[Congressional Record Volume 156, Number 12 (Thursday, January 28, 2010)]
[Senate]
[Pages S291-S295]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATUTORY PAY-AS-YOU-GO ACT OF 2010
Mr. CONRAD. Madam President, today the Senate passed the Statutory
Pay-As-You-Go Act of 2010 as an amendment to H.J. Res. 45. As chairman
of the Senate Budget Committee, I ask that the following section-by-
section analysis of that act be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
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Section-by-Section Analysis of the Statutory Pay-As-You-Go Act of 2010
Section 1--Short Title: The title of this Act is the
``Statutory Pay-As-You-Go Act of 2010.''
Section 2--Purpose: The purpose of the Statutory Pay-As-
You-Go Act (PAYGO) of 2010 is to reestablish a statutory
procedure to enforce a rule of budget neutrality on new
revenue and direct spending legislation.
Section 3--Definitions and Applications: Section 3 sets
forth definitions of terms used in the PAYGO statute. Many
terms are defined by cross-references to the standard
definitions used in other budget laws, including the
Congressional Budget Act of 1974 and the Balanced Budget and
Emergency Deficit Control Act (BBEDCA) of 1985. Terms that
are of particular importance include:
Budgetary effects. Budgetary effects are defined as the
amount by which PAYGO legislation changes mandatory outlays
or revenues relative to the baseline. The budgetary effects
of changes in tax or mandatory spending law are measured
relative to what revenues or mandatory spending would
otherwise have been if not for the legislation, as measured
by the baseline (as defined in section 257 of BBEDCA). Off-
budget effects (i.e., Social Security trust funds and the
Postal Service fund) and debt service are not counted as
budgetary effects. ``Mandatory spending'' and ``direct
spending'' (the term used in the statutory language) are
synonymous.
PAYGO legislation/PAYGO Act. Legislation, or provisions
thereof, that increases or reduces revenues, or increases or
reduces the cost of mandatory programs, is called PAYGO
legislation or a PAYGO Act. In this Act, the terms are used
interchangeably. PAYGO legislation is subject to statutory
PAYGO.
Legislation subject to PAYGO also includes provisions in
annual appropriations bills that change revenue or mandatory
spending law in appropriations bills. Changes in
mandatory spending law are considered discretionary in the
current and budget years because the Appropriations
Committees can offset the costs or use the savings by
adjusting funding levels for discretionary programs in
those years. But mandatory spending provisions in
appropriations bills having outyear budget authority
effects--that is, effects in those years after the budget
year--are considered PAYGO legislation. This is generally
consistent with the existing point of order in the Senate
against ChIMPs (Changes in Mandatory Programs). However,
such provisions for which the mandatory outlay effects net
to zero over the period consisting of the current year,
the budget year, and the four subsequent years shall not
be counted as having budgetary effects.
Timing shift. A timing shift involves a shift of costs from
within the PAYGO window, i.e., the ten-year period covered by
the PAYGO scorecard, to outside the window (or savings from
outside the window to within the window). More technically,
the term is defined to refer to a delay of the date on which
mandatory outlays would otherwise occur from the ninth
outyear (the last year taken into account in the PAYGO
calculation) to the tenth outyear (not taken into account in
the PAYGO calculation) or an acceleration of the date on
which revenues or offsetting receipts or collections would
otherwise occur from the tenth outyear to the ninth outyear.
Timing shifts are not counted for purposes of statutory PAYGO
to prevent gaming the PAYGO scorecard.
Section 4--PAYGO Estimates and PAYGO Scorecards: Section 4
establishes procedures for determining the budgetary effects
of legislation subject to PAYGO. These budgetary effects are
entered by OMB on the PAYGO scorecards, as defined in section
4(d), and are used to determine whether a sequestration order
must be issued.
Estimates of budgetary effects are made either by Congress
or OMB. Subsection (a) establishes the procedures Congress
must follow in order for its estimate of budgetary effects of
legislation to be used for PAYGO enforcement. If Congress
follows these procedures, the Congressional estimate of
budgetary effects shall be used by OMB. If Congress does not
follow these procedures, the budgetary effects of legislation
subject to PAYGO shall be estimated by OMB. Subsection (b)
establishes the procedures by which the House and Senate
Budget Committees obtain estimates from CBO, and the
procedures to be used by CBO for making estimates. Subsection
(c) outlines the additional procedures to be followed by CBO
or OMB, as applicable, when adjusting the estimates of
budgetary effects for legislation that qualifies for a
``current policy'' adjustment under section 7 of this Act.
