[Senate Report 108-351]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 705
108th Congress                                                   Report
                                 SENATE
 2d Session                                                     108-351

======================================================================



 
      VETERANS COMPENSATION COST-OF-LIVING ADJUSTMENT ACT OF 2004

                                _______
                                

               September 20, 2004.--Ordered to be printed

                                _______
                                

  Mr. Specter, from the Committee on Veterans' Affairs, submitted the 
                               following

                              R E P O R T

                          [To accompany 2483]

    The Committee on Veterans' Affairs (hereinafter, 
``Committee''), to which was referred the bill, S. 2483, to 
increase, effective as of December 1, 2004, the rates of 
compensation for veterans with service-connected disabilities 
and the rates of dependency and indemnity compensation for the 
survivors of certain disabled veterans, having considered the 
same, reports favorably thereon, and recommends that the bill 
do pass.

                             COMMITTEE BILL

    The text of the original bill as reported is as follows:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Veterans'' Compensation 
Cost-of-Living Adjustment Act of 2004''.

SEC. 2. INCREASE IN RATES OF DISABILITY COMPENSATION AND DEPENDENCY AND 
                    INDEMNITY COMPENSATION.

    (a) Rate Adjustment.--The Secretary of Veterans Affairs 
shall, effective on December 1, 2004, increase the dollar 
amounts in effect for the payment of disability compensation 
and dependency and indemnity compensation by the Secretary, as 
specified in subsection (b).
    (b) Amounts To Be Increased.--The dollar amounts to be 
increased pursuant to subsection (a) are the following:
          (1) Compensation.--Each of the dollar amounts in 
        effect under section 1114 of title 38, United States 
        Code.
          (2) Additional compensation for dependents.--Each of 
        the dollar amounts in effect under sections 1115(1) of 
        such title.
          (3) Clothing allowance.--The dollar amount in effect 
        under section 1162 of such title.
          (4) New dic rates.--The dollar amounts in effect 
        under paragraphs (1) and (2) of section 1311(a) of such 
        title.
          (5) Old dic rates.--Each of the dollar amounts in 
        effect under section 1311(a)(3) of such title.
          (6) Additional dic for surviving spouses with minor 
        children.--The dollar amount in effect under section 
        1311(b) of such title.
          (7) Additional dic for disability.--The dollar 
        amounts in effect under sections 1311(c) and 1311(d) of 
        such title.
          (8) DIC for dependent children.--The dollar amounts 
        in effect under sections 1313(a) and 1314 of such 
        title.
    (c) Determination of Increase.--(1) The increase under 
subsection (a) shall be made in the dollar amounts specified in 
subsection (b) as in effect on November 30, 2004.
    (2) Except as provided in paragraph (3), each such amount 
shall be increased by the same percentage as the percentage by 
which benefit amounts payable under title II of the Social 
Security Act (42 U.S.C. 401 et seq.) are increased effective 
December 1, 2004, as a result of a determination under section 
215(i) of such Act (42 U.S.C. 415(i)).
    (3) Each dollar amount increased pursuant to paragraph (2) 
shall, if not a whole dollar amount, be rounded down to the 
next lower whole dollar amount.
    (d) Special Rule.--The Secretary of Veterans Affairs may 
adjust administratively, consistent with the increases made 
under subsection (a), the rates of disability compensation 
payable to persons within the purview of section 10 of Public 
Law 85-857 (72 Stat. 1263) who are not in receipt of 
compensation payable pursuant to chapter 11 of title 38, United 
States Code.

SEC. 3. PUBLICATION OF ADJUSTED RATES.

    At the same time as the matters specified in section 
215(i)(2)(D) of the Social Security Act (42 U.S.C. 
415(i)(2)(D)) are required to be published by reason of a 
determination made under section 215(i) of such Act during 
fiscal year 2005, the Secretary of Veterans Affairs shall 
publish in the Federal Register the amounts specified in 
subsection (b) of section 2, as increased pursuant to that 
section.

                              INTRODUCTION

    On June 1, 2004, Committee Chairman Arlen Specter 
introduced S. 2483, a bill to increase, effective as of 
December 1, 2004, the rates of compensation for veterans with 
service-connected disabilities and the rates of dependency and 
indemnity compensation for the survivors of certain disabled 
veterans. The bill was referred to the Committee on Veterans' 
Affairs.

