[Senate Report 109-296]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 539
109th Congress                                                   Report
                                 SENATE
 2d Session                                                     109-296

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



 
      VETERANS' COMPENSATION COST-OF-LIVING ADJUSTMENT ACT OF 2006

                                _______
                                

    July 27 (legislative day, July 26), 2006.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 2562]

    The Committee on Veterans' Affairs (hereinafter, 
``Committee''), to which was referred the bill (S. 2562) to 
increase, effective as of December 1, 2006, 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.

                              INTRODUCTION

    On April 6, 2006, Committee Chairman Larry E. Craig 
introduced S. 2562, a bill to increase, effective as of 
December 1, 2006, 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. Committee Ranking Minority Member Daniel K. Akaka is 
an original co-sponsor of S. 2562. Committee Member Kay Bailey 
Hutchison and Senators Mike Crapo and Olympia J. Snowe were 
later added as cosponsors. The bill was referred to the 
Committee on Veterans' Affairs.

                           COMMITTEE HEARING

    On June 8, 2006, the Committee held a hearing on 
legislation pending before the Committee. Among the measures on 
which the Committee received testimony was S. 2562. The 
Committee received testimony regarding S. 2562 from, among 
others, representatives of the Department of Veterans Affairs 
(hereinafter, ``VA''), and from representatives of the Veterans 
of Foreign Wars and the Vietnam Veterans of America. Written 
testimony for the record was submitted by representatives of 
The American Legion, the Disabled American Veterans, AMVETS, 
and the Paralyzed Veterans of America.

                           COMMITTEE MEETING

    On June 22, 2006, the Committee met in open session to 
consider legislation pending before the Committee. Among the 
measures so considered was S. 2562. The Committee voted by 
unanimous voice vote to report favorably S. 2562, as 
introduced, 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, 2006, 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 below the age 
of eighteen;
    (c) surviving spouses who are so disabled that they need 
aid and attendance or are permanently housebound;
    (d) surviving spouses covered under section 1318 of title 
38, United States Code; 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 2007 will be 2.2 percent.

Background

            A. Disability compensation
    The service-connected disability compensation program 
underchapter 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 and 
severity 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 10 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 VA, as set forth in its fiscal year 2007 
budget, the department estimates that it will provide 
disability compensation to 2,867,013 veterans with service-
connected disabilities in fiscal year 2007. Among the veterans 
estimated to receive such compensation are 2 Mexican Border 
Period veterans; 5 World War I veterans; 335,180 World War II 
veterans; 160,889 Korean-conflict veterans; 992,360 Vietnam-era 
veterans; 762,230 veterans of the Persian Gulf War era; and 
616,346 veterans who served during peacetime.
    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.

B. Dependency and Indemnity Compensation

    Under chapter 13 of title 38, United States Code, VA pays 
DIC 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 $1,033 per month 
and, if the deceased veteran was totally disabled for 8 years 
prior to death, an additional $221 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 of age 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.
    Parents of deceased veterans whose incomes are below 
statutorily prescribed income thresholds are eligible for DIC 
under section 1315 of title 38. As previously mentioned, 
parents' DIC rates are adjusted automatically at the same time 
and by the same percentage as Social Security and VA pension 
benefits.
    In its fiscal year 2007 budget, VA estimates that it will 
pay DIC benefits to 348,479 survivors, a sum that includes 
surviving spouses, children, and needy surviving parents.
    Under section 1318 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 who die after September 30, 
1999, and 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.

C. 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          5.4          393.13
                               \1\.
1992........................  December 1991..        3.7          407.68
1993........................  December 1992..        3.0          419.91
1994........................  December 1993..        2.6          430.83
1995........................  December 1994          2.8          442.89
                               \2\.
1996........................  December 1995          2.6          454.41
                               \2\.
1997........................  December 1996..        2.9          467.59
1998........................  December 1997          2.1          477.41
                               \2\.
1999........................  December 1998          1.3          483.62
                               \2\.
2000........................  December 1999          2.4          495.23
                               \2\.
2001........................  December 2000          3.5          512.56
                               \2\.
2002........................  December 2001          2.6          525.89
                               \2\.
2003........................  December 2002          1.4          535.88
                               \2\.
2004........................  December 2003          2.1          547.13
                               \2\.
2005........................  December 2004          2.7          561.90
                               \2\.
2006........................  December 2005          4.1          584.94
                               \2\.
2007........................  December 2006      \3\ 2.2      \3\ 597.82
                               \2\.
------------------------------------------------------------------------
\1\ Payment of the increase that otherwise would have been paid for the
  month of December 1990 was delayed until January 1992 by section
  8005(b) of Public Law 101-508.
\2\ December 1994-1995 and 1997-2007 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, 2006. 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 1318 of 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 (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 who 
died after September 30, 1999, and whose death was not service-
connected if the veteran had been receiving (or had been 
entitled to receive) compensation at the 100 percent rate 
continuously for not less than 1 year preceding death.
    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 OBRA 
1981. The DIC increase also would apply to these restored 
benefits, effective December 1, 2000.
    The Congressional Budget Office (hereinafter, ``CBO''), in 
its most recent baseline, estimated that the Social Security 
COLA affecting fiscal year 2007 payments, and thus the COLA 
provided for by the Committee bill, will be 2.2 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 CBO, estimates that enactment of 
the Committee bill would, relative to current law, increase 
spending by $530 million in 2007 and by $710 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, June 29, 2006.
Hon. Larry E. Craig,
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. 2562, the 
Veterans' Compensation Cost-of-Living Adjustment Act of 2006.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Dwayne M. 
Wright.
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