Subsections (d)-(f) relate to procedures used by OMB for
PAYGO estimates and enforcement. Subsection (g) addresses
procedures for legislation designated as an emergency for the
purpose of statutory PAYGO.
(a) PAYGO Estimates. Congress can establish the budgetary
effects of PAYGO legislation by following a two-step process.
First, the text of PAYGO legislation must include one of the
statements prescribed in paragraphs (1)(A), (B), or (C).
Second, the Chairman of the relevant Budget Committee must
submit for printing in the Congressional Record a statement
of the budgetary effects of the legislation, also referred to
as the ``cost estimate'' or ``score.'' A Congressional
estimate must satisfy both of these requirements to be valid.
If Congress fails to follow this procedure for legislation
that is subsequently enrolled and signed by the President, or
chooses not to provide an estimate of budgetary effects, the
OMB estimate of a PAYGO Act's budgetary effects is used for
PAYGO enforcement.
The statements prescribed in paragraphs (1)(A), (B), or (C)
establish a reference in the legislative text of PAYGO
legislation to an estimate of budgetary effects to be
submitted for printing in the Congressional Report before a
vote on passage. The statement may be included in the
original text of the legislation, or by amendment as may be
allowed under the regular procedures in either House. The
estimate need only be submitted for printing in the
Congressional Record before a vote on passage. The actual
estimate of budgetary effects is never inserted into the
legislative text of PAYGO legislation. This process avoids
the need to amend PAYGO legislation to include an updated
estimate of budgetary effects if amendments are adopted.
The Chairmen of the Budget Committees in each House are
responsible for submitting estimates of budgetary effects for
printing in the Congressional Record. Printing the statement
in the Congressional Record ensures that the estimate of
budgetary effects is, at the time of the vote on the bill
that is enacted into law, unambiguous, fixed, and knowable,
for Members, for OMB, and for the public.
This two-step process avoids the Constitutional concerns
identified in Bowsher v. Synar, 479 U.S. 714 (1986) and
Immigration and Naturalization Service v. Chadha, 462 U.S.
919 (1983) because Congress will establish the budgetary
effects of the PAYGO Act through the legislative process, not
after enactment. An unambiguous and fixed estimate available
prior to a vote is incorporated by reference in the PAYGO
legislation. Matters incorporated by reference are binding on
the executive branch. See Hershey Foods v. USDA, 158 F. Supp.
2d 37, 41 (D.D.C. 2001), aff'd on other grounds, 293 F.3d 520
(D.C. Cir. 2002); see also United States v. Sharpnack, 355
U.S. 286, 293 (1958).
1. Required Designation in PAYGO Acts: One of three
statements must be included in legislation subject to PAYGO
for the Congressional estimate to be entered by OMB on the
PAYGO scorecard. The statements provide the basis in the
legislative text for incorporating the Congressional estimate
by reference into the PAYGO Act.
The three statements address three possible scenarios under
which a PAYGO Act may be signed by the President: (1)
legislation is originated by the House and passed without
amendment by the Senate; (2) legislation is originated by the
Senate and passed without amendment by the House; and (3)
legislation is agreed upon by both Houses after differences
are resolved by a conference committee or by amendments
between the Houses.
Statement (1)(A) refers to an estimate provided by the
House Budget Committee Chairman. This statement would be
included in legislation originated in the House of
Representatives. If the House Budget Committee Chairman
submits a statement of budgetary effects for printing in the
Congressional Record before the vote on passage in the House,
the budgetary effects of that legislation will have been set
by the House. If the Senate then passes the House bill
without amendment, the House PAYGO estimate will be placed on
the PAYGO scorecard by OMB. Similarly, if the Senate
originates and passes PAYGO legislation with the statement
prescribed in (1)(B), and the Chairman of the Senate
Budget Committee submits a statement of budgetary effects
for printing in the Congressional Record before the Senate
votes, the House of Representatives will have accepted the
Senate estimate as controlling if it passes the Senate
bill without amendment.
One House may strike the statement inserted in the
legislative text by the other House and replace it with the
statement referring to the estimate submitted by the Chairman
of its Budget Committee. In doing so, the second House has
rejected the first House's estimate. A disagreement between
the Houses on the estimate of budgetary effects becomes a
matter in dispute between the Houses to be resolved by the
House and Senate Budget Committees.
