[House Report 111-8]
[From the U.S. Government Publishing Office]
111th Congress Rept. 111-8
HOUSE OF REPRESENTATIVES
1st Session Part 1
======================================================================
PROVIDING FOR A PORTION OF THE ECONOMIC RECOVERY PACKAGE RELATING TO
REVENUE MEASURES, UNEMPLOYMENT, AND HEALTH
_______
January 27, 2009.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Rangel, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 598]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 598) to provide for a portion of the economic
recovery package relating to revenue measures, unemployment,
and health, having considered the same, report favorably
thereon with an amendment and recommend that the bill as
amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
TITLE I--TAX PROVISIONS
SECTION 1000. SHORT TITLE, ETC.
(a) Short Title.--This title may be cited as the ``American Recovery
and Reinvestment Tax Act of 2009''.
(b) Reference.--Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this title is as
follows:
Sec. 1000. Short title, etc.
Subtitle A--Making Work Pay
Sec. 1001. Making work pay credit.
Subtitle B--Additional Tax Relief for Families With Children
Sec. 1101. Increase in earned income tax credit.
Sec. 1102. Increase of refundable portion of child credit.
Subtitle C--American Opportunity Tax Credit
Sec. 1201. American opportunity tax credit.
Subtitle D--Housing Incentives
Sec. 1301. Waiver of requirement to repay first-time homebuyer credit.
Sec. 1302. Coordination of low-income housing credit and low-income
housing grants.
Subtitle E--Tax Incentives for Business
Part 1--Temporary Investment Incentives
Sec. 1401. Special allowance for certain property acquired during 2009.
Sec. 1402. Temporary increase in limitations on expensing of certain
depreciable business assets.
Part 2--5-Year Carryback of Operating Losses
Sec. 1411. 5-year carryback of operating losses.
Sec. 1412. Exception for TARP recipients.
Part 3--Incentives for New Jobs
Sec. 1421. Incentives to hire unemployed veterans and disconnected
youth.
Part 4--Clarification of Regulations Related to Limitations on Certain
Built-in Losses Following an Ownership Change
Sec. 1431. Clarification of regulations related to limitations on
certain built-in losses following an ownership change.
Subtitle F--Fiscal Relief for State and Local Governments
Part 1--Improved Marketability for Tax-Exempt Bonds
Sec. 1501. De minimis safe harbor exception for tax-exempt interest
expense of financial institutions.
Sec. 1502. Modification of small issuer exception to tax-exempt
interest expense allocation rules for financial institutions.
Sec. 1503. Temporary modification of alternative minimum tax
limitations on tax-exempt bonds.
Part 2--Tax Credit Bonds for Schools
Sec. 1511. Qualified school construction bonds.
Sec. 1512. Extension and expansion of qualified zone academy bonds.
Part 3--Taxable Bond Option for Governmental Bonds
Sec. 1521. Taxable bond option for governmental bonds.
Part 4--Recovery Zone Bonds
Sec. 1531. Recovery zone bonds.
Sec. 1532. Tribal economic development bonds.
Part 5--Repeal of Withholding Tax on Government Contractors
Sec. 1541. Repeal of withholding tax on government contractors.
Subtitle G--Energy Incentives
Part 1--Renewable Energy Incentives
Sec. 1601. Extension of credit for electricity produced from certain
renewable resources.
Sec. 1602. Election of investment credit in lieu of production credit.
Sec. 1603. Repeal of certain limitations on credit for renewable energy
property.
Sec. 1604. Coordination with renewable energy grants.
Part 2--Increased Allocations of New Clean Renewable Energy Bonds and
Qualified Energy Conservation Bonds
Sec. 1611. Increased limitation on issuance of new clean renewable
energy bonds.
Sec. 1612. Increased limitation and expansion of qualified energy
conservation bonds.
Part 3--Energy Conservation Incentives
Sec. 1621. Extension and modification of credit for nonbusiness energy
property.
Sec. 1622. Modification of credit for residential energy efficient
property.
Sec. 1623. Temporary increase in credit for alternative fuel vehicle
refueling property.
Part 4--Energy Research Incentives
Sec. 1631. Increased research credit for energy research.
Subtitle H--Other Provisions
Part 1--Application of Certain Labor Standards to Projects Financed
With Certain Tax-Favored Bonds
Sec. 1701. Application of certain labor standards to projects financed
with certain tax-favored bonds.
Part 2--Grants to Provide Financing for Low-Income Housing
Sec. 1711. Grants to States for low-income housing projects in lieu of
low-income housing credit allocations for 2009.
Part 3--Grants for Specified Energy Property in Lieu of Tax Credits
Sec. 1721. Grants for specified energy property in lieu of tax credits.
Part 4--Study of Economic, Employment, and Related Effects of This Act
Sec. 1731. Study of economic, employment, and related effects of this
Act.
Subtitle A--Making Work Pay
SEC. 1001. MAKING WORK PAY CREDIT.
(a) In General.--Subpart C of part IV of subchapter A of chapter 1 is
amended by inserting after section 36 the following new section:
``SEC. 36A. MAKING WORK PAY CREDIT.
``(a) Allowance of Credit.--In the case of an eligible individual,
there shall be allowed as a credit against the tax imposed by this
subtitle for the taxable year an amount equal to the lesser of--
``(1) 6.2 percent of earned income of the taxpayer, or
``(2) $500 ($1,000 in the case of a joint return).
``(b) Limitation Based on Modified Adjusted Gross Income.--
``(1) In general.--The amount allowable as a credit under
subsection (a) (determined without regard to this paragraph)
for the taxable year shall be reduced (but not below zero) by 2
percent of so much of the taxpayer's modified adjusted gross
income as exceeds $75,000 ($150,000 in the case of a joint
return).
``(2) Modified adjusted gross income.--For purposes of
subparagraph (A), the term `modified adjusted gross income'
means the adjusted gross income of the taxpayer for the taxable
year increased by any amount excluded from gross income under
section 911, 931, or 933.
``(c) Definitions.--For purposes of this section--
``(1) Eligible individual.--The term `eligible individual'
means any individual other than--
``(A) any nonresident alien individual,
``(B) any individual with respect to whom a deduction
under section 151 is allowable to another taxpayer for
a taxable year beginning in the calendar year in which
the individual's taxable year begins, and
``(C) an estate or trust.
Such term shall not include any individual unless the
requirements of section 32(c)(1)(E) are met with respect to
such individual.
``(2) Earned income.--The term `earned income' has the
meaning given such term by section 32(c)(2), except that such
term shall not include net earnings from self-employment which
are not taken into account in computing taxable income. For
purposes of the preceding sentence, any amount excluded from
gross income by reason of section 112 shall be treated as
earned income which is taken into account in computing taxable
income for the taxable year.
``(d) Termination.--This section shall not apply to taxable years
beginning after December 31, 2010.''.
(b) Treatment of Possessions.--
(1) Payments to possessions.--
(A) Mirror code possession.--The Secretary of the
Treasury shall pay to each possession of the United
States with a mirror code tax system amounts equal to
the loss to that possession by reason of the amendments
made by this section with respect to taxable years
beginning in 2009 and 2010. Such amounts shall be
determined by the Secretary of the Treasury based on
information provided by the government of the
respective possession.
(B) Other possessions.--The Secretary of the Treasury
shall pay to each possession of the United States which
does not have a mirror code tax system amounts
estimated by the Secretary of the Treasury as being
equal to the aggregate benefits that would have been
provided to residents of such possession by reason of
the amendments made by this section for taxable years
beginning in 2009 and 2010 if a mirror code tax system
had been in effect in such possession. The preceding
sentence shall not apply with respect to any possession
of the United States unless such possession has a plan,
which has been approved by the Secretary of the
Treasury, under which such possession will promptly
distribute such payments to the residents of such
possession.
(2) Coordination with credit allowed against united states
income taxes.--No credit shall be allowed against United States
income taxes for any taxable year under section 36A of the
Internal Revenue Code of 1986 (as added by this section) to any
person--
(A) to whom a credit is allowed against taxes imposed
by the possession by reason of the amendments made by
this section for such taxable year, or
(B) who is eligible for a payment under a plan
described in paragraph (1)(B) with respect to such
taxable year.
(3) Definitions and special rules.--
(A) Possession of the united states.--For purposes of
this subsection, the term ``possession of the United
States'' includes the Commonwealth of Puerto Rico and
the Commonwealth of the Northern Mariana Islands.
(B) Mirror code tax system.--For purposes of this
subsection, the term ``mirror code tax system'' means,
with respect to any possession of the United States,
the income tax system of such possession if the income
tax liability of the residents of such possession under
such system is determined by reference to the income
tax laws of the United States as if such possession
were the United States.
(C) Treatment of payments.--For purposes of section
1324(b)(2) of title 31, United States Code, the
payments under this subsection shall be treated in the
same manner as a refund due from the credit allowed
under section 36A of the Internal Revenue Code of 1986
(as added by this section).
(c) Refunds Disregarded in the Administration of Federal Programs and
Federally Assisted Programs.--Any credit or refund allowed or made to
any individual by reason of section 36A of the Internal Revenue Code of
1986 (as added by this section) or by reason of subsection (b) of this
section shall not be taken into account as income and shall not be
taken into account as resources for the month of receipt and the
following 2 months, for purposes of determining the eligibility of such
individual or any other individual for benefits or assistance, or the
amount or extent of benefits or assistance, under any Federal program
or under any State or local program financed in whole or in part with
Federal funds.
(d) Conforming Amendments.--
(1) Section 6211(b)(4)(A) is amended by inserting ``36A,''
after ``36,''.
(2) Section 1324(b)(2) of title 31, United States Code, is
amended by inserting ``36A,'' after ``36,''.
(3) The table of sections for subpart C of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 36 the following new item:
``Sec. 36A. Making work pay credit.''.
(e) Effective Date.--This section shall apply to taxable years
beginning after December 31, 2008.
Subtitle B--Additional Tax Relief for Families With Children
SEC. 1101. INCREASE IN EARNED INCOME TAX CREDIT.
(a) In General.--Subsection (b) of section 32 is amended by adding at
the end the following new paragraph:
``(3) Special rules for 2009 and 2010.--In the case of any
taxable year beginning in 2009 or 2010--
``(A) Increased credit percentage for 3 or more
qualifying children.--In the case of a taxpayer with 3
or more qualifying children, the credit percentage is
45 percent.
``(B) Reduction of marriage penalty.--
``(i) In general.--The dollar amount in
effect under paragraph (2)(B) shall be $5,000.
``(ii) Inflation adjustment.--In the case of
any taxable year beginning in 2010, the $5,000
amount in clause (i) shall be increased by an
amount equal to--
``(I) such dollar amount, multiplied
by
``(II) the cost of living adjustment
determined under section 1(f)(3) for
the calendar year in which the taxable
year begins determined by substituting
`calendar year 2008' for `calendar year
1992' in subparagraph (B) thereof.
``(iii) Rounding.--Subparagraph (A) of
subsection (j)(2) shall apply after taking into
account any increase under clause (ii).''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2008.
SEC. 1102. INCREASE OF REFUNDABLE PORTION OF CHILD CREDIT.
(a) In General.--Paragraph (4) of section 24(d) is amended to read as
follows:
``(4) Special rule for 2009 and 2010.--Notwithstanding
paragraph (3), in the case of any taxable year beginning in
2009 or 2010, the dollar amount in effect for such taxable year
under paragraph (1)(B)(i) shall be zero.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2008.
Subtitle C--American Opportunity Tax Credit
SEC. 1201. AMERICAN OPPORTUNITY TAX CREDIT.
(a) In General.--Section 25A (relating to Hope scholarship credit) is
amended by redesignating subsection (i) as subsection (j) and by
inserting after subsection (h) the following new subsection:
``(i) American Opportunity Tax Credit.--In the case of any taxable
year beginning in 2009 or 2010--
``(1) Increase in credit.--The Hope Scholarship Credit shall
be an amount equal to the sum of--
``(A) 100 percent of so much of the qualified tuition
and related expenses paid by the taxpayer during the
taxable year (for education furnished to the eligible
student during any academic period beginning in such
taxable year) as does not exceed $2,000, plus
``(B) 25 percent of such expenses so paid as exceeds
$2,000 but does not exceed $4,000.
``(2) Credit allowed for first 4 years of post-secondary
education.--Subparagraphs (A) and (C) of subsection (b)(2)
shall be applied by substituting `4' for `2'.
``(3) Qualified tuition and related expenses to include
required course materials.--Subsection (f)(1)(A) shall be
applied by substituting `tuition, fees, and course materials'
for `tuition and fees'.
``(4) Increase in agi limits for hope scholarship credit.--In
lieu of applying subsection (d) with respect to the Hope
Scholarship Credit, such credit (determined without regard to
this paragraph) shall be reduced (but not below zero) by the
amount which bears the same ratio to such credit (as so
determined) as--
``(A) the excess of--
``(i) the taxpayer's modified adjusted gross
income (as defined in subsection (d)(3)) for
such taxable year, over
``(ii) $80,000 ($160,000 in the case of a
joint return), bears to
``(B) $10,000 ($20,000 in the case of a joint
return).
``(5) Credit allowed against alternative minimum tax.--In the
case of a taxable year to which section 26(a)(2) does not
apply, so much of the credit allowed under subsection (a) as is
attributable to the Hope Scholarship Credit shall not exceed
the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this subsection and sections 23,
25D, and 30D) and section 27 for the taxable year.
Any reference in this section or section 24, 25, 26, 25B, 904,
or 1400C to a credit allowable under this subsection shall be
treated as a reference to so much of the credit allowable under
subsection (a) as is attributable to the Hope Scholarship
Credit.
``(6) Portion of credit made refundable.--40 percent of so
much of the credit allowed under subsection (a) as is
attributable to the Hope Scholarship Credit (determined after
application of paragraph (4) and without regard to this
paragraph and section 26(a)(2) or paragraph (5), as the case
may be) shall be treated as a credit allowable under subpart C
(and not allowed under subsection (a)). The preceding sentence
shall not apply to any taxpayer for any taxable year if such
taxpayer is a child to whom subsection (g) of section 1 applies
for such taxable year.
``(7) Coordination with midwestern disaster area benefits.--
In the case of a taxpayer with respect to whom section
702(a)(1)(B) of the Heartland Disaster Tax Relief Act of 2008
applies for any taxable year, such taxpayer may elect to waive
the application of this subsection to such taxpayer for such
taxable year.''.
(b) Conforming Amendments.--
(1) Section 24(b)(3)(B) is amended by inserting ``25A(i),''
after ``23,''.
(2) Section 25(e)(1)(C)(ii) is amended by inserting
``25A(i),'' after ``24,''.
(3) Section 26(a)(1) is amended by inserting ``25A(i),''
after ``24,''.
(4) Section 25B(g)(2) is amended by inserting ``25A(i),''
after ``23,''.
(5) Section 904(i) is amended by inserting ``25A(i),'' after
``24,''.
(6) Section 1400C(d)(2) is amended by inserting ``25A(i),''
after ``24,''.
(7) Section 1324(b)(2) of title 31, United States Code, is
amended by inserting ``25A,'' before ``35''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2008.
(d) Application of EGTRRA Sunset.--The amendment made by subsection
(b)(1) shall be subject to title IX of the Economic Growth and Tax
Relief Reconciliation Act of 2001 in the same manner as the provision
of such Act to which such amendment relates.
(e) Treasury Studies Regarding Education Incentives.--
(1) Study regarding coordination with non-tax educational
incentives.--The Secretary of the Treasury, or the Secretary's
delegate, shall study how to coordinate the credit allowed
under section 25A of the Internal Revenue Code of 1986 with the
Federal Pell Grant program under section 401 of the Higher
Education Act of 1965.
(2) Study regarding imposition of community service
requirements.--The Secretary of the Treasury, or the
Secretary's delegate, shall study the feasibility of requiring
students to perform community service as a condition of taking
their tuition and related expenses into account under section
25A of the Internal Revenue Code of 1986.
(3) Report.--Not later than 1 year after the date of the
enactment of this Act, the Secretary of the Treasury, or the
Secretary's delegate, shall report to Congress on the results
of the studies conducted under this paragraph.
Subtitle D--Housing Incentives
SEC. 1301. WAIVER OF REQUIREMENT TO REPAY FIRST-TIME HOMEBUYER CREDIT.
(a) In General.--Paragraph (4) of section 36(f) is amended by adding
at the end the following new subparagraph:
``(D) Waiver of recapture for purchases in 2009.--In
the case of any credit allowed with respect to the
purchase of a principal residence after December 31,
2008, and before July 1, 2009--
``(i) paragraph (1) shall not apply, and
``(ii) paragraph (2) shall apply only if the
disposition or cessation described in paragraph
(2) with respect to such residence occurs
during the 36-month period beginning on the
date of the purchase of such residence by the
taxpayer.''.
(b) Conforming Amendment.--Subsection (g) of section 36 is amended by
striking ``subsection (c)'' and inserting ``subsections (c) and
(f)(4)(D)''.
(c) Effective Date.--The amendments made by this section shall apply
to residences purchased after December 31, 2008.
SEC. 1302. COORDINATION OF LOW-INCOME HOUSING CREDIT AND LOW-INCOME
HOUSING GRANTS.
Subsection (i) of section 42 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new paragraph:
``(9) Coordination with low-income housing grants.--
``(A) Reduction in state housing credit ceiling for
low-income housing grants received in 2009.--For
purposes of this section, the amounts described in
clauses (i) through (iv) of subsection (h)(3)(C) with
respect to any State for 2009 shall each be reduced by
so much of such amount as is taken into account in
determining the amount of any grant to such State under
section 1711 of the American Recovery and Reinvestment
Tax Act of 2009.
``(B) Special rule for basis.--Basis of a qualified
low-income building shall not be reduced by the amount
of any grant described in subparagraph (A).''.
Subtitle E--Tax Incentives for Business
PART 1--TEMPORARY INVESTMENT INCENTIVES
SEC. 1401. SPECIAL ALLOWANCE FOR CERTAIN PROPERTY ACQUIRED DURING 2009.
(a) In General.--Paragraph (2) of section 168(k) is amended--
(1) by striking ``January 1, 2010'' and inserting ``January
1, 2011'', and
(2) by striking ``January 1, 2009'' each place it appears and
inserting ``January 1, 2010''.
(b) Conforming Amendments.--
(1) The heading for subsection (k) of section 168 is amended
by striking ``January 1, 2009'' and inserting ``January 1,
2010''.
(2) The heading for clause (ii) of section 168(k)(2)(B) is
amended by striking ``pre-january 1, 2009'' and inserting
``pre-january 1, 2010''.
(3) Subparagraph (D) of section 168(k)(4) is amended--
(A) by striking ``and'' at the end of clause (i),
(B) by redesignating clause (ii) as clause (v), and
(C) by inserting after clause (i) the following new
clauses:
``(ii) `April 1, 2008' shall be substituted
for `January 1, 2008' in subparagraph
(A)(iii)(I) thereof,
``(iii) `January 1, 2009' shall be
substituted for `January 1, 2010' each place it
appears,
``(iv) `January 1, 2010' shall be substituted
for `January 1, 2011' in subparagraph (A)(iv)
thereof, and''.
(4) Subparagraph (B) of section 168(l)(5) is amended by
striking ``January 1, 2009'' and inserting ``January 1, 2010''.
(5) Clause (ii) of section 168(n)(2)(C) is amended by
striking ``January 1, 2009'' and inserting ``January 1, 2010''.
(6) Subparagraph (B) of section 1400N(d)(3) is amended by
striking ``January 1, 2009'' and inserting ``January 1, 2010''.
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to property placed
in service after December 31, 2008, in taxable years ending
after such date.
(2) Technical amendment.--Section 168(k)(4)(D)(ii) of the
Internal Revenue Code of 1986, as added by subsection
(b)(3)(C), shall apply to taxable years ending after March 31,
2008.
SEC. 1402. TEMPORARY INCREASE IN LIMITATIONS ON EXPENSING OF CERTAIN
DEPRECIABLE BUSINESS ASSETS.
(a) In General.--Paragraph (7) of section 179(b) is amended--
(1) by striking ``2008'' and inserting ``2008, or 2009'', and
(2) by striking ``2008'' in the heading thereof and inserting
``2008, and 2009''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2008.
PART 2--5-YEAR CARRYBACK OF OPERATING LOSSES
SEC. 1411. 5-YEAR CARRYBACK OF OPERATING LOSSES.
(a) In General.--Subparagraph (H) of section 172(b)(1) is amended to
read as follows:
``(H) Carryback for 2008 and 2009 net operating
losses.--
``(i) In general.--In the case of an
applicable 2008 or 2009 net operating loss with
respect to which the taxpayer has elected the
application of this subparagraph--
``(I) such net operating loss shall
be reduced by 10 percent of such loss
(determined without regard to this
subparagraph),
``(II) subparagraph (A)(i) shall be
applied by substituting any whole
number elected by the taxpayer which is
more than 2 and less than 6 for `2',
``(III) subparagraph (E)(ii) shall be
applied by substituting the whole
number which is one less than the whole
number substituted under subclause (II)
for `2', and
``(IV) subparagraph (F) shall not
apply.
``(ii) Applicable 2008 or 2009 net operating
loss.--For purposes of this subparagraph, the
term `applicable 2008 or 2009 net operating
loss' means--
``(I) the taxpayer's net operating
loss for any taxable year ending in
2008 or 2009, or
``(II) if the taxpayer elects to have
this subclause apply in lieu of
subclause (I), the taxpayer's net
operating loss for any taxable year
beginning in 2008 or 2009.
``(iii) Election.--Any election under this
subparagraph shall be made in such manner as
may be prescribed by the Secretary, and shall
be made by the due date (including extension of
time) for filing the taxpayer's return for the
taxable year of the net operating loss. Any
such election, once made, shall be irrevocable.
``(iv) Coordination with alternative tax net
operating loss deduction.--In the case of a
taxpayer who elects to have clause (ii)(II)
apply, section 56(d)(1)(A)(ii) shall be applied
by substituting `ending during 2001 or 2002 or
beginning during 2008 or 2009' for `ending
during 2001, 2002, 2008, or 2009'.''.
(b) Alternative Tax Net Operating Loss Deduction.--Subclause (I) of
section 56(d)(1)(A)(ii) is amended to read as follows:
``(I) the amount of such deduction
attributable to the sum of carrybacks
of net operating losses from taxable
years ending during 2001, 2002, 2008,
or 2009 and carryovers of net operating
losses to such taxable years, or''.
(c) Loss From Operations of Life Insurance Companies.--Subsection (b)
of section 810 is amended by adding at the end the following new
paragraph:
``(4) Carryback for 2008 and 2009 losses.--
``(A) In general.--In the case of an applicable 2008
or 2009 loss from operations with respect to which the
taxpayer has elected the application of this
paragraph--
``(i) such loss from operations shall be
reduced by 10 percent of such loss (determined
without regard to this paragraph), and
``(ii) paragraph (1)(A) shall be applied, at
the election of the taxpayer, by substituting
`5' or `4' for `3'.
``(B) Applicable 2008 or 2009 loss from operations.--
For purposes of this paragraph, the term `applicable
2008 or 2009 loss from operations' means--
``(i) the taxpayer's loss from operations for
any taxable year ending in 2008 or 2009, or
``(ii) if the taxpayer elects to have this
clause apply in lieu of clause (i), the
taxpayer's loss from operations for any taxable
year beginning in 2008 or 2009.
``(C) Election.--Any election under this paragraph
shall be made in such manner as may be prescribed by
the Secretary, and shall be made by the due date
(including extension of time) for filing the taxpayer's
return for the taxable year of the loss from
operations. Any such election, once made, shall be
irrevocable.
``(D) Coordination with alternative tax net operating
loss deduction.--In the case of a taxpayer who elects
to have subparagraph (B)(ii) apply, section
56(d)(1)(A)(ii) shall be applied by substituting
`ending during 2001 or 2002 or beginning during 2008 or
2009' for `ending during 2001, 2002, 2008, or 2009'.''.
(d) Conforming Amendment.--Section 172 is amended by striking
subsection (k).
(e) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
net operating losses arising in taxable years ending after
December 31, 2007.
(2) Alternative tax net operating loss deduction.--The
amendment made by subsection (b) shall apply to taxable years
ending after 1997.
(3) Loss from operations of life insurance companies.--The
amendment made by subsection (d) shall apply to losses from
operations arising in taxable years ending after December 31,
2007.
(4) Transitional rule.--In the case of a net operating loss
(or, in the case of a life insurance company, a loss from
operations) for a taxable year ending before the date of the
enactment of this Act--
(A) any election made under section 172(b)(3) or
810(b)(3) of the Internal Revenue Code of 1986 with
respect to such loss may (notwithstanding such section)
be revoked before the applicable date,
(B) any election made under section 172(b)(1)(H) or
810(b)(4) of such Code with respect to such loss shall
(notwithstanding such section) be treated as timely
made if made before the applicable date, and
(C) any application under section 6411(a) of such
Code with respect to such loss shall be treated as
timely filed if filed before the applicable date.
For purposes of this paragraph, the term ``applicable date''
means the date which is 60 days after the date of the enactment
of this Act.
SEC. 1412. EXCEPTION FOR TARP RECIPIENTS.
The amendments made by this part shall not apply to--
(1) any taxpayer if--
(A) the Federal Government acquires, at any time, an
equity interest in the taxpayer pursuant to the
Emergency Economic Stabilization Act of 2008, or
(B) the Federal Government acquires, at any time, any
warrant (or other right) to acquire any equity interest
with respect to the taxpayer pursuant to such Act,
(2) the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, and
(3) any taxpayer which at any time in 2008 or 2009 is a
member of the same affiliated group (as defined in section 1504
of the Internal Revenue Code of 1986, determined without regard
to subsection (b) thereof) as a taxpayer described in paragraph
(1) or (2).
PART 3--INCENTIVES FOR NEW JOBS
SEC. 1421. INCENTIVES TO HIRE UNEMPLOYED VETERANS AND DISCONNECTED
YOUTH.
(a) In General.--Subsection (d) of section 51 is amended by adding at
the end the following new paragraph:
``(14) Credit allowed for unemployed veterans and
disconnected youth hired in 2009 or 2010.--
``(A) In general.--Any unemployed veteran or
disconnected youth who begins work for the employer
during 2009 or 2010 shall be treated as a member of a
targeted group for purposes of this subpart.
``(B) Definitions.--For purposes of this paragraph--
``(i) Unemployed veteran.--The term
`unemployed veteran' means any veteran (as
defined in paragraph (3)(B), determined without
regard to clause (ii) thereof) who is certified
by the designated local agency as--
``(I) having been discharged or
released from active duty in the Armed
Forces during 2008, 2009, or 2010, and
``(II) being in receipt of
unemployment compensation under State
or Federal law for not less than 4
weeks during the 1-year period ending
on the hiring date.
``(ii) Disconnected youth.--The term
`disconnected youth' means any individual who
is certified by the designated local agency--
``(I) as having attained age 16 but
not age 25 on the hiring date,
``(II) as not regularly attending any
secondary, technical, or post-secondary
school during the 6-month period
preceding the hiring date,
``(III) as not regularly employed
during such 6-month period, and
``(IV) as not readily employable by
reason of lacking a sufficient number
of basic skills.''.
(b) Effective Date.--The amendments made by this section shall apply
to individuals who begin work for the employer after December 31, 2008.
PART 4--CLARIFICATION OF REGULATIONS RELATED TO LIMITATIONS ON CERTAIN
BUILT-IN LOSSES FOLLOWING AN OWNERSHIP CHANGE
SEC. 1431. CLARIFICATION OF REGULATIONS RELATED TO LIMITATIONS ON
CERTAIN BUILT-IN LOSSES FOLLOWING AN OWNERSHIP
CHANGE.
(a) Findings.--Congress finds as follows:
(1) The delegation of authority to the Secretary of the
Treasury under section 382(m) of the Internal Revenue Code of
1986 does not authorize the Secretary to provide exemptions or
special rules that are restricted to particular industries or
classes of taxpayers.
(2) Internal Revenue Service Notice 2008-83 is inconsistent
with the congressional intent in enacting such section 382(m).
(3) The legal authority to prescribe Internal Revenue Service
Notice 2008-83 is doubtful.
(4) However, as taxpayers should generally be able to rely on
guidance issued by the Secretary of the Treasury legislation is
necessary to clarify the force and effect of Internal Revenue
Service Notice 2008-83 and restore the proper application under
the Internal Revenue Code of 1986 of the limitation on built-in
losses following an ownership change of a bank.
(b) Determination of Force and Effect of Internal Revenue Service
Notice 2008-83 Exempting Banks From Limitation on Certain Built-in
Losses Following Ownership Change.--
(1) In general.--Internal Revenue Service Notice 2008-83--
(A) shall be deemed to have the force and effect of
law with respect to any ownership change (as defined in
section 382(g) of the Internal Revenue Code of 1986)
occurring on or before January 16, 2009, and
(B) shall have no force or effect with respect to any
ownership change after such date.
(2) Binding contracts.--Notwithstanding paragraph (1),
Internal Revenue Service Notice 2008-83 shall have the force
and effect of law with respect to any ownership change (as so
defined) which occurs after January 16, 2009 if such change--
(A) is pursuant to a written binding contract entered
into on or before such date, or
(B) is pursuant to a written agreement entered into
on or before such date and such agreement was described
on or before such date in a public announcement or in a
filing with the Securities and Exchange Commission
required by reason of such ownership change.
Subtitle F--Fiscal Relief for State and Local Governments
PART 1--IMPROVED MARKETABILITY FOR TAX-EXEMPT BONDS
SEC. 1501. DE MINIMIS SAFE HARBOR EXCEPTION FOR TAX-EXEMPT INTEREST
EXPENSE OF FINANCIAL INSTITUTIONS.
(a) In General.--Subsection (b) of section 265 is amended by adding
at the end the following new paragraph:
``(7) De minimis exception for bonds issued during 2009 or
2010.--
``(A) In general.--In applying paragraph (2)(A),
there shall not be taken into account tax-exempt
obligations issued during 2009 or 2010.
``(B) Limitation.--The amount of tax-exempt
obligations not taken into account by reason of
subparagraph (A) shall not exceed 2 percent of the
amount determined under paragraph (2)(B).
``(C) Refundings.--For purposes of this paragraph, a
refunding bond (whether a current or advance refunding)
shall be treated as issued on the date of the issuance
of the refunded bond (or in the case of a series of
refundings, the original bond).''.
(b) Treatment as Financial Institution Preference Item.--Clause (iv)
of section 291(e)(1)(B) is amended by adding at the end the following:
``That portion of any obligation not taken into account under paragraph
(2)(A) of section 265(b) by reason of paragraph (7) of such section
shall be treated for purposes of this section as having been acquired
on August 7, 1986.''.
(c) Effective Date.--The amendments made by this section shall apply
to obligations issued after December 31, 2008.
SEC. 1502. MODIFICATION OF SMALL ISSUER EXCEPTION TO TAX-EXEMPT
INTEREST EXPENSE ALLOCATION RULES FOR FINANCIAL
INSTITUTIONS.
(a) In General.--Paragraph (3) of section 265(b) (relating to
exception for certain tax-exempt obligations) is amended by adding at
the end the following new subparagraph:
``(G) Special rules for obligations issued during
2009 and 2010.--
``(i) Increase in limitation.--In the case of
obligations issued during 2009 or 2010,
subparagraphs (C)(i), (D)(i), and (D)(iii)(II)
shall each be applied by substituting
`$30,000,000' for `$10,000,000'.
``(ii) Qualified 501(c)(3) bonds treated as
issued by exempt organization.--In the case of
a qualified 501(c)(3) bond (as defined in
section 145) issued during 2009 or 2010, this
paragraph shall be applied by treating the
501(c)(3) organization for whose benefit such
bond was issued as the issuer.
``(iii) Special rule for qualified
financings.--In the case of a qualified
financing issue issued during 2009 or 2010--
``(I) subparagraph (F) shall not
apply, and
``(II) any obligation issued as a
part of such issue shall be treated as
a qualified tax-exempt obligation if
the requirements of this paragraph are
met with respect to each qualified
portion of the issue (determined by
treating each qualified portion as a
separate issue issued by the qualified
borrower with respect to which such
portion relates).
``(iv) Qualified financing issue.--For
purposes of this subparagraph, the term
`qualified financing issue' means any
composite, pooled, or other conduit financing
issue the proceeds of which are used directly
or indirectly to make or finance loans to one
or more ultimate borrowers each of whom is a
qualified borrower.
``(v) Qualified portion.--For purposes of
this subparagraph, the term `qualified portion'
means that portion of the proceeds which are
used with respect to each qualified borrower
under the issue.
``(vi) Qualified borrower.--For purposes of
this subparagraph, the term `qualified
borrower' means a borrower which is a State or
political subdivision thereof or an
organization described in section 501(c)(3) and
exempt from taxation under section 501(a).''.
(b) Effective Date.--The amendments made by this section shall apply
to obligations issued after December 31, 2008.
SEC. 1503. TEMPORARY MODIFICATION OF ALTERNATIVE MINIMUM TAX
LIMITATIONS ON TAX-EXEMPT BONDS.
(a) Interest on Private Activity Bonds Issued During 2009 and 2010
Not Treated as Tax Preference Item.--Subparagraph (C) of section
57(a)(5) is amended by adding at the end a new clause:
``(vi) Exception for bonds issued in 2009 and
2010.--For purposes of clause (i), the term
`private activity bond' shall not include any
bond issued after December 31, 2008, and before
January 1, 2011. For purposes of the preceding
sentence, a refunding bond (whether a current
or advance refunding) shall be treated as
issued on the date of the issuance of the
refunded bond (or in the case of a series of
refundings, the original bond).''.
(b) No Adjustment to Adjusted Current Earnings for Interest on Tax-
Exempt Bonds Issued After 2008.--Subparagraph (B) of section 56(g)(4)
is amended by adding at the end the following new clause:
``(iv) Tax exempt interest on bonds issued in
2009 and 2010.--Clause (i) shall not apply in
the case of any interest on a bond issued after
December 31, 2008, and before January 1, 2011.
For purposes of the preceding sentence, a
refunding bond (whether a current or advance
refunding) shall be treated as issued on the
date of the issuance of the refunded bond (or
in the case of a series of refundings, the
original bond).''.
(c) Effective Date.--The amendments made by this section shall apply
to obligations issued after December 31, 2008.
PART 2--TAX CREDIT BONDS FOR SCHOOLS
SEC. 1511. QUALIFIED SCHOOL CONSTRUCTION BONDS.
(a) In General.--Subpart I of part IV of subchapter A of chapter 1 is
amended by adding at the end the following new section:
``SEC. 54F. QUALIFIED SCHOOL CONSTRUCTION BONDS.
``(a) Qualified School Construction Bond.--For purposes of this
subchapter, the term `qualified school construction bond' means any
bond issued as part of an issue if--
``(1) 100 percent of the available project proceeds of such
issue are to be used for the construction, rehabilitation, or
repair of a public school facility or for the acquisition of
land on which such a facility is to be constructed with part of
the proceeds of such issue,
``(2) the bond is issued by a State or local government
within the jurisdiction of which such school is located, and
``(3) the issuer designates such bond for purposes of this
section.
``(b) Limitation on Amount of Bonds Designated.--The maximum
aggregate face amount of bonds issued during any calendar year which
may be designated under subsection (a) by any issuer shall not exceed
the sum of--
``(1) the limitation amount allocated under subsection (d)
for such calendar year to such issuer, and
``(2) if such issuer is a large local educational agency (as
defined in subsection (e)(4)) or is issuing on behalf of such
an agency, the limitation amount allocated under subsection (e)
for such calendar year to such agency.
``(c) National Limitation on Amount of Bonds Designated.--There is a
national qualified school construction bond limitation for each
calendar year. Such limitation is--
``(1) $11,000,000,000 for 2009,
``(2) $11,000,000,000 for 2010, and
``(3) except as provided in subsection (f), zero after 2010.
``(d) 60 Percent of Limitation Allocated Among States.--
``(1) In general.--60 percent of the limitation applicable
under subsection (c) for any calendar year shall be allocated
by the Secretary among the States in proportion to the
respective numbers of children in each State who have attained
age 5 but not age 18 for the most recent fiscal year ending
before such calendar year. The limitation amount allocated to a
State under the preceding sentence shall be allocated by the
State to issuers within such State.
``(2) Minimum allocations to states.--
``(A) In general.--The Secretary shall adjust the
allocations under this subsection for any calendar year
for each State to the extent necessary to ensure that
the sum of--
``(i) the amount allocated to such State
under this subsection for such year, and
``(ii) the aggregate amounts allocated under
subsection (e) to large local educational
agencies in such State for such year,
is not less than an amount equal to such State's
adjusted minimum percentage of the amount to be
allocated under paragraph (1) for the calendar year.
``(B) Adjusted minimum percentage.--A State's
adjusted minimum percentage for any calendar year is
the product of--
``(i) the minimum percentage described in
section 1124(d) of the Elementary and Secondary
Education Act of 1965 (20 U.S.C. 6334(d)) for
such State for the most recent fiscal year
ending before such calendar year, multiplied by
``(ii) 1.68.
``(3) Allocations to certain possessions.--The amount to be
allocated under paragraph (1) to any possession of the United
States other than Puerto Rico shall be the amount which would
have been allocated if all allocations under paragraph (1) were
made on the basis of respective populations of individuals
below the poverty line (as defined by the Office of Management
and Budget). In making other allocations, the amount to be
allocated under paragraph (1) shall be reduced by the aggregate
amount allocated under this paragraph to possessions of the
United States.
``(4) Allocations for indian schools.--In addition to the
amounts otherwise allocated under this subsection, $200,000,000
for calendar year 2009, and $200,000,000 for calendar year
2010, shall be allocated by the Secretary of the Interior for
purposes of the construction, rehabilitation, and repair of
schools funded by the Bureau of Indian Affairs. In the case of
amounts allocated under the preceding sentence, Indian tribal
governments (as defined in section 7701(a)(40)) shall be
treated as qualified issuers for purposes of this subchapter.
``(e) 40 Percent of Limitation Allocated Among Largest School
Districts.--
``(1) In general.--40 percent of the limitation applicable
under subsection (c) for any calendar year shall be allocated
under paragraph (2) by the Secretary among local educational
agencies which are large local educational agencies for such
year.
``(2) Allocation formula.--The amount to be allocated under
paragraph (1) for any calendar year shall be allocated among
large local educational agencies in proportion to the
respective amounts each such agency received for Basic Grants
under subpart 2 of part A of title I of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for
the most recent fiscal year ending before such calendar year.
``(3) Allocation of unused limitation to state.--The amount
allocated under this subsection to a large local educational
agency for any calendar year may be reallocated by such agency
to the State in which such agency is located for such calendar
year. Any amount reallocated to a State under the preceding
sentence may be allocated as provided in subsection (d)(1).
``(4) Large local educational agency.--For purposes of this
section, the term `large local educational agency' means, with
respect to a calendar year, any local educational agency if
such agency is--
``(A) among the 100 local educational agencies with
the largest numbers of children aged 5 through 17 from
families living below the poverty level, as determined
by the Secretary using the most recent data available
from the Department of Commerce that are satisfactory
to the Secretary, or
``(B) 1 of not more than 25 local educational
agencies (other than those described in subparagraph
(A)) that the Secretary of Education determines (based
on the most recent data available satisfactory to the
Secretary) are in particular need of assistance, based
on a low level of resources for school construction, a
high level of enrollment growth, or such other factors
as the Secretary deems appropriate.
``(f) Carryover of Unused Limitation.--If for any calendar year--
``(1) the amount allocated under subsection (d) to any State,
exceeds
``(2) the amount of bonds issued during such year which are
designated under subsection (a) pursuant to such allocation,
the limitation amount under such subsection for such State for the
following calendar year shall be increased by the amount of such
excess. A similar rule shall apply to the amounts allocated under
subsection (d)(4) or (e).''.
(b) Conforming Amendments.--
(1) Paragraph (1) of section 54A(d) is amended by striking
``or'' at the end of subparagraph (C), by inserting ``or'' at
the end of subparagraph (D), and by inserting after
subparagraph (D) the following new subparagraph:
``(E) a qualified school construction bond,''.
(2) Subparagraph (C) of section 54A(d)(2) is amended by
striking ``and'' at the end of clause (iii), by striking the
period at the end of clause (iv) and inserting ``, and'', and
by adding at the end the following new clause:
``(v) in the case of a qualified school
construction bond, a purpose specified in
section 54F(a)(1).''.
(3) The table of sections for subpart I of part IV of
subchapter A of chapter 1 is amended by adding at the end the
following new item:
``Sec. 54F. Qualified school construction bonds.''.
(c) Effective Date.--The amendments made by this section shall apply
to obligations issued after December 31, 2008.
SEC. 1512. EXTENSION AND EXPANSION OF QUALIFIED ZONE ACADEMY BONDS.
(a) In General.--Section 54E(c)(1) is amended by striking ``and
2009'' and inserting ``and $1,400,000,000 for 2009 and 2010''.
(b) Effective Date.--The amendment made by this section shall apply
to obligations issued after December 31, 2008.
PART 3--TAXABLE BOND OPTION FOR GOVERNMENTAL BONDS
SEC. 1521. TAXABLE BOND OPTION FOR GOVERNMENTAL BONDS.
(a) In General.--Part IV of subchapter A of chapter 1 is amended by
adding at the end the following new subpart:
``Subpart J--Taxable Bond Option for Governmental Bonds
``Sec. 54AA. Taxable bond option for governmental bonds.
``SEC. 54AA. TAXABLE BOND OPTION FOR GOVERNMENTAL BONDS.
``(a) In General.--If a taxpayer holds a taxable governmental bond on
one or more interest payment dates of the bond during any taxable year,
there shall be allowed as a credit against the tax imposed by this
chapter for the taxable year an amount equal to the sum of the credits
determined under subsection (b) with respect to such dates.
``(b) Amount of Credit.--The amount of the credit determined under
this subsection with respect to any interest payment date for a taxable
governmental bond is 35 percent of the amount of interest payable by
the issuer with respect to such date.
``(c) Limitation Based on Amount of Tax.--
``(1) In general.--The credit allowed under subsection (a)
for any taxable year shall not exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
part (other than subpart C and this subpart).
``(2) Carryover of unused credit.--If the credit allowable
under subsection (a) exceeds the limitation imposed by
paragraph (1) for such taxable year, such excess shall be
carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such taxable year
(determined before the application of paragraph (1) for such
succeeding taxable year).
``(d) Taxable Governmental Bond.--
``(1) In general.--For purposes of this section, the term
`taxable governmental bond' means any obligation (other than a
private activity bond) if--
``(A) the interest on such obligation would (but for
this section) be excludable from gross income under
section 103, and
``(B) the issuer makes an irrevocable election to
have this section apply.
``(2) Applicable rules.--For purposes of applying paragraph
(1)--
``(A) a taxable governmental bond shall not be
treated as federally guaranteed by reason of the credit
allowed under subsection (a) or section 6432,
``(B) the yield on a taxable governmental bond shall
be determined without regard to the credit allowed
under subsection (a), and
``(C) a bond shall not be treated as a taxable
governmental bond if the issue price has more than a de
minimis amount (determined under rules similar to the
rules of section 1273(a)(3)) of premium over the stated
principal amount of the bond.
``(e) Interest Payment Date.--For purposes of this section, the term
`interest payment date' means any date on which the holder of record of
the taxable governmental bond is entitled to a payment of interest
under such bond.
``(f) Special Rules.--
``(1) Interest on taxable governmental bonds includible in
gross income for federal income tax purposes.--For purposes of
this title, interest on any taxable governmental bond shall be
includible in gross income.
``(2) Application of certain rules.--Rules similar to the
rules of subsections (f), (g), (h), and (i) of section 54A
shall apply for purposes of the credit allowed under subsection
(a).
``(g) Special Rule for Qualified Bonds Issued Before 2011.--In the
case of a qualified bond issued before January 1, 2011--
``(1) Issuer allowed refundable credit.--In lieu of any
credit allowed under this section with respect to such bond,
the issuer of such bond shall be allowed a credit as provided
in section 6432.
``(2) Qualified bond.--For purposes of this subsection, the
term `qualified bond' means any taxable governmental bond
issued as part of an issue if--
``(A) 100 percent of the available project proceeds
(as defined in section 54A) of such issue are to be
used for capital expenditures, and
``(B) the issuer makes an irrevocable election to
have this subsection apply.
``(h) Regulations.--The Secretary may prescribe such regulations and
other guidance as may be necessary or appropriate to carry out this
section and section 6432.''.
(b) Credit for Qualified Bonds Issued Before 2011.--Subchapter B of
chapter 65, as amended by this Act, is amended by adding at the end the
following new section:
``SEC. 6432. CREDIT FOR QUALIFIED BONDS ALLOWED TO ISSUER.
``(a) In General.--In the case of a qualified bond issued before
January 1, 2011, the issuer of such bond shall be allowed a credit with
respect to each interest payment under such bond which shall be payable
by the Secretary as provided in subsection (b).
``(b) Payment of Credit.--The Secretary shall pay (contemporaneously
with each interest payment date under such bond) to the issuer of such
bond (or to any person who makes such interest payments on behalf of
the issuer) 35 percent of the interest payable under such bond on such
date.
``(c) Application of Arbitrage Rules.--For purposes of section 148,
the yield on a qualified bond shall be reduced by the credit allowed
under this section.
``(d) Interest Payment Date.--For purposes of this subsection, the
term `interest payment date' means each date on which interest is
payable by the issuer under the terms of the bond.
``(e) Qualified Bond.--For purposes of this subsection, the term
`qualified bond' has the meaning given such term in section 54AA(g).''.
(c) Conforming Amendments.--
(1) Section 1324(b)(2) of title 31, United States Code, is
amended by striking ``or 6428'' and inserting ``6428, or
6432,''.
(2) Section 54A(c)(1)(B) is amended by striking ``subpart C''
and inserting ``subparts C and J''.
(3) Sections 54(c)(2), 1397E(c)(2), and 1400N(l)(3)(B) are
each amended by striking ``and I'' and inserting ``, I, and
J''.
(4) Section 6401(b)(1) is amended by striking ``and I'' and
inserting ``I, and J''.
(5) The table of subparts for part IV of subchapter A of
chapter 1 is amended by adding at the end the following new
item:
``Subpart J. Taxable bond option for governmental bonds.''.
(6) The table of sections for subchapter B of chapter 65, as
amended by this Act, is amended by adding at the end the
following new item:
``Sec. 6432. Credit for qualified bonds allowed to issuer.''.
(d) Transitional Coordination With State Law.--Except as otherwise
provided by a State after the date of the enactment of this Act, the
interest on any taxable governmental bond (as defined in section 54AA
of the Internal Revenue Code of 1986, as added by this section) and the
amount of any credit determined under such section with respect to such
bond shall be treated for purposes of the income tax laws of such State
as being exempt from Federal income tax.
(e) Effective Date.--The amendments made by this section shall apply
to obligations issued after the date of the enactment of this Act.
PART 4--RECOVERY ZONE BONDS
SEC. 1531. RECOVERY ZONE BONDS.
(a) In General.--Subchapter Y of chapter 1 is amended by adding at
the end the following new part:
``PART III--RECOVERY ZONE BONDS
``Sec. 1400U-1. Allocation of recovery zone bonds.
``Sec. 1400U-2. Recovery zone economic development bonds.
``Sec. 1400U-3. Recovery zone facility bonds.
``SEC. 1400U-1. ALLOCATION OF RECOVERY ZONE BONDS.
``(a) Allocations.--
``(1) In general.--The Secretary shall allocate the national
recovery zone economic development bond limitation and the
national recovery zone facility bond limitation among the
States in the proportion that each such State's 2008 State
employment decline bears to the aggregate of the 2008 State
employment declines for all of the States.
``(2) 2008 state employment decline.--For purposes of this
subsection, the term `2008 State employment decline' means,
with respect to any State, the excess (if any) of--
``(A) the number of individuals employed in such
State determined for December 2007, over
``(B) the number of individuals employed in such
State determined for December 2008.
``(3) Allocations by states.--
``(A) In general.--Each State with respect to which
an allocation is made under paragraph (1) shall
reallocate such allocation among the counties and large
municipalities in such State in the proportion the each
such county's or municipality's 2008 employment decline
bears to the aggregate of the 2008 employment declines
for all the counties and municipalities in such State.
``(B) Large municipalities.--For purposes of
subparagraph (A), the term `large municipality' means a
municipality with a population of more than 100,000.
``(C) Determination of local employment declines.--
For purposes of this paragraph, the employment decline
of any municipality or county shall be determined in
the same manner as determining the State employment
decline under paragraph (2), except that in the case of
a municipality any portion of which is in a county,
such portion shall be treated as part of such
municipality and not part of such county.
``(4) National limitations.--
``(A) Recovery zone economic development bonds.--
There is a national recovery zone economic development
bond limitation of $10,000,000,000.
``(B) Recovery zone facility bonds.--There is a
national recovery zone facility bond limitation of
$15,000,000,000.
``(b) Recovery Zone.--For purposes of this part, the term `recovery
zone' means--
``(1) any area designated by the issuer as having significant
poverty, unemployment, home foreclosures, or general distress,
and
``(2) any area for which a designation as an empowerment zone
or renewal community is in effect.
``SEC. 1400U-2. RECOVERY ZONE ECONOMIC DEVELOPMENT BONDS.
``(a) In General.--In the case of a recovery zone economic
development bond--
``(1) such bond shall be treated as a qualified bond for
purposes of section 6432, and
``(2) subsection (b) of such section shall be applied by
substituting `55 percent' for `35 percent'.
``(b) Recovery Zone Economic Development Bond.--
``(1) In general.--For purposes of this section, the term
`recovery zone economic development bond' means any taxable
governmental bond (as defined in section 54AA(d)) issued before
January 1, 2011, as part of issue if--
``(A) 100 percent of the available project proceeds
(as defined in section 54A) of such issue are to be
used for one or more qualified economic development
purposes, and
``(B) the issuer designates such bond for purposes of
this section.
``(2) Limitation on amount of bonds designated.--The maximum
aggregate face amount of bonds which may be designated by any
issuer under paragraph (1) shall not exceed the amount of the
recovery zone economic development bond limitation allocated to
such issuer under section 1400U-1.
``(c) Qualified Economic Development Purpose.--For purposes of this
section, the term `qualified economic development purpose' means
expenditures for purposes of promoting development or other economic
activity in a recovery zone, including--
``(1) capital expenditures paid or incurred with respect to
property located in such zone,
``(2) expenditures for public infrastructure and construction
of public facilities, and
``(3) expenditures for job training and educational programs.
``SEC. 1400U-3. RECOVERY ZONE FACILITY BONDS.
``(a) In General.--For purposes of part IV of subchapter B (relating
to tax exemption requirements for State and local bonds), the term
`exempt facility bond' includes any recovery zone facility bond.
``(b) Recovery Zone Facility Bond.--
``(1) In general.--For purposes of this section, the term
`recovery zone facility bond' means any bond issued as part of
an issue if--
``(A) 95 percent or more of the net proceeds (as
defined in section 150(a)(3)) of such issue are to be
used for recovery zone property,
``(B) such bond is issued before January 1, 2011, and
``(C) the issuer designates such bond for purposes of
this section.
``(2) Limitation on amount of bonds designated.--The maximum
aggregate face amount of bonds which may be designated by any
issuer under paragraph (1) shall not exceed the amount of
recovery zone facility bond limitation allocated to such issuer
under section 1400U-1.
``(c) Recovery Zone Property.--For purposes of this section--
``(1) In general.--The term `recovery zone property' means
any property to which section 168 applies (or would apply but
for section 179) if--
``(A) such property was acquired by the taxpayer by
purchase (as defined in section 179(d)(2)) after the
date on which the designation of the recovery zone took
effect,
``(B) the original use of which in the recovery zone
commences with the taxpayer, and
``(C) substantially all of the use of which is in the
recovery zone and is in the active conduct of a
qualified business by the taxpayer in such zone.
``(2) Qualified business.--The term `qualified business'
means any trade or business except that--
``(A) the rental to others of real property located
in a recovery zone shall be treated as a qualified
business only if the property is not residential rental
property (as defined in section 168(e)(2)), and
``(B) such term shall not include any trade or
business consisting of the operation of any facility
described in section 144(c)(6)(B).
``(3) Special rules for substantial renovations and sale-
leaseback.--Rules similar to the rules of subsections (a)(2)
and (b) of section 1397D shall apply for purposes of this
subsection.
``(d) Nonapplication of Certain Rules.--Sections 146 (relating to
volume cap) and 147(d) (relating to acquisition of existing property
not permitted) shall not apply to any recovery zone facility bond.''.
(b) Clerical Amendment.--The table of parts for subchapter Y of
chapter 1 of such Code is amended by adding at the end the following
new item:
``Part III. Recovery Zone Bonds.''.
(c) Effective Date.--The amendments made by this section shall apply
to obligations issued after the date of the enactment of this Act.
SEC. 1532. TRIBAL ECONOMIC DEVELOPMENT BONDS.
(a) In General.--Section 7871 is amended by adding at the end the
following new subsection:
``(f) Tribal Economic Development Bonds.--
``(1) Allocation of limitation.--
``(A) In general.--The Secretary shall allocate the
national tribal economic development bond limitation
among the Indian tribal governments in such manner as
the Secretary, in consultation with the Secretary of
the Interior, determines appropriate.
``(B) National limitation.--There is a national
tribal economic development bond limitation of
$2,000,000,000.
``(2) Bonds treated as exempt from tax.--In the case of a
tribal economic development bond--
``(A) notwithstanding subsection (c), such bond shall
be treated for purposes of this title in the same
manner as if such bond were issued by a State, and
``(B) section 146 shall not apply.
``(3) Tribal economic development bond.--
``(A) In general.--For purposes of this section, the
term `tribal economic development bond' means any bond
issued by an Indian tribal government--
``(i) the interest on which is not exempt
from tax under section 103 by reason of
subsection (c) (determined without regard to
this subsection) but would be so exempt if
issued by a State or local government, and
``(ii) which is designated by the Indian
tribal government as a tribal economic
development bond for purposes of this
subsection.
``(B) Exceptions.--The term tribal economic
development bond shall not include any bond issued as
part of an issue if any portion of the proceeds of such
issue are used to finance--
``(i) any portion of a building in which
class II or class III gaming (as defined in
section 4 of the Indian Gaming Regulatory Act)
is conducted or housed or any other property
actually used in the conduct of such gaming, or
``(ii) any facility located outside the
Indian reservation (as defined in section
168(j)(6)).
``(C) Limitation on amount of bonds designated.--The
maximum aggregate face amount of bonds which may be
designated by any Indian tribal government under
subparagraph (A) shall not exceed the amount of
national tribal economic development bond limitation
allocated to such government under paragraph (1).''.
(b) Study.--The Secretary of the Treasury, or the Secretary's
delegate, shall conduct a study of the effects of the amendment made by
subsection (a). Not later than 1 year after the date of the enactment
of this Act, the Secretary of the Treasury, or the Secretary's
delegate, shall report to Congress on the results of the studies
conducted under this paragraph, including the Secretary's
recommendations regarding such amendment.
(c) Effective Date.--The amendment made by subsection (a) shall apply
to obligations issued after the date of the enactment of this Act.
PART 5--REPEAL OF WITHHOLDING TAX ON GOVERNMENT CONTRACTORS
SEC. 1541. REPEAL OF WITHHOLDING TAX ON GOVERNMENT CONTRACTORS.
Section 3402 is amended by striking subsection (t).
Subtitle G--Energy Incentives
PART 1--RENEWABLE ENERGY INCENTIVES
SEC. 1601. EXTENSION OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN
RENEWABLE RESOURCES.
(a) In General.--Subsection (d) of section 45 is amended--
(1) by striking ``2010'' in paragraph (1) and inserting
``2013'',
(2) by striking ``2011'' each place it appears in paragraphs
(2), (3), (4), (6), (7) and (9) and inserting ``2014'', and
(3) by striking ``2012'' in paragraph (11)(B) and inserting
``2014''.
(b) Technical Amendment.--Paragraph (5) of section 45(d) is amended
by striking ``and before'' and all that follows and inserting ``and
before October 3, 2008.''.
(c) Effective Date.--
(1) In general.--The amendments made by subsection (a) shall
apply to property placed in service after the date of the
enactment of this Act.
(2) Technical amendment.--The amendment made by subsection
(b) shall take effect as if included in section 102 of the
Energy Improvement and Extension Act of 2008.
SEC. 1602. ELECTION OF INVESTMENT CREDIT IN LIEU OF PRODUCTION CREDIT.
(a) In General.--Subsection (a) of section 48 is amended by adding at
the end the following new paragraph:
``(5) Election to treat qualified facilities as energy
property.--
``(A) In general.--In the case of any qualified
investment credit facility placed in service in 2009 or
2010--
``(i) such facility shall be treated as
energy property for purposes of this section,
and
``(ii) the energy percentage with respect to
such property shall be 30 percent.
``(B) Denial of production credit.--No credit shall
be allowed under section 45 for any taxable year with
respect to any qualified investment credit facility.
``(C) Qualified investment credit facility.--For
purposes of this paragraph, the term `qualified
investment credit facility' means any facility
described in paragraph (1), (2), (3), (4), (6), (7),
(9), or (11) of section 45(d) if no credit has been
allowed under section 45 with respect to such facility
and the taxpayer makes an irrevocable election to have
this paragraph apply to such facility.''.
(b) Effective Date.--The amendments made by this section shall apply
to facilities placed in service after December 31, 2008.
SEC. 1603. REPEAL OF CERTAIN LIMITATIONS ON CREDIT FOR RENEWABLE ENERGY
PROPERTY.
(a) Repeal of Limitation on Credit for Qualified Small Wind Energy
Property.--Paragraph (4) of section 48(c) is amended by striking
subparagraph (B) and by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C).
(b) Repeal of Limitation on Property Financed by Subsidized Energy
Financing.--
(1) In general.--Subsection (a) of section 48, as amended by
section 1602, is amended by striking paragraph (4) and by
redesignating paragraph (5) as paragraph (4).
(2) Conforming amendments.--
(A) Section 25C(e)(1) is amended by striking ``(8),
and (9)'' and inserting ``and (8)''.
(B) Section 25D(e) is amended by striking paragraph
(9).
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2),the
amendment made by this section shall apply to periods after
December 31, 2008, under rules similar to the rules of section
48(m) of the Internal Revenue Code of 1986 (as in effect on the
day before the date of the enactment of the Revenue
Reconciliation Act of 1990).
(2) Conforming amendments.--The amendments made by subsection
(b)(2) shall apply to taxable years beginning after December
31, 2008.
SEC. 1604. COORDINATION WITH RENEWABLE ENERGY GRANTS.
Section 48 is amended by adding at the end the following new
subsection:
``(d) Coordination With Department of Energy Grants.--In the case of
any property with respect to which the Secretary of Energy makes a
grant under section 1721 of the American Recovery and Reinvestment Tax
Act of 2009--
``(1) Denial of production and investment credits.--No credit
shall be determined under this section or section 45 with
respect to such property for the taxable year in which such
grant is made or any subsequent taxable year.
``(2) Recapture of credits for progress expenditures made
before grant.--If a credit was determined under this section
with respect to such property for any taxable year ending
before such grant is made--
``(A) the tax imposed under subtitle A on the
taxpayer for the taxable year in which such grant is
made shall be increased by so much of such credit as
was allowed under section 38,
``(B) the general business carryforwards under
section 39 shall be adjusted so as to recapture the
portion of such credit which was not so allowed, and
``(C) the amount of such grant shall be determined
without regard to any reduction in the basis of such
property by reason of such credit.
``(3) Treatment of grants.--Any such grant shall--
``(A) not be includible in the gross income of the
taxpayer, but
``(B) shall be taken into account in determining the
basis of the property to which such grant relates,
except that the basis of such property shall be reduced
under section 50(c) in the same manner as a credit
allowed under subsection (a).''.
PART 2--INCREASED ALLOCATIONS OF NEW CLEAN RENEWABLE ENERGY BONDS AND
QUALIFIED ENERGY CONSERVATION BONDS
SEC. 1611. INCREASED LIMITATION ON ISSUANCE OF NEW CLEAN RENEWABLE
ENERGY BONDS.
Subsection (c) of section 54C is amended by adding at the end the
following new paragraph:
``(4) Additional limitation.--The national new clean
renewable energy bond limitation shall be increased by
$1,600,000,000. Such increase shall be allocated by the
Secretary consistent with the rules of paragraphs (2) and
(3).''.
SEC. 1612. INCREASED LIMITATION AND EXPANSION OF QUALIFIED ENERGY
CONSERVATION BONDS.
(a) Increased Limitation.--Subsection (e) of section 54D is amended
by adding at the end the following new paragraph:
``(4) Additional limitation.--The national qualified energy
conservation bond limitation shall be increased by
$2,400,000,000. Such increase shall be allocated by the
Secretary consistent with the rules of paragraphs (1), (2), and
(3).''.
(b) Loans and Grants to Implement Green Community Programs.--
(1) In general.--Subparagraph (A) of section 54D(f)(1) is
amended by inserting ``(or loans or grants for capital
expenditures to implement any green community program)'' after
``Capital expenditures''.
(2) Bonds to implement green community programs not treated
as private activity bonds for purposes of limitations on
qualified energy conservation bonds.--Subsection (e) of section
54D, as amended by subsection (a), is amended by adding at the
end the following new paragraph:
``(5) Bonds to implement green community programs not treated
as private activity bonds.--For purposes of paragraph (3) and
subsection (f)(2), a bond shall not be treated as a private
activity bond solely because proceeds of the issue of which
such bond is a part are to be used for loans or grants for
capital expenditures to implement any green community
program.''.
(c) Effective Date.--The amendments made by this section shall apply
to obligations issued after the date of the enactment of this Act.
PART 3--ENERGY CONSERVATION INCENTIVES
SEC. 1621. EXTENSION AND MODIFICATION OF CREDIT FOR NONBUSINESS ENERGY
PROPERTY.
(a) In General.--Section 25C is amended by striking subsections (a)
and (b) and inserting the following new subsections:
``(a) Allowance of Credit.--In the case of an individual, there shall
be allowed as a credit against the tax imposed by this chapter for the
taxable year an amount equal to 30 percent of the sum of--
``(1) the amount paid or incurred by the taxpayer during such
taxable year for qualified energy efficiency improvements, and
``(2) the amount of the residential energy property
expenditures paid or incurred by the taxpayer during such
taxable year.
``(b) Limitation.--The aggregate amount of the credits allowed under
this section for taxable years beginning in 2009 and 2010 with respect
to any taxpayer shall not exceed $1,500.''.
(b) Extension.--Section 25C(g)(2) is amended by striking ``December
31, 2009'' and inserting ``December 31, 2010''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2008.
SEC. 1622. MODIFICATION OF CREDIT FOR RESIDENTIAL ENERGY EFFICIENT
PROPERTY.
(a) Removal of Credit Limitation for Property Placed in Service.--
(1) In general.--Paragraph (1) of section 25D(b) is amended
to read as follows:
``(1) Maximum credit for fuel cells.--In the case of any
qualified fuel cell property expenditure, the credit allowed
under subsection (a) (determined without regard to subsection
(c)) for any taxable year shall not exceed $500 with respect to
each half kilowatt of capacity of the qualified fuel cell
property (as defined in section 48(c)(1)) to which such
expenditure relates.''.
(2) Conforming amendment.--Paragraph (4) of section 25D(e) is
amended--
(A) by striking all that precedes subparagraph (B)
and inserting the following:
``(4) Fuel cell expenditure limitations in case of joint
occupancy.--In the case of any dwelling unit with respect to
which qualified fuel cell property expenditures are made and
which is jointly occupied and used during any calendar year as
a residence by two or more individuals the following rules
shall apply:
``(A) Maximum expenditures for fuel cells.--The
maximum amount of such expenditures which may be taken
into account under subsection (a) by all such
individuals with respect to such dwelling unit during
such calendar year shall be $1,667 in the case of each
half kilowatt of capacity of qualified fuel cell
property (as defined in section 48(c)(1)) with respect
to which such expenditures relate.'', and
(B) by striking subparagraph (C).
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2008.
SEC. 1623. TEMPORARY INCREASE IN CREDIT FOR ALTERNATIVE FUEL VEHICLE
REFUELING PROPERTY.
(a) In General.--Section 30C(e) is amended by adding at the end the
following new paragraph:
``(6) Special rule for property placed in service during 2009
and 2010.--In the case of property placed in service in taxable
years beginning after December 31, 2008, and before January 1,
2011--
``(A) in the case of any such property which does not
relate to hydrogen--
``(i) subsection (a) shall be applied by
substituting `50 percent' for `30 percent',
``(ii) subsection (b)(1) shall be applied by
substituting `$50,000' for `$30,000', and
``(iii) subsection (b)(2) shall be applied by
substituting `$2,000' for `$1,000', and
``(B) in the case of any such property which relates
to hydrogen, subsection (b) shall be applied by
substituting `$200,000' for `$30,000'.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2008.
PART 4--ENERGY RESEARCH INCENTIVES
SEC. 1631. INCREASED RESEARCH CREDIT FOR ENERGY RESEARCH.
(a) In General.--Section 41 is amended by redesignating subsection
(h) as subsection (i) and by inserting after subsection (g) the
following new subsection:
``(h) Energy Research Credit.--In the case of any taxable year
beginning in 2009 or 2010--
``(1) In general.--The credit determined under subsection
(a)(1) shall be increased by 20 percent of the qualified energy
research expenses for the taxable year.
``(2) Qualified energy research expenses.--For purposes of
this subsection, the term `qualified energy research expenses'
means so much of the taxpayer's qualified research expenses as
are related to the fields of fuel cells and battery technology,
renewable energy, energy conservation technology, efficient
transmission and distribution of electricity, and carbon
capture and sequestration.
``(3) Coordination with other research credits.--
``(A) Incremental credit.--The amount of qualified
energy research expenses taken into account under
subsection (a)(1)(A) shall not exceed the base amount.
``(B) Alternative simplified credit.--For purposes of
subsection (c)(5), the amount of qualified energy
research expenses taken into account for the taxable
year for which the credit is being determined shall not
exceed--
``(i) in the case of subsection (c)(5)(A), 50
percent of the average qualified research
expenses for the 3 taxable years preceding the
taxable year for which the credit is being
determined, and
``(ii) in the case of subsection
(c)(5)(B)(ii), zero.
``(C) Basic research and energy research consortium
payments.--Any amount taken into account under
paragraph (1) shall not be taken into account under
paragraph (2) or (3) of subsection (a).''.
(b) Conforming Amendment.--Subparagraph (B) of section 41(i)(1), as
redesignated by subsection (a), is amended by inserting ``(in the case
of the increase in the credit determined under subsection (h), December
31, 2010)'' after ``December 31, 2009''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2008.
Subtitle H--Other Provisions
PART 1--APPLICATION OF CERTAIN LABOR STANDARDS TO PROJECTS FINANCED
WITH CERTAIN TAX-FAVORED BONDS
SEC. 1701. APPLICATION OF CERTAIN LABOR STANDARDS TO PROJECTS FINANCED
WITH CERTAIN TAX-FAVORED BONDS.
Subchapter IV of chapter 31 of the title 40, United States Code,
shall apply to projects financed with the proceeds of--
(1) any qualified clean renewable energy bond (as defined in
section 54C of the Internal Revenue Code of 1986) issued after
the date of the enactment of this Act,
(2) any qualified energy conservation bond (as defined in
section 54D of the Internal Revenue Code of 1986) issued after
the date of the enactment of this Act,
(3) any qualified zone academy bond (as defined in section
54E of the Internal Revenue Code of 1986) issued after the date
of the enactment of this Act,
(4) any qualified school construction bond (as defined in
section 54F of the Internal Revenue Code of 1986), and
(5) any recovery zone economic development bond (as defined
in section 1400U-2 of the Internal Revenue Code of 1986).
PART 2--GRANTS TO PROVIDE FINANCING FOR LOW-INCOME HOUSING
SEC. 1711. GRANTS TO STATES FOR LOW-INCOME HOUSING PROJECTS IN LIEU OF
LOW-INCOME HOUSING CREDIT ALLOCATIONS FOR 2009.
(a) In General.--The Secretary of the Treasury shall make a grant to
the housing credit agency of each State in an amount equal to such
State's low-income housing grant election amount.
(b) Low-Income Housing Grant Election Amount.--For purposes of this
section, the term ``low-income housing grant election amount'' means,
with respect to any State, such amount as the State may elect which
does not exceed 85 percent of the product of--
(1) the sum of--
(A) 100 percent of the State housing credit ceiling
for 2009 which is attributable to amounts described in
clauses (i) and (iii) of section 42(h)(3)(C) of the
Internal Revenue Code of 1986, and
(B) 40 percent of the State housing credit ceiling
for 2009 which is attributable to amounts described in
clauses (ii) and (iv) of such section, multiplied by
(2) 10.
(c) Subawards for Low-Income Buildings.--
(1) In general.--A State housing credit agency receiving a
grant under this section shall use such grant to make subawards
to finance the construction or acquisition and rehabilitation
of qualified low-income buildings. A subaward under this
section may be made to finance a qualified low-income building
with or without an allocation under section 42 of the Internal
Revenue Code of 1986, except that a State housing credit agency
may make subawards to finance qualified low-income buildings
without an allocation only if it makes a determination that
such use will increase the total funds available to the State
to build and rehabilitate affordable housing. In complying with
such determination requirement, a State housing credit agency
shall establish a process in which applicants that are
allocated credits are required to demonstrate good faith
efforts to obtain investment commitments for such credits
before the agency makes such subawards.
(2) Subawards subject to same requirements as low-income
housing credit allocations.--Any such subaward with respect to
any qualified low-income building shall be made in the same
manner and shall be subject to the same limitations (including
rent, income, and use restrictions on such building) as an
allocation of housing credit dollar amount allocated by such
State housing credit agency under section 42 of the Internal
Revenue Code of 1986, except that such subawards shall not be
limited by, or otherwise affect (except as provided in
subsection (h)(3)(J) of such section), the State housing credit
ceiling applicable to such agency.
(3) Compliance and asset management.--The State housing
credit agency shall perform asset management functions to
ensure compliance with section 42 of the Internal Revenue Code
of 1986 and the long-term viability of buildings funded by any
subaward under this section. The State housing credit agency
may collect reasonable fees from a subaward recipient to cover
expenses associated with the performance of its duties under
this paragraph. The State housing credit agency may retain an
agent or other private contractor to satisfy the requirements
of this paragraph.
(4) Recapture.--The State housing credit agency shall impose
conditions or restrictions, including a requirement providing
for recapture, on any subaward under this section so as to
assure that the building with respect to which such subaward is
made remains a qualified low-income building during the
compliance period. Any such recapture shall be payable to the
Secretary of the Treasury for deposit in the general fund of
the Treasury and may be enforced by means of liens or such
other methods as the Secretary of the Treasury determines
appropriate.