                           COMMITTEE HEARING

    On June 22, 2004, the Committee held a hearing on 
legislation pending before the Committee. Among the measures on 
which the Committee received testimony was S. 2483. The 
Committee received testimony from, among others, 
representatives of the Department of Veterans Affairs 
(hereinafter, ``VA''), and from representatives of The American 
Legion, the Veterans of Foreign Wars, the Disabled American 
Veterans, AMVETS, and the Paralyzed Veterans of America.

                           COMMITTEE MEETING

    On July 20, 2004, the Committee met in open session to 
consider legislation pending before the Committee. Among the 
measures so considered was S. 2483. The Committee voted by 
unanimous voice vote to report S. 2483, as introduced, 
favorably to the Senate.

               SUMMARY OF THE COMMITTEE BILL AS REPORTED

    The Committee bill contains freestanding provisions that 
would require the Secretary of Veterans Affairs to increase, 
effective December 1, 2004, the rates of and limitations on 
certain benefits paid by VA by the same percentage as the cost-
of-living adjustment (hereinafter, ``COLA'') provided to Social 
Security recipients and VA pension beneficiaries that become 
effective on the same date. The COLA would apply to:
          1. Basic compensation rates for veterans with 
        service-connected disabilities and the rates payable 
        for certain severe disabilities;
          2. The allowance for spouses, children, and dependent 
        parents paid to service-connected disabled veterans 
        rated 30 percent or more disabled;
          3. The annual clothing allowance paid to veterans 
        whose compensable disability requires the use of a 
        prosthetic or orthopedic appliance (including a 
        wheelchair) that tends to tear or wear out clothing, or 
        requires the use of a medication prescribed by a 
        physician for a service-connected skin condition if the 
        medication causes irreparable damage to the veteran's 
        outer garments; and
          4. The dependency and indemnity compensation 
        (hereinafter, ``DIC'') rates paid to:
                  (a) Surviving spouses of veterans whose 
                deaths were service connected;
                  (b) Surviving spouses for dependent children;
                  (c) Surviving spouses who are so disabled 
                that they need aid and attendance or are 
                permanently housebound;
                  (d) Surviving spouses covered under 38 U.S.C. 
                Sec. 1318(b); and
                  (e) The children of veterans whose deaths 
                were service connected if no surviving spouse 
                is entitled to DIC, the child is age 18 through 
                22 and attending an approved educational 
                institution, or the child is age 18 or over and 
                became permanently incapable of self-support 
                prior to reaching age 18.
    The Congressional Budget Office (hereinafter, ``CBO'') 
currently estimates that the COLA to be provided to Social 
Security recipients in 2005 will be 1.5 percent.

                               DISCUSSION

Background

            Disability compensation

    The service-connected disability compensation program under 
chapter 11 of title 38, United States Code, provides monthly 
cash benefits to veterans who have disabilities incurred or 
aggravated during active duty in the Armed Forces.
    The amount of compensation paid depends on the nature of 
the veteran's disability or combination of disabilities and the 
extent to which the disability impairs earning capacity. VA 
rates compensable disabilities according to its Schedule for 
Rating Disabilities on a graduated scale ranging from 0 to 100 
percent, in 10-percent increments. VA pays higher monthly rates 
(known as ``special monthly compensation'') to totally disabled 
veterans with certain specific, very severe disabilities or 
combinations of disabilities.
    According to its fiscal year 2005 budget, VA estimates that 
it will provide disability compensation to 2,607,295 veterans 
with service-connected disabilities in fiscal year 2005. Among 
the veterans estimated to receive such compensation are 12 
World War I veterans; 357,552 World War II veterans; 154,345 
Korean-conflict veterans; 906,139 Vietnam-era veterans; and 
581,965 veterans of the Persian Gulf War era.
    A veteran with a disability rated at 30 percent or more may 
receive additional compensation on behalf of the veteran's 
spouse, children, and dependent parents. These dependents' 
allowances are prorated according to the percentage of 
disability.