The statement in (1)(C) refers to an estimate of budgetary
effects jointly submitted to the Congressional Record by the
Chairman of the House and Senate Budget Committees. This
statement must be included in a conference report, or
amendments between the Houses, when the Houses resolve the
differences in their budgetary estimates. Where differences
between the Houses are to be resolved in a process of
amendments between the Houses, the requirement of a joint
statement prevents the House acting first from having an
advantage in negotiations. The joint statement also
underscores that different estimates of the budgetary effects
of legislation must be resolved to the satisfaction of the
Chairmen of both Budget Committees if Congress wants a
Congressional estimate to be placed on the PAYGO scorecard.
Presumably not all PAYGO legislation will contain a
Congressional estimate of budgetary effects. For example, the
budgetary effects of a particular PAYGO Act may be so small
that Congress chooses not to complete an estimate. It is also
possible that the Houses cannot come to an agreement on an
estimate of budgetary effects. Absent a designation pursuant
to section 4(a)(1) and estimate submitted pursuant to section
4(a)(2), the estimate made by OMB post-enactment will be
entered on the PAYGO scorecards.
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In some cases, one piece of PAYGO legislation could have
multiple designations and estimates throughout the
legislative process--the first by the originating House, the
second by the second House acting upon the legislation, and a
third by the conference committee. For the purpose of
directing OMB as to what amounts are to be entered on the
PAYGO scorecards, the only estimate that matters is the one
contained in the version of the legislation passed by both
Houses and presented to the President for signature.
Conversely, the omission by one or both Houses of a
designation and estimate earlier in the legislative process,
for whatever reason, has no bearing on the validity of an
otherwise valid estimate appropriately referenced in a PAYGO
Act signed by the President.
2. Determination of Budgetary Effects of PAYGO Acts: In
order for Congress's estimate of budgetary effects to bind
OMB, a valid statement must be submitted for printing in the
Congressional Record by a Chairman of the Budget Committee,
or by the Chairmen jointly, as applicable. However, the
Chairmen are not obligated to submit a statement. The
statement, if submitted, must be titled ``Budgetary Effects
of PAYGO Legislation.''
The Chairmen of the Budget Committees retain full
discretion over the Congressional estimate of budgetary
effects for the purposes of enforcing this Act, consistent
with Section 312 of the Congressional Budget Act. The
Congressional Budget Office will continue to provide
estimates to the Budget Committees.
It is the responsibility of the Budget Committee Chairmen
to ensure that statements of budgetary effects are submitted
for the Congressional Record in a timely manner, and that
they identify with specificity any previously submitted
statement for the same legislation that it supersedes. A
previous statement is no longer valid and is superseded when
that House adopts an amendment to a PAYGO Act after the
statement has been submitted. Any subsequent amendment,
regardless of its budgetary effects, will invalidate a
previously submitted estimate.
In the case of a conference report, a statement of
budgetary effects is not valid if it is first submitted for
printing in the Congressional Record after one House passes
the report. It is incumbent on both Houses to ensure that
prior to a vote in either House on PAYGO legislation leading
to enrollment and presentation to the President, there is an
unambiguous, fixed, and knowable statement of budgetary
effects.
3. Procedure in the Senate: It is in order in the Senate
for the Legislative Clerk to read the statement of budgetary
effects into the record of proceedings once it has been
submitted by the Chairman of the Senate Budget Committee.
This reading provides an added assurance that all Senators
have been given notice of the Congressional estimate of the
budgetary effects prior to a vote on passage of legislation.
Notice to Senators will also be provided by printing the
estimate in the Congressional Record. As a practical matter,
votes on some legislation subject to PAYGO may be taken after
the statement has been submitted for the Congressional
Record, but before it has been printed. If the vote will be
taken after the statement has been printed, the Senate may
waive the reading of the estimate by unanimous consent.
4. Jurisdiction of the Budget Committees: When Congress
follows the procedure set forth in this section, the
designated legislation is not subject to a point of order
under section 306 of the Congressional Budget Act. (Section
306 generally bars the consideration of legislation dealing
with matters within the jurisdiction of the Budget Committee
unless it has been reported by the committee, or the
committee has been discharged from further consideration.)
The inclusion of the statements specified in (1)(A), (B), and
(C)--without modification--in legislation subject to PAYGO
avoids a point of order under section 306. If different
language is used, for example, or if an authorizing committee
includes some other budgetary provision, a point of order
under section 306 would be in order. This is consistent with
Senate precedent that ``directed scoring'' language in
legislation is within the jurisdiction of the Budget
Committees.