(d) Return of Unused Grant Funds.--Any grant funds not used to make
subawards under this section before January 1, 2011, shall be returned
to the Secretary of the Treasury on such date. Any subawards returned
to the State housing credit agency on or after such date shall be
promptly returned to the Secretary of the Treasury. Any amounts
returned to the Secretary of the Treasury under this subsection shall
be deposited in the general fund of the Treasury.
(e) Definitions.--Any term used in this section which is also used in
section 42 of the Internal Revenue Code of 1986 shall have the same
meaning for purposes of this section as when used in such section 42.
Any reference in this section to the Secretary of the Treasury shall be
treated as including the Secretary's delegate.
(f) Appropriations.--There is hereby appropriated to the Secretary of
the Treasury such sums as may be necessary to carry out this section.
PART 3--GRANTS FOR SPECIFIED ENERGY PROPERTY IN LIEU OF TAX CREDITS
SEC. 1721. GRANTS FOR SPECIFIED ENERGY PROPERTY IN LIEU OF TAX CREDITS.
(a) In General.--Upon application, the Secretary of Energy shall,
within 60 days of the application and subject to the requirements of
this section, provide a grant to each person who places in service
specified energy property during 2009 or 2010 to reimburse such person
for a portion of the expense of such facility as provided in subsection
(b).
(b) Grant Amount.--
(1) In general.--The amount of the grant under subsection (a)
with respect to any specified energy property shall be the
applicable percentage of the basis of such facility.
(2) Applicable percentage.--For purposes of paragraph (1),
the term ``applicable percentage'' means--
(A) 30 percent in the case of any property described
in paragraphs (1) through (4) of subsection (c), and
(B) 10 percent in the case of any other property.
(3) Dollar limitations.--In the case of property described in
paragraph (2), (6), or (7) of subsection (c), the amount of any
grant under this section with respect to such property shall
not exceed the limitation described in section 48(c)(1)(B),
48(c)(2)(B), or 48(c)(3)(B) of the Internal Revenue Code of
1986, respectively, with respect to such property.
(c) Specified Energy Property.--For purposes of this section, the
term ``specified energy property'' means any of the following:
(1) Qualified facilities.--Any facility described in
paragraph (1), (2), (3), (4), (6), (7), (9), or (11) of section
45(d) of the Internal Revenue Code of 1986.
(2) Qualified fuel cell property.--Any qualified fuel cell
property (as defined in section 48(c)(1) of such Code).
(3) Solar property.--Any property described in clause (i) or
(ii) of section 48(a)(3)(A) of such Code.
(4) Qualified small wind energy property.--Any qualified
small wind energy property (as defined in section 48(c)(4) of
such Code).
(5) Geothermal property.--Any property described in clause
(iii) of section 48(a)(3)(A) of such Code.
(6) Qualified microturbine property.--Any qualified
microturbine property (as defined in section 48(c)(2) of such
Code).
(7) Combined heat and power system property.--Any combined
heat and power system property (as defined in section 48(c)(3)
of such Code).
(8) Geothermal heatpump property.--Any property described in
clause (vii) of section 48(a)(3)(A) of such Code.
(d) Application of Certain Rules.--In making grants under this
section, the Secretary of Energy shall apply rules similar to the rules
of section 50 of the Internal Revenue Code of 1986. In applying such
rules, if the facility is disposed of, or otherwise ceases to be a
qualified renewable energy facility, the Secretary of Energy shall
provide for the recapture of the appropriate percentage of the grant
amount in such manner as the Secretary of Energy determines
appropriate.
(e) Exception for Certain Non-Taxpayers.--The Secretary of Energy
shall not make any grant under this section to any Federal, State, or
local government (or any political subdivision, agency, or
instrumentality thereof) or any organization described in section
501(c) of the Internal Revenue Code of 1986 and exempt from tax under
section 501(a) of such Code.
(f) Definitions.--Terms used in this section which are also used in
section 45 or 48 of the Internal Revenue Code of 1986 shall have the
same meaning for purposes of this section as when used in such section
45 or 48. Any reference in this section to the Secretary of the
Treasury shall be treated as including the Secretary's delegate.
(g) Coordination Between Departments of Treasury and Energy.--The
Secretary of the Treasury shall provide the Secretary of Energy with
such technical assistance as the Secretary of Energy may require in
carrying out this section. The Secretary of Energy shall provide the
Secretary of the Treasury with such information as the Secretary of the
Treasury may require in carrying out the amendment made by section
1604.
(h) Appropriations.--There is hereby appropriated to the Secretary of
Energy such sums as may be necessary to carry out this section.
(i) Termination.--The Secretary of Energy shall not make any grant to
any person under this section unless the application of such person for
such grant is received before October 1, 2011.
PART 4--STUDY OF ECONOMIC, EMPLOYMENT, AND RELATED EFFECTS OF THIS ACT
SEC. 1731. STUDY OF ECONOMIC, EMPLOYMENT, AND RELATED EFFECTS OF THIS
ACT.
On February 1, 2010, and every 3 months thereafter in calendar year
2010, the Comptroller General of the United States shall submit to the
Committee on Ways and Means a written report on the most recent
national (and, where available, State-by-State) information on--
(1) the economic effects of this Act;
(2) the employment effects of this Act, including--
(A) a comparison of the number of jobs preserved and
the number of jobs created as a result of this Act; and
(B) a comparison of the numbers of jobs preserved and
the number of jobs created in each of the public and
private sectors;
(3) the share of tax and non-tax expenditures provided under
this Act that were spent or saved, by group and income class;
(4) how the funds provided to States under this Act have been
spent, including a breakdown of--
(A) funds used for services provided to citizens; and
(B) wages and other compensation for public
employees; and
(5) a description of any funds made available under this Act
that remain unspent, and the reasons why.
TITLE II--ASSISTANCE FOR UNEMPLOYED WORKERS AND STRUGGLING FAMILIES
SEC. 2000. SHORT TITLE.
This title may be cited as the ``Assistance for Unemployed Workers
and Struggling Families Act''.
Subtitle A--Unemployment Insurance
SEC. 2001. EXTENSION OF EMERGENCY UNEMPLOYMENT COMPENSATION PROGRAM.
(a) In General.--Section 4007 of the Supplemental Appropriations Act,
2008 (Public Law 110-252; 26 U.S.C. 3304 note), as amended by section 4
of the Unemployment Compensation Extension Act of 2008 (Public Law 110-
449; 122 Stat. 5015), is amended--
(1) by striking ``March 31, 2009'' each place it appears and
inserting ``December 31, 2009'';
(2) in the heading for subsection (b)(2), by striking ``march
31, 2009'' and inserting ``december 31, 2009''; and
(3) in subsection (b)(3), by striking ``August 27, 2009'' and
inserting ``May 31, 2010''.
(b) Financing Provisions.--Section 4004 of such Act is amended by
adding at the end the following:
``(e) Transfer of Funds.--Notwithstanding any other provision of law,
the Secretary of the Treasury shall transfer from the general fund of
the Treasury (from funds not otherwise appropriated)--
``(1) to the extended unemployment compensation account (as
established by section 905 of the Social Security Act) such
sums as the Secretary of Labor estimates to be necessary to
make payments to States under this title by reason of the
amendments made by section 2001(a) of the Assistance for
Unemployed Workers and Struggling Families Act; and
``(2) to the employment security administration account (as
established by section 901 of the Social Security Act) such
sums as the Secretary of Labor estimates to be necessary for
purposes of assisting States in meeting administrative costs by
reason of the amendments referred to in paragraph (1).
There are appropriated from the general fund of the Treasury, without
fiscal year limitation, the sums referred to in the preceding sentence
and such sums shall not be required to be repaid.''.
SEC. 2002. INCREASE IN UNEMPLOYMENT COMPENSATION BENEFITS.
(a) Federal-State Agreements.--Any State which desires to do so may
enter into and participate in an agreement under this section with the
Secretary of Labor (hereinafter in this section referred to as the
``Secretary''). Any State which is a party to an agreement under this
section may, upon providing 30 days' written notice to the Secretary,
terminate such agreement.
(b) Provisions of Agreement.--
(1) Additional compensation.--Any agreement under this
section shall provide that the State agency of the State will
make payments of regular compensation to individuals in amounts
and to the extent that they would be determined if the State
law of the State were applied, with respect to any week for
which the individual is (disregarding this section) otherwise
entitled under the State law to receive regular compensation,
as if such State law had been modified in a manner such that
the amount of regular compensation (including dependents'
allowances) payable for any week shall be equal to the amount
determined under the State law (before the application of this
paragraph) plus an additional $25.
(2) Allowable methods of payment.--Any additional
compensation provided for in accordance with paragraph (1)
shall be payable either--
(A) as an amount which is paid at the same time and
in the same manner as any regular compensation
otherwise payable for the week involved; or
(B) at the option of the State, by payments which are
made separately from, but on the same weekly basis as,
any regular compensation otherwise payable.
(c) Nonreduction Rule.--An agreement under this section shall not
apply (or shall cease to apply) with respect to a State upon a
determination by the Secretary that the method governing the
computation of regular compensation under the State law of that State
has been modified in a manner such that--
(1) the average weekly benefit amount of regular compensation
which will be payable during the period of the agreement
(determined disregarding any additional amounts attributable to
the modification described in subsection (b)(1)) will be less
than
(2) the average weekly benefit amount of regular compensation
which would otherwise have been payable during such period
under the State law, as in effect on December 31, 2008.
(d) Payments to States.--
(1) In general.--
(A) Full reimbursement.--There shall be paid to each
State which has entered into an agreement under this
section an amount equal to 100 percent of--
(i) the total amount of additional
compensation (as described in subsection
(b)(1)) paid to individuals by the State
pursuant to such agreement; and
(ii) any additional administrative expenses
incurred by the State by reason of such
agreement (as determined by the Secretary).
(B) Terms of payments.--Sums payable to any State by
reason of such State's having an agreement under this
section shall be payable, either in advance or by way
of reimbursement (as determined by the Secretary), in
such amounts as the Secretary estimates the State will
be entitled to receive under this section for each
calendar month, reduced or increased, as the case may
be, by any amount by which the Secretary finds that his
estimates for any prior calendar month were greater or
less than the amounts which should have been paid to
the State. Such estimates may be made on the basis of
such statistical, sampling, or other method as may be
agreed upon by the Secretary and the State agency of
the State involved.
(2) Certifications.--The Secretary shall from time to time
certify to the Secretary of the Treasury for payment to each
State the sums payable to such State under this section.
(3) Appropriation.--There are appropriated from the general
fund of the Treasury, without fiscal year limitation, such sums
as may be necessary for purposes of this subsection.
(e) Applicability.--
(1) In general.--An agreement entered into under this section
shall apply to weeks of unemployment--
(A) beginning after the date on which such agreement
is entered into; and
(B) ending before January 1, 2010.
(2) Transition rule for individuals remaining entitled to
regular compensation as of january 1, 2010.--In the case of any
individual who, as of the date specified in paragraph (1)(B),
has not yet exhausted all rights to regular compensation under
the State law of a State with respect to a benefit year that
began before such date, additional compensation (as described
in subsection (b)(1)) shall continue to be payable to such
individual for any week beginning on or after such date for
which the individual is otherwise eligible for regular
compensation with respect to such benefit year.
(3) Termination.--Notwithstanding any other provision of this
subsection, no additional compensation (as described in
subsection (b)(1)) shall be payable for any week beginning
after June 30, 2010.
(f) Fraud and Overpayments.--The provisions of section 4005 of the
Supplemental Appropriations Act, 2008 (Public Law 110-252; 122 Stat.
2356) shall apply with respect to additional compensation (as described
in subsection (b)(1)) to the same extent and in the same manner as in
the case of emergency unemployment compensation.
(g) Application to Other Unemployment Benefits.--
(1) In general.--Each agreement under this section shall
include provisions to provide that the purposes of the
preceding provisions of this section shall be applied with
respect to unemployment benefits described in subsection (h)(3)
to the same extent and in the same manner as if those benefits
were regular compensation.
(2) Eligibility and termination rules.-- Additional
compensation (as described in subsection (b)(1))--
(A) shall not be payable, pursuant to this
subsection, with respect to any unemployment benefits
described in subsection (h)(3) for any week beginning
on or after the date specified in subsection (e)(1)(B),
except in the case of an individual who was eligible to
receive additional compensation (as so described) in
connection with any regular compensation or any
unemployment benefits described in subsection (h)(3)
for any period of unemployment ending before such date;
and
(B) shall in no event be payable for any week
beginning after the date specified in subsection
(e)(3).
(h) Definitions.--For purposes of this section--
(1) the terms ``compensation'', ``regular compensation'',
``benefit year'', ``State'', ``State agency'', ``State law'',
and ``week'' have the respective meanings given such terms
under section 205 of the Federal-State Extended Unemployment
Compensation Act of 1970 (26 U.S.C. 3304 note);
(2) the term ``emergency unemployment compensation'' means
emergency unemployment compensation under title IV of the
Supplemental Appropriations Act, 2008 (Public Law 110-252; 122
Stat. 2353); and
(3) any reference to unemployment benefits described in this
paragraph shall be considered to refer to--
(A) extended compensation (as defined by section 205
of the Federal-State Extended Unemployment Compensation
Act of 1970); and
(B) unemployment compensation (as defined by section
85(b) of the Internal Revenue Code of 1986) provided
under any program administered by a State under an
agreement with the Secretary.
SEC. 2003. SPECIAL TRANSFERS FOR UNEMPLOYMENT COMPENSATION
MODERNIZATION.
(a) In General.--Section 903 of the Social Security Act (42 U.S.C.
1103) is amended by adding at the end the following:
``Special Transfers in Fiscal Years 2009, 2010, and 2011 for
Modernization
``(f)(1)(A) In addition to any other amounts, the Secretary of Labor
shall provide for the making of unemployment compensation modernization
incentive payments (hereinafter `incentive payments') to the accounts
of the States in the Unemployment Trust Fund, by transfer from amounts
reserved for that purpose in the Federal unemployment account, in
accordance with succeeding provisions of this subsection.
``(B) The maximum incentive payment allowable under this subsection
with respect to any State shall, as determined by the Secretary of
Labor, be equal to the amount obtained by multiplying $7,000,000,000 by
the same ratio as would apply under subsection (a)(2)(B) for purposes
of determining such State's share of any excess amount (as described in
subsection (a)(1)) that would have been subject to transfer to State
accounts, as of October 1, 2008, under the provisions of subsection
(a).
``(C) Of the maximum incentive payment determined under subparagraph
(B) with respect to a State--
``(i) one-third shall be transferred to the account of such
State upon a certification under paragraph (4)(B) that the
State law of such State meets the requirements of paragraph
(2); and
``(ii) the remainder shall be transferred to the account of
such State upon a certification under paragraph (4)(B) that the
State law of such State meets the requirements of paragraph
(3).
``(2) The State law of a State meets the requirements of this
paragraph if such State law--
``(A) uses a base period that includes the most recently
completed calendar quarter before the start of the benefit year
for purposes of determining eligibility for unemployment
compensation; or
``(B) provides that, in the case of an individual who would
not otherwise be eligible for unemployment compensation under
the State law because of the use of a base period that does not
include the most recently completed calendar quarter before the
start of the benefit year, eligibility shall be determined
using a base period that includes such calendar quarter.
``(3) The State law of a State meets the requirements of this
paragraph if such State law includes provisions to carry out at least 2
of the following subparagraphs:
``(A) An individual shall not be denied regular unemployment
compensation under any State law provisions relating to
availability for work, active search for work, or refusal to
accept work, solely because such individual is seeking only
part-time work (as defined by the Secretary of Labor), except
that the State law provisions carrying out this subparagraph
may exclude an individual if a majority of the weeks of work in
such individual's base period do not include part-time work (as
so defined).
``(B) An individual shall not be disqualified from regular
unemployment compensation for separating from employment if
that separation is for any compelling family reason. For
purposes of this subparagraph, the term `compelling family
reason' means the following:
``(i) Domestic violence, verified by such reasonable
and confidential documentation as the State law may
require, which causes the individual reasonably to
believe that such individual's continued employment
would jeopardize the safety of the individual or of any
member of the individual's immediate family (as defined
by the Secretary of Labor).
``(ii) The illness or disability of a member of the
individual's immediate family (as those terms are
defined by the Secretary of Labor).
``(iii) The need for the individual to accompany such
individual's spouse--
``(I) to a place from which it is impractical
for such individual to commute; and
``(II) due to a change in location of the
spouse's employment.
``(C) Weekly unemployment compensation is payable under this
subparagraph to any individual who is unemployed (as determined
under the State unemployment compensation law), has exhausted
all rights to regular unemployment compensation under the State
law, and is enrolled and making satisfactory progress in a
State-approved training program or in a job training program
authorized under the Workforce Investment Act of 1998. Such
programs shall prepare individuals who have been separated from
a declining occupation, or who have been involuntarily and
indefinitely separated from employment as a result of a
permanent reduction of operations at the individual's place of
employment, for entry into a high-demand occupation. The amount
of unemployment compensation payable under this subparagraph to
an individual for a week of unemployment shall be equal to the
individual's average weekly benefit amount (including
dependents' allowances) for the most recent benefit year, and
the total amount of unemployment compensation payable under
this subparagraph to any individual shall be equal to at least
26 times the individual's average weekly benefit amount
(including dependents' allowances) for the most recent benefit
year.
``(D) Dependents' allowances are provided, in the case of any
individual who is entitled to receive regular unemployment
compensation and who has any dependents (as defined by State
law), in an amount equal to at least $15 per dependent per
week, subject to any aggregate limitation on such allowances
which the State law may establish (but which aggregate
limitation on the total allowance for dependents paid to an
individual may not be less than $50 for each week of
unemployment or 50 percent of the individual's weekly benefit
amount for the benefit year, whichever is less).
``(4)(A) Any State seeking an incentive payment under this subsection
shall submit an application therefor at such time, in such manner, and
complete with such information as the Secretary of Labor may within 60
days after the date of the enactment of this subsection prescribe
(whether by regulation or otherwise), including information relating to
compliance with the requirements of paragraph (2) or (3), as well as
how the State intends to use the incentive payment to improve or
strengthen the State's unemployment compensation program. The Secretary
of Labor shall, within 30 days after receiving a complete application,
notify the State agency of the State of the Secretary's findings with
respect to the requirements of paragraph (2) or (3) (or both).
``(B)(i) If the Secretary of Labor finds that the State law
provisions (disregarding any State law provisions which are not then
currently in effect as permanent law or which are subject to
discontinuation) meet the requirements of paragraph (2) or (3), as the
case may be, the Secretary of Labor shall thereupon make a
certification to that effect to the Secretary of the Treasury, together
with a certification as to the amount of the incentive payment to be
transferred to the State account pursuant to that finding. The
Secretary of the Treasury shall make the appropriate transfer within 7
days after receiving such certification.
``(ii) For purposes of clause (i), State law provisions which are to
take effect within 12 months after the date of their certification
under this subparagraph shall be considered to be in effect as of the
date of such certification.
``(C)(i) No certification of compliance with the requirements of
paragraph (2) or (3) may be made with respect to any State whose State
law is not otherwise eligible for certification under section 303 or
approvable under section 3304 of the Federal Unemployment Tax Act.
``(ii) No certification of compliance with the requirements of
paragraph (3) may be made with respect to any State whose State law is
not in compliance with the requirements of paragraph (2).
``(iii) No application under subparagraph (A) may be considered if
submitted before the date of the enactment of this subsection or after
the latest date necessary (as specified by the Secretary of Labor) to
ensure that all incentive payments under this subsection are made
before October 1, 2011.
``(5)(A) Except as provided in subparagraph (B), any amount
transferred to the account of a State under this subsection may be used
by such State only in the payment of cash benefits to individuals with
respect to their unemployment (including for dependents' allowances and
for unemployment compensation under paragraph (3)(C)), exclusive of
expenses of administration.
``(B) A State may, subject to the same conditions as set forth in
subsection (c)(2) (excluding subparagraph (B) thereof, and deeming the
reference to `subsections (a) and (b)' in subparagraph (D) thereof to
include this subsection), use any amount transferred to the account of
such State under this subsection for the administration of its
unemployment compensation law and public employment offices.
``(6) Out of any money in the Federal unemployment account not
otherwise appropriated, the Secretary of the Treasury shall reserve
$7,000,000,000 for incentive payments under this subsection. Any amount
so reserved shall not be taken into account for purposes of any
determination under section 902, 910, or 1203 of the amount in the
Federal unemployment account as of any given time. Any amount so
reserved for which the Secretary of the Treasury has not received a
certification under paragraph (4)(B) by the deadline described in
paragraph (4)(C)(iii) shall, upon the close of fiscal year 2011, become
unrestricted as to use as part of the Federal unemployment account.
``(7) For purposes of this subsection, the terms `benefit year',
`base period', and `week' have the respective meanings given such terms
under section 205 of the Federal-State Extended Unemployment
Compensation Act of 1970 (26 U.S.C. 3304 note).
``Special Transfer in Fiscal Year 2009 for Administration
``(g)(1) In addition to any other amounts, the Secretary of the
Treasury shall transfer from the employment security administration
account to the account of each State in the Unemployment Trust Fund,
within 30 days after the date of the enactment of this subsection, the
amount determined with respect to such State under paragraph (2).
``(2) The amount to be transferred under this subsection to a State
account shall (as determined by the Secretary of Labor and certified by
such Secretary to the Secretary of the Treasury) be equal to the amount
obtained by multiplying $500,000,000 by the same ratio as determined
under subsection (f)(1)(B) with respect to such State.
``(3) Any amount transferred to the account of a State as a result of
the enactment of this subsection may be used by the State agency of
such State only in the payment of expenses incurred by it for--
``(A) the administration of the provisions of its State law
carrying out the purposes of subsection (f)(2) or any
subparagraph of subsection (f)(3);
``(B) improved outreach to individuals who might be eligible
for regular unemployment compensation by virtue of any
provisions of the State law which are described in subparagraph
(A);
``(C) the improvement of unemployment benefit and
unemployment tax operations, including responding to increased
demand for unemployment compensation; and
``(D) staff-assisted reemployment services for unemployment
compensation claimants.''.
(b) Regulations.--The Secretary of Labor may prescribe any
regulations, operating instructions, or other guidance necessary to
carry out the amendment made by subsection (a).
Subtitle B--Assistance for Vulnerable Individuals
SEC. 2101. EMERGENCY FUND FOR TANF PROGRAM.
(a) In General.--Section 403 of the Social Security Act (42 U.S.C.
603) is amended by adding at the end the following:
``(c) Emergency Fund.--
``(1) Establishment.--There is established in the Treasury of
the United States a fund which shall be known as the `Emergency
Contingency Fund for State Temporary Assistance for Needy
Families Programs' (in this subsection referred to as the
`Emergency Fund').
``(2) Deposits into fund.--Out of any money in the Treasury
of the United States not otherwise appropriated, there are
appropriated such sums as are necessary for payment to the
Emergency Fund.
``(3) Grants.--
``(A) Grant related to caseload increases.--
``(i) In general.--For each calendar quarter
in fiscal year 2009 or 2010, the Secretary
shall make a grant from the Emergency Fund to
each State that--
``(I) requests a grant under this
subparagraph for the quarter; and
``(II) meets the requirement of
clause (ii) for the quarter.
``(ii) Caseload increase requirement.--A
State meets the requirement of this clause for
a quarter if the average monthly assistance
caseload of the State for the quarter exceeds
the average monthly assistance caseload of the
State for the corresponding quarter in the
emergency fund base year of the State.
``(iii) Amount of grant.--Subject to
paragraph (5), the amount of the grant to be
made to a State under this subparagraph for a
quarter shall be 80 percent of the amount (if
any) by which the total expenditures of the
State for basic assistance (as defined by the
Secretary) in the quarter, whether under the
State program funded under this part or as
qualified State expenditures, exceeds the total
expenditures of the State for such assistance
for the corresponding quarter in the emergency
fund base year of the State.
``(B) Grant related to increased expenditures for
non-recurrent short term benefits.--
``(i) In general.--For each calendar quarter
in fiscal year 2009 or 2010, the Secretary
shall make a grant from the Emergency Fund to
each State that--
``(I) requests a grant under this
subparagraph for the quarter; and
``(II) meets the requirement of
clause (ii) for the quarter.
``(ii) Non-recurrent short term expenditure
requirement.--A State meets the requirement of
this clause for a quarter if the total
expenditures of the State for non-recurrent
short term benefits in the quarter, whether
under the State program funded under this part
or as qualified State expenditures, exceeds the
total such expenditures of the State for non-
recurrent short term benefits in the
corresponding quarter in the emergency fund
base year of the State.
``(iii) Amount of grant.--Subject to
paragraph (5), the amount of the grant to be
made to a State under this subparagraph for a
quarter shall be an amount equal to 80 percent
of the excess described in clause (ii).
``(C) Grant related to increased expenditures for
subsidized employment.--
``(i) In general.--For each calendar quarter
in fiscal year 2009 or 2010, the Secretary
shall make a grant from the Emergency Fund to
each State that--
``(I) requests a grant under this
subparagraph for the quarter; and
``(II) meets the requirement of
clause (ii) for the quarter.
``(ii) Subsidized employment expenditure
requirement.--A State meets the requirement of
this clause for a quarter if the total
expenditures of the State for subsidized
employment in the quarter, whether under the
State program funded under this part or as
qualified State expenditures, exceeds the total
of such expenditures of the State in the
corresponding quarter in the emergency fund
base year of the State.
``(iii) Amount of grant.--Subject to
paragraph (5), the amount of the grant to be
made to a State under this subparagraph for a
quarter shall be an amount equal to 80 percent
of the excess described in clause (ii).
``(4) Authority to make necessary adjustments to data and
collect needed data.--In determining the size of the caseload
of a State and the expenditures of a State for basic
assistance, non-recurrent short-term benefits, and subsidized
employment, during any period for which the State requests
funds under this subsection, and during the emergency fund base
year of the State, the Secretary may make appropriate
adjustments to the data to ensure that the data reflect
expenditures under the State program funded under this part and
qualified State expenditures. The Secretary may develop a
mechanism for collecting expenditure data, including procedures
which allow States to make reasonable estimates, and may set
deadlines for making revisions to the data.
``(5) Limitation.--The total amount payable to a single State
under subsection (b) and this subsection for a fiscal year
shall not exceed 25 percent of the State family assistance
grant.
``(6) Limitations on use of funds.--A State to which an
amount is paid under this subsection may use the amount only as
authorized by section 404.
``(7) Timing of implementation.--The Secretary shall
implement this subsection as quickly as reasonably possible,
pursuant to appropriate guidance to States.
``(8) Definitions.--In this subsection:
``(A) Average monthly assistance caseload.--The term
`average monthly assistance caseload' means, with
respect to a State and a quarter, the number of
families receiving assistance during the quarter under
the State program funded under this part or as
qualified State expenditures, subject to adjustment
under paragraph (4).
``(B) Emergency fund base year.--
``(i) In general.--The term `emergency fund
base year' means, with respect to a State and a
category described in clause (ii), whichever of
fiscal year 2007 or 2008 is the fiscal year in
which the amount described by the category with
respect to the State is the lesser.
``(ii) Categories described.--The categories
described in this clause are the following:
``(I) The average monthly assistance
caseload of the State.
``(II) The total expenditures of the
State for non-recurrent short term
benefits, whether under the State
program funded under this part or as
qualified State expenditures.
``(III) The total expenditures of the
State for subsidized employment,
whether under the State program funded
under this part or as qualified State
expenditures.
``(C) Qualified state expenditures.--The term
`qualified State expenditures' has the meaning given
the term in section 409(a)(7).''.
(b) Temporary Modification of Caseload Reduction Credit.--Section
407(b)(3)(A)(i) of such Act (42 U.S.C. 607(b)(3)(A)(i)) is amended by
inserting ``(or if the immediately preceding fiscal year is fiscal year
2009 or 2010, then, at State option, during the emergency fund base
year of the State with respect to the average monthly assistance
caseload of the State (within the meaning of section 403(c)(8)(B)))''
before ``under the State''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 2102. ONE-TIME EMERGENCY PAYMENT TO SSI RECIPIENTS.
(a) Payment Authority.--
(1) In general.--At the earliest practicable date in calendar
year 2009 but not later than 120 days after the date of the
enactment of this section, the Commissioner of Social Security
shall make a one-time payment to each individual who is
determined by the Commissioner in calendar year 2009 to be an
individual who--
(A) is entitled to a cash benefit under the
supplemental security income program under title XVI of
the Social Security Act (other than pursuant to section
1611(e)(1)(B) of such Act) for at least 1 day in the
calendar month in which the first payment under this
section is to be made; or
(B)(i) was entitled to such a cash benefit (other
than pursuant to section 1611(e)(1)(B) of such Act) for
at least 1 day in the 2-month period preceding that
calendar month; and
(ii) whose entitlement to that benefit ceased in that
2-month period solely because the income of the
individual (and the income of the spouse, if any, of
the individual) exceeded the applicable income limit
described in paragraph (1)(A) or (2)(A) of section
1611(a) of such Act.
(2) Amount of payment.--Subject to subsection (b)(1) of this
section, the amount of the payment shall be--
(A) in the case of an individual eligible for a
payment under this section who does not have a spouse
eligible for such a payment, an amount equal to the
average of the cash benefits payable in the aggregate
under section 1611 or 1619(a) of the Social Security
Act to eligible individuals who do not have an eligible
spouse, for the most recent month for which data on
payment of the benefits are available, as determined by
the Commissioner of Social Security; or
(B) in the case of an individual eligible for a
payment under this section who has a spouse eligible
for such a payment, an amount equal to the average of
the cash benefits payable in the aggregate under
section 1611 or 1619(a) of the Social Security Act to
eligible individuals who have an eligible spouse, for
the most recent month for which data on payment of the
benefits are available, as so determined.
(b) Administrative Provisions.--
(1) Authority to withhold payment to recover prior
overpayment of ssi benefits.--The Commissioner of Social
Security may withhold part or all of a payment otherwise
required to be made under subsection (a) of this section to an
individual, in order to recover a prior overpayment of benefits
to the individual under the supplemental security income
program under title XVI of the Social Security Act, subject to
the limitations of section 1631(b) of such Act.
(2) Payment to be disregarded in determining underpayments
under the ssi program.--A payment under subsection (a) shall be
disregarded in determining whether there has been an
underpayment of benefits under the supplemental security income
program under title XVI of the Social Security Act.
(3) Nonassignment.--The provisions of section 1631(d) of the
Social Security Act shall apply with respect to payments under
this section to the same extent as they apply in the case of
title XVI of such Act.
(c) Payments to Be Disregarded for Purposes of All Federal and
Federally Assisted Programs.--A payment under subsection (a) shall not
be regarded as income to the recipient, and shall not be regarded as a
resource of the recipient for the month of receipt and the following 6
months, for purposes of determining the eligibility of any individual
for benefits or assistance, or the amount or extent of benefits or
assistance, under any Federal program or under any State or local
program financed in whole or in part with Federal funds.
(d) Appropriation.--Out of any sums in the Treasury of the United
States not otherwise appropriated, there are appropriated such sums as
may be necessary to carry out this section.
SEC. 2103. TEMPORARY RESUMPTION OF PRIOR CHILD SUPPORT LAW.
During the period that begins with October 1, 2008, and ends with
September 30, 2010, section 455(a)(1) of the Social Security Act shall
be applied and administered as if the phrase ``from amounts paid to the
State under section 458 or'' did not appear in such section.
TITLE III--HEALTH INSURANCE ASSISTANCE FOR THE UNEMPLOYED
SEC. 3001. SHORT TITLE AND TABLE OF CONTENTS OF TITLE.
(a) Short Title of Title.--This title may be cited as the ``Health
Insurance Assistance for the Unemployed Act of 2009''.
(b) Table of Contents of Title.--The table of contents of this title
is as follows:
Sec. 3001. Short title and table of contents of title.
Sec. 3002. Premium assistance for COBRA benefits and extension of COBRA
benefits for older or long-term employees.
Sec. 3003. Temporary optional Medicaid coverage for the unemployed.
SEC. 3002. PREMIUM ASSISTANCE FOR COBRA BENEFITS AND EXTENSION OF COBRA
BENEFITS FOR OLDER OR LONG-TERM EMPLOYEES.
(a) Premium Assistance for COBRA Continuation Coverage for
Individuals and Their Families.--
(1) Provision of premium assistance.--
(A) Reduction of premiums payable.--In the case of
any premium for a period of coverage beginning on or
after the date of the enactment of this Act for COBRA
continuation coverage with respect to any assistance
eligible individual, such individual shall be treated
for purposes of any COBRA continuation provision as
having paid the amount of such premium if such
individual pays 35 percent of the amount of such
premium (as determined without regard to this
subsection).
(B) Premium reimbursement.--For provisions providing
the balance of such premium, see section 6431 of the
Internal Revenue Code of 1986, as added by paragraph
(12).
(2) Limitation of period of premium assistance.--
(A) In general.--Paragraph (1)(A) shall not apply
with respect to any assistance eligible individual for
months of coverage beginning on or after the earlier
of--
(i) the first date that such individual is
eligible for coverage under any other group
health plan (other than coverage consisting of
only dental, vision, counseling, or referral
services (or a combination thereof), coverage
under a health reimbursement arrangement or a
health flexible spending arrangement, or
coverage of treatment that is furnished in an
on-site medical facility maintained by the
employer and that consists primarily of first-
aid services, prevention and wellness care, or
similar care (or a combination thereof)) or is
eligible for benefits under title XVIII of the
Social Security Act, or
(ii) the earliest of--
(I) the date which is 12 months after
the first day of the first month that
paragraph (1)(A) applies with respect
to such individual,
(II) the date following the
expiration of the maximum period of
continuation coverage required under
the applicable COBRA continuation
coverage provision, or
(III) the date following the
expiration of the period of
continuation coverage allowed under
paragraph (4)(B)(ii).
(B) Timing of eligibility for additional coverage.--
For purposes of subparagraph (A)(i), an individual
shall not be treated as eligible for coverage under a
group health plan before the first date on which such
individual could be covered under such plan.
(C) Notification requirement.--An assistance eligible
individual shall notify in writing the group health
plan with respect to which paragraph (1)(A) applies if
such paragraph ceases to apply by reason of
subparagraph (A)(i). Such notice shall be provided to
the group health plan in such time and manner as may be
specified by the Secretary of Labor.
(3) Assistance eligible individual.--For purposes of this
section, the term ``assistance eligible individual'' means any
qualified beneficiary if--
(A) at any time during the period that begins with
September 1, 2008, and ends with December 31, 2009,
such qualified beneficiary is eligible for COBRA
continuation coverage,
(B) such qualified beneficiary elects such coverage,
and
(C) the qualifying event with respect to the COBRA
continuation coverage consists of the involuntary
termination of the covered employee's employment and
occurred during such period.
(4) Extension of election period and effect on coverage.--
(A) In general.--Notwithstanding section 605(a) of
the Employee Retirement Income Security Act of 1974,
section 4980B(f)(5)(A) of the Internal Revenue Code of
1986, section 2205(a) of the Public Health Service Act,
and section 8905a(c)(2) of title 5, United States Code,
in the case of an individual who is a qualified
beneficiary described in paragraph (3)(A) as of the
date of the enactment of this Act and has not made the
election referred to in paragraph (3)(B) as of such
date, such individual may elect the COBRA continuation
coverage under the COBRA continuation coverage
provisions containing such sections during the 60-day
period commencing with the date on which the
notification required under paragraph (7)(C) is
provided to such individual.
(B) Commencement of coverage; no reach-back.--Any
COBRA continuation coverage elected by a qualified
beneficiary during an extended election period under
subparagraph (A)--
(i) shall commence on the date of the
enactment of this Act, and
(ii) shall not extend beyond the period of
COBRA continuation coverage that would have
been required under the applicable COBRA
continuation coverage provision if the coverage
had been elected as required under such
provision.
(C) Preexisting conditions.--With respect to a
qualified beneficiary who elects COBRA continuation
coverage pursuant to subparagraph (A), the period--
(i) beginning on the date of the qualifying
event, and
(ii) ending with the day before the date of
the enactment of this Act,
shall be disregarded for purposes of determining the
63-day periods referred to in section 701)(2) of the
Employee Retirement Income Security Act of 1974,
section 9801(c)(2) of the Internal Revenue Code of
1986, and section 2701(c)(2) of the Public Health
Service Act.
(5) Expedited review of denials of premium assistance.--In
any case in which an individual requests treatment as an
assistance eligible individual and is denied such treatment by
the group health plan by reason of such individual's
ineligibility for COBRA continuation coverage, the Secretary of
Labor (or the Secretary of Health and Human services in
connection with COBRA continuation coverage which is provided
other than pursuant to part 6 of subtitle B of title I of the
Employee Retirement Income Security Act of 1974), in
consultation with the Secretary of the Treasury, shall provide
for expedited review of such denial. An individual shall be
entitled to such review upon application to such Secretary in
such form and manner as shall be provided by such Secretary.
Such Secretary shall make a determination regarding such
individual's eligibility within 10 business days after receipt
of such individual's application for review under this
paragraph.
(6) Disregard of subsidies for purposes of federal and state
programs.--Notwithstanding any other provision of law, any
premium reduction with respect to an assistance eligible
individual under this subsection shall not be considered income
or resources in determining eligibility for, or the amount of
assistance or benefits provided under, any other public benefit
provided under Federal law or the law of any State or political
subdivision thereof.
(7) Notices to individuals.--
(A) General notice.--
(i) In general.--In the case of notices
provided under section 606(4) of the Employee
Retirement Income Security Act of 1974 (29
U.S.C. 1166(4)), section 4980B(f)(6)(D) of the
Internal Revenue Code of 1986, section 2206(4)
of the Public Health Service Act (42 U.S.C.
300bb-6(4)), or section 8905a(f)(2)(A) of title
5, United States Code, with respect to
individuals who, during the period described in
paragraph (3)(A), become entitled to elect
COBRA continuation coverage, such notices shall
include an additional notification to the
recipient of the availability of premium
reduction with respect to such coverage under
this subsection.
(ii) Alternative notice.--In the case of
COBRA continuation coverage to which the notice
provision under such sections does not apply,
the Secretary of Labor, in consultation with
the Secretary of the Treasury and the Secretary
of Health and Human Services, shall, in
coordination with administrators of the group
health plans (or other entities) that provide
or administer the COBRA continuation coverage
involved, provide rules requiring the provision
of such notice.
(iii) Form.--The requirement of the
additional notification under this subparagraph
may be met by amendment of existing notice
forms or by inclusion of a separate document
with the notice otherwise required.
(B) Specific requirements.--Each additional
notification under subparagraph (A) shall include--
(i) the forms necessary for establishing
eligibility for premium reduction under this
subsection,
(ii) the name, address, and telephone number
necessary to contact the plan administrator and
any other person maintaining relevant
information in connection with such premium
reduction,
(iii) a description of the extended election
period provided for in paragraph (4)(A),
(iv) a description of the obligation of the
qualified beneficiary under paragraph (2)(C) to
notify the plan providing continuation coverage
of eligibility for subsequent coverage under
another group health plan or eligibility for
benefits under title XVIII of the Social
Security Act and the penalty provided for
failure to so notify the plan, and
(v) a description, displayed in a prominent
manner, of the qualified beneficiary's right to
a reduced premium and any conditions on
entitlement to the reduced premium.
(C) Notice relating to retroactive coverage.--In the
case of an individual described in paragraph (3)(A) who
has elected COBRA continuation coverage as of the date
of enactment of this Act or an individual described in
paragraph (4)(A), the administrator of the group health
plan (or other entity) involved shall provide (within
60 days after the date of enactment of this Act) for
the additional notification required to be provided
under subparagraph (A).
(D) Model notices.--Not later than 30 days after the
date of enactment of this Act, the Secretary of the
Labor, in consultation with the Secretary of the
Treasury and the Secretary of Health and Human
Services, shall prescribe models for the additional
notification required under this paragraph.
(8) Safeguards.--The Secretary of the Treasury shall provide
such rules, procedures, regulations, and other guidance as may
be necessary and appropriate to prevent fraud and abuse under
this subsection.
(9) Outreach.--The Secretary of Labor, in consultation with
the Secretary of the Treasury and the Secretary of Health and
Human Services, shall provide outreach consisting of public
education and enrollment assistance relating to premium
reduction provided under this subsection. Such outreach shall
target employers, group health plan administrators, public
assistance programs, States, insurers, and other entities as
determined appropriate by such Secretaries. Such outreach shall
include an initial focus on those individuals electing
continuation coverage who are referred to in paragraph (7)(C).
Information on such premium reduction, including enrollment,
shall also be made available on website of the Departments of
Labor, Treasury, and Health and Human Services.
(10) Definitions.--For purposes of this subsection--
(A) Administrator.--The term ``administrator'' has
the meaning given such term in section 3(16) of the
Employee Retirement Income Security Act of 1974.
(B) COBRA continuation coverage.--The term ``COBRA
continuation coverage'' means continuation coverage
provided pursuant to part 6 of subtitle B of title I of
the Employee Retirement Income Security Act of 1974
(other than under section 609), title XXII of the
Public Health Service Act, section 4980B of the
Internal Revenue Code of 1986 (other than subsection
(f)(1) of such section insofar as it relates to
pediatric vaccines), or section 8905a of title 5,
United States Code, or under a State program that
provides continuation coverage comparable to such
continuation coverage. Such term does not include
coverage under a health flexible spending arrangement.
(C) COBRA continuation provision.--The term ``COBRA
continuation provision'' means the provisions of law
described in subparagraph (B).
(D) Covered employee.--The term ``covered employee''
has the meaning given such term in section 607(2) of
the Employee Retirement Income Security Act of 1974.
(E) Qualified beneficiary.--The term ``qualified
beneficiary'' has the meaning given such term in
section 607(3) of the Employee Retirement Income
Security Act of 1974.
(F) Group health plan.--The term ``group health
plan'' has the meaning given such term in section
607(1) of the Employee Retirement Income Security Act
of 1974.
(G) State.--The term ``State'' includes the District
of Columbia, the Commonwealth of Puerto Rico, the
Virgin Islands, Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
(11) Reports.--
(A) Interim report.--The Secretary of the Treasury
shall submit an interim report to the Committee on
Education and Labor, the Committee on Ways and Means,
and the Committee on Energy and Commerce of the House
of Representatives and the Committee on Health,
Education, Labor, and Pensions and the Committee on
Finance of the Senate regarding the premium reduction
provided under this subsection that includes--
(i) the number of individuals provided such
assistance as of the date of the report; and
(ii) the total amount of expenditures
incurred (with administrative expenditures
noted separately) in connection with such
assistance as of the date of the report.
(B) Final report.--As soon as practicable after the
last period of COBRA continuation coverage for which
premium reduction is provided under this section, the
Secretary of the Treasury shall submit a final report
to each Committee referred to in subparagraph (A) that
includes--
(i) the number of individuals provided
premium reduction under this section;
(ii) the average dollar amount (monthly and
annually) of premium reductions provided to
such individuals; and
(iii) the total amount of expenditures
incurred (with administrative expenditures
noted separately) in connection with premium
reduction under this section.
(12) COBRA premium assistance.--
(A) In general.--Subchapter B of chapter 65 of the
Internal Revenue Code of 1986 is amended by adding at
the end the following new section:
``SEC. 6431. COBRA PREMIUM ASSISTANCE.
``(a) In General.--The entity to whom premiums are payable under
COBRA continuation coverage shall be reimbursed for the amount of
premiums not paid by plan beneficiaries by reason of section 3002(a) of
the Health Insurance Assistance for the Unemployed Act of 2009. Such
amount shall be treated as a credit against the requirement of such
entity to make deposits of payroll taxes and the liability of such
entity for payroll taxes. To the extent that such amount exceeds the
amount of such taxes, the Secretary shall pay to such entity the amount
of such excess. No payment may be made under this subsection to an
entity with respect to any assistance eligible individual until after
such entity has received the reduced premium from such individual
required under section 3002(a)(1)(A) of such Act.
``(b) Payroll Taxes.--For purposes of this section, the term `payroll
taxes' means--
``(1) amounts required to be deducted and withheld for the
payroll period under section 3401 (relating to wage
withholding),
``(2) amounts required to be deducted for the payroll period
under section 3102 (relating to FICA employee taxes), and
``(3) amounts of the taxes imposed for the payroll period
under section 3111 (relating to FICA employer taxes).
``(c) Treatment of Credit.--Except as otherwise provided by the
Secretary, the credit described in subsection (a) shall be applied as
though the employer had paid to the Secretary, on the day that the
qualified beneficiary's premium payment is received, an amount equal to
such credit.
``(d) Treatment of Payment.--For purposes of section 1324(b)(2) of
title 31, United States Code, any payment under this section shall be
treated in the same manner as a refund of the credit under section 35.
``(e) Reporting.--
``(1) In general.--Each entity entitled to reimbursement
under subsection (a) for any period shall submit such reports
as the Secretary may require, including--
``(A) an attestation of involuntary termination of
employment for each covered employee on the basis of
whose termination entitlement to reimbursement is
claimed under subsection (a), and
``(B) a report of the amount of payroll taxes offset
under subsection (a) for the reporting period and the
estimated offsets of such taxes for the subsequent
reporting period in connection with reimbursements
under subsection (a).
``(2) Timing of reports relating to amount of payroll
taxes.--Reports required under paragraph (1)(B) shall be
submitted at the same time as deposits of taxes imposed by
chapters 21, 22, and 24 or at such time as is specified by the
Secretary.
``(f) Regulations.--The Secretary may issue such regulations or other
guidance as may be necessary or appropriate to carry out this section,
including the requirement to report information or the establishment of
other methods for verifying the correct amounts of payments and credits
under this section. The Secretary shall issue such regulations or
guidance with respect to the application of this section to group
health plans that are multiemployer plans.''.
(B) Social security trust funds held harmless.--In
determining any amount transferred or appropriated to
any fund under the Social Security Act, section 6431 of
the Internal Revenue Code of 1986 shall not be taken
into account.
(C) Clerical amendment.--The table of sections for
subchapter B of chapter 65 of the Internal Revenue Code
of 1986 is amended by adding at the end the following
new item:
``Sec. 6431. COBRA premium assistance.''.
(D) Effective date.--The amendments made by this
paragraph shall apply to premiums to which subsection
(a)(1)(A) applies.
(13) Penalty for failure to notify health plan of cessation
of eligibility for premium assistance.--
(A) In general.--Part I of subchapter B of chapter 68
of the Internal Revenue Code of 1986 is amended by
adding at the end the following new section:
``SEC. 6720C. PENALTY FOR FAILURE TO NOTIFY HEALTH PLAN OF CESSATION OF
ELIGIBILITY FOR COBRA PREMIUM ASSISTANCE.
``(a) In General.--Any person required to notify a group health plan
under section 3002(a)(2)(C)) of the Health Insurance Assistance for the
Unemployed Act of 2009 who fails to make such a notification at such
time and in such manner as the Secretary of Labor may require shall pay
a penalty of 110 percent of the premium reduction provided under such
section after termination of eligibility under such subsection.
``(b) Reasonable Cause Exception.--No penalty shall be imposed under
subsection (a) with respect to any failure if it is shown that such
failure is due to reasonable cause and not to willful neglect.''.
(B) Clerical amendment.--The table of sections of
part I of subchapter B of chapter 68 of such Code is
amended by adding at the end the following new item:
``Sec. 6720C. Penalty for failure to notify health plan of cessation of
eligibility for COBRA premium assistance.''.
(C) Effective date.--The amendments made by this
paragraph shall apply to failures occurring after the
date of the enactment of this Act.
(14) Coordination with hctc.--
(A) In general.--Subsection (g) of section 35 of the
Internal Revenue Code of 1986 is amended by
redesignating paragraph (9) as paragraph (10) and
inserting after paragraph (8) the following new
paragraph:
``(9) COBRA premium assistance.--In the case of an assistance
eligible individual who receives premium reduction for COBRA
continuation coverage under section 3002(a) of the Health
Insurance Assistance for the Unemployed Act of 2009 for any
month during the taxable year, such individual shall not be
treated as an eligible individual, a certified individual, or a
qualifying family member for purposes of this section or
section 7527 with respect to such month.''.
(B) Effective date.--The amendment made by
subparagraph (A) shall apply to taxable years ending
after the date of the enactment of this Act.
(15) Exclusion of cobra premium assistance from gross
income.--
(A) In general.--Part III of subchapter B of chapter
1 of the Internal Revenue Code of 1986 is amended by
inserting after section 139B the following new section:
``SEC. 139C. COBRA PREMIUM ASSISTANCE.
``In the case of an assistance eligible individual (as defined in
section 3002 of the Health Insurance Assistance for the Unemployed Act
of 2009), gross income does not include any premium reduction provided
under subsection (a) of such section.''.
(B) Clerical amendment.--The table of sections for
part III of subchapter B of chapter 1 of such Code is
amended by inserting after the item relating to section
139B the following new item:
``Sec. 139C. COBRA premium assistance.''.
(C) Effective date.--The amendments made by this
paragraph shall apply to taxable years ending after the
date of the enactment of this Act.
(b) Extension of COBRA Benefits for Older or Long-Term Employees.--
(1) ERISA amendment.--Section 602(2)(A) of the Employee
Retirement Income Security Act of 1974 is amended by adding at
the end the following new clauses:
``(x) Special rule for older or long-term
employees generally.--In the case of a
qualifying event described in section 603(2)
with respect to a covered employee who (as of
such qualifying event) has attained age 55 or
has completed 10 or more years of service with
the entity that is the employer at the time of
the qualifying event, clauses (i) and (ii)
shall not apply.
``(xi) Year of service.-- For purposes of
this subparagraph, the term `year of service'
shall have the meaning provided in section
202(a)(3).''.
(2) IRC amendment.--Clause (i) of section 4980B(f)(2)(B) of
the Internal Revenue Code of 1986 is amended by adding at the
end the following new subclauses:
``(X) Special rule for older or long-
term employees generally.--In the case
of a qualifying event described in
paragraph (3)(B) with respect to a
covered employee who (as of such
qualifying event) has attained age 55
or has completed 10 or more years of
service with the entity that is the
employer at the time of the qualifying
event, subclauses (I) and (II) shall
not apply.
``(XI) Year of service.-- For
purposes of this clause, the term `year
of service' shall have the meaning
provided in section 202(a)(3) of the
Employee Retirement Income Security Act
of 1974.''.
(3) PHSA amendment.--Section 2202(2)(A) of the Public Health
Service Act is amended by adding at the end the following new
clauses:
``(viii) Special rule for older or long-term
employees generally.--In the case of a
qualifying event described in section 2203(2)
with respect to a covered employee who (as of
such qualifying event) has attained age 55 or
has completed 10 or more years of service with
the entity that is the employer at the time of
the qualifying event, clauses (i) and (ii)
shall not apply.
``(ix) Year of service.-- For purposes of
this subparagraph, the term `year of service'
shall have the meaning provided in section
202(a)(3) of the Employee Retirement Income
Security Act of 1974.''.
(4) Effective date of amendments.--The amendments made by
this subsection shall apply to periods of coverage which would
(without regard to the amendments made by this section) end on
or after the date of the enactment of this Act.
SEC. 3003. TEMPORARY OPTIONAL MEDICAID COVERAGE FOR THE UNEMPLOYED.
(a) In General.--Section 1902 of the Social Security Act (42 U.S.C.
1396b) is amended--
(1) in subsection (a)(10)(A)(ii)--
(A) by striking ``or'' at the end of subclause
(XVIII);
(B) by adding ``or'' at the end of subclause (XIX);
and
(C) by adding at the end the following new subclause
``(XX) who are described in
subsection (dd)(1) (relating to certain
unemployed individuals and their
families);''; and
(2) by adding at the end the following new subsection:
``(dd)(1) Individuals described in this paragraph are--
``(A) individuals who--
``(i) are within one or more of the categories described in
paragraph (2), as elected under the State plan; and
``(ii) meet the applicable requirements of paragraph (3); and
``(B) individuals who--
``(i) are the spouse, or dependent child under 19 years of
age, of an individual described in subparagraph (A); and
``(ii) meet the requirement of paragraph (3)(B).
``(2) The categories of individuals described in this paragraph are
each of the following:
``(A) Individuals who are receiving unemployment compensation
benefits.
``(B) Individuals who were receiving, but have exhausted,
unemployment compensation benefits on or after July 1, 2008.
``(C) Individuals who are involuntarily unemployed and were
involuntarily separated from employment on or after September
1, 2008, and before January 1, 2011, whose family gross income
does not exceed a percentage specified by the State (not to
exceed 200 percent) of the income official poverty line (as
defined by the Office of Management and Budget, and revised
annually in accordance with section 673(2) of the Omnibus
Budget Reconciliation Act of 1981) applicable to a family of
the size involved, and who, but for subsection
(a)(10)(A)(ii)(XX), are not eligible for medical assistance
under this title or health assistance under title XXI.
``(D) Individuals who are involuntarily unemployed and were
involuntarily separated from employment on or after September
1, 2008, and before January 1, 2011, who are members of
households participating in the supplemental nutrition
assistance program established under the Food and Nutrition Act
of 2008 (7 U.S.C. 2011 et seq), and who, but for subsection
(a)(10)(A)(ii)(XX), are not eligible for medical assistance
under this title or health assistance under title XXI.
A State plan may elect one or more of the categories described in this
paragraph but may not elect the category described in subparagraph (B)
unless the State plan also elects the category described in
subparagraph (A).
``(3) The requirements of this paragraph with respect to an
individual are the following:
``(A) In the case of individuals within a category described
in subparagraph (A) or (B) of paragraph (2), the individual was
involuntarily separated from employment on or after September
1, 2008, and before January 1, 2011, or meets such comparable
requirement as the Secretary specifies through rule, guidance,
or otherwise in the case of an individual who was an
independent contractor.
``(B) The individual is not otherwise covered under
creditable coverage, as defined in section 2701(c) of the
Public Health Service Act (42 U.S.C. 300gg(c)), but applied
without regard to paragraph (1)(F) of such section and without
regard to coverage provided by reason of the application of
subsection (a)(10)(A)(ii)(XX).
``(4)(A) No income or resources test shall be applied with respect to
any category of individuals described in subparagraph (A), (B), or (D)
of paragraph (2) who are eligible for medical assistance only by reason
of the application of subsection (a)(10)(A)(ii)(XX).
``(B) Nothing in this subsection shall be construed to prevent a
State from imposing a resource test for the category of individuals
described in paragraph (2)(C)).
``(C) In the case of individuals provided medical assistance by
reason of the application of subsection (a)(10)(A)(ii)(XX), the
requirements of subsections (i)(22) and (x) shall not apply.''.
(b) 100 Percent Federal Matching Rate.--
(1) FMAP for time-limited period.--The third sentence of
section 1905(b) of such Act (42 U.S.C. 1396d(b)) is amended by
inserting before the period at the end the following: ``and for
items and services furnished on or after the date of enactment
of this Act and before January 1, 2011, to individuals who are
eligible for medical assistance only by reason of the
application of section 1902(a)(10)(A)(ii)(XX)''.
(2) Certain enrollment-related administrative costs.--
Notwithstanding any other provision of law, for purposes of
applying section 1903(a) of the Social Security Act (42 U.S.C.
1396b(a)), with respect to expenditures incurred on or after
the date of the enactment of this Act and before January 1,
2011, for costs of administration (including outreach and the
modification and operation of eligibility information systems)
attributable to eligibility determination and enrollment of
individuals who are eligible for medical assistance only by
reason of the application of section 1902(a)(10)(A)(ii)(XX) of
such Act, as added by subsection (a)(1), the Federal matching
percentage shall be 100 percent instead of the matching
percentage otherwise applicable.
(c) Conforming Amendments.--(1) Section 1903(f)(4) of such Act (42
U.S.C. 1396c(f)(4)) is amended by inserting ``1902(a)(10)(A)(ii)(XX),
or'' after ``1902(a)(10)(A)(ii)(XIX),''.
(2) Section 1905(a) of such Act (42 U.S.C. 1396d(a)) is amended, in
the matter preceding paragraph (1)--
(A) by striking ``or'' at the end of clause (xii);
(B) by adding ``or'' at the end of clause (xiii); and
(C) by inserting after clause (xiii) the following new
clause:
``(xiv) individuals described in section
1902(dd)(1),''.
TITLE IV--HEALTH INFORMATION TECHNOLOGY
SEC. 4001. SHORT TITLE; TABLE OF CONTENTS OF TITLE.
(a) Short Title.--This title may be cited as the ``Health Information
Technology for Economic and Clinical Health Act'' or the ``HITECH
Act''.
(b) Table of Contents of Title.--The table of contents of this title
is as follows:
Sec. 4001. Short title; table of contents of title.
Subtitle A--Promotion of Health Information Technology
Part 1--Improving Health Care Quality, Safety, and Efficiency
Sec. 4101. ONCHIT; standards development and adoption.
``TITLE XXX--HEALTH INFORMATION TECHNOLOGY AND QUALITY
``Sec. 3000. Definitions.
``Subtitle A--Promotion of Health Information Technology
``Sec. 3001. Office of the National Coordinator for Health
Information Technology.
``Sec. 3002. HIT Policy Committee.
``Sec. 3003. HIT Standards Committee.
``Sec. 3004. Process for adoption of endorsed recommendations;
adoption of initial set of standards,
implementation specifications, and
certification criteria.
``Sec. 3005. Application and use of adopted standards and
implementation specifications by Federal
agencies.
``Sec. 3006. Voluntary application and use of adopted standards
and implementation specifications by private
entities.
``Sec. 3007. Federal health information technology.
``Sec. 3008. Transitions.
``Sec. 3009. Relation to HIPAA privacy and security law.
``Sec. 3010. Authorization for appropriations.
Sec. 4102. Technical amendment.
Part 2--Application and Use of Adopted Health Information Technology
Standards; Reports
Sec. 4111. Coordination of Federal activities with adopted standards
and implementation specifications.
Sec. 4112. Application to private entities.
Sec. 4113. Study and reports.
Subtitle B--Testing of Health Information Technology
Sec. 4201. National Institute for Standards and Technology testing.
Sec. 4202. Research and development programs.
Subtitle C--Incentives for the Use of Health Information Technology
Part I--Grants and Loans Funding
Sec. 4301. Grant, loan, and demonstration programs.
``Subtitle B--Incentives for the Use of Health Information Technology
``Sec. 3011. Immediate funding to strengthen the health
information technology infrastructure.
``Sec. 3012. Health information technology implementation
assistance.
``Sec. 3013. State grants to promote health information
technology.
``Sec. 3014. Competitive grants to States and Indian tribes for
the development of loan programs to facilitate
the widespread adoption of certified EHR
technology.
``Sec. 3015. Demonstration program to integrate information
technology into clinical education.
``Sec. 3016. Information technology professionals on health
care.
``Sec. 3017. General grant and loan provisions.
``Sec. 3018. Authorization for appropriations.
Part II--Medicare Program
Sec. 4311. Incentives for eligible professionals.
Sec. 4312. Incentives for hospitals.
Sec. 4313. Treatment of payments and savings; implementation funding.
Sec. 4314. Study on application of EHR payment incentives for providers
not receiving other incentive payments.
Part III--Medicaid Funding
Sec. 4321. Medicaid provider HIT adoption and operation payments;
implementation funding.
Subtitle D--Privacy
Sec. 4400. Definitions.
Part I--Improved Privacy Provisions and Security Provisions
Sec. 4401. Application of security provisions and penalties to business
associates of covered entities; annual guidance on security provisions.
Sec. 4402. Notification in the case of breach.
Sec. 4403. Education on Health Information Privacy.
Sec. 4404. Application of privacy provisions and penalties to business
associates of covered entities.
Sec. 4405. Restrictions on certain disclosures and sales of health
information; accounting of certain protected health information
disclosures; access to certain information in electronic format.
Sec. 4406. Conditions on certain contacts as part of health care
operations.
Sec. 4407. Temporary breach notification requirement for vendors of
personal health records and other non-HIPAA covered entities.
Sec. 4408. Business associate contracts required for certain entities.
Sec. 4409. Clarification of application of wrongful disclosures
criminal penalties.
Sec. 4410. Improved enforcement.
Sec. 4411. Audits.
Part II--Relationship to Other Laws; Regulatory References; Effective
Date; Reports
Sec. 4421. Relationship to other laws.
Sec. 4422. Regulatory references.
Sec. 4423. Effective date.
Sec. 4424. Studies, reports, guidance.
Subtitle E--Miscellaneous Medicare Provisions
Sec. 4501. Moratoria on certain Medicare regulations.
Sec. 4502. Long-term care hospital technical corrections.
Subtitle A--Promotion of Health Information Technology
PART 1--IMPROVING HEALTH CARE QUALITY, SAFETY, AND EFFICIENCY
SEC. 4101. ONCHIT; STANDARDS DEVELOPMENT AND ADOPTION.
The Public Health Service Act (42 U.S.C. 201 et seq.) is amended by
adding at the end the following:
``TITLE XXX--HEALTH INFORMATION TECHNOLOGY AND QUALITY
``SEC. 3000. DEFINITIONS.
``In this title:
``(1) Certified ehr technology.--The term `certified EHR
technology' means a qualified electronic health record that is
certified pursuant to section 3001(c)(5) as meeting standards
adopted under section 3004 that are applicable to the type of
record involved (as determined by the Secretary, such as an
ambulatory electronic health record for office-based physicians
or an inpatient hospital electronic health record for
hospitals).
``(2) Enterprise integration.--The term `enterprise
integration' means the electronic linkage of health care
providers, health plans, the government, and other interested
parties, to enable the electronic exchange and use of health
information among all the components in the health care
infrastructure in accordance with applicable law, and such term
includes related application protocols and other related
standards.
``(3) Health care provider.--The term `health care provider'
means a hospital, skilled nursing facility, nursing facility,
home health entity or other long term care facility, health
care clinic, Federally qualified health center, group practice
(as defined in section 1877(h)(4) of the Social Security Act),
a pharmacist, a pharmacy, a laboratory, a physician (as defined
in section 1861(r) of the Social Security Act), a practitioner
(as described in section 1842(b)(18)(C) of the Social Security
Act), a provider operated by, or under contract with, the
Indian Health Service or by an Indian tribe (as defined in the
Indian Self-Determination and Education Assistance Act), tribal
organization, or urban Indian organization (as defined in
section 4 of the Indian Health Care Improvement Act), a rural
health clinic, a covered entity under section 340B, and any
other category of facility or clinician determined appropriate
by the Secretary.
``(4) Health information.--The term `health information' has
the meaning given such term in section 1171(4) of the Social
Security Act.
``(5) Health information technology.--The term `health
information technology' means hardware, software, integrated
technologies and related licenses, intellectual property,
upgrades, and packaged solutions sold as services that are
specifically designed for use by health care entities for the
electronic creation, maintenance, or exchange of health
information.
``(6) Health plan.--The term `health plan' has the meaning
given such term in section 1171(5) of the Social Security Act.
``(7) HIT policy committee.--The term `HIT Policy Committee'
means such Committee established under section 3002(a).
``(8) HIT standards committee.--The term `HIT Standards
Committee' means such Committee established under section
3003(a).
``(9) Individually identifiable health information.--The term
`individually identifiable health information' has the meaning
given such term in section 1171(6) of the Social Security Act.
``(10) Laboratory.--The term `laboratory' has the meaning
given such term in section 353(a).
``(11) National coordinator.--The term `National Coordinator'
means the head of the Office of the National Coordinator for
Health Information Technology established under section
3001(a).
``(12) Pharmacist.--The term `pharmacist' has the meaning
given such term in section 804(2) of the Federal Food, Drug,
and Cosmetic Act.
``(13) Qualified electronic health record.--The term
`qualified electronic health record' means an electronic record
of health-related information on an individual that--
``(A) includes patient demographic and clinical
health information, such as medical history and problem
lists; and
``(B) has the capacity--
``(i) to provide clinical decision support;
``(ii) to support physician order entry;
``(iii) to capture and query information
relevant to health care quality; and
``(iv) to exchange electronic health
information with, and integrate such
information from other sources.
``(14) State.--The term `State' means each of the several
States, the District of Columbia, Puerto Rico, the Virgin
Islands, Guam, American Samoa, and the Northern Mariana
Islands.
``Subtitle A--Promotion of Health Information Technology
``SEC. 3001. OFFICE OF THE NATIONAL COORDINATOR FOR HEALTH INFORMATION
TECHNOLOGY.
``(a) Establishment.--There is established within the Department of
Health and Human Services an Office of the National Coordinator for
Health Information Technology (referred to in this section as the
`Office'). The Office shall be headed by a National Coordinator who
shall be appointed by the Secretary and shall report directly to the
Secretary.
``(b) Purpose.--The National Coordinator shall perform the duties
under subsection (c) in a manner consistent with the development of a
nationwide health information technology infrastructure that allows for
the electronic use and exchange of information and that--
``(1) ensures that each patient's health information is
secure and protected, in accordance with applicable law;
``(2) improves health care quality, reduces medical errors,
and advances the delivery of patient-centered medical care;
``(3) reduces health care costs resulting from inefficiency,
medical errors, inappropriate care, duplicative care, and
incomplete information;
``(4) provides appropriate information to help guide medical
decisions at the time and place of care;
``(5) ensures the inclusion of meaningful public input in
such development of such infrastructure;
``(6) improves the coordination of care and information among
hospitals, laboratories, physician offices, and other entities
through an effective infrastructure for the secure and
authorized exchange of health care information;
``(7) improves public health activities and facilitates the
early identification and rapid response to public health
threats and emergencies, including bioterror events and
infectious disease outbreaks;
``(8) facilitates health and clinical research and health
care quality;
``(9) promotes prevention of chronic diseases;
``(10) promotes a more effective marketplace, greater
competition, greater systems analysis, increased consumer
choice, and improved outcomes in health care services; and
``(11) improves efforts to reduce health disparities.
``(c) Duties of the National Coordinator.--
``(1) Standards.--The National Coordinator shall review and
determine whether to endorse each standard, implementation
specification, and certification criterion for the electronic
exchange and use of health information that is recommended by
the HIT Standards Committee under section 3003 for purposes of
adoption under section 3004. The Coordinator shall make such
determination, and report to the Secretary such determination,
not later than 45 days after the date the recommendation is
received by the Coordinator.
``(2) HIT policy coordination.--
``(A) In general.--The National Coordinator shall
coordinate health information technology policy and
programs of the Department with those of other relevant
executive branch agencies with a goal of avoiding
duplication of efforts and of helping to ensure that
each agency undertakes health information technology
activities primarily within the areas of its greatest
expertise and technical capability and in a manner
towards a coordinated national goal.
``(B) HIT policy and standards committees.--The
National Coordinator shall be a leading member in the
establishment and operations of the HIT Policy
Committee and the HIT Standards Committee and shall
serve as a liaison among those two Committees and the
Federal Government.
``(3) Strategic plan.--
``(A) In general.--The National Coordinator shall, in
consultation with other appropriate Federal agencies
(including the National Institute of Standards and
Technology), update the Federal Health IT Strategic
Plan (developed as of June 3, 2008) to include specific
objectives, milestones, and metrics with respect to the
following:
``(i) The electronic exchange and use of
health information and the enterprise
integration of such information.
``(ii) The utilization of an electronic
health record for each person in the United
States by 2014.
``(iii) The incorporation of privacy and
security protections for the electronic
exchange of an individual's individually
identifiable health information.
``(iv) Ensuring security methods to ensure
appropriate authorization and electronic
authentication of health information and
specifying technologies or methodologies for
rendering health information unusable,
unreadable, or indecipherable.
``(v) Specifying a framework for coordination
and flow of recommendations and policies under
this subtitle among the Secretary, the National
Coordinator, the HIT Policy Committee, the HIT
Standards Committee, and other health
information exchanges and other relevant
entities.
``(vi) Methods to foster the public
understanding of health information technology.
``(vii) Strategies to enhance the use of
health information technology in improving the
quality of health care, reducing medical
errors, reducing health disparities, improving
public health, and improving the continuity of
care among health care settings.
``(B) Collaboration.--The strategic plan shall be
updated through collaboration of public and private
entities.
``(C) Measurable outcome goals.--The strategic plan
update shall include measurable outcome goals.
``(D) Publication.--The National Coordinator shall
republish the strategic plan, including all updates.
``(4) Website.--The National Coordinator shall maintain and
frequently update an Internet website on which there is posted
information on the work, schedules, reports, recommendations,
and other information to ensure transparency in promotion of a
nationwide health information technology infrastructure.
``(5) Certification.--
``(A) In general.--The National Coordinator, in
consultation with the Director of the National
Institute of Standards and Technology, shall develop a
program (either directly or by contract) for the
voluntary certification of health information
technology as being in compliance with applicable
certification criteria adopted under this subtitle.
Such program shall include testing of the technology in
accordance with section 4201(b) of the HITECH Act.
``(B) Certification criteria described.--In this
title, the term `certification criteria' means, with
respect to standards and implementation specifications
for health information technology, criteria to
establish that the technology meets such standards and
implementation specifications.
``(6) Reports and publications.--
``(A) Report on additional funding or authority
needed.--Not later than 12 months after the date of the
enactment of this title, the National Coordinator shall
submit to the appropriate committees of jurisdiction of
the House of Representatives and the Senate a report on
any additional funding or authority the Coordinator or
the HIT Policy Committee or HIT Standards Committee
requires to evaluate and develop standards,
implementation specifications, and certification
criteria, or to achieve full participation of
stakeholders in the adoption of a nationwide health
information technology infrastructure that allows for
the electronic use and exchange of health information.
``(B) Implementation report.--The National
Coordinator shall prepare a report that identifies
lessons learned from major public and private health
care systems in their implementation of health
information technology, including information on
whether the technologies and practices developed by
such systems may be applicable to and usable in whole
or in part by other health care providers.
``(C) Assessment of impact of hit on communities with
health disparities and uninsured, underinsured, and
medically underserved areas.--The National Coordinator
shall assess and publish the impact of health
information technology in communities with health
disparities and in areas with a high proportion of
individuals who are uninsured, underinsured, and
medically underserved individuals (including urban and
rural areas) and identify practices to increase the
adoption of such technology by health care providers in
such communities.
``(D) Evaluation of benefits and costs of the
electronic use and exchange of health information.--The
National Coordinator shall evaluate and publish
evidence on the benefits and costs of the electronic
use and exchange of health information and assess to
whom these benefits and costs accrue.
``(E) Resource requirements.--The National
Coordinator shall estimate and publish resources
required annually to reach the goal of utilization of
an electronic health record for each person in the
United States by 2014, including the required level of
Federal funding, expectations for regional, State, and
private investment, and the expected contributions by
volunteers to activities for the utilization of such
records.
