisle, Senator,

to look at the testimony here, to look at the Federal Home Loan

42

Bank Board, as a model of how we can treat Freddie and Fannie

as they go through the GSE process.

Senator BAUCUS. Dr. Gravelle, with all due respect to the gentleman on your left who is a very strong advocate of incentives,

could you just tell us, in your professional view, which ones work

better than others, and what would you recommend from the point

of view of efficiency?

Dr. GRAVELLE. Well, I think it is best if you can get the subsidy

directly to the person who is going to make an investment, without

intermediaries, if you can, so something like an investment credit

or perhaps expanding bonus depreciation to structures, because a

lot of the businesses in this area they are rebuilding will be done

with buildings and not equipment. So, I would think a direct subsidy like that.

Bonus depreciation, as I say, is constrained by its own very nature, so as expensing it can be no better than the difference between present tax depreciation and expensing. So if you wanted to

make something bigger, I think you would have to go to an investment credit, which the States actually like, too, because it does not

change the taxable income base.

Senator BAUCUS. I do not have much time left here, but both of

you from Mississippi, I appreciate your efforts in bonding authority. I was down in Pass Christian a couple, 3 weeks ago and personally saw there was nothing left, so I have some sense of what

is happening there, and we very much want to help. But thank you

for your efforts and testimony on additional bonding. I agree with

you. We have to find some way to make that work.

Mr. Kelly, I want to thank you personally, too. I mean, it is a

personal sacrifice you have gone through, clearly. I mean, you have

not seen your family in how long?

Mr. KELLY. We were together this weekend.

Senator BAUCUS. Oh, good. Finally.

Mr. KELLY. And I took my son to school on Monday.

Senator BAUCUS. Well, good. I appreciate that. But you are a real

servant. Thank you for doing all that you do.

And, Mr. Connick, thank you for speaking out. I just urge you

to keep doing it, and maybe talk to some of your other friends in

the industry and tell them how important it is, and pass it on. We

think it helps a lot for you and others to keep doing what you are

doing. So, thank you very, very much.

Mr. CONNICK. Thank you.

Senator BAUCUS. Thanks, everybody. The hearing is adjourned.

[Whereupon, at 12:27 p.m., the hearing was concluded.]

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