(b) CBO PAYGO Estimates. Subsection (b) amends Section 308
of the Congressional Budget Act of 1974 to establish a
procedure by which Congress may request that CBO estimate the
budgetary effects of PAYGO legislation. Consistent with
section 312 of the Congressional Budget Act, and existing
Congressional practice and procedure, the Chairmen of the
Budget Committees are responsible for requesting estimates
from the Congressional Budget Office. CBO shall prepare its
estimates consistent with section 257 of BBEDCA, but shall
not count timing shifts as those are defined in section
3(8) of this Act. CBO estimates shall also be scored in
accordance with the scorekeeping guidelines determined
under section 252(d)(5) of BBEDCA.
(c) Current Policy Adjustments for Certain Legislation.
Section 4(c) establishes procedures for making adjustments to
the estimates of budgetary effects for legislation in four
policy areas: (1) physician payments under section 1848 of
the Social Security Act; (2) the Estate and Gift Tax; (3) the
Alternative Minimum Tax; and (4) certain middle class tax
cuts provided in EGTRRA and JGTRRA. The criteria for
determining whether legislation, or provisions of
legislation, qualify for current policy adjustments are set
forth in section 7.
1. In General: If the Chairman of either Budget Committee
determines that legislation meets the criteria set forth in
section 7 of this Act, that Chairman shall request that CBO
adjust its estimate of budgetary effects. If OMB estimates
the budgetary effects of legislation that meets the criteria
of section 7 because Congress has not provided a valid
estimate, then OMB shall adjust its estimate of budgetary
effects.
2. Adjustments: For qualifying legislation or provisions of
legislation, CBO or OMB, as applicable, shall exclude from
the estimate of budgetary effects no more than the amount of
the budgetary effects of that legislation or provision as
allowed in the applicable part of section 7. The amount that
may be excluded is determined with reference to the amounts
previously excluded pursuant to the same subsection of
section 7. In other words, if the cost of a particular
provision, when added to the costs or savings of all other
provisions that previously qualified for an adjustment under
that subsection of section 7 exceeds the maximum amount
allowable for the subsection, the excess costs shall not be
excluded from the estimate of budgetary effects. In
implementing these adjustments, CBO shall use CBO's baseline
estimates; this requirement is not intended to apply to
estimates prepared by OMB. If CBO makes an adjustment, its
estimate shall state the unadjusted and adjusted costs, and
an updated total of all costs previously excluded under the
same provisions of section 7.
3. Limitation on Availability of Excess Savings: The intent
of the current policy adjustment is to give Congress
flexibility to extend certain current policies with budgetary
effects over specified periods of time. Savings from the
extension of current policies with budgetary effects less
than allowed under section 7--in other words extensions that
generate savings in comparison with the extension of current
policy--cannot be used to offset costs of other legislation.
This paragraph establishes two rules that reinforce the
prohibition on the fungibility of savings relative to the
current policy extensions.
A. Excess savings cannot be used to offset the budgetary
effects of PAYGO legislation that would not otherwise qualify
for a current policy exemption under section 7. For example,
if Congress were to enact only a one-year fix for the
Alternative Minimum Tax, the difference in revenue generated
by a two-year and one-year fix of the AMT cannot be used to
offset the cost of a new entitlement program.
B. Excess savings in one of the policy areas specified in
section 7 cannot be used to offset the budgetary effects of a
more expensive policy extension in another policy area. For
example, if Congress were to enact only a one-year fix for
the Alternative Minimum Tax, the difference in revenue
generated by a two-year and one-year fix of the AMT cannot be
used to offset a reduction in the estate and gift tax that
costs more than is otherwise provided in section 7. In other
words, savings among the policies in sections 7(c), (d), (e),
and (f), and among the subparagraphs of section 7(f)(1), are
not fungible.
4. Further Guidance on Estimating Budgetary Effects: To
determine adjustments for the budgetary effects for
qualifying legislation, CBO or OMB, as applicable, shall use
the conventions concerning the stacking order of estimates of
the interactive effects of AMT relief and extension of the
middle class tax cuts set forth section 7(h).
5. Inclusion of Statement: Any adjustments for current
policy legislation shall be explained by the appropriate
Chairman of the Budget Committee in the statement ``Budgetary
Effects of PAYGO Legislation'' submitted for printing in the
Congressional Record.
(d) OMB PAYGO Scorecards. The subsection outlines OMB's
responsibilities under statutory PAYGO. OMB will maintain two
``PAYGO scorecards,'' available to the public, that maintain
a running tally of the budgetary effects of enacted
legislation subject to PAYGO. In making entries onto the
scorecards, OMB will use the ``look-back'' and ``averaging''
rules discussed below.