``(7) Assistance.--The National Coordinator may provide
financial assistance to consumer advocacy groups and not-for-
profit entities that work in the public interest for purposes
of defraying the cost to such groups and entities to
participate under, whether in whole or in part, the National
Technology Transfer Act of 1995 (15 U.S.C. 272 note).
``(8) Governance for nationwide health information network.--
The National Coordinator shall establish a governance mechanism
for the nationwide health information network.
``(d) Detail of Federal Employees.--
``(1) In general.--Upon the request of the National
Coordinator, the head of any Federal agency is authorized to
detail, with or without reimbursement from the Office, any of
the personnel of such agency to the Office to assist it in
carrying out its duties under this section.
``(2) Effect of detail.--Any detail of personnel under
paragraph (1) shall--
``(A) not interrupt or otherwise affect the civil
service status or privileges of the Federal employee;
and
``(B) be in addition to any other staff of the
Department employed by the National Coordinator.
``(3) Acceptance of detailees.--Notwithstanding any other
provision of law, the Office may accept detailed personnel from
other Federal agencies without regard to whether the agency
described under paragraph (1) is reimbursed.
``(e) Chief Privacy Officer of the Office of the National
Coordinator.--Not later than 12 months after the date of the enactment
of this title, the Secretary shall appoint a Chief Privacy Officer of
the Office of the National Coordinator, whose duty it shall be to
advise the National Coordinator on privacy, security, and data
stewardship of electronic health information and to coordinate with
other Federal agencies (and similar privacy officers in such agencies),
with State and regional efforts, and with foreign countries with regard
to the privacy, security, and data stewardship of electronic
individually identifiable health information.
``SEC. 3002. HIT POLICY COMMITTEE.
``(a) Establishment.--There is established a HIT Policy Committee to
make policy recommendations to the National Coordinator relating to the
implementation of a nationwide health information technology
infrastructure, including implementation of the strategic plan
described in section 3001(c)(3).
``(b) Duties.--
``(1) Recommendations on health information technology
infrastructure.--The HIT Policy Committee shall recommend a
policy framework for the development and adoption of a
nationwide health information technology infrastructure that
permits the electronic exchange and use of health information
as is consistent with the strategic plan under section
3001(c)(3) and that includes the recommendations under
paragraph (2). The Committee shall update such recommendations
and make new recommendations as appropriate.
``(2) Specific areas of standard development.--
``(A) In general.--The HIT Policy Committee shall
recommend the areas in which standards, implementation
specifications, and certification criteria are needed
for the electronic exchange and use of health
information for purposes of adoption under section 3004
and shall recommend an order of priority for the
development, harmonization, and recognition of such
standards, specifications, and certification criteria
among the areas so recommended. Such standards and
implementation specifications shall include named
standards, architectures, and software schemes for the
authentication and security of individually
identifiable health information and other information
as needed to ensure the reproducible development of
common solutions across disparate entities.
``(B) Areas required for consideration.--For purposes
of subparagraph (A), the HIT Policy Committee shall
make recommendations for at least the following areas:
``(i) Technologies that protect the privacy
of health information and promote security in a
qualified electronic health record, including
for the segmentation and protection from
disclosure of specific and sensitive
individually identifiable health information
with the goal of minimizing the reluctance of
patients to seek care (or disclose information
about a condition) because of privacy concerns,
in accordance with applicable law, and for the
use and disclosure of limited data sets of such
information.
``(ii) A nationwide health information
technology infrastructure that allows for the
electronic use and accurate exchange of health
information.
``(iii) The utilization of a certified
electronic health record for each person in the
United States by 2014.
``(iv) Technologies that as a part of a
qualified electronic health record allow for an
accounting of disclosures made by a covered
entity (as defined for purposes of regulations
promulgated under section 264(c) of the Health
Insurance Portability and Accountability Act of
1996) for purposes of treatment, payment, and
health care operations (as such terms are
defined for purposes of such regulations).
``(v) The use of certified electronic health
records to improve the quality of health care,
such as by promoting the coordination of health
care and improving continuity of health care
among health care providers, by reducing
medical errors, by improving population health,
and by advancing research and education.
``(C) Other areas for consideration.--In making
recommendations under subparagraph (A), the HIT Policy
Committee may consider the following additional areas:
``(i) The appropriate uses of a nationwide
health information infrastructure, including
for purposes of--
``(I) the collection of quality data
and public reporting;
``(II) biosurveillance and public
health;
``(III) medical and clinical
research; and
``(IV) drug safety.
``(ii) Self-service technologies that
facilitate the use and exchange of patient
information and reduce wait times.
``(iii) Telemedicine technologies, in order
to reduce travel requirements for patients in
remote areas.
``(iv) Technologies that facilitate home
health care and the monitoring of patients
recuperating at home.
``(v) Technologies that help reduce medical
errors.
``(vi) Technologies that facilitate the
continuity of care among health settings.
``(vii) Technologies that meet the needs of
diverse populations.
``(viii) Any other technology that the HIT
Policy Committee finds to be among the
technologies with the greatest potential to
improve the quality and efficiency of health
care.
``(3) Forum.--The HIT Policy Committee shall serve as a forum
for broad stakeholder input with specific expertise in policies
relating to the matters described in paragraphs (1) and (2).
``(c) Membership and Operations.--
``(1) In general.--The National Coordinator shall provide
leadership in the establishment and operations of the HIT
Policy Committee.
``(2) Membership.--The membership of the HIT Policy Committee
shall at least reflect providers, ancillary healthcare workers,
consumers, purchasers, health plans, technology vendors,
researchers, relevant Federal agencies, and individuals with
technical expertise on health care quality, privacy and
security, and on the electronic exchange and use of health
information.
``(3) Consideration.--The National Coordinator shall ensure
that the relevant recommendations and comments from the
National Committee on Vital and Health Statistics are
considered in the development of policies.
``(d) Application of FACA.--The Federal Advisory Committee Act (5
U.S.C. App.), other than section 14 of such Act, shall apply to the HIT
Policy Committee.
``(e) Publication.--The Secretary shall provide for publication in
the Federal Register and the posting on the Internet website of the
Office of the National Coordinator for Health Information Technology of
all policy recommendations made by the HIT Policy Committee under this
section.
``SEC. 3003. HIT STANDARDS COMMITTEE.
``(a) Establishment.--There is established a committee to be known as
the HIT Standards Committee to recommend to the National Coordinator
standards, implementation specifications, and certification criteria
for the electronic exchange and use of health information for purposes
of adoption under section 3004, consistent with the implementation of
the strategic plan described in section 3001(c)(3) and beginning with
the areas listed in section 3002(b)(2)(B) in accordance with policies
developed by the HIT Policy Committee.
``(b) Duties.--
``(1) Standard development.--
``(A) In general.--The HIT Standards Committee shall
recommend to the National Coordinator standards,
implementation specifications, and certification
criteria described in subsection (a) that have been
developed, harmonized, or recognized by the HIT
Standards Committee. The HIT Standards Committee shall
update such recommendations and make new
recommendations as appropriate, including in response
to a notification sent under section 3004(b)(2). Such
recommendations shall be consistent with the latest
recommendations made by the HIT Policy Committee.
``(B) Pilot testing of standards and implementation
specifications.--In the development, harmonization, or
recognition of standards and implementation
specifications, the HIT Standards Committee shall, as
appropriate, provide for the testing of such standards
and specifications by the National Institute for
Standards and Technology under section 4201 of the
HITECH Act.
``(C) Consistency.--The standards, implementation
specifications, and certification criteria recommended
under this subsection shall be consistent with the
standards for information transactions and data
elements adopted pursuant to section 1173 of the Social
Security Act.
``(2) Forum.--The HIT Standards Committee shall serve as a
forum for the participation of a broad range of stakeholders to
provide input on the development, harmonization, and
recognition of standards, implementation specifications, and
certification criteria necessary for the development and
adoption of a nationwide health information technology
infrastructure that allows for the electronic use and exchange
of health information.
``(3) Schedule.--Not later than 90 days after the date of the
enactment of this title, the HIT Standards Committee shall
develop a schedule for the assessment of policy recommendations
developed by the HIT Policy Committee under section 3002. The
HIT Standards Committee shall update such schedule annually.
The Secretary shall publish such schedule in the Federal
Register.
``(4) Public input.--The HIT Standards Committee shall
conduct open public meetings and develop a process to allow for
public comment on the schedule described in paragraph (3) and
recommendations described in this subsection. Under such
process comments shall be submitted in a timely manner after
the date of publication of a recommendation under this
subsection.
``(c) Membership and Operations.--
``(1) In general.--The National Coordinator shall provide
leadership in the establishment and operations of the HIT
Standards Committee.
``(2) Membership.--The membership of the HIT Standards
Committee shall at least reflect providers, ancillary
healthcare workers, consumers, purchasers, health plans,
technology vendors, researchers, relevant Federal agencies, and
individuals with technical expertise on health care quality,
privacy and security, and on the electronic exchange and use of
health information.
``(3) Consideration.--The National Coordinator shall ensure
that the relevant recommendations and comments from the
National Committee on Vital and Health Statistics are
considered in the development of standards.
``(4) Assistance.--For the purposes of carrying out this
section, the Secretary may provide or ensure that financial
assistance is provided by the HIT Standards Committee to defray
in whole or in part any membership fees or dues charged by such
Committee to those consumer advocacy groups and not for profit
entities that work in the public interest as a part of their
mission.
``(d) Application of FACA.--The Federal Advisory Committee Act (5
U.S.C. App.), other than section 14, shall apply to the HIT Standards
Committee.
``(e) Publication.--The Secretary shall provide for publication in
the Federal Register and the posting on the Internet website of the
Office of the National Coordinator for Health Information Technology of
all recommendations made by the HIT Standards Committee under this
section.
``SEC. 3004. PROCESS FOR ADOPTION OF ENDORSED RECOMMENDATIONS; ADOPTION
OF INITIAL SET OF STANDARDS, IMPLEMENTATION
SPECIFICATIONS, AND CERTIFICATION CRITERIA.
``(a) Process for Adoption of Endorsed Recommendations.--
``(1) Review of endorsed standards, implementation
specifications, and certification criteria.--Not later than 90
days after the date of receipt of standards, implementation
specifications, or certification criteria endorsed under
section 3001(c), the Secretary, in consultation with
representatives of other relevant Federal agencies, shall
jointly review such standards, implementation specifications,
or certification criteria and shall determine whether or not to
propose adoption of such standards, implementation
specifications, or certification criteria.
``(2) Determination to adopt standards, implementation
specifications, and certification criteria.--If the Secretary
determines--
``(A) to propose adoption of any grouping of such
standards, implementation specifications, or
certification criteria, the Secretary shall, by
regulation, determine whether or not to adopt such
grouping of standards, implementation specifications,
or certification criteria; or
``(B) not to propose adoption of any grouping of
standards, implementation specifications, or
certification criteria, the Secretary shall notify the
National Coordinator and the HIT Standards Committee in
writing of such determination and the reasons for not
proposing the adoption of such recommendation.
``(3) Publication.--The Secretary shall provide for
publication in the Federal Register of all determinations made
by the Secretary under paragraph (1).
``(b) Adoption of Initial Set of Standards, Implementation
Specifications, and Certification Criteria.--
``(1) In general.--Not later than December 31, 2009, the
Secretary shall, through the rulemaking process described in
section 3003, adopt an initial set of standards, implementation
specifications, and certification criteria for the areas
required for consideration under section 3002(b)(2)(B).
``(2) Application of current standards, implementation
specifications, and certification criteria.--The standards,
implementation specifications, and certification criteria
adopted before the date of the enactment of this title through
the process existing through the Office of the National
Coordinator for Health Information Technology may be applied
towards meeting the requirement of paragraph (1).
``SEC. 3005. APPLICATION AND USE OF ADOPTED STANDARDS AND
IMPLEMENTATION SPECIFICATIONS BY FEDERAL AGENCIES.
``For requirements relating to the application and use by Federal
agencies of the standards and implementation specifications adopted
under section 3004, see section 4111 of the HITECH Act.
``SEC. 3006. VOLUNTARY APPLICATION AND USE OF ADOPTED STANDARDS AND
IMPLEMENTATION SPECIFICATIONS BY PRIVATE ENTITIES.
``(a) In General.--Except as provided under section 4112 of the
HITECH Act, any standard or implementation specification adopted under
section 3004 shall be voluntary with respect to private entities.
``(b) Rule of Construction.--Nothing in this subtitle shall be
construed to require that a private entity that enters into a contract
with the Federal Government apply or use the standards and
implementation specifications adopted under section 3004 with respect
to activities not related to the contract.
``SEC. 3007. FEDERAL HEALTH INFORMATION TECHNOLOGY.
``(a) In General.--The National Coordinator shall support the
development, routine updating and provision of qualified EHR technology
(as defined in section 3000) consistent with subsections (b) and (c)
unless the Secretary determines that the needs and demands of providers
are being substantially and adequately met through the marketplace.
``(b) Certification.--In making such EHR technology publicly
available, the National Coordinator shall ensure that the qualified EHR
technology described in subsection (a) is certified under the program
developed under section 3001(c)(3) to be in compliance with applicable
standards adopted under section 3003(a).
``(c) Authorization to Charge a Nominal Fee.--The National
Coordinator may impose a nominal fee for the adoption by a health care
provider of the health information technology system developed or
approved under subsection (a) and (b). Such fee shall take into account
the financial circumstances of smaller providers, low income providers,
and providers located in rural or other medically underserved areas.
``(d) Rule of Construction.--Nothing in this section shall be
construed to require that a private or government entity adopt or use
the technology provided under this section.
``SEC. 3008. TRANSITIONS.
``(a) ONCHIT.--To the extent consistent with section 3001, all
functions, personnel, assets, liabilities, and administrative actions
applicable to the National Coordinator for Health Information
Technology appointed under Executive Order 13335 or the Office of such
National Coordinator on the date before the date of the enactment of
this title shall be transferred to the National Coordinator appointed
under section 3001(a) and the Office of such National Coordinator as of
the date of the enactment of this title.
``(b) AHIC.--
``(1) To the extent consistent with sections 3002 and 3003,
all functions, personnel, assets, and liabilities applicable to
the AHIC Successor, Inc. doing business as the National eHealth
Collaborative as of the day before the date of the enactment of
this title shall be transferred to the HIT Policy Committee or
the HIT Standards Committee, established under section 3002(a)
or 3003(a), as appropriate, as of the date of the enactment of
this title.
``(2) In carrying out section 3003(b)(1)(A), until
recommendations are made by the HIT Policy Committee,
recommendations of the HIT Standards Committee shall be
consistent with the most recent recommendations made by such
AHIC Successor, Inc.
``(c) Rules of Construction.--
``(1) ONCHIT.--Nothing in section 3001 or subsection (a)
shall be construed as requiring the creation of a new entity to
the extent that the Office of the National Coordinator for
Health Information Technology established pursuant to Executive
Order 13335 is consistent with the provisions of section 3001.
``(2) AHIC.--Nothing in sections 3002 or 3003 or subsection
(b) shall be construed as prohibiting the AHIC Successor, Inc.
doing business as the National eHealth Collaborative from
modifying its charter, duties, membership, and any other
structure or function required to be consistent with section
3002 and 3003 in a manner that would permit the Secretary to
choose to recognize such Community as the HIT Policy Committee
or the HIT Standards Committee.
``SEC. 3009. RELATION TO HIPAA PRIVACY AND SECURITY LAW.
``(a) In General.--With respect to the relation of this title to
HIPAA privacy and security law:
``(1) This title may not be construed as having any effect on
the authorities of the Secretary under HIPAA privacy and
security law.
``(2) The purposes of this title include ensuring that the
health information technology standards and implementation
specifications adopted under section 3004 take into account the
requirements of HIPAA privacy and security law.
``(b) Definition.--For purposes of this section, the term `HIPAA
privacy and security law' means--
``(1) the provisions of part C of title XI of the Social
Security Act, section 264 of the Health Insurance Portability
and Accountability Act of 1996, and subtitle D of title IV of
the HITECH Act; and
``(2) regulations under such provisions.
``SEC. 3010. AUTHORIZATION FOR APPROPRIATIONS.
``There is authorized to be appropriated to the Office of the
National Coordinator for Health Information Technology to carry out
this subtitle $250,000,000 for fiscal year 2009.''.
SEC. 4102. TECHNICAL AMENDMENT.
Section 1171(5) of the Social Security Act (42 U.S.C. 1320d) is
amended by striking ``or C'' and inserting ``C, or D''.
PART 2--APPLICATION AND USE OF ADOPTED HEALTH INFORMATION TECHNOLOGY
STANDARDS; REPORTS
SEC. 4111. COORDINATION OF FEDERAL ACTIVITIES WITH ADOPTED STANDARDS
AND IMPLEMENTATION SPECIFICATIONS.
(a) Spending on Health Information Technology Systems.--As each
agency (as defined in the Executive Order issued on August 22, 2006,
relating to promoting quality and efficient health care in Federal
government administered or sponsored health care programs) implements,
acquires, or upgrades health information technology systems used for
the direct exchange of individually identifiable health information
between agencies and with non-Federal entities, it shall utilize, where
available, health information technology systems and products that meet
standards and implementation specifications adopted under section
3004(b) of the Public Health Service Act, as added by section 4101.
(b) Federal Information Collection Activities.--With respect to a
standard or implementation specification adopted under section 3004(b)
of the Public Health Service Act, as added by section 4101, the
President shall take measures to ensure that Federal activities
involving the broad collection and submission of health information are
consistent with such standard or implementation specification,
respectively, within three years after the date of such adoption.
(c) Application of Definitions.--The definitions contained in section
3000 of the Public Health Service Act, as added by section 4101, shall
apply for purposes of this part.
SEC. 4112. APPLICATION TO PRIVATE ENTITIES.
Each agency (as defined in such Executive Order issued on August 22,
2006, relating to promoting quality and efficient health care in
Federal government administered or sponsored health care programs)
shall require in contracts or agreements with health care providers,
health plans, or health insurance issuers that as each provider, plan,
or issuer implements, acquires, or upgrades health information
technology systems, it shall utilize, where available, health
information technology systems and products that meet standards and
implementation specifications adopted under section 3004(b) of the
Public Health Service Act, as added by section 4101.
SEC. 4113. STUDY AND REPORTS.
(a) Report on Adoption of Nationwide System.--Not later than 2 years
after the date of the enactment of this Act and annually thereafter,
the Secretary of Health and Human Services shall submit to the
appropriate committees of jurisdiction of the House of Representatives
and the Senate a report that--
(1) describes the specific actions that have been taken by
the Federal Government and private entities to facilitate the
adoption of a nationwide system for the electronic use and
exchange of health information;
(2) describes barriers to the adoption of such a nationwide
system; and
(3) contains recommendations to achieve full implementation
of such a nationwide system.
(b) Reimbursement Incentive Study and Report.--
(1) Study.--The Secretary of Health and Human Services shall
carry out, or contract with a private entity to carry out, a
study that examines methods to create efficient reimbursement
incentives for improving health care quality in Federally
qualified health centers, rural health clinics, and free
clinics.
(2) Report.--Not later than 2 years after the date of the
enactment of this Act, the Secretary of Health and Human
Services shall submit to the appropriate committees of
jurisdiction of the House of Representatives and the Senate a
report on the study carried out under paragraph (1).
(c) Aging Services Technology Study and Report.--
(1) In general.--The Secretary of Health and Human Services
shall carry out, or contract with a private entity to carry
out, a study of matters relating to the potential use of new
aging services technology to assist seniors, individuals with
disabilities, and their caregivers throughout the aging
process.
(2) Matters to be studied.--The study under paragraph (1)
shall include--
(A) an evaluation of--
(i) methods for identifying current,
emerging, and future health technology that can
be used to meet the needs of seniors and
individuals with disabilities and their
caregivers across all aging services settings,
as specified by the Secretary;
(ii) methods for fostering scientific
innovation with respect to aging services
technology within the business and academic
communities; and
(iii) developments in aging services
technology in other countries that may be
applied in the United States; and
(B) identification of--
(i) barriers to innovation in aging services
technology and devising strategies for removing
such barriers; and
(ii) barriers to the adoption of aging
services technology by health care providers
and consumers and devising strategies to
removing such barriers.
(3) Report.--Not later than 24 months after the date of the
enactment of this Act, the Secretary shall submit to the
appropriate committees of jurisdiction of the House of
Representatives and of the Senate a report on the study carried
out under paragraph (1).
(4) Definitions.--For purposes of this subsection:
(A) Aging services technology.--The term ``aging
services technology'' means health technology that
meets the health care needs of seniors, individuals
with disabilities, and the caregivers of such seniors
and individuals.
(B) Senior.--The term ``senior'' has such meaning as
specified by the Secretary.
Subtitle B--Testing of Health Information Technology
SEC. 4201. NATIONAL INSTITUTE FOR STANDARDS AND TECHNOLOGY TESTING.
(a) Pilot Testing of Standards and Implementation Specifications.--In
coordination with the HIT Standards Committee established under section
3003 of the Public Health Service Act, as added by section 4101, with
respect to the development of standards and implementation
specifications under such section, the Director of the National
Institute for Standards and Technology shall test such standards and
implementation specifications, as appropriate, in order to assure the
efficient implementation and use of such standards and implementation
specifications.
(b) Voluntary Testing Program.--In coordination with the HIT
Standards Committee established under section 3003 of the Public Health
Service Act, as added by section 4101, with respect to the development
of standards and implementation specifications under such section, the
Director of the National Institute of Standards and Technology shall
support the establishment of a conformance testing infrastructure,
including the development of technical test beds. The development of
this conformance testing infrastructure may include a program to
accredit independent, non-Federal laboratories to perform testing.
SEC. 4202. RESEARCH AND DEVELOPMENT PROGRAMS.
(a) Health Care Information Enterprise Integration Research
Centers.--
(1) In general.--The Director of the National Institute of
Standards and Technology, in consultation with the Director of
the National Science Foundation and other appropriate Federal
agencies, shall establish a program of assistance to
institutions of higher education (or consortia thereof which
may include nonprofit entities and Federal Government
laboratories) to establish multidisciplinary Centers for Health
Care Information Enterprise Integration.
(2) Review; competition.--Grants shall be awarded under this
subsection on a merit-reviewed, competitive basis.
(3) Purpose.--The purposes of the Centers described in
paragraph (1) shall be--
(A) to generate innovative approaches to health care
information enterprise integration by conducting
cutting-edge, multidisciplinary research on the systems
challenges to health care delivery; and
(B) the development and use of health information
technologies and other complementary fields.
(4) Research areas.--Research areas may include--
(A) interfaces between human information and
communications technology systems;
(B) voice-recognition systems;
(C) software that improves interoperability and
connectivity among health information systems;
(D) software dependability in systems critical to
health care delivery;
(E) measurement of the impact of information
technologies on the quality and productivity of health
care;
(F) health information enterprise management;
(G) health information technology security and
integrity; and
(H) relevant health information technology to reduce
medical errors.
(5) Applications.--An institution of higher education (or a
consortium thereof) seeking funding under this subsection shall
submit an application to the Director of the National Institute
of Standards and Technology at such time, in such manner, and
containing such information as the Director may require. The
application shall include, at a minimum, a description of--
(A) the research projects that will be undertaken by
the Center established pursuant to assistance under
paragraph (1) and the respective contributions of the
participating entities;
(B) how the Center will promote active collaboration
among scientists and engineers from different
disciplines, such as information technology, biologic
sciences, management, social sciences, and other
appropriate disciplines;
(C) technology transfer activities to demonstrate and
diffuse the research results, technologies, and
knowledge; and
(D) how the Center will contribute to the education
and training of researchers and other professionals in
fields relevant to health information enterprise
integration.
(b) National Information Technology Research and Development
Program.--The National High-Performance Computing Program established
by section 101 of the High-Performance Computing Act of 1991 (15 U.S.C.
5511) shall coordinate Federal research and development programs
related to the development and deployment of health information
technology, including activities related to--
(1) computer infrastructure;
(2) data security;
(3) development of large-scale, distributed, reliable
computing systems;
(4) wired, wireless, and hybrid high-speed networking;
(5) development of software and software-intensive systems;
(6) human-computer interaction and information management
technologies; and
(7) the social and economic implications of information
technology.
Subtitle C--Incentives for the Use of Health Information Technology
PART I--GRANTS AND LOANS FUNDING
SEC. 4301. GRANT, LOAN, AND DEMONSTRATION PROGRAMS.
Title XXX of the Public Health Service Act, as added by section 4101,
is amended by adding at the end the following new subtitle:
``Subtitle B--Incentives for the Use of Health Information Technology
``SEC. 3011. IMMEDIATE FUNDING TO STRENGTHEN THE HEALTH INFORMATION
TECHNOLOGY INFRASTRUCTURE.
``(a) In General.--The Secretary of Health and Human Services shall,
using amounts appropriated under section 3018, invest in the
infrastructure necessary to allow for and promote the electronic
exchange and use of health information for each individual in the
United States consistent with the goals outlined in the strategic plan
developed by the National Coordinator (and as available) under section
3001. To the greatest extent practicable, the Secretary shall ensure
that any funds so appropriated shall be used for the acquisition of
health information technology that meets standards and certification
criteria adopted before the date of the enactment of this title until
such date as the standards are adopted under section 3004. The
Secretary shall invest funds through the different agencies with
expertise in such goals, such as the Office of the National Coordinator
for Health Information Technology, the Health Resources and Services
Administration, the Agency for Healthcare Research and Quality, the
Centers of Medicare & Medicaid Services, the Centers for Disease
Control and Prevention, and the Indian Health Service to support the
following:
``(1) Health information technology architecture that will
support the nationwide electronic exchange and use of health
information in a secure, private, and accurate manner,
including connecting health information exchanges, and which
may include updating and implementing the infrastructure
necessary within different agencies of the Department of Health
and Human Services to support the electronic use and exchange
of health information.
``(2) Development and adoption of appropriate certified
electronic health records for categories of providers not
eligible for support under title XVIII or XIX of the Social
Security Act for the adoption of such records.
``(3) Training on and dissemination of information on best
practices to integrate health information technology, including
electronic health records, into a provider's delivery of care,
consistent with best practices learned from the Health
Information Technology Research Center developed under section
302, including community health centers receiving assistance
under section 330 of the Public Health Service Act, covered
entities under section 340B of such Act, and providers
participating in one or more of the programs under titles
XVIII, XIX, and XXI of the Social Security Act (relating to
Medicare, Medicaid, and the State Children's Health Insurance
Program).
``(4) Infrastructure and tools for the promotion of
telemedicine, including coordination among Federal agencies in
the promotion of telemedicine.
``(5) Promotion of the interoperability of clinical data
repositories or registries.
``(6) Promotion of technologies and best practices that
enhance the protection of health information by all holders of
individually identifiable health information.
``(7) Improve and expand the use of health information
technology by public health departments.
``(8) Provide $300 million to support regional or sub-
national efforts towards health information exchange.
``(b) Coordination.--The Secretary shall ensure funds under this
section are used in a coordinated manner with other health information
promotion activities.
``(c) Additional Use of Funds.--In addition to using funds as
provided in subsection (a), the Secretary may use amounts appropriated
under section 3018 to carry out activities that are provided for under
laws in effect on the date of the enactment of this title.
``SEC. 3012. HEALTH INFORMATION TECHNOLOGY IMPLEMENTATION ASSISTANCE.
``(a) Health Information Technology Extension Program.--To assist
health care providers to adopt, implement, and effectively use
certified EHR technology that allows for the electronic exchange and
use of health information, the Secretary, acting through the Office of
the National Coordinator, shall establish a health information
technology extension program to provide health information technology
assistance services to be carried out through the Department of Health
and Human Services. The National Coordinator shall consult with other
Federal agencies with demonstrated experience and expertise in
information technology services, such as the National Institute of
Standards and Technology, in developing and implementing this program.
``(b) Health Information Technology Research Center.--
``(1) In general.--The Secretary shall create a Health
Information Technology Research Center (in this section
referred to as the `Center') to provide technical assistance
and develop or recognize best practices to support and
accelerate efforts to adopt, implement, and effectively utilize
health information technology that allows for the electronic
exchange and use of information in compliance with standards,
implementation specifications, and certification criteria
adopted under section 3004(b).
``(2) Input.--The Center shall incorporate input from--
``(A) other Federal agencies with demonstrated
experience and expertise in information technology
services such as the National Institute of Standards
and Technology;
``(B) users of health information technology, such as
providers and their support and clerical staff and
others involved in the care and care coordination of
patients, from the health care and health information
technology industry; and
``(C) others as appropriate.
``(3) Purposes.--The purposes of the Center are to--
``(A) provide a forum for the exchange of knowledge
and experience;
``(B) accelerate the transfer of lessons learned from
existing public and private sector initiatives,
including those currently receiving Federal financial
support;
``(C) assemble, analyze, and widely disseminate
evidence and experience related to the adoption,
implementation, and effective use of health information
technology that allows for the electronic exchange and
use of information including through the regional
centers described in subsection (c);
``(D) provide technical assistance for the
establishment and evaluation of regional and local
health information networks to facilitate the
electronic exchange of information across health care
settings and improve the quality of health care;
``(E) provide technical assistance for the
development and dissemination of solutions to barriers
to the exchange of electronic health information; and
``(F) learn about effective strategies to adopt and
utilize health information technology in medically
underserved communities.
``(c) Health Information Technology Regional Extension Centers.--
``(1) In general.--The Secretary shall provide assistance for
the creation and support of regional centers (in this
subsection referred to as `regional centers') to provide
technical assistance and disseminate best practices and other
information learned from the Center to support and accelerate
efforts to adopt, implement, and effectively utilize health
information technology that allows for the electronic exchange
and use of information in compliance with standards,
implementation specifications, and certification criteria
adopted under section 3004. Activities conducted under this
subsection shall be consistent with the strategic plan
developed by the National Coordinator, (and, as available)
under section 3001.
``(2) Affiliation.--Regional centers shall be affiliated with
any US-based nonprofit institution or organization, or group
thereof, that applies and is awarded financial assistance under
this section. Individual awards shall be decided on the basis
of merit.
``(3) Objective.--The objective of the regional centers is to
enhance and promote the adoption of health information
technology through--
``(A) assistance with the implementation, effective
use, upgrading, and ongoing maintenance of health
information technology, including electronic health
records, to healthcare providers nationwide;
``(B) broad participation of individuals from
industry, universities, and State governments;
``(C) active dissemination of best practices and
research on the implementation, effective use,
upgrading, and ongoing maintenance of health
information technology, including electronic health
records, to health care providers in order to improve
the quality of healthcare and protect the privacy and
security of health information;
``(D) participation, to the extent practicable, in
health information exchanges; and
``(E) utilization, when appropriate, of the expertise
and capability that exists in federal agencies other
than the Department; and
``(F) integration of health information technology,
including electronic health records, into the initial
and ongoing training of health professionals and others
in the healthcare industry that would be instrumental
to improving the quality of healthcare through the
smooth and accurate electronic use and exchange of
health information.
``(4) Regional assistance.--Each regional center shall aim to
provide assistance and education to all providers in a region,
but shall prioritize any direct assistance first to the
following:
``(A) Public or not-for-profit hospitals or critical
access hospitals.
``(B) Federally qualified health centers (as defined
in section 1861(aa)(4) of the Social Security Act).
``(C) Entities that are located in rural and other
areas that serve uninsured, underinsured, and medically
underserved individuals (regardless of whether such
area is urban or rural).
``(D) Individual or small group practices (or a
consortium thereof) that are primarily focused on
primary care.
``(5) Financial support.--The Secretary may provide financial
support to any regional center created under this subsection
for a period not to exceed four years. The Secretary may not
provide more than 50 percent of the capital and annual
operating and maintenance funds required to create and maintain
such a center, except in an instance of national economic
conditions which would render this cost-share requirement
detrimental to the program and upon notification to Congress as
to the justification to waive the cost-share requirement.
``(6) Notice of program description and availability of
funds.--The Secretary shall publish in the Federal Register,
not later than 90 days after the date of the enactment of this
Act, a draft description of the program for establishing
regional centers under this subsection. Such description shall
include the following:
``(A) A detailed explanation of the program and the
programs goals.
``(B) Procedures to be followed by the applicants.
``(C) Criteria for determining qualified applicants.
``(D) Maximum support levels expected to be available
to centers under the program.
``(7) Application review.--The Secretary shall subject each
application under this subsection to merit review. In making a
decision whether to approve such application and provide
financial support, the Secretary shall consider at a minimum
the merits of the application, including those portions of the
application regarding--
``(A) the ability of the applicant to provide
assistance under this subsection and utilization of
health information technology appropriate to the needs
of particular categories of health care providers;
``(B) the types of service to be provided to health
care providers;
``(C) geographical diversity and extent of service
area; and
``(D) the percentage of funding and amount of in-kind
commitment from other sources.
``(8) Biennial evaluation.--Each regional center which
receives financial assistance under this subsection shall be
evaluated biennially by an evaluation panel appointed by the
Secretary. Each evaluation panel shall be composed of private
experts, none of whom shall be connected with the center
involved, and of Federal officials. Each evaluation panel shall
measure the involved center's performance against the objective
specified in paragraph (3). The Secretary shall not continue to
provide funding to a regional center unless its evaluation is
overall positive.
``(9) Continuing support.--After the second year of
assistance under this subsection a regional center may receive
additional support under this subsection if it has received
positive evaluations and a finding by the Secretary that
continuation of Federal funding to the center was in the best
interest of provision of health information technology
extension services.
``SEC. 3013. STATE GRANTS TO PROMOTE HEALTH INFORMATION TECHNOLOGY.
``(a) In General.--The Secretary, acting through the National
Coordinator, shall establish a program in accordance with this section
to facilitate and expand the electronic movement and use of health
information among organizations according to nationally recognized
standards.
``(b) Planning Grants.--The Secretary may award a grant to a State or
qualified State-designated entity (as described in subsection (d)) that
submits an application to the Secretary at such time, in such manner,
and containing such information as the Secretary may specify, for the
purpose of planning activities described in subsection (b).
``(c) Implementation Grants.--The Secretary may award a grant to a
State or qualified State designated entity that--
``(1) has submitted, and the Secretary has approved, a plan
described in subsection (c) (regardless of whether such plan
was prepared using amounts awarded under paragraph (1)); and
``(2) submits an application at such time, in such manner,
and containing such information as the Secretary may specify.
``(d) Use of Funds.--Amounts received under a grant under subsection
(a)(3) shall be used to conduct activities to facilitate and expand the
electronic movement and use of health information among organizations
according to nationally recognized standards through activities that
include--
``(1) enhancing broad and varied participation in the
authorized and secure nationwide electronic use and exchange of
health information;
``(2) identifying State or local resources available towards
a nationwide effort to promote health information technology;
``(3) complementing other Federal grants, programs, and
efforts towards the promotion of health information technology;
``(4) providing technical assistance for the development and
dissemination of solutions to barriers to the exchange of
electronic health information;
``(5) promoting effective strategies to adopt and utilize
health information technology in medically underserved
communities;
``(6) assisting patients in utilizing health information
technology;
``(7) encouraging clinicians to work with Health Information
Technology Regional Extension Centers as described in section
3012, to the extent they are available and valuable;
``(8) supporting public health agencies' authorized use of
and access to electronic health information;
``(9) promoting the use of electronic health records for
quality improvement including through quality measures
reporting; and
``(10) such other activities as the Secretary may specify.
``(e) Plan.--
``(1) In general.--A plan described in this subsection is a
plan that describes the activities to be carried out by a State
or by the qualified State-designated entity within such State
to facilitate and expand the electronic movement and use of
health information among organizations according to nationally
recognized standards and implementation specifications.
``(2) Required elements.--A plan described in paragraph (1)
shall--
``(A) be pursued in the public interest;
``(B) be consistent with the strategic plan developed
by the National Coordinator, (and, as available) under
section 3001;
``(C) include a description of the ways the State or
qualified State-designated entity will carry out the
activities described in subsection (b); and
``(D) contain such elements as the Secretary may
require.
``(f) Qualified State-Designated Entity.--For purposes of this
section, to be a qualified State-designated entity, with respect to a
State, an entity shall--
``(1) be designated by the State as eligible to receive
awards under this section;
``(2) be a not-for-profit entity with broad stakeholder
representation on its governing board;
``(3) demonstrate that one of its principal goals is to use
information technology to improve health care quality and
efficiency through the authorized and secure electronic
exchange and use of health information;
``(4) adopt nondiscrimination and conflict of interest
policies that demonstrate a commitment to open, fair, and
nondiscriminatory participation by stakeholders; and
``(5) conform to such other requirements as the Secretary may
establish.
``(g) Required Consultation.--In carrying out activities described in
subsections (a)(2) and (a)(3), a State or qualified State-designated
entity shall consult with and consider the recommendations of--
``(1) health care providers (including providers that provide
services to low income and underserved populations);
``(2) health plans;
``(3) patient or consumer organizations that represent the
population to be served;
``(4) health information technology vendors;
``(5) health care purchasers and employers;
``(6) public health agencies;
``(7) health professions schools, universities and colleges;
``(8) clinical researchers;
``(9) other users of health information technology such as
the support and clerical staff of providers and others involved
in the care and care coordination of patients; and
``(10) such other entities, as may be determined appropriate
by the Secretary.
``(h) Continuous Improvement.--The Secretary shall annually evaluate
the activities conducted under this section and shall, in awarding
grants under this section, implement the lessons learned from such
evaluation in a manner so that awards made subsequent to each such
evaluation are made in a manner that, in the determination of the
Secretary, will lead towards the greatest improvement in quality of
care, decrease in costs, and the most effective authorized and secure
electronic exchange of health information.
``(i) Required Match.--
``(1) In general.--For a fiscal year (beginning with fiscal
year 2011), the Secretary may not make a grant under subsection
(a) to a State unless the State agrees to make available non-
Federal contributions (which may include in-kind contributions)
toward the costs of a grant awarded under subsection (a)(3) in
an amount equal to--
``(A) for fiscal year 2011, not less than $1 for each
$10 of Federal funds provided under the grant;
``(B) for fiscal year 2012, not less than $1 for each
$7 of Federal funds provided under the grant; and
``(C) for fiscal year 2013 and each subsequent fiscal
year, not less than $1 for each $3 of Federal funds
provided under the grant.
``(2) Authority to require state match for fiscal years
before fiscal year 2011.--For any fiscal year during the grant
program under this section before fiscal year 2011, the
Secretary may determine the extent to which there shall be
required a non-Federal contribution from a State receiving a
grant under this section.
``SEC. 3014. COMPETITIVE GRANTS TO STATES AND INDIAN TRIBES FOR THE
DEVELOPMENT OF LOAN PROGRAMS TO FACILITATE THE
WIDESPREAD ADOPTION OF CERTIFIED EHR TECHNOLOGY.
``(a) In General.--The National Coordinator may award competitive
grants to eligible entities for the establishment of programs for loans
to health care providers to conduct the activities described in
subsection (e).
``(b) Eligible Entity Defined.--For purposes of this subsection, the
term `eligible entity' means a State or Indian tribe (as defined in the
Indian Self-Determination and Education Assistance Act) that--
``(1) submits to the National Coordinator an application at
such time, in such manner, and containing such information as
the National Coordinator may require;
``(2) submits to the National Coordinator a strategic plan in
accordance with subsection (d) and provides to the National
Coordinator assurances that the entity will update such plan
annually in accordance with such subsection;
``(3) provides assurances to the National Coordinator that
the entity will establish a Loan Fund in accordance with
subsection (c);
``(4) provides assurances to the National Coordinator that
the entity will not provide a loan from the Loan Fund to a
health care provider unless the provider agrees to--
``(A) submit reports on quality measures adopted by
the Federal Government (by not later than 90 days after
the date on which such measures are adopted), to--
``(i) the Director of the Centers for
Medicare & Medicaid Services (or his or her
designee), in the case of an entity
participating in the Medicare program under
title XVIII of the Social Security Act or the
Medicaid program under title XIX of such Act;
or
``(ii) the Secretary in the case of other
entities;
``(B) demonstrate to the satisfaction of the
Secretary (through criteria established by the
Secretary) that any certified EHR technology purchased,
improved, or otherwise financially supported under a
loan under this section is used to exchange health
information in a manner that, in accordance with law
and standards (as adopted under section 3005)
applicable to the exchange of information, improves the
quality of health care, such as promoting care
coordination; and
``(C) comply with such other requirements as the
entity or the Secretary may require;
``(D) include a plan on how health care providers
involved intend to maintain and support the certified
EHR technology over time;
``(E) include a plan on how the health care providers
involved intend to maintain and support the certified
EHR technology that would be purchased with such loan,
including the type of resources expected to be involved
and any such other information as the State or Indian
Tribe, respectively, may require; and
``(5) agrees to provide matching funds in accordance with
subsection (i).
``(c) Establishment of Fund.--For purposes of subsection (b)(3), an
eligible entity shall establish a certified EHR technology loan fund
(referred to in this subsection as a `Loan Fund') and comply with the
other requirements contained in this section. A grant to an eligible
entity under this section shall be deposited in the Loan Fund
established by the eligible entity. No funds authorized by other
provisions of this title to be used for other purposes specified in
this title shall be deposited in any Loan Fund.
``(d) Strategic Plan.--
``(1) In general.--For purposes of subsection (b)(2), a
strategic plan of an eligible entity under this subsection
shall identify the intended uses of amounts available to the
Loan Fund of such entity.
``(2) Contents.--A strategic plan under paragraph (1), with
respect to a Loan Fund of an eligible entity, shall include for
a year the following:
``(A) A list of the projects to be assisted through
the Loan Fund during such year.
``(B) A description of the criteria and methods
established for the distribution of funds from the Loan
Fund during the year.
``(C) A description of the financial status of the
Loan Fund as of the date of submission of the plan.
``(D) The short-term and long-term goals of the Loan
Fund.
``(e) Use of Funds.--Amounts deposited in a Loan Fund, including loan
repayments and interest earned on such amounts, shall be used only for
awarding loans or loan guarantees, making reimbursements described in
subsection (g)(4)(A), or as a source of reserve and security for
leveraged loans, the proceeds of which are deposited in the Loan Fund
established under subsection (a). Loans under this section may be used
by a health care provider to--
``(1) facilitate the purchase of certified EHR technology;
``(2) enhance the utilization of certified EHR technology;
``(3) train personnel in the use of such technology; or
``(4) improve the secure electronic exchange of health
information.
``(f) Types of Assistance.--Except as otherwise limited by applicable
State law, amounts deposited into a Loan Fund under this subsection may
only be used for the following:
``(1) To award loans that comply with the following:
``(A) The interest rate for each loan shall not
exceed the market interest rate.
``(B) The principal and interest payments on each
loan shall commence not later than 1 year after the
date the loan was awarded, and each loan shall be fully
amortized not later than 10 years after the date of the
loan.
``(C) The Loan Fund shall be credited with all
payments of principal and interest on each loan awarded
from the Loan Fund.
``(2) To guarantee, or purchase insurance for, a local
obligation (all of the proceeds of which finance a project
eligible for assistance under this subsection) if the guarantee
or purchase would improve credit market access or reduce the
interest rate applicable to the obligation involved.
``(3) As a source of revenue or security for the payment of
principal and interest on revenue or general obligation bonds
issued by the eligible entity if the proceeds of the sale of
the bonds will be deposited into the Loan Fund.
``(4) To earn interest on the amounts deposited into the Loan
Fund.
``(5) To make reimbursements described in subsection
(g)(4)(A).
``(g) Administration of Loan Funds.--
``(1) Combined financial administration.--An eligible entity
may (as a convenience and to avoid unnecessary administrative
costs) combine, in accordance with applicable State law, the
financial administration of a Loan Fund established under this
subsection with the financial administration of any other
revolving fund established by the entity if otherwise not
prohibited by the law under which the Loan Fund was
established.
``(2) Cost of administering fund.--Each eligible entity may
annually use not to exceed 4 percent of the funds provided to
the entity under a grant under this subsection to pay the
reasonable costs of the administration of the programs under
this section, including the recovery of reasonable costs
expended to establish a Loan Fund which are incurred after the
date of the enactment of this title.
``(3) Guidance and regulations.--The National Coordinator
shall publish guidance and promulgate regulations as may be
necessary to carry out the provisions of this section,
including--
``(A) provisions to ensure that each eligible entity
commits and expends funds allotted to the entity under
this subsection as efficiently as possible in
accordance with this title and applicable State laws;
and
``(B) guidance to prevent waste, fraud, and abuse.
``(4) Private sector contributions.--
``(A) In general.--A Loan Fund established under this
subsection may accept contributions from private sector
entities, except that such entities may not specify the
recipient or recipients of any loan issued under this
subsection. An eligible entity may agree to reimburse a
private sector entity for any contribution made under
this subparagraph, except that the amount of such
reimbursement may not be greater than the principal
amount of the contribution made.
``(B) Availability of information.--An eligible
entity shall make publicly available the identity of,
and amount contributed by, any private sector entity
under subparagraph (A) and may issue letters of
commendation or make other awards (that have no
financial value) to any such entity.
``(h) Matching Requirements.--
``(1) In general.--The National Coordinator may not make a
grant under subsection (a) to an eligible entity unless the
entity agrees to make available (directly or through donations
from public or private entities) non-Federal contributions in
cash to the costs of carrying out the activities for which the
grant is awarded in an amount equal to not less than $1 for
each $5 of Federal funds provided under the grant.
``(2) Determination of amount of non-federal contribution.--
In determining the amount of non-Federal contributions that an
eligible entity has provided pursuant to subparagraph (A), the
National Coordinator may not include any amounts provided to
the entity by the Federal Government.
``(i) Effective Date.--The Secretary may not make an award under this
section prior to January 1, 2010.
``SEC. 3015. DEMONSTRATION PROGRAM TO INTEGRATE INFORMATION TECHNOLOGY
INTO CLINICAL EDUCATION.
``(a) In General.--The Secretary may award grants under this section
to carry out demonstration projects to develop academic curricula
integrating certified EHR technology in the clinical education of
health professionals. Such awards shall be made on a competitive basis
and pursuant to peer review.
``(b) Eligibility.--To be eligible to receive a grant under
subsection (a), an entity shall--
``(1) submit to the Secretary an application at such time, in
such manner, and containing such information as the Secretary
may require;
``(2) submit to the Secretary a strategic plan for
integrating certified EHR technology in the clinical education
of health professionals to reduce medical errors and enhance
health care quality;
``(3) be--
``(A) a school of medicine, osteopathic medicine,
dentistry, or pharmacy, a graduate program in
behavioral or mental health, or any other graduate
health professions school;
``(B) a graduate school of nursing or physician
assistant studies;
``(C) a consortium of two or more schools described
in subparagraph (A) or (B); or
``(D) an institution with a graduate medical
education program in medicine, osteopathic medicine,
dentistry, pharmacy, nursing, or physician assistance
studies.
``(4) provide for the collection of data regarding the
effectiveness of the demonstration project to be funded under
the grant in improving the safety of patients, the efficiency
of health care delivery, and in increasing the likelihood that
graduates of the grantee will adopt and incorporate certified
EHR technology, in the delivery of health care services; and
``(5) provide matching funds in accordance with subsection
(d).
``(c) Use of Funds.--
``(1) In general.--With respect to a grant under subsection
(a), an eligible entity shall--
``(A) use grant funds in collaboration with 2 or more
disciplines; and
``(B) use grant funds to integrate certified EHR
technology into community-based clinical education.
``(2) Limitation.--An eligible entity shall not use amounts
received under a grant under subsection (a) to purchase
hardware, software, or services.
``(d) Financial Support.--The Secretary may not provide more than 50
percent of the costs of any activity for which assistance is provided
under subsection (a), except in an instance of national economic
conditions which would render the cost-share requirement under this
subsection detrimental to the program and upon notification to Congress
as to the justification to waive the cost-share requirement.
``(e) Evaluation.--The Secretary shall take such action as may be
necessary to evaluate the projects funded under this section and
publish, make available, and disseminate the results of such
evaluations on as wide a basis as is practicable.
``(f) Reports.--Not later than 1 year after the date of enactment of
this title, and annually thereafter, the Secretary shall submit to the
Committee on Health, Education, Labor, and Pensions and the Committee
on Finance of the Senate, and the Committee on Energy and Commerce of
the House of Representatives a report that--
``(1) describes the specific projects established under this
section; and
``(2) contains recommendations for Congress based on the
evaluation conducted under subsection (e).
``SEC. 3016. INFORMATION TECHNOLOGY PROFESSIONALS ON HEALTH CARE.
``(a) In General.--The Secretary, in consultation with the Director
of the National Science Foundation, shall provide assistance to
institutions of higher education (or consortia thereof) to establish or
expand medical health informatics education programs, including
certification, undergraduate, and masters degree programs, for both
health care and information technology students to ensure the rapid and
effective utilization and development of health information
technologies (in the United States health care infrastructure).
``(b) Activities.--Activities for which assistance may be provided
under subsection (a) may include the following:
``(1) Developing and revising curricula in medical health
informatics and related disciplines.
``(2) Recruiting and retaining students to the program
involved.
``(3) Acquiring equipment necessary for student instruction
in these programs, including the installation of testbed
networks for student use.
``(4) Establishing or enhancing bridge programs in the health
informatics fields between community colleges and universities.
``(c) Priority.--In providing assistance under subsection (a), the
Secretary shall give preference to the following:
``(1) Existing education and training programs.
``(2) Programs designed to be completed in less than six
months.
``(d) Financial Support.--The Secretary may not provide more than 50
percent of the costs of any activity for which assistance is provided
under subsection (a), except in an instance of national economic
conditions which would render the cost-share requirement under this
subsection detrimental to the program and upon notification to Congress
as to the justification to waive the cost-share requirement.
``SEC. 3017. GENERAL GRANT AND LOAN PROVISIONS.
``(a) Reports.--The Secretary may require that an entity receiving
assistance under this title shall submit to the Secretary, not later
than the date that is 1 year after the date of receipt of such
assistance, a report that includes--
``(1) an analysis of the effectiveness of the activities for
which the entity receives such assistance, as compared to the
goals for such activities; and
``(2) an analysis of the impact of the project on health care
quality and safety.
``(b) Requirement to Improve Quality of Care and Decrease in Costs.--
The National Coordinator shall annually evaluate the activities
conducted under this title and shall, in awarding grants, implement the
lessons learned from such evaluation in a manner so that awards made
subsequent to each such evaluation are made in a manner that, in the
determination of the National Coordinator, will result in the greatest
improvement in the quality and efficiency of health care.
``SEC. 3018. AUTHORIZATION FOR APPROPRIATIONS.
``For the purposes of carrying out this subtitle, there is authorized
to be appropriated such sums as may be necessary for each of the fiscal
years 2009 through 2013. Amounts so appropriated shall remain available
until expended.''.
PART II--MEDICARE PROGRAM
SEC. 4311. INCENTIVES FOR ELIGIBLE PROFESSIONALS.
(a) Incentive Payments.--Section 1848 of the Social Security Act (42
U.S.C. 1395w-4) is amended by adding at the end the following new
subsection:
``(o) Incentives for Adoption and Meaningful Use of Certified EHR
Technology.--
``(1) Incentive payments.--
``(A) In general.--Subject to the succeeding
subparagraphs of this paragraph, with respect to
covered professional services furnished by an eligible
professional during a payment year (as defined in
subparagraph (E)), if the eligible professional is a
meaningful EHR user (as determined under paragraph (2))
for the reporting period with respect to such year, in
addition to the amount otherwise paid under this part,
there also shall be paid to the eligible professional
(or to an employer or facility in the cases described
in clause (A) of section 1842(b)(6)), from the Federal
Supplementary Medical Insurance Trust Fund established
under section 1841 an amount equal to 75 percent of the
Secretary's estimate (based on claims submitted not
later than 2 months after the end of the payment year)
of the allowed charges under this part for all such
covered professional services furnished by the eligible
professional during such year.
``(B) Limitations on amounts of incentive payments.--
``(i) In general.--In no case shall the
amount of the incentive payment provided under
this paragraph for an eligible professional for
a payment year exceed the applicable amount
specified under this subparagraph with respect
to such eligible professional and such year.
``(ii) Amount.--Subject to clause (iii), the
applicable amount specified in this
subparagraph for an eligible professional is as
follows:
``(I) For the first payment year for
such professional, $15,000.
``(II) For the second payment year
for such professional, $12,000.
``(III) For the third payment year
for such professional, $8,000.
``(IV) For the fourth payment year
for such professional, $4,000.
``(V) For the fifth payment year for
such professional, $2,000.
``(VI) For any succeeding payment
year for such professional, $0.
``(iii) Phase down for eligible professionals
first adopting ehr after 2013.--If the first
payment year for an eligible professional is
after 2013, then the amount specified in this
subparagraph for a payment year for such
professional is the same as the amount
specified in clause (ii) for such payment year
for an eligible professional whose first
payment year is 2013. If the first payment year
for an eligible professional is after 2015 then
the applicable amount specified in this
subparagraph for such professional for such
year and any subsequent year shall be $0.
``(C) Non-application to hospital-based eligible
professionals.--
``(i) In general.--No incentive payment may
be made under this paragraph in the case of a
hospital-based eligible professional.
``(ii) Hospital-based eligible
professional.--For purposes of clause (i), the
term `hospital-based eligible professional'
means, with respect to covered professional
services furnished by an eligible professional
during the reporting period for a payment year,
an eligible professional, such as a
pathologist, anesthesiologist, or emergency
physician, who furnishes substantially all of
such services in a hospital setting (whether
inpatient or outpatient) and through the use of
the facilities and equipment, including
computer equipment, of the hospital.
``(D) Payment.--
``(i) Form of payment.--The payment under
this paragraph may be in the form of a single
consolidated payment or in the form of such
periodic installments as the Secretary may
specify.
``(ii) Coordination of application of
limitation for professionals in different
practices.--In the case of an eligible
professional furnishing covered professional
services in more than one practice (as
specified by the Secretary), the Secretary
shall establish rules to coordinate the
incentive payments, including the application
of the limitation on amounts of such incentive
payments under this paragraph, among such
practices.
``(iii) Coordination with medicaid.--The
Secretary shall seek, to the maximum extent
practicable, to avoid duplicative requirements
from Federal and State Governments to
demonstrate meaningful use of certified EHR
technology under this title and title XIX. In
doing so, the Secretary may deem satisfaction
of State requirements for such meaningful use
for a payment year under title XIX to be
sufficient to qualify as meaningful use under
this subsection and subsection (a)(7) and vice
versa. The Secretary may also adjust the
reporting periods under such title and such
subsections in order to carry out this clause.
``(E) Payment year defined.--
``(i) In general.--For purposes of this
subsection, the term `payment year' means a
year beginning with 2011.
``(ii) First, second, etc. payment year.--The
term `first payment year' means, with respect
to covered professional services furnished by
an eligible professional, the first year for
which an incentive payment is made for such
services under this subsection. The terms
`second payment year', `third payment year',
`fourth payment year', and `fifth payment year'
mean, with respect to covered professional
services furnished by such eligible
professional, each successive year immediately
following the first payment year for such
professional.
``(2) Meaningful ehr user.--
``(A) In general.--For purposes of paragraph (1), an
eligible professional shall be treated as a meaningful
EHR user for a reporting period for a payment year (or,
for purposes of subsection (a)(7), for a reporting
period under such subsection for a year) if each of the
following requirements is met:
``(i) Meaningful use of certified ehr
technology.--The eligible professional
demonstrates to the satisfaction of the
Secretary, in accordance with subparagraph
(C)(i), that during such period the
professional is using certified EHR technology
in a meaningful manner, which shall include the
use of electronic prescribing as determined to
be appropriate by the Secretary.
``(ii) Information exchange.--The eligible
professional demonstrates to the satisfaction
of the Secretary, in accordance with
subparagraph (C)(i), that during such period
such certified EHR technology is connected in a
manner that provides, in accordance with law
and standards applicable to the exchange of
information, for the electronic exchange of
health information to improve the quality of
health care, such as promoting care
coordination.
``(iii) Reporting on measures using ehr.--
Subject to subparagraph (B)(ii) and using such
certified EHR technology, the eligible
professional submits information for such
period, in a form and manner specified by the
Secretary, on such clinical quality measures
and such other measures as selected by the
Secretary under subparagraph (B)(i).
The Secretary may provide for the use of alternative
means for meeting the requirements of clauses (i),
(ii), and (iii) in the case of an eligible professional
furnishing covered professional services in a group
practice (as defined by the Secretary). The Secretary
shall seek to improve the use of electronic health
records and health care quality over time by requiring
more stringent measures of meaningful use selected
under this paragraph.
``(B) Reporting on measures.--
``(i) Selection.--The Secretary shall select
measures for purposes of subparagraph (A)(iii)
but only consistent with the following:
``(I) The Secretary shall provide
preference to clinical quality measures
that have been endorsed by the entity
with a contract with the Secretary
under section 1890(a).
``(II) Prior to any measure being
selected under this subparagraph, the
Secretary shall publish in the Federal
Register such measure and provide for a
period of public comment on such
measure.
``(ii) Limitation.--The Secretary may not
require the electronic reporting of information
on clinical quality measures under subparagraph
(A)(iii) unless the Secretary has the capacity
to accept the information electronically, which
may be on a pilot basis.
``(iii) Coordination of reporting of
information.--In selecting such measures, and
in establishing the form and manner for
reporting measures under subparagraph (A)(iii),
the Secretary shall seek to avoid redundant or
duplicative reporting otherwise required,
including reporting under subsection (k)(2)(C).
``(C) Demonstration of meaningful use of certified
ehr technology and information exchange.--
``(i) In general.--A professional may satisfy
the demonstration requirement of clauses (i)
and (ii) of subparagraph (A) through means
specified by the Secretary, which may include--
``(I) an attestation;
``(II) the submission of claims with
appropriate coding (such as a code
indicating that a patient encounter was
documented using certified EHR
technology);
``(III) a survey response;
``(IV) reporting under subparagraph
(A)(iii); and
``(V) other means specified by the
Secretary.
``(ii) Use of part d data.--Notwithstanding
sections 1860D-15(d)(2)(B) and 1860D-15(f)(2),
the Secretary may use data regarding drug
claims submitted for purposes of section 1860D-
15 that are necessary for purposes of
subparagraph (A).
``(3) Application.--
``(A) Physician reporting system rules.--Paragraphs
(5), (6), and (8) of subsection (k) shall apply for
purposes of this subsection in the same manner as they
apply for purposes of such subsection.
``(B) Coordination with other payments.--The
provisions of this subsection shall not be taken into
account in applying the provisions of subsection (m) of
this section and of section 1833(m) and any payment
under such provisions shall not be taken into account
in computing allowable charges under this subsection.
``(C) Limitations on review.--There shall be no
administrative or judicial review under section 1869,
section 1878, or otherwise of the determination of any
incentive payment under this subsection and the payment
adjustment under subsection (a)(7), including the
determination of a meaningful EHR user under paragraph
(2), a limitation under paragraph (1)(B), and the
exception under subsection (a)(7)(B).
``(D) Posting on website.--The Secretary shall post
on the Internet website of the Centers for Medicare &
Medicaid Services, in an easily understandable format,
a list of the names, business addresses, and business
phone numbers of the eligible professionals who are
meaningful EHR users and, as determined appropriate by
the Secretary, of group practices receiving incentive
payments under paragraph (1).
``(4) Certified ehr technology defined.--For purposes of this
section, the term `certified EHR technology' means a qualified
electronic health record (as defined in 3000(13) of the Public
Health Service Act) that is certified pursuant to section
3001(c)(5) of such Act as meeting standards adopted under
section 3004 of such Act that are applicable to the type of
record involved (as determined by the Secretary, such as an
ambulatory electronic health record for office-based physicians
or an inpatient hospital electronic health record for
hospitals).
``(5) Definitions.--For purposes of this subsection:
``(A) Covered professional services.--The term
`covered professional services' has the meaning given
such term in subsection (k)(3).
``(B) Eligible professional.--The term `eligible
professional' means a physician, as defined in section
1861(r).
``(C) Reporting period.--The term `reporting period'
means any period (or periods), with respect to a
payment year, as specified by the Secretary.''.
(b) Incentive Payment Adjustment.--Section 1848(a) of the Social
Security Act (42 U.S.C. 1395w-4(a)) is amended by adding at the end the
following new paragraph:
``(7) Incentives for meaningful use of certified ehr
technology.--
``(A) Adjustment.--
``(i) In general.--Subject to subparagraphs
(B) and (D), with respect to covered
professional services furnished by an eligible
professional during 2016 or any subsequent
payment year, if the eligible professional is
not a meaningful EHR user (as determined under
subsection (o)(2)) for a reporting period for
the year, the fee schedule amount for such
services furnished by such professional during
the year (including the fee schedule amount for
purposes of determining a payment based on such
amount) shall be equal to the applicable
percent of the fee schedule amount that would
otherwise apply to such services under this
subsection (determined after application of
paragraph (3) but without regard to this
paragraph).
``(ii) Applicable percent.--Subject to clause
(iii), for purposes of clause (i), the term
`applicable percent' means--
``(I) for 2016, 99 percent;
``(II) for 2017, 98 percent; and
``(III) for 2018 and each subsequent
year, 97 percent.
``(iii) Authority to decrease applicable
percentage for 2019 and subsequent years.--For
2019 and each subsequent year, if the Secretary
finds that the proportion of eligible
professionals who are meaningful EHR users (as
determined under subsection (o)(2)) is less
than 75 percent, the applicable percent shall
be decreased by 1 percentage point from the
applicable percent in the preceding year, but
in no case shall the applicable percent be less
than 95 percent.
``(B) Significant hardship exception.--The Secretary
may, on a case-by-case basis, exempt an eligible
professional from the application of the payment
adjustment under subparagraph (A) if the Secretary
determines, subject to annual renewal, that compliance
with the requirement for being a meaningful EHR user
would result in a significant hardship, such as in the
case of an eligible professional who practices in a
rural area without sufficient Internet access. In no
case may an eligible professional be granted an
exemption under this subparagraph for more than 5
years.
``(C) Application of physician reporting system
rules.--Paragraphs (5), (6), and (8) of subsection (k)
shall apply for purposes of this paragraph in the same
manner as they apply for purposes of such subsection.
``(D) Non-application to hospital-based eligible
professionals.--No payment adjustment may be made under
subparagraph (A) in the case of hospital-based eligible
professionals (as defined in subsection (o)(1)(C)(ii)).
``(E) Definitions.--For purposes of this paragraph:
``(i) Covered professional services.--The
term `covered professional services' has the
meaning given such term in subsection (k)(3).
``(ii) Eligible professional.--The term
`eligible professional' means a physician, as
defined in section 1861(r).
``(iii) Reporting period.--The term
`reporting period' means, with respect to a
year, a period specified by the Secretary.''.
(c) Application to Certain HMO-Affiliated Eligible Professionals.--
Section 1853 of the Social Security Act (42 U.S.C. 1395w-23) is amended
by adding at the end the following new subsection:
``(l) Application of Eligible Professional Incentives for Certain MA
Organizations for Adoption and Meaningful Use of Certified EHR
Technology.--
``(1) In general.--Subject to paragraphs (3) and (4), in the
case of a qualifying MA organization, the provisions of
sections 1848(o) and 1848(a)(7) shall apply with respect to
eligible professionals described in paragraph (2) of the
organization who the organization attests under paragraph (6)
to be meaningful EHR users in a similar manner as they apply to
eligible professionals under such sections. Incentive payments
under paragraph (3) shall be made to and payment adjustments
under paragraph (4) shall apply to such qualifying
organizations.
``(2) Eligible professional described.--With respect to a
qualifying MA organization, an eligible professional described
in this paragraph is an eligible professional (as defined for
purposes of section 1848(o)) who--
``(A)(i) is employed by the organization; or
``(ii)(I) is employed by, or is a partner of, an
entity that through contract with the organization
furnishes at least 80 percent of the entity's patient
care services to enrollees of such organization; and
``(II) furnishes at least 75 percent of the
professional services of the eligible professional to
enrollees of the organization; and
``(B) furnishes, on average, at least 20 hours per
week of patient care services.
``(3) Eligible professional incentive payments.--
``(A) In general.--In applying section 1848(o) under
paragraph (1), instead of the additional payment amount
under section 1848(o)(1)(A) and subject to subparagraph
(B), the Secretary may substitute an amount determined
by the Secretary to the extent feasible and practical
to be similar to the estimated amount in the aggregate
that would be payable if payment for services furnished
by such professionals was payable under part B instead
of this part.
``(B) Avoiding duplication of payments.--
``(i) In general.--If an eligible
professional described in paragraph (2) is
eligible for the maximum incentive payment
under section 1848(o)(1)(A) for the same
payment period, the payment incentive shall be
made only under such section and not under this
subsection.
``(ii) Methods.--In the case of an eligible
professional described in paragraph (2) who is
eligible for an incentive payment under section
1848(o)(1)(A) but is not described in clause
(i) for the same payment period, the Secretary
shall develop a process--
``(I) to ensure that duplicate
payments are not made with respect to
an eligible professional both under
this subsection and under section
1848(o)(1)(A); and
``(II) to collect data from Medicare
Advantage organizations to ensure
against such duplicate payments.
``(C) Fixed schedule for application of limitation on
incentive payments for all eligible professionals.--In
applying section 1848(o)(1)(B)(ii) under subparagraph
(A), in accordance with rules specified by the
Secretary, a qualifying MA organization shall specify a
year (not earlier than 2011) that shall be treated as
the first payment year for all eligible professionals
with respect to such organization.
``(4) Payment adjustment.--
``(A) In general.--In applying section 1848(a)(7)
under paragraph (1), instead of the payment adjustment
being an applicable percent of the fee schedule amount
for a year under such section, subject to subparagraph
(D), the payment adjustment under paragraph (1) shall
be equal to the percent specified in subparagraph (B)
for such year of the payment amount otherwise provided
under this section for such year.
``(B) Specified percent.--The percent specified under
this subparagraph for a year is 100 percent minus a
number of percentage points equal to the product of--
``(i) the number of percentage points by
which the applicable percent (under section
1848(a)(7)(A)(ii)) for the year is less than
100 percent; and
``(ii) the Medicare physician expenditure
proportion specified in subparagraph (C) for
the year.
``(C) Medicare physician expenditure proportion.--The
Medicare physician expenditure proportion under this
subparagraph for a year is the Secretary's estimate of
the proportion, of the expenditures under parts A and B
that are not attributable to this part, that are
attributable to expenditures for physicians' services.
``(D) Application of payment adjustment.--In the case
that a qualifying MA organization attests that not all
eligible professionals are meaningful EHR users with
respect to a year, the Secretary shall apply the
payment adjustment under this paragraph based on the
proportion of such eligible professionals that are not
meaningful EHR users for such year.
``(5) Qualifying ma organization defined.--In this subsection
and subsection (m), the term `qualifying MA organization' means
a Medicare Advantage organization that is organized as a health
maintenance organization (as defined in section 2791(b)(3) of
the Public Health Service Act).
``(6) Meaningful ehr user attestation.--For purposes of this
subsection and subsection (m), a qualifying MA organization
shall submit an attestation, in a form and manner specified by
the Secretary which may include the submission of such
attestation as part of submission of the initial bid under
section 1854(a)(1)(A)(iv), identifying--
``(A) whether each eligible professional described in
paragraph (2), with respect to such organization is a
meaningful EHR user (as defined in section 1848(o)(2))
for a year specified by the Secretary; and
``(B) whether each eligible hospital described in
subsection (m)(1), with respect to such organization,
is a meaningful EHR user (as defined in section
1886(n)(3)) for an applicable period specified by the
Secretary.''.
(d) Conforming Amendments.--Section 1853 of the Social Security Act
(42 U.S.C. 1395w-23) is amended--
(1) in subsection (a)(1)(A), by striking ``and (i)'' and
inserting ``(i), and (l)'';
(2) in subsection (c)--
(A) in paragraph (1)(D)(i), by striking ``section
1886(h)'' and inserting ``sections 1848(o) and
1886(h)''; and
(B) in paragraph (6)(A), by inserting after ``under
part B,'' the following: ``excluding expenditures
attributable to subsections (a)(7) and (o) of section
1848,''; and
(3) in subsection (f), by inserting ``and for payments under
subsection (l)'' after ``with the organization''.
(e) Conforming Amendments to e-Prescribing.--
(1) Section 1848(a)(5)(A) of the Social Security Act (42
U.S.C. 1395w-4(a)(5)(A)) is amended--
(A) in clause (i), by striking ``or any subsequent
year'' and inserting ``, 2013, 2014, or 2015''; and
(B) in clause (ii), by striking ``and each subsequent
year'' and inserting ``and 2015''.
(2) Section 1848(m)(2) of such Act (42 U.S.C. 1395w-4(m)(2))
is amended--
(A) in subparagraph (A), by striking ``For 2009'' and
inserting ``Subject to subparagraph (D), for 2009'';
and
(B) by adding at the end the following new
subparagraph:
``(D) Limitation with respect to ehr incentive
payments.--The provisions of this paragraph shall not
apply to an eligible professional (or, in the case of a
group practice under paragraph (3)(C), to the group
practice) if, for the reporting period the eligible
professional (or group practice) receives an incentive
payment under subsection (o)(1)(A) with respect to a
certified EHR technology (as defined in subsection
(o)(4)) that has the capability of electronic
prescribing.''.
SEC. 4312. INCENTIVES FOR HOSPITALS.
(a) Incentive Payment.--Section 1886 of the Social Security Act (42
U.S.C. 1395ww) is amended by adding at the end the following new
subsection:
``(n) Incentives for Adoption and Meaningful Use of Certified EHR
Technology.--
``(1) In general.--Subject to the succeeding provisions of
this subsection, with respect to inpatient hospital services
furnished by an eligible hospital during a payment year (as
defined in paragraph (2)(G)), if the eligible hospital is a
meaningful EHR user (as determined under paragraph (3)) for the
reporting period with respect to such year, in addition to the
amount otherwise paid under this section, there also shall be
paid to the eligible hospital, from the Federal Hospital
Insurance Trust Fund established under section 1817, an amount
equal to the applicable amount specified in paragraph (2)(A)
for the hospital for such payment year.
``(2) Payment amount.--
``(A) In general.--Subject to the succeeding
subparagraphs of this paragraph, the applicable amount
specified in this subparagraph for an eligible hospital
for a payment year is equal to the product of the
following:
``(i) Initial amount.--The sum of--
``(I) the base amount specified in
subparagraph (B); plus
``(II) the discharge related amount
specified in subparagraph (C) for a 12-
month period selected by the Secretary
with respect to such payment year.
``(ii) Medicare share.--The Medicare share as
specified in subparagraph (D) for the hospital
for a period selected by the Secretary with
respect to such payment year.
``(iii) Transition factor.--The transition
factor specified in subparagraph (E) for the
hospital for the payment year.
``(B) Base amount.--The base amount specified in this
subparagraph is $2,000,000.
