[Congressional Record (Bound Edition), Volume 156 (2010), Part 1]
[Senate]
[Pages 832-836]
[From the U.S. 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:

 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

[[Page 833]]

     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.
       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

[[Page 834]]

     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- 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

[[Page 835]]

     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 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 
     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

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     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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