OMB will use the Congressional estimate of the budgetary
effects of a PAYGO Act if one was incorporated pursuant to
section (4)(a). If not, OMB will enter its own estimates on
the scorecards.
The scorekeeping and baseline rules for current policy
adjustments are the same as those that apply to CBO and OMB
for estimating all legislation subject to PAYGO. OMB
estimates must be consistent with the scorekeeping approaches
described in section 308 of the Congressional Budget Act, as
amended by section 4(b) of this Act, and the current policy
adjustments in section 7. In other words, OMB and CBO
estimates should be made using the same rules and
scorekeeping conventions. However, CBO will use the baseline
as defined by section 257 of the Congressional Budget Act,
while OMB will use the economic and technical assumptions
included in the latest budget submitted by the President.
OMB will maintain two PAYGO scorecards, one covering a
five-year period and the other covering a ten-year period
beginning in the budget year.
OMB shall not include on either PAYGO scorecard any net
savings generated by subsequently enacted legislation titled
``Community Living Assistance Services and Supports Act''
(CLASS Act). The CLASS Act was included in the Senate- and
House-
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passed health care reform bills and would establish a federal
insurance program for long-term care. OMB shall also not
include any net savings generated by subsequent amendments
to that Act, if enacted.
(e) Look-Back to Capture Current Year Effects. To take into
account any budgetary effects of PAYGO legislation in the
current year (i.e., the year of enactment if before October
1st), a ``look back'' rule is included. The rule provides
that budgetary effects in the current year are to be treated
as if they were budgetary effects in the budget year (which
is the year subsequent to the current year). This is why the
averaging provision described below actually sums eleven
years of costs (the current year, the budget year, and the
nine outyears) and divides the sum by ten. This look-back
provision similarly applies to the five-year scorecard.
(f) Averaging Used to Measure Compliance Over 5-Year and
10-Year Periods. For the budget year and the applicable four
or nine outyears, OMB is to enter the annual average
budgetary effect associated with PAYGO legislation. For
instance, a bill that pays for itself over ten years will
have a total, and thus average, score of zero, so zero would
be entered in each column of the ten-year PAYGO scorecard. If
a bill enacted in FY10 costs a net of $10 billion over
FY2010-FY2020, OMB would insert +$1 billion in each of the
ten columns on the PAYGO ledger (FY11 through FY20). The same
PAYGO legislation could well have different averages over
five years and over ten. For example, if a bill enacted this
session costs $2 billion through 2015 and $10 billion through
2020, the five-year scorecard would record entries of $0.4
billion for each of 2011 through 2015, while the ten-year
scorecard would record entries of $1 billion for each of 2011
through 2020.
(g) Emergency Legislation. If legislation subject to PAYGO
contains an emergency designation, the budgetary effects of
provisions that are designated as emergencies shall not be
placed on the PAYGO scorecards by OMB. The designation should
refer to subsection (g)(1) of this Act. The procedure for
challenging a statutory emergency designation for PAYGO
enforcement reflects the current practices for challenging
emergency designations under Congressional budget rules. In
the Senate, an emergency designation is subject to a point of
order that may be waived upon a vote of 3/5 of the members
duly chosen and sworn. If the Senate does not waive this
point of order, the emergency designation is struck from the
legislation.
Section 5--Annual Report and Sequestration Order: Section 5
defines the timing of the annual PAYGO report and, if one is
needed, the sequestration order. OMB is to produce an annual
PAYGO report, which shall include up-to-date PAYGO scorecards
and a description of any sequestration if required. The
report is to be released no more than 14 days (excluding
weekends and legal holidays) after Congress adjourns to end a
session.
If the annual report shows a debit (i.e., net budgetary
cost) on either PAYGO scorecard for the budget year, the
President is required to issue an order sequestering
budgetary resources from non-exempt mandatory programs
sufficient to fully pay off that debit. If it shows a debit
on both the five-year and ten-year scorecards, the
sequestration must pay off the larger debit. If the President
issues this order, then the PAYGO annual report must contain
its details, including such information as the outlay
reductions that would occur in the budget year and the
subsequent fiscal year for each affected account.
Because the PAYGO statute creates a permanent law, the two
scorecards are permanent. In effect, they will record all
PAYGO legislation enacted from the date the bill becomes law.