``(C) Discharge related amount.--The discharge
related amount specified in this subparagraph for a 12-
month period selected by the Secretary shall be
determined as the sum of the amount, based upon total
discharges (regardless of any source of payment) for
the period, for each discharge up to the 23,000th
discharge as follows:
``(i) For the 1,150th through the 9,200nd
discharge, $200.
``(ii) For the 9,201st through the 13,800th
discharge, 50 percent of the amount specified
in clause (i).
``(iii) For the 13,801st through the 23,000th
discharge, 30 percent of the amount specified
in clause (i).
``(D) Medicare share.--The Medicare share specified
under this subparagraph for a hospital for a period
selected by the Secretary for a payment year is equal
to the fraction--
``(i) the numerator of which is the sum (for
such period and with respect to the hospital)
of--
``(I) the number of inpatient-bed-
days (as established by the Secretary)
which are attributable to individuals
with respect to whom payment may be
made under part A; and
``(II) the number of inpatient-bed-
days (as so established) which are
attributable to individuals who are
enrolled with a Medicare Advantage
organization under part C; and
``(ii) the denominator of which is the
product of--
``(I) the total number of inpatient-
bed-days with respect to the hospital
during such period; and
``(II) the total amount of the
hospital's charges during such period,
not including any charges that are
attributable to charity care (as such
term is used for purposes of hospital
cost reporting under this title),
divided by the total amount of the
hospital's charges during such period.
Insofar as the Secretary determines that data are not
available on charity care necessary to calculate the
portion of the formula specified in clause (ii)(II),
the Secretary shall use data on uncompensated care and
may adjust such data so as to be an appropriate proxy
for charity care including a downward adjustment to
eliminate bad debt data from uncompensated care data.
In the absence of the data necessary, with respect to a
hospital, for the Secretary to compute the amount
described in clause (ii)(II), the amount under such
clause shall be deemed to be 1. In the absence of data,
with respect to a hospital, necessary to compute the
amount described in clause (i)(II), the amount under
such clause shall be deemed to be 0.
``(E) Transition factor specified.--
``(i) In general.--Subject to clause (ii),
the transition factor specified in this
subparagraph for an eligible hospital for a
payment year is as follows:
``(I) For the first payment year for
such hospital, 1.
``(II) For the second payment year
for such hospital, \3/4\.
``(III) For the third payment year
for such hospital, \1/2\.
``(IV) For the fourth payment year
for such hospital, \1/4\.
``(V) For any succeeding payment year
for such hospital, 0.
``(ii) Phase down for eligible hospitals
first adopting ehr after 2013.--If the first
payment year for an eligible hospital is after
2013, then the transition factor specified in
this subparagraph for a payment year for such
hospital is the same as the amount specified in
clause (i) for such payment year for an
eligible hospital for which the first payment
year is 2013. If the first payment year for an
eligible hospital is after 2015 then the
transition factor specified in this
subparagraph for such hospital and for such
year and any subsequent year shall be 0.
``(F) Form of payment.--The payment under this
subsection for a payment year may be in the form of a
single consolidated payment or in the form of such
periodic installments as the Secretary may specify.
``(G) Payment year defined.--
``(i) In general.--For purposes of this
subsection, the term `payment year' means a
fiscal year beginning with fiscal year 2011.
``(ii) First, second, etc. payment year.--The
term `first payment year' means, with respect
to inpatient hospital services furnished by an
eligible hospital, the first fiscal year for
which an incentive payment is made for such
services under this subsection. The terms
`second payment year', `third payment year',
and `fourth payment year' mean, with respect to
an eligible hospital, each successive year
immediately following the first payment year
for that hospital.
``(3) Meaningful ehr user.--
``(A) In general.--For purposes of paragraph (1), an
eligible hospital shall be treated as a meaningful EHR
user for a reporting period for a payment year (or, for
purposes of subsection (b)(3)(B)(ix), for a reporting
period under such subsection for a fiscal year) if each
of the following requirements are met:
``(i) Meaningful use of certified ehr
technology.--The eligible hospital demonstrates
to the satisfaction of the Secretary, in
accordance with subparagraph (C)(i), that
during such period the hospital is using
certified EHR technology in a meaningful
manner.
``(ii) Information exchange.--The eligible
hospital demonstrates to the satisfaction of
the Secretary, in accordance with subparagraph
(C)(i), that during such period such certified
EHR technology is connected in a manner that
provides, in accordance with law and standards
applicable to the exchange of information, for
the electronic exchange of health information
to improve the quality of health care, such as
promoting care coordination.
``(iii) Reporting on measures using ehr.--
Subject to subparagraph (B)(ii) and using such
certified EHR technology, the eligible hospital
submits information for such period, in a form
and manner specified by the Secretary, on such
clinical quality measures and such other
measures as selected by the Secretary under
subparagraph (B)(i).
The Secretary shall seek to improve the use of
electronic health records and health care quality over
time by requiring more stringent measures of meaningful
use selected under this paragraph.
``(B) Reporting on measures.--
``(i) Selection.--The Secretary shall select
measures for purposes of subparagraph (A)(iii)
but only consistent with the following:
``(I) The Secretary shall provide
preference to clinical quality measures
that have been selected for purposes of
applying subsection (b)(3)(B)(viii) or
that have been endorsed by the entity
with a contract with the Secretary
under section 1890(a).
``(II) Prior to any measure (other
than a clinical quality measure that
has been selected for purposes of
applying subsection (b)(3)(B)(viii))
being selected under this subparagraph,
the Secretary shall publish in the
Federal Register such measure and
provide for a period of public comment
on such measure.
``(ii) Limitations.--The Secretary may not
require the electronic reporting of information
on clinical quality measures under subparagraph
(A)(iii) unless the Secretary has the capacity
to accept the information electronically, which
may be on a pilot basis.
``(iii) Coordination of reporting of
information.--In selecting such measures, and
in establishing the form and manner for
reporting measures under subparagraph (A)(iii),
the Secretary shall seek to avoid redundant or
duplicative reporting with reporting otherwise
required, including reporting under subsection
(b)(3)(B)(viii).
``(C) Demonstration of meaningful use of certified
ehr technology and information exchange.--
``(i) In general.--A hospital may satisfy the
demonstration requirement of clauses (i) and
(ii) of subparagraph (A) through means
specified by the Secretary, which may include--
``(I) an attestation;
``(II) the submission of claims with
appropriate coding (such as a code
indicating that inpatient care was
documented using certified EHR
technology);
``(III) a survey response;
``(IV) reporting under subparagraph
(A)(iii); and
``(V) other means specified by the
Secretary.
``(ii) Use of part d data.--Notwithstanding
sections 1860D-15(d)(2)(B) and 1860D-15(f)(2),
the Secretary may use data regarding drug
claims submitted for purposes of section 1860D-
15 that are necessary for purposes of
subparagraph (A).
``(4) Application.--
``(A) Limitations on review.--There shall be no
administrative or judicial review under section 1869,
section 1878, or otherwise of the determination of any
incentive payment under this subsection and the payment
adjustment under subsection (b)(3)(B)(ix), including
the determination of a meaningful EHR user under
paragraph (3), determination of measures applicable to
services furnished by eligible hospitals under this
subsection, and the exception under subsection
(b)(3)(B)(ix)(II).
``(B) Posting on website.--The Secretary shall post
on the Internet website of the Centers for Medicare &
Medicaid Services, in an easily understandable format,
a list of the names of the eligible hospitals that are
meaningful EHR users under this subsection or
subsection (b)(3)(B)(ix) and other relevant data as
determined appropriate by the Secretary. The Secretary
shall ensure that a hospital has the opportunity to
review the other relevant data that are to be made
public with respect to the hospital prior to such data
being made public.
``(5) Certified ehr technology defined.--The term `certified
EHR technology' has the meaning given such term in section
1848(o)(4).
``(6) Definitions.--For purposes of this subsection:
``(A) Eligible hospital.--The term `eligible
hospital' means a subsection (d) hospital.
``(B) Reporting period.--The term `reporting period'
means any period (or periods), with respect to a
payment year, as specified by the Secretary.''.
(b) Incentive Market Basket Adjustment.--Section 1886(b)(3)(B) of the
Social Security Act (42 U.S.C. 1395ww(b)(3)(B)) is amended--
(1) in clause (viii)(I), by inserting ``(or, beginning with
fiscal year 2016, by one-quarter)'' after ``2.0 percentage
points''; and
(2) by adding at the end the following new clause:
``(ix)(I) For purposes of clause (i) for fiscal year 2016 and each
subsequent fiscal year, in the case of an eligible hospital (as defined
in subsection (n)(6)(A)) that is not a meaningful EHR user (as defined
in subsection (n)(3)) for the reporting period for such fiscal year,
three-quarters of the applicable percentage increase otherwise
applicable under clause (i) for such fiscal year shall be reduced by
33\1/3\ percent for fiscal year 2016, 66\2/3\ percent for fiscal year
2017, and 100 percent for fiscal year 2018 and each subsequent fiscal
year. Such reduction shall apply only with respect to the fiscal year
involved and the Secretary shall not take into account such reduction
in computing the applicable percentage increase under clause (i) for a
subsequent fiscal year.
``(II) The Secretary may, on a case-by-case basis, exempt a
subsection (d) hospital from the application of subclause (I) with
respect to a fiscal year if the Secretary determines, subject to annual
renewal, that requiring such hospital to be a meaningful EHR user
during such fiscal year would result in a significant hardship, such as
in the case of a hospital in a rural area without sufficient Internet
access. In no case may a hospital be granted an exemption under this
subclause for more than 5 years.
``(III) For fiscal year 2016 and each subsequent fiscal year, a State
in which hospitals are paid for services under section 1814(b)(3) shall
adjust the payments to each subsection (d) hospital in the State that
is not a meaningful EHR user (as defined in subsection (n)(3)) in a
manner that is designed to result in an aggregate reduction in payments
to hospitals in the State that is equivalent to the aggregate reduction
that would have occurred if payments had been reduced to each
subsection (d) hospital in the State in a manner comparable to the
reduction under the previous provisions of this clause. The State shall
report to the Secretary the methodology it will use to make the payment
adjustment under the previous sentence.
``(IV) For purposes of this clause, the term `reporting period'
means, with respect to a fiscal year, any period (or periods), with
respect to the fiscal year, as specified by the Secretary.''.
(c) Application to Certain HMO-Affiliated Eligible Hospitals.--
Section 1853 of the Social Security Act (42 U.S.C. 1395w-23), as
amended by section 4311(c), is further amended by adding at the end the
following new subsection:
``(m) Application of Eligible Hospital Incentives for Certain MA
Organizations for Adoption and Meaningful Use of Certified EHR
Technology.--
``(1) Application.--Subject to paragraphs (3) and (4), in the
case of a qualifying MA organization, the provisions of
sections 1886(n) and 1886(b)(3)(B)(ix) shall apply with respect
to eligible hospitals described in paragraph (2) of the
organization which the organization attests under subsection
(l)(6) to be meaningful EHR users in a similar manner as they
apply to eligible hospitals under such sections. Incentive
payments under paragraph (3) shall be made to and payment
adjustments under paragraph (4) shall apply to such qualifying
organizations.
``(2) Eligible hospital described.--With respect to a
qualifying MA organization, an eligible hospital described in
this paragraph is an eligible hospital that is under common
corporate governance with such organization and serves
individuals enrolled under an MA plan offered by such
organization.
``(3) Eligible hospital incentive payments.--
``(A) In general.--In applying section 1886(n)(2)
under paragraph (1), instead of the additional payment
amount under section 1886(n)(2), there shall be
substituted an amount determined by the Secretary to be
similar to the estimated amount in the aggregate that
would be payable if payment for services furnished by
such hospitals was payable under part A instead of this
part. In implementing the previous sentence, the
Secretary--
``(i) shall, insofar as data to determine the
discharge related amount under section
1886(n)(2)(C) for an eligible hospital are not
available to the Secretary, use such
alternative data and methodology to estimate
such discharge related amount as the Secretary
determines appropriate; and
``(ii) shall, insofar as data to determine
the medicare share described in section
1886(n)(2)(D) for an eligible hospital are not
available to the Secretary, use such
alternative data and methodology to estimate
such share, which data and methodology may
include use of the inpatient bed days (or
discharges) with respect to an eligible
hospital during the appropriate period which
are attributable to both individuals for whom
payment may be made under part A or individuals
enrolled in an MA plan under a Medicare
Advantage organization under this part as a
proportion of the total number of patient-bed-
days (or discharges) with respect to such
hospital during such period.
``(B) Avoiding duplication of payments.--
``(i) In general.--In the case of a hospital
that for a payment year is an eligible hospital
described in paragraph (2), is an eligible
hospital under section 1886(n), and for which
at least one-third of their discharges (or bed-
days) of Medicare patients for the year are
covered under part A, payment for the payment
year shall be made only under section 1886(n)
and not under this subsection.
``(ii) Methods.--In the case of a hospital
that is an eligible hospital described in
paragraph (2) and also is eligible for an
incentive payment under section 1886(n) but is
not described in clause (i) for the same
payment period, the Secretary shall develop a
process--
``(I) to ensure that duplicate
payments are not made with respect to
an eligible hospital both under this
subsection and under section 1886(n);
and
``(II) to collect data from Medicare
Advantage organizations to ensure
against such duplicate payments.
``(4) Payment adjustment.--
``(A) Subject to paragraph (3), in the case of a
qualifying MA organization (as defined in section
1853(l)(5)), if, according to the attestation of the
organization submitted under subsection (l)(6) for an
applicable period, one or more eligible hospitals (as
defined in section 1886(n)(6)(A)) that are under common
corporate governance with such organization and that
serve individuals enrolled under a plan offered by such
organization are not meaningful EHR users (as defined
in section 1886(n)(3)) with respect to a period, the
payment amount payable under this section for such
organization for such period shall be the percent
specified in subparagraph (B) for such period of the
payment amount otherwise provided under this section
for such period.
``(B) Specified percent.--The percent specified under
this subparagraph for a year is 100 percent minus a
number of percentage points equal to the product of--
``(i) the number of the percentage point
reduction effected under section
1886(b)(3)(B)(ix)(I) for the period; and
``(ii) the Medicare hospital expenditure
proportion specified in subparagraph (C) for
the year.
``(C) Medicare hospital expenditure proportion.--The
Medicare hospital expenditure proportion under this
subparagraph for a year is the Secretary's estimate of
the proportion, of the expenditures under parts A and B
that are not attributable to this part, that are
attributable to expenditures for inpatient hospital
services.
``(D) Application of payment adjustment.--In the case
that a qualifying MA organization attests that not all
eligible hospitals are meaningful EHR users with
respect to an applicable period, the Secretary shall
apply the payment adjustment under this paragraph based
on a methodology specified by the Secretary, taking
into account the proportion of such eligible hospitals,
or discharges from such hospitals, that are not
meaningful EHR users for such period.''.
(d) Conforming Amendments.--
(1) Section 1814(b) of the Social Security Act (42 U.S.C.
1395f(b)) is amended--
(A) in paragraph (3), in the matter preceding
subparagraph (A), by inserting ``, subject to section
1886(d)(3)(B)(ix)(III),'' after ``then''; and
(B) by adding at the end the following: ``For
purposes of applying paragraph (3), there shall be
taken into account incentive payments, and payment
adjustments under subsection (b)(3)(B)(ix) or (n) of
section 1886.''.
(2) Section 1851(i)(1) of the Social Security Act (42 U.S.C.
1395w-21(i)(1)) is amended by striking ``and 1886(h)(3)(D)''
and inserting ``1886(h)(3)(D), and 1853(m)''.
(3) Section 1853 of the Social Security Act (42 U.S.C. 1395w-
23), as amended by section 4311(d)(1), is amended--
(A) in subsection (c)--
(i) in paragraph (1)(D)(i), by striking
``1848(o)'' and inserting ``, 1848(o), and
1886(n)''; and
(ii) in paragraph (6)(A), by inserting ``and
subsections (b)(3)(B)(ix) and (n) of section
1886'' after ``section 1848''; and
(B) in subsection (f), by inserting ``and subsection
(m)'' after ``under subsection (l)''.
SEC. 4313. TREATMENT OF PAYMENTS AND SAVINGS; IMPLEMENTATION FUNDING.
(a) Premium Hold Harmless.--
(1) In general.--Section 1839(a)(1) of the Social Security
Act (42 U.S.C. 1395r(a)(1)) is amended by adding at the end the
following: ``In applying this paragraph there shall not be
taken into account additional payments under section 1848(o)
and section 1853(l)(3) and the Government contribution under
section 1844(a)(3).''.
(2) Payment.--Section 1844(a) of such Act (42 U.S.C.
1395w(a)) is amended--
(A) in paragraph (2), by striking the period at the
end and inserting ``; plus''; and
(B) by adding at the end the following new paragraph:
``(3) a Government contribution equal to the amount of
payment incentives payable under sections 1848(o) and
1853(l)(3).''.
(b) Medicare Improvement Fund.--Section 1898 of the Social Security
Act (42 U.S.C. 1395iii), as added by section 7002(a) of the
Supplemental Appropriations Act, 2008 (Public Law 110-252) and as
amended by section 188(a)(2) of the Medicare Improvements for Patients
and Providers Act of 2008 (Public Law 110-275; 122 Stat. 2589) and by
section 6 of the QI Program Supplemental Funding Act of 2008, is
amended--
(1) in subsection (a)--
(A) by inserting ``medicare'' before ``fee-for-
service''; and
(B) by inserting before the period at the end the
following: ``including, but not limited to, an increase
in the conversion factor under section 1848(d) to
address, in whole or in part, any projected shortfall
in the conversion factor for 2014 relative to the
conversion factor for 2008 and adjustments to payments
for items and services furnished by providers of
services and suppliers under such original medicare
fee-for-service program''; and
(2) in subsection (b)--
(A) in paragraph (1), by striking ``during fiscal
year 2014,'' and all that follows and inserting the
following: ``during--
``(A) fiscal year 2014, $22,290,000,000; and
``(B) fiscal year 2020 and each subsequent fiscal
year, the Secretary's estimate, as of July 1 of the
fiscal year, of the aggregate reduction in expenditures
under this title during the preceding fiscal year
directly resulting from the reduction in payment
amounts under sections 1848(a)(7), 1853(l)(4),
1853(m)(4), and 1886(b)(3)(B)(ix).''; and
(B) by adding at the end the following new paragraph:
``(4) No effect on payments in subsequent years.--In the case
that expenditures from the Fund are applied to, or otherwise
affect, a payment rate for an item or service under this title
for a year, the payment rate for such item or service shall be
computed for a subsequent year as if such application or effect
had never occurred.''.
(c) Implementation Funding.--In addition to funds otherwise
available, out of any funds in the Treasury not otherwise appropriated,
there are appropriated to the Secretary of Health and Human Services
for the Center for Medicare & Medicaid Services Program Management
Account, $60,000,000 for each of fiscal years 2009 through 2015 and
$30,000,000 for each succeeding fiscal year through fiscal year 2019,
which shall be available for purposes of carrying out the provisions of
(and amendments made by) this part. Amounts appropriated under this
subsection for a fiscal year shall be available until expended.
SEC. 4314. STUDY ON APPLICATION OF EHR PAYMENT INCENTIVES FOR PROVIDERS
NOT RECEIVING OTHER INCENTIVE PAYMENTS.
(a) Study.--
(1) In general.--The Secretary of Health and Human Services
shall conduct a study to determine the extent to which and
manner in which payment incentives (such as under title XVIII
or XIX of the Social Security Act) and other funding for
purposes of implementing and using certified EHR technology (as
defined in section 3000 of the Public Health Service Act)
should be made available to health care providers who are
receiving minimal or no payment incentives or other funding
under this Act, under title XVIII or XIX of the Social Security
Act, or otherwise, for such purposes.
(2) Details of study.--Such study shall include an
examination of--
(A) the adoption rates of certified EHR technology by
such health care providers;
(B) the clinical utility of such technology by such
health care providers;
(C) whether the services furnished by such health
care providers are appropriate for or would benefit
from the use of such technology;
(D) the extent to which such health care providers
work in settings that might otherwise receive an
incentive payment or other funding under this Act,
title XVIII or XIX of the Social Security Act, or
otherwise;
(E) the potential costs and the potential benefits of
making payment incentives and other funding available
to such health care providers; and
(F) any other issues the Secretary deems to be
appropriate.
(b) Report.--Not later than June 30, 2010, the Secretary shall submit
to Congress a report on the findings and conclusions of the study
conducted under subsection (a).
PART III--MEDICAID FUNDING
SEC. 4321. MEDICAID PROVIDER HIT ADOPTION AND OPERATION PAYMENTS;
IMPLEMENTATION FUNDING.
(a) In General.--Section 1903 of the Social Security Act (42 U.S.C.
1396b) is amended--
(1) in subsection (a)(3)--
(A) by striking ``and'' at the end of subparagraph
(D);
(B) by striking ``plus'' at the end of subparagraph
(E) and inserting ``and''; and
(C) by adding at the end the following new
subparagraph:
``(F)(i) 100 percent of so much of the sums expended
during such quarter as are attributable to payments for
certified EHR technology (and support services
including maintenance and training that is for, or is
necessary for the adoption and operation of, such
technology) by Medicaid providers described in
subsection (t)(1); and
``(ii) 90 percent of so much of the sums expended
during such quarter as are attributable to payments for
reasonable administrative expenses related to the
administration of payments described in clause (i) if
the State meets the condition described in subsection
(t)(9); plus''; and
(2) by inserting after subsection (s) the following new
subsection:
``(t)(1) For purposes of subsection (a)(3)(F), the payments for
certified EHR technology (and support services including maintenance
that is for, or is necessary for the operation of, such technology) by
Medicaid providers described in this paragraph are payments made by the
State in accordance with this subsection of 85 percent of the net
allowable costs of Medicaid providers (as defined in paragraph (2)) for
such technology (and support services).
``(2) In this subsection and subsection (a)(3)(F), the term `Medicaid
provider' means--
``(A) an eligible professional (as defined in paragraph
(3)(B)) who is not hospital-based and has at least 30 percent
of the professional's patient volume (as estimated in
accordance with standards established by the Secretary)
attributable to individuals who are receiving medical
assistance under this title; and
``(B)(i) a children's hospital, (ii) an acute-care hospital
that is not described in clause (i) and that has at least 10
percent of the hospital's patient volume (as estimated in
accordance with standards established by the Secretary)
attributable to individuals who are receiving medical
assistance under this title, or (iii) a Federally-qualified
health center or rural health clinic that has at least 30
percent of the center's or clinic's patient volume (as
estimated in accordance with standards established by the
Secretary) attributable to individuals who are receiving
medical assistance under this title.
A professional shall not qualify as a Medicaid provider under this
subsection unless the professional has waived, in a manner specified by
the Secretary, any right to payment under section 1848(o) with respect
to the adoption or support of certified EHR technology by the
professional. In applying clauses (ii) and (iii) of subparagraph (B),
the standards established by the Secretary for patient volume shall
include individuals enrolled in a Medicaid managed care plan (under
section 1903(m) or section 1932).
``(3) In this subsection and subsection (a)(3)(F):
``(A) The term `certified EHR technology' means a qualified
electronic health record (as defined in 3000(13) of the Public
Health Service Act) that is certified pursuant to section
3001(c)(5) of such Act as meeting standards adopted under
section 3004 of such Act that are applicable to the type of
record involved (as determined by the Secretary, such as an
ambulatory electronic health record for office-based physicians
or an inpatient hospital electronic health record for
hospitals).
``(B) The term `eligible professional' means a physician as
defined in paragraphs (1) and (2) of section 1861(r), and
includes a nurse mid-wife and a nurse practitioner.
``(C) The term `hospital-based' means, with respect to an
eligible professional, a professional (such as a pathologist,
anesthesiologist, or emergency physician) who furnishes
substantially all of the individual's professional services in
a hospital setting (whether inpatient or outpatient) and
through the use of the facilities and equipment, including
computer equipment, of the hospital.
``(4)(A) The term `allowable costs' means, with respect to certified
EHR technology of a Medicaid provider, costs of such technology (and
support services including maintenance and training that is for, or is
necessary for the adoption and operation of, such technology) as
determined by the Secretary to be reasonable.
``(B) The term `net allowable costs' means allowable costs reduced by
any payment that is made to the provider involved from any other source
that is directly attributable to payment for certified EHR technology
or services described in subparagraph (A).
``(C) In no case shall--
``(i) the aggregate allowable costs under this subsection
(covering one or more years) with respect to a Medicaid
provider described in paragraph (2)(A) for purchase and initial
implementation of certified EHR technology (and services
described in subparagraph (A)) exceed $25,000 or include costs
over a period of longer than 5 years;
``(ii) for costs not described in clause (i) relating to the
operation, maintenance, or use of certified EHR technology, the
annual allowable costs under this subsection with respect to
such a Medicaid provider for costs not described in clause (i)
for any year exceed $10,000;
``(iii) payment described in paragraph (1) for costs
described in clause (ii) be made with respect to such a
Medicaid provider over a period of more than 5 years;
``(iv) the aggregate allowable costs under this subsection
with respect to such a Medicaid provider for all costs exceed
$75,000; or
``(v) the allowable costs, whether for purchase and initial
implementation, maintenance, or otherwise, for a Medicaid
provider described in paragraph (2)(B) exceed such aggregate or
annual limitation as the Secretary shall establish, based on an
amount determined by the Secretary as being adequate to adopt
and maintain certified EHR technology, consistent with
paragraph (6).
``(5) Payments described in paragraph (1) are not in accordance with
this subsection unless the following requirements are met:
``(A) The State provides assurances satisfactory to the
Secretary that amounts received under subsection (a)(3)(F) with
respect to costs of a Medicaid provider are paid directly to
such provider without any deduction or rebate.
``(B) Such Medicaid provider is responsible for payment of
the costs described in such paragraph that are not provided
under this title.
``(C) With respect to payments to such Medicaid provider for
costs other than costs related to the initial adoption of
certified EHR technology, the Medicaid provider demonstrates
meaningful use of certified EHR technology through a means that
is approved by the State and acceptable to the Secretary, and
that may be based upon the methodologies applied under section
1848(o) or 1886(n).
``(D) To the extent specified by the Secretary, the certified
EHR technology is compatible with State or Federal
administrative management systems.
``(6)(A) In no case shall the payments described in paragraph (1),
with respect to a hospital, exceed in the aggregate the product of--
``(i) the overall hospital HIT amount for the hospital
computed under subparagraph (B); and
``(ii) the Medicaid share for such hospital computed under
subparagraph (C).
``(B) For purposes of this paragraph, the overall hospital HIT
amount, with respect to a hospital, is the sum of the applicable
amounts specified in section 1886(n)(2)(A) for such hospital for the
first 4 payment years (as estimated by the Secretary) determined as if
the Medicare share specified in clause (ii) of such section were 1. The
Secretary shall publish in the Federal Register the overall hospital
HIT amount for each hospital eligible for payments under this
subsection. In computing amounts under clause (ii) for payment years
after the first payment year, the Secretary shall assume that in
subsequent payment years discharges increase at an annual rate of 2
percent per year.
``(C) The Medicaid share computed under this subparagraph, for a
hospital for a period specified by the Secretary, shall be calculated
in the same manner as the Medicare share under section 1886(n)(2)(D)
for such a hospital and period, except that there shall be substituted
for the numerator under clause (i) of such section the amount that is
equal to the number of inpatient-bed-days (as established by the
Secretary) which are attributable to individuals who are receiving
medical assistance under this title and who are not described in
section 1886(n)(2)(D)(i). In computing inpatient-bed-days under the
previous sentence, the Secretary shall take into account inpatient-bed-
days attributable to inpatient-bed-days that are paid for individuals
enrolled in a Medicaid managed care plan (under section 1903(m) or
section 1932).
``(7) With respect to health care providers other than hospitals, the
Secretary shall ensure coordination of the different programs for
payment of such health care providers for adoption or use of health
information technology (including certified EHR technology), as well as
payments for such health care providers provided under this title or
title XVIII, to assure no duplication of funding.
``(8) In carrying out paragraph (5)(C), the State and Secretary shall
seek, to the maximum extent practicable, to avoid duplicative
requirements from Federal and State Governments to demonstrate
meaningful use of certified EHR technology under this title and title
XVIII. In doing so, the Secretary may deem satisfaction of requirements
for such meaningful use for a payment year under title XVIII to be
sufficient to qualify as meaningful use under this subsection. The
Secretary may also specify the reporting periods under this subsection
in order to carry out this paragraph.
``(9) In order to be provided Federal financial participation under
subsection (a)(3)(F)(ii), a State must demonstrate to the satisfaction
of the Secretary, that the State--
``(A) is using the funds provided for the purposes of
administering payments under this subsection, including
tracking of meaningful use by Medicaid providers;
``(B) conducting adequate oversight of the program under this
subsection, including routine tracking of meaningful use
attestations and reporting mechanisms; and
``(C) be pursuing initiatives to encourage the adoption of
certified EHR technology to promote health care quality and the
exchange of health care information under this title, subject
to applicable laws and regulations governing such exchange.
``(10) The Secretary shall periodically submit reports to the
Committee on Energy and Commerce of the House of Representatives and
the Committee on Finance of the Senate on status, progress, and
oversight of payments under paragraph (1).''.
(b) Implementation Funding.--In addition to funds otherwise
available, out of any funds in the Treasury not otherwise appropriated,
there are appropriated to the Secretary of Health and Human Services
for the Center for Medicare & Medicaid Services Program Management
Account, $40,000,000 for each of fiscal years 2009 through 2015 and
$20,000,000 for each succeeding fiscal year through fiscal year 2019,
which shall be available for purposes of carrying out the provisions of
(and the amendments made by) this part. Amounts appropriated under this
subsection for a fiscal year shall be available until expended.
Subtitle D--Privacy
SEC. 4400. DEFINITIONS.
In this subtitle, except as specified otherwise:
(1) Breach.--The term ``breach'' means the unauthorized
acquisition, access, use, or disclosure of protected health
information which compromises the security, privacy, or
integrity of protected health information maintained by or on
behalf of a person. Such term does not include any
unintentional acquisition, access, use, or disclosure of such
information by an employee or agent of the covered entity or
business associate involved if such acquisition, access, use,
or disclosure, respectively, was made in good faith and within
the course and scope of the employment or other contractual
relationship of such employee or agent, respectively, with the
covered entity or business associate and if such information is
not further acquired, accessed, used, or disclosed by such
employee or agent.
(2) Business associate.--The term ``business associate'' has
the meaning given such term in section 160.103 of title 45,
Code of Federal Regulations.
(3) Covered entity.--The term ``covered entity'' has the
meaning given such term in section 160.103 of title 45, Code of
Federal Regulations.
(4) Disclose.--The terms ``disclose'' and ``disclosure'' have
the meaning given the term ``disclosure'' in section 160.103 of
title 45, Code of Federal Regulations.
(5) Electronic health record.--The term ``electronic health
record'' means an electronic record of health-related
information on an individual that is created, gathered,
managed, and consulted by authorized health care clinicians and
staff.
(6) Health care operations.--The term ``health care
operation'' has the meaning given such term in section 164.501
of title 45, Code of Federal Regulations.
(7) Health care provider.--The term ``health care provider''
has the meaning given such term in section 160.103 of title 45,
Code of Federal Regulations.
(8) Health plan.--The term ``health plan'' has the meaning
given such term in section 1171(5) of the Social Security Act.
(9) National coordinator.--The term ``National Coordinator''
means the head of the Office of the National Coordinator for
Health Information Technology established under section 3001(a)
of the Public Health Service Act, as added by section 4101.
(10) Payment.--The term ``payment'' has the meaning given
such term in section 164.501 of title 45, Code of Federal
Regulations.
(11) Personal health record.--The term ``personal health
record'' means an electronic record of individually
identifiable health information on an individual that can be
drawn from multiple sources and that is managed, shared, and
controlled by or for the individual.
(12) Protected health information.--The term ``protected
health information'' has the meaning given such term in section
160.103 of title 45, Code of Federal Regulations.
(13) Secretary.--The term ``Secretary'' means the Secretary
of Health and Human Services.
(14) Security.--The term ``security'' has the meaning given
such term in section 164.304 of title 45, Code of Federal
Regulations.
(15) State.--The term ``State'' means each of the several
States, the District of Columbia, Puerto Rico, the Virgin
Islands, Guam, American Samoa, and the Northern Mariana
Islands.
(16) Treatment.--The term ``treatment'' has the meaning given
such term in section 164.501 of title 45, Code of Federal
Regulations.
(17) Use.--The term ``use'' has the meaning given such term
in section 160.103 of title 45, Code of Federal Regulations.
(18) Vendor of personal health records.--The term ``vendor of
personal health records'' means an entity, other than a covered
entity (as defined in paragraph (3)), that offers or maintains
a personal health record.
PART I--IMPROVED PRIVACY PROVISIONS AND SECURITY PROVISIONS
SEC. 4401. APPLICATION OF SECURITY PROVISIONS AND PENALTIES TO BUSINESS
ASSOCIATES OF COVERED ENTITIES; ANNUAL GUIDANCE ON
SECURITY PROVISIONS.
(a) Application of Security Provisions.--Sections 164.308, 164.310,
164.312, and 164.316 of title 45, Code of Federal Regulations, shall
apply to a business associate of a covered entity in the same manner
that such sections apply to the covered entity. The additional
requirements of this title that relate to security and that are made
applicable with respect to covered entities shall also be applicable to
such a business associate and shall be incorporated into the business
associate agreement between the business associate and the covered
entity.
(b) Application of Civil and Criminal Penalties.--In the case of a
business associate that violates any security provision specified in
subsection (a), sections 1176 and 1177 of the Social Security Act (42
U.S.C. 1320d-5, 1320d-6) shall apply to the business associate with
respect to such violation in the same manner such sections apply to a
covered entity that violates such security provision.
(c) Annual Guidance.--For the first year beginning after the date of
the enactment of this Act and annually thereafter, the Secretary of
Health and Human Services shall, in consultation with industry
stakeholders, annually issue guidance on the most effective and
appropriate technical safeguards for use in carrying out the sections
referred to in subsection (a) and the security standards in subpart C
of part 164 of title 45, Code of Federal Regulations, as such
provisions are in effect as of the date before the enactment of this
Act.
SEC. 4402. NOTIFICATION IN THE CASE OF BREACH.
(a) In General.--A covered entity that accesses, maintains, retains,
modifies, records, stores, destroys, or otherwise holds, uses, or
discloses unsecured protected health information (as defined in
subsection (h)(1)) shall, in the case of a breach of such information
that is discovered by the covered entity, notify each individual whose
unsecured protected health information has been, or is reasonably
believed by the covered entity to have been, accessed, acquired, or
disclosed as a result of such breach.
(b) Notification of Covered Entity by Business Associate.--A business
associate of a covered entity that accesses, maintains, retains,
modifies, records, stores, destroys, or otherwise holds, uses, or
discloses unsecured protected health information shall, following the
discovery of a breach of such information, notify the covered entity of
such breach. Such notice shall include the identification of each
individual whose unsecured protected health information has been, or is
reasonably believed by the business associate to have been, accessed,
acquired, or disclosed during such breach.
(c) Breaches Treated as Discovered.--For purposes of this section, a
breach shall be treated as discovered by a covered entity or by a
business associate as of the first day on which such breach is known to
such entity or associate, respectively, (including any person, other
than the individual committing the breach, that is an employee,
officer, or other agent of such entity or associate, respectively) or
should reasonably have been known to such entity or associate (or
person) to have occurred.
(d) Timeliness of Notification.--
(1) In general.--Subject to subsection (g), all notifications
required under this section shall be made without unreasonable
delay and in no case later than 60 calendar days after the
discovery of a breach by the covered entity involved (or
business associate involved in the case of a notification
required under subsection (b)).
(2) Burden of proof.--The covered entity involved (or
business associate involved in the case of a notification
required under subsection (b)), shall have the burden of
demonstrating that all notifications were made as required
under this part, including evidence demonstrating the necessity
of any delay.
(e) Methods of Notice.--
(1) Individual notice.--Notice required under this section to
be provided to an individual, with respect to a breach, shall
be provided promptly and in the following form:
(A) Written notification by first-class mail to the
individual (or the next of kin of the individual if the
individual is deceased) at the last known address of
the individual or the next of kin, respectively, or, if
specified as a preference by the individual, by
electronic mail. The notification may be provided in
one or more mailings as information is available.
(B) In the case in which there is insufficient, or
out-of-date contact information (including a phone
number, email address, or any other form of appropriate
communication) that precludes direct written (or, if
specified by the individual under subparagraph (A),
electronic) notification to the individual, a
substitute form of notice shall be provided, including,
in the case that there are 10 or more individuals for
which there is insufficient or out-of-date contact
information, a conspicuous posting for a period
determined by the Secretary on the home page of the Web
site of the covered entity involved or notice in major
print or broadcast media, including major media in
geographic areas where the individuals affected by the
breach likely reside. Such a notice in media or web
posting will include a toll-free phone number where an
individual can learn whether or not the individual's
unsecured protected health information is possibly
included in the breach.
(C) In any case deemed by the covered entity involved
to require urgency because of possible imminent misuse
of unsecured protected health information, the covered
entity, in addition to notice provided under
subparagraph (A), may provide information to
individuals by telephone or other means, as
appropriate.
(2) Media notice.--Notice shall be provided to prominent
media outlets serving a State or jurisdiction, following the
discovery of a breach described in subsection (a), if the
unsecured protected health information of more than 500
residents of such State or jurisdiction is, or is reasonably
believed to have been, accessed, acquired, or disclosed during
such breach.
(3) Notice to secretary.--Notice shall be provided to the
Secretary by covered entities of unsecured protected health
information that has been acquired or disclosed in a breach. If
the breach was with respect to 500 or more individuals than
such notice must be provided immediately. If the breach was
with respect to less than 500 individuals, the covered entity
involved may maintain a log of any such breach occurring and
annually submit such a log to the Secretary documenting such
breaches occuring during the year involved.
(4) Posting on hhs public website.--The Secretary shall make
available to the public on the Internet website of the
Department of Health and Human Services a list that identifies
each covered entity involved in a breach described in
subsection (a) in which the unsecured protected health
information of more than 500 individuals is acquired or
disclosed.
(f) Content of Notification.--Regardless of the method by which
notice is provided to individuals under this section, notice of a
breach shall include, to the extent possible, the following:
(1) A brief description of what happened, including the date
of the breach and the date of the discovery of the breach, if
known.
(2) A description of the types of unsecured protected health
information that were involved in the breach (such as full
name, Social Security number, date of birth, home address,
account number, or disability code).
(3) The steps individuals should take to protect themselves
from potential harm resulting from the breach.
(4) A brief description of what the covered entity involved
is doing to investigate the breach, to mitigate losses, and to
protect against any further breaches.
(5) Contact procedures for individuals to ask questions or
learn additional information, which shall include a toll-free
telephone number, an e-mail address, Web site, or postal
address.
(g) Delay of Notification Authorized for Law Enforcement Purposes.--
If a law enforcement official determines that a notification, notice,
or posting required under this section would impede a criminal
investigation or cause damage to national security, such notification,
notice, or posting shall be delayed in the same manner as provided
under section 164.528(a)(2) of title 45, Code of Federal Regulations,
in the case of a disclosure covered under such section.
(h) Unsecured Protected Health Information.--
(1) Definition.--
(A) In general.--Subject to subparagraph (B), for
purposes of this section, the term ``unsecured
protected health information'' means protected health
information that is not secured through the use of a
technology or methodology specified by the Secretary in
the guidance issued under paragraph (2).
(B) Exception in case timely guidance not issued.--In
the case that the Secretary does not issue guidance
under paragraph (2) by the date specified in such
paragraph, for purposes of this section, the term
``unsecured protected health information'' shall mean
protected health information that is not secured by a
technology standard that renders protected health
information unusable, unreadable, or indecipherable to
unauthorized individuals and is developed or endorsed
by a standards developing organization that is
accredited by the American National Standards
Institute.
(2) Guidance.--For purposes of paragraph (1) and section
407(f)(3), not later than the date that is 60 days after the
date of the enactment of this Act, the Secretary shall, after
consultation with stakeholders, issue (and annually update)
guidance specifying the technologies and methodologies that
render protected health information unusable, unreadable, or
indecipherable to unauthorized individuals.
(i) Report to Congress on Breaches.--
(1) In general.--Not later than 12 months after the date of
the enactment of this Act and annually thereafter, the
Secretary shall prepare and submit to the Committee on Finance
and the Committee on Health, Education, Labor, and Pensions of
the Senate and the Committee on Ways and Means and the
Committee on Energy and Commerce of the House of
Representatives a report containing the information described
in paragraph (2) regarding breaches for which notice was
provided to the Secretary under subsection (e)(3).
(2) Information.--The information described in this paragraph
regarding breaches specified in paragraph (1) shall include--
(A) the number and nature of such breaches; and
(B) actions taken in response to such breaches.
(j) Regulations; Effective Date.--To carry out this section, the
Secretary of Health and Human Services shall promulgate interim final
regulations by not later than the date that is 180 days after the date
of the enactment of this title. The provisions of this section shall
apply to breaches that are discovered on or after the date that is 30
days after the date of publication of such interim final regulations.
SEC. 4403. EDUCATION ON HEALTH INFORMATION PRIVACY.
(a) Regional Office Privacy Advisors.--Not later than 6 months after
the date of the enactment of this Act, the Secretary shall designate an
individual in each regional office of the Department of Health and
Human Services to offer guidance and education to covered entities,
business associates, and individuals on their rights and
responsibilities related to Federal privacy and security requirements
for protected health information.
(b) Education Initiative on Uses of Health Information.--Not later
than 12 months after the date of the enactment of this Act, the Office
for Civil Rights within the Department of Health and Human Services
shall develop and maintain a multi-faceted national education
initiative to enhance public transparency regarding the uses of
protected health information, including programs to educate individuals
about the potential uses of their protected health information, the
effects of such uses, and the rights of individuals with respect to
such uses. Such programs shall be conducted in a variety of languages
and present information in a clear and understandable manner.
SEC. 4404. APPLICATION OF PRIVACY PROVISIONS AND PENALTIES TO BUSINESS
ASSOCIATES OF COVERED ENTITIES.
(a) Application of Contract Requirements.--In the case of a business
associate of a covered entity that obtains or creates protected health
information pursuant to a written contract (or other written
arrangement) described in section 164.502(e)(2) of title 45, Code of
Federal Regulations, with such covered entity, the business associate
may use and disclose such protected health information only if such use
or disclosure, respectively, is in compliance with each applicable
requirement of section 164.504(e) of such title. The additional
requirements of this subtitle that relate to privacy and that are made
applicable with respect to covered entities shall also be applicable to
such a business associate and shall be incorporated into the business
associate agreement between the business associate and the covered
entity.
(b) Application of Knowledge Elements Associated With Contracts.--
Section 164.504(e)(1)(ii) of title 45, Code of Federal Regulations,
shall apply to a business associate described in subsection (a), with
respect to compliance with such subsection, in the same manner that
such section applies to a covered entity, with respect to compliance
with the standards in sections 164.502(e) and 164.504(e) of such title,
except that in applying such section 164.504(e)(1)(ii) each reference
to the business associate, with respect to a contract, shall be treated
as a reference to the covered entity involved in such contract.
(c) Application of Civil and Criminal Penalties.--In the case of a
business associate that violates any provision of subsection (a) or
(b), the provisions of sections 1176 and 1177 of the Social Security
Act (42 U.S.C. 1320d-5, 1320d-6) shall apply to the business associate
with respect to such violation in the same manner as such provisions
apply to a person who violates a provision of part C of title XI of
such Act.
SEC. 4405. RESTRICTIONS ON CERTAIN DISCLOSURES AND SALES OF HEALTH
INFORMATION; ACCOUNTING OF CERTAIN PROTECTED HEALTH
INFORMATION DISCLOSURES; ACCESS TO CERTAIN
INFORMATION IN ELECTRONIC FORMAT.
(a) Requested Restrictions on Certain Disclosures of Health
Information.--In the case that an individual requests under paragraph
(a)(1)(i)(A) of section 164.522 of title 45, Code of Federal
Regulations, that a covered entity restrict the disclosure of the
protected health information of the individual, notwithstanding
paragraph (a)(1)(ii) of such section, the covered entity must comply
with the requested restriction if--
(1) except as otherwise required by law, the disclosure is to
a health plan for purposes of carrying out payment or health
care operations (and is not for purposes of carrying out
treatment); and
(2) the protected health information pertains solely to a
health care item or service for which the health care provider
involved has been paid out of pocket in full.
(b) Disclosures Required to Be Limited to the Limited Data Set or the
Minimum Necessary.--
(1) In general.--
(A) In general.--Subject to subparagraph (B), a
covered entity shall be treated as being in compliance
with section 164.502(b)(1) of title 45, Code of Federal
Regulations, with respect to the use, disclosure, or
request of protected health information described in
such section, only if the covered entity limits such
protected health information, to the extent
practicable, to the limited data set (as defined in
section 164.514(e)(2) of such title) or, if needed by
such entity, to the minimum necessary to accomplish the
intended purpose of such use, disclosure, or request,
respectively.
(B) Guidance.--Not later than 18 months after the
date of the enactment of this section, the Secretary
shall issue guidance on what constitutes ``minimum
necessary'' for purposes of subpart E of part 164 of
title 45, Code of Federal Regulation. In issuing such
guidance the Secretary shall take into consideration
the guidance under section 4424(c).
(C) Sunset.--Subparagraph (A) shall not apply on and
after the effective date on which the Secretary issues
the guidance under subparagraph (B).
(2) Determination of minimum necessary.--For purposes of
paragraph (1), in the case of the disclosure of protected
health information, the covered entity or business associate
disclosing such information shall determine what constitutes
the minimum necessary to accomplish the intended purpose of
such disclosure.
(3) Application of exceptions.--The exceptions described in
section 164.502(b)(2) of title 45, Code of Federal Regulations,
shall apply to the requirement under paragraph (1) as of the
effective date described in section 4423 in the same manner
that such exceptions apply to section 164.502(b)(1) of such
title before such date.
(4) Rule of construction.--Nothing in this subsection shall
be construed as affecting the use, disclosure, or request of
protected health information that has been de-identified.
(c) Accounting of Certain Protected Health Information Disclosures
Required if Covered Entity Uses Electronic Health Record.--
(1) In general.--In applying section 164.528 of title 45,
Code of Federal Regulations, in the case that a covered entity
uses or maintains an electronic health record with respect to
protected health information--
(A) the exception under paragraph (a)(1)(i) of such
section shall not apply to disclosures through an
electronic health record made by such entity of such
information; and
(B) an individual shall have a right to receive an
accounting of disclosures described in such paragraph
of such information made by such covered entity during
only the three years prior to the date on which the
accounting is requested.
(2) Regulations.--The Secretary shall promulgate regulations
on what information shall be collected about each disclosure
referred to in paragraph (1)(A) not later than 18 months after
the date on which the Secretary adopts standards on accounting
for disclosure described in the section 3002(b)(2)(B)(iv) of
the Public Health Service Act, as added by section 4101. Such
regulations shall only require such information to be collected
through an electronic health record in a manner that takes into
account the interests of individuals in learning the
circumstances under which their protected health information is
being disclosed and takes into account the administrative
burden of accounting for such disclosures.
(3) Construction.--Nothing in this subsection shall be
construed as requiring a covered entity to account for
disclosures of protected health information that are not made
by such covered entity or by a business associate acting on
behalf of the covered entity.
(4) Effective date.--
(A) Current users of electronic records.--In the case
of a covered entity insofar as it acquired an
electronic health record as of January 1, 2009,
paragraph (1) shall apply to disclosures, with respect
to protected health information, made by the covered
entity from such a record on and after January 1, 2014.
(B) Others.--In the case of a covered entity insofar
as it acquires an electronic health record after
January 1, 2009, paragraph (1) shall apply to
disclosures, with respect to protected health
information, made by the covered entity from such
record on and after the later of the following:
(i) January 1, 2011; or
(ii) the date that it acquires an electronic
health record.
(d) Review of Health Care Operations.--Not later than 18 months after
the date of the enactment of this title, the Secretary shall promulgate
regulations to eliminate from the definition of health care operations
under section 164.501 of title 45, Code of Federal Regulations, those
activities that can reasonably and efficiently be conducted through the
use of information that is de-identified (in accordance with the
requirements of section 164.514(b) of such title) or that should
require a valid authorization for use or disclosure. In promulgating
such regulations, the Secretary may choose to narrow or clarify
activities that the Secretary chooses to retain in the definition of
health care operations and the Secretary shall take into account the
report under section 424(d). In such regulations the Secretary shall
specify the date on which such regulations shall apply to disclosures
made by a covered entity, but in no case would such date be sooner than
the date that is 24 months after the date of the enactment of this
section.
(e) Prohibition on Sale of Electronic Health Records or Protected
Health Information Obtained From Electronic Health Records.--
(1) In general.--Except as provided in paragraph (2), a
covered entity or business associate shall not directly or
indirectly receive remuneration in exchange for any protected
health information of an individual unless the covered entity
obtained from the individual, in accordance with section
164.508 of title 45, Code of Federal Regulations, a valid
authorization that includes, in accordance with such section, a
specification of whether the protected health information can
be further exchanged for remuneration by the entity receiving
protected health information of that individual.
(2) Exceptions.--Paragraph (1) shall not apply in the
following cases:
(A) The purpose of the exchange is for research or
public health activities (as described in sections
164.501, 164.512(i), and 164.512(b) of title 45, Code
of Federal Regulations) and the price charged reflects
the costs of preparation and transmittal of the data
for such purpose.
(B) The purpose of the exchange is for the treatment
of the individual and the price charges reflects not
more than the costs of preparation and transmittal of
the data for such purpose.
(C) The purpose of the exchange is the health care
operation specifically described in subparagraph (iv)
of paragraph (6) of the definition of health care
operations in section 164.501 of title 45, Code of
Federal Regulations.
(D) The purpose of the exchange is for remuneration
that is provided by a covered entity to a business
associate for activities involving the exchange of
protected health information that the business
associate undertakes on behalf of and at the specific
request of the covered entity pursuant to a business
associate agreement.
(E) The purpose of the exchange is to provide an
individual with a copy of the individual's protected
health information pursuant to section 164.524 of title
45, Code of Federal Regulations.
(F) The purpose of the exchange is otherwise
determined by the Secretary in regulations to be
similarly necessary and appropriate as the exceptions
provided in subparagraphs (A) through (E).
(3) Regulations.--The Secretary shall promulgate regulations
to carry out paragraph (this subsection, including exceptions
described in paragraph (2), not later than 18 months after the
date of the enactment of this title.
(4) Effective date.--Paragraph (1) shall apply to exchanges
occurring on or after the date that is 6 months after the date
of the promulgation of final regulations implementing this
subsection.
(f) Access to Certain Information in Electronic Format.--In applying
section 164.524 of title 45, Code of Federal Regulations, in the case
that a covered entity uses or maintains an electronic health record
with respect to protected health information of an individual--
(1) the individual shall have a right to obtain from such
covered entity a copy of such information in an electronic
format; and
(2) notwithstanding paragraph (c)(4) of such section, any fee
that the covered entity may impose for providing such
individual with a copy of such information (or a summary or
explanation of such information) if such copy (or summary or
explanation) is in an electronic form shall not be greater than
the entity's labor costs in responding to the request for the
copy (or summary or explanation).
SEC. 4406. CONDITIONS ON CERTAIN CONTACTS AS PART OF HEALTH CARE
OPERATIONS.
(a) Marketing.--
(1) In general.--A communication by a covered entity or
business associate that is about a product or service and that
encourages recipients of the communication to purchase or use
the product or service shall not be considered a health care
operation for purposes of subpart E of part 164 of title 45,
Code of Federal Regulations, unless the communication is made
as described in subparagraph (i), (ii), or (iii) of paragraph
(1) of the definition of marketing in section 164.501 of such
title.
(2) Payment for certain communications.--A covered entity or
business associate may not receive direct or indirect payment
in exchange for making any communication described in
subparagraph (i), (ii), or (iii) of paragraph (1) of the
definition of marketing in section 164.501 of title 45, Code of
Federal Regulations, except--
(A) a business associate of a covered entity may
receive payment from the covered entity for making any
such communication on behalf of the covered entity that
is consistent with the written contract (or other
written arrangement) described in section 164.502(e)(2)
of such title between such business associate and
covered entity; and
(B) a covered entity may receive payment in exchange
for making any such communication if the entity obtains
from the recipient of the communication, in accordance
with section 164.508 of title 45, Code of Federal
Regulations, a valid authorization (as described in
paragraph (b) of such section) with respect to such
communication.
(b) Fundraising.--Fundraising for the benefit of a covered entity
shall not be considered a health care operation for purposes of section
164.501 of title 45, Code of Federal Regulations.
(c) Effective Date.--This section shall apply to contracting
occurring on or after the effective date specified under section 4423.
SEC. 4407. TEMPORARY BREACH NOTIFICATION REQUIREMENT FOR VENDORS OF
PERSONAL HEALTH RECORDS AND OTHER NON-HIPAA COVERED
ENTITIES.
(a) In General.--In accordance with subsection (c), each vendor of
personal health records, following the discovery of a breach of
security of unsecured PHR identifiable health information that is in a
personal health record maintained or offered by such vendor, and each
entity described in clause (ii) or (iii) of section 4424(b)(1)(A),
following the discovery of a breach of security of such information
that is obtained through a product or service provided by such entity,
shall--
(1) notify each individual who is a citizen or resident of
the United States whose unsecured PHR identifiable health
information was acquired by an unauthorized person as a result
of such a breach of security; and
(2) notify the Federal Trade Commission.
(b) Notification by Third Party Service Providers.--A third party
service provider that provides services to a vendor of personal health
records or to an entity described in clause (ii) or (iii) of section
4424(b)(1)(A) in connection with the offering or maintenance of a
personal health record or a related product or service and that
accesses, maintains, retains, modifies, records, stores, destroys, or
otherwise holds, uses, or discloses unsecured PHR identifiable health
information in such a record as a result of such services shall,
following the discovery of a breach of security of such information,
notify such vendor or entity, respectively, of such breach. Such notice
shall include the identification of each individual whose unsecured PHR
identifiable health information has been, or is reasonably believed to
have been, accessed, acquired, or disclosed during such breach.
(c) Application of Requirements for Timeliness, Method, and Content
of Notifications.--Subsections (c), (d), (e), and (f) of section 402
shall apply to a notification required under subsection (a) and a
vendor of personal health records, an entity described in subsection
(a) and a third party service provider described in subsection (b),
with respect to a breach of security under subsection (a) of unsecured
PHR identifiable health information in such records maintained or
offered by such vendor, in a manner specified by the Federal Trade
Commission.
(d) Notification of the Secretary.--Upon receipt of a notification of
a breach of security under subsection (a)(2), the Federal Trade
Commission shall notify the Secretary of such breach.
(e) Enforcement.--A violation of subsection (a) or (b) shall be
treated as an unfair and deceptive act or practice in violation of a
regulation under section 18(a)(1)(B) of the Federal Trade Commission
Act (15 U.S.C. 57a(a)(1)(B)) regarding unfair or deceptive acts or
practices.
(f) Definitions.--For purposes of this section:
(1) Breach of security.--The term ``breach of security''
means, with respect to unsecured PHR identifiable health
information of an individual in a personal health record,
acquisition of such information without the authorization of
the individual.
(2) PHR identifiable health information.--The term ``PHR
identifiable health information'' means individually
identifiable health information, as defined in section 1171(6)
of the Social Security Act (42 U.S.C. 1320d(6)), and includes,
with respect to an individual, information--
(A) that is provided by or on behalf of the
individual; and
(B) that identifies the individual or with respect to
which there is a reasonable basis to believe that the
information can be used to identify the individual.
(3) Unsecured phr identifiable health information.--
(A) In general.--Subject to subparagraph (B), the
term ``unsecured PHR identifiable health information''
means PHR identifiable health information that is not
protected through the use of a technology or
methodology specified by the Secretary in the guidance
issued under section 4402(h)(2).
(B) Exception in case timely guidance not issued.--In
the case that the Secretary does not issue guidance
under section 4402(h)(2) by the date specified in such
section, for purposes of this section, the term
``unsecured PHR identifiable health information'' shall
mean PHR identifiable health information that is not
secured by a technology standard that renders protected
health information unusable, unreadable, or
indecipherable to unauthorized individuals and that is
developed or endorsed by a standards developing
organization that is accredited by the American
National Standards Institute.
(g) Regulations; Effective Date; Sunset.--
(1) Regulations; effective date.--To carry out this section,
the Secretary of Health and Human Services shall promulgate
interim final regulations by not later than the date that is
180 days after the date of the enactment of this section. The
provisions of this section shall apply to breaches of security
that are discovered on or after the date that is 30 days after
the date of publication of such interim final regulations.
(2) Sunset.--The provisions of this section shall not apply
to breaches of security occurring on or after the earlier of
the following the dates:
(A) The date on which a standard relating to
requirements for entities that are not covered entities
that includes requirements relating to breach
notification has been promulgated by the Secretary.
(B) The date on which a standard relating to
requirements for entities that are not covered entities
that includes requirements relating to breach
notification has been promulgated by the Federal Trade
Commission and has taken effect.
SEC. 4408. BUSINESS ASSOCIATE CONTRACTS REQUIRED FOR CERTAIN ENTITIES.
Each organization, with respect to a covered entity, that provides
data transmission of protected health information to such entity (or
its business associate) and that requires access on a routine basis to
such protected health information, such as a Health Information
Exchange Organization, Regional Health Information Organization, E-
prescribing Gateway, or each vendor that contracts with a covered
entity to allow that covered entity to offer a personal health record
to patients as part of its electronic health record, is required to
enter into a written contract (or other written arrangement) described
in section 164.502(e)(2) of title 45, Code of Federal Regulations and a
written contract (or other arrangement) described in section 164.308(b)
of such title, with such entity and shall be treated as a business
associate of the covered entity for purposes of the provisions of this
subtitle and subparts C and E of part 164 of title 45, Code of Federal
Regulations, as such provisions are in effect as of the date of
enactment of this title.
SEC. 4409. CLARIFICATION OF APPLICATION OF WRONGFUL DISCLOSURES
CRIMINAL PENALTIES.
Section 1177(a) of the Social Security Act (42 U.S.C. 1320d-6(a)) is
amended by adding at the end the following new sentence: ``For purposes
of the previous sentence, a person (including an employee or other
individual) shall be considered to have obtained or disclosed
individually identifiable health information in violation of this part
if the information is maintained by a covered entity (as defined in the
HIPAA privacy regulation described in section 1180(b)(3)) and the
individual obtained or disclosed such information without
authorization.''.
SEC. 4410. IMPROVED ENFORCEMENT.
(a) In General.--Section 1176 of the Social Security Act (42 U.S.C.
1320d-5) is amended--
(1) in subsection (b)(1), by striking ``the act constitutes
an offense punishable under section 1177'' and inserting ``a
penalty has been imposed under section 1177 with respect to
such act''; and
(2) by adding at the end the following new subsection:
``(c) Noncompliance Due to Willful Neglect.--
``(1) In general.--A violation of a provision of this part
due to willful neglect is a violation for which the Secretary
is required to impose a penalty under subsection (a)(1).
``(2) Required investigation.--For purposes of paragraph (1),
the Secretary shall formally investigate any complaint of a
violation of a provision of this part if a preliminary
investigation of the facts of the complaint indicate such a
possible violation due to willful neglect.''.
(b) Effective Date; Regulations.--
(1) The amendments made by subsection (a) shall apply to
penalties imposed on or after the date that is 24 months after
the date of the enactment of this title.
(2) Not later than 18 months after the date of the enactment
of this title, the Secretary of Health and Human Services shall
promulgate regulations to implement such amendments.
(c) Distribution of Certain Civil Monetary Penalties Collected.--
(1) In general.--Subject to the regulation promulgated
pursuant to paragraph (3), any civil monetary penalty or
monetary settlement collected with respect to an offense
punishable under this subtitle or section 1176 of the Social
Security Act (42 U.S.C. 1320d-5) insofar as such section
relates to privacy or security shall be transferred to the
Office of Civil Rights of the Department of Health and Human
Services to be used for purposes of enforcing the provisions of
this subtitle and subparts C and E of part 164 of title 45,
Code of Federal Regulations, as such provisions are in effect
as of the date of enactment of this Act.
(2) GAO report.--Not later than 18 months after the date of
the enactment of this title, the Comptroller General shall
submit to the Secretary a report including recommendations for
a methodology under which an individual who is harmed by an act
that constitutes an offense referred to in paragraph (1) may
receive a percentage of any civil monetary penalty or monetary
settlement collected with respect to such offense.
(3) Establishment of methodology to distribute percentage of
cmps collected to harmed individuals.--Not later than 3 years
after the date of the enactment of this title, the Secretary
shall establish by regulation and based on the recommendations
submitted under paragraph (2), a methodology under which an
individual who is harmed by an act that constitutes an offense
referred to in paragraph (1) may receive a percentage of any
civil monetary penalty or monetary settlement collected with
respect to such offense.
(4) Application of methodology.--The methodology under
paragraph (3) shall be applied with respect to civil monetary
penalties or monetary settlements imposed on or after the
effective date of the regulation.
(d) Tiered Increase in Amount of Civil Monetary Penalties.--
(1) In general.--Section 1176(a)(1) of the Social Security
Act (42 U.S.C. 1320d-5(a)(1)) is amended by striking ``who
violates a provision of this part a penalty of not more than''
and all that follows and inserting the following: ``who
violates a provision of this part--
``(A) in the case of a violation of such provision in
which it is established that the person did not know
(and by exercising reasonable diligence would not have
known) that such person violated such provision, a
penalty for each such violation of an amount that is at
least the amount described in paragraph (3)(A) but not
to exceed the amount described in paragraph (3)(D);
``(B) in the case of a violation of such provision in
which it is established that the violation was due to
reasonable cause and not to willful neglect, a penalty
for each such violation of an amount that is at least
the amount described in paragraph (3)(B) but not to
exceed the amount described in paragraph (3)(D); and
``(C) in the case of a violation of such provision in
which it is established that the violation was due to
willful neglect--
``(i) if the violation is corrected as
described in subsection (b)(3)(A), a penalty in
an amount that is at least the amount described
in paragraph (3)(C) but not to exceed the
amount described in paragraph (3)(D); and
``(ii) if the violation is not corrected as
described in such subsection, a penalty in an
amount that is at least the amount described in
paragraph (3)(D).
In determining the amount of a penalty under this
section for a violation, the Secretary shall base such
determination on the nature and extent of the violation
and the nature and extent of the harm resulting from
such violation.''.
(2) Tiers of penalties described.--Section 1176(a) of such
Act (42 U.S.C. 1320d-5(a)) is further amended by adding at the
end the following new paragraph:
``(3) Tiers of penalties described.--For purposes of
paragraph (1), with respect to a violation by a person of a
provision of this part--
``(A) the amount described in this subparagraph is
$100 for each such violation, except that the total
amount imposed on the person for all such violations of
an identical requirement or prohibition during a
calendar year may not exceed $25,000;
``(B) the amount described in this subparagraph is
$1,000 for each such violation, except that the total
amount imposed on the person for all such violations of
an identical requirement or prohibition during a
calendar year may not exceed $100,000;
``(C) the amount described in this subparagraph is
$10,000 for each such violation, except that the total
amount imposed on the person for all such violations of
an identical requirement or prohibition during a
calendar year may not exceed $250,000; and
``(D) the amount described in this subparagraph is
$50,000 for each such violation, except that the total
amount imposed on the person for all such violations of
an identical requirement or prohibition during a
calendar year may not exceed $1,500,000.''.
(3) Conforming amendments.--Section 1176(b) of such Act (42
U.S.C. 1320d-5(b)) is amended--
(A) by striking paragraph (2) and redesignating
paragraphs (3) and (4) as paragraphs (2) and (3),
respectively; and
(B) in paragraph (2), as so redesignated--
(i) in subparagraph (A), by striking ``in
subparagraph (B), a penalty may not be imposed
under subsection (a) if'' and all that follows
through ``the failure to comply is corrected''
and inserting ``in subparagraph (B) or
subsection (a)(1)(C), a penalty may not be
imposed under subsection (a) if the failure to
comply is corrected''; and
(ii) in subparagraph (B), by striking
``(A)(ii)'' and inserting ``(A)'' each place it
appears.
(4) Effective date.--The amendments made by this subsection
shall apply to violations occurring after the date of the
enactment of this title.
(e) Enforcement Through State Attorneys General.--
(1) In general.--Section 1176 of the Social Security Act (42
U.S.C. 1320d-5) is amended by adding at the end the following
new subsection:
``(c) Enforcement by State Attorneys General.--
``(1) Civil action.--Except as provided in subsection (b), in
any case in which the attorney general of a State has reason to
believe that an interest of one or more of the residents of
that State has been or is threatened or adversely affected by
any person who violates a provision of this part, the attorney
general of the State, as parens patriae, may bring a civil
action on behalf of such residents of the State in a district
court of the United States of appropriate jurisdiction--
``(A) to enjoin further such violation by the
defendant; or
``(B) to obtain damages on behalf of such residents
of the State, in an amount equal to the amount
determined under paragraph (2).
``(2) Statutory damages.--
``(A) In general.--For purposes of paragraph (1)(B),
the amount determined under this paragraph is the
amount calculated by multiplying the number of
violations by up to $100. For purposes of the preceding
sentence, in the case of a continuing violation, the
number of violations shall be determined consistent
with the HIPAA privacy regulations (as defined in
section 1180(b)(3)) for violations of subsection (a).
``(B) Limitation.--The total amount of damages
imposed on the person for all violations of an
identical requirement or prohibition during a calendar
year may not exceed $25,000.
``(C) Reduction of damages.--In assessing damages
under subparagraph (A), the court may consider the
factors the Secretary may consider in determining the
amount of a civil money penalty under subsection (a)
under the HIPAA privacy regulations.
``(3) Attorney fees.--In the case of any successful action
under paragraph (1), the court, in its discretion, may award
the costs of the action and reasonable attorney fees to the
State.
``(4) Notice to secretary.--The State shall serve prior
written notice of any action under paragraph (1) upon the
Secretary and provide the Secretary with a copy of its
complaint, except in any case in which such prior notice is not
feasible, in which case the State shall serve such notice
immediately upon instituting such action. The Secretary shall
have the right--
``(A) to intervene in the action;
``(B) upon so intervening, to be heard on all matters
arising therein; and
``(C) to file petitions for appeal.
``(5) Construction.--For purposes of bringing any civil
action under paragraph (1), nothing in this section shall be
construed to prevent an attorney general of a State from
exercising the powers conferred on the attorney general by the
laws of that State.
``(6) Venue; service of process.--
``(A) Venue.--Any action brought under paragraph (1)
may be brought in the district court of the United
States that meets applicable requirements relating to
venue under section 1391 of title 28, United States
Code.
``(B) Service of process.--In an action brought under
paragraph (1), process may be served in any district in
which the defendant--
``(i) is an inhabitant; or
``(ii) maintains a physical place of
business.
``(7) Limitation on state action while federal action is
pending.--If the Secretary has instituted an action against a
person under subsection (a) with respect to a specific
violation of this part, no State attorney general may bring an
action under this subsection against the person with respect to
such violation during the pendency of that action.
``(8) Application of cmp statute of limitation.--A civil
action may not be instituted with respect to a violation of
this part unless an action to impose a civil money penalty may
be instituted under subsection (a) with respect to such
violation consistent with the second sentence of section
1128A(c)(1).''.
(2) Conforming amendments.--Subsection (b) of such section,
as amended by subsection (d)(3), is amended--
(A) in paragraph (1), by striking ``A penalty may not
be imposed under subsection (a)'' and inserting ``No
penalty may be imposed under subsection (a) and no
damages obtained under subsection (c)'';
(B) in paragraph (2)(A)--
(i) in the matter before clause (i), by
striking ``a penalty may not be imposed under
subsection (a)'' and inserting ``no penalty may
be imposed under subsection (a) and no damages
obtained under subsection (c)''; and
(ii) in clause (ii), by inserting ``or
damages'' after ``the penalty'';
(C) in paragraph (2)(B)(i), by striking ``The
period'' and inserting ``With respect to the imposition
of a penalty by the Secretary under subsection (a), the
period''; and
(D) in paragraph (3), by inserting ``and any damages
under subsection (c)'' after ``any penalty under
subsection (a)''.
(3) Effective date.--The amendments made by this subsection
shall apply to violations occurring after the date of the
enactment of this Act.
(f) Allowing Continued Use of Corrective Action.--Such section is
further amended by adding at the end the following new subsection:
``(d) Allowing Continued Use of Corrective Action.--Nothing in this
section shall be construed as preventing the Office of Civil Rights of
the Department of Health and Human Services from continuing, in its
discretion, to use corrective action without a penalty in cases where
the person did not know (and by exercising reasonable diligence would
not have known) of the violation involved.''.
SEC. 4411. AUDITS.
The Secretary shall provide for periodic audits to ensure that
covered entities and business associates that are subject to the
requirements of this subtitle and subparts C and E of part 164 of title
45, Code of Federal Regulations, as such provisions are in effect as of
the date of enactment of this Act, comply with such requirements.
PART II--RELATIONSHIP TO OTHER LAWS; REGULATORY REFERENCES; EFFECTIVE
DATE; REPORTS
SEC. 4421. RELATIONSHIP TO OTHER LAWS.
(a) Application of HIPAA State Preemption.--Section 1178 of the
Social Security Act (42 U.S.C. 1320d-7) shall apply to a provision or
requirement under this subtitle in the same manner that such section
applies to a provision or requirement under part C of title XI of such
Act or a standard or implementation specification adopted or
established under sections 1172 through 1174 of such Act.
(b) Health Insurance Portability and Accountability Act.--The
standards governing the privacy and security of individually
identifiable health information promulgated by the Secretary under
sections 262(a) and 264 of the Health Insurance Portability and
Accountability Act of 1996 shall remain in effect to the extent that
they are consistent with this subtitle. The Secretary shall by rule
amend such Federal regulations as required to make such regulations
consistent with this subtitle.
SEC. 4422. REGULATORY REFERENCES.
Each reference in this subtitle to a provision of the Code of Federal
Regulations refers to such provision as in effect on the date of the
enactment of this title (or to the most recent update of such
provision).
SEC. 4423. EFFECTIVE DATE.
Except as otherwise specifically provided, the provisions of part I
shall take effect on the date that is 12 months after the date of the
enactment of this title.
SEC. 4424. STUDIES, REPORTS, GUIDANCE.