S. 2562--Veterans' Compensation Cost-of-Living Adjustment Act of 2006

    S. 2562 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, 2006, 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 that 
baseline. Relative to current law, CBO estimates that enacting 
this provision would increase spending for these programs by 
$530 million in 2007. (The annualized cost would be $710 
million in subsequent years.) This estimate assumes that the 
COLA effective on December 1, 2006, would be 2.2 percent, based 
on the economic assumptions underlying CBO's baseline 
projections.
    The Social Security COLA, which would apply to the 
veterans' benefits, is based on the increase in the consumer 
price index for urban wage earners and clerical workers (CPI-W) 
from the third quarter of one calendar year to the third 
quarter of the next year. Through May 2006, the CPI-W has 
already increased by 2.9 percent from its level in the third 
quarter of 2005. It is therefore very likely that the veterans' 
COLA would be substantially greater than 2.2 percent.
    S. 2562 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 June 22, 2006, CBO transmitted a cost estimate for H.R. 
4843, the Veterans' Cost-of-Living Adjustment Act of 2006, as 
ordered reported by the House Committee on Veterans' Affairs on 
June 22, 2006. S. 2562, as ordered reported, is similar to H.R. 
4843, but does not contain a provision that would increase the 
additional $250 benefit for surviving spouses with children 
under 18 by a cost-of-living adjustment. The differences in the 
estimates reflect the differences in the language of the two 
bills.
    The CBO staff contact for this estimate is Dwayne M. 
Wright. This estimate was approved by Robert S. Sunshine, 
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 hasmade an evaluation of the regulatory impact that 
would be incurred in carrying out the Committee bill. The Committee 
finds that S. 2562 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 June 22, 2006, meeting. On that date, 
the Committee, by unanimous voice vote, ordered to report S. 
2562, a bill to increase, effective as of December 1, 2006, 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 8, 2006, VA Deputy Under Secretary for Benefits, 
Mr. Ronald Aument, appeared before the Committee on Veterans' 
Affairs and submitted testimony on, among other things, S. 
2562. Excerpts from this statement are reprinted below:

   Statement of Ronald Aument, Deputy Under Secretary for Benefits, 
                     Department of Veterans Affairs

    Mr. Chairman and members of the Committee, thank you for 
the opportunity to testify today on a number of legislative 
items of great interest to veterans. I am joined at the witness 
table by John H. Thompson, Deputy General Counsel.

           *       *       *       *       *       *       *



                                s. 2562


    S. 2562, the ``Veterans' Compensation Cost of Living 
Adjustment Act of 2006,'' would authorize a cost-of-living 
adjustment (COLA) in the rates of disability compensation and 
dependency and indemnity compensation (DIC). This bill would 
direct the Secretary of Veterans Affairs to increase 
administratively the rates of compensation for service-disabled 
veterans and of DIC for the survivors of veterans whose deaths 
are service related, effective December 1, 2006. Consistent 
with the President's FY 2007 budget request, the rate of 
increase would be the same as the COLA that will be provided 
under current law to veterans' pension and Social Security 
recipients, which is currently estimated to be 2.6 percent. We 
believe this COLA is necessary and appropriate to protect the 
benefits of affected veterans and their survivors from the 
eroding effects of inflation. These worthy beneficiaries 
deserve no less.
    We estimate that enactment of this bill would cost $590.3 
million during FY 2007, $3.7 billion over the 5-year period FY 
2007 through FY 2011, and $8.2 billion over the 10-year period 
FY 2007 through FY 2016. However, the cost is already assumed 
in the budget baseline, and, therefore, enactment of this 
provision would not result in any additional cost.

           *       *       *       *       *       *       *


     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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