The cost estimates of individual PAYGO bills, however, will
eventually slide off the scorecards since only the five-year
or ten-year costs are recorded on those scorecards. For
example, a PAYGO bill enacted later this year will show cost
or savings entries of the same size (the average amount
through 2015) for each fiscal year 2011 through 2015 on the
five-year scorecard. Next year, new PAYGO legislation will
add entries to the five-year scorecard covering years 2012-
2016. The entries made this year in the 2012-2015 columns of
that scorecard will remain on that scorecard, however. If
those entries are net savings, the savings will be available
to cover costs in new legislation, but if they are net
debits, avoiding a sequestration at the end of each of the
next four sessions of Congress will require that the net
debits be worked off by the enactment of new offsetting
savings. The same approach applies to the ten-year scorecard.
Section 6--Calculating a Sequestration: Section 6 describes
how sequestration is to be implemented if triggered. Many
mandatory programs, such as Social Security, veterans'
disability and other benefits, and major low-income
entitlements, such as Supplemental Security Income and
Medicaid, are totally exempt from sequestration. Only
programs in the unified budget are subject to sequestration.
With the exception of Medicare, non-exempt mandatory
programs would be cut by a uniform percent, such that the
outlay savings produced in the budget year and the subsequent
fiscal year would be sufficient to fully offset the budget-
year debit on the PAYGO ledger. Medicare can be cut by no
more than four percent. If a larger cut is needed to offset
the debit on the PAYGO ledger, the uniform percentage cut to
the other non-exempt mandatory programs would be increased so
that the sequester of Medicare and the other non-exempt
programs would together produce sufficient savings to offset
the budget-year debit. Sequestrations are temporary, not
permanent, and with a few exceptions occur only in the budget
year.
For most non-exempt mandatory programs, the uniform
sequestration percentage reduces budgetary resources by a
specified percent over the course of the entire fiscal year.
If a sequestration starts a month or more into the fiscal
year because Congress adjourns in November or December, then
the reduction during the remaining 9, 10, or 11 months of the
fiscal year will be larger than the uniform percentage so
that the average sequestration over the year equals the
required uniform percentage. In the case of Medicare, the
sequestration lasts for a full 12 months even if it takes
effect after the beginning of the fiscal year, in which
case it will run into the start of the next fiscal year.
This means the uniform percentage cut in payments to
providers or insurance plans will not be higher at any
time than the four-percent limit (or the calculated
uniform percentage, if lower).
In the case of price support payments for crops, the
sequestration for any given crop will start at the beginning
of the next crop year. As a consequence, sequestrations for
crops will not all be running concurrently, and some
sequestrations may occur partly in the following fiscal year.
Section 7--Adjustments for Certain Current Policies:
(a) Purpose. Section 7 establishes a temporary rule to
adjust the estimates of the budgetary effects of PAYGO
legislation in four policy areas: Medicare physician
payments, the estate tax, the Alternative Minimum Tax, and
the 2001 and 2003 income tax cuts for the middle class. In
each of these areas, current policies have either expired at
the end of 2009 or will expire by the end of 2010. This
section allows for an adjustment so that the cost of
extending specified individual policies for a defined period
(two years for estate tax and AMT, five years for Medicare
physician payments, and permanently for the middle-class tax
cuts) is not counted for statutory PAYGO purposes.
This scoring rule applies only for the purposes of
statutory PAYGO. For other purposes, including the
Congressional Budget Act and the congressional PAYGO rules,
existing scoring rules and points of order apply.
General approach. The statute authorizes a maximum
adjustment to the estimate of budgetary effects of PAYGO
legislation in the four specified policy areas equal to the
difference between:
The cost of continuing a specified policy under current law
as of December 31, 2009, consistent with baseline
calculations under section 257 of BBEDCA, which, for each of
the four policy areas, would assume that the specified policy
has expired (AMT and estate tax), or will expire by the end
of 2010 (all other policies); and
The projected cost of the specified policy assuming the
policy continues beyond its scheduled expiration date.
The cost of continuing these policies over the specified
period is larger than the cost of letting them expire, as
would happen under current law. The adjustment allows
Congress to address these policies without having the cost
added to the PAYGO scorecard. The difference between these
two estimated costs is the maximum adjustment that may be
used to offset the cost of legislation addressing each
specified policy for the purposes of PAYGO enforcement. If
the estimate of the legislation has a greater budgetary
effect than the maximum amount of the adjustment, then the
adjustment can be used to offset a portion of its cost. The
additional cost would be counted for statutory PAYGO
purposes. If a less costly policy is enacted, any remaining
amount in the adjustment cannot be used to offset the cost of
policies in other areas (as specified in Section 4(c)(3) of
the PAYGO statute).