(a) Report on Compliance.--
(1) In general.--For the first year beginning after the date
of the enactment of this Act and annually thereafter, the
Secretary shall prepare and submit to the Committee on Health,
Education, Labor, and Pensions of the Senate and the Committee
on Ways and Means and the Committee on Energy and Commerce of
the House of Representatives a report concerning complaints of
alleged violations of law, including the provisions of this
subtitle as well as the provisions of subparts C and E of part
164 of title 45, Code of Federal Regulations, (as such
provisions are in effect as of the date of enactment of this
Act) relating to privacy and security of health information
that are received by the Secretary during the year for which
the report is being prepared. Each such report shall include,
with respect to such complaints received during the year--
(A) the number of such complaints;
(B) the number of such complaints resolved
informally, a summary of the types of such complaints
so resolved, and the number of covered entities that
received technical assistance from the Secretary during
such year in order to achieve compliance with such
provisions and the types of such technical assistance
provided;
(C) the number of such complaints that have resulted
in the imposition of civil monetary penalties or have
been resolved through monetary settlements, including
the nature of the complaints involved and the amount
paid in each penalty or settlement;
(D) the number of compliance reviews conducted and
the outcome of each such review;
(E) the number of subpoenas or inquiries issued;
(F) the Secretary's plan for improving compliance
with and enforcement of such provisions for the
following year; and
(G) the number of audits performed and a summary of
audit findings pursuant to section 4411.
(2) Availability to public.--Each report under paragraph (1)
shall be made available to the public on the Internet website
of the Department of Health and Human Services.
(b) Study and Report on Application of Privacy and Security
Requirements to Non-HIPAA Covered Entities.--
(1) Study.--Not later than one year after the date of the
enactment of this title, the Secretary, in consultation with
the Federal Trade Commission, shall conduct a study, and submit
a report under paragraph (2), on privacy and security
requirements for entities that are not covered entities or
business associates as of the date of the enactment of this
title, including--
(A) requirements relating to security, privacy, and
notification in the case of a breach of security or
privacy (including the applicability of an exemption to
notification in the case of individually identifiable
health information that has been rendered unusable,
unreadable, or indecipherable through technologies or
methodologies recognized by appropriate professional
organization or standard setting bodies to provide
effective security for the information) that should be
applied to--
(i) vendors of personal health records;
(ii) entities that offer products or services
through the website of a vendor of personal
health records;
(iii) entities that are not covered entities
and that offer products or services through the
websites of covered entities that offer
individuals personal health records;
(iv) entities that are not covered entities
and that access information in a personal
health record or send information to a personal
health record; and
(v) third party service providers used by a
vendor or entity described in clause (i), (ii),
(iii), or (iv) to assist in providing personal
health record products or services;
(B) a determination of which Federal government
agency is best equipped to enforce such requirements
recommended to be applied to such vendors, entities,
and service providers under subparagraph (A); and
(C) a timeframe for implementing regulations based on
such findings.
(2) Report.--The Secretary shall submit to the Committee on
Finance, the Committee on Health, Education, Labor, and
Pensions, and the Committee on Commerce of the Senate and the
Committee on Ways and Means and the Committee on Energy and
Commerce of the House of Representatives a report on the
findings of the study under paragraph (1) and shall include in
such report recommendations on the privacy and security
requirements described in such paragraph.
(c) Guidance on Implementation Specification to De-Identify Protected
Health Information.--Not later than 12 months after the date of the
enactment of this title, the Secretary shall, in consultation with
stakeholders, issue guidance on how best to implement the requirements
for the de-identification of protected health information under section
164.514(b) of title 45, Code of Federal Regulations.
(d) GAO Report on Treatment Disclosures.--Not later than one year
after the date of the enactment of this title, the Comptroller General
of the United States shall submit to the Committee on Health,
Education, Labor, and Pensions of the Senate and the Committee on Ways
and Means and the Committee on Energy and Commerce of the House of
Representatives a report on the best practices related to the
disclosure among health care providers of protected health information
of an individual for purposes of treatment of such individual. Such
report shall include an examination of the best practices implemented
by States and by other entities, such as health information exchanges
and regional health information organizations, an examination of the
extent to which such best practices are successful with respect to the
quality of the resulting health care provided to the individual and
with respect to the ability of the health care provider to manage such
best practices, and an examination of the use of electronic informed
consent for disclosing protected health information for treatment,
payment, and health care operations.
Subtitle E--Miscellaneous Medicare Provisions
SEC. 4501. MORATORIA ON CERTAIN MEDICARE REGULATIONS.
(a) Delay in Phase Out of Medicare Hospice Budget Neutrality
Adjustment Factor During Fiscal Year 2009.--Notwithstanding any other
provision of law, including the final rule published on August 8, 2008,
73 Federal Register 46464 et seq., relating to Medicare Program;
Hospice Wage Index for Fiscal Year 2009, the Secretary of Health and
Human Services shall not phase out or eliminate the budget neutrality
adjustment factor in the Medicare hospice wage index before October 1,
2009, and the Secretary shall recompute and apply the final Medicare
hospice wage index for fiscal year 2009 as if there had been no
reduction in the budget neutrality adjustment factor.
(b) Non-Application of Phased-Out Indirect Medical Education (IME)
Adjustment Factor for Fiscal Year 2009.--
(1) In general.--Section 412.322 of title 42, Code of Federal
Regulations, shall be applied without regard to paragraph (c)
of such section, and the Secretary of Health and Human Services
shall recompute payments for discharges occurring on or after
October 1, 2008, as if such paragraph had never been in effect.
(2) No effect on subsequent years.--Nothing in paragraph (1)
shall be construed as having any effect on the application of
paragraph (d) of section 412.322 of title 42, Code of Federal
Regulations.
(c) Funding for Implementation.--In addition to funds otherwise
available, for purposes of implementing the provisions of subsections
(a) and (b), including costs incurred in reprocessing claims in
carrying out such provisions, the Secretary of Health and Human
Services shall provide for the transfer from the Federal Hospital
Insurance Trust Fund established under section 1817 of the Social
Security Act (42 U.S.C. 1395i) to the Centers for Medicare & Medicaid
Services Program Management Account of $2,000,000 for fiscal year 2009.
SEC. 4502. LONG-TERM CARE HOSPITAL TECHNICAL CORRECTIONS.
(a) Payment.--Subsection (c) of section 114 of the Medicare,
Medicaid, and SCHIP Extension Act of 2007 (Public Law 110-173) is
amended--
(1) in paragraph (1)--
(A) by amending the heading to read as follows:
``Delay in application of 25 percent patient threshold
payment adjustment'';
(B) by striking ``the date of the enactment of this
Act'' and inserting ``July 1, 2007,''; and
(C) in subparagraph (A), by inserting ``or to a long-
term care hospital, or satellite facility, that as of
December 29, 2007, was co-located with an entity that
is a provider-based, off-campus location of a
subsection (d) hospital which did not provide services
payable under section 1886(d) of the Social Security
Act at the off-campus location'' after ``freestanding
long-term care hospitals''; and
(2) in paragraph (2)--
(A) in subparagraph (B)(ii), by inserting ``or that
is described in section 412.22(h)(3)(i) of such title''
before the period; and
(B) in subparagraph (C), by striking ``the date of
the enactment of this Act'' and inserting ``October 1,
2007 (or July 1, 2007, in the case of a satellite
facility described in section 412.22(h)(3)(i) of title
42, Code of Federal Regulations)''.
(b) Moratorium.--Subsection (d)(3)(A) of such section is amended by
striking ``if the hospital or facility'' and inserting ``if the
hospital or facility obtained a certificate of need for an increase in
beds that is in a State for which such certificate of need is required
and that was issued on or after April 1, 2005, and before December 29,
2007, or if the hospital or facility''.
(c) Effective Date.--The amendments made by this section shall be
effective and apply as if included in the enactment of the Medicare,
Medicaid, and SCHIP Extension Act of 2007 (Public Law 110-173).
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 598, as amended, provides economic growth
incentives and makes other necessary changes to the tax laws.
The bill provides net tax. reductions of $277.5 billion
over fiscal years 2009-2014.
B. Background and Need for Legislation
The provisions of the bill reflect a need for economic
stimulus and investment in order to improve the economy. The
tax incentives included in the bill are intended to stem the
economic downturn and return the economy to a path of growth
and prosperity.
C. Legislative History
The Committee on Ways and Means marked up the provisions of
the bill on January 22, 2009, and reported the provisions, as
amended, on January 22, 2009, by a roll call vote, with a
quorum present.
II. EXPLANATION OF THE BILL
TITLE I--TAX PROVISIONS
A. Making Work Pay Credit (Sec. 1001 of the Bill and New Sec. 36A of
the Code)
PRESENT LAW
Earned income tax credit
Low- and moderate-income workers may be eligible for the
refundable earned income tax credit (``EITC''). Eligibility for
the EITC is based on earned income, adjusted gross income,
investment income, filing status, and immigration and work
status in the United States. The amount of the EITC is based on
the presence and number of qualifying children in the worker's
family, as well as on adjusted gross income and earned income.
The EITC generally equals a specified percentage of earned
income \1\ up to a maximum dollar amount. The maximum amount
applies over a certain income range and then diminishes to zero
over a specified phaseout range. For taxpayers with earned
income (or adjusted gross income (``AGI''), if greater) in
excess of the beginning of the phaseout range, the maximum EITC
amount is reduced by the phaseout rate multiplied by the amount
of earned income (or AGI, if greater) in excess of the
beginning of the phaseout range. For taxpayers with earned
income (or AGI, if greater) in excess of the end of the
phaseout range, no credit is allowed.
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\1\ Earned income is defined as (1) wages, salaries, tips, and
other employee compensation, but only if such amounts are includible in
gross income, plus (2) the amount of the individual's net self-
employment earnings.
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The EITC is a refundable credit, meaning that if the amount
of the credit exceeds the taxpayer's Federal income tax
liability, the excess is payable to the taxpayer as a direct
transfer payment. Under an advance payment system, eligible
taxpayers may elect to receive the credit in their paychecks,
rather than waiting to claim a refund on their tax returns
filed by April 15 of the following year.
Child credit
An individual may claim a tax credit for each qualifying
child under the age of 17. The amount of the credit per child
is $1,000 through 2010 and $500 thereafter. A child who is not
a citizen, national, or resident of the United States cannot be
a qualifying child.
The credit is phased out for individuals with income over
certain threshold amounts. Specifically, the otherwise
allowable child tax credit is reduced by $50 for each $1,000
(or fraction thereof) of modified adjusted gross income over
$75,000 for single individuals or heads of households, $110,000
for married, individuals filing joint returns, and $55,000 for
married individuals filing separate returns. For purposes of
this limitation, modified adjusted gross income includes
certain otherwise excludable income earned by U.S. citizens or
residents living abroad or in certain U.S. territories.
The credit is allowable against the regular tax and the
alternative minimum tax. To the extent the child credit exceeds
the taxpayer's tax liability, the taxpayer is eligible for a
refundable credit (the additional child tax credit) equal to 15
percent of earned income in excess of a threshold dollar amount
(the ``earned income'' formula). The threshold dollar amount is
$12,550 (for 2009), and is indexed for inflation.
Families with three or more children may determine the
additional child tax credit using the ``alternative formula,''
if this results in a larger credit than determined under the
earned income formula. Under the alternative formula, the
additional child tax credit equals the amount by which the
taxpayer's social security taxes exceed the taxpayer's earned
income tax credit.
Earned income is defined as the sum of wages, salaries,
tips, and other taxable employee compensation plus net self-
employment earnings. Unlike the EITC, which also includes the
preceding items in its definition of earned income, the
additional child tax credit is based only on earned income to
the extent it is included in computing taxable income. For
example, some ministers' parsonage allowances are considered
self-employment income, and thus are considered earned income
for purposes of computing the EITC, but the allowances are
excluded from gross income for individual income tax purposes,
and thus are not considered earned income for purposes of the
additional child tax credit.
REASONS FOR CHANGE
The Committee believes that tax relief for working families
is necessary to help the economy recover. By increasing after-
tax disposable income, this credit will permit taxpayers to
purchase additional goods and services, make additional
investments, or pay down debt more efficiently.
EXPLANATION OF PROVISION
In general
The provision provides eligible individuals a refundable
income tax credit for two years (taxable years beginning in
2009 and 2010).
The credit is the lesser of (1) 6.2 percent of an
individual's earned income or (2) $500 ($1,000 in the case of a
joint return). For these purposes, the earned income definition
is the same as for the earned income tax credit with two
modifications. First, earned income for these purposes does not
include net earnings from self-employment which are not taken
into account in computing taxable income. Second, earned income
for these purposes includes combat pay excluded from gross
income under section 112.\2\
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\2\ Unless otherwise stated, all section references are to the
Internal Revenue Code of 1986, as amended (the ``Code'').
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The credit is phased out at a rate of two percent of the
eligible individual's modified adjusted gross income above
$75,000 ($150,000 in the case of a joint return). For these
purposes an eligible individual's modified adjusted gross
income is the eligible individual's adjusted gross income
increased by any amount excluded from gross income under
sections 911, 931, or 933. An eligible individual means any
individual other than: (1) a nonresident alien; (2) an
individual with respect to whom another individual may claim a
dependency deduction for a taxable year beginning in a calendar
year in which the eligible individual's taxable year begins;
and (3) an estate or trust. Each eligible individual must
satisfy identical taxpayer identification number requirements
to those applicable to the earned income tax credit.
Treatment of the U.S. possessions
Mirror code possessions \3\
The U.S. Treasury will make two payments (for 2009 and
2010, respectively) to each mirror code possession in an amount
equal to the aggregate amount of the credits allowable by
reason of the provision to that possession's residents against
its income tax. This amount will be determined by the Treasury
Secretary based on information provided by the government of
the respective possession. For purposes of this payment, a
possession is a mirror code possession if the income tax
liability of residents of the possession under that
possession's income tax system is determined by reference to
the U.S. income tax laws as if the possession were the United
States.
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\3\ Possessions with mirror code tax systems are the United States
Virgin Islands, Guam, and the Commonwealth of the Northern Mariana
Islands.
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Non-mirror code possessions \4\
To each possession that does not have a mirror code tax
system, the U.S. Treasury will make two payments (for 2009 and
2010, respectively) in an amount estimated by the Secretary as
being equal to the aggregate credits that would have been
allowed to residents of that possession if a mirror code tax
system had been in effect in that possession. Accordingly, the
amount of each payment to a non-mirror Code possession will be
an estimate of the aggregate amount of the credits that would
be allowed to the possession's residents if the credit provided
by the provision to U.S. residents were provided by the
possession to its residents. This payment will not be made to
any U.S. possession unless that possession has a plan that has
been approved by the Secretary under which the possession will
promptly distribute the payment to its residents.
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\4\ Possessions that do not have mirror code tax systems are Puerto
Rico and American Samoa.
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General rules
No credit against U.S. income tax is permitted under the
provision for any person to whom a credit is allowed against
possession income taxes as a result of the provision (for
example, under that possession's mirror income tax). Similarly,
no credit against U.S. income tax is permitted for any person
who is eligible for a payment under a non-mirror code
possession's plan for distributing to its residents the payment
described above from the U.S. Treasury.
For purposes of the payments to the possessions, the
Commonwealth of Puerto Rico and the Commonwealth of the
Northern Mariana Islands are considered possessions of the
United States.
For purposes of the rule permitting the Treasury Secretary
to disburse appropriated amounts for refunds due from certain
credit provisions of the Internal Revenue Code of 1986, the
payments required to be made to possessions under the provision
are treated in the same manner as a refund due from the credit
allowed under the provision.
Federal programs or Federally-assisted programs
Any credit or refund allowed or made to an individual under
this provision (including to any resident of a U.S. possession)
is not taken into account as income and shall not be taken into
account as resources for the month of receipt and the following
two months for purposes of determining eligibility of such
individual or any other individual for benefits or assistance,
or the amount or extent of benefits or assistance, under any
Federal program or under any State or local program financed in
whole or in part with Federal funds.
Income tax withholding
It is anticipated that taxpayers' reduced tax liability
under the provision shall be expeditiously implemented through
revised income tax withholding schedules produced by the
Internal Revenue Service. These revised income tax withholding
schedules should be designed to reduce taxpayers' income tax
withheld for each remaining pay period in the remainder of 2009
by an amount equal to the amount that withholding would have
been reduced had the provision been reflected in the income tax
withholding schedules for the entire taxable year.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2008.
B. Additional Tax Relief for Families With Children
1. Increase in the Earned Income Tax Credit (Sec. 1101 of the Bill and
Sec. 32 of the Code)
PRESENT LAW
Overview
Low- and moderate-income workers may be eligible for the
refundable earned income tax credit (``EITC''). Eligibility for
the EITC is based on earned income, adjusted gross income,
investment income, filing status, and immigration and work
status in the United States. The amount of the EITC is based on
the presence and number of qualifying children in the worker's
family, as well as on adjusted gross income and earned income.
The EITC generally equals a specified percentage of earned
income \5\ up to a maximum dollar amount. The maximum amount
applies over a certain income range and then diminishes to zero
over a specified phaseout range. For taxpayers with earned
income (or adjusted gross income (AGI), if greater) in excess
of the beginning of the phaseout range, the maximum EITC amount
is reduced by the phaseout rate multiplied by the amount of
earned income (or AGI, if greater) in excess of the beginning
of the phaseout range. For taxpayers with earned income (or
AGI, if greater) in excess of the end of the phaseout range, no
credit is allowed.
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\5\ Earned income is defined as (1) wages, salaries, tips, and
other employee compensation, but only if such amounts are includible in
gross income, plus (2) the amount of the individual's net self-
employment earnings.
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An individual is not eligible for the EITC if the aggregate
amount of disqualified income of the taxpayer for the taxable
year exceeds $3,100 (for 2009). This threshold is indexed for
inflation. Disqualified income is the sum of: (1) interest
(taxable and tax exempt); (2) dividends; (3) net rent and
royalty income (if greater than zero); (4) capital gains net
income; and (5) net passive income (if greater than zero) that
is not self-employment income.
The EITC is a refundable credit, meaning that if the amount
of the credit exceeds the taxpayer's Federal income tax
liability, the excess is payable to the taxpayer as a direct
transfer payment. Under an advance payment system, eligible
taxpayers may elect to receive the credit in their paychecks,
rather than waiting to claim a refund on their tax returns
filed by April 15 of the following year.
Filing status
An unmarried individual may claim the EITC if he or she
files as a single filer or as a head of household. Married
individuals generally may not claim the EITC unless they file
jointly. An exception to the joint return filing requirement
applies to certain spouses who are separated. Under this
exception, a married taxpayer who is separated from his or her
spouse for the last six months of the taxable year shall not be
considered as married (and, accordingly, may file a return as
head of household and claim the EITC), provided that the
taxpayer maintains a household that constitutes the principal
place of abode for a dependent child (including a son, stepson,
daughter, stepdaughter, adopted child, or a foster child) for
over half the taxable year,\6\ and pays over half the cost of
maintaining the household in which he or she resides with the
child during the year.
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\6\ A foster child must reside with the taxpayer for the entire
taxable year.
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Presence of qualifying children and amount of the earned income credit
Three separate credit schedules apply: one schedule for
taxpayers with no qualifying children, one schedule for
taxpayers with one qualifying child, and one schedule for
taxpayers with more than one qualifying child.\7\
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\7\ All income thresholds are indexed for inflation annually.
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Taxpayers with no qualifying children may claim a credit if
they are over age 24 and below age 65. The credit is 7.65
percent of earnings up to $5,970, resulting in a maximum credit
of $457 for 2009. The maximum is available for those with
incomes between $5,970 and $7,470 ($10,590 if married filing
jointly). The credit begins to phase down at a rate of 7.65
percent of earnings above $7,470 ($10,590 if married filing
jointly) resulting in a $0 credit at $13,440 of earnings
($16,560 if married filing jointly).
Taxpayers with one qualifying child may claim a credit in
2009 of 34 percent of their earnings up to $8,950, resulting in
a maximum credit of $3,043. The maximum credit is available for
those with earnings between $8,950 and $16,420 ($19,540 if
married filing jointly). The credit begins to phase down at a
rate of 15.98 percent of earnings above $16,420 ($19,540 if
married filing jointly). The credit is phased down to $0 at
$35,463 of earnings ($38,583 if married filing jointly).
Taxpayers with more than one qualifying child may claim a
credit in 2009 of 40 percent of earnings up to $12,570,
resulting in a maximum credit of $5,028. The maximum credit is
available for those with earnings between $12,570 and $16,420
($19,540 if married filing jointly). The credit begins to phase
down at a rate of 21.06 percent of earnings above $16,420
($19,540 if married filing jointly). The credit is phased down
to $0 at $40,295 of earnings ($43,415 if married filing
jointly).
If more than one taxpayer lives with a qualifying child,
only one of these taxpayers may claim the child for purposes of
the EITC. If multiple eligible taxpayers actually claim the
same qualifying child, then a tiebreaker rule determines which
taxpayer is entitled to the EITC with respect to the qualifying
child. Any eligible taxpayer with at least one qualifying child
who does not claim the EITC with respect to qualifying children
due to failure to meet certain identification requirements with
respect to such children (i.e., providing the name, age and
taxpayer identification number of each of such children) may
not claim the EITC for taxpayers without qualifying children.
REASONS FOR CHANGE
The Committee recognizes the importance of the EITC as a
means of providing tax relief to low- and middle-income
families with children. The Committee also recognizes that
larger families need additional tax relief. The Committee
therefore believes that the EITC should be expanded to provide
additional tax relief to families with three or more qualifying
children.
EXPLANATION OF PROVISION
Three or more qualifying children
The provision increases the EITC credit percentage for
families with three or more qualifying children to 45 percent
for 2009 and 2010. For example, in 2009 taxpayers with three or
more qualifying children may claim a credit of 45 percent of
earnings up to $12,570, resulting in a maximum credit of
$5,656.50.
Provide additional marriage penalty relief through higher threshold
phase-out amounts for married couples filing joint returns
The provision increases the threshold phase-out amounts for
married couples filing joint returns to $5,000 \8\ above the
threshold phase-out amounts for singles, surviving spouses, and
heads of households) for 2009 and 2010. For example, in 2009
the maximum credit of $3,043 for one qualifying child is
available for those with earnings between $8,950 and $16,420
($21,420 if married filing jointly). The credit begins to phase
down at a rate of 15.98 percent of earnings above $16,420
($21,420 if married filing jointly). The credit is phased down
to $0 at $35,463 of earnings ($40,463 if married filing
jointly).
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\8\ The $5,000 is indexed for inflation in the case of taxable
years beginning in 2010.
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EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2008.
2. Increase of Refundable Portion of the Child Credit (Sec. 1102 of the
Bill and Sec. 24 of the Code)
PRESENT LAW
An individual may claim a tax credit for each qualifying
child under the age of 17. The amount of the credit per child
is $1,000 through 2010, and $500 thereafter. A child who is not
a citizen, national, or resident of the United States cannot be
a qualifying child.
The credit is phased out for individuals with income over
certain threshold amounts. Specifically, the otherwise
allowable child tax credit is reduced by $50 for each $1,000
(or fraction thereof) of modified adjusted gross income over
$75,000 for single individuals or heads of households, $110,000
for married individuals filing joint returns, and $55,000 for
married individuals filing separate returns. For purposes of
this limitation, modified adjusted gross income includes
certain otherwise excludable income earned by U.S. citizens or
residents living abroad or in certain U.S. territories.
The credit is allowable against the regular tax and the
alternative minimum tax. To the extent the child credit exceeds
the taxpayer's tax liability, the taxpayer is eligible for a
refundable credit (the additional child tax credit) equal to 15
percent of earned income in excess of a threshold dollar amount
(the ``earned income'' formula). The threshold dollar amount is
$12,550 (for 2009), and is indexed for inflation.
Families with three or more children may determine the
additional child tax credit using the ``alternative formula,''
if this results in a larger credit than determined under the
earned income formula. Under the alternative formula, the
additional child tax credit equals the amount by which the
taxpayer's social security taxes exceed the taxpayer's earned
income tax credit (``EITC'').
Earned income is defined as the sum of wages, salaries,
tips, and other taxable employee compensation plus net self-
employment earnings. Unlike the EITC, which also includes the
preceding items in its definition of earned income, the
additional child tax credit is based only on earned income to
the extent it is included in computing taxable income. For
example, some ministers' parsonage allowances are considered
self-employment income and thus, are considered earned income
for purposes of computing the EITC, but the allowances are
excluded from gross income for individual income tax purposes
and thus, are not considered earned income for purposes of the
additional child tax credit.
Any credit or refund allowed or made to an individual under
this provision (including to any resident of a U.S. possession)
is not taken into account as income and shall not be taken into
account as resources for the month of receipt and the following
two months for purposes of determining eligibility of such
individual or any other individual for benefits or assistance,
or the amount or extent of benefits or assistance, under any
Federal program or under any State or local program financed in
whole or in part with Federal funds.
REASONS FOR CHANGE
The Committee believes that it is necessary to extend the
benefit of the child credit to families that currently do not
benefit by virtue of the earned income threshold in the formula
for determining the refundable child credit. The Committee
therefore believes that this earned income threshold should be
eliminated
EXPLANATION OF PROVISION
The provision modifies the earned income formula for the
determination of the refundable child credit to apply to 15
percent of earned income in excess of $0 for taxable years
beginning in 2009 and 2010.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2008.
C. American Opportunity Tax Credit (Sec. 1201 of the Bill and Sec. 25A
of the Code)
PRESENT LAW
Individual taxpayers are allowed to claim a nonrefundable
credit, the Hope credit, against Federal income taxes of up to
$1,800 (for 2009.) per eligible student per year for qualified
tuition and related expenses paid for the first two years of
the student's post-secondary education in a degree or
certificate program.\9\ The Hope credit rate is 100 percent on
the first $1,200 of qualified tuition and related expenses, and
50 percent on the next $1,200 of qualified tuition and related
expenses; these dollar amounts are indexed for inflation, with
the amount rounded down to the next lowest multiple of $100.
Thus, for example, a taxpayer who incurs $1,200 of qualified
tuition and related expenses for an eligible student is
eligible (subject to the adjusted gross income phaseout
described below) for a $1,200 Hope credit. If a taxpayer incurs
$2,400 of qualified tuition and related expenses for an
eligible student, then he or she is eligible for a $1,800 Hope
credit.
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\9\ Sec. 25A. The Hope credit generally may not be claimed against
a taxpayer's alternative minimum tax liability. However, the credit may
be claimed against a taxpayer's alternative minimum tax liability for
taxable years beginning prior to January 1, 2009.
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The Hope credit that a taxpayer may otherwise claim is
phased out ratably for taxpayers with modified adjusted gross
income between $50,000 and $60,000 ($100,000 and $120,000 for
married taxpayers filing a joint return) for 2009. The adjusted
gross income phaseout ranges are indexed for inflation, with
the amount rounded down to the next lowest multiple of $1,000.
The qualified tuition and related expenses must be incurred
on behalf of the taxpayer, the taxpayer's spouse, or a
dependent of the taxpayer. The Hope credit is available with
respect to an individual student for two taxable years,
provided that the student has not completed the first two years
of post-secondary education before the beginning of the second
taxable year.
The Hope credit is available in the taxable year the
expenses are paid, subject to the requirement that the
education is furnished to the student during that year or
during an academic period beginning during the first three
months of the next taxable year. Qualified tuition and related
expenses paid with the proceeds of a loan generally are
eligible for the Hope credit. The repayment of a loan itself is
not a qualified tuition or related expense.
A taxpayer may claim the Hope credit with respect to an
eligible student who is not the taxpayer or the taxpayer's
spouse (e.g., in cases in which the student is the taxpayer's
child) only if the taxpayer claims the student as a dependent
for the taxable year for which the credit is claimed. If a
student is claimed as a dependent, the student is not entitled
to claim a Hope credit for that taxable year on the student's
own tax return. If a parent (or other taxpayer) claims a
student as a dependent, any qualified tuition and related
expenses paid by the student are treated as paid by the parent
(or other taxpayer) for purposes of determining the amount of
qualified tuition and related expenses paid by such parent (or
other taxpayer) under the provision. In addition, for each
taxable year, a taxpayer may elect either the Hope credit, the
Lifetime Learning credit, or an above-the-line deduction for
qualified tuition and related expenses with respect to an
eligible student.
The Hope credit is available for ``qualified tuition and
related expenses,'' which include tuition and fees (excluding
nonacademic fees) required to be paid to an eligible
educational institution as a condition of enrollment or
attendance of an eligible student at the institution. Charges
and fees associated with meals, lodging, insurance,
transportation, and similar personal, living, or family
expenses are not eligible for the credit. The expenses of
education involving sports, games, or hobbies are not qualified
tuition and related expenses unless this education is part of
the student's degree program.
Qualified tuition and related expenses generally include
only out-of-pocket expenses. Qualified tuition and related
expenses do not include expenses covered by employer-provided
educational assistance and scholarships that are not required
to be included in the gross income of either the student or the
taxpayer claiming the credit. Thus, total qualified tuition and
related expenses are reduced by any scholarship or fellowship
grants excludable from gross income under section 117 and any
other tax-free educational benefits received by the student (or
the taxpayer claiming the credit) during the taxable year. The
Hope credit is not allowed with respect to any education
expense for which a deduction is claimed under section 162 or
any other section of the Code.
An eligible student for purposes of the Hope credit is an
individual who is enrolled in a degree, certificate, or other
program (including a program of study abroad approved for
credit by the institution at which such student is enrolled)
leading to a recognized educational credential at an eligible
educational institution. The student must pursue a course of
study on at least a half time basis. A student is considered to
pursue a course of study on at least a half-time basis if the
student carries at least one half the normal full-time work
load for the course of study the student is pursuing for at
least one academic period that begins during the taxable year.
To be eligible for the Hope credit, a student must not have
been convicted of a Federal or State felony consisting of the
possession or distribution of a controlled substance.
Eligible educational institutions generally are accredited
post-secondary educational institutions offering credit toward
a bachelor's degree, an associate's degree, or another
recognized post-secondary credential. Certain proprietary
institutions and post-secondary vocational institutions also
are eligible educational institutions. To qualify as an
eligible educational institution, an institution must be
eligible to participate in Department of Education student aid
programs.
Effective for taxable years beginning after December 31,
2010, the changes to the Hope credit. made by the Economic
Growth and Tax Relief Reconciliation Act of 2001 (``EGTRRA'')
no longer apply. The principal EGTRRA change scheduled to
expire is the change that permitted a taxpayer to claim a Hope
credit in the same year that he or she claimed an exclusion
from a Coverdell education savings account. Thus, after 2010, a
taxpayer cannot claim a Hope credit in the same year he or she
claims an exclusion from a Coverdell education savings account.
REASONS FOR CHANGE
The Committee observes that the cost of a college education
continues to rise, and thus believes that a modification of the
Hope credit is appropriate to mitigate the impact of rising
tuition costs on students and their families. The Committee
further believes that making a portion of the credit refundable
will deliver an incentive to attend college to those who do not
currently benefit from the present-law credit.
EXPLANATION OF PROVISION
The provision modifies the Hope credit for taxable years
beginning in 2009 or 2010. The modified credit is referred to
as the American Opportunity Tax credit. The allowable modified
credit is up to $2,500 per eligible student per year for
qualified tuition and related expenses paid for each of the
first four years of the student's post-secondary education in a
degree or certificate program. The modified credit rate is 100
percent on the first $2,000 of qualified tuition and related
expenses, and 25 percent on the next $2,000 of qualified
tuition and related expenses. For purposes of the modified
credit, the definition of qualified tuition and related
expenses is expanded to include course materials.
Under the provision, the modified credit is available with
respect to an individual student for four years, provided that
the student has not completed the first four years of post-
secondary education before the beginning of the fourth taxable
year. Thus, the modified credit, in addition to other
modifications, extends the application of the Hope credit to
two more years of post-secondary education.
The modified credit that a taxpayer may otherwise claim is
phased out ratably for taxpayers with modified adjusted gross
income between $80,000 and $90,000 ($160,000 and $180,000 for
married taxpayers filing a joint return). The modified credit
may be claimed against a taxpayer's alternative minimum tax
liability.
Forty percent of a taxpayer's otherwise allowable modified
credit is refundable. However, no portion of the modified
credit is refundable if the taxpayer claiming the credit is a
child to whom section 1(g) applies for such taxable year
(generally, any child under age 18 or any child under age 24
who is a student providing less than one-half of his or her own
support, who has at least one living parent and does not file a
joint return).
In addition, the provision requires the Secretary of the
Treasury to conduct two studies and submit a report to Congress
on the results of those studies within one year after the date
of enactment. The first study shall examine how to coordinate
the Hope and Lifetime Learning credits with the Pell grant
program. The second study shall examine requiring students to
perform community service as a condition of taking their
tuition and related expenses into account for purposes of the
Hope and Lifetime Learning credits.
EFFECTIVE DATE
The provision is effective with respect to taxable years
beginning after December 31, 2008.
D. Housing Incentives
1. Waiver of Requirement To Repay First-Time Homebuyer Credit (Sec.
1301 of the Bill and Sec. 36 of the Code)
PRESENT LAW
A taxpayer who is a first-time homebuyer is allowed a
refundable tax credit equal to the lesser of $7,500 ($3,750 for
a married individual filing separately) or 10 percent of the
purchase price of a principal residence. The credit is allowed
for the tax year in which the taxpayer purchases the home
unless the taxpayer makes an election as described below. The
credit is allowed for qualifying home purchases on or after
April 9, 2008 and before July 1, 2009 (without regard to
whether there was a binding contract to purchase prior to April
9, 2008).
The credit phases out for individual taxpayers with
modified adjusted gross income between $75,000 and $95,000
($150,000 and $170,000 for joint filers) for the year of
purchase.
A taxpayer is considered a first-time homebuyer if such
individual had no ownership interest in a principal residence
in the United States during the 3-year period prior to the
purchase of the home to which the credit applies.
No credit is allowed if the D.C. homebuyer credit is
allowable for the taxable year the residence is purchased or a
prior taxable year. A taxpayer is not permitted to claim the
credit if the taxpayer's financing is from tax-exempt mortgage
revenue bonds, if the taxpayer is a nonresident alien, or if
the taxpayer disposes of the residence (or it ceases to be a
principal residence) before the close of a taxable year for
which a credit otherwise would be allowable.
The credit is recaptured ratably over fifteen years with no
interest charge beginning in the second taxable year after the
taxable year in which the home is purchased. For example, if
the taxpayer purchases a home in 2008, the credit is allowed on
the 2008 tax return, and repayments commence with the 2010 tax
return. If the taxpayer sells the home (or the home ceases to
be used as the principal residence of the taxpayer or the
taxpayer's spouse) prior to complete repayment of the credit,
any remaining credit repayment amount is due on the tax return
for the year in which the home is sold (or ceases to be used as
the principal residence). However, the credit repayment amount
may not exceed the amount of gain from the sale of the
residence to an unrelated person. For this purpose, gain is
determined by reducing the basis of the residence by the amount
of the credit to the extent not previously recaptured. No
amount is recaptured after the death of a taxpayer. In the case
of an involuntary conversion of the home, recapture is not
accelerated if a new principal residence is acquired within a
two year period. In the case of a transfer of the residence to
a spouse or to a former spouse incident to divorce, the
transferee spouse (and not the transferor spouse) will be
responsible for any future recapture.
An election is provided to treat a home purchased in the
eligible period in 2009 as if purchased on December 31, 2008
for purposes of claiming the credit on the 2008 tax return and
for establishing the beginning of the recapture period.
Taxpayers may amend their returns for this purpose.
REASONS FOR CHANGE
The Committee believes that additional support for the
housing sector is warranted. To encourage purchases of homes,
the Committee wishes to increase the benefit of the existing
temporary provision to assist first-time homebuyers by waiving
the recapture of the credit. This change transforms the credit
from the equivalent of an interest-free loan (under present
law) into direct financial support for qualifying home
purchases. To prevent artificial sales for the purpose of
garnering the refundable credit, the waiver of the credit
recapture is available only if taxpayers retain the home and
use it as a principal residence for at least 36 months.
EXPLANATION OF PROVISION
The provision waives the recapture of the credit for
qualifying home purchases after December 31, 2008 and before
July 1, 2009. This waiver of recapture applies without regard
to whether the taxpayer elects to treat the purchase in 2009 as
occurring on December 31, 2008. If the taxpayer disposes of the
home or the home otherwise ceases to be the principal residence
of the taxpayer within 36 months from the date of purchase, the
present law rules for recapture of the credit will still apply.
EFFECTIVE DATE
The provision applies to residences purchased after
December 31, 2008.
2. Election to Substitute Grants to States for Low-Income Housing
Projects in Lieu of Low-Income Housing Credit Allocation for 2009 (Sec.
1302 of the Bill and Sec. 42 of the Code)
PRESENT LAW
In general
The low-income housing credit may be claimed over a 10-year
period by owners of certain residential rental property for the
cost of rental housing occupied by tenants having incomes below
specified levels.\10\ The amount of the credit for any taxable
year in the credit period is the applicable percentage of the
qualified basis of each qualified low-income building. The
qualified basis of any qualified low-income building for any
taxable year equals the applicable fraction of the eligible
basis of the building.
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\10\ Sec. 42.
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Volume limits
A low-income housing credit is allowable only if the owner
of a qualified building receives a housing credit allocation
from the State or local housing credit agency. Generally, the
aggregate credit authority provided annually to each State for
calendar year 2009 is $2.30 per resident, with a minimum annual
cap of $2,665,000 for certain small population States.\11\
These amounts are indexed for inflation. Projects that also
receive financing with proceeds of tax-exempt bonds issued
subject to the private activity bond volume limit do not
require an allocation of the low-income housing credit.
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\11\ Rev. Proc. 2008-66.
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REASONS FOR CHANGE
The current economic downturn has reduced the
attractiveness of low-income housing tax credits to potential
investors, in part, because some potential investors have
reduced or no taxable income to offset with these tax credits.
The Committee believes that this provision gives State
allocating agencies added flexibility and will encourage the
building of more low-income housing in the short term until
investors can again use these tax credits.
EXPLANATION OF PROVISION
Low-income housing grant election amount
The Secretary of the Treasury shall make a grant to the
State housing credit agency of each State in an amount equal to
the low-income housing grant election amount.
The low-income housing grant election amount for a State is
an amount elected by the State subject to certain limits. The
maximum low-income housing grant election amount for a State
may not exceed 85 percent of the product of ten and the sum of
the State's: (1) unused housing credit ceiling for 2008; (2)
any returns to the State during 2009 of credit allocations
previously made by the State; (3) 40 percent of the State's
2009 credit allocation; and (4) 40 percent of the State's share
of the national pool allocated in 2009, if any).
Grants under this provision are not taxable income to
recipients.
Subawards to low-income housing credit buildings
A State receiving a grant under this provision is to use
these monies to make subawards to finance the construction, or
acquisition and rehabilitation of qualified low-income
buildings as defined under the low-income housing credit. A
subaward may be made to finance a qualified low-income building
regardless of whether the building has an allocation of low-
income housing credit. However, in the case of qualified low-
income buildings without allocations of the low-income housing
credit, the State housing credit agency must make a
determination that the subaward with respect to such building
will increase the total funds available to the State to build
and rehabilitate affordable housing. In conjunction with this
determination the State housing credit agency must establish a
process in which applicants for the subawards must demonstrate
good faith efforts to obtain investment commitments before the
agency makes such subawards.
Any building receiving grant money from a subaward is
required to satisfy the low-income housing credit rules. The
State housing credit agency shall perform asset management
functions to ensure compliance with the low-income housing
credit rules and the long-term viability of buildings financed
with these subawards.\12\ Failure to satisfy the low-income
housing credit rules will result in recapture enforced by means
of liens or other methods that the Secretary of the Treasury
(or delegate) deems appropriate. Any such recapture will be
payable to the Secretary of the Treasury for deposit in the
general fund of the Treasury.
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\12\ The State housing credit agency may collect reasonable fees
from subaward recipients to cover the expenses of the agency's asset
management duties. Alternatively, the State housing credit agency may
retain a thirdparty to perform these asset management duties.
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Any grant funds not used to make subawards before January
1, 2011 and any grant monies from subawards returned on or
after January 1, 2011 must be returned to the Secretary of the
Treasury.
Reduction in low-income housing credit volume limit for 2009
The otherwise applicable volume limit for any State for
2009 is reduced by the amount taken into account in determining
the low-income housing grant election amount.
Appropriations
The provision appropriates to the Secretary of the Treasury
such sums as may be necessary to carry out this provision.
EFFECTIVE DATE
The provision is effective on the date of enactment.
E. Tax Incentives for Business
1. Special Allowance for Certain Property Acquired During 2009 (Sec.
1401 of the Bill and Sec. 168(k) of the Code)
PRESENT LAW
Present law permits an additional first-year depreciation
deduction equal to 50 percent of the adjusted basis of
qualified property.\13\ The additional first-year depreciation
deduction is allowed for both regular tax and alternative
minimum tax purposes for the taxable year in which the property
is placed in service.\14\ The basis of the property and the
depreciation allowances in the year of purchase and later years
are appropriately adjusted to reflect the additional first-year
depreciation deduction. In addition, there are no adjustments
to the allowable amount of depreciation for purposes of
computing a taxpayer's alternative minimum taxable income with
respect to property to which the provision applies. The amount
of the additional first-year depreciation deduction is not
affected by a short taxable year. The taxpayer may elect out of
additional first-year depreciation for any class of property
for any taxable year.
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\13\ Sec. 168(k). The additional first-year depreciation deduction
is subject to the general rules regarding whether an item is deductible
under section 162 or instead is subject to capitalization under section
263 or section 263A.
\14\ However, the additional first-year depreciation deduction is
not allowed for purposes of computing earnings and profits.
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The interaction of the additional first-year depreciation
allowance with the otherwise applicable depreciation allowance
may be illustrated as follows. Assume that in 2008, a taxpayer
purchases new depreciable property and places it in
service.\15\ The property's cost is $1,000, and it is 5-year
property subject to the half-year convention. The amount of
additional first-year depreciation allowed is $500. The
remaining $500 of the cost of the property is deductible under
the rules applicable to 5-year property. Thus, 20 percent, or
$100, is also allowed as a depreciation deduction in 2008. The
total depreciation deduction with respect to the property for
2008 is $600. The remaining $400 cost of the property is
recovered under otherwise applicable rules for computing
depreciation.
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\15\ Assume that the cost of the property is not eligible for
expensing under section 179.
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In order for property to qualify for the additional first-
year depreciation deduction it must meet all of the following
requirements. First, the property must be (1) property to which
the modified accelerated cost recovery system (``MACRS'')
applies with an applicable recovery period of 20 years or less,
(2) water utility property (as defined in section 168(e)(5)),
(3) computer software other than computer software covered by
section 197, or (4) qualified leasehold improvement property
(as defined in section 168(k)(3)).\16\ Second, the original use
\17\ of the property must commence with the taxpayer after
December 31, 2007.\18\ Third, the taxpayer must purchase the
property within the applicable time period. Finally, the
property must be placed in service after December 31, 2007, and
before January 1, 2009. An extension of the placed in service
date of one year (i.e., to January 1, 2010) is provided for
certain property with a recovery period of ten years or longer
and certain transportation property.\19\ Transportation
property is defined as, tangible personal property used in the
trade or business of transporting persons or property.
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\16\ A special rule precludes the additional first-year
depreciation deduction for any property that is required to be
depreciated under the alternative depreciation system of MACRS.
\17\ The term ``original use'' means the first use to which the
property is put, whether or not such use corresponds to the use of such
property by the taxpayer.
If in the normal course of its business a taxpayer sells fractional
interests in property to unrelated third parties, then the original use
of such property begins with the first user of each fractional interest
(i.e., each fractional owner is considered the original user of its
proportionate share of the property).
\18\ A special rule applies in the case of certain leased property.
In the case of any property that is originally placed in service by a
person and that is sold to the taxpayer and leased back to such person,
by the taxpayer within three months after the date that the property
was placed in service, the property would be treated as originally
placed in service by the taxpayer not earlier than the date that the
property is used under the leaseback.
If property is originally placed in service by a lessor (including
by operation of section 168(k)(2)(D)(i)), such property is sold within
three months after the date that the property was placed in service,
and the user of such property does not change, then the property is
treated as originally placed in service by the taxpayer not earlier
than the date of such sale.
\19\ In order for property to qualify for the extended placed in
service date, the property is required to have an estimated production
period exceeding one year and a cost exceeding $1 million.
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The applicable time period for acquired property is (1)
after December 31, 2007, and before January 1, 2009, but only
if no binding written contract for the acquisition is in effect
before January 1, 2008, or (2) pursuant to a binding written
contract which was entered into after December 31, 2007, and
before January 1, 2009.\20\ With respect to property that is
manufactured, constructed, or produced by the taxpayer for use
by the taxpayer, the taxpayer must begin the manufacture,
construction, or production of the property after December 31,
2007, and before January 1, 2009. Property that is
manufactured, constructed, or produced for the taxpayer by
another person under a contract that is entered into prior-to
the manufacture, construction, or production of the property is
considered to be manufactured, constructed, or produced by the
taxpayer. For property eligible for the extended placed in
service date, a special rule limits the amount of costs
eligible for the additional first-year depreciation. With
respect to such property, only the portion of the basis that is
properly attributable to the costs incurred before January 1,
2009 (``progress expenditures'') is eligible for the additional
first-year depreciation.\21\
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\20\ Property does not fail to qualify for the additional first-
year depreciation merely because a binding written contract to acquire
a component of the property is in effect prior to January 1, 2008.
\21\ For purposes of determining the amount of eligible progress
expenditures, it is intended that rules similar to sec. 46(d)(3) as in
effect prior to the Tax Reform Act of 1986 shall apply.
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Property does not qualify for the additional first-year
depreciation deduction when the user of such property (or a
related party) would not have been eligible for the additional
first-year depreciation deduction if the user (or a related
parry) were treated as the owner. For example, if a taxpayer
sells to a related party property that was under construction
prior to January 1, 2008, the property does not qualify for the
additional first-year depreciation deduction. Similarly, if a
taxpayer sells to a related party property that was subject to
a binding written contract prior to January 1, 2008, the
property does not qualify for the additional first-year
depreciation deduction. As a further example, if a taxpayer
(the lessee) sells property in a sale-leaseback arrangement,
and the property otherwise would not have qualified for the
additional first-year depreciation deduction if it were owned
by the taxpayer-lessee, then the lessor is not entitled to the
additional first-year depreciation deduction.
The limitation on the amount of depreciation deductions
allowed with respect to certain passenger automobiles (sec.
280F) is increased in the first year by $8,000 for automobiles
that qualify (and do not elect out of the increased first year
deduction). The $8,000 increase is not indexed for inflation.
REASONS FOR CHANGE
The Committee believes that allowing additional first-year
depreciation will accelerate purchases of equipment and other
assets, and promote capital investment, modernization, and
growth.
EXPLANATION OF PROVISION
The provision extends the additional first-year
depreciation deduction for one year, generally through 2009
(through 2010 for certain longer-lived and transportation
property).\22\
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\22\ The provision does not modify the property eligible for the
election to accelerate AMT and research credits in lieu of bonus
depreciation under section 168(k)(4). However, the provision includes a
technical amendment to section 168(k)(4)(D) providing that no written
binding contract for the acquisition of eligible qualified property may
be in effect before April 1, 2008 (effective for taxable years ending
after March 31, 2008).
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EFFECTIVE DATE
The provision is effective for property placed in service
after December 31, 2008.
2. Temporary Increase in Limitations on Expensing of Certain
Depreciable Business Assets (Sec. 1402 of the Bill and Sec. 179 of the
Code)
PRESENT LAW
In lieu of depreciation, a taxpayer with a sufficiently
small amount of annual investment may elect to deduct (or
``expense'') such costs under section 179. Present law provides
that the maximum amount a taxpayer may expense for taxable
years beginning in 2008 is $250,000 of the cost of qualifying
property placed in service for the taxable year.\23\ For
taxable years beginning in 2009 and 2010, the limitation is
$125,000. In general, qualifying property is defined as
depreciable tangible personal property that is purchased for
use in the active conduct of a trade or business. Off-the-shelf
computer software placed in service in taxable years beginning
before 2011 is treated as qualifying property. For taxable
years beginning in 2008, the $250,000 amount is reduced (but
not below zero) by the amount by which the cost of qualifying
property placed in service during the taxable year exceeds
$800,000. For taxable years beginning in 2009 and 2010, the
$125,000 amount is reduced (but not below zero) by the amount
by which the cost of qualifying property placed in service
during the taxable year exceeds $500,000. The $125,000 and
$500,000 amounts are indexed for inflation in taxable years
beginning in 2009 and 2010.
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\23\ Additional section 179 incentives are provided with respect to
qualified property meeting applicable requirements that is used by a
business in an empowerment zone (sec. 1397A) or a renewal community
(sec. 1400J), qualified section 179 Gulf Opportunity Zone property
(sec. 1400N(e)), qualified Recovery Assistance property placed in
service in the Kansas disaster area (Pub. L. No. 110-234, sec. 15345
(2008)), and qualified disaster assistance property (sec. 179(e)).
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The amount eligible to be expensed for a taxable year may
not exceed the taxable income for a taxable year that is
derived from the active conduct of a trade or business
(determined without regard to this provision). Any amount that
is not allowed as a deduction because of the taxable income
limitation may be carried forward to succeeding taxable years
(subject to similar limitations). No general business credit
under section 38 is allowed with respect to any amount for
which a deduction is allowed under section 179. An expensing
election is made under rules prescribed by the Secretary.\24\
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\24\ Sec. 179(c)(1). Under Treas. Reg. sec. 1.179-5, applicable to
property placed in service in taxable years beginning after 2002 and
before 2008, a taxpayer is permitted to make or revoke an election
under section 179 without the consent of the Commissioner on an amended
Federal tax return for that taxable year. This amended return must be
filed within the time prescribed by law for filing an amended return
for the taxable year. T.D. 9209, July 12, 2005.
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For taxable years beginning in 2011 and thereafter (or
before 2003), the following rules apply. A taxpayer with a
sufficiently small amount of annual investment may elect to
deduct up to $25,000 of the cost of qualifying property placed
in service for the taxable year. The $25,000 amount is reduced
(but not below zero) by the amount by which the cost of
qualifying property placed in service during the taxable year
exceeds $200,000. The $25,000 and $200,000 are not indexed for
inflation. In general, qualifying property is defined as
depreciable tangible personal property that is purchased for
use in the active conduct of a trade or business (not including
off-the-shelf computer software). An expensing election may be
revoked only with consent of the Commissioner.\25\
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\25\ Sec. 179(c)(2).
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REASONS FOR CHANGE
The Committee believes that section 179 expensing provides
two important benefits. First, it lowers the cost of capital
for property used in a trade or business. With a lower cost of
capital, the Committee believes businesses will invest in more
equipment and employ more workers. Second, expensing eliminates
depreciation recordkeeping requirements with respect to
expensed property. The Committee believes that the higher
limitation amounts available during 2008 will continue to
provide important benefits if extended, and the bill therefore
extends the higher limitation amounts for an additional year.
Furthermore, the Committee believes that the higher dollar
limits on expensing further lower the cost of capital, and make
this benefit available for a greater number of taxpayers.
EXPLANATION OF PROVISION
The provision extends the $250,000 and $800,000 amounts to
taxable years beginning in 2009.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2008.
3. Five-Year Carryback of Operating Losses (Secs. 1411 and 1412 of the
Bill and Sec. 172 of the Code)
PRESENT LAW
Under present law, a net operating loss (``NOL'') generally
means the amount by which a taxpayer's business deductions
exceed its gross income. In general, an NOL may be carried back
two years and carried over 20 years to offset taxable income in
such years.\26\ NOLs offset taxable income in the order of the
taxable years to which the NOL may be carried.\27\
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\26\ Sec. 172(b)(1)(A).
\27\ Sec. 172(b)(2).
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The alternative minimum tax rules provide that a taxpayer's
NOL deduction cannot reduce the taxpayer's alternative minimum
taxable income (``AMTI'') by more than 90 percent of the AMTI.
Different rules apply with respect to NOLs arising in
certain circumstances. A three-year carryback applies with
respect to NOLs (1) arising from casualty or theft losses of
individuals, or (2) attributable to Presidentially declared
disasters for taxpayers engaged in a farming business or a
small business. A five-year carryback applies to NOLs (1)
arising from a farming loss (regardless of whether the loss was
incurred in a Presidentially declared disaster area), (2)
certain amounts related to Hurricane Katrina, Gulf Opportunity
Zone, and Midwestern Disaster Area, or (3) qualified disaster
losses.\28\ Special rules also apply to real estate investment
trusts (no carryback), specified liability losses (10-year
carryback), and excess interest losses (no carryback to any
year preceding a corporate equity reduction transaction).
Additionally, a special rule applies to certain electric
utility companies.
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\28\ Sec. 172(b)(1)(J).
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In the case of a life insurance company, present law allows
a deduction for the taxable year for operations loss carryovers
and carrybacks, in lieu of the deduction for net operating
losses allowed to other corporations \29\ A life insurance
company is permitted to treat a loss from operations (as
defined under section 810(c)) for any taxable year as an
operations loss carryback to each of the three taxable years
preceding the loss year and an operations loss carryover to
each of the 15 taxable years following the loss year.\30\
Special rules apply to new life insurance companies.
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\29\ Secs. 810, 805(a)(5).
\30\ Sec. 810(b)(1).
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REASONS FOR CHANGE
The NOL carryback and carryover rules are designed to allow
taxpayers to smooth out swings in business income (and Federal
income taxes thereon) that result from business cycle
fluctuations. The recent economic conditions have resulted in
many taxpayers incurring significant financial losses. The
Committee is concerned about the severity of the current
economic downturn. A temporary extension of the NOL carryback
period provides taxpayers in all sectors of the economy that
experience such losses with the ability to obtain refunds of
income taxes paid in prior years. These refunds can be used to
fund capital investment or other expenses.
EXPLANATION OF PROVISION
The provision provides an election \31\ to increase the
present-law carryback period for an applicable 2008 or 2009 NOL
from two years to any whole number of years elected by the
taxpayer which is more than two and less than six. An
applicable NOL is the taxpayer's NOL for any taxable year
ending in 2008 or 2009, or if elected by the taxpayer, the NOL
for any taxable year beginning in 2008 or 2009. If an election
is made to increase the carryback period, the applicable NOL is
permanently reduced by 10 percent.
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\31\ For all elections under this provision, the common parent of a
group of corporations filing a consolidated return makes the election,
which is binding on all such corporations.
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These provisions may be illustrated by the following
example. Taxpayer incurs a $100 NOL for its taxable year ended
January 31, 2008 and elects to carryback the NOL five years to
its taxable year ended January 31, 2003. Under the provision,
Taxpayer must first permanently reduce the NOL by 10 percent,
or $10, and then may carryback the $90 NOL to its taxable year
ended January 31, 2003.
The provision also suspends the 90-percent limitation on
the use of any alternative tax NOL deduction attributable to
carrybacks of losses from taxable years ending during 2008 or
2009, and carryovers of losses to such taxable years (this rule
applies to taxable years beginning in 2008 or 2009 if an
election is in place to use such years as applicable NOLs).
For life insurance companies, the provision provides an
election to increase the present-law carryback period for an
applicable loss from operations from three years to four or
five years. An applicable loss from operations is the
taxpayer's loss from operations for any taxable year ending in
2008 or 2009, or if elected by the taxpayer, the loss from
operations for any taxable year beginning in 2008 or 2009. If
an election is made to increase the carryback period, the
applicable loss from operations is permanently reduced by 10
percent.
The provision does not apply to: (1) any taxpayer if (a)
the Federal Government acquires, at any time,\32\ an equity
interest in the taxpayer pursuant to the Emergency Economic
Stabilization Act of 2008, or (b) the Federal Government
acquires, at any time, any warrant (or other right) to acquire
any equity interest with respect to the taxpayer pursuant to
such Act; (2) the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation; and (3) any taxpayer
that in 2008 or 2009 \33\ is a member of the same affiliated
group (as defined in section 1504 without regard to subsection
(b) thereof) as a taxpayer to which the provision does not
otherwise apply.
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\32\ For example, if the Federal Government acquires an equity
interest in the taxpayer during 2010, or in later years, the taxpayer
is not entitled to the extended carryback rules under this provision.
If the carryback has previously been claimed, amended filings may be
necessary to reflect this disallowance.
\33\ For example, a taxpayer with an NOL in 2008 that in 2010 joins
an affiliated group with a member in which the Federal Government has
an equity interest pursuant to the Emergency Economic Stabilization Act
of 2008 may not utilize the extended carryback rules under this
provision with regard to the 2008 NOL. The taxpayer is required to
amend prior filings to reflect the permitted carryback period.
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EFFECTIVE DATE
The provision is generally effective for net operating
losses arising in taxable years ending after December 31, 2007.
The modification to the alternative tax NOL deduction applies
to taxable years ending after 1997.\34\ The modification with
respect to operating loss deductions of life insurance
companies applies to losses from operations arising in taxable
years ending after December 31, 2007.
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\34\ NOL deductions from as early as taxable years ending after
1997 may be carried forward to 2008 and utilize the provision
suspending the 90 percent limitation on alternative tax NOL deductions.
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For an NOL or loss from operations for a taxable year
ending before the enactment of the provision, the provision
includes the following transition rules: (1) any election to
waive the carryback period under either sections 172(b)(3) or
810(b)(3) with respect to such loss may be revoked before the
applicable date; (2) any election to increase the carryback
period under this provision is treated as timely made if made
before the applicable date; and (3) any application for a
tentative carryback adjustment under section 6411(a) with
respect to such loss is treated as timely filed if filed before
the applicable date. For purposes of the transition rules, the
applicable date is the date which is 60 days after the date of
the enactment of the provision.
4. Modification of Work Opportunity Tax Credit (Sec. 1421 of the Bill
and Sec. 51 of the Code)
PRESENT LAW
In general
The work opportunity tax credit is available on an elective
basis for employers hiring individuals from one or more of nine
targeted groups. The amount of the credit available to an
employer is determined by the amount of qualified wages paid by
the employer. Generally, qualified wages consist of wages
attributable to service rendered by a member of a targeted
group during the one-year period beginning with the day the
individual begins work for the employer (two years in the case
of an individual in the long-term family assistance recipient
category).
Targeted groups eligible for the credit
Generally an employer is eligible for the credit only for
qualified wages paid to members of a targeted group.
(1) Families receiving TANF
An eligible recipient is an individual certified by a
designated local employment agency (e.g., a State employment
agency) as being a member of a family eligible to receive
benefits under the Temporary Assistance for Needy Families
Program (``TANF'') for a period of at least nine months part of
which is during the 18-month period ending on the hiring date.
For these purposes, members of the family are defined to
include only those individuals taken into account for purposes
of determining eligibility for the TANF.
(2) Qualified veteran
There are two subcategories of qualified veterans related
to eligibility for Food stamps and compensation for a service-
connected disability.
Food stamps
A qualified veteran is a veteran who is certified by the
designated local agency as a member of a family receiving
assistance under a food stamp program under the Food Stamp Act
of 1977 for a period of at least three months part of which is
during the 12-month period ending on the hiring date. For these
purposes, members of a family are defined to include only those
individuals taken into account for purposes of determining
eligibility for a food stamp program under the Food Stamp Act
of 1977.
Entitled to compensation for a service-connected disability
A qualified veteran also includes an individual who is
certified as entitled to compensation for a service-connected
disability and: (1) having a hiring date which is not more than
one year after having been discharged or released from active
duty in the Armed Forces of the United States, or (2) having
been unemployed for six months or more (whether or not
consecutive) during the one-year period ending on the date of
hiring.
Definitions
For these purposes, being entitled to compensation for a
service-connected disability is defined with reference to
section 101 of Title 38, U.S. Code, which means having a
disability rating of 10-percent or higher for service connected
injuries.
For these purposes, a veteran is an individual who has
served on active duty (other than for training) in the Armed
Forces for more than 180 days or who has been discharged or
released from active duty in the Armed Forces for a service-
connected disability. However, any individual who has served
for a period of more than 90 days during which the individual
was on active duty (other than for training) is not a qualified
veteran if any of this active duty occurred during the 60-day
period ending on the date the individual was hired by the
employer. This latter rule is intended to prevent employers who
hire current members of the armed services (or those departed
from service within the last 60 days) from receiving the
credit.
(3) Qualified ex-felon
A qualified ex-felon is an individual certified as: (1)
having been convicted of a felony under any State or Federal
law, and (2) having a hiring date within one year of release
from prison or the date of conviction.
(4) Designated community residents
A designated community resident is an individual certified
as being at least age 18 but not yet age 40 on the hiring date
and as having a principal place of abode within an empowerment
zone, enterprise community, renewal community or a rural
renewal community. For these purposes, a rural renewal county
is a county outside a metropolitan statistical area (as defined
by the Office of Management and Budget) which had a net
population loss during the five-year periods 1990-1994 and
1995-1999. Qualified wages do not include wages paid or
incurred for services performed after the individual moves
outside an empowerment zone, enterprise community, renewal
community or a rural renewal community.
(5) Vocational rehabilitation referral
A vocational rehabilitation referral is an individual who
is certified by a designated local agency as an individual who
has a physical or mental disability that constitutes a
substantial handicap to employment and who has been referred to
the employer while receiving, or after completing: (a)
vocational rehabilitation services under an individualized,
written plan for employment under a State plan approved under
the Rehabilitation Act of 1973; (b) under a rehabilitation plan
for veterans carried out under Chapter 31 of Title 38, U.S.
Code; or (c) an individual work plan developed and implemented
by an employment network pursuant to subsection (g) of section
1148 of the Social Security Act. Certification will be provided
by the designated local employment agency upon assurances from
the vocational rehabilitation agency that the employee has met
the above conditions.
(6) Qualified summer youth employee
A qualified summer youth employee is an individual: (a) who
performs services during any 90-day period between May 1 and
September 15, (b) who is certified by the designated local
agency as being 16 or 17 years of age on the hiring date, (c)
who has not been an employee of that employer before, and (d)
who is certified by the designated local agency as having a
principal place of abode within an empowerment zone, enterprise
community, or renewal community (as defined under Subchapter U
of Subtitle A, Chapter 1 of the Internal Revenue Code). As with
designated community residents, no credit is available on wages
paid or incurred for service performed after the qualified
summer youth moves outside of an empowerment zone, enterprise
community, or renewal community. If, after the end of the 90-
day period, the employer continues to employ a youth who was
certified during the 90-day period as a member of another
targeted group, the limit on qualified first year wages will
take into account wages paid to the youth while a qualified
summer youth employee.
(7) Qualified food stamp recipient
A qualified food stamp recipient is an individual at least
age 18 but not yet age 40 certified by a designated local
employment agency as being a member of a family receiving
assistance under a food stamp program under the Food Stamp At
of 1977 for a period of at least six months ending on the
hiring date. In the case of families that cease to be eligible
for food stamps under section 6(o) of the Food Stamp Act of
1977, the six-month requirement is replaced with a requirement
that the family has been receiving food stamps for at least
three of the five months ending on the date of hire. For these
purposes, members of the family are defined to include only
those individuals taken into account for purposes of
determining eligibility for a food stamp program under the Food
Stamp Act of 1977.
(8) Qualified SSI recipient
A qualified SSI recipient is an individual designated by a
local agency as receiving supplemental security income
(``SSI'') benefits under Title XVI of the Social Security Act
for any month ending within the 60-day period ending on the
hiring date.
(9) Long-term family assistance recipients
A qualified long-term family assistance recipient is an
individual certified by a designated local agency as being: (a)
a member of a family that has received family assistance for at
least 18 consecutive months ending on the hiring date; (b) a
member of a family that has received such family assistance for
a total of at least 18 months (whether or not consecutive)
after August 5, 1997 (the date of enactment of the welfare-to-
work tax credit) \35\ if the individual is hired within two
years after the date that the 18-month total is reached; or (c)
a member of a family who is no longer eligible for family
assistance because of either Federal or State time limits, if
the individual is hired within two years after the Federal or
State time limits made the family ineligible for family
assistance.
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\35\ The welfare-to-work tax credit was consolidated into the work
opportunity tax credit in the Tax Relief and Health Care Act of 2006,
for qualified individuals who begin to work for an employer after
December 31, 2006.
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Qualified wages
Generally, qualified wages are defined as cash wages paid
by the employer to a member of a targeted group. The employer's
deduction for wages is reduced by the amount of the credit.
For purposes of the credit, generally, wages are defined by
reference to the FUTA definition of wages contained in sec.
3306(b) (without regard to the dollar limitation therein
contained). Special rules apply in the case of certain
agricultural labor and certain railroad labor.
Calculation of the credit
The credit available to an employer for qualified wages
paid to members of all targeted groups except for long-term
family assistance recipients equals 40 percent (25 percent for
employment of 400 hours or less) of qualified first-year wages.
Generally, qualified first-year wages are qualified wages (not
in excess of $6,000) attributable to service rendered by a
member of a targeted group during the one-year period beginning
with the day the individual began work for the employer.
Therefore, the maximum credit per employee is $2,400 (40
percent of the first $6,000 of qualified first-year wages).
With respect to qualified summer youth employees, the maximum
credit is $1,200 (40 percent of the first $3,000 of qualified
first-year wages). Except for long-term family assistance
recipients, no credit is allowed for second-year wages.
In the case of long-term family assistance recipients, the
credit equals 40 percent (25 percent for employment of 400
hours or less) of $10,000 for qualified first-year wages and 50
percent of the first $10,000 of qualified second-year wages.
Generally, qualified second-year wages are qualified wages (not
in excess of $10,000) attributable to service rendered by a
member of the long-term family assistance category during the
one-year period beginning on the day after the one-year period
beginning with the day the individual began work for the
employer. Therefore, the maximum credit per employee is $9,000
(40 percent of the first $10,000 of qualified first-year wages
plus 50 percent of the first $10,000 of qualified second-year
wages).
In the case of a qualified veteran who is entitled to
compensation for a service connected disability, the credit
equals 40 percent of $12,000 of qualified first-year wages.
This expanded definition of qualified first-year wages does not
apply to the veterans qualified with reference to a food stamp
program, as defined under present law.
Certification rules
An individual is not treated as a member of a targeted
group unless: (1) on or before the day on which an individual
begins work for an employer, the employer has received a
certification from a designated local agency that such
individual is a member of a targeted group; or (2) on or before
the day an individual is offered employment with the employer,
a pre-screening notice is completed by the employer with
respect to such individual, and not later than the 28th day
after the individual begins work for the employer, the employer
submits such notice, signed by the employer and the individual
under penalties of perjury, to the designated local agency as
part of a written request for certification. For these
purposes, a pre-screening notice is a document (in such form as
the Secretary may prescribe) which contains information
provided by the individual on the basis of which the employer
believes that the individual is a member of a targeted group.
Minimum employment period
No credit is allowed for qualified wages paid to employees
who work less than 120 hours in the first year of employment.
Other rules
The work opportunity tax credit is not allowed for wages
paid to a relative or dependent of the taxpayer. No credit is
allowed for wages paid to an individual who is a more than
fifty-percent owner of the entity. Similarly, wages paid to
replacement workers during a strike or lockout are not eligible
for the work opportunity tax credit. Wages paid to any employee
during any period for which the employer received on-the-job
training program payments with respect to that employee are not
eligible for the work opportunity tax credit. The work
opportunity tax credit generally is not allowed for wages paid
to individuals who had previously been employed by the
employer. In addition, many other technical rules apply.
Expiration
The work opportunity tax credit is not available for
individuals who begin work for an employer after August 31,
2011.
REASONS FOR CHANGE
The Committee believes that the work opportunity tax credit
can be used to improve employment opportunities for broader
categories of qualified veterans and young people whose
employment opportunities may have been significantly eroded by
the present economic downturn.
EXPLANATION OF PROVISION
The provision creates a new targeted group for the work
opportunity tax credit. That new category is unemployed
veterans and disconnected youth who begin work for the employer
in 2009 or 2010.
An unemployed veteran is defined as an individual certified
by the designated local agency as someone who: (1) has served
on active duty (other than for training) in the Armed Forces
for more than 180 days or who has been discharged or released
from active duty in the Armed Forces for a service-connected
disability; (2) has been discharged or released from active
duty in the Armed Forces during 2008, 2009, or 2010; and (3)
has received unemployment compensation under State or Federal
law for not less than four weeks during the one-year period
ending on the hiring date.
A disconnected youth is defined as an individual certified
by the designated local agency as someone: (1) at least age 16
but not yet age 25 on the hiring date; (2) not regularly
attending any secondary, technical, or post-secondary school
during the six-month period preceding the hiring date; (3) not
regularly employed during the six-month period preceding the
hiring date; and (4) not readily employable by reason of
lacking a sufficient number of skills.
EFFECTIVE DATE
The provisions are effective for individuals who begin work
for an employer after December 31, 2008.
5. Clarification of Regulations Related to Limitations on Certain Built
in Losses Following an Ownership Change (Sec. 1431 of the Bill and Sec.
382 of the Code)
PRESENT LAW
Section 382 limits the extent to which a ``loss
corporation'' that experiences an ``ownership change'' may
offset taxable income in any post-change taxable year by pre-
change net operating losses, certain built in losses, and
deductions attributable to the pre-change period.\36\ In
general, the amount of income in any post-change year that may
be offset by such net operating losses, built-in losses and
deductions is limited to an amount (referred to as the
``section 382 limitation'') determined by multiplying the value
of the loss corporation immediately before the ownership change
by the long-term tax-exempt interest rate.\37\
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\36\ Section 383 imposes similar limitations, under regulations, on
the use of carryforwards of general business credits, alternative
minimum tax credits, foreign tax credits, and net capital loss
carryforwards. Section 383 generally refers to section 382 for the
meanings of its terms, but requires appropriate adjustments to take
account of its application to credits and net capital losses.
\37\ If the loss corporation had a ``net unrealized built in gain''
(or NUBIG) at the time of the ownership change, then the section 382
limitation for any taxable year may be increased by the amount of the
``recognized built-in gains'' (discussed further below) for that year.
A NUBIG is defined as the amount by which the fair market value of the
assets of the corporation immediately before an ownership change
exceeds the aggregate adjusted basis of such assets at such time.
However, if the amount of the NUBIG does not exceed the lesser of (i)
15 percent of the fair market value of the corporation's assets or (ii)
$10,000,000, then the amount of the NUBIG is treated as zero. Sec.
382(h)(1).
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A ``loss corporation'' is defined as a corporation entitled
to use a net operating loss carryover or having a net operating
loss carryover for the taxable year in which the ownership
change occurs. Except to the extent provided in regulations,
such term includes any corporation with a ``net unrealized
built-in loss'' (or NUBIL),\38\ defined as the amount by which
the fair market value of the assets of the corporation
immediately before an ownership change is less than the
aggregate adjusted basis of such assets at such time. However,
if the amount of the NUBIL does not exceed the lesser of (i) 15
percent of the fair market value of the corporation's assets or
(ii) $10,000,000, then the amount of the NUBIL is treated as
zero.\39\
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\38\ Sec. 382(k)(1).