            Dependency and indemnity compensation

    Under chapter 13 of title 38, United States Code, VA pays 
dependency and indemnity compensation to the survivors of 
servicemembers or veterans who died on or after January 1, 
1957, from a disease or injury incurred or aggravated during 
military service. Survivors eligible for DIC include surviving 
spouses, unmarried children under the age of 18, children age 
18 or older who are permanently incapable of self-support, 
children between the ages of 18 and 22 who are enrolled in 
school, and certain needy parents.Under section 5312 of title 
38, parents' DIC rates are adjusted automatically at the same time and 
by the same percentage as Social Security and VA pension benefits. 
Surviving spouses, children, and parents who are receiving death 
compensation based on deaths before January 1, 1957, may elect to 
receive DIC instead of death compensation.
    For deaths prior to January 1, 1993, surviving spouses 
received DIC at rates determined by the pay grade (service 
rank) of the deceased veteran. For deaths on or after January 
1, 1993, surviving spouses currently receive $967 per month 
and, if the deceased veteran was totally disabled for 8 years 
prior to death, an additional $208 per month. Surviving spouses 
who had been receiving benefits under the prior DIC program are 
paid under whichever program will pay the higher benefit.
    A surviving spouse who is so disabled as to be housebound 
or in need of regular aid and attendance is eligible to receive 
an additional amount. A surviving spouse also may receive 
additional allowances on behalf of the veteran's surviving 
children.
    Children are entitled to DIC if there is no surviving 
spouse, if they are 18 years or older and became permanently 
incapable of self-support before reaching age 18, or if they 
are 18 to 22 years old and pursuing an approved course of 
education.
    In its fiscal year 2005 budget, VA estimates that it will 
pay DIC benefits to 328,291 survivors, a sum which includes 
surviving spouses, children, and needy surviving parents.
    Under section 1318(b) of title 38, VA pays benefits at DIC 
rates to the surviving spouses and children of veterans whose 
deaths are not service connected if the veteran, immediately 
prior to his or her death, had been receiving (or had been 
entitled to receive) compensation at the 100-percent rate 
continuously for 10 or more years or for at least 5 years from 
the date of discharge or release from active duty. VA also pays 
DIC benefits to the surviving spouses and children of veterans 
who were former prisoners of war and, after September 30, 1994, 
whose deaths were not service-connected if the veterans had 
been receiving (or had been entitled to receive) compensation 
at the 100-percent rate continuously for not less than one year 
preceding death.

            History of cost-of-living increases

    The Committee periodically reviews the service-connected 
disability compensation and DIC programs to ensure that the 
benefits provide reasonable and adequate compensation for 
disabled veterans and their families. Based on this review, the 
Congress acts periodically to provide a cost-of-living 
adjustment in compensation and DIC benefits. In fact, the 
Congress has provided annual increases in these rates for every 
fiscal year since 1976. The following table shows the 
percentage increases since 1975.

                 HISTORY OF SERVICE-CONNECTED DISABILITY COMPENSATION INCREASES, 1975 TO PRESENT
----------------------------------------------------------------------------------------------------------------
                                                                                     Increase       Cumulative
                  Fiscal year                            Effective date              (percent)      (1969=$100)
----------------------------------------------------------------------------------------------------------------
1976..........................................  August 1975.....................            11.8          158.55
1977..........................................  October 1976....................             8.0          171.23
1978..........................................  October 1977....................             6.6          182.53
1979..........................................  October 1978....................             7.3          195.86
1980..........................................  October 1979....................             9.9          215.25
1981..........................................  October 1980....................            14.3          246.03
1982..........................................  October 1981....................            11.2          273.58
1983..........................................  October 1982....................             7.4          293.82
1984..........................................  April 1983......................             3.5          304.11
1985..........................................  December 1984...................             3.2          313.84
1986..........................................  December 1985...................             3.1          323.57
1987..........................................  December 1986...................             1.5          328.42
1988..........................................  December 1987...................             4.2          342.22
1989..........................................  December 1988...................             4.1          356.25
1990..........................................  December 1989...................             4.7          372.99
1991..........................................  December 1990 1.................             5.4          393.13
1992..........................................  December 1991...................             3.7          407.68
1993..........................................  December 1992...................             3.0          419.91
1994..........................................  December 1993...................             2.6          430.83
1995..........................................  December 1994 2.................             2.8          442.89
1996..........................................  December 1995 2.................             2.6          454.41
1997..........................................  December 1996...................             2.9          467.59
1998..........................................  December 1997 2.................             2.1          477.41
1999..........................................  December 1998 2.................             1.3          483.62
2000..........................................  December 1999 2.................             2.4          495.23
2001..........................................  December 2000 2.................             3.5          512.56
2002..........................................  December 2001 2.................             2.6          525.89
2003..........................................  December 2002 2.................             1.4          535.88
2004..........................................  December 2003 2.................             2.1          547.13
2005..........................................  December 2004 2.................           3 1.5        3 555.34
----------------------------------------------------------------------------------------------------------------
1 Payment of the December 1990 increase was delayed until January 1992 by section 8005(b) of Public Law 101-508.
2 December 1994-1995 and 1997-2005 increases are rounded to the next lower dollar amount pursuant to sections
  2(c)(2) of Public Law 103-418 and Public Law 104-57, section 8031 of Public Law 105-33 and section 205 of
  Public Law 107-103, and section 706 of Public Law 108-183.
3 Estimate.