In addition, the adjustments in each policy area are
further limited to prevent using the full amount of the
available adjustment to offset the cost of a more generous
policy for a shorter period. Under this limitation, the
amount of the adjustment is estimated consistent with the
time period covered by the eligible policy action.
(b) Duration. This section expires on December 31, 2011, so
any policies eligible for an adjustment must be enacted by
that time in order to receive the adjustment.
(c)-(f) Policy areas eligible for adjustment. For statutory
PAYGO purposes, legislation addressing four policy areas
qualifies for a current policy adjustment to the estimate of
that legislation's budgetary effects.
(c) Medicare Physician Payments. Under current law, the
Sustainable Growth Rate (SGR) formula requires physician
payments under Medicare part B to be cut automatically by
over 21 percent after February 28, 2010. Section 7(c)
provides a maximum adjustment equal to the difference between
the cost of freezing through December 31, 2014, the Medicare
Part B payment rates to physicians at the 2009 rate, and the
cost of allowing the automatic cuts to occur after February
28, 2010. Legislation providing relief from the scheduled SGR
cut--including legislation that reforms or supersedes the SGR
formula--would only be scored for PAYGO purposes to the
extent that it costs more than this five-year freeze at 2009
levels. If legislation to reform or supersede the SGR formula
through or beyond 2014 is enacted that costs less than a
five-year freeze in the
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years through 2014, any remaining amount in the adjustment
could be used to offset costs of that policy after 2014, but
the total adjustment cannot exceed the maximum adjustment
amount of a five-year SGR freeze.
(d) Estate and gift tax. Under EGTRRA, the estate tax
exemption was gradually increased and the tax rate gradually
lowered so that by 2009, the exemption level was $3.5 million
for an individual, with amounts above the exemption level
taxed at a 45 percent rate. In 2010, the estate tax is
repealed, replaced with a new tax on inherited assets with
unrealized capital gains. In 2011, with the expiration of
EGTRRA, the estate tax will return, with the pre-2001 law
parameters of a $1 million exemption for an individual and a
top rate of 55 percent.
The maximum adjustment in section 7(d) is equal to the
difference between the revenues expected from continuing the
2009 estate tax policy, with the nominal exemption level
indexed for inflation, through December 31, 2011, and the
revenues expected under the 2010 repeal and 2011 return to
pre-2001 law. In other words, legislation restoring the
estate tax would be scored for PAYGO purposes only to the
extent that it costs more than implementing the 2009 policy
(indexed) in 2010 and 2011. Because the cost of estate tax
policy through 2011 will have budgetary effects beyond 2011,
this section clarifies that the adjustment is intended to
capture the full budgetary effects in all years resulting
from the two-year policy change.
(e) Alternative Minimum Tax. A ``patch'' for the AMT was
provided in the Recovery Act, increasing the 2009 AMT
exemption to $70,950 for couples and $46,700 for singles in
order to prevent the number of taxpayers affected by the AMT
from exploding from about four million to about 30 million.
This patch expired at the end of 2009.
Section 7(e) provides a maximum adjustment equal to the
difference between the revenues expected from adjusting the
the AMT exemption levels through 2011 in order to hold the
number of taxpayers affected by the AMT at 2008 levels (about
4.2 million), and the revenues expected assuming the
expiration of the 2009 AMT patch. Because the cost of AMT
relief through 2011 will have budgetary effects beyond 2011,
this section clarifies that the adjustment is intended to
capture the full budgetary effects in all years resulting
from the two-year policy change.
(f) 2001 and 2003 middle-class tax cuts. The 2001 and 2003
income tax reductions enacted under EGTRRA and JGTRRA, as
subsequently amended through December 31, 2009, are scheduled
to expire at the end of 2010. Section 7(f) provides 12
adjustments for policies benefiting the middle class as they
are in effect in 2010. The specific middle-class policies
are:
10 percent bracket;
Child Tax Credit, including the expansion in the Recovery
Act;
Marriage penalty relief, including the relevant EITC
expansion in the Recovery Act;
Adoption credit;
Dependent care credit;
Employer-provided child care credit;
Education tax benefits;
25 percent and 28 percent brackets;
33 percent bracket, but only for individuals with incomes
of $200,000 or less, and couples with incomes of $250,000 or
less;
Reduced rates on capital gains and dividends, but only for
individuals with incomes of $200,000 or less, and couples
with incomes of $250,000 or less;
Repeal of the personal exemption phase-out and the
limitation on itemized deductions, but only for individuals
with incomes of $200,000 or less, and couples with incomes of
$250,000 or less; and
Section 179 expensing for small businesses, allowing up to
$125,000 of qualified property to be expensed, phasing out
for property over $500,000.