\39\ Sec. 382(h)(3).
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An ownership change is defined generally as an increase by
more than 50 percentage points in the percentage of stock of a
loss corporation that is owned by any one or more five-percent
(or greater) shareholders (as defined) within a three year
period \40\ Treasury regulations provide generally that this
measurement is to be made as of any ``testing date,'' which is
any date on which the ownership of one or more persons who were
or who become five-percent shareholders increases.\41\
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\40\ Determinations of the percentage of stock of any corporation
held by any person are made on the basis of value. Sec. 382(k)(6)(C).
\41\ See Treas. Reg. sec. 1.382-2(a)(4) (providing that ``a loss
corporation is required to determine whether an ownership change has
occurred immediately after any owner shift, or issuance or transfer
(including an issuance or transfer described in Treas. Reg. sec. 1.382-
4(d)(8)(i) or (ii)) of an option with respect to stock of the loss
corporation that is treated as exercised under Treas. Reg. sec. 1.382-
4(d)(2)'' and defining a ``testing date'' as ``each date on which a
loss corporation is required to make a determination of whether an
ownership change has occurred'') and Temp. Treas. Reg. sec. 1.382-
2T(e)(1) (defining an ``owner shift'' as ``any change in the ownership
of the stock of a loss corporation that affects the percentage of such
stock owned by any 5-percent shareholder''). Treasury regulations under
section 382 provide that, in computing stock ownership on specified
testing dates, certain unexercised options must be treated as exercised
if certain ownership, control, or income tests are met. These tests are
met only if ``a principal purpose of the issuance, transfer, or
structuring of the option (alone or in combination with other
arrangements) is to avoid or ameliorate the impact of an ownership
change of the loss corporation.'' Treas. Reg. sec. 1.382-4(d). Compare
prior temporary regulations, Temp. Reg. sec. 1.382-2T(h)(4) (``Solely
for the purpose of determining whether there is an ownership change on
any testing date, stock of the loss corporation that is subject to an
option shall be treated as acquired on any such date, pursuant to an
exercise of the option by its owner on that date, if such deemed
exercise would result in an ownership change.''). Internal Revenue
Service Notice 2008-76, I.R.B. .2008-39 (September 29, 2008), released
September 7, 2008, provides that the Treasury Department intends to
issue regulations modifying the term ``testing date'' under section 382
to exclude any date on or after which the United States acquires stock
or options to acquire stock in certain corporations with respect to
which there is a ``Housing Act Acquisition'' pursuant to the Housing
and Economic Recovery Act of 2008 (P.L. 110-289). The Notice states
that the regulations will apply on and after September 7, 2008, unless
and until there is additional guidance. Internal Revenue Service Notice
2008-84, I.R.B. 2008-41 (October 14, 2008), provides that the Treasury
Department intends to issue regulations modifying the term ``testing
date'' under section 382 to exclude any date as of the close of which
the United States owns, directly or indirectly, a more than 50 percent
interest in a loss corporation, which regulations will apply unless and
until there is additional guidance.
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Section 382(h) governs the treatment of certain built-in
losses and built-in gains recognized with respect to assets
held by the loss corporation at the time of the ownership
change. In the case of a loss corporation that has a NUBIL
(measured immediately before an ownership change); section
382(h)(1) provides that any ``recognized built-in loss'' (or
RBIL) for any taxable year during a ``recognition period''
(consisting of the five years beginning on the ownership change
date) is subject to the section 382 limitation in the same
manner as if it were a pre-change net operating loss \42\ An
RBIL is defined for this purpose as any loss recognized during
the recognition period on the disposition of any asset held by
the loss corporation immediately before the ownership change
date, to the extent that such loss is attributable to an excess
of the adjusted basis of the asset on the change date over its
fair market value on that date.\43\ An RBIL also includes any
amount allowable as depreciation, amortization or depletion
during the recognition period, to the extent that such amount
is attributable to the excess of the adjusted basis of the
asset over its fair market value on the ownership change
date.'' \44\ In addition, any amount that is allowable as a
deduction during the recognition period (determined without
regard to any carryover) but which is attributable to periods
before the ownership change date is treated as an RBIL for the
taxable year in which it is allowable as a deduction.\45\
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\42\ Sec. 382(h)(2). The total amount of the loss corporation's
RBILs that are subject to the section 382 limitation cannot exceed the
amount of the corporation's NUBIL.
\43\ Sec. 382(h)(2)(B).
\44\ Sec. 382(h)(2)(B).
\45\ Sec. 382(h)(6)(B).
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As indicated above, section 382(h)(1) provides in the case
of a loss corporation that has a NUBIG that the section 382
limitation may be increased for any taxable year during the
recognition period by the amount of recognized built-in gains
(or RBIGs) for such taxable year.\46\ An RBIG is defined for
this purpose as any gain recognized during the recognition
period on the disposition of any asset held by the loss
corporation immediately before the ownership change date, to
the extent that such gain is attributable to an excess of the
fair market value of the asset on the change date over its
adjusted basis on that date.\47\ In addition, any item of
income that is properly taken into account during the
recognition period but which is attributable to periods before
the ownership change date is treated as an RBIG for the taxable
year in which it is properly taken into account. \48\
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\46\ The total amount of such increases cannot exceed the amount of
the corporation's NUBIG.
\47\ Sec. 382(h)(2)(A).
\48\ Sec. 382(h)(6)(A).
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Internal Revenue Service Notice 2003-65 \49\ provides two
alternative safe harbor approaches for the identification of
built-in items for purposes of section 382(h): the ``1374
approach'' and the ``338 approach.''
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\49\ 2003-2 C.B. 747.
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Under the 1374 approach,\50\ NUBIG or NUBIL is the net
amount of gain or loss that would be recognized in a
hypothetical sale of the assets of the loss corporation
immediately before the ownership change.\51\ The amount of gain
or loss recognized during the recognition period on the sale or
exchange of an asset held at the time of the ownership change
is RBIG or RBIL, respectively, to the extent it is attributable
to a difference between the adjusted basis and the fair market
value of the asset on the change date, as described above.
However, the 1374 approach generally relies on the accrual
method of accounting to identify items of income or deduction
as RBIG or RBIL, respectively. Generally, items of income or
deduction properly included in income or allowed as a deduction
during the recognition period are considered attributable to
period before the change date (and thus are treated as RBIG or
RBIL, respectively), if a taxpayer using an accrual method of
accounting would have included the item in income or been
allowed a deduction for the item before the change date.
However, the 1374 approach includes a number of exceptions to
this general rule, including a special rule dealing with bad
debt deductions under section 166. Under this special rule, any
deduction item properly taken into account during the first 12
months of the recognition period as a bad debt deduction under
section 166 is treated as RBIL if the item arises from a debt
owed to the loss corporation at the beginning of the
recognition period (and deductions for such items properly
taken into account after the first 12 months of the recognition
period are not RBILs).\52\
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\50\ The 1374 approach generally incorporates rules similar to
those of section 1374(d) and the Treasury regulations thereunder in
calculating NUBIG and NUBIL and identifying RBIG and RBIL.
\51\ More specifically, NUBIG or NUBIL is calculated by determining
the amount that would be realized if immediately before the ownership
change the loss corporation had sold all of its assets, including
goodwill, at fair market value to a third party that assumed all of its
liabilities, decreased by the sum of any deductible liabilities of the
loss corporation that would be included in the amount realized on the
hypothetical sale and the loss corporation's aggregate adjusted basis
in all of its assets, increased or decreased by the corporation's
section 481 adjustments that would be taken into account on a
hypothetical sale, and increased by any RBIL that would not be allowed
as a deduction under section 382, 383 or 384 on the hypothetical sale.
\52\ Notice 2003-65, section III.B.2.b.
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The 338 approach identifies items of RBIG and RBIL
generally by comparing the loss corporation's actual items of
income, gain, deduction and loss with those that would have
resulted if a section 338 election had been made with respect
to a hypothetical purchase of all of the outstanding stock of
the loss corporation on the change date. Under the 338
approach, NUBIG or NUBIL is calculated in the same manner as it
is under the 1374 approach.\53\ The 338 approach identifies
RBIG or RBIL by comparing the loss corporation's actual items
of income, gain, deduction and loss with the items of income,
gain, deduction and loss that would result if a section 338
election had been made for the hypothetical purchase. The loss
corporation is treated for this purpose as using those
accounting methods that the loss corporation actually uses. The
338 approach does not include any special rule with regard to
bad debt deductions under section 166.
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\53\Accordingly, unlike the case in which a section 338 election is
actually made, contingent consideration (including a contingent
liability) is taken into account in the initial calculation of NUBIG or
NUBIL, and no further adjustments are made to reflect subsequent
changes in deemed consideration.
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Section 166 generally allows a deduction in respect of any
debt that becomes worthless, in whole or in part, during the
taxable year.\54\ The determination of whether a debt is
worthless, in whole or in part, is a question of fact. However,
in the case of a bank or other corporation that is subject to
supervision by Federal authorities, or by State authorities
maintaining substantially equivalent standards, the Treasury
regulations under section 166 provide a presumption of
worthlessness to the extent that a debt is charged off during
the taxable year pursuant to a specific order of such an
authority or in accordance with established policies of such an
authority (and in the latter case, the authority confirms in
writing upon the first subsequent audit of the bank or other
corporation that the charge-off would have been required if the
audit had been made at the time of the charge-off). The
presumption does not apply if the taxpayer does not claim the
amount so charged off as a deduction for the taxable year in
which the charge-off takes place. In that case, the charge-off
is treated as having been involuntary; however, in order to
claim the section 166 deduction in a later taxable year, the
taxpayer must produce sufficient evidence to show that the debt
became partially worthless in the later year or became
recoverable only in part subsequent to the taxable year of the
charge-off, as the case may be, and to the extent that the
deduction claimed in the later year for a partially worthless
debt was not involuntarily charged off in prior taxable years,
it was charged off in the later taxable year.\55\
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\54\ Section 166 does not apply, however, to a debt which is
evidenced by a security, defined for this purpose (by cross-reference
to section 165(g)(2)(C)) as a bond, debenture, note or certificate or
other evidence of indebtedness issued by a corporation or by a
government or political subdivision thereof, with interest coupons or
in registered form. Sec. 166(e).
\55\ See Treas. Reg. sec. 1.166-2(d)(1) and (2).
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The Treasury regulations also permit a bank (generally as
defined for purposes of section 581, with certain
modifications) that is subject to supervision by Federal
authorities, or State authorities maintaining substantially
equivalent standards, to make a ``conformity election'' under
which debts charged off for regulatory purposes during a
taxable year are conclusively presumed to be worthless for tax
purposes to the same extent, provided that the charge-off
results from a specific order of the regulatory authority or
corresponds to the institution's classification of the debt as
a ``loss asset'' pursuant to loan loss classification standards
that are consistent with those of certain specified bank
regulatory authorities. The conformity election is treated as
the adoption of a method of accounting.\56\
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\56\ See Treas. Reg. sec. 1.166-2(d)(3); cf. Priv. Let. Rul.
9248048 (July 7, 1992); Tech. Ad. Mem. 9122001 (Feb. 8, 1991).
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Internal Revenue Service Notice 2008-83,\57\ released on
October 1, 2008, provides that ``[f]or purposes of section
382(h), any deduction properly allowed after an ownership
change (as defined in section 382(g)) to a bank with respect to
losses on loans or bad debts (including any deduction for a
reasonable addition to a reserve for bad debts) shall not be
treated as a built-in loss or a deduction that is attributable
to periods before the change date.'' \58\ The Notice further
states that the Internal Revenue Service and the Treasury
Department are studying the proper treatment under section
382(h) of certain items of deduction or loss allowed after an
ownership change to a corporation that is a bank (as defined in
section 581) both immediately before and after the change date,
and that any such corporation may rely on the treatment set
forth in Notice 2008-83 unless and until there is additional
guidance.
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\57\ 2008-42 I.R.B. 2008-42 (Oct. 20, 2008).
\58\ Notice 2008-83, Section 2.
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REASONS FOR CHANGE
The Committee believes that: (1) the delegation of
authority to the Secretary of the Treasury, or his delegate,
under section 382(m) \59\ does not authorize the Secretary to
provide exemptions or special rules that are restricted to
particular industries or classes of taxpayers, (2) Internal
Revenue Service Notice 2008-83 is inconsistent with the
congressional intent in enacting section 382(m), and (3) the
legal authority to prescribe Notice 2008-83 is doubtful, but
that (4) as taxpayers should generally be able to rely on
guidance issued by the Secretary of the Treasury, legislation
is necessary to clarify the force and effect of Notice 2008-83
and restore the proper application under the Internal Revenue
Code of the limitation on built-in losses following an
ownership change of a bank.
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\59\ Section 382(m) authorizes the Secretary to prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of sections 382 and 383.
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Under the provision, Treasury Notice 2008-83 shall be
deemed to have the force and effect of law with respect to any
ownership change (as defined in section 382(g)) occurring on or
before January 16, 2009, and with respect to any ownership
change (as so defined) which occurs after January 16, 2009, if
such change (1) is pursuant to a written binding contract
entered in to on or before such date or (2) is pursuant to a
written agreement entered into on or before such date and such
agreement was described on or before such date in a public
announcement or in a filing with the Securities and Exchange
Commission required by reason of such ownership change, but
shall otherwise have no force or effect with respect to any
ownership change after such date.
EFFECTIVE DATE
The provision is effective on the date of enactment.
F. Fiscal Relief for State and Local Governments
1. De Minimis Safe Harbor Exception for Tax-Exempt Interest Expense of
Financial Institutions and Modification of Small Issuer Exception to
Tax-Exempt Interest Expense Allocation Rules for Financial Institutions
(Secs. 1501 and 1502 of the Bill and Sec. 265 of the Code)
PRESENT LAW
Present law disallows a deduction for interest on
indebtedness incurred or continued to purchase or carry
obligations the interest on which is exempt from tax.\60\ In
general, an interest deduction is disallowed only if the
taxpayer has a purpose of using borrowed funds to purchase or
carry tax-exempt obligations; a determination of the taxpayer's
purpose in borrowing funds is made based on all of the facts
and circumstances.\61\
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\60\ Sec. 265(a).
\61\ See Rev. Proc. 72-18, 1972-1 C.B. 740.
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Two-percent rule for individuals and certain nonfinancial corporations
In the absence of direct evidence linking an individual
taxpayer's indebtedness with the purchase or carrying of tax-
exempt obligations, the Internal Revenue Service takes the
position that it ordinarily will not infer that a taxpayer's
purpose in borrowing money was to purchase or carry tax-exempt
obligations if the taxpayer's investment in tax-exempt
obligations is ``insubstantial.''\62\ An individual's holdings
of tax-exempt obligations are presumed to be insubstantial if
during the taxable year the average adjusted basis of the
individual's tax-exempt obligations is two percent or less of
the average adjusted basis of the individual's portfolio
investments and assets held by the individual in the active
conduct of a trade or business.
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\62\ Id.
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Similarly, in the case of a corporation that is not a
financial institution or a dealer in tax-exempt obligations,
where there is no direct evidence of a purpose to purchase or
carry tax-exempt obligations, the corporation's holdings of
tax-exempt obligations are presumed to be insubstantial if the
average adjusted basis of the corporation's tax-exempt
obligations is two percent or less of the average adjusted
basis of all assets held by the corporation in the active
conduct of its trade or business.
Financial institutions
In the case of a financial institution, the Code generally
disallows that portion of the taxpayer's interest expense that
is allocable to tax-exempt interest.\63\ The amount of interest
that is disallowed is an amount which bears the same ratio to
such interest expense as the taxpayer's average adjusted bases
of tax-exempt obligations acquired after August 7, 1986, bears
to the average adjusted bases for all assets of the taxpayer 60
Sec. 265(a).
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\63\ Sec. 265(b)(1). A ``financial institution'' is any person that
(1) accepts deposits from the public in the ordinary course of such
person's trade or business and is subject to Federal or State
supervision as a financial institution or (2) is a corporation
described in section 585(a)(2). Sec. 265(b)(5). .
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Exception for certain obligations of qualified small issuers
The general rule in section 265(b), denying financial
institutions' interest expense deductions allocable to tax-
exempt obligations, does not apply to ``qualified tax-exempt
obligations.''\64\ Instead, as discussed in the next section,
only 20 percent of the interest expense allocable to
``qualified tax-exempt obligations'' is disallowed.\65\ A
``qualified tax-exempt obligation'' is a tax-exempt obligation
that (1) is issued after August 7, 1986, by a qualified small
issuer, (2) is not a private activity bond, and (3) is
designated by the issuer as qualifying for the exception from
the general rule of section 265(b).
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\64\ Sec. 265(b)(3).
\65\ Sec. 265(b)(3)(A), 291(a)(3) and 291(e)(1).
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A ``qualified small issuer'' is an issuer that reasonably
anticipates that the amount of tax-exempt obligations that it
will issue during the calendar year will be $10 million or
less.\66\ The Code specifies the circumstances under which an
issuer and all subordinate entities are aggregated.\67\ For
purposes of the $10 million limitation, an issuer and all
entities that issue obligations on behalf of such issuer are
treated as one issuer. All obligations issued by a subordinate
entity are treated as being issued by the entity to which it is
subordinate. An entity formed (or availed of) to avoid the $10
million limitation and all entities benefiting from the device
are treated as one issuer.
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\66\ Sec. 265(b)(3)(C).
\67\ Sec. 265(b)(3)(E).
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Composite issues (i.e., combined issues of bonds for
different entities) qualify for the ``qualified tax-exempt
obligation'' exception only if the requirements of the
exception are met with respect to (1) the composite issue as a
whole (determined by treating the composite issue as a single
issue) and (2) each separate lot of obligations that is part of
the issue (determined by treating each separate lot of
obligations as a separate issue).\68\ Thus a composite issue
may qualify for the exception only if the composite issue
itself does not exceed $10 million, and if each issuer
benefitting from the composite issue reasonably anticipates
that it will not issue more than $10 million of tax-exempt
obligations during the calendar year, including through the
composite arrangement.
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\68\ Sec. 265(b)(3)(F).
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Treatment of financial institution preference items
Section 291(a)(3) reduces by 20 percent the amount
allowable as a deduction with respect to any financial
institution preference item. Financial institution preference
items include interest on debt to carry tax-exempt obligations
acquired after December 31, 1982, and before August 8,
1986.\69\ Section 265(b)(3) treats qualified tax-exempt
obligations as if they were acquired on August 7, 1986. As a
result, the amount allowable as a deduction by a financial
institution with respect to interest incurred to carry a
qualified tax-exempt obligation is reduced by 20 percent.
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\69\ Sec. 291(e)(1).
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REASONS FOR CHANGE
The Committee believes that the creation of a de minimis
safe harbor to permit financial institutions to hold a limited
amount of tax-exempt obligations issued in 2009 and 2010
without full reduction of their attributable interest expense
deductions will stimulate demand for tax-exempt obligations
issued by State and local governments in 2009 and 2010. This
additional demand should increase the volume of tax-exempt bond
issuances by State and local governments in 2009 and 2010 while
reducing the interest costs with respect to such issuances. In
addition, the Committee believes that it is appropriate to
increase temporarily the volume limitation for qualified small
issuers, from $10 million to $30 million, and make other
modifications to allow additional issuers to qualify under the
provision.
EXPLANATION OF PROVISIONS
Two-percent safe harbor for financial institutions
The provision provides that tax-exempt obligations issued
during 2009 or 2010 and held by a financial institution, in an
amount not to exceed two percent of the adjusted basis of the
financial institution's assets, are not taken into account for
the purpose of determining the portion of the financial
institution's interest expense subject to the pro rata interest
disallowance rule of section 265(b). For purposes of this rule,
a refunding bond (whether a current or advance refunding) is
treated as issued on the date of the issuance of the refunded
bond (or in the case of a series of refundings, the original
bond).
The provision also amends section 291(e) to provide that
tax-exempt obligations issued during 2009 and 2010, and not
taken into account for purposes of the calculation of a
financial institution's interest expense subject to the pro
rata interest disallowance rule, are treated as having been
acquired on August 7, 1986. As a result, such obligations are
financial institution preference items, and the amount
allowable as a deduction by a financial institution with
respect to interest incurred to carry such obligations is
reduced by 20 percent.
Modifications to qualified small issuer exception
With respect to tax-exempt obligations issued during 2009
and 2010, the provision increases from $10 million to $30
million the annual limit for qualified small issuers.
In addition, in the case of ``qualified financing issue''
issued in 2009 or 2010, the provision applies the $30 million
annual volume limitation at the borrower level (rather than at
the level of the pooled financing issuer). Thus, for the
purpose of applying the requirements of the section 265(b)(3)
qualified small issuer exception, the portion of the proceeds
of a qualified financing issue that are loaned to a ``qualified
borrower'' that participates in the issue are treated as a
separate issue with respect to which the qualified borrower is
deemed to be the issuer.
A ``qualified financing issue'' is any composite, pooled or
other conduit financing issue the proceeds of which are used
directly or indirectly to make or finance loans to one or more
ultimate borrowers all of whom are qualified borrowers. A
``qualified borrower'' means (1) a State or political
subdivision of a State or (2) an organization described in
section 501(c)(3) and exempt from tax under section 501(a).
Thus, for example, a $100 million pooled financing issue that
was issued in 2009 could qualify for the section 265(b)(3)
exception if the proceeds of such issue were used to make four
equal loans of $25 million to four qualified borrowers.
However, if (1) more than $30 million were loaned to any
qualified borrower, (2) any borrower were not a qualified
borrower, or (3) any borrower would, if it were the issuer of a
separate issue in an amount equal to the amount loaned to such
borrower, fail to meet any of the other requirements of section
265(b)(3), the entire $100 million pooled financing issue would
fail to qualify for the exception.
For purposes of determining whether an issuer meets the
requirements of the small issuer exception, qualified 501(c)(3)
bonds issued in 2009 or 2010 are treated as if they were issued
by the 501(c)(3) organization for whose benefit they were
issued (and not by the actual issuer of such bonds). In
addition, in the case of an organization described in section
501(c)(3) and exempt from taxation under section 501(a),
requirements for ``qualified financing issues'' shall be
applied as if the section 501(c)(3) organization were the
issuer. Thus, in any event, an organization described in
section 501(c)(3) and exempt from taxation under section 501(a)
shall be limited to the $30 million per issuer cap for
qualified tax exempt obligations described in section
265(b)(3).
EFFECTIVE DATE
The provisions are effective for obligations issued after
December 31, 2008.
2. Temporary Modification of Alternative Minimum Tax Limitations on
Tax-Exempt Bonds (Sec. 1503 of the Bill and Secs. 56 and 57 of the
Code)
PRESENT LAW
Present law imposes an alternative minimum tax (``AMT'') on
individuals and corporations. AMT is the amount by which the
tentative minimum tax exceeds the regular income tax. The
tentative minimum tax is computed based upon a taxpayer's
alternative minimum taxable income (``AMTI''). AMTI is the
taxpayer's taxable income modified to take into account certain
preferences and adjustments. One of the preference items is
tax-exempt interest on certain tax-exempt bonds issued for
private activities (sec. 57(a)(5)). Also, in the case of a
corporation, an adjustment based on current earnings is
determined, in part, by taking into account 75 percent of
items, including tax-exempt interest, that are excluded from
taxable income but included in the corporation's earnings and
profits (sec. 56(g)(4)(B)).
REASONS FOR CHANGE
The Committee believes that the AMT treatment of interest
on tax-exempt bonds restricts the number of persons willing to
hold tax-exempt bonds, resulting in higher financing costs.
This problem has become more acute as a result of the current
economic downturn. Accordingly, in light of current economic
circumstances, the bill eliminates the AMT adjustments for
interest on tax-exempt bonds issued in 2009 and 2010.
EXPLANATION OF PROVISION
The provision provides that tax-exempt interest on private
activity bonds issued in 2009 and 2010 is not an item of tax
preference for purposes of the alternative minimum tax and
interest on tax exempt bonds issued in 2009 and 2010 is not
included in the corporate adjustment based on current earnings.
For these purposes, a refunding bond is treated as issued on
the date of the issuance of the refunded bond (or in the case
of a series of refundings, the original bond).
EFFECTIVE DATE
The provision applies to interest on bonds issued after
December 31, 2008.
3. Qualified School Construction Bonds (Sec. 1511 of the Bill and Sec.
54F of the Code)
PRESENT LAW
Tax-exempt bonds
Interest on State and local governmental bonds generally is
excluded from gross income for Federal income tax purposes if
the proceeds of the bonds are used to finance direct activities
of these governmental units or if the bonds are repaid with
revenues of the governmental units. These can include tax-
exempt bonds which finance public schools.\70\ An issuer must
file with the Internal Revenue Service certain information
about the bonds issued in order for that bond issue to be tax-
exempt.\71\ Generally, this information return is required to
be filed no later than the 15th day of the second month after
the close of the calendar quarter in which the bonds were
issued.
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\70\ Sec. 103.
\71\ Sec. 149(e).
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The tax exemption for State and local bonds does not apply
to any arbitrage bond.\72\ An arbitrage bond is defined as any
bond that is part of an issue if any proceeds of the issue are
reasonably expected to be used (or intentionally are used) to
acquire higher yielding investments or to replace funds that
are used to acquire higher yielding investments.\73\ In
general, arbitrage profits may be earned only during specified
periods (e.g., defined ``temporary periods'') before funds are
needed for the purpose of the borrowing or on specified types
of investments (e.g., ``reasonably required reserve or
replacement funds''). Subject to limited exceptions, investment
profits that are earned during these periods or on such
investments must be rebated to the Federal Government.
---------------------------------------------------------------------------
\72\ Sec. 103(a) and (b)(2).
\73\ Sec. 148.
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Qualified zone academy bonds
As an alternative to traditional tax-exempt bonds, States
and local governments were given the authority to issue
``qualified zone academy bonds.'' \74\ A total of $400 million
of qualified zone academy bonds is authorized to be issued
annually in calendar years 1998 through 2009. The $400 million
aggregate bond cap is allocated each year to the States
according to their respective populations of individuals below
the poverty line. Each State, in turn, allocates the credit
authority to qualified zone academies within such State.
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\74\ Sec. 1397E.
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A taxpayer holding a qualified zone academy bond on the
credit allowance date is entitled to a credit. The credit is
includible in gross income (as if it were a taxable interest
payment on the bond), and may be claimed against regular income
tax and alternative minimum tax liability.
The Treasury Department sets the credit rate at a rate
estimated to allow issuance of qualified zone academy bonds
without discount and without interest cost to the issuer.\75\
The Secretary determines credit rates for tax credit bonds
based on general assumptions about credit quality of the class
of potential eligible issuers and such other factors as the
Secretary deems appropriate. The Secretary may determine credit
rates based on general credit market yield indexes and credit
ratings. The maximum term of the bond is determined by the
Treasury Department, so that the present value of the
obligation to repay the principal on the bond is 50 percent of
the face value of the bond.
---------------------------------------------------------------------------
\75\ Given the differences in credit quality and other
characteristics of individual issuers, the Secretary cannot set credit
rates in a manner that will allow each issuer to issue tax credit bonds
at par.
---------------------------------------------------------------------------
``Qualified zone academy bonds'' are defined as any bond
issued by a State or local government, provided that (1) at
least 95 percent of the proceeds are used for the purpose of
renovating, providing equipment to, developing course materials
for use at, or training teachers and other school personnel in
a ``qualified zone academy'' and (2) private entities have
promised to contribute to the qualified zone academy certain
equipment, technical assistance or training, employee services,
or other property or services with a value equal to at least 10
percent of the bond proceeds.
A school is a ``qualified zone academy'' if (1) the school
is a public school that provides education and training below
the college level, (2) the school operates a special academic
program in cooperation with, businesses to enhance the academic
curriculum and increase graduation and employment rates, and
(3) either (a) the school is located in an empowerment zone or
enterprise community designated under the Code, or (b) it is
reasonably expected that at least 35 percent of the students at
the school will be eligible for free or reduced-cost lunches
under the school lunch program established under the National
School Lunch Act.
The arbitrage requirements which generally apply to
interest-bearing tax-exempt bonds also generally apply to
qualified zone academy bonds. In addition, an issuer of
qualified zone academy bonds must reasonably expect to and
actually spend 100 percent of the proceeds of such bonds on
qualified zone academy property within the three years period
that begins on the date of issuance. To the extent less than
100 percent of the proceeds are used to finance qualified zone
academy property during the three years spending period, bonds
will continue to qualify as qualified zone academy bonds if
unspent proceeds are used within 90 days from the end of such
three years period to redeem any nonqualified bonds. The three
years spending period may be extended by the Secretary if the
issuer establishes that the failure to meet the spending
requirement is due to reasonable cause and the related purposes
for issuing the bonds will continue to proceed with due
diligence.
Two special arbitrage rules apply to qualified zone academy
bonds. First, available project proceeds invested during the
three-year period beginning on the date of issue are not
subject to the arbitrage restrictions (i.e., yield restriction
and rebate requirements). Available project proceeds are
proceeds from the sale of an issue of qualified zone academy
bonds, less issuance costs (not to exceed two percent) and any
investment earnings on such proceeds. Thus, available project
proceeds invested during the three-year spending period may be
invested at unrestricted yields, but the earnings on such
investments must be spent on qualified zone academy property.
Second, amounts invested in a reserve fund are not subject to
the arbitrage restrictions to the extent: (1) such fund is
funded at a rate not more rapid than equal annual installments;
(2) such fund is funded in a manner reasonably expected to
result in an amount not greater than an amount necessary to
repay the issue; and (3) the yield on such fund is not greater
than the average annual interest rate of tax-exempt obligations
having a term of 10 years or more that are issued during the
month the qualified zone academy bonds are issued.
Issuers of qualified zone academy bonds are required to
report issuance to the Internal Revenue Service in a manner
similar to the information returns required for tax-exempt
bonds.
REASONS FOR CHANGE
The Committee believes that this new category of tax credit
bonds will provide an efficient mechanism to encourage the
construction, rehabilitation, or repair of public school
facilities and the acquisition of land on which such bond-
financed facilities are to be constructed.
EXPLANATION OF PROVISION
In general
The provision creates a new category of tax-credit bonds:
qualified school construction bonds. Qualified school
construction bonds must meet three requirements: (1) 100
percent of the available project proceeds of the bond issue is
used for the construction, rehabilitation, or repair of a
public school facility or for the acquisition of land on which
such a bond-financed facility is to be constructed; (2) the
bond is issued by a State or local government within which such
school is located; and (3) the issuer designates such bonds as
a qualified school construction bond.
National limitation
There is a national limitation on qualified school
construction bonds of $11 billion for calendar years 2009 and
2010, respectively. Allocations of the national limitation of
qualified school construction bonds are divided between the
States and certain large school districts. The States receive
60 percent of the national limitation for a calendar year and
the remaining 40 percent of the national limitation for a
calendar year is allocated to certain of the largest school
districts.
Allocation to the States
Generally allocations are made to the States under the 60
percent allocation according to their respective populations of
children aged five through seventeen. However, the Secretary of
the Treasury shall adjust the annual allocations among the
States to ensure that for each State the sum of its allocations
under the 60 percent allocation plus any allocations to large
educational agencies within the States is not less than a
minimum percentage. A State's minimum percentage for a calendar
year is a product of 1.68 and the minimum percentage described
in section 1124(d) of the Elementary and Secondary Education
Act of 1965 for such State for the most recent fiscal year
ending before such calendar year.
For allocation purposes, a State includes the District of
Columbia and any possession of the United States. The provision
provides a special allocation for possessions of the United
States other than Puerto Rico under the 60 percent share of the
national limitation for States. Under this special rule an
allocation to a possession other than Puerto Rico is made on
the basis of the respective populations of individuals below
the poverty line (as defined by the Office of Management and
Budget) rather than respective populations of children aged
five through seventeen. This special allocation reduces the
State allocation share of the national limitation otherwise
available for allocation among the States. Under another
special rule the Secretary of the Interior may allocate $200
million of school construction bonds for 2009 and 2010,
respectively, to Indian schools. This special allocation for
Indian schools is to be used for purposes of the construction,
rehabilitation, and repair of schools funded by the Bureau of
Indian Affairs. For purposes of such allocations Indian tribal
governments are qualified issuers. The special allocation for
Indian schools does not reduce the State allocation share of
the national limitation otherwise available for allocation
among the States.
If an amount allocated under this allocation to the States
is unused for a calendar year it may be carried forward by the
State to the next calendar year.
Allocation to large school districts
The remaining 40 percent of the national limitation for a
calendar year is allocated by the Secretary of the Treasury
among local educational agencies which are large local
educational agencies for such year. This allocation is made in
proportion to the respective amounts each agency received for
Basic Grants under subpart 2 of Part A of Title I of the
Elementary and Secondary Education Act of 1965 for the most
recent fiscal year ending before such calendar year. Any unused
allocation of any agency within a State may be allocated by the
agency to such State. With respect to a calendar year, the term
large local educational agency means any local educational
agency if such agency is: (1) among the 100 local educational
agencies with the largest numbers of children aged 5 through 17
from families living below the poverty level, or (2) one of not
more than 25 local educational agencies (other than in 1,
immediately above) that the Secretary of Education determines
are in particular need of assistance, based on a low level of
resources for school construction, a high level of enrollment
growth, or other such factors as the Secretary of Education
deems appropriate. If any amount allocated to large local
educational agency is unused for a calendar year the agency may
reallocate such amount to the State in which the agency is
located.
The provision makes qualified school construction bonds a
type of qualified tax credit bond for purposes of section 54A.
In addition, qualified school construction bonds may be issued
by Indian tribal governments only to the extent such bonds are
issued for purposes that satisfy the present law requirements
for tax-exempt bonds issued by Indian tribal governments (i.e.,
essential governmental functions and certain manufacturing
purposes).
The provision requires 100 percent of the available project
proceeds of qualified school construction bonds to be used
within the three-year period that begins on the date of
issuance. Available project proceeds are proceeds from the sale
of the issue less issuance costs (not to exceed two percent)
and any investment earnings on such sale proceeds. To the
extent less than 100 percent of the available project proceeds
are used to finance qualified purposes during the three-year
spending period, bonds will continue to qualify as qualified
school construction bonds if unspent proceeds are used within
90 days from the end of such three-year period to redeem bonds.
The three-year spending period may be extended by the Secretary
upon the issuer's request demonstrating that the failure to
satisfy the three-year requirement is due to reasonable cause
and the projects will continue to proceed with due diligence.
Qualified school construction bonds generally are subject
to the arbitrage requirements of section 148. However,
available project proceeds invested during the three-year
spending period are not subject to the arbitrage restrictions
(i.e., yield restriction and rebate requirements). In addition,
amounts invested in a reserve fund are not subject to the
arbitrage restrictions to the extent: (1) such fund is funded
at a rate not more rapid than equal annual installments; (2)
such fund is funded in a manner reasonably expected to result
in an amount not greater than an amount necessary to repay the
issue; and (3) the yield on such fund is not greater than the
average annual interest rate of tax-exempt obligations having a
term of 10 years or more that are issued during the month the
qualified school construction bonds are issued.
The maturity of qualified school construction bonds is the
term that the Secretary estimates will result in the present
value of the obligation to repay the principal on such bonds
being equal to 50 percent of the face amount of such bonds,
using as a discount rate the average annual interest rate of
tax-exempt obligations having a term of 10 years or more that
are issued during the month the qualified school construction
bonds are issued.
As with present-law tax credit bonds, the taxpayer holding
qualified school construction bonds on a credit allowance date
is entitled to a tax credit. The credit rate on the bonds is
set by the Secretary at a rate that is 100 percent of the rate
that would permit issuance of such bonds without discount and
interest cost to the issuer. The amount of the tax credit is
determined by multiplying the bond's credit rate by the face
amount on the holder's bond. The credit accrues quarterly, is
includible in gross income (as if it were an interest payment
on the bond), and can be claimed against regular income tax
liability and alternative minimum tax liability. Unused credits
may be carried forward to succeeding taxable years. In
addition, credits may be separated from the ownership of the
underlying bond in a manner similar to the manner in which
interest coupons can be stripped from interest-bearing bonds.
Issuers of qualified school construction bonds are required
to certify that the financial disclosure requirements and
applicable State and local law requirements governing conflicts
of interest are satisfied with respect to such issue, as well
as any other additional conflict of interest rules prescribed
by the Secretary with respect to any Federal, State, or local
government official directly involved with the issuance of
qualified school construction bonds.
EFFECTIVE DATE
The provision is effective for bonds issued after December
31, 2008.
4. Extend and Expand Qualified Zone Academy Bonds (Sec. 1512 of the
Bill and Sec. 54E of the Code)
PRESENT LAW
Tax-exempt bonds
Interest on State and local governmental bonds generally is
excluded from gross income for Federal income tax purposes if
the proceeds of the bonds are used to finance direct activities
of these governmental units or if the bonds are repaid with
revenues of the governmental units. These can include tax-
exempt bonds which finance public schools.\76\ An issuer must
file with the Internal Revenue Service certain information
about the bonds issued in order for that bond issue to be tax-
exempt.\77\ Generally, this information return is required to
be filed no later than the 15th day of the second month after
the close of the calendar quarter in which the bonds were
issued.
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\76\ Sec. 103.
\77\ Sec. 149(e).
---------------------------------------------------------------------------
The tax exemption for State and local bonds does not apply
to any arbitrage bond.\78\ An arbitrage bond is defined as any
bond that is part of an issue if any proceeds of the issue are
reasonably expected to be used (or intentionally are used) to
acquire higher yielding investments or to replace funds that
are used to acquire higher yielding investments.\79\ In
general, arbitrage profits may be earned only during specified
periods (e.g., defined ``temporary periods'') before funds are
needed for the purpose of the borrowing or on specified types
of investments (e.g., ``reasonably required reserve or
replacement funds''). Subject to limited exceptions, investment
profits that are earned during these periods or on such
investments must be rebated to the Federal Government.
---------------------------------------------------------------------------
\78\ Sec. 103(a) and (b)(2).
\79\ Sec. 148.
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Qualified zone academy bonds
As an alternative to traditional tax-exempt bonds, States
and local governments were given the authority to issue
``qualified zone academy bonds.'' \80\ A total of $400 million
of qualified zone academy bonds is authorized to be issued
annually in calendar years 1998 through 2009. The $400 million
aggregate bond cap is allocated each year to the States
according to their respective populations of individuals below
the poverty line. Each State, in turn, allocates the credit
authority to qualified zone academies within such State.
---------------------------------------------------------------------------
\80\ See secs. 54E and 1397E.
---------------------------------------------------------------------------
A taxpayer holding a qualified zone academy bond on the
credit allowance date is entitled to a credit. The credit is
includible in gross income (as if it were a taxable interest
payment on the bond), and may be claimed against regular income
tax and alternative minimum tax liability.
The Treasury Department sets the credit rate at a rate
estimated to allow issuance of qualified zone academy bonds
without discount and without interest cost to the issuer.\81\
The Secretary determines credit rates for tax credit bonds
based on general assumptions about credit quality of the class
of potential eligible issuers and such other factors as the
Secretary deems appropriate. The Secretary may determine credit
rates based on general credit market yield indexes and credit
ratings. The maximum term of the bond is determined by the
Treasury Department, so that the present value of the
obligation to repay the principal on the bond is 50 percent of
the face value of the bond.
---------------------------------------------------------------------------
\81\ Given the differences in credit quality and other
characteristics of individual issuers, the Secretary cannot set credit
rates in a manner that will allow each issuer to issue tax credit bonds
at par.
---------------------------------------------------------------------------
``Qualified zone academy bonds'' are defined as any bond
issued by a State or local government, provided that (1) at
least 95 percent of the proceeds are used for the purpose of
renovating, providing equipment to, developing course materials
for use at, or training teachers and other school personnel in
a ``qualified zone academy'' and (2) private entities have
promised to contribute to the qualified zone academy certain
equipment, technical assistance or training, employee services,
or other property or services with a value equal to at least 10
percent of the bond proceeds.
A school is a ``qualified zone academy'' if (1) the school
is a public school that provides education and training below
the college level, (2) the school operates a special academic
program in cooperation with businesses to enhance the academic
curriculum and increase graduation and employment rates, and
(3) either (a) the school is located in an empowerment zone or
enterprise community designated under the Code, or (b) it is
reasonably expected that at least 35 percent of the students at
the school will be eligible for free or reduced-cost lunches
under the school lunch program established under the National
School Lunch Act.
The arbitrage requirements which generally apply to
interest-bearing tax-exempt bonds also generally apply to
qualified zone academy bonds. In addition, an issuer of
qualified zone academy bonds must reasonably expect to and
actually spend 100 percent or more of the proceeds of such
bonds on qualified zone academy property within the three-year
period that begins on the date of issuance. To the extent less
than 100 percent of the proceeds are used to finance qualified
zone academy property during the three-year spending period,
bonds will continue to qualify as qualified zone academy bonds
if unspent proceeds are used within 90 days from the end of
such three-year period to redeem any nonqualified bonds. The
three-year spending period may be extended by the Secretary if
the issuer establishes that the failure to meet the spending
requirement is due to reasonable cause and the related purposes
for issuing the bonds will continue to proceed with due
diligence.
Two special arbitrage rules apply to qualified zone academy
bonds. First, available project proceeds invested during the
three-year period beginning on the date of issue are not
subject to the arbitrage restrictions (i.e., yield restriction
and rebate requirements). Available project proceeds are
proceeds from the sale of an issue of qualified zone academy
bonds, less issuance costs (not to exceed two percent) and any
investment earnings on such proceeds. Thus, available project
proceeds invested during the three-year spending period may be
invested at unrestricted yields, but the earnings on such
investments must be spent on qualified zone academy property.
Second, amounts invested in a reserve fund are not subject to
the arbitrage restrictions to the extent: (1) such fund is
funded at a rate not more rapid than equal annual installments;
(2) such fund is funded in a manner reasonably expected to
result in an amount not greater than an amount necessary to
repay the issue; and (3) the yield on such fund is not greater
than the average annual interest rate of tax-exempt obligations
having a term of 10 years or more that are issued during the
month the qualified zone academy bonds are issued.
Issuers of qualified zone academy bonds are required to
report issuance to the Internal Revenue Service in a manner
similar to the information returns required for tax-exempt
bonds.
REASONS FOR CHANGE
The Committee wishes to expand and extend the qualified
zone academy bond program. The Committee believes that this
category of tax credit bonds will continue to provide an
efficient mechanism for renovating, providing equipment to,
developing course materials for use at, or training teachers
and other school personnel in a ``qualified zone academy.''
EXPLANATION OF PROVISION
The provision extends and expands the present-law qualified
zone academy bond program. The provision authorizes issuance of
up to $1.4 billion of qualified zone academy bonds annually for
2009 and 2010, respectively.
EFFECTIVE DATE
The provision applies to bonds issued after December 31,
2008.
5. Taxable Bond Option for Governmental Bonds (Sec. 1521 of the Bill
and New Secs. 54AA and 6432 of the Code)
PRESENT LAW
In general
Under present law, gross income does not include interest
on State or local bonds. State and local bonds are classified
generally as either governmental bonds or private activity
bonds. Governmental bonds are bonds the proceeds of which are
primarily used to finance governmental functions or which are
repaid with governmental funds. Private activity bonds are
bonds in which the State or local government serves as a
conduit providing financing to nongovernmental persons (e.g.,
private businesses or individuals). The exclusion from income
for State and local bonds does not apply to private activity
bonds, unless the bonds are issued for certain permitted
purposes (``qualified private activity bonds'') and other Code
requirements are met.
Private activity bonds
The Code defines a private activity bond as any bond that
satisfies (1) the private business use test and the private
security or payment test (``the private business test''); or
(2) ``the private loan financing test.'' \82\
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\82\ Sec. 141.
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Private business test
Under the private business test, a bond is a private
activity bond if it is part of an issue in which:
1. More than 10 percent of the proceeds of the issue
(including use of the bond-financed property) are to be
used in the trade or business of any person other than
a governmental unit (``private business use''); and
2. More than 10 percent of the payment of principal
or interest on the issue is, directly or indirectly,
secured by (a) property used or to be used for a
private business use or (b) to be derived from payments
in respect of property, or borrowed money, used or to
be used for a private business use (``private payment
test'').\83\
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\83\ The 10 percent private business test is reduced to five
percent in the case of private business uses (and payments with respect
to such uses) that are unrelated to any governmental use being financed
by the issue.
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A bond is not a private activity bond unless both parts of
the private business test (i.e., the private business use test
and the private payment test) are met. Thus, a facility that is
100 percent privately used does not cause the bonds financing
such facility to be private activity bonds if the bonds are not
secured by or paid with private payments. For example, land
improvements that benefit a privately-owned factory may be
financed with governmental bonds if the debt service on such
bonds is not paid by the factory owner or other private
parties.
Private loan financing test
A bond issue satisfies the private loan financing test if
proceeds exceeding the lesser of $5 million or five percent of
such proceeds are used directly or indirectly to finance loans
to one or more nongovernmental persons. Private loans include
both business and other (e.g., personal) uses and payments by
private persons; however, in the case of business uses and
payments, all private loans also constitute private business
uses and payments subject to the private business test.
Arbitrage restrictions
The exclusion from income for interest on State and local
bonds does not apply to any arbitrage bond.\84\ An arbitrage
bond is defined as any bond that is part of an issue if any
proceeds of the issue are reasonably expected to be used (or
intentionally are used) to acquire higher yielding investments
or to replace funds that are used to acquire higher yielding
investments.\85\ In general, arbitrage profits may be earned
only during specified periods (e.g., defined ``temporary
periods'') before funds are needed for the purpose of the
borrowing or on specified types of investments (e.g.,
``reasonably required reserve or replacement funds''). Subject
to limited exceptions, investment profits that are earned
during these periods or on such investments must be rebated to
the Federal Government.
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\84\ Sec. 103(a) and (b)(2).
\85\ Sec. 148.
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Qualified tax credit bonds
In lieu of interest, holders of qualified tax credit bonds
receive a tax credit that accrues quarterly. The following
bonds are qualified tax credit bonds: qualified forestry
conservation bonds, new clean renewable energy bonds, qualified
energy conservation bonds, and qualified zone academy
bonds.\86\
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\86\ See secs. 54B, 54C, 54D, and 54E.
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Section 54A of the Code sets forth general rules applicable
to qualified tax credit bonds. These rules include requirements
regarding credit allowance dates, the expenditure of available
project proceeds, reporting, arbitrage, maturity limitations,
and financial conflicts of interest, among other special rules.
A taxpayer who holds a qualified tax credit bond on one or
more credit allowance dates of the bond during the taxable year
shall be allowed a credit against the taxpayer's income tax for
the taxable year. In general, the credit amount for any credit
allowance date is 25 percent of the annual credit determined
with respect to the bond. The annual credit is determined by
multiplying the applicable credit rate by the outstanding face
amount of the bond. The applicable credit rate for the bond is
the rate that the Secretary estimates will permit the issuance
of the qualified tax credit bond with a specified maturity or
redemption date without discount and without interest cost to
the qualified issuer.\87\ The Secretary determines credit rates
for tax credit bonds based on general assumptions about credit
quality of the class of potential eligible issuers and such
other factors as the Secretary deems appropriate. The Secretary
may determine credit rates based on general credit market yield
indexes and credit ratings.
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\87\ Given the differences in credit quality and other
characteristics of individual issuers, the Secretary cannot set credit
rates in a manner that will allow each issuer to issue tax credit bonds
at par.
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The credit is included in gross income and, under
regulations prescribed by the Secretary, may be stripped (a
separation (including at issuance) of the ownership of a
qualified tax credit bond and the entitlement to the credit
with respect to such bond).
Section 54A of the Code requires that 100 percent of the
available project proceeds of qualified tax credit bonds must
be used within the three-year period that begins on the date of
issuance. Available project proceeds are proceeds from the sale
of the bond issue less issuance costs (not to exceed two
percent) and any investment earnings on such sale proceeds. To
the extent less than 100 percent of the available project
proceeds are used to finance qualified projects during the
three-year spending period, bonds will continue to qualify as
qualified tax credit bonds if unspent proceeds are used within
90 days from the end of such three-year period to redeem bonds.
The three-year spending period may be extended by the Secretary
upon the issuer's request demonstrating that the failure to
satisfy the three-year requirement is due to reasonable cause
and the projects will continue to proceed with due diligence.
Qualified tax credit bonds generally are subject to the
arbitrage requirements of section 148. However, available
project proceeds invested during the three-year spending period
are not subject to the arbitrage restrictions (i.e., yield
restriction and rebate requirements). In addition, amounts
invested in a reserve fund are not subject to the arbitrage
restrictions to the extent: (1) such fund is funded at a rate
not more rapid than equal annual installments; (2) such fund is
funded in a manner reasonably expected to result in an amount
not greater than an amount necessary to repay the issue; and
(3) the yield on such fund is not greater than the average
annual interest rate of tax-exempt obligations having a term of
10 years or more that are issued during the month the qualified
tax credit bonds are issued.
The maturity of qualified tax credit bonds is the term that
the Secretary estimates will result in the present value of the
obligation to repay the principal on such bonds being equal to
50 percent of the face amount of such bonds, using as a
discount rate the average annual interest rate of tax-exempt
obligations having a term of 10 years or more that are issued
during the month the qualified tax credit bonds are issued.
REASONS FOR CHANGE
The Committee notes that borrowing by State and local
governments is critically important to financing the nation's
infrastructure. The Committee has observed that over the past
several years, yield spreads between tax-exempt debt issued by
State and local governments and approximately comparable
taxable debt issued by corporations has narrowed, so that tax-
exempt yields are now generally less than 25 percent below
taxable yields.\88\ The Committee further observes that not all
of the benefit of the tax-exemption of interest on State and
local bonds redounds to the issuing government because the
exclusion of qualifying interest income is more valuable to
bondholders in the highest tax brackets than to those
bondholders in the lower tax brackets. The Committee,
therefore, believes that the provision offers a more revenue
efficient financing tool and lower net interest costs to State
and local issuers.
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\88\ Joint Committee on Taxation, Present Law and Issues Related to
Infrastructure Finance (JCX 83-08, October 24, 2008) at 23-28.
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In addition, the Committee recognizes that many States are
suffering from declines in revenues and tight budgets while the
need for infrastructure is great. Therefore the Committee
believes it is appropriate to offer to issuers, on a temporary
basis, the ability to receive a refundable credit for bonds
used to fund capital expenditures in lieu of providing a tax
credit to bondholders.
EXPLANATION OF PROVISION
In general
The provision permits an issuer to elect to have an
otherwise tax-exempt bond treated as a ``taxable governmental
bond.'' A ``taxable governmental bond'' is any obligation
(other than a private activity bond) if the interest on such
obligation would be (but for this provision) excludable from
gross income under section 103 and the issuer makes an
irrevocable election to have the provision apply. In
determining if an obligation would be tax-exempt under section
103, the credit (or the payment discussed below for qualified
bonds) is not treated as a Federal guarantee. Further, the
yield on a taxable governmental bond is determined without
regard to the credit. A taxable governmental bond does not
include any bond if the issue price has more than a de minimis
amount of premium over the stated principal amount of the bond.
The holder of a taxable governmental bond will accrue a tax
credit in the amount of 35 percent of the interest paid on the
interest payment dates of the bond during the calendar
year.\89\ The interest payment date is any date on which the
holder of record of the taxable governmental bond is entitled
to a payment of interest under such bond. The sum of the
accrued credits is allowed against regular and alternative
minimum tax. Unused credit may be carried forward to succeeding
taxable years. The credit, as well as the interest paid by the
issuer, is included in gross income and the credit may be
stripped under rules similar to those provided in section 54A
regarding qualified tax credit bonds. Rules similar to those
that apply for S corporations, partnerships and regulated
investment companies with respect to qualified tax credit bonds
also apply to the credit.
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\89\ Original issue discount (OID) is not treated as a payment of
interest for purposes of determining the credit under the provision.
OID is the excess of an obligation's stated redemption price at
maturity over the obligation's issue price (sec. 1273(a)).
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Unlike the tax credit for bonds issued under section 54A,
the credit rate would not be calculated by the Secretary, but
rather would be set by law at 35 percent. The actual credit
that a taxpayer may claim is determined by multiplying the
interest payment that the taxpayer receives from the issuer
(i.e., the bond coupon payment) by 35 percent. Because the
credit that the taxpayer claims is also included in income, the
Committee anticipates that State and local issuers will issue
bonds paying interest at rates approximately equal to 74.1
percent of comparable taxable bonds. The Committee anticipates
that if an issuer issues a taxable governmental bond with
coupons at 74.1 percent of a comparable taxable bond's coupon
that the issuer's bond should sell at par. For example, if a
taxable bond of comparable risk pays a $1,000 coupon and sells
at par, then if a State or local issuer issues an equal-sized
bond with coupon of $741.00, such a bond should also sell at
par. The taxpayer who acquires the latter bond will receive an
interest payment of $741 and may claim a credit of $259 (35
percent of $741). The credit and the interest payment are both
included in the taxpayer's income. Thus, the taxpayer's taxable
income from this instrument would be $1,000. This is the same
taxable income that the taxpayer would recognize from holding
the comparable taxable bond. Consequently the issuer's bond
should sell at the. same price as would the taxable bond.
Special rule for qualified bonds issued during 2009 and 2010
A ``qualified bond'' is any taxable governmental bond
issued as part of an issue if 100 percent of the available
project proceeds of such issue are to be used for capital
expenditures.\90\ The bond must be issued after the date of
enactment of the provision and before January 1, 2011. The
issuer must make an irrevocable election to have the special
rule for qualified bonds apply.
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\90\ Under Treas. Reg. sec. 150-1(b), capital expenditure means any
cost of a type that is properly chargeable to capital account (or would
be so chargeable with a proper election or with the application of the
definition of placed in service under Treas. Reg. sec. 1.150-2(c))
under general Federal income tax principles. For purposes of applying
the ``general Federal income tax principles'' standard, an issuer
should generally be treated as if it were a corporation subject to
taxation under subchapter C of chapter 1 of the Code. An example of a
capital expenditure would include expenditures made for the purchase of
fiber-optic cable to provide municipal broadband service.
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Under the special rule for qualified bonds, in lieu of the
tax credit to the holder, the issuer is allowed a credit equal
to 35 percent of each interest payment made under such
bond.\91\ If in 2009 or 2010, the issuer elects to receive the
credit, in the example above, for the State or local issuer's
bond to sell at par, the issuer would have to issue the bond
with a $1,000 interest coupon. The taxpayer who holds such a
bond would include $1,000 on interest in his or her income.
From the taxpayer's perspective the bond is the same as the
taxable bond in the example above and the taxpayer would be
willing to pay par for the bond. However, under the provision
the State or local issuer would receive a payment of $350 for
each $1,000 coupon paid to bondholders. (The net interest cost
to the issuer would be $650.)
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\91\ Original issue discount (OID) is not treated as a payment of
interest for purposes of calculating the refundable credit under the
provision.
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The payment by the Secretary is to be made
contemporaneously with the interest payment made by the issuer,
and may be made either in advance or as reimbursement. In lieu
of payment to the issuer, the payment may be made to a person
making interest payments on behalf of the issuer. For purposes
of the arbitrage rules, the yield on a qualified bond is
reduced by the amount of the credit/payment.
Transitional coordination with State law
As noted above, interest on a taxable governmental bond and
the related credit are includible in gross income to the holder
for Federal tax purposes. The provision provides that until a
State provides otherwise, the interest on any taxable
governmental bond and the amount of any credit determined with
respect to such bond shall be treated as being exempt from
Federal income tax for purposes of State income tax laws.
EFFECTIVE DATE
The provision is effective for obligations issued after the
date of enactment.
6. Recovery Zone Bonds (Sec. 1531 of the Bill and New Secs. 1400U-1,
1400U-2, and 1400U-3 of the Code)
PRESENT LAW
In general
Under present law, gross income does not include interest
on State or local bonds. State and local bonds are classified
generally as either governmental bonds or private activity
bonds. Governmental bonds are bonds the proceeds of which are
primarily used to finance governmental functions or which are
repaid with governmental funds. Private activity bonds are
bonds in which the State or local government serves as a
conduit providing financing to nongovernmental persons (e.g.,
private businesses or individuals). The exclusion from income
for State and local bonds does not apply to private activity
bonds unless the bonds are issued for certain permitted
purposes (``qualified private activity bonds'') and other Code
requirements are met.
Private activity bonds
The Code defines a private activity bond as any bond that
satisfies (1) the private business use test and the private
security or payment test (``the private business test''); or
(2) ``the private loan financing test.'' \92\
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\92\ Sec. 141.
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Private business test
Under the private business test, a bond is a private
activity bond if it is part of an issue in which:
1. More than 10 percent of the proceeds of the issue
(including use of the bond-financed property) are to be
used in the trade or business of any person other than
a governmental unit (``private business use''); and
2. More than 10 percent of the payment of principal
or interest on the issue is, directly or indirectly,
secured by (a) property used or to be used for a
private business use or (b) to be derived from payments
in respect of property, or borrowed money, used or to
be used for a private business use (``private. payment
test'').\93\
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\93\ The 10 percent private business test is reduced to five
percent in the case of private business uses (and payments with respect
to such uses) that are unrelated to any governmental use being financed
by the issue.
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A bond is not a private activity bond unless both parts of
the private business test (i.e., the private business use test
and the private payment test) are met. Thus, a facility that is
100 percent privately used does not cause the bonds financing
such facility to be private activity bonds if the bonds are not
secured by or paid with private payments. For example, land
improvements that benefit a privately-owned factory may be
financed with governmental bonds if the debt service on such
bonds is not paid by the factory owner or other private parties
and such bonds are not secured by the property.
Private loan financing test
A bond issue satisfies the private loan financing test if
proceeds exceeding the lesser of $5 million or five percent of
such proceeds are used directly or indirectly to finance loans
to one or more nongovernmental persons. Private loans include
both business and other (e.g., personal) uses and payments to
private persons; however, in the case of business uses and
payments, all private loans also constitute private business
uses and payments subject to the private business test.
Arbitrage restrictions
The exclusion from income for interest on State and local
bonds does not apply to any arbitrage bond.\94\ An arbitrage
bond is defined as any bond that is part of an issue if any
proceeds of the issue are reasonably expected to be used (or
intentionally are used) to acquire higher yielding investments
or to replace funds that are used to acquire higher yielding
investments.\95\ In general, arbitrage profits may be earned
only during specified periods (e.g., defined ``temporary
periods'') before funds are needed for the purpose of the
borrowing or on specified types of investments (e.g.,
``reasonably required reserve or replacement funds''). Subject
to limited exceptions, investment profits that are earned
during these periods or on such investments must be rebated to
the Federal Government.
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\94\ Sec. 103(a) and (b)(2).
\95\ Sec. 148.
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Qualified private activity bonds
Qualified private activity bonds permit States or local
governments to act as conduits providing tax-exempt financing
for certain private activities. The definition of qualified
private activity bonds includes an exempt facility bond, or
qualified mortgage, veterans' mortgage, small issue,
redevelopment, 501(c)(3), or student loan bond (sec. 141(e)).
The definition of an exempt facility bond includes bonds
issued to finance certain transportation facilities (airports,
ports, mass commuting, and high-speed intercity rail
facilities); qualified residential rental projects; privately
owned and/or operated utility facilities (sewage, water, solid
waste disposal, and local district heating and cooling
facilities, certain private electric and gas facilities, and
hydroelectric dam enhancements); public/private educational
facilities; qualified green building and sustainable design
projects; and qualified highway or surface freight transfer
facilities (sec. 142(a)).
In most cases, the aggregate volume of qualified private
activity bonds is restricted by annual aggregate volume limits
imposed on bonds issued by issuers within each State (``State
volume cap''). For calendar year 2007, the State volume cap,
which is indexed for inflation, equals $85 per resident of the
State, or $256.24 million, if greater. Exceptions to the State
volume cap are provided for bonds for certain governmentally
owned facilities (e.g., airports, ports, high-speed intercity
rail, and solid waste disposal) and bonds which are subject to
separate local, State, or national volume limits (e.g., public/
private educational facility bonds, enterprise zone facility
bonds, qualified green building bonds, and qualified highway or
surface freight transfer facility bonds).
Qualified private activity bonds generally are subject to
restrictions on the use of proceeds for the acquisition of land
and existing property. In addition, qualified private activity
bonds generally are subject to restrictions on the use of
proceeds to finance certain specified facilities (e.g.,
airplanes, skyboxes, other luxury boxes, health club
facilities, gambling facilities, and liquor stores), and use of
proceeds to pay costs of issuance (e.g., bond counsel and
underwriter fees). Small issue and redevelopment bonds also are
subject to additional restrictions on the use of proceeds for
certain facilities (e.g., golf courses and massage parlors).
Moreover, the term of qualified private activity bonds
generally may not exceed 120 percent of the economic life of
the property being financed and certain public approval
requirements (similar to requirements that typically apply
under State law to issuance of governmental debt) apply under
Federal law to issuance of private activity bonds.
Qualified tax credit bonds
In lieu of interest, holders of qualified tax credit bonds
receive a tax credit that accrues quarterly. The following
bonds are qualified tax credit bonds: qualified forestry
conservation bonds, new clean renewable energy bonds, qualified
energy conservation bonds, and qualified zone academy
bonds.\96\
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\96\ See secs. 54B, 54C, 54D, and 54E.
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Section 54A of the Code sets forth general rules applicable
to qualified tax credit bonds. These rules include requirements
regarding the expenditure of available project proceeds,
reporting, arbitrage, maturity limitations, and financial
conflicts of interest, among other special rules.
A taxpayer who holds a qualified tax credit bond on one or
more credit allowance dates of the bond during the taxable year
shall be allowed a credit against the taxpayer's income tax for
the taxable year. In general, the credit amount for any credit
allowance date is 25 percent of the annual credit determined
with respect to the bond. The annual credit is determined by
multiplying the applicable credit rate by the outstanding face
amount of the bond. The applicable credit rate for the bond is
the rate that the Secretary estimates will permit the issuance
of the qualified tax credit bond with a specified maturity or
redemption date without discount and without interest cost to
the qualified issuer.\97\ The Secretary determines credit rates
for tax credit bonds based on general assumptions about credit
quality of the class of potential eligible issuers and such
other factors as the Secretary deems appropriate. The Secretary
may determine credit rates based on general credit market yield
indexes and credit ratings. The credit is included in gross
income and, under regulations prescribed by the Secretary, may
be stripped.
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\97\ Given the differences in credit quality and other
characteristics of individual issuers, the Secretary cannot set credit
rates in a manner that will allow each issuer to issue tax credit bonds
at par.
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Section 54A of the Code requires that 100 percent of the
available project proceeds of qualified tax credit bonds must
be used within the three-year period that begins on the date of
issuance. Available project proceeds are proceeds from the sale
of the bond issue less issuance costs (not to exceed two
percent) and any investment earnings on such sale proceeds. To
the extent less than 100 percent of the available project
proceeds are used to finance qualified projects during the
three-year spending period, bonds will continue to qualify as
qualified tax credit bonds if unspent proceeds are used within
90 days from the end of such three-year period to redeem bonds.
The three-year spending period may be extended by the Secretary
upon the issuer's request demonstrating that the failure to
satisfy the three-year requirement is due to reasonable cause
and the projects will continue to proceed with due diligence.
Qualified tax credit bonds generally are subject to the
arbitrage requirements of section 148. However, available
project proceeds invested during the three-year spending period
are not subject to the arbitrage restrictions (i.e., yield
restriction and rebate requirements). In addition, amounts
invested in a reserve fund are not subject to the arbitrage
restrictions to the extent: (1) such fund is funded at a rate
not more rapid than equal annual installments; (2) such fund is
funded in a manner reasonably expected to result in an amount
not greater than an amount necessary to repay the issue; and
(3) the yield on such fund is not greater than the average
annual interest rate of tax-exempt obligations having a term of
10 years or more that are issued during the month the qualified
tax credit bonds are issued.
The maturity of qualified tax credit bonds is the term that
the Secretary estimates will result in the present value of the
obligation to repay the principal on such bonds being equal to
50 percent of the face amount of such bonds, using as a
discount rate the average annual interest rate of tax-exempt
obligations having a term of 10 years or more that are issued
during the month the qualified tax credit bonds are issued.
REASONS FOR CHANGE
Many communities have seen a significant decline in the
number of individuals employed and are struggling with high
concentrations of poverty and foreclosed homes. The Committee
believes that additional incentives are needed to assist those
communities most affected by the current economic crisis. The
Committee also believes that State and local governments often
are in the best position to assess economic development needs.
Thus, the Committee believes it is appropriate to provide State
and local governments with access to subsidized financing in
order to promote economic development in communities affected
by job losses and to provide needed infrastructure.
EXPLANATION OF PROVISION
In general
The provision permits an issuer to designate one or more
areas as recovery zones. The area must have significant
poverty, unemployment, general distress, or home foreclosures,
or be any area for which a designation as an empowerment zone
or renewal community is in effect. Issuers may issue recovery
zone economic development bonds and recovery zone facility
bonds with respect to these zones.
There is a national recovery zone economic development bond
limitation of $10 billion. In addition, there is a separate
national recovery zone facility bond limitation of $15 billion.
The Secretary is to separately allocate the bond limitations
among the States in the proportion that each State's employment
decline bears to the national decline in employment (the
aggregate 2008 State employment declines for all States). In
turn each State is to reallocate its allocation among the
counties (parishes) and large municipalities in such State in
the proportion that each such county or municipality's 2008
employment decline bears to the aggregate employment declines
for all counties and municipalities in such State. In
calculating the local employment decline with respect to a
county, the portion of such decline attributable to a large
municipality is disregarded for purposes of determining the
county's portion of the State employment decline and is
attributable to the large municipality only.
For purposes of the provision ``2008 State employment
decline'' means, with respect to any State, the excess (if any)
of (i) the number of individuals employed in such State as
determined for December 2007, over (ii) the number of
individuals employed in such State as determined for December
2008. The term ``large municipality'' means a municipality with
a population of more than 100,000.
Recovery Zone Economic Development Bonds
New section 54AA(h) of the provision creates a special rule
for qualified bonds (a type of taxable governmental bond)
issued before January 1, 2011, that entitles the issuer of such
bonds to receive an advance tax credit equal to 35 percent of
the interest payable on an interest payment date.\98\ For
taxable governmental bonds that are designated recovery zone
economic development bonds, the applicable percentage is 55
percent.
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\98\ See ``Taxable Bond Option for Governmental Bonds'' discussed
above.
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A recovery zone economic development bond is a taxable
governmental bond issued as part of an issue if 100 percent of
the available project proceeds of such issue are to be used for
one or more qualified economic development purposes and the
issuer designates such bond for purposes of this section. A
qualified economic development purpose means expenditures for
purposes of promoting development or other economic activity in
a recovery zone, including (1) capital expenditures paid or
incurred with respect to property located in such zone, (2)
expenditures for public infrastructure and construction of
public facilities located in a recovery zone.
The aggregate face amount of bonds which may be designated
by any issuer cannot exceed the amount of the recovery zone
economic development bond limitation allocated to such issuer.
Recovery Zone Facility Bonds
The provision creates a new category of exempt facility
bonds, ``recovery zone facility bonds.'' A recovery zone
facility bond means any bond issued as part of an issue if: (1)
95 percent or more of the net proceeds of such issue are to be
used for recovery zone property and (2) such bond is issued
before January 1, 2011, and (3) the issuer designates such bond
as a recovery zone facility bond. The aggregate face amount of
bonds which may be designated by any issuer cannot exceed the
amount of the recovery zone facility bond limitation allocated
to such issuer.
Under the provision, the term ``recovery zone property''
means any property subject to depreciation to which section 168
applies (or would apply but for section 179) if (1) such
property was acquired by the taxpayer by purchase after the
date on which the designation of the recovery zone took effect;
(2) the original use of such property in the recovery zone
commences with the taxpayer; and (3) substantially all of the
use of such property is in the recovery zone and is in the
active conduct of a qualified business by the taxpayer in such
zone. The term ``qualified business'' means any trade or
business except that the rental to others of real property
located in a recovery zone shall be treated as a qualified
business only if the property is not residential rental
property (as defined in section 168(e)(2)) and does not include
any trade or business consisting of the operation of any
facility described in section 144(c)(6)(B) (i.e., any private
or commercial golf course, country club, massage parlor, hot
tub facility, suntan facility, racetrack or other facility used
for gambling, or any store the principal purpose of which is
the sale of alcoholic beverages for consumption off premises).
Subject to the following exceptions and modifications,
issuance of recovery zone facility bonds is subject to the
general rules applicable to issuance of qualified private
activity bonds:
1. Issuance of the bonds is not subject to the
aggregate annual State private activity bond volume
limits (sec. 146);
2. The restriction on acquisition of existing
property does not apply (sec. 147(d));
EFFECTIVE DATE
The provision is effective for obligations issued after the
date of enactment.
7. Tribal Economic Development Bonds (Sec. 1532 of the Bill and New
Sec. 7871(1) of the Code)
PRESENT LAW
Under present law, gross income does not include interest
on State or local bonds.\99\ State and local bonds are
classified generally as either governmental bonds or private
activity bonds. Governmental bonds are bonds the proceeds of
which are primarily used to finance governmental facilities or
the debt is repaid with governmental funds. Private activity
bonds are bonds in which the State or local government serves
as a conduit providing financing to nongovernmental persons.
For these purposes, the term ``nongovernmental person''
includes the Federal government and all other individuals and
entities other than States or local governments.\100\ Interest
on private activity bonds is taxable, unless the bonds are
issued for certain purposes permitted by the Code and other
requirements are met.\101\
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\99\ Sec. 103.
\100\ Sec. 141(b)(6); Treas. Reg. sec. 1.141-1(b).
\101\ Secs. 103(b)(1) and 141.
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Although not States or subdivisions of States, Indian
tribal governments are provided with a tax status similar to
State and local governments for specified purposes under the
Code.\102\ Among the purposes for which a tribal government is
treated as a State is the issuance of tax-exempt bonds. Under
section 7871(c), tribal governments are authorized to issue
tax-exempt bonds only if substantially all of the proceeds are
used for essential governmental functions.\103\ The term
essential governmental function does not include any function
that is not customarily performed by State and local
governments with general taxing powers. Section 7871(c) further
prohibits Indian tribal governments from issuing tax-exempt
private activity bonds (as defined in section 141(a) of the
Code) with the exception of certain bonds for manufacturing
facilities.
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\102\ Sec. 7871.
\103\ Sec. 7871(c).
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REASONS FOR CHANGE
State and local governments use tax-exempt financing for
both public purposes and qualified private activities. Indian
tribes, however, are restricted to issuing tax-exempt bonds for
essential governmental functions. In general, Indian tribes
cannot issue tax-exempt private activity bonds, except for
certain manufacturing facilities. The Committee believes that
in the current economic crisis, tribes should be afforded
flexibility in using tax-exempt financing for economic
development. Therefore, the provision permits Indian tribes to
issue tax-exempt bonds for purposes not currently permitted by
present law, if the bonds would have been tax-exempt if issued
by a State.