                             COMMITTEE BILL

    The Committee bill would direct VA to compute and provide 
increases in the monthly rates of compensation and DIC, 
effective December 1, 2004. The rates would be increased by the 
same percentage as the Social Security and VA pension COLA that 
will take effect on that date. In accordance with section 8031 
of the Balanced Budget Act of 1997 (Public Law 105-33), amounts 
of compensation so computed that are not even multiples of $1 
will be rounded down to the next lower whole dollar amount. In 
2003, this provision was extended until 2013 by section 706 of 
Public Law 108-183.
    The increases in DIC automatically would result in 
identical percentage increases in benefits paid at DIC rates 
under section 1318of title 38, United States Code, to the 
surviving spouses and children of veterans who had a service-connected 
disability at the time of death for which they continuously were rated 
totally disabled for at least either (1) 10 years, (2) 5 years from the 
date of discharge from active duty, or (3) 1 year if the veteran was a 
former prisoner of war.
    Under section 156(e)(1)(A) of Public Law 97-377, the DIC 
increases also automatically would result in the same 
percentage increases in Social Security benefits that were 
terminated by section 2205 of the Omnibus Budget Reconciliation 
Act of 1981 (hereinafter, ``OBRA 1981'') (Public Law 97-35). 
Prior to OBRA 1981, those benefits had been paid to certain 
surviving spouses of those who died on active duty or from a 
service-connected disability on behalf of their children under 
18 and children over age 19 who were secondary-school students; 
OBRA 1981 reduced the eligibility cutoff age from 18 to 16 
years old.
    Section 314 of Public Law 100-322 amended section 156(a)(1) 
of Public Law 97-377 to restore the benefits eliminated by the 
OBRA 1981. The DIC increase also would apply to these restored 
benefits, effective December 1, 2000.
    CBO, in its most recent baseline, estimated that the Social 
Security COLA affecting FY2005 payments, and thus the COLA 
provided for by the Committee bill, will be 1.5 percent. The 
actual Social Security COLA could differ from this estimate. 
Rather than selecting any particular percentage adjustment at 
the time the Committee ordered the bill reported, the Committee 
followed its prior practice of setting the COLA by reference to 
the Social Security increase. The Committee believes this is 
the most equitable means of providing increases in these 
important service-connected benefits.

                             COST ESTIMATE

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the Committee, based on 
information supplied by the Congressional Budget Office, 
estimates that enactment of the Committee bill would, relative 
to current law, increase spending by $466 million in 2005 and 
by $620 million annually in subsequent years, but that such 
increases in spending are assumed in the budget resolution 
baseline and thus will have no budgetary effect relative to the 
baseline. Enactment of the Committee bill would not affect the 
budget of state, local, or tribal governments.
    The cost estimate provided by CBO, setting forth a detailed 
breakdown of costs, follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 28, 2004.
Hon. Arlen Specter,
Chairman, Committee on Veterans' Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office (CBO) 
has prepared the enclosed cost estimate for S. 2483, the 
Veterans' Compensation Cost-of-Living Adjustment Act of 2004.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Dwayne M. 
Wright.
            Sincerely,
                                     Douglas Holtz-Eakin, Director.
    Enclosure.

Veterans' Compensation Cost-of-Living Adjustment Act of 2004

    S. 2483 would increase the amounts paid to veterans for 
disability compensation and to their survivors for dependency 
and indemnity compensation by the same cost-of-living 
adjustment (COLA) payable to Social Security recipients. The 
increase would take effect on December 1, 2004, and the results 
of the adjustment would be rounded to the next lower dollar.
    The COLA that would be authorized by this bill is assumed 
in CBO's baseline, pursuant to section 257 of the Balanced 
Budget and Emergency Deficit Control Act, and savings from 
rounding it down were achieved by the Balanced Budget Act of 
1997 (Public Law 105-33) and extended to 2013 by the Veterans 
Benefits Act of 2003 (Public Law 108-183).
    Because the COLA is assumed in CBO's baseline, the COLA 
provision would have no budgetary effect relative to the 
baseline. Relative to current law, CBO estimates that enacting 
this provision would increase spending for these programs by 
$466 million in 2005. (The annualized cost would be $620 
million in subsequent years.) This estimate assumes that the 
COLA effective on December 1, 2004, would be 1.5 percent.
    S. 2483 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    On May 25, 2004, CBO transmitted a cost estimate for H.R. 
4175 (an identically titled bill), as ordered reported by the 
House Committee on Veterans' Affairs on May 19, 2004. S. 2483 
would authorize the same COLA as would H.R. 4175, thus the 
estimates of the effect of the COLA are identical. H.R. 4175 
would also add osteoporosis to the list of disabilities that 
the Department of Veterans Affairs assumes are service-
connected for former prisoners of war. That provision is not 
included in S. 2483.
    The CBO staff contact is Dwayne M. Wright. This estimate 
was approved by Peter H.Fontaine, Deputy Assistant Director for 
Budget Analysis.

                      REGULATORY IMPACT STATEMENT

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee on Veterans' 
Affairs has made an evaluation of the regulatory impact that 
would be incurred in carrying out the Committee bill. The 
Committee finds that S. 2483 would not entail any regulation of 
individuals or businesses or result in any impact on the 
personal privacy of any individuals and that the paperwork 
resulting from enactment would be minimal.

                 TABULATION OF VOTES CAST IN COMMITTEE

    In compliance with paragraph 7 of rule XXVI of the Standing 
Rules of the Senate, the following is a tabulation of votes 
cast in person or by proxy by members of the Committee on 
Veterans' Affairs at its July 22, 2004, meeting. On that date, 
the Committee, by unanimous voice vote, ordered to report S. 
2483, a bill to increase, effective as of December 1, 2004, the 
rates of compensation for veterans with service-connected 
disabilities and the rates of dependency and indemnity 
compensation for the survivors of certain disabled veterans.

                             AGENCY REPORT

    On June 22, 2004, Deputy Secretary of Veterans Affairs, the 
Honorable Gordon H. Mansfield, appeared before the Committee on 
Veterans' Affairs and submitted testimony on, among other 
things, S. 2483. Excerpts from this statement are reprinted 
below:

Statement of Gordon H. Mansfield, Deputy Secretary of Veterans Affairs, 
                     Department of Veterans Affairs

    Good Afternoon Mr. Chairman and Members of the Committee:
    Thank you for inviting me here today to present the 
Administration's views on a number of bills that would 
primarily affect Department of Veterans Affairs (VA) programs 
of veterans benefits and services.


                                s. 2483


    Mr. Chairman, I will begin by addressing S. 2483. This bill 
would increase administratively the rates of disability 
compensation for veterans with service-connected disabilities 
and of dependency and indemnity compensation for certain 
survivors of veterans, effective December 1, 2004. As provided 
in the President's fiscal year (FY) 2005 budget request, the 
rate of increase would be the same as the cost-of-living 
adjustment (COLA) that will be provided under current law to 
Social Security recipients, which is currently estimated to be 
2.4 percent. We believe this proposed COLA is necessary and 
appropriate to protect the affected benefits from the eroding 
effects of inflation. Therefore we support S. 2483.
    Because revised economic assumptions for FY 2005 were 
released on June 15, 2004, we cannot yet provide accurate cost 
estimates for FY 2005 and for the period FY 2005 through FY 
2014. We will provide a cost estimate to the Committee as soon 
as it is available.

           *       *       *       *       *       *       *


     CHANGES IN EXISTING LAW MADE BY THE COMMITTEE BILL AS REPORTED

    Since the Committee bill would not repeal or amend any 
provisions of current law, this report does not contain the 
material described in clauses (a) and (b) of paragraph 12 of 
rule XXVI of the Standing Rules of the Senate.

                                  
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