The maximum adjustment for the policies in section 7(f) is
equal to the difference between the revenues expected if the
specified policy were in place after 2010 and the revenues
expected if the related provisions expired as scheduled.
(g) Indexing for Inflation. Amounts indexed for inflation
are done in accordance with the cost-of-living adjustment
rules in section 1(f)(3) of the Internal Revenue Code of
1986. That provision in the Code designates the Department of
Labor's Consumer Price Index for all-urban consumers (usually
expressed as CPI-U) as the measuring standard. Amounts
indexed for inflation in this Act are the nominal exemption
amount under the estate tax, as well as the income thresholds
for income tax brackets, the rates for capital gains and
dividends, the personal exemption phase-out, and the
limitation on itemized deductions.
(h) Guidance on Estimates and Current Policy Adjustments.
Estimates of budgetary effects of certain tax policies can
vary depending on the order in which those policies are
enacted into law. The PAYGO statute lays out three rules for
addressing costs associated with the interaction of these
various provisions.
1. For the interaction between AMT relief and the middle-
class tax cuts, all interaction costs are scored as part of
AMT relief. Specifically, estimates for determining the AMT
adjustment must assume that all of the middle-class tax cuts
eligible for a PAYGO adjustment have been enacted, even if
these tax cuts have not yet been enacted.
2. Estimates for determining the adjustment for the middle-
class tax cuts must assume that AMT relief follows current
law as of the end of 2009--that is, they must assume that the
2009 AMT patch expired at the end of 2009, even if AMT relief
beyond 2009 has already been enacted.
3. To address the interaction between individual middle-
class tax provisions included in the same piece of
legislation, provisions must be scored in the order in which
they appear in the legislation.
Section 8--Application of BBEDCA: Section 8 specifies how
various provisions of BBEDCA, including the special
sequestration rules in section 256 of BBEDCA and the baseline
rules in section 257 of BBEDCA, apply to this new PAYGO
statute.
Section 9--Technical Corrections: Section 9 corrects
typographical errors in the text of BBEDCA.
Section 10--Conforming Amendments: Section 10 makes
conforming amendments to section 256 of BBEDCA. This section
establishes special rules for sequestration for certain
mandatory programs or updates the special rules to reflect
programs as they now exist.
Section 11--Exempt Programs and Activities: Section 11
lists mandatory programs and activities that are exempt from
sequestration. Exemptions under this Act are consistent with
the exemption list that was first created in 1990.
That said, the exemption list has been updated to address
accounts that have had their account names or numbers changed
since 1990, or have been merged or divided. Further, new
accounts (since 1990) have been treated the same way that
analogous accounts were treated. For example, in the 1990 law
the major low-income programs such as Medicaid were
exempted from sequestration. The Children's Health
Insurance Program (CHIP), new since 1990, is in the same
category as Medicaid and also exempt.
The list has been expanded to clarify the treatment of
certain transportation programs, notably federal-aid highways
and grants-in-aid for airports. The budgetary treatment of
these programs is split. They receive mandatory contract
authority through authorization bills, but are treated as
discretionary programs because their annual spending is
controlled by obligation limitations in appropriations bills.
These programs are exempt from sequestration to the extent
they are controlled by obligation limitations. Remaining
mandatory resources in these programs are subject to
sequestration.
Finally, as noted in Section 6, non-exempt accounts are
subject to a single, uniform percentage cut if a
sequestration is required (except Medicare, where the cut is
limited to four percent). Under the 1990 law, if a small
sequestration was needed, four programs would have been the
first ones sequestered: special milk, vocational
rehabilitation state grants, student loans, and foster care /
adoption assistance. Because this PAYGO statute eliminated
this rule, the first three of those programs are treated as
any non-exempt account would be treated. But the foster care
account is included in the exempt list on the grounds that it
is like other low-income programs that were exempted from
sequestration in the 1990 law.
Section 12--Determinations and Points of Order: Section 12
affirms that nothing in this Act is intended to limit the
authority of the Budget Committee Chairmen to make
determinations and estimates of the costs or savings of
legislation. In addition, the section authorizes CBO to
consult with the Budget Committees to resolve any ambiguities
in the interpretation of the Act.
The PRESIDING OFFICER. The majority leader.
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