EXPLANATION OF PROVISION
Tribal Economic Development Bonds
The provision allows Indian tribal governments to issue
``tribal economic development bonds.'' There is a national bond
limitation of $2 billion, to be allocated as the Secretary
determines appropriate, in consultation with the Secretary of
the Interior. Tribal economic development bonds issued by an
Indian tribal government are treated as if such bond were
issued by a State except that section 146 (relating to State
volume limitations) does not apply.
A tribal economic development bond is any bond issued by an
Indian tribal government (1) the interest on which would be
tax-exempt if issued by a State or local government but would
be taxable under section 7871(c), and (2) that is designated by
the Indian tribal government as a tribal economic development
bond. The aggregate face amount of bonds that may be designated
by any Indian tribal government cannot exceed the amount of
national tribal economic development bond limitation allocated
to such government.
Tribal economic development bonds cannot be used to finance
any portion of a building in which class II or class III gaming
(as defined in section 4 of the Indian Gaming Regulatory Act)
is conducted, or housed, or any other property used in the
conduct of such gaming. Nor can tribal economic development
bonds be used to finance any facility located outside of the
Indian reservation.
Treasury study
The provision requires that the Treasury Department study
the effects of tribal economic development bonds. One year
after the date of enactment, a report is to be submitted to
Congress providing the results of such study along with any
recommendations, including whether the restrictions of section
7871(c) should be eliminated or otherwise modified.
EFFECTIVE DATE
The provision applies to obligations issued after the date
of enactment.
8. Repeal of Withholding on Government Contractors (Sec. 1541 of the
Bill and Sec. 3402(t) of the Code)
PRESENT LAW
For payments made after December 31, 2010, the Code
requires withholding of income tax at a three-percent rate on
certain payments to persons providing property or services made
by the Government of the United States, every State, every
political subdivision thereof, and every instrumentality of the
foregoing (including multi-State agencies). The withholding
requirement applies regardless of whether the government entity
making such payment is the recipient of the property or
services. Political subdivisions of States (or any
instrumentality thereof) with less than $100 million of annual
expenditures for property or services that would otherwise be
subject to withholding under this provision are exempt from the
withholding requirement.
Payments subject to the three-percent withholding
requirement include any payment made in connection with a
government voucher or certificate program which functions as a
payment for property or services. For example, payments to a
commodity producer under a government commodity support program
are subject to the withholding requirement. The provision
imposes information reporting requirements on the payments that
are subject to withholding under the provision.
The three-percent withholding requirement does not apply to
any payments made through a Federal, State, or local government
public assistance or public welfare program for which
eligibility is determined by a needs or income test. The three-
percent withholding requirement also does not apply to payments
of wages or to any other payment with respect to which
mandatory (e.g., U.S.-source income of foreign taxpayers) or
voluntary (e.g., unemployment benefits) withholding applies
under present law. Although the provision applies to payments
that are potentially subject to backup withholding under
section 3406, it does not apply to those payments from which
amounts are actually being withheld under backup withholding
rules.
The three-percent withholding requirement also does not
apply to the following: payments of interest; payments for real
property; payments to tax-exempt entities or foreign
governments; intra-governmental payments; payments made
pursuant to a classified or confidential contract (as defined
in section 6050M(e)(3)); and payments to government employees
that are not otherwise excludable. from the new withholding
provision with respect to the employees' services as employees.
REASONS FOR CHANGE
The Committee believes that the three-percent withholding
requirement was not appropriately targeted to the noncompliant
taxpayers for whom it was originally intended and has imposed
significant and costly administrative burdens on State and
local governments.
EXPLANATION OF PROVISION
The provision repeals the three-percent withholding
requirement on government payments.
EFFECTIVE DATE
The provision is effective on the date of enactment.
G. Energy Incentives
1. Extension of the Renewable Electricity Production Credit (Sec. 1601
of the Bill and Sec. 45 of the Code)
PRESENT LAW
In general
An income tax credit is allowed for the production of
electricity from qualified energy resources at qualified
facilities (the ``renewable electricity production
credit'').\104\ Qualified energy resources comprise wind,
closed-loop biomass, open-loop biomass, geothermal energy,
solar energy, small irrigation power, municipal solid waste,
qualified hydropower production, and marine and hydrokinetic
renewable energy. Qualified facilities are, generally,
facilities that generate electricity using qualified energy
resources. To be eligible for the credit, electricity produced
from qualified energy resources at qualified facilities must be
sold by the taxpayer to an unrelated person.
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\104\ Sec. 45. In addition to the renewable electricity production
credit, section 45 also provides income tax credits for the production
of Indian coal and refined coal at qualified facilities.
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Credit amounts and credit period
In general
The base amount of the electricity production credit is 1.5
cents per kilowatt-hour (indexed annually for inflation) of
electricity produced. The amount of the credit was 2.1 cents
per kilowatt-hour for 2008. A taxpayer may generally claim a
credit during the 10-year period commencing with the date the
qualified facility is placed in service. The credit is reduced
for grants, tax-exempt bonds, subsidized energy financing, and
other credits.
Credit phaseout
The amount of credit a taxpayer may claim is phased out as
the market price of electricity exceeds certain threshold
levels. The electricity production credit is reduced over a 3-
cent phaseout range to the extent the annual average contract
price per kilowatt-hour of electricity sold in the prior year
from the same qualified energy resource exceeds 8 cents
(adjusted for inflation; 11.8 cents for 2008).
Reduced credit periods and credit amounts
Generally, in the case of open-loop biomass facilities
(including agricultural livestock waste nutrient facilities),
geothermal energy facilities, solar energy facilities, small
irrigation power facilities, landfill gas facilities, and trash
combustion facilities placed in service before August 8, 2005,
the 10-year credit period is reduced to five years, commencing
on the date the facility was originally placed in service.
However, for qualified open-loop biomass facilities (other than
a facility described in section 45(d)(3)(A)(i) that uses
agricultural livestock waste nutrients) placed in service
before October 22, 2004, the five-year period commences on
January 1, 2005. In the case of a closed-loop biomass facility
modified to co-fire with coal, to co-fire with other biomass,
or to co-fire with coal and other biomass, the credit period
begins no earlier than October 22, 2004.
In the case of open-loop biomass facilities (including
agricultural livestock waste nutrient facilities), small
irrigation power facilities, landfill gas facilities, trash
combustion facilities, and qualified hydropower facilities the
otherwise allowable credit amount is 0.75 cent per kilowatt-
hour, indexed for inflation measured after 1992 (1 cent per
kilowatt-hour for 2008).
Other limitations on credit claimants and credit amounts
In general, in order to claim the credit, a taxpayer must
own the qualified facility and sell the electricity produced by
the facility to an unrelated party. A lessee or operator may
claim the credit in lieu of the owner of the qualifying
facility in the case of qualifying open-loop biomass facilities
and in the case of closed-loop biomass facilities modified to
co-fire with coal, to co-fire with other biomass, or to co-fire
with coal and other biomass. In the case of a poultry waste
facility, the taxpayer may claim the credit as a lessee or
operator of a facility owned by a governmental unit.
For all qualifying facilities, other than closed-loop
biomass facilities modified to co-fire with coal, to co-fire
with other biomass, or to co-fire with coal and other biomass,
the amount of credit a taxpayer may claim is reduced by reason
of grants, tax-exempt bonds, subsidized energy financing, and
other credits, but the reduction cannot exceed 50 percent of
the otherwise allowable credit. In the case of closed-loop
biomass facilities modified to co-fire with coal, to co-fire
with other biomass, or to co-fire with coal and other biomass,
there is no reduction in credit by reason of grants, tax-exempt
bonds, subsidized energy financing, and other credits.
The credit for electricity produced from renewable
resources is a component of the general business credit.\105\
Generally, the general business credit for any taxable year may
not exceed the amount by which the taxpayer's net income tax
exceeds the greater of the tentative minimum tax or 25 percent
of so much of the net regular tax liability as exceeds $25,000.
However, this limitation does not apply to section 45 credits
for electricity or refined coal produced from a facility
(placed in service after October 22, 2004) during the first
four years of production beginning on the date the facility is
placed in service.\106\ Excess credits may be carried back one
year and forward up to 20 years.
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\105\ Sec. 38(b)(8).
\106\ Sec. 38(c)(4)(B)(ii).
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Qualified facilities
Wind energy facility
A wind energy facility is a facility that uses wind to
produce electricity. To be a qualified facility, a wind energy
facility must be placed in service after December 31, 1993, and
before January 1, 2010.
Closed-loop biomass facility
A closed-loop biomass facility is a facility that uses any
organic material from a plant which is planted exclusively for
the purpose of being used at a qualifying facility to produce
electricity. In addition, a facility can be a closed-loop
biomass facility if it is a facility that is modified to use
closed-loop biomass to co-fire with coal, with other biomass,
or with both coal and other biomass, but only if the
modification is approved under the Biomass Power for Rural
Development Programs or is part of a pilot project of the
Commodity Credit Corporation.
To be a qualified facility, a closed-loop biomass facility
must be placed in service after December 31, 1992, and before
January 1, 2011. In the case of a facility using closed-loop
biomass but also co-firing the closed-loop biomass with coal,
other biomass, or coal and other biomass, a qualified facility
must be originally placed in service and modified to co-fire
the closed-loop biomass at any time before January 1, 2011.
A qualified facility includes a new power generation unit
placed in service after October 3, 2008, at an existing closed-
loop biomass facility, but only to the extent of the increased
amount of electricity produced at the existing facility by
reason of such new unit.
Open-loop biomass (including agricultural livestock waste
nutrients) facility
An open-loop biomass facility is a facility that uses open-
loop biomass to produce electricity. For purposes of the
credit, open-loop biomass is defined as (1) any agricultural
livestock waste nutrients or (2) any solid, nonhazardous,
cellulosic waste material or any lignin material that is
segregated from other waste materials and which is derived
from:
forest-related resources, including mill and
harvesting residues, precommercial thinnings, slash,
and brush;
solid wood waste materials, including waste
pallets, crates, dunnage, manufacturing and
construction wood wastes, and landscape or right-of-way
tree trimmings; or
agricultural sources, including orchard tree
crops, vineyard, grain, legumes, sugar, and other crop
by-products or residues.
Agricultural livestock waste nutrients are defined as
agricultural livestock manure and litter, including bedding
material for the disposition of manure. Wood waste materials do
not qualify as open-loop biomass to the extent they are
pressure treated, chemically treated, or painted. In addition,
municipal solid waste, gas derived from the biodegradation of
solid waste, and paper which is commonly recycled do not
qualify as open-loop biomass. Open-loop biomass does not
include closed-loop biomass or any biomass burned in
conjunction with fossil fuel (co-firing) beyond such fossil
fuel required for start up and flame stabilization.
In the case of an open-loop biomass facility that uses
agricultural livestock waste nutrients, a qualified facility is
one that was originally placed in service after October 22,
2004, and before January 1, 2009, and has a nameplate capacity
rating which is not less than 150 kilowatts. In the case of any
other open-loop biomass facility, a qualified facility is one
that was originally placed in service before January 1, 2011. A
qualified facility includes a new power generation unit placed
in service after October 3, 2008, at an existing open-loop
biomass facility, but only to the extent of the increased
amount of electricity produced at the existing facility by
reason of such new unit.
Geothermal facility
A geothermal facility is a facility that uses geothermal
energy to produce electricity. Geothermal energy is energy
derived from a geothermal deposit that is a geothermal
reservoir consisting of natural heat that is stored in rocks or
in an aqueous liquid or vapor (whether or not under pressure).
To be a qualified facility, a geothermal facility must be
placed in service after October 22, 2004, and before January 1,
2011.
Solar facility
A solar facility is a facility that uses solar energy to
produce electricity. To be a qualified facility, a solar
facility must be placed in service after October 22, 2004, and
before January 1, 2006.
Small irrigation facility
A small irrigation power facility is a facility that
generates electric power through an irrigation system canal or
ditch without any dam or impoundment of water. The installed
capacity of a qualified facility must be at least 150 kilowatts
but less than five megawatts. To be a qualified facility, a
small irrigation facility must be originally placed in service
after October 22, 2004, and before October 3, 2008. Marine and
hydrokinetic renewable energy facilities, described below,
subsume small irrigation power facilities after October 2,
2008.
Landfill gas facility
A landfill gas facility is a facility that uses landfill
gas to produce electricity. Landfill gas is defined as methane
gas derived from the biodegradation of municipal solid waste.
To be a qualified facility, a landfill gas facility must be
placed in service after October 22, 2004, and before January 1,
2011.
Trash combustion facility
Trash combustion facilities are facilities that burn
municipal solid waste (garbage) to produce steam to drive a
turbine for the production of electricity. To be a qualified
facility, a trash combustion facility must be placed in service
after October 22, 2004, and before January 1, 2011. A qualified
trash combustion facility includes a new unit, placed in
service after October 22, 2004, that increases electricity
production capacity at an existing trash combustion facility. A
new unit generally would include a new burner/boiler and
turbine. The new unit may share certain common equipment, such
as trash handling equipment, with other pre-existing units at
the same facility. Electricity produced at a new unit of an
existing facility qualifies for the production credit only to
the extent of the increased amount of electricity produced at
the entire facility.
Hydropower facility
A qualifying hydropower facility is (1) a facility that
produced hydroelectric power (a hydroelectric dam) prior to
August 8, 2005, at which efficiency improvements or additions
to capacity have been made after such date and before January
1, 2011, that enable the taxpayer to produce incremental
hydropower or (2) a facility placed in service before August 8,
2005, that did not produce hydroelectric power (a
nonhydroelectric dam) on such date, and to which turbines or
other electricity generating equipment have been added after
such date and before January 1, 2011.
At an existing hydroelectric facility, the taxpayer may
claim credit only for the production of incremental
hydroelectric power: Incremental hydroelectric power for any
taxable year is equal to the percentage of average annual
hydroelectric power produced at the facility attributable to
the efficiency improvement or additions of capacity determined
by using the same water flow information used to determine an
historic average annual hydroelectric power production baseline
for that facility. The Federal Energy Regulatory Commission
will certify the baseline power production of the facility and
the percentage increase due to the efficiency and capacity
improvements.
Nonhydroelectric dams converted to produce electricity must
be licensed by the Federal Energy. Regulatory Commission and
meet all other applicable environmental, licensing, and
regulatory requirements.
For a nonhydroelectric dam converted to produce electric
power before January 1, 2009, there must not be, any
enlargement of the diversion structure, construction or
enlargement of a bypass channel, or the impoundment or any
withholding of additional water from the natural stream
channel.
For a nonhydroelectric dam converted to produce electric
power after December 31, 2008, the nonhydroelectric dam must
have, been (1) placed in service before October 3, 2008, (2)
operated for flood control, navigation, or water supply
purposes and (3) did not produce hydroelectric power on October
3, 2008. In addition, the hydroelectric project must be
operated so that the water surface elevation at any given
location and time that would have occurred in the absence of
the hydroelectric project is maintained, subject to any license
requirements imposed under applicable law that change the water
surface elevation for the purpose of improving environmental
quality of the affected waterway. The Secretary, in
consultation with the Federal Energy Regulatory Commission,
shall certify if a hydroelectric project licensed at a
nonhydroelectric dam meets this criteria.
Marine and hydrokinetic renewable energy facility,
A qualified marine and hydrokinetic renewable energy
facility is any facility that produces electric power from
marine and hydrokinetic renewable energy, has a nameplate
capacity rating of at least 150 kilowatts, and is placed in
service after October 2, 2008, and before January 1, 2012.
Marine and hydrokinetic renewable energy is defined as energy
derived from (1) waves, tides, and currents in oceans,
estuaries, and tidal areas; (2) free flowing water in rivers,
lakes, and streams; (3) free flowing water in an irrigation
system, canal, or other man-made channel, including projects
that utilize nonmechanical structures to accelerate the flow of
water for electric power production purposes; or (4)
differentials in ocean temperature (ocean thermal energy
conversion). The term does not include energy derived from any
source that uses a dam, diversionary structure (except for
irrigation systems, canals, and other man-made channels), or
impoundment for electric power production.
Summary of credit rate and credit period by facility type
TABLE 1.--SUMMARY OF SECTION 45 CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES
----------------------------------------------------------------------------------------------------------------
Credit period for
facilities placed in Credit period for
Eligible electricity production Credit amount for 2008 service on or before facilities placed in
activity (cents per kilowatt- August 8, 2005 (years service after August 8,
hour) from placed-in-service 2005 (years from placed-
date) in-service date)
----------------------------------------------------------------------------------------------------------------
Wind................................ 2.1 10 10
Closed-loop biomass................. 2.1 \1\10 10
Open-loop biomass (including 1.0 \2\5 10
agricultural livestock waste
nutrient facilities)................
Geothermal.......................... 2.1 5 10
Solar (pre-2006 facilities only).... 2.1 5 10
Small irrigation power.............. 1.0 5 10
Municipal solid waste (including 1.0 5 10
landfill gas facilities and trash
combustion facilities)..............
Qualified hydropower................ 1.0 N/A 10
Marine and hydrokinetic............. 1.0 N/A 10
----------------------------------------------------------------------------------------------------------------
\1\ In the case of certain co-firing closed-loop facilities, the credit period begins no earlier than October
22, 2004.
\2\ For certain facilities placed in service before October 22, 2004, the five-year credit period commences on
January 1, 2005.
Taxation of cooperatives and their patrons
For Federal income tax purposes, a cooperative generally
computes income as if it were a taxable corporation, with one
exception: the cooperative may exclude from its taxable income
distributions of patronage dividends. Generally, a cooperative
that is subject to the cooperative tax rules of subchapter T of
the Code \107\ is permitted a deduction for patronage dividends
paid only to the extent of net income that is derived from
transactions with patrons who are members of the
cooperative.\108\ The availability of such deductions from
taxable income has the effect of allowing the cooperative to be
treated like a conduit with respect to profits derived from
transactions with patrons who are members of the cooperative.
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\107\ Secs. 1381-1383.
\108\ Sec. 1382.
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Eligible cooperatives may elect to pass any portion of the
credit through to their patrons. An eligible cooperative is
defined as a cooperative organization that is owned more than
50 percent by agricultural producers or entities owned by
agricultural producers. The credit may be apportioned among
patrons eligible to share in patronage dividends on the basis
of the quantity or value of business done with or for such
patrons for the taxable year. The election must be made on a
timely filed return for the taxable year and, once made, is
irrevocable for such taxable year.
REASONS FOR CHANGE
The Committee believes that additional incentives for the
production of electricity from renewable resources will help
limit the environmental consequences of continued reliance on
power generated using fossil fuels. The Committee also believes
that a multi-year extension of the present-law electricity
production credit will encourage the development of renewable
energy projects that will create new jobs for workers.
EXPLANATION OF PROVISION
The provision extends for three years (generally, through
2013; through 2012 for wind facilities) the period during which
qualified facilities producing electricity from wind, closed-
loop biomass, open-loop biomass, geothermal energy, municipal
solid waste, and qualified hydropower may be placed in service
for purposes of the electricity production credit. The
provision extends for two years (through 2013) the placed-in-
service period for marine and hydrokinetic renewable energy
resources.
The provision also makes a technical amendment to the
definition of small irrigation power facility to clarify its
integration into the definition of marine and hydrokinetic
renewable energy facility.
EFFECTIVE DATE
The extension of the electricity production credit is
effective for property placed in service after the date of
enactment. The technical amendment is effective as if included
in section 102 of the Energy Improvement and Extension Act of
2008.
2. Election of Investment Credit in Lieu of Production Tax Credits
(Sec. 1602 of the Bill and Secs. 45 and 48 of the Code)
PRESENT LAW RENEWABLE ELECTRICITY CREDIT
An income tax credit is allowed for the production of
electricity from qualified energy resources at qualified
facilities.\109\ Qualified energy resources comprise wind,
closed-loop biomass, open-loop biomass, geothermal energy,
solar energy, small irrigation power, municipal solid waste,
qualified hydropower production, and marine and hydrokinetic
renewable energy. Qualified facilities are, generally,
facilities that generate electricity using qualified energy
resources. To be eligible for the credit, electricity produced
from qualified energy resources at qualified facilities must be
sold by the taxpayer to an unrelated person. The credit
amounts, credit periods, definitions of qualified facilities,
and other rules governing this credit are described more fully
in section IIG.1. of this document.
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\109\ Sec. 45. In addition to the electricity production credit,
section 45 also provides income tax credits for the production of
Indian coal and refined coal at qualified facilities.
---------------------------------------------------------------------------
Energy Credit
An income tax credit is also allowed for certain energy
property placed in service. Qualifying property includes
certain fuel cell property, solar property, geothermal power
production property, small wind energy property, combined heat
and power system property, and geothermal heat pump
property.\110\ The amounts of credit, definitions of qualifying
property, and other rules governing this credit are described
more fully in section II.G.3. of this document.
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\110\ Sec. 48.
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REASONS FOR CHANGE
The Committee believes that current economic circumstances
are constraining investments in facilities that ordinarily
would utilize the production tax credit, and wishes to give
maximum flexibility to taxpayers to choose the tax incentive
that will deliver the greatest benefit to them.
EXPLANATION OF PROVISION
The provision allows the taxpayer to make an irrevocable
election to have certain qualified facilities placed in service
in 2009 and 2010 be treated as energy property eligible for a
30 percent investment credit under section 48. For this
purpose, qualified facilities are facilities otherwise eligible
for the section 45 production tax credit (other than refined
coal, Indian coal, and solar facilities) with respect to which
no credit under section 45 has been allowed. The eligible basis
for the investment credit for taxpayers making this election is
the basis of the depreciable (or amortizable) property that
would comprise a section 45 credit-eligible facility. A
taxpayer electing to treat a facility as energy property may
not claim the production credit under section 45.
EFFECTIVE DATE
The provision applies to facilities placed in service after
December 31, 2008.
3. Modification of Energy Credit \111\ (Sec. 1603 of the Bill and Sec.
48 of the Code)
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\ 111\ Additional provisions that (1) allow section 45 facilities
to elect to be treated as section 48 energy property, and (2) allow
section 48 facilities to elect to receive a grant from the Department
of Energy rather than the section 48 energy credit, are described in
sections II.G.2. and II.H.2. of this document.
---------------------------------------------------------------------------
PRESENT LAW
In general
A nonrefundable, 10-percent business energy credit \112\ is
allowed for the cost of new property that is equipment that
either (1) uses solar energy to generate electricity, to heat
or cool a structure, or to provide solar process heat, or (2)
is used to produce, distribute, or use energy derived from a
geothermal deposit, but only, in the case of electricity
generated by geothermal power, up to the electric transmission
stage. Property used to generate energy for the purposes of
heating a swimming pool is not eligible solar energy property.
---------------------------------------------------------------------------
\ 112\ Sec. 48.
---------------------------------------------------------------------------
The energy credit is a component of the general business
credit.\113\ An unused general business credit generally may be
carried back one year and carried forward 20 years.\114\ The
taxpayer's basis in the property is reduced by one-half of the
amount of the credit claimed. For projects whose construction
time is expected to equal or exceed two years, the credit may
be claimed as progress expenditures are made on the project,
rather than during the year the property is placed in service.
The credit is allowed against the alternative minimum tax for
credits determined in taxable years beginning after October 3,
2008.
---------------------------------------------------------------------------
\ 113\ Sec. 38(1).
\ 114\ Sec. 39.
---------------------------------------------------------------------------
Property financed by subsidized energy financing or with
proceeds from private activity bonds is subject to a reduction
in basis for purposes of claiming the credit. The basis
reduction is proportional to the share of the basis of the
property that is financed by the subsidized financing or
proceeds. The term ``subsidized energy financing'' means
financing provided under a Federal, State, or local program a
principal purpose of which is to provide subsidized financing
for projects designed to conserve or produce energy.
Special rules for solar energy property
The credit for solar energy property is increased to 30
percent in the case of periods prior to January 1, 2017.
Additionally, equipment that uses fiber-optic distributed
sunlight to illuminate the inside of a structure is solar
energy property eligible for the 30-percent credit.
Fuel cells and microturbines
The energy credit applies to qualified fuel cell power
plants, but only for periods prior to January 1, 2017. The
credit rate is 30 percent.
A qualified fuel cell power plant is an integrated system
composed of a fuel cell stack assembly and associated balance
of plant components that (1) converts a fuel into electricity
using electrochemical means, and (2) has an electricity-only
generation efficiency of greater than 30 percent and a capacity
of at least one-half kilowatt. The credit may not exceed $1,500
for each 0.5 kilowatt of capacity.
The energy credit applies to qualifying stationary
microturbine power plants for periods prior to January 1, 2017.
The credit is limited to the lesser of 10 percent of the basis
of the property or $200 for each kilowatt of capacity.
A qualified stationary microturbine power plant is an
integrated system comprised of a gas turbine engine, a
combustor, a recuperator or regenerator, a generator or
alternator, and associated balance of plant components that
converts a fuel into electricity and thermal energy. Such
system also includes all secondary components located between
the existing infrastructure for fuel delivery and the existing
infrastructure for power distribution, including equipment and
controls for meeting relevant power standards, such as voltage,
frequency and power factors. Such system must have an
electricity-only generation efficiency of not less than 26
percent at International Standard Organization conditions and a
capacity of less than 2,000 kilowatts.
Geothermal heat pump property
The energy credit applies to qualified geothermal heat pump
property placed in service prior to January 1, 2017. The credit
rate is 10 percent. Qualified geothermal heat pump property is
equipment that uses the ground or ground water as a thermal
energy source to heat a structure or as a thermal energy sink
to cool a structure.
Small wind property
The energy credit applies to qualified small wind energy
property placed in service prior to January 1, 2017. The credit
rate is 30 percent. The credit is limited to $4,000 per year
with respect to all wind energy property of any taxpayer.
Qualified small wind energy property is property that uses a
qualified wind turbine to generate electricity. A qualifying
wind turbine means a wind turbine of 100 kilowatts of rated
capacity or less.
Combined heat and power property
The energy credit applies to combined heat and power
(``CHP'') property placed in service prior to January 1, 2017.
The credit rate is 10 percent.
CHP property is property: (1) that uses the same energy
source for the simultaneous or sequential generation of
electrical power, mechanical shaft power, or both, in
combination with the generation of steam or other forms of
useful thermal energy (including heating and cooling
applications); (2) that has an electrical capacity of not more
than 50 megawatts or a mechanical energy capacity of no more
than 67,000 horsepower or an equivalent combination of
electrical and mechanical energy capacities; (3) that produces
at least 20 percent of its total useful energy in the form of
thermal energy that is not used to produce electrical or
mechanical power, and produces at least 20 percent of its total
useful energy in the form of electrical or mechanical power (or
a combination thereof); and (4) the energy efficiency
percentage of which exceeds 60 percent. CHIP property does not
include property used to transport the energy source to the
generating facility or to distribute energy produced by the
facility.
The otherwise allowable credit with respect to CHP property
is reduced to the extent the property has an electrical
capacity or mechanical capacity in excess of any applicable
limits. Property in excess of the applicable limit (15
megawatts or a mechanical energy capacity of more than 20,000
horsepower or an equivalent combination of electrical and
mechanical energy capacities) is permitted to claim a fraction
of the otherwise allowable credit. The fraction is equal to the
applicable limit divided by the capacity of the property. For
example, a 45 megawatt property would be eligible to claim \15/
45\ths, or one third, of the otherwise allowable credit. Again,
no credit is allowed if the property exceeds the 50 megawatt or
67,000 horsepower limitations described above.
Additionally, the provision provides that systems whose
fuel source is at least 90 percent open-loop biomass and that
would qualify for the credit but for the failure to meet the
efficiency standard are eligible for a credit that is reduced
in proportion to the degree to which the system fails to meet
the efficiency standard. For example, a system that would
otherwise be required to meet the 60-percent efficiency
standard, but which only achieves 30-percent efficiency, would
be permitted a credit equal to one-half of the otherwise
allowable credit (i.e., a 5-percent credit).
REASONS FOR CHANGE
The Committee believes the cap on the availability of the
investment credit with respect to wind energy property is
inconsistent with the objective of stimulating greater
investment in such property. Therefore, the Committee believes
it is appropriate to remove the cap on the amount of credit
that may be claimed for wind energy property.
In order to protect the efficacy of both the energy credit
and subsidized financing as means of stimulating investment in
renewable technologies, the Committee believes taxpayers
utilizing subsidized energy financing should not be required to
reduce their otherwise allowable credit.
EXPLANATION OF PROVISION
The provision eliminates the credit cap applicable to
qualified small wind energy property. The provision also
removes the rule that reduces the basis of the property for
purposes of claiming the credit if the property is financed in
whole or in part by subsidized energy financing or with
proceeds from private activity bonds.
EFFECTIVE DATE
The provision applies to periods after December 31, 2008,
under rules similar to the rules of section 48(m) of the Code
(as in effect on the day before the enactment of the Revenue
Reconciliation Act of 1990).
4. Expand New Clean Renewable Energy Bonds (Sec. 1611 of the Bill and
Sec. 54C of the Code)
PRESENT LAW
New Clean Renewable Energy Bonds
New clean renewable energy bonds (``New CREBs'') may be
issued by qualified issuers to finance qualified renewable
energy facilities.\115\ Qualified renewable energy facilities
are facilities that: (I) qualify for the tax credit under
section 45 (other than Indian coal and refined coal production
facilities), without regard to the placed-in-service date
requirements of that section; and (2) are owned by a public
power provider, governmental body, or cooperative electric
company.
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\ 115\ Sec. 54C.
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The term ``qualified issuers'' includes: (1) public power
providers; (2) a governmental body; (3) cooperative electric
companies; (4) a not-for-profit electric utility that has
received a loan or guarantee under the Rural Electrification
Act; and (5) clean renewable energy bond lenders. The term
``public power provider'' means a State utility with a service
obligation, as such terms are defined in section 217 of the
Federal Power Act (as in effect on the date of the enactment of
this paragraph). A ``governmental body'' means any State or
Indian tribal government, or any political subdivision thereof.
The term ``cooperative electric company'' means a mutual or
cooperative electric company (described in section 501(c)(12)
or section 1381(a)(2)(C)). A clean renewable energy bond lender
means a cooperative that is owned by, or has outstanding Ioans
to, 100 or more cooperative electric companies and is in
existence on February 1, 2002 (including any affiliated entity
which is controlled by such lender).
There is a national limitation for New CREBs of $800
million. No more than one third of the national limit may be
allocated to projects of public power providers, governmental
bodies, or cooperative electric companies. Allocations to
governmental bodies and cooperative electric companies may be
made in the manner the Secretary determines appropriate.
Allocations to projects of public power providers shall be
made, to the extent practicable, in such manner that the amount
allocated to each such project bears the same ratio to the cost
of such project as the maximum allocation limitation to
projects of public power providers bears to the cost of all
such projects.
New CREBs are a type of qualified tax credit bond for
purposes of section 54A of the Code. As such, 100 percent of
the available project proceeds of New CREBs must be used within
the three-year period that begins on the date of issuance.
Available project proceeds are proceeds from the sale of the
bond issue less issuance costs (not to exceed two percent) and
any investment earnings on such sale proceeds. To the extent
less than 100 percent of the available project proceeds are
used to finance qualified projects during the three-year
spending period, bonds will continue to qualify as New CREBs if
unspent proceeds are used within 90 days from the end of such
three-year period to redeem bonds. The three-year spending
period may be extended by the Secretary upon the qualified
issuer's request demonstrating that the failure to satisfy the
three-year requirement is due to reasonable cause and the
projects will continue to proceed with due diligence.
New CREBs generally are subject to the arbitrage
requirements of section 148. However, available project
proceeds invested during the three-year spending period are not
subject to the arbitrage restrictions (i.e., yield restriction
and rebate requirements). In addition, amounts invested in a
reserve fund are not subject to the arbitrage restrictions to
the extent: (1) such fund is funded at a rate not more rapid
than equal annual installments; (2) such fund is funded in a
manner reasonably expected to result in an amount not greater
than an amount necessary to repay the issue; and (3) the yield
on such fund is not greater than the average annual interest
rate of tax-exempt obligations having a term of 10 years or
more that are issued during the month the New CREBs are issued.
As with other tax credit bonds, a taxpayer holding New
CREBs on a credit allowance date is entitled to a tax credit.
The credit rate on New CREBs is set by the Secretary at a rate
that is 70 percent of the rate that would permit issuance of
such bonds without discount and interest cost to the
issuer.\116\ The Secretary determines credit rates for tax
credit bonds based on general assumptions about credit quality
of the class of potential eligible issuers and such other
factors as the Secretary deems appropriate. The Secretary may
determine credit rates based on general credit market yield
indexes and credit ratings.
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\116\ Given the differences in credit quality and other
characteristics of individual issuers, the Secretary cannot set credit
rates in a manner that will allow each issuer to issue tax credit bonds
at par.
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The amount of the tax credit is determined by multiplying
the bond's credit rate by the face amount of the holder's bond.
The credit accrues quarterly, is includible in gross income (as
if it were an interest payment on the bond), and can be claimed
against regular income tax liability and alternative minimum
tax liability. Unused credits may be carried forward to
succeeding taxable years. In addition, credits may be separated
from the ownership of the underlying bond similar to how
interest coupons can be stripped for interest-bearing bonds.
An issuer of New CREBs is treated as meeting the
``prohibition on financial conflicts of interest'' requirement
in section 54A(d)(6) if it certifies that it satisfies (i)
applicable State and local law requirements governing conflicts
of interest and (ii) any additional conflict of interest rules
prescribed by the Secretary with respect to any Federal, State,
or local government official directly involved with the
issuance of New CREBs.
REASONS FOR CHANGE
The Committee believes that the NEW CREBs program provides
an efficient mechanism to finance qualified renewable energy
facilities. Therefore, the Committee wishes to expand the New
CREBs program by increasing the amount of the national bond
volume limitation.
EXPLANATION OF PROVISION
The provision expands the New CREBs program. The provision
authorizes issuance of up to an additional $1.6 billion of New
CREBs.
EFFECTIVE DATE
The provision applies to bonds issued after date of
enactment.
5. Expand Qualified Energy Conservation Bonds (Sec. 1612 of the Bill
and Sec. 54D of the Code)
PRESENT LAW
Qualified energy conservation bonds may be used to finance
qualified conservation purposes.
The term ``qualified conservation purpose'' means:
1. Capital expenditures incurred for purposes of
reducing energy consumption in publicly owned buildings
by at least 20 percent; implementing green community
programs; rural development involving the production of
electricity from renewable energy resources; or any
facility eligible for the production tax credit under
section 45 (other than Indian coal and refined coal
production facilities);
2. Expenditures with respect to facilities or grants
that support research in: (a) development of cellulosic
ethanol or other nonfossil fuels; (b) technologies for
the capture and sequestration of carbon dioxide
produced through the use of fossil fuels; (c)
increasing the efficiency of existing technologies for
producing nonfossil fuels; (d) automobile battery
technologies and other technologies to reduce fossil
fuel consumption in transportation; and (E)
technologies to reduce energy use in buildings;
3. Mass commuting facilities and related facilities
that reduce the consumption of energy, including
expenditures to reduce pollution from vehicles used for
mass commuting;
4. Demonstration projects designed to promote the
commercialization of: (a) green building technology;
(b) conversion of agricultural waste for use in the
production of fuel or otherwise; (c) advanced battery
manufacturing technologies; (D) technologies to reduce
peak-use of electricity; and (d) technologies for the
capture and sequestration of carbon dioxide emitted
from combusting fossil fuels in order to produce
electricity; and
5. Public education campaigns to promote energy
efficiency (other than movies, concerts, and other
events held primarily for entertainment purposes):
There is a national limitation on qualified energy
conservation bonds of $800 million. Allocations of qualified
energy conservation bonds are made to the States with sub-
allocations to large local governments. Allocations are made to
the States according to their respective populations, reduced
by any sub-allocations to large local governments (defined
below) within the States. Sub-allocations to large local
governments shall be an amount of the national qualified energy
conservation bond limitation that bears the same ratio to the
amount of such limitation that otherwise would be allocated to
the State in which such large local government is located as
the population of such large local government bears to the
population of such State. The term ``large local government''
means: any municipality or county if such municipality or
county has a population of 100,000 or more. Indian tribal
governments also are treated as large local governments for
these purposes (without regard to population).
Each State or large local government receiving an
allocation of qualified energy conservation bonds may further
allocate issuance authority to issuers within such State or
large local government. However, any allocations to issuers
within the State or large local government shall be made in a
manner that results in not less than 70 percent of the
allocation of qualified energy conservation bonds to such State
or large local government being used to designate bonds that
are not private activity bonds (i.e., the bond cannot meet the
private business tests or the private loan test of section
141).
Qualified energy conservations bonds are a type of
qualified tax credit bond for purposes of section 54A of the
Code. As a result, 100 percent of the available project
proceeds of qualified energy conservation bonds must be used
for qualified conservation purposes. In the case of qualified
conservation bonds issued as private activity bonds, 100
percent of the available project proceeds must be used for
capital expenditures. In addition, qualified energy
conservation bonds only may be issued by Indian tribal
governments to the extent such bonds are issued for purposes
that satisfy the present law requirements for tax-exempt bonds
issued by Indian tribal governments (i.e., essential
governmental functions and certain manufacturing purposes).
Under present law, 100 percent of the available project
proceeds of qualified energy conservation bonds to be used
within the three-year period that begins on the date of
issuance. Available project proceeds are proceeds from the sale
of the issue less issuance costs (not to exceed two percent)
and any investment earnings on such sale proceeds. To the
extent less than 100 percent of the available project proceeds
are used to finance qualified conservation purposes during the
three-year spending period, bonds will continue to qualify as
qualified energy conservation bonds if unspent proceeds are
used within 90 days from the end of such three-year period to
redeem bonds. The three-year spending period may be extended by
the Secretary upon the issuer's request demonstrating that the
failure to satisfy the three-year requirement is due to
reasonable cause and the projects will continue to proceed with
due diligence.
Qualified energy conservation bonds generally are subject
to the arbitrage requirements of section 148. However,
available project proceeds invested during the three-year
spending period are not subject to the arbitrage restrictions
(i.e., yield restriction and rebate requirements). In addition,
amounts invested in a reserve fund are not subject to the
arbitrage restrictions to the extent: (1) such fund is funded
at a rate not more rapid than equal annual installments; (2)
such fund is funded in a manner reasonably expected to result
in an amount not greater than an amount necessary to repay the
issue; and (3) the yield on such fund is not greater than the
average annual interest rate of tax-exempt obligations having a
term of 10 years or more that are issued during the month the
qualified energy conservation bonds are issued.
The maturity of qualified energy conservation bonds is the
term that the Secretary estimates will result in the present
value of the obligation to repay the principal on such bonds
being equal to 50 percent of the face amount of such bonds,
using as a discount rate the average annual interest rate of
tax-exempt obligations having a term of 10 years or more that
are issued during the month the qualified energy conservation
bonds are issued.
As with other tax credit bonds, the taxpayer holding
qualified energy conservation bonds on a credit allowance date
is entitled to a tax credit. The credit rate on the bonds is
set by the Secretary at a rate that is 70 percent of the rate
that would permit issuance of such bonds without discount and
interest cost to the issuer.\117\ The Secretary determines
credit rates for tax credit bonds based on general assumptions
about credit quality of the class of potential eligible issuers
and such other factors as the Secretary deems appropriate. The
Secretary may determine credit rates based on general credit
market yield indexes and credit ratings. The amount of the tax
credit is determined by multiplying the bond's credit rate by
the face amount on the holder's bond. The credit accrues
quarterly, is includible in gross income (as if it were an
interest payment on the bond), and can be claimed against
regular income tax liability and alternative minimum tax
liability. Unused credits may be carried forward to succeeding
taxable years. In addition, credits may be separated from the
ownership of the underlying bond similar to how interest
coupons can be stripped for interest-bearing bonds.
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\117\ Given the differences in credit quality and other
characteristics of individual issuers, the Secretary cannot set credit
rates in a manner that will allow each issuer to issue tax credit bonds
at par.
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Issuers of qualified energy conservation bonds are required
to certify that the financial disclosure requirements that
applicable State and local law requirements governing conflicts
of interest are satisfied with respect to such issue, as well
as any other additional conflict of interest rules prescribed
by the Secretary with respect to any Federal, State, or local
government official directly involved with the issuance of
qualified energy conservation bonds.
REASONS FOR CHANGE
The Committee believes that an increase in the volume
limitation for qualified energy conservation bonds is needed to
help move the nation toward more energy-efficient policies. The
Committee is aware that a number of communities have initiated
low-interest loan and grant programs to encourage the adoption
of energy conserving products as part of their green community
programs. The Committee believes that incentives for the
purchase and installation of energy-efficient property and
energy-efficient improvements to residences are desirable to
help reduce energy consumption in the household sector.
Therefore, the Committee believes it is appropriate to allow
the proceeds of qualified energy conservation bonds to be used
for loans and grants to implement green community programs.
EXPLANATION OF PROVISION
The provision expands the present-law qualified energy
conservation bond program. The provision authorizes issuance of
an additional $2.4 billion of qualified energy conservation
bonds. The provision expands eligibility for these tax credit
bonds to include loans and grants for capital expenditures as
part of green community programs. For example, this expansion
will enable States to issue these tax credit bonds to finance
loans and/or grants to individual homeowners to retrofit
existing housing. The use of bond proceeds for such loans and
grants will not cause such bond to be treated as a private
activity bond for purposes of the private activity bond
restrictions contained in the qualified energy conservation
bond provisions.
EFFECTIVE DATE
The provision is bonds issued after the date of enactment.
6. Extension and Modification of Credit for Nonbusiness Energy Property
(Sec. 1621 of the Bill and Sec. 25C of the Code)
PRESENT LAW
Section 25C provides a 10-percent credit for the purchase
of qualified energy efficiency improvements to existing homes.
A qualified energy efficiency improvement is any energy
efficiency building envelope component (1) that meets or
exceeds the prescriptive criteria for such a component
established by the 2000 International Energy Conservation Code
as supplemented and as in effect on August 8, 2005 (or, in the
case of metal roofs with appropriate pigmented coatings, meets
the Energy Star program requirements); (2) that is installed in
or on a dwelling located in the United States and owned and
used by the taxpayer as the taxpayer's principal residence; (3)
the original use of which commences with the taxpayer; and (4)
that reasonably can be expected to remain in use for at least
five years. The credit is nonrefundable.
Building envelope components are: (1) insulation materials
or systems which are specifically and primarily designed to
reduce the heat loss or gain for a dwelling; (2) exterior
windows (including skylights) and doors; and (3) metal or
asphalt roofs with appropriate pigmented coatings or cooling
granules that are specifically and primarily designed to reduce
the heat gain for a dwelling.
Additionally, section 25C provides specified credits for
the purchase of specific energy efficient property. The
allowable credit for the purchase of certain property is (1)
$50 for each advanced main air circulating fan, (2) $150 for
each qualified natural gas, propane, or oil furnace or hot
water boiler, and (3) $300 for each item of qualified energy
efficient property.
An advanced main air circulating fan is a fan used in a
natural gas, propane, or oil furnace originally placed in
service by the taxpayer during the taxable year, and which has
an annual electricity use of no more than two percent of the
total annual energy use of the furnace (as determined in the
standard Department of Energy test procedures).
A qualified natural gas, propane, or oil furnace or hot
water boiler is a natural gas, propane, or oil furnace or hot
water boiler with an annual fuel utilization efficiency rate of
at least 95.
Qualified energy-efficient property is: (1) an electric.
heat pump water heater which yields an energy factor of at
least 2.0 in the standard Department of Energy test procedure,
(2) an electric heat pump which has a heating seasonal
performance factor (HSPF) of at least 9, a seasonal energy
efficiency ratio (SEER) of at least 15, and an energy
efficiency ratio (EER) of at least 13, (3) a central air
conditioner with energy efficiency of at least the highest
efficiency tier established by the Consortium for Energy
Efficiency as in effect on Jan. 1, 2006,\118\ (4) a natural
gas, propane, or oil water heater which has an energy factor of
at least 0.80 or thermal efficiency of at least 90 percent, and
(5) biomass fuel property.
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\118\ The highest tier in effect at this time was tier 2, requiring
SEER of at least 15 and EER of at least 12.5 for split central air
conditioning systems and SEER of at least 14 and EER of at least 12 for
packaged central air conditioning systems.
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Biomass fuel property is a stove that burns biomass fuel to
heat a dwelling unit located in the United States and used as a
principal residence by the taxpayer, or to heat water for such
dwelling unit, and that has a thermal efficiency rating of at
least 75 percent. Biomass fuel is any plant-derived fuel
available on a renewable or recurring basis, including
agricultural crops and trees, wood and wood waste and residues
(including wood pellets), plants (including aquatic plants,
grasses, residues, and fibers.
Under section 25C, the maximum credit for a taxpayer with
respect to the same dwelling for all taxable years is $500, and
no more than $200 of such credit may be attributable to
expenditures on windows.
The taxpayer's basis in the property is reduced by the
amount of the credit. Special proration rules apply in the case
of jointly owned property, condominiums, and tenant-
stockholders in cooperative housing corporations. If less than
80 percent of the property is used for nonbusiness purposes,
only that portion of expenditures that is used for nonbusiness
purposes is taken into account.
For purposes of determining the amount of expenditures made
by any individual with respect to any dwelling unit, there
shall not be taken into account expenditures which are made
from subsidized energy financing The term ``subsidized energy
financing'' means financing provided under a Federal, State, or
local program a principal purpose of which is to provide
subsidized financing for projects designed to conserve or
produce energy.
The credit applies to expenditures made after December 31,
2008 for property placed in service after December 31, 2008,
and prior to January 1, 2010.
REASONS FOR CHANGE
The Committee believes that an immediate increase in the
credit rate and the amount of the maximum credit that may be
claimed is warranted to encourage additional investments that
will help reduce reliance on fossil fuels.
EXPLANATION OF PROVISION
The provision raises the 10 percent credit rate to 30
percent. Additionally, all energy property otherwise eligible
for the $50, $100, or $150 credits is instead eligible for a 30
percent credit on expenditures for such property.
The provision additionally extends the provision for one
year, through December 31, 2010. Finally, the $500 lifetime cap
(and the $200 lifetime cap with respect to windows) is
eliminated and replaced with an aggregate cap of $1,500 in the
case of property placed in service after December 31, 2008 and
prior to January 1, 2011.
The present law rule related to subsidized energy financing
is eliminated.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2008.
7. Credit for Residential Energy Efficient Property (Sec. 1622 of the
Bill and Sec. 25D of the Code)
PRESENT LAW
Section 25D provides a personal tax credit for the purchase
of qualified solar electric property and qualified solar water
heating property that is used exclusively for purposes other
than heating swimming pools and hot tubs. The credit is equal
to 30 percent of qualifying expenditures, with a maximum credit
of $2,000 with respect to qualified solar water heating
property. There is no cap with respect to qualified solar
electric property.
Section 25D also provides a 30 percent credit for the
purchase of qualified geothermal heat pump property, qualified
small wind energy property, and qualified fuel cell power
plants. The credit for geothermal heat pump property is capped
at $2,000, the credit for qualified small wind energy property
is limited to $500 with respect to each half kilowatt of
capacity, not to exceed $4,000, and the credit for any fuel
cell may not exceed $500 for each 0.5 kilowatt of capacity.
The credit with respect to all qualifying property may be
claimed against the alternative minimum tax.
Qualified solar electric property is property that uses
solar energy to generate electricity for use in a dwelling
unit. Qualifying solar water heating property is property used
to heat water for use in a dwelling unit located in the United
States and used as a residence if at least half of the energy
used by such property for such purpose is derived from the sun.
A qualified fuel cell power plant is an integrated system
comprised of a fuel cell stack assembly and associated balance
of plant components that (1) converts a fuel into electricity
using electrochemical means, (2) has an electricity-only
generation efficiency of greater than 30 percent. The qualified
fuel cell power plant must be installed on or in connection
with a dwelling unit located in the United States and used by
the taxpayer as a principal residence.
Qualified small wind energy property is property that uses
a wind turbine to generate electricity for use in a dwelling
unit located in the U.S. and used as a residence by the
taxpayer.
Qualified geothermal heat pump property means any equipment
which (1) uses the ground or ground water as a thermal energy
source to heat the dwelling unit or as a thermal energy sink to
cool such dwelling unit, (2) meets the requirements of the
Energy Star program which are in effect at the time that the
expenditure for such equipment is made, and (3) is installed on
or in connection with a dwelling unit located in the United
States and used as a residence by the taxpayer.
The credit is nonrefundable, and the depreciable basis of
the property is reduced by the amount of the credit.
Expenditures for labor costs allocable to onsite preparation,
assembly, or original installation of property eligible for the
credit are eligible expenditures.
Special proration rules apply in the case of jointly owned
property, condominiums, and tenant-stockholders in cooperative
housing corporations. If less than 80 percent of the property
is used for nonbusiness purposes, only that portion of
expenditures that is used for nonbusiness purposes is taken
into account.
For purposes of determining the amount of expenditures made
by any individual with respect to any dwelling unit, there
shall not be taken into account expenditures which are made
from subsidized energy financing. The term ``subsidized energy
financing'' means financing provided under a Federal, State, or
local program a principal purpose of which is to provide
subsidized financing for projects designed to conserve or
produce energy.
The credit applies to property placed in service prior to
January 1, 2017.
REASONS FOR CHANGE
The Committee believes that an increase in the maximum
credit that may be claimed for solar hot water, geothermal, and
wind property is warranted to encourage additional investments
that will help reduce reliance on fossil fuels. For the same
reasons, the Committee believes it is appropriate to eliminate
the rules that reduce available credits for property using
subsidized energy financing.
EXPLANATION OF PROVISION
The provision eliminates the credit caps for solar hot
water, geothermal, and wind property and eliminates the
reduction in credits for property using subsidized energy
financing.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2008.
8. Temporary Increase in Credit for Alternative Fuel Vehicle Refueling
Property (Sec. 1623 of the Bill and Sec. 30C of the Code)
PRESENT LAW
Taxpayers may claim a 30-percent credit for the cost of
installing qualified clean-fuel vehicle refueling property to
be used in a trade or business of the taxpayer or installed at
the principal residence of the taxpayer.\119\ The credit may
not exceed $30,000 per taxable year per location, in the case
of qualified refueling property used in a trade or business and
$1,000 per taxable year per location, in the case of qualified
refueling property installed on property which is used as a
principal residence.
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\119\ Sec. 30C.
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Qualified refueling property is property (not including a
building or its structural components) for the storage or
dispensing of a clean-burning fuel or electricity into the fuel
tank or battery of a motor vehicle propelled by such fuel or
electricity, but only if the storage or dispensing of the fuel
or electricity is at the point of delivery into the fuel tank
or battery of the motor vehicle. The use of such property must
begin with the taxpayer.
Clean-burning fuels are any fuel at least 85 percent of the
volume of which consists of ethanol, natural gas, compressed
natural gas, liquefied natural gas, liquefied petroleum gas, or
hydrogen. In addition, any mixture of biodiesel and diesel
fuel, determined without regard to any use of kerosene and
containing at least 20 percent biodiesel, qualifies as a clean
fuel.
Credits for qualified refueling property used in a trade or
business are part of the general business credit and may be
carried back for one year and forward for 20 years. Credits for
residential qualified refueling property cannot exceed for any
taxable year the difference between the taxpayer's regular tax
(reduced by certain other credits) and the taxpayer's tentative
minimum tax. Generally, in the case of qualified refueling
property sold to a tax-exempt entity, the taxpayer selling the
property may claim the credit.
A taxpayer's basis in qualified refueling property is
reduced by the amount of the credit. In addition, no credit is
available for property used outside the United States or for
which an election to expense has been made under section 179.
The credit is available for property placed in service
after December 31, 2005, and (except in the case of hydrogen
refueling property) before January 1, 2011. In the case of
hydrogen refueling property, the property must be placed in
service before January 1, 2015.
REASONS FOR CHANGE
The Committee believes that widespread adoption of advanced
technology and alternative-fuel vehicles is necessary to
transform automotive transportation in the United States to be
cleaner, more fuel efficient, and less reliant on petroleum
fuels. The Committee further believes that one important method
to encourage this trend is to provide additional tax incentives
for the development and installation of the infrastructure
necessary to deliver clean fuels to drivers of clean-fuel
vehicles.
EXPLANATION OF PROVISION
For property placed in service in 2009 or 2010, the
provision increases the maximum credit available for business
property to $200,000 for qualified hydrogen refueling property
and to $50,000 for other qualified refueling property. For
nonbusiness property, the maximum credit is increased to
$2,000. In addition, the credit rate is increased from 30
percent to 50 percent, except in the case of hydrogen refueling
property.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2008.
9. Energy Research Credit (Sec. 1631 of the Bill and Sec. 41 of the
Code)
PRESENT LAW
General rule
A taxpayer may claim a research credit equal to 20 percent
of the amount by which the taxpayer's qualified research
expenses for a taxable year exceed its base amount for that
year.\120\ Thus, the research credit is generally available
with respect to incremental increases in qualified research.
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\120\ Sec. 41.
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A 20-percent research tax credit is also available with
respect to the excess of (1) 100 percent of corporate cash
expenses (including grants or contributions) paid for basic
research conducted by universities (and certain nonprofit
scientific research organizations) over (2) the sum of (a) the
greater of two minimum basic research floors plus (b) an amount
reflecting any decrease in nonresearch giving to universities
by the corporation as compared to such giving during a fixed-
base period, as adjusted for inflation. This separate credit
computation is commonly referred to as the university basic
research credit.\121\
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\121\ Sec. 41(e).
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Finally, a research credit is available for a taxpayer's
expenditures on research undertaken by an energy research
consortium. This separate credit computation is commonly
referred to as the energy research credit. Unlike the other
research credits, the energy research credit applies to all
qualified expenditures, not just those in excess of a base
amount.
The research credit, including the university basic
research credit and the energy research credit, expires for
amounts paid or incurred after December 31, 2009.\122\
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\122\ Sec. 41(h)
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Computation of allowable credit
Except for energy research payments and certain university
basic research payments made by corporations, the research tax
credit applies only to the extent that the taxpayer's qualified
research expenses for the current taxable year exceed its base
amount. The base amount for the current year generally is
computed by multiplying the taxpayer's fixed-base percentage by
the average amount of the taxpayer's gross receipts for the
four preceding years. If a taxpayer both incurred qualified
research expenses and had gross receipts during each of at
least three years from 1984 through 1988, then its fixed-base
percentage is the ratio that its total qualified research
expenses for the 1984-1988 period bears to its total gross
receipts for that period (subject to a maximum fixed-base
percentage of 16 percent). All other taxpayers (so-called
start-up firms) are assigned a fixed-base percentage of three
percent.\123\
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\123\ The Small Business Job Protection Act of 1996 expanded the
definition of start-up firms under section 41(c)(3)(B)(i) to include
any firm if the first taxable year in which such firm had both gross
receipts and qualified research expenses began after 1983. A special
rule (enacted in 1993) is designed to gradually recompute a start-up
firm's fixed-base percentage based on its actual research experience.
Under this special rule, a start-up firm is assigned a fixed-base
percentage of three percent for each of its first five taxable years
after 1993 in which it incurs qualified research expenses. A start-up
firm's fixed-base percentage for its sixth through tenth taxable years
after 1993 in which it incurs qualified research expenses is a phased-
in ratio based on the firm's actual research experience. For all
subsequent taxable years, the taxpayer's fixed-base percentage is its
actual ratio of qualified research expenses to gross receipts for any
five years selected by the taxpayer from its fifth through tenth
taxable years after 1993. Sec. 41(c)(3)(B).
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In computing the credit, a taxpayer's base amount cannot be
less than 50 percent of its current-year qualified research
expenses.
To prevent artificial increases in research expenditures by
shifting expenditures among commonly controlled or otherwise
related entities, a special aggregation rule provides that all
members of the same controlled group of corporations are
treated as a single taxpayer.\124\ Under regulations prescribed
by the Secretary, special rules apply for computing the credit
when a major portion of a trade or business (or unit thereof)
changes hands, under which qualified research expenses and
gross receipts for periods prior to the change of ownership of
a trade or business are treated as transferred with the trade
or business that gave rise to those expenses and receipts for
purposes of recomputing a taxpayer's fixed-base
percentage.\125\
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\124\ Sec. 41(f)(1).
\125\ Sec. 41(f)(3).
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Alternative incremental research credit regime
Taxpayers are allowed to elect an alternative incremental
research credit regime.\126\ If a taxpayer elects to be subject
to this alternative regime, the taxpayer is assigned a three-
tiered fixed-base percentage (that is lower than the fixed-base
percentage otherwise applicable under present law) and the
credit rate likewise is reduced.
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\126\ Sec. 41(c)(4).
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Generally, for amounts paid or incurred prior to 2007,
under the alternative incremental credit regime, a credit rate
of 2.65 percent applies to the extent that a taxpayer's
current-year research expenses exceed a base amount computed by
using a fixed-base percentage of one percent (i.e., the base
amount equals one percent of the taxpayer's average gross
receipts for the four preceding years) but do not exceed a base
amount computed by using a fixed-base percentage of 1.5
percent. A credit rate of 3.2 percent applies to the extent
that a taxpayer's current-year research expenses exceed a base
amount computed by using a fixed-base percentage of 1.5 percent
but do not exceed a base amount computed by using a fixed-base
percentage of two percent. A credit rate of 3.75 percent
applies to the extent that a taxpayer's current-year research
expenses exceed a base amount computed by using a fixed-base
percentage of two percent. Generally, for amounts paid or
incurred after 2006, the credit rates listed above are
increased to three percent, four percent, and five percent,
respectively.\127\
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\127\ A special transition rule applies for fiscal year 2006-2007
taxpayers.
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An election to be subject to this alternative incremental
credit regime can be made for any taxable year beginning after
June 30, 1996, and such an election applies to that taxable
year and all subsequent years unless revoked with the consent
of the Secretary of the Treasury. The alternative incremental
credit regime terminates for taxable years beginning after
December 31, 2008.
Alternative simplified credit
Generally, for amounts paid or incurred after 2006,
taxpayers may elect to claim an alternative simplified credit
for qualified research expenses.\128\ The alternative
simplified research credit is equal to 12 percent (14 percent
for taxable years beginning after December 31, 2008) of
qualified research expenses that exceed 50 percent of the
average qualified research expenses for the three preceding
taxable years. The rate is reduced to six percent if a taxpayer
has no qualified research expenses in any one of the three
preceding taxable years.
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\128\ A special transition rule applies for fiscal year 2006-2007
taxpayers.
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An election to use the alternative simplified credit
applies to all succeeding taxable years unless revoked with the
consent of the Secretary. An election to use the alternative
simplified credit may not be made for any taxable year for
which an election to use the alternative incremental credit is
in effect. A transition rule applies which permits a taxpayer
to elect to use the alternative simplified credit in lieu of
the alternative incremental credit if such election is made
during the taxable year which includes January 1, 2007. The
transition rule applies only to the taxable year which includes
that date.
Eligible expenses
Qualified research expenses eligible for the research tax
credit consist of: (1) in-house expenses of the taxpayer for
wages and supplies attributable to qualified research; (2)
certain time-sharing costs for computer use in qualified
research; and (3) 65 percent of amounts paid or incurred by the
taxpayer to certain other persons for qualified research
conducted on the taxpayer's behalf (so-called contract research
expenses).\129\ Notwithstanding the limitation for contract
research expenses, qualified research expenses include 100
percent of amounts paid or incurred by the taxpayer to an
eligible small business, university, or Federal laboratory for
qualified energy research.
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\129\ Under a special rule, 75 percent of amounts paid to a
research consortium for qualified research are treated as qualified
research expenses eligible for the research credit (rather than 65
percent under the general rule under section 41(b)(3) governing
contract research expenses) if (1) such research consortium is a tax-
exempt organization that is described in section 501(c)(3) (other than
a private foundation) or section 501(c)(6) and is organized and
operated primarily to conduct scientific research, and (2) such
qualified research is conducted by the consortium on behalf of the
taxpayer and one or more persons not related to the taxpayer. Sec.
41(b)(3)(C).
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To be eligible for the credit, the research not only has to
satisfy the requirements of present-law section 174 (described
below) but also must be undertaken for the purpose of
discovering information that is technological in nature, the
application of which is intended to be useful in the
development of a new or improved business component of the
taxpayer, and substantially all of the activities of which
constitute elements of a process of experimentation for
functional aspects, performance, reliability, or quality of a
business component. Research does not qualify for the credit if
substantially all of the activities relate to style, taste,
cosmetic, or seasonal design factors.\130\ In addition,
research does not qualify for the credit: (1) if conducted
after the beginning of commercial production of the business
component; (2) if related to the adaptation of an existing
business component to a particular customer's requirements; (3)
if related to the duplication of an existing business component
from a physical examination of the component itself or certain
other information; or (4) if related to certain efficiency
surveys, management function or technique, market research,
market testing, or market development, routine data collection
or routine quality control.\131\ Research does not qualify for
the credit if it is conducted outside the United States, Puerto
Rico, or any U.S. possession.
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\130\ Sec. 41(d)(3).
\131\ Sec. 41(d)(4).
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Relation to deduction
Under section 174, taxpayers may elect to deduct currently
the amount of certain research or experimental expenditures
paid or incurred in connection with a trade or business,
notwithstanding the general rule that business expenses to
develop or create an asset that has a useful life extending
beyond the current year must be capitalized.\132\ However,
deductions allowed to a taxpayer under section 174 (or any
other section) are reduced by an amount equal to 100 percent of
the taxpayer's research tax credit determined for the taxable
year.\133\ Taxpayers may alternatively elect to claim a reduced
research tax credit amount under section 41 in lieu of reducing
deductions otherwise allowed.\134\
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\132\ Taxpayers may elect 10-year amortization of certain research
expenditures allowable as a deduction under section 174(a). Secs.
174(f)(2) and 59(e).
\133\ Sec. 280C(c).
\134\ Sec. 280C(c)(3).
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REASONS FOR CHANGE
The Committee is concerned about the United States'
dependence on foreign sources of energy and about the
environmental consequences of increased domestic energy
production and consumption. The Committee believes that
technological advances can address both of these concerns. The
Committee therefore seeks to encourage expenditures on research
related to the fields of fuel cells and battery technology,
renewable energy, energy conservation technology, electricity
transmission technology, and carbon capture and sequestration.
EXPLANATION OF PROVISION
The provision creates a new 20 percent credit for all
qualified energy research expenses paid or incurred in 2009 or
2010. Qualified energy research expenses are qualified research
expenses related to the fields of fuel cells and battery
technology, renewable energy, energy conservation technology,
efficient transmission and distribution of electricity, and
carbon capture and sequestration.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2008.
H. Other Provisions
1. Application of Certain Labor Standards to Projects Financed With
Certain Tax-Favored Bonds (Sec. 1701 of the Bill)
PRESENT LAW
The United States Code (Subchapter IV of Chapter 31 of
Title 40) applies a prevailing wage requirement to certain
contracts to which the Federal Government is a party.
REASONS FOR CHANGE
The Committee believes that it is appropriate to apply the
prevailing wage requirement to a broader class of contracts
including those financed with tax-favored bonds.
EXPLANATION OF PROVISION
The provision provides that Subchapter IV of Chapter 31 of
Title 40 of the U.S. Code shall apply to projects financed with
the proceeds of:
1. any qualified clean renewable energy bond (as
defined in sec. 54C of the Code) issued after the date
of enactment;
2. any qualified energy conservation bond (as defined
in sec. 54D of the Code) issued after the date of
enactment;
3. any qualified zone academy bond (as defined in
sec. 54E of the Code) issued after the date of
enactment;
4. any qualified school construction bond (as defined
in sec. 54F of the Code) issued; and
5. any recovery zone economic development bond (as
defined in sec. 1400U-2 of the Code).
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. Grants for Specified Energy Property in Lieu of Tax Credits (Secs.
1604 and 1721 of the Bill and Secs. 45 and 48 of the Code)
PRESENT LAW
Renewable electricity production credit
An income tax credit is allowed for the production of
electricity from qualified energy resources at qualified
facilities (the ``renewable electricity production
credit'').\135\ Qualified energy resources comprise wind,
closed-loop biomass, open-loop biomass, geothermal energy,
solar energy, small irrigation power, municipal solid waste,
qualified hydropower production, and marine and hydrokinetic
renewable energy. Qualified facilities are, generally,
facilities that generate electricity using qualified energy
resources. To be eligible for the credit, electricity produced
from qualified energy resources at qualified facilities must be
sold by the taxpayer to an unrelated person. The credit
amounts, credit periods, definitions of qualified facilities,
and other rules governing this credit are described more fully
in section II.G.1. of this document.
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\135\ Sec. 45. In addition to the renewable electricity production
credit, section 45 also provides income tax credits for the production
of Indian coal and refined coal at qualified facilities.
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Energy credit
An income tax credit is also allowed for certain energy
property placed in service. Qualifying property includes
certain fuel cell property, solar property, geothermal power
production property, small wind energy property, combined heat
and power system property, and geothermal heat pump
property.\136\ The amounts of credit, definitions of qualifying
property, and other rules governing this credit are described
more fully in section II.G.3. of this document.
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\136\ Sec. 48.
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REASONS FOR CHANGE
The Committee believes that incentives for the production
of electricity from renewable resources will help limit the
environmental consequences of continued reliance on power
generated using fossil fuels. The Committee understands that
some investors in renewable energy projects have suffered
economic losses that prevent them from benefitting from the
renewable electricity production credit and the energy credit.
The Committee further believes that this situation, combined
with current economic conditions, has the potential to
jeopardize investment in renewable energy facilities. The
Committee therefore believes that, in the short term, allowing
renewable energy developers to elect to receive direct grants
in lieu of the renewable electricity production credit and the
energy credit is necessary for continued growth in this
important industry.
EXPLANATION OF PROVISION
The provision authorizes the Secretary of Energy to provide
a grant to each person who places in service during 2009 or
2010 energy property that is either (1) an electricity
production facility otherwise eligible for the renewable
electricity production credit or (2) qualifying property
otherwise eligible for the energy credit. In general, the grant
amount is 30 percent of the basis of the depreciable (or
amortizable) property that would (1) be eligible for credit
under section 48 or (2) comprise a section 45 credit-eligible
facility. For qualified microturbine, combined heat and power
system, and geothermal heat pump property, the amount is 10
percent of the basis of the property.
It is intended that the grant provision mimic the operation
of the credit under section 48. For example, the amount of the
grant is not includable in gross income. However, the basis of
the property is reduced by fifty percent of the amount of the
grant. In addition, some or all of each grant is subject to
recapture if the grant eligible property is disposed of by the
grant recipient within five years of being placed in
service.\137\
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\137\ Section 1604 of the bill.
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Nonbusiness property and property that would not otherwise
be eligible for credit under section 48 or part of a facility
that would be eligible for credit under section 45 is not
eligible for a grant under the provision. The grant may be paid
to whichever party would have been entitled to a credit under
section 48 or section 45, as the case may be.
Under the provision, if a grant is paid, no renewable
electricity credit or energy credit may be claimed with respect
to the grant eligible property. In addition, no grant may be
awarded to any Federal, State, or local government (or any
political subdivision, agency, or instrumentality thereof) or
any section 501(c) tax-exempt entity.
The provision appropriates to the Secretary of Energy the
funds necessary to make the grants. No grant may be made unless
the application for the grant has been received before October
1, 2011.
EFFECTIVE DATE
The provision is effective on date of enactment.
3. Study of the Economic, Employment and Related Effects (Sec. 1731 of
the Bill)
PRESENT LAW
Present law requires no studies of this bill.
REASONS FOR CHANGE
The Committee believes that it is important to assess the
efficacy of the policies enacted in the present legislation in
promoting the recovery of the economy.
EXPLANATION OF PROVISION
The provision requires the Comptroller General of the
United States to submit a series of written reports to the
Committee on Ways and Means reporting the most recent national
information and data (and where available comparable
information and data for the individual States) related to the
economic effects of this Act. In particular the reports should
assess the employment effects of this Act, including a
comparison of the number of jobs preserved and the number of
jobs creates as a result of Act. The reports should delineate
jobs preserved and created between those in the public sector
and those in the private sector. The reports should further
calculate the share of tax expenditures and non-tax
expenditures provided under this Act that were spent or saved
by various groups of citizens and by income class. The reports
should detail how the funds provided to the States under this
Act have been spent, including decomposing the expenditures
into funds used for services provided to citizens and wages and
other compensation for public sector employees. Lastly, the
reports should describe any funds made available by the Act
that remain unspent and the reasons why such funds are unspent.
The required reports are due on February 1, 2010, May 1,
2010, August 1, 2010, and November 1, 2010.
EFFECTIVE DATE
The provision is effective on date of enactment.
TITLE II--ASSISTANCE FOR UNEMPLOYED WORKERS AND STRUGGLING FAMILIES
Subtitle A--Unemployment Insurance
A. Extension of Emergency Unemployment Compensation Program (Sec. 2001
of the Bill)
PRESENT LAW
Title IV, Emergency Unemployment Compensation, of the
Supplemental Appropriations Act, 2008 (Public Law 110-252) as
amended by the Unemployment Compensation Act of 2008 (Public
Law 110-449) created a temporary emergency unemployment
compensation program (EUC08).
This temporary unemployment insurance program provides up
to an additional 20 weeks of unemployment benefits to certain
workers who have exhausted their rights to regular unemployment
compensation (UC) benefits. A second tier of benefits exists in
States with a three-month seasonally adjusted average
unemployment rate of at least 6 percent and provides up to an
additional 13 weeks of EUC08 benefits (for a total of up to 33
weeks of EUC08 benefits).
Section 4007 of Title IV, as amended, begins to phase-out
the program on the week ending on or before March 31, 2009. No
compensation under the program is payable for any week
beginning after August 27, 2009.
Section 4004 of Title IV, as amended, establishes that
funds in the extended unemployment compensation account (EUCA)
of the unemployment trust fund (UTF) shall be used for
financing EUC08 payments. Funds to the States for administering
the EUCO8 program shall be from the employment security
administration account (ESAA). Compensation for EUC08 payments
to former employees of non-profits and governmental entities
are from the general fund of the Treasury.
EXPLANATION OF PROVISION
Section 2001(a) of the proposal would amend Section 4007 by
extending the duration of the temporary EUC program. The EUC
program would begin to phase-out the program on the week ending
on or before December 31, 2009. Under this proposal no
compensation under the program would be payable for any week
beginning after May 31, 2010.
Section 2001(b) of the proposal would alter the funding of
all EUC benefits covered under Section 4004 as well as all
State administration costs of the EUC benefit. The benefits and
administration costs would be funded through the general fund
of the Treasury rather than the EUCA and ESAA accounts within
the UTF. The funds used from the general fund would not be
required to be repaid.
REASON FOR CHANGE
The current Extended Benefits (EB) program rarely triggers
on in States with high and/or rising unemployment given the
program's stringent requirements. Congress has therefore
routinely established and extended when necessary temporary
Federal extended benefits programs in response to economic
weakness and growing unemployment.
The Committee believes that the current deterioration in
the labor market is nearly unprecedented. With 11.2 million
unemployed workers--the most since February 1983--the 7.2
percent December 2008 unemployment rate was the highest it has
been since January 1993. Since this recession began in December
2007, the economy has lost 2.6 million jobs--the most in one
year since 1945, with the highest one year percentage point
increase in the unemployment rate since 1982. The decline in
jobs between October and November 2008 was the worst one-month
job loss since 1974. The October through December job loss
represents the most rapid rate of job loss since the first
three months of 1975. As of December 2008, there were more
involuntarily unemployed workers (6.5 million) than at any
point in the past 25 years (June 1983). The share of the U.S.
population with a job (61 percent) is at its lowest since 1986.
In 2008, the number of people who could find only part-time
work has jumped from 4.6 million to 8 million during the past
year. The December share of unemployed, marginally attached and
involuntary part-time workers, 13.5 percent, is up almost six
percentage points from a year earlier.
The Committee also believes that the job market is expected
to remain bleak at least through 2009. There are now
approximately 3.8 job seekers for every job opening, and with
the most recent 4 months accounting for 1.9 million of the 2.6
million jobs lost in 2008, the recession appears to be
accelerating. Experts uniformly forecast higher unemployment
rates through 2009. CBO predicts that the unemployment rate
will rise to 9.1 percent in Fiscal Year 2010. The Wall Street
Journal survey of economists forecasts an unemployment rate
rising to 8.1 percent by December 2009, and then continuing to
rise in 2010. Wachovia predicts an unemployment rate rising
through next year to 9.0 percent. An Economic Policy Institute
economist has argued that historical evidence suggests a labor
market recovery around mid-2010 or later.
The Committee knows that federally-funded temporary
extended benefits help millions of workers. State-funded
unemployment benefits often expire at or before 6 months of
receipt, but more than one (23.2 percent) in five unemployed
workers have been unemployed for more than 6 months. The number
of long-term unemployed, workers who have been unemployed for
more than 6 months, is at its highest level (2.4 million) since
October 1983. About 1.7 million workers received emergency
unemployment benefits under the temporary Federal program
between July and September 2008. In one week in mid-December
2008, about 1.9 million workers claimed these benefits. If the
temporary Federal unemployment benefits program is extended to
begin to phase-out upon the end of 2009, rather than the end of
March as currently scheduled, about 6.7 million workers in
total will receive benefits under this program, including 5
million beneficiaries since September 2008.
The Federal Unemployment Trust Fund has been inadequately
financed to fund an extension of the EUC program. The Federal
Unemployment Accounts have approximately $29 billion in
reserves, and an extension of the EUC program enacted before
the end of March 2009 would likely eventually consume more than
the remaining balances. Funding unemployment insurance benefit
extensions through general revenues is common practice. The
1972-1973 Emergency Unemployment Compensation (Magnuson Act)
extension program, the 1975-1978 Federal Supplemental Benefits
(FSB) extension program, the 1982-1985 Federal Supplemental
Compensation (FSC) extension program, and the 1991-1994
Emergency Unemployment Compensation (EUC) extension program
were partially funded through general revenues.
EFFECTIVE DATE
The provision is effective upon enactment.
B. Increase in Unemployment Compensation Benefits (Sec. 2002 of the
Bill)
PRESENT LAW
Federal-State agreements
The joint Federal-State Unemployment Compensation (UC)
program may provide income support through the payment of UC
benefits to unemployed individuals. The program's two main
objectives are to provide temporary and partial wage
replacement to involuntarily unemployed workers and to
stabilize the economy during recessions. The Federal
Unemployment Tax Act (FUTA) of 1939 (Public Law 76-379) and
titles III, IX, and XII of the Social Security Act of 1935
(Public Law 74-271) form the framework of the UC system. UC
benefits are financed through employer taxes. The Federal taxes
on employers are under the authority of the Federal
Unemployment Tax Act (FUTA), and the State taxes are under the
authority given by the State Unemployment Tax Acts (SUTA). The
Federal unemployment tax on employers, among other uses, pays
the Federal share (50 percent) of the Extended Benefit (EB)
program and 100 percent of Federal and State administrative
costs. State unemployment taxes on employers pay for 100
percent of the regular UC benefit and 50 percent of the EB
benefit.
Federal law does not provide formulas, floors, or ceilings
on the calculation of regular weekly State unemployment benefit
amounts. In general, the States set weekly benefit amounts as a
fraction of the individual's average weekly wage up to some
State determined maximum. Some States include dependents'
allowances in addition to the underlying benefit.
The Extended Benefit (EB) program, established by the
Federal-State Unemployment Compensation Act, Public Law 91-373
(26 U.S.C. 3304, note), may extend UC benefits at the State
level if certain economic situations within the State exist.
Section 202(a)(2) of the Federal-State Unemployment
Compensation Act sets the extended benefit (EB) amount to be
equivalent to the regular UC benefit.
Section 4001(d)(1) of Title IV, Emergency Unemployment
Compensation, of the Supplemental Appropriations Act, Public
Law 110-252, also requires that the EUC08 benefit be equivalent
to the regular UC benefit.
Fraud and overpayments
All State laws provide for recovering UC benefits paid to
workers who later are found not to be entitled to them. In
addition to direct repayment, States use several tools to
recoup these funds. States may, at the discretion of the
agency, recover overpayments by deducting from future benefits
payable (benefit offset). They also may offset overpayments
with State tax refunds due to the worker. They also can compel
repayment by pursuing civil action in State court. Finally,
some States may assess interest on outstanding overpayment
balances. Some States provide that if the overpayment is not
the fault of the individual, the individual is not liable to
repay the amount overpaid.
Section 4005 of Public Law 110-252 requires that if an
individual knowingly has falsely received an amount of EUC08
compensation the individual is ineligible for further EUC08
compensation and shall be subject to prosecution under section
1100 of title 18 of the United States Code (Chapter 47--Fraud
and False Statements). If an individual wrongly received
amounts of EUC08 benefits to which they were not entitled, the
State requires such an individual to repay the amounts of EUC08
benefits to the State agency except that the State agency may
waive such repayment if the individual was without fault and
such repayment would be contrary to equity and good conscience.
States are required to recover erroneous payments through
deductions from any EUC08 benefits payable to such individual
or from any State or Federal unemployment benefit with respect
to any week of unemployment, during the three-year period after
the date such individual received the erroneous emergency UC
benefit payment. No single deduction may exceed 50 percent of
the weekly benefit amount from which such deduction is made. In
addition to regular UC and EB benefits, the Trade Readjustment
Allowance and the Federal Disaster Unemployment Assistance
benefit (among other similar benefits) also qualify to have
such a deduction. No repayment shall be required until a
determination has been made and an opportunity for a fair
hearing has been given to the individual and the determination
has become final.
EXPLANATION OF PROVISION
Federal-State agreements
Section 2002(a) of the proposal would create an additional,
federally funded, ($25) weekly benefit that would be available
to all individuals receiving Trade Readjustment Allowances,
Disaster Unemployment Benefits, regular UC, EB, or EUC08
benefits. These $25 additional weekly benefits would be
available in States that enter into an agreement with the Labor
Secretary. States would have the option to terminate such an
agreement after providing 30 days' written notice.
Provisions of agreement
Section 2002(b) of the proposal would require the agreement
between the Labor Secretary and the States to require that the
States would not take the additional compensation (the $25
additional benefit) into consideration while determining
regular UC benefit (including any dependents' allowances). The
$25 additional benefit would be payable either at the same time
and in the same manner as any regular compensation payable for
the week involved, or at the option of the State, the payments
may be separate from but on the same weekly basis as any
regular compensation otherwise payable.
Nonreduction rule
Section 2002(c) of the proposal requires that the agreement
would not apply or would cease to apply if the Labor Secretary
determines a State had altered the method governing the
computation of regular compensation under the State law in such
a manner that the weekly benefit amount would be less than the
benefit mount that would have been payable during such a period
under the State law as of December 31, 2008.
Payment to States
Section 2002(d) of the proposal would require that States
be paid 100 percent of the additional benefit cost as well as
any addition administrative expenses incurred by the State by
reason of such agreement as determined by the Labor Secretary.
The Federal payments to the States would be made on a monthly
basis.
The Federal payments to the States for the $25 additional
benefit and associated administrative expenses would be
appropriated from the general fund of the Treasury, without
fiscal year limitation. These funds would not be required to be
repaid.
Applicability
Section 2002(e) of the proposal would begin the additional
benefits for weeks of unemployment beginning after the date of
enactment. The additional benefit would terminate for weeks of
unemployment ending on or after January 1, 2010.
After such termination, in the case of individuals who have
not exhausted the right to regular unemployment benefits and
have been receiving the $25 additional benefit, the $25
additional benefit would continue to be payable until regular
unemployment compensation exhaustion. That is, there would be a
``grandfathering'' of the additional benefit for individuals
who were already receiving the $25 additional benefit. No
additional $25 benefit would be payable for any week of
unemployment beginning after June 30, 2010.
Fraud and overpayments
Section 2002(f) of the proposal would apply Section 4005
(Fraud and Overpayments) of the Supplemental Appropriations
Act, 2008, with respect to additional compensation to the same
extent and in the same manner as in the case of EUC08 benefits.
Application to other unemployment benefits
Section 2002(g) of the proposal would apply all the
provisions of the proposal to all unemployment benefits
described in subsection 2(h)(3) of the proposal (including
Trade Readjustment Allowances, Disaster Unemployment Benefits,
EB, and EUC08 benefits) to the same extent and in the same
manner as if those benefits were regular unemployment
compensation. Additionally, eligibility and termination rules
shall be applied in the same manner.
For example, if an individual were receiving a tier I EUC08
benefit (and the $25 additional benefit) in the week ending
before January 1, 2010, the additional benefit would continue
to be payable while an individual continued to receive the tier
I EUC08 until the exhaustion of the tier I EUC08 benefit.
However, that individual would not receive the $25 additional
benefit if the individual then began to receive the EB benefit.
No $25 additional benefit would be payable for any week of
unemployment beginning after June 30, 2010.
Definitions
Section 2(h) of the proposal would apply the definitions
given such terms under section 205 of the Federal-State
Extended Unemployment Compensation Act of 1970 (26 U.S.C. 3304,
note) for ``compensation'', ``regular compensation'', ``benefit
year'', ``State'', ``State agency'', ``State law'', and
``week''.
REASON FOR CHANGES
Unemployment insurance is the front line of defense against
poverty for unemployed working families, and boosting benefits
would keep many workers and their families out of poverty. The
average unemployment benefit nationwide is under $300 a week--
only 91 percent of the poverty line for a worker with two
children. On average, unemployment benefits replace less than
half (47 percent) of a worker's prior wages and the average
unemployment benefit is only 35 percent of the average wage.
These low levels are a particular problem during times when
people are unemployed for long periods of time because the
economy fails to produce jobs.
The Committee believes that workers will stimulate and
stabilize the economy by spending increased benefits on basic
needs, such as food and job search expenses, health care and
housing. A 1996 report funded in part by the Advisory Council
on Unemployment Compensation found that unemployment benefits
reduced by nearly 50 percent the chances that a worker will be
forced to sell the family home. One survey has found that over
40 percent of expenditures paid for with unemployment benefits
were directed to housing costs, making unemployment benefits
essential to preventing home loss and homelessness.
Research confirms the stimulative and anti-poverty impact
of unemployment insurance benefits. The Congressional Budget
Office has noted that ``it seems likely that recipients would
quickly spend most of [their additional] benefits. For example,
an examination of the experiences of long-term UI recipients in
2001 and early 2002 . . . indicated that their average family
income was about half of what it had been when they were
working. Moreover, more than one-third of the former recipients
who had not returned to work had a family income below the
poverty line (measured on a monthly basis), and about 40
percent lacked health insurance.'' Department of Labor-
sponsored simulations of all recessions from 1969 through 1992
found that ``each UI benefit dollar going to a claimant
ultimately expands overall GDP by between $1.54 and $3.07. The
average growth in overall GDP generated by a dollar of UI
benefits is $2.15.''
EFFECTIVE DATE
The provision is effective upon enactment.
C. Special Transfers for Unemployment Compensation Modernization (Sec.
2003 of the Bill)
PRESENT LAW
Section 903 of the Social Security Act (SSA) describes the
set of conditions under which funds are transferred to eligible
State unemployment accounts from the Federal accounts in the
Unemployment Trust Fund (UTF) when those Federal account
balances exceed certain levels. Transfers of excess funds in
the UTF to State accounts are called Reed Act distributions.\1\
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\1\ Legislatively, the most recent Reed Act distribution was a
special transfer in 2002 through the Job Creation and Worker Assistance
Act of 2002, P.L. 107-147. This provided for a one-time special Reed
Act distribution of up to $8 billion to State accounts. It required
that the transferred funds first be used to pay outstanding State loans
from the UTF. The remaining funds could be used for unemployment
compensation (UC) benefits. States were also able to use the funds for
UC and Employment Service (ES) administration; these required a State
appropriation.
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Section 903(a)(2)(B) of the SSA describes the manner in
which the distribution of Reed Act funds occurs. Funds are
distributed to the State UTF accounts based on the State's
share of estimated unemployment taxes (excluding reduced credit
payments) made by the State's employers.
While Federal laws and regulations provide broad guidelines
on UC coverage, eligibility, and benefit determination, the
specifics of regular UC benefits are determined by each State
through State laws and regulations.
Description of State base period determination
Monetary eligibility for UC benefits is determined by
insured wages earned by claimants while they were employed
during a specified period of time--referred to as the base
period (BP). The BP spans four continuous calendar quarters. In
most States the BP is the first four of the last five completed
calendar quarters immediately preceding the filing of a claim.
Many unemployed workers do not meet the requirements for
monetary eligibility because their BP earnings are not
sufficient in terms of either quarters worked or level of
earnings earned in the ``high'' quarter. Some of these
unemployed workers might qualify for UC benefits if their State
allows workers to use more recent wage credits based on an
Alternative Base Period (ABP). Depending on the State, the ABP
allows wage credits earned during the last completed calendar
quarter (lag quarter) or the quarter in which the claim is
filed (current quarter) to help determine UC eligibility and
benefit amounts. Unemployment Insurance Policy Letter 44-97
(which interpreted section 5401 of P.L. 105-33, the Balanced
Budget Act of 1997) allows States to not offer an alternative
base period (ABP) in determining eligibility for UC benefits.
Description of State treatments of part-time work
In most States' UC systems, workers who have had their
hours reduced or who are working short-term in part-time jobs
while looking for a permanent full-time job may receive some
(although generally greatly offset) UC benefits. All States
disregard some earnings as an inducement to take part-time
work. The worker's UC benefit will generally equal the
difference between the weekly benefit amount and earnings plus
a small disregard. However, if the worker restricts his or her
job search to only positions that are part-time in hours, some
States may rule that the worker is ineligible for UC benefits.
Some States allow workers to restrict job searches to part-time
only positions if the worker has a history of part-time work or
if the worker has a disability.
Description of State non-monetary requirements ``quitting for good
cause''
Along with monetary requirements, each State's UC law
requires workers to meet non-monetary requirements. Federal law
mandates some of these requirements. Generally, workers must
have lost their jobs through no fault of their own and must be
able, available, and actively seeking work. Since the UC
program is designed to compensate wage loss due to lack of
work, voluntarily leaving work without good cause is an obvious
reason for disqualification from benefits. All States have such
provisions.
There is often a distinction between issues that result in
disqualification and issues that result in weeks of
ineligibility. A disqualified worker has no right to benefits
until the worker re-qualifies, usually by obtaining new work or
by waiting out a set disqualification period. In some
disqualifying cases, benefits and wage credits may be reduced
for a period. In comparison, an ineligible worker does not
receive benefits only as long as the condition that causes
ineligibility exists.
A worker who leaves work for good cause may not be
disqualified but is not necessarily eligible to receive
benefits. For example, if the worker left because of illness or
to take care of illness in the family, the worker may not be
able to work or be available for work. This ineligibility would
generally last until the individual was ready and able to work.
Among many different considerations, some States consider
quitting a job to be leaving for ``good cause'' if the quit may
be attributed to:
escaping domestic violence,
caring for a disabled family member, and/or
following a spouse whose job has been
relocated.
Description of State determination of benefit duration
When States compute a worker's monetary eligibility for
benefits, in addition to calculating the weekly benefit amount,
they determine the duration of benefits--how long benefits can
be collected. There are no Federal standards for the duration
of regular benefits. The duration is usually measured as a
number of weeks of total unemployment. Maximum weeks of
benefits vary from 26 to 30 weeks, most frequently 26 weeks. A
few States' laws establish uniform durations of 26 weeks for
all workers who meet the qualifying-wage requirements, whereas
the rest of the States have variable durations.
Description of State benefits: Dependents' allowances
Although the primary factor in determining the weekly UC
benefit a claimant receives each week is wages earned during
the base period, some States' laws provide for dependents'
allowances above and beyond the basic benefit amount payable.
The definition of dependent varies from State to State as does
the allowance granted. In general, a dependent must be wholly
or mainly supported by the worker or living with or receiving
regular support from the worker. All States with dependents'
allowances include children under a specified age. The intent
is to include all children whom the worker is morally obligated
to support. In most of these States, allowances may be paid on
behalf of older children who are unable to work because of
physical or mental disability. In some States, children are not
the only dependents recognized--spouses, parents, or siblings
are also included in the definition. As with the definition of
dependents, there is much variation among States concerning.
the amount of weekly dependents' allowances payable. However,
there are some commonalities. For example, the allowance is
ordinarily a fixed sum. In addition, all States have a limit on
the total amount of the dependents' allowances payable in any
week: in terms of dollar amount, number of dependents,
percentage of basic benefits, or of high-quarter wages or of
average weekly wage.
EXPLANATION OF PROVISION
Section 2003(a) of the proposal would amend section 903 of
the Social Security Act to include new subsections 903(f) and
903(g).
Proposed subsection 903(f)(1) would provide a special
transfer of UTF funds from the Federal unemployment account
(FUA) of up to $7 billion to the State accounts within the UTF
as ``incentive payments'' for changing certain State UC laws.
The maximum incentive payment allowable for a State would be
calculated using the methods detailed in section 903(a)(2) [of
the Social Security Act]. That is, funds would be distributed
to the State UTF accounts based on the State's share of
estimated Federal unemployment taxes (excluding reduced credit
payments) made by the State's employers.
Under proposed subsection 903(f)(1)(C)(i), \1/3\ of the
maximum payment would be contingent on State UC law calculating
the base period by either:
allowing use of a base period that includes
the most recently completed calendar quarter before the
start of the benefit year for the purpose of
determining UC eligibility or
providing that, in the case of an individual
who would not otherwise be UC-eligible under State law,
eligibility shall be determined using a base period
that includes the most recently completed calendar
quarter.
Under proposed subsection 903(f)(1)(C)(ii), the remaining
\2/3\ of the incentive payment would be contingent on State law
containing two of the following four provisions \1\ described
in proposed 903(f)(3) \2\:
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\1\ Through regulation and program letters, the States currently
have the option of electing or declining each of the ``modernization''
options listed in the proposal.
\2\ Proposed subsection 903(f)(4), described later, limits these
distributions only to States that have qualified for the ABP
distribution as described in proposed subsection 903(f)(1)(C)(i).
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(A) No denial of UC under State law provisions relating to
availability for work, active search for work, or refusal to
accept work solely because the individual is seeking only part-
time work. States may exclude an individual if the majority of
the weeks of work in the individual's base period do not
include part-time work. The provision also permits the
Department of Labor to provide a reasonable definition of part-
time employment.
(B) No UC disqualification for separation if it is for
compelling family reasons. These reasons must include (i)
domestic violence, (ii) illness or disability of an immediate
family member, and (iii) the need to accompany a spouse to a
place from where it is impractical to commute and due to a
change in location of the spouse's employment.
(C) Weekly UC continues for individuals who have exhausted
all rights to regular and extended benefits but are enrolled
and making satisfactory progress in a State-approved training
program or in a job training program authorized under the
Workforce Investment Act of 1998. The benefit must be for at
least an additional 26 weeks and be equivalent to the
previously calculated UC benefit.
(D) UC Dependent's allowances are provided to all
individuals with a dependent (as defined by State law) at a
level equal to at least $15 per dependent per week. The
aggregate limit on dependent's allowances must be not less than
$50 or 50 percent of the weekly benefit amount for the benefit
year.
Proposed subsection 903(f)(4)(A) would require States to
submit proof of compliance in the requirements for UC
modernization (including information as to how the State
intends to use the incentive payment to improve or strengthen
the State's UC program). The Labor Secretary, within 60 days
after the date of enactment, may prescribe (by regulation or
otherwise) information required in relation to the compliance
of the modernization requirements. The Labor Secretary would
have 30 days after receiving a complete application to
determine if modernization incentives are payable to the State.
Proposed subsection 903(f)(4)(B) would require the
Secretary of Labor, while determining if State law meets the
requirements for an incentive payment, to disregard any State
law provisions that are not currently effective as permanent
law or are subject to a discontinuation under certain
circumstances. Once the Labor Secretary notifies the Treasury
Secretary of the certification of the incentive payment, the
appropriate transfer to the State account would occur within
seven days. State law provisions that are to take effect within
12 months after the date of their certification would be
considered to be in effect for the purposes of certification.
Proposed subsection 903(f)(4)(C) would require that:
States must be eligible for certification
under section 303 [of the Social Security Act] and
under section 3304 of the Federal Unemployment Tax Act
(FUTA) [section 3304 of the Internal Revenue Code of
1986];
States may not be considered in compliance
with paragraph 903(f)(3) without first satisfying the
conditions of paragraph 903(f)(2); that is, no State
may receive the \2/3\ share without also having a
certified alternative base period; and,
applications submitted before enactment or
after the latest date necessary (as determined by the
Labor Secretary) will not be considered in order to
ensure that all incentive payments are made before
October 1, 2011.
Proposed subsection 903(f)(5) would require States to use
the incentive payments only for the payment of UC benefits and
dependents' allowances. An exception is made for those funds
subject to conditions set forth in subsection (c)(2) [of
section 903 of the Social Security Act], excluding the
conditions in subparagraph (B) of section 903 [of the Social
Security Act]. That is, the States would have to appropriate
the funds for administrative expenses. Funds that satisfy this
exception may be used for the administration of UC law and for
public employment offices.
Proposed subsection 903(f)(6) would require the Secretary
of the Treasury to reserve $7 billion for incentive payments in
the Unemployment Account (FUA) of the UTF. These reserved funds
should not be taken into account for purposes of any
determination under sections 902, 910, or 1203 [of the Social
Security Act] of the amount in the FUA as of any given time.
Any amount so reserved for which the Secretary of the Treasury
has not received a certification under the proposed paragraph
(4)(B) of the bill by the deadline determined by the Secretary
of Labor shall become unrestricted regarding its use as part of
the FUA upon the close of fiscal year 2011.
Proposed subsection 903(f)(7) would define ``benefit
year,'' ``base period,'' and ``week'' to be the same meanings
as found in section 205 of the Federal-State Extended
Unemployment Compensation Act of 1970 (26 U.S.C. 3304, note).
Proposed subsection 903(g)(1) of the Social Security Act
would transfer a total of $500 million from the Federal
employment security administration account (ESAA) to the
State's accounts in the UTF within 30 days of enactment.
Proposed subsection 903(g)(2) of the Social Security Act
would distribute the $500 million to the State accounts in the
UTF based upon ratios calculated by methods detailed in section
903(a)(2) [of the Social Security Act]. That is, funds would be
distributed to the State UTF accounts based on the State's
share of estimated Federal unemployment taxes (excluding
reduced credit payments) made by the State's employers. Any
advances made to the State account would first be credited
against, and operate to reduce, any additional amount
transferred to the State account as part of the transfer. These
distributions would be made regardless of whether the State
qualified for any incentive payments in proposed subsection
903(f).
Proposed subsection 903(g)(3) would require that any amount
transferred to a State account as a result of this $500 million
transfer would be used by the State agency of such State only
in (i) the payment of expenses incurred through carrying out of
the purposes in State law required to receive the incentive
payments, (ii) improved outreach to individuals who might be
eligible for regular UC by virtue of the changes in State law,
(iii) the improvement of unemployment benefit and unemployment
tax operations, and (iv) staff-assisted reemployment services
for UC claimants.
Section 2003(b) of the proposal would allow the Labor
Secretary to prescribe any regulations, operating instructions,
or other guidance necessary to carry out the amendments made in
section 2(a) of the proposal.
REASON FOR CHANGES
The Committee believes that the Unemployment Insurance (UI)
system provides critical support that helps unemployed workers
and their families avoid dire economic circumstances. The
decrease in the share of unemployed workers receiving UI
benefits, from 50 percent in the 1950s to approximately 40
percent today has weakened both its ability to smooth income
and consumption for unemployed workers and its ability to act
as an effective macroeconomic stabilizer during weaker economic
conditions.
The Government Accountability Office (GAO) has found that
low-wage workers (those earning roughly less than $9 an hour)
were only about one-third as likely to receive unemployment
benefits compared to higher wage workers even though they were
much more likely to be unemployed. The GAO found this inequity
was at least partly due to Unemployment Insurance (UT)
eligibility rules, ``particularly rules in many States that do
not count workers' most recent earnings toward their minimum
earnings required for eligibility.''
Additionally, the GAO found low levels of UI receipt among
part-time workers, despite the fact that UI taxes are paid on
their behalf. Again, the GAO pointed to UI eligibility rules in
certain States as limiting access to benefits. Finally, GAO
reviewed changes in the labor market since the unemployment
insurance program was established over 70 years ago, most
notably the significant increase in the number of women in the
workforce.
In response to these findings, as well as to the
recommendations made in the mid-1990s by the bipartisan
Advisory Council on Unemployment Compensation, the bill would
reward and encourage States for implementing specific policies
designed to remove barriers to jobless workers accessing needed
benefits. There are no new Federal mandates on States contained
in the legislation; only financial incentives. All of the
reforms proposed by the bill have already been successfully
implemented in at least a few and in some cases many States.
The Committee notes that many of the reforms supported by
the new incentive payments would particularly help women, who
are more likely to be employed in part-time and/or low-wage
jobs, as well as more likely to need to leave work for
compelling family reasons, such as domestic violence, taking
care of a sick or disabled child, and following a spouse whose
job has moved. Increasing the share of the unemployed receiving
UI would simultaneously increase UI's effectiveness in helping
workers and families involuntarily and temporarily unemployed
and enhance UT's macroeconomic counter cyclical stabilizing
role.
Finally, the Committee believes that increased UI
administrative funding for States will help more dislocated
workers efficiently access benefits and prevent staffing
cutbacks at State UI offices. Funds for administering
unemployment insurance at the State and Federal level are not
mandatory and they no longer account adequately for the cost of
program operations, including collecting taxes, paying
benefits, and adjudicating claim Former Secretary of Labor
Elaine Chao has noted that ``the States have a strong case that
administrative funding has been inadequate''. Additional money
to all States for maintenance and investment in their
administrative system for delivering unemployment benefits will
help States make program improvements and cover the rising
administrative costs associated with serving a growing number
of unemployed. With the four-week average of continued claims
for unemployment benefits at a 26-year high at the beginning of
December 2008, improvements in the delivery system will ensure
that more unemployed workers are quickly provided relief--
expediting the stimulative impact of UI benefits.
EFFECTIVE DATE
The provision is effective upon enactment.
Subtitle B--Assistance for Vulnerable Individuals
A. Emergency Fund for the TANF Program (Sec. 2101 of the Bill)
PRESENT LAW
TANF recession-related funds
The 1996 welfare reform law established a contingency fund
under the Temporary Assistance for Needy Families (TANF) block
grant. It appropriated $2 billion to the fund for capped
matching grants. (As of the beginning of FY2009, about $1.3
billion remained in the fund.) The maximum contingency fund
grant a State could receive in a fiscal year equals 20 percent
of its basic TANF block grant.
To qualify for contingency dollars, States must spend under
the TANF program a sum of their own dollars equal to their pre-
TANF Fiscal Year 1994 spending and meet a test of economic
need. Economic need is established by either: (1) increased
participation in the Supplemental Nutrition Assistance Program
(SNAP, formerly known as food stamps) for the most recent three
months for which data are available of at least 10 percent
compared with the corresponding three-month period in either
Fiscal Year 1994 or Fiscal Year 1995; or (2) a three-month
average unemployment rate of at least 6.5 percent and at least
110 percent of the unemployment rate in the corresponding three
month period in either the previous two years. Eligible
expenditures above the pre-TANF level are matched at the
Medicaid (Federal Medical Assistance Percentage or FMAP) rate.
Contingency fund grants are available to the 50 States and
the District of Columbia. Neither the Commonwealth of Puerto
Rico, the territories of Guam and the Virgin Islands, nor
tribes that run their own TANF programs are eligible for
contingency funds.
TANF caseload reduction credit
TANF established Federal work participation standards,
which are numerical performance standards that States must meet
or be subject to a financial penalty. A State must meet two
standards--the all family standard of 50 percent and the two-
parent standard of 90 percent. These standards may be met
either by engaging participants in creditable activities or
through reductions in the cash welfare caseload. States are
given a caseload reduction credit toward the standards of one
percentage point for each percent decline in the caseload from
Fiscal Year 2005 to the preceding fiscal year. Under current
law, the caseload reduction credit for Fiscal Year 2010 is
based on caseload change from Fiscal Year 2005 to Fiscal Year
2009; the caseload reduction credit for Fiscal Year 2011 will
be based on caseload change from Fiscal Year 2005 to Fiscal
Year 2010.
EXPLANATION OF PROVISION
TANF emergency fund
The proposal retains the current TANF contingency fund and
creates a new, temporary emergency contingency fund for Fiscal
Years 2009 and 2010. States with increased cash welfare
caseloads under TANF or separate State programs funded with
TANF State maintenance of effort dollars are eligible for
capped grants from the fund. Also eligible are States with
increased short-term non-recurrent benefit expenditures or
increased subsidized employment expenditures under TANF and
separate State programs. The fund reimburses States for 80
percent of the increased expenditures on basic assistance (cash
welfare), short-term non-recurrent benefits, or subsidized
employment in TANF and separate State programs, up to a cap.
Increased caseloads and expenditures are measured on a
quarterly basis, from each quarter in Fiscal Year 2009 and
Fiscal year 2010 to the corresponding quarter in the base years
of Fiscal Year 2007 and Fiscal Year 2008. The applicable base
period for a State varies depending on whichever results in the
greatest increase for each State for the cash assistance
caseload and by expenditure category (basic assistance, short-
term non-recurrent benefit, and subsidized employment).
The proposal appropriates such sums as needed for emergency
fund grants, but caps individual State grants. Total State
grants from both the current law contingency fund and the
proposed emergency contingency fund are limited to 25 percent
of a State's basic block grant. Emergency contingency fund
grants are available to the 50 States, the District of
Columbia, the Commonwealth of Puerto Rico and the territories
of Guam and the Virgin Islands.
Temporary modification of the caseload reduction credit
The proposal gives States an optional measuring period for
the caseload reduction credit that would apply to Fiscal Year
2009 and Fiscal Year 2010. States would have the option to
measure caseload reduction from Fiscal Year 2005 to either
Fiscal Year 2007 or Fiscal Year 2008 when determining the
caseload reduction credit toward the TANF work participation
standards for those two years.
REASON FOR CHANGES
The TANF program includes a limited contingency fund that
can be used by States during recessionary periods if certain
conditions are met. However, some States face difficulty in
accessing the current contingency fund because of high State
spending requirements, the current balance of the fund, and
because the fund is not targeted to States with caseload
increases.
The economic downturn has increased the need for TANF
assistance. The recession is now in its 13th month and
unemployment has risen from 4.9 percent to 7.2 percent and 2.6
million jobs have disappeared over the past year. This severe
slump in the economy will increase hardship and ultimately the
need for assistance from the TANF program. States already
confronted with TANF caseload increases compared to recent
years would receive immediate help from this new emergency
contingency fund. Many other States could be eligible for
assistance as caseloads begin to rise there as well.
In addition to providing emergency contingency funds, the
Committee also believes that it is important to provide a hold-
harmless for a State's caseload reduction credit under the TANF
program in order to prevent work requirements from rising
because States are providing assistance to more families during
a recession.
EFFECTIVE DATE
The provisions shall take effect on the date of the
enactment of this legislation.
B. One-time Emergency Payment to SSI Recipients (Sec. 2102 of the Bill)
PRESENT LAW
Under Title XVI of the Social Security Act a person who
meets the Social Security definition of disability or
blindness, or who is aged 65 or older, may qualify for the
Supplemental Security Income (SSI) program if he or she has
limited income and resources. The amount of a person's monthly
SSI payment is based on a Federal payment standard set by law,
and is reduced by any countable earned or unearned income
received in a given month. Most States add a supplement to the
monthly SSI payment for recipients who meet certain conditions.
For 2009, the SSI Federal payment standards are $674 per month
for an eligible individual and $1,011 per month for an eligible
married couple. In November 2008, the average Federal SSI
payment was $446.50. Generally, an SSI recipient is also
eligible for his or her State's Medicaid program.
EXPLANATION OF PROVISION
Emergency payment to SSI recipients
The proposal authorizes a one-time emergency payment to SSI
recipients and appropriates such money as may be necessary to
provide such a payment. This payment will be made by the Social
Security Administration (SSA) at the ``earliest practical
date'' in 2009, but not more than 120 days after enactment of
the legislation.
Eligibility for one-time emergency payment
In order to be eligible for the proposed emergency SSI
payment, a person must fall into one of the following two
categories:
The person must be entitled to a cash
benefit, other than a personal needs allowance, under
the SSI program for at least one day during the month
in which the emergency payment is made; or
The person must have been entitled to a cash
benefit, other than a personal needs allowance, under
the SSI program for at least one day in the two-month
period prior to the month in which the emergency
payment is made; and the person's eligibility for SSI
must have ended during that two-month period solely
because he or she exceeded the SSI income limits.
The proposal limits the eligibility of SSI recipients who
are awarded benefits after the date of the emergency payment
but who are eligible for benefits retroactive to the month of
the emergency payment. Only persons who are determined by the
Commissioner of Social Security in calendar year 2009 to fall
into one of the categories described above are eligible for the
emergency payment. Thus, a person who is awarded SSI benefits
anytime after 2009 would not be eligible for the emergency SSI
payment, even if he is or she is awarded benefits retroactive
to a date before the date of the emergency payment.
Amount of one-time emergency payment
For an individual eligible for SSI benefits, the amount of
the one-time emergency payment will be equal to the average
amount of Federal SSI benefits paid in the aggregate to
individuals in the most recent month in which data are
available.
For an individual eligible for SSI benefits who has an
eligible spouse, the amount of the one-time emergency payment
will be equal to the average amount of Federal SSI benefits
paid in the aggregate to individuals with eligible spouses in
the most recent month in which data are available.
Withholding of overpayments
The Commissioner of Social Security may withhold some or
all of the one-time emergency payment to recover any SSI
overpayment.
Payment disregarded for underpayments
The one-time emergency payment will be disregarded for the
purposes of determining if a person has received an
underpayment of SSI benefits.
Non-assignment for one-time emergency payment to SSI recipients
The non-assignment clause of the Social Security Act will
apply to emergency SSI payments.
Treatment of one-time emergency payments to SSI recipients
The amount of the one-time emergency payment to SSI
recipients may not be treated as income, or for the month of
receipt and the following six months as a resource, for the
purposes of determining an individual's eligibility for or the
amount of benefits or assistance from any Federal program or
any State or local government program funded entirely or in
part with Federal funds.
REASON FOR CHANGES
SSI recipients are generally considered the poorest of the
poor and their age and disabilities serve as barriers to their
full participation in the workforce. Federal statute requires
that prospective SSI recipients apply for all other Federal
benefits for which they may be eligible. As a result, it is
considered ``the program of last resort.''
Since 1989, SSI eligibility has been restricted to
qualified persons who have resources of not more than $2,000,
or $3,000 in the case of a couple. This effectively requires a
recipient to have extremely limited assets and a very low-
income to be eligible for the program. As a result, these
recipients have higher rates of poverty compared to other
elderly and disabled populations, such as those receiving
retirement and disability benefits under the Social Security
program. Over one-half of all SSI recipients have no other
income outside of their SSI benefits. SSI benefits alone only
get a recipient to 76 percent of the Federal poverty level.
Recipients who have other forms of income in addition to their
SSI payment have an average income (excluding SSI) of $438 a
month or $5,256 a year. On average, these recipients' total
income (including SSI) allows them to just meet the Federal
poverty level (on average, this total income is 102 percent of
the poverty line).
The one-tune emergency payments will immediately stimulate
the economy and will help SSI recipients make modest
improvements to their overall quality of life. These recipients
will have little choice but to immediately put these payments
back into the economy to purchase food, certain health-related
expenses, and transportation.
In addition to stimulating the economy, these payments also
will assist those who were left out of the first economic
stimulus package. Social Security beneficiaries were made
eligible for the tax rebate in 2008, but SSI recipients were
excluded.
EFFECTIVE DATE
The provision is effective at the ``earliest practical
date'' in 2009, but not more than 120 days after enactment of
the legislation.
C. Temporary Resumption of Prior Child Support Law (Sec. 2103 of the
Bill)
PRESENT LAW
The Federal government pays States an incentive payment to
encourage them to operate effective Child Support Enforcement
(CSE) programs. The incentive payment is based on several
factors including the State's performance in five program
areas. Federal law capped the amount of incentive payments to
the States (in aggregate) at $483 million for fiscal year 2008.
For Fiscal Years after Fiscal Year 2008, the aggregate
incentive payment amount is to be increased to account for
inflation. Federal law requires States to reinvest CSE
incentive payments back into the CSE program or related
activities. The Deficit Reduction Act of 2005 .(P.L. 109-171)
prohibits Federal matching/reimbursement of CSE incentive
payments that are reinvested in the CSE program.
EXPLANATION OF PROVISION
The proposal requires the Department of Health and Human
Services (HHS) to temporarily provide Federal matching funds on
CSE incentive payments that States reinvest back into the CSE
program. Thus, CSE incentive payments that were received by
States and reinvested in their CSE program can be used to draw
down Federal funds for Fiscal Years 2009 and 2010 (i.e., the
period October 1, 2008 through September 30, 2010).
REASON FOR CHANGES
The Committee believes that restoring full Federal funding
for child support enforcement activities will provide a
critical source of income to children and families during the
economic downturn. Child support disproportionately reaches
lower-income families with children who are more likely to put
the money back into the economy as they make purchases to meet
their basic needs. Moreover, families who receive child support
income spend it quickly. According to data collected by States
and banking institutions, 97 percent of child support funds
that are dispensed to family debit cards are spent by the end
of the month.
Child support is 30 percent of family income for poor
families that receive it. The average child support payment
received by low-wage families is nearly $4,000 per year. When
families do not receive this money, they are more likely to
need public assistance. Twenty-four Governors sent a letter to
Congress last summer asking that the child support cut be
repealed and warned that the financial loss of Federal funding
to the child support enforcement program could result in
greater financial pressure on other social assistance programs
including the Temporary Assistance for Needy Families (TANF),
Medicaid, and Food Stamps.
The proposal would suspend the Federal funding cuts in the
child support enforcement program in fiscal years 2009 and
2010, thereby restoring full Federal funding for collecting
support owed to families for two years.
EFFECTIVE DATE
The provisions shall take effect on the date of the
enactment of this legislation.
TITLE III--HEALTH INSURANCE ASSISTANCE FOR THE UNEMPLOYED
A. Premium Assistance for COBRA Continuation Coverage (Sec. 3002(a) of
the Bill and Sec. 4980B and New Secs. 139C, 6431, and 6720C of the
Code)
PRESENT LAW
In general
The Code contains rules that require certain group health
plans to offer certain individuals (``qualified
beneficiaries'') the opportunity to continue to participate for
a specified period of time in the group health plan
(``continuation coverage'') after the occurrence of certain
events that otherwise would have terminated such participation
(``qualifying events'').\138\ These continuation coverage rules
are often referred to as ``COBRA continuation coverage'' or
``COBRA,'' which is a reference to the acronym for the law that
added the continuation coverage rules to the Code.\139\
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\138\ Sec. 4980B.
\139\ The COBRA rules were added to the Code by the Consolidated
Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272. The
rules were originally added as Code sections 162(i) and (k). The rules
were later restated as Code section 4980B, pursuant to the Technical
and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647.
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The Code imposes an excise tax on a group health plan if it
fails to comply with the COBRA continuation coverage rules with
respect to a qualified beneficiary. The excise tax with respect
to a qualified beneficiary generally is equal to $100 for each
day in the noncompliance period with respect to the failure. A
plan's noncompliance period generally begins on the date the
failure first occurs and ends when the failure is corrected.
Special rules apply that limit the amount of the excise tax if
the failure would not have been discovered despite the exercise
of reasonable diligence or if the failure is due to reasonable
cause and not willful neglect.
In the case of a multiemployer plan, the excise tax
generally is imposed on the group health plan. A multiemployer
plan is a plan to which more than one employer is required to
contribute, that is maintained pursuant to one or more
collective bargaining agreements between one or more employee
organizations and more than one employer, and that satisfies
such other requirements as the Secretary of Labor may prescribe
by regulation. In the case of a plan other than a multiemployer
plan (a ``single employer plan''), the excise tax generally is
imposed on the employer.
Plans subject to COBRA
A group health plan is defined as a plan of, or contributed
to by, an employer (including a self-employed person) or
employee organization to provide health care (directly or
otherwise) to the employees, former employees, the employer,
and others associated or formerly associated with the employer
in a business relationship, or their families. A group health
plan includes a self-insured plan. The term group health plan
does not, however, include a plan under which substantially all
of the coverage is for qualified long-term care services.
The following types of group health plans are not subject
to the Code's COBRA rules: (1) a plan established and
maintained for its employees by a church or by a convention or
association of churches which is exempt from tax under section
501 (a ``church plan''); (2) a plan established and maintained
for its employees by the Federal government; the government of
any State or political subdivision thereof, or by any
instrumentality of the foregoing (a ``governmental plan'');
\140\ and (3) a plan maintained by an employer that normally
employed fewer than 20 employees on a typical business day
during the preceding calendar year \141\ (a ``small employer
plan'').
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\140\ A governmental plan also includes certain plans established
by an Indian tribal government.
\141\ If the plan is a multiemployer plan, then each of the
employers contributing to the plan for a calendar year must normally
employ fewer than 20 employees during the preceding calendar year.
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Qualifying events and qualified beneficiaries
A qualifying event that gives rise to COBRA continuation
coverage includes, with respect to any covered employee, the
following events which would result in a loss of coverage of a
qualified beneficiary under a group health plan (but for COBRA
continuation coverage): (1) death of the covered employee; (2)
the termination (other than by reason of such employee's gross
misconduct), or a reduction in hours, of the covered employee's
employment; (3) divorce or legal separation of the covered
employee; (4) the covered employee becoming entitled to
Medicare benefits under title XVIII of the Social Security Act
(5) a dependent child ceasing to be a dependent child under the
generally applicable requirements of the plan; and (6) a
proceeding in a case under the U.S. Bankruptcy Code commencing
on or after July 1, 1986, with respect to the employer from
whose employment the covered employee retired at any time.
A ``covered employee'' is an individual who is (or was)
provided coverage under the group health plan on account of the
performance of services by the individual for one or more
persons maintaining the plan and includes a self-employed
individual. A ``qualified beneficiary'' means, with respect to
a covered employee, any individual who on the day before the
qualifying event for the employee is a beneficiary under the
group health plan as the spouse or dependent child of the
employee. The term qualified beneficiary also includes the
covered employee in the case of a qualifying event that is a
termination of employment or reduction in hours.
Continuation coverage requirements
Continuation coverage that must be offered to qualified
beneficiaries pursuant to COBRA must consist of coverage which,
as of the time coverage is being provided, is identical to the
coverage provided under the plan to similarly situated non-
COBRA beneficiaries under the plan with respect to whom a
qualifying event has not occurred. If coverage under a plan is
modified for any group of similarly situated non-COBRA
beneficiaries, the coverage must also be modified in the same
manner for qualified beneficiaries. Similarly situated non-
COBRA beneficiaries means the group of covered employees,
spouses of covered employees, or dependent children of covered
employees who (i) are receiving coverage under the group health
plan for a reason other than pursuant to COBRA, and (ii) are
the most similarly situated to the situation of the qualified
beneficiary immediately before the qualifying event, based on
all of the facts and circumstances.
The maximum required period of continuation coverage for a
qualified beneficiary (i.e., the minimum period for which
continuation coverage must be offered) depends upon a number of
factors, including the specific qualifying event that gives
rise to a qualified beneficiary's right to elect continuation
coverage. In the case of a qualifying event that is the
termination, or reduction of hours, of a covered employee's
employment, the minimum period of coverage that must be offered
to the qualified beneficiary is coverage for the period
beginning with the loss of coverage on account of the
qualifying event and ending on the date that is 18 months \142\
after the date of the qualifying event. If coverage under a
plan is lost on account of a qualifying event but the loss of
coverage actually occurs at a later date, the minimum coverage
period may be extended by the plan so that it is measured from
the date when coverage is actually lost.
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\142\ In the case of a qualified beneficiary who is determined,
under Title II or XVI of the Social Security Act, to have been disabled
during the first 60 days of continuation coverage, the 18 month minimum
coverage period is extended to 29 months with respect to all qualified
beneficiaries if notice is given before the end of the initial 18 month
continuation coverage period.
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The minimum coverage period for a qualified beneficiary
generally ends upon the earliest to occur of the following
events: (1) the date on which the employer ceases to provide
any group health plan to any employee, (2) the date on which
coverage ceases under the plan by reason of a failure to make
timely payment of any premium required with respect to the
qualified beneficiary, and (3) the date on which the qualified
beneficiary first becomes (after the date of election of
continuation coverage) either (i) covered under any other group
health plan (as an employee or otherwise) which does not
include any exclusion or limitation with respect to any
preexisting condition of such beneficiary or (ii) entitled to
Medicare benefits under title XVIII of the Social Security Act.
Mere eligibility for another group health plan or Medicare
benefits is not sufficient to terminate the minimum coverage
period. Instead, the qualified beneficiary must be actually
covered by the other group health plan or enrolled in Medicare.
Coverage under another group health plan or enrollment in
Medicare does not terminate the minimum coverage period if such
other coverage or Medicare enrollment begins on or before the
date that continuation coverage is elected.
Election of continuation coverage
The COBRA rules specify a minimum election period under
which a qualified beneficiary is entitled to elect continuation
coverage. The election period begins not later than the date on
which coverage under the plan terminates on account of the
qualifying event, and ends not earlier than the later of 60
days or 60 days after notice is given to the qualified
beneficiary of the qualifying event and the beneficiary's
election rights.
Notice requirements
A group health plan is required to give a general notice of
COBRA continuation coverage rights to employees and their
spouses at the time of enrollment in the group health plan.
An employer is required to give notice to the plan
administrator of certain qualifying events (including a loss of
coverage on account of a termination of employment or reduction
in hours) generally within 30 days of the qualifying event. A
covered employee or qualified beneficiary is required to give
notice to the plan administrator of certain qualifying events
within 60 days after the event. The qualifying events giving
rise to an employee or beneficiary notification requirement are
the divorce or legal separation of the covered employee or a
dependent child ceasing to be a dependent child under the terms
of the plan. Upon receiving notice of a qualifying event from
the employer, covered employee, or qualified beneficiary, the
plan administrator is then required to give notice of COBRA
continuation coverage rights within 14 days to all qualified
beneficiaries with respect to the event.
Premiums
A plan may require payment of a premium for any period of
continuation coverage. The amount of such premium generally may
not exceed 102 percent \143\ of the ``applicable premium'' for
such period and the premium must be payable, at the election of
the payor, in monthly installments.
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\143\ In the case of a qualified beneficiary whose minimum coverage
period is extended to 29 months on account of a disability
determination, the premium for the period of the disability extension
may not exceed 150 percent of the applicable premium for the period.
---------------------------------------------------------------------------
The applicable premium for any period of continuation
coverage means the cost to the plan for such period of coverage
for similarly situated non-COBRA beneficiaries with respect to
whom a qualifying event has not occurred, and is determined
without regard to whether the cost is paid by the employer or
employee.\144\ The determination of any applicable premium is
made for a period of 12 months (the ``determination period'')
and is required to be made before the beginning of such 12
month period.
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\144\ While some data has been cited to the effect that COBRA
premiums cost employers more than 102% of the premiums of similarly
situated active employees, GAO has reported on the lack of quantitative
data to support such claims. U.S. General Accounting Office, Private
Health Insurance: Declining Employer Coverage May Affect Access for 55-
to 64-Year-Olds, Pub. no. GAO/HEHS-98-133, Washington: GAO, 1998.
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In the case of a self-insured plan, the applicable premium
for any period of continuation coverage of qualified
beneficiaries is equal to a reasonable estimate of the cost of
providing coverage during such period for similarly situated
non-COBRA beneficiaries which is determined on an actuarial
basis and takes into account such factors as the Secretary of
Treasury prescribes in 'regulations. A self-insured plan may
elect to determine the applicable premium on the basis of an
adjusted cost to the plan for similarly situated non-COBRA
beneficiaries during the preceding determination period.
A plan may not require payment of any premium before the
day which is 45 days after the date on which the qualified
beneficiary made the initial election for continuation
coverage. A plan is required to treat any required premium
payment as timely if it is made within 30 days after the date
the premium is due or within such longer period as applies to,
or under, the plan.
Other continuation coverage rules
Continuation coverage rules which are parallel to the
Code's continuation coverage rules apply to group health plans
under the Employee Retirement Income Security Act of 1974
(ERISA) \145\ ERISA generally permits the Secretary of Labor
and plan participants to bring a civil action to obtain
appropriate equitable relief to enforce the continuation
coverage rules of ERISA, and in the case of a plan
administrator who fails to give timely notice to a participant
or beneficiary with respect to COBRA continuation coverage, a
court may hold the plan administrator liable to the participant
or beneficiary in the amount of up to $110 a day from the date
of such failure.
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\145\ Secs. 601 to 608 of ERISA.
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Although the Federal government and State and local
governments are not subject to the Code and ERISA's
continuation coverage rules, other laws impose similar
continuation coverage requirements with respect to plans
maintained by such governmental employers.\146\ In addition,
many States have enacted laws or promulgated regulations that
provide continuation coverage rights that are similar to COBRA
continuation coverage rights in the case of a loss of group
health coverage. Such State laws, for example, may apply in the
case of a loss of coverage under a group health plan maintained
by a small employer.
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\146\ Continuation coverage rights similar to COBRA continuation
coverage rights are provided to individuals covered by health plans
maintained by the Federal government. 5 U.S.C. sec. 8905a. Group health
plans maintained by a State that receives funds under Chapter 6A of
Title 42 of the United States Code (the Public Health Service Act) are
required to provide continuation coverage rights similar to COBRA
continuation coverage rights for individuals covered by plans
maintained by such State (and plans maintained by political
subdivisions of such State and agencies and instrumentalities of such
State or political subdivision of such State). 42 U.S.C. sec. 300bb-1.
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REASONS FOR CHANGE
The Committee is aware that the majority of Americans with
health insurance coverage obtain such coverage heavily
subsidized through their employers. As a result of the current
economic crisis, a significant number of Americans have been,
and are expected to be, involuntarily terminated from their
employment and thus will lose their income and their subsidy
toward health insurance coverage. While present law permits a
terminated employee to continue to participate in his or her
former employer's group health coverage at a rate of 102% of
the premium for current employees, the Committee is concerned
that such coverage is particularly unaffordable in the case of
an individual who has been involuntarily terminated from
employment. The Committee believes that a temporary subsidy
should be made available to make COBRA continuation coverage
more affordable for employees who involuntarily lose their jobs
on account of the current economic crisis. The subsidy provided
under the Committee's provision is estimated to benefit
approximately 7 million people for some portion of 2009.\147\
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\147\ Joint Committee on Taxation, ``Estimated Budget Effects of
the Revenue Provisions contained in Title I and Title III of H.R. 598,
the ``American Recovery and Reinvestment Tax Act of 2009,'' scheduled
for markup by the Committee on Ways and Means on January 22, 2009,''
JCX-7-09 (January 21, 2009), footnote 9.
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Explanation of Provision Reduced COBRA premium
The provision provides that, for a period not exceeding 12
months, an assistance eligible individual is treated as having
paid any premium required for COBRA continuation coverage under
a group health plan if the individual pays 35 percent of the
premium.\148\ Thus, if the assistance eligible individual pays
35 percent of the premium, the group health plan must treat the
individual as having paid the full premium required for COBRA
continuation coverage, and the individual is entitled to a
subsidy for 65 percent of the premium. An assistance eligible
individual is any qualified beneficiary who elects COBRA
continuation coverage and satisfies two additional
requirements. First, the qualifying event with respect to the
covered employee for that qualified beneficiary must be a loss
of group health plan coverage on account of an involuntary
termination of the covered employee's employment. However, a
termination of employment for gross misconduct does not qualify
(since such a termination under. present law does not qualify
for COBRA continuation coverage). Second, the qualifying event
must occur during the period beginning September 1, 2008 and
ending with December 31, 2009 and the qualified beneficiary
must be eligible for COBRA continuation coverage during that
period and elect such coverage.
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\148\ For this purpose, payment by an assistance eligible
individual includes payment by another individual paying on behalf of
the individual; such as a parent or guardian, or an entity paying on
behalf of the individual, such as a State agency or charity. Further,
the amount of the premium used to calculate the reduced premium is the
premium amount that the employee would be required to pay for COBRA
continuation coverage absent this premium reduction (e.g. 102 percent
of the ``applicable premium'' for such period).
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An assistance eligible individual can be any qualified
beneficiary associated with the relevant covered employee
(e.g., a dependent of an employee who is covered immediately
prior to a qualifying event), and such qualified beneficiary
can independently elect COBRA (as provided under present law
COBRA rules) and independently receive a subsidy. Thus, the
subsidy for an assistance eligible individual continues after
an intervening death of the covered employee.
Under the provision, any subsidy provided is excludible
from the gross income of the covered employee and any
assistance eligible individuals. However, for purposes of
determining the gross income of the employer and any welfare
benefit plan of which the group health plan is a part, the
amount of the premium reduction is intended to be treated as an
employee contribution to the group health plan. Finally, under
the provision, notwithstanding any other provision of law, the
subsidy is not permitted to be considered as income or
resources in determining eligibility for, or the amount of
assistance or benefits under, any public benefit provided under
Federal or State law (including the law of any political
subdivision).
Eligible COBRA continuation coverage
Under the provision, continuation coverage that qualifies
for the subsidy is not limited to coverage required to be
offered under the Code's COBRA rules but also includes
continuation coverage required under State law that requires
continuation coverage comparable to the continuation coverage
required under the Code's COBRA rules for group health plans
not subject to those rules (e.g., a small employer plan) and
includes continuation coverage requirements that apply to
health plans maintained by the Federal government or a State
government. Comparable continuation coverage under State law
does not include every State law right to continue health
coverage, such as a right to continue coverage with no rules
that limit the maximum premium that can be charged with respect
to such coverage. To be comparable, the right generally must be
to continue substantially similar coverage as was provided
under the group health plan (or substantially similar coverage
as is provided to similarly situated beneficiaries) at a
monthly cost that is based on a specified percentage of the
group health plan's cost of providing such coverage.
The cost of coverage under any group health plan that is
subject to the Code's COBRA rules (or comparable State
requirements or continuation coverage requirement under health
plans maintained by the Federal government or any State
government) is eligible for the subsidy, except contributions
to a health flexible spending account.
Termination of eligibility for reduced premiums
The assistance eligible individual's eligibility for the
subsidy terminates with the first month beginning on or after
the earlier of (1) the date which is 12 months after the first
day of the first month for which the subsidy applies, (2) the
end of the maximum required period of continuation coverage for
the qualified beneficiary under the Code's COBRA rules or the
relevant State or Federal law (or regulation), or (3) the date
that the assistance eligible individual becomes eligible for
Medicare benefits under title XVIII of the Social Security Act
or health coverage under another group health plan (including,
for example, a group health plan maintained by the new employer
of the individual or a plan maintained by the employer of the
individual's spouse). However, eligibility for coverage under
another group health plan does not terminate eligibility for
the subsidy if the other group health plan provides only
dental, vision, counseling, or referral services (or a
combination of the foregoing), is a health flexible spending
account or health reimbursement arrangement, or is coverage for
treatment that is furnished in an on-site medical facility
maintained by the employer and that consists primarily of
first-aid services, prevention and wellness care, or similar
care (or a combination of such care).
If a qualified beneficiary paying a reduced premium for
COBRA continuation coverage under this provision becomes
eligible for coverage under another group health plan or
Medicare, the provision requires the qualified beneficiary to
notify, in writing, the group health plan providing the COBRA
continuation coverage with the reduced premium of such
eligibility under the other plan or Medicare. The notification
by the assistance eligible individual must be provided to the
group health plan in the time and manner as is specified by the
Secretary of Labor. If an assistance eligible individual fails
to provide this notification at the required time and in the
required manner, and as a result the individual's COBRA
continuation coverage continues to be subsidized after the
termination of the individual's eligibility for such subsidy, a
penalty is imposed on the individual equal to 110 percent of
the subsidy provided after termination of eligibility.
This penalty only applies if the subsidy in the form of the
premium reduction is actually provided to a qualified
beneficiary for a month that the beneficiary is not eligible
for the reduction. Thus, for example, if a qualified
beneficiary becomes eligible for coverage under another group
health plan and stops paying the reduced COBRA continuation
premium, the penalty generally will not apply. As discussed
below, under the provision, the group health plan is reimbursed
for the subsidy for a month (65 percent of the amount of the
premium for the month) only after receipt of the qualified
beneficiary's portion (35 percent of the premium amount). Thus,
the penalty generally will only arise when the qualified
beneficiary continues to pay the reduced premium and does not
notify the group health plan providing COBRA continuation
coverage of the beneficiary's eligibility under another group
health plan or Medicare.
Special COBRA election opportunity
The provision provides a special 60 day election period for
a qualified beneficiary who is eligible for a reduced premium
and who has not elected COBRA continuation coverage as of the
date of enactment. The 60 day election period begins on the
date that notice is provided to the qualified beneficiary of
the special election period. However, this special election
period does not extend the period of COBRA continuation
coverage beyond the original maximum required period (generally
18 months after the qualifying event) and any COBRA
continuation coverage elected pursuant to this special election
period begins on the date of enactment and does not include any
period prior to that date. Thus, for example, if a covered
employee involuntarily terminated employment on September 10,
2008, but did not elect COBRA continuation coverage and was not
eligible for coverage under another group health plan, the
employee would have 60 days after date of notification of this
new election right to elect the coverage and receive the
subsidy. If the employee made the election, the coverage would
begin with the date of enactment and would not include any
period prior to that date. However, the coverage would not be
required to last for 18 months. Instead the maximum required
COBRA continuation coverage period would end not later than 18
months after September 10, 2008.
The special enrollment provision applies to a group health
plan that is subject to the COBRA continuation coverage
requirements of the Code, ERISA, title 5 of the United States
Code (relating to plans maintained by the Federal government),
or the Public Health Service Act (``PHSA'').
With respect to an assistance eligible individual who
elects coverage pursuant to the special election period, the
period beginning on the date of the qualifying event and ending
with the day before the date of enactment is disregarded for
purposes of the rules that limit the group health plan from
imposing pre-existing condition limitations with respect to the
individual's coverage.\149\
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\149\ Section 9801 provides that a group health plan may impose a
pre-existing condition exclusion for no more than 12 months after a
participant or beneficiary's enrollment date. Such 12-month period must
be reduced by the aggregate period of creditable coverage (which
includes periods of coverage under another group health plan). A period
of creditable coverage can be disregarded if, after the coverage period
and before the enrollment date, there was a 63-day period during which
the individual was not covered under any creditable coverage. Similar
rules are provided under ERISA and PHSA.
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Reimbursement of group health plans
The provision provides that the entity to which premiums
are payable (determined under the applicable COBRA continuation
coverage requirement) \150\ shall be reimbursed by the amount
of the premium for COBRA continuation coverage that is not paid
by an assistance eligible individual on account of the premium
reduction. An entity is not eligible for subsidy reimbursement,
however, until the entity has received the reduced premium
payment from the assistance eligible individual. To the extent
that such entity has liability for income tax withholding from
wages \151\ or FICA taxes \152\ with respect to its employees,
the entity is reimbursed by treating the amount that is
reimbursable to the entity as a credit against its liability
for these payroll taxes.\153\ To the extent that such amount
exceeds the amount of the entity's liability for these payroll
taxes, the Secretary shall reimburse the entity for the excess
directly. The provision requires any entity entitled to such
reimbursement to submit such reports as the Secretary of
Treasury may require, including an attestation of the
involuntary termination of employment of each covered employee
on the basis of whose termination entitlement to reimbursement
of premiums is claimed, and a report of the amount of payroll
taxes offset for a reporting period and the estimated offsets
of such taxes for the next reporting period. This report is
required to be provided at the same time as the deposits of the
payroll taxes would have been required, absent the offset, or
such times as the Secretary specifies.
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\150\ Applicable continuation coverage that qualifies for the
subsidy and thus for reimbursement is not limited to coverage required
to be offered under the Code's COBRA rules but also includes
continuation coverage required under State law that requires
continuation coverage comparable to the continuation coverage required
under the Code's COBRA rules for group health plans not subject to
those rules (e.g., a small employer plan) and includes continuation
coverage requirements that apply to health plans maintained by the
Federal government or a State government.
\151\ Sec. 3401.
\152\ Sec. 3102 (relating to FICA taxes applicable to employees)
and sec. 3111 (relating to FICA taxes applicable to employers).
\153\ In determining any amount transferred or appropriated to any
fund under the Social Security Act; amounts credited against an
employer's payroll tax obligations pursuant to the provision shall not
be taken into account.
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Notice requirements
The notice of COBRA continuation coverage that a plan
administrator is required to provide to qualified beneficiaries
with respect to a qualifying event under present law must
contain, under the provision, additional information including,
for example, information about the qualified beneficiary's
right to the premium reduction (and subsidy) and the conditions
on the subsidy, and a description of the obligation of the
qualified beneficiary to notify the group health plan of
eligibility under another group health plan or eligibility for
Medicare benefits under title XVIII of the Social Security Act,
and the penalty for failure to provide this notification. The
provision also requires a new notice to be given to qualified
beneficiaries entitled to a special election period after
enactment. In the case of group health plans that are not
subject to the COBRA continuation coverage requirements of the
Code, ERISA, title 5 of the United States Code (relating to
plans maintained by the Federal government), or PHSA, the
provision requires that notice be given to the relevant
employees and beneficiaries as well, as specified by the
Secretary of Labor. Within 30 days after enactment, the
Secretary of Labor is directed to provide model language for
the additional notification required under the provision. The
provision also provides an expedited 10-day review process by
the Department of Labor, under which an individual may request
review of a denial of treatment as an assistance eligible
individual by a group health plan.
Regulatory authority
The provision provides authority to the Secretary of the
Treasury to issue regulations or other guidance as may be
necessary or appropriate to carry out the provision, including
any reporting requirements or the establishment of other
methods for verifying the correct amounts of payments and
credits under the provision. For example, the Secretary of the
Treasury might require verification on the return of an
assistance eligible individual who is the covered employee that
the individual's termination of employment was involuntary. The
provision directs the Secretary of the Treasury to issue
guidance or regulations addressing the reimbursement of the
subsidy in the case of a multiemployer group health plan. The
provision also provides authority to the Secretary of the
Treasury to promulgate rules, procedures, regulations, and
other guidance as is necessary and appropriate to prevent fraud
and abuse in the subsidy program, including the employment tax
offset mechanism.
Reports
The provision requires the Secretary of the Treasury to
submit an interim and a final report regarding the
implementation of the premium reduction provision. The interim
report is to include information about the number of
individuals receiving assistance, and the total amount of
expenditures incurred, as of the date of the report. The final
report, to be issued as soon as practicable after the last
period of COBRA continuation coverage for which premiums are
provided, is to include similar information as provided in the
interim report, with the addition of information about the
average dollar amount (monthly and annually) of premium
reductions provided to such individuals. The reports are to be
given to the Committee on Ways and Means, the Committee on
Energy and Commerce, the Committee on Health Education, Labor
and Pensions and the Committee on Finance.
EFFECTIVE DATE
The provision is effective for premiums for months of
coverage beginning on or after the date of enactment. However,
it is intended that a group health plan will not fail to
satisfy the requirements for COBRA continuation coverage merely
because the plan accepts payment of 100 percent of the premium
from an assistance eligible employee during the first two
months beginning on or after the date of enactment while the
premium reduction is being implemented, provided the amount of
the resulting premium overpayment is credited against the
individual's premium (35 percent of the premium) for future
months or the overpayment is otherwise repaid to the employee
as soon as practical.
B. Extension of Minimum COBRA Continuation Coverage (Sec. 3002(b) of
the Bill and Sec. 4980B of the Code)
PRESENT LAW
In general
A covered employee's termination of employment (other than
for gross misconduct), whether voluntary or involuntary, is a
COBRA qualifying event.\154\ A covered employee's reduction in
hours of employment, whether voluntary or involuntary, is also
a COBRA qualifying event if the reduction results in a loss of
employer sponsored group health plan coverage.\155\
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\154\ Sec. 4980B(f)(3)(B); Treas. Reg. 54.4980B-4.
\155\ Sec. 4980(f)(3)(B).
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The minimum length of coverage continuation that must be
offered to a qualified beneficiary depends upon a number of
factors, including the specific qualifying event that gives
rise to a qualified beneficiary's right to elect coverage
continuation. In the case of a qualifying event that is the
termination, or reduction of hours, of a covered employee's
employment, the minimum period of coverage that must be offered
to each qualified beneficiary generally must extend until 18
months after the date of the qualifying event.\156\ Under
certain circumstances, however, the coverage continuation
period can be extended up to a maximum total of 36 months. For
example, if a second qualifying event occurs within the initial
18 month continuation period the initial period will be
extended up to an additional 18 months (for a total of 36
months) for qualified beneficiaries other than the covered
employee. Similarly, if a qualified beneficiary is determined
to be disabled for purposes of Social Security during the first
60 days of the initial 18 month continuation coverage period,
the initial 18 month period may be extended up to an additional
11 months (for a total of 29 months) for the disabled
beneficiary and all of his or her covered family members. If a
second qualifying event then occurs during the additional 11
month coverage period, the continuation period may be extended
for another seven months, for a total of 36 months of
continuation coverage.
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\156\ Sec. 4980E((f)(2)(B)(i)(I). If coverage under a plan is lost
on account of a qualifying event but the loss of coverage actually
occurs at a later date, the minimum coverage period may be extended by
the plan so that it is measured from the date when coverage is actually
lost.
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REASONS FOR CHANGE
The Committee is aware that the majority of Americans with
health insurance coverage obtain such coverage through their
employers. Current law permits terminated employees (and
employees who lose coverage on account of a reduction in their
hours) to continue to participate in their former employers'
group health plan for a limited period of time, generally not
to exceed 18 months in duration. The Committee is concerned
that due to the current economic crisis many Americans will be
terminated from their employment (or lose coverage on account
of a reduction in hours) and thus lose their employer-provided
health coverage. The Committee is concerned that the cost of
premiums in the individual insurance market will effectively
deny many of these individuals health insurance coverage,
particularly in the case of older workers. The Committee is
also concerned about the ability of longer-service employees to
readily find reemployment and thus have access to employer-
provided coverage in the event of a job loss or reduction in
hours. Thus, the Committee believes that it is appropriate to
expand the maximum required coverage for present law
continuation coverage rules for terminated employees who are
age 55 or older or have 10 or more years of service with their
former employer, until such individuals' enrollment in
Medicare.
EXPLANATION OF PROVISION
The provision amends section 4980B(f)(2)(B) to provide
extended COBRA coverage periods for covered employees who
qualify for COBRA continuation coverage due to termination of
employment or reduction in hours and who (a) are age 55 or
older, or (b) have 10 or more years of service with the
employer, at the time of the qualifying event. Such individuals
would be permitted to continue their COBRA coverage until the
earlier of enrollment for Medicare benefits under title XVIII
of the Social Security Act or termination of all health plans
sponsored by the employer offering the COBRA coverage. The
extended coverage period would apply to all qualified
beneficiaries of the covered employee.
The provision makes parallel changes to ERISA and PHSA.
EFFECTIVE DATE
The provision is effective for periods of coverage which
would (without regard to any amendments made by the provision)
end on or after the date of enactment.
TITLE IV--HEALTH INFORMATION TECHNOLOGY
Part II--Medicare Program
Sec. 4311. Incentives for Eligible Professionals
CURRENT LAW
There are several current legislative and administrative
initiatives to promote HIT and EHR in the Medicare program. The
Medicare Modernization Act of 2003 (MNIA; P.L. 108-173)
established a timetable for the Centers for Medicare and
Medicaid Services (CMS) to develop e-prescribing standards,
which provide for the transmittal of such information as
eligibility and benefits (including formulary drugs),
information on the drug being prescribed and other drugs listed
in the patient's medication history (including drug-drug
interactions), and information on the availability of lower-
cost, therapeutically appropriate alternative drugs. CMS issued
a set of foundation standards in 2005, then piloted and tested
additional standards in 2006, several of which were part of a
2008 final rule. The Medicare e-prescribing standards, which
become effective on April 1, 2009, apply to all Part D
sponsors, as well as to prescribers and dispensers that
electronically transmit prescriptions and prescription-related
information about Part D drugs prescribed for Part D eligible
individuals. The MMA did not require Part D drug prescribers
and dispensers to e-prescribe. Under its provisions, only those
who choose to e-prescribe must comply with the new standards.
However, the Medicare Improvement for Patients and Providers
Act of 2008 (MIPPA; P.L. 110-275) included an e-prescribing
mandate and authorized incentive bonus payments for e-
prescribers between 2009 and 2013; payments would be reduced
for those who fail to e-prescribe after 2012.
CMS is administering a number of additional programs to
promote EHR adoption. The MMA mandated a three-year pay-for-
performance demonstration in four states (AR, CA, MA, UT) to
encourage physicians to adopt and use EHR to improve care for
chronically ill Medicare patients. Physicians participating in
the Medicare Care Management Performance (MCMP) demonstration
receive bonus payments for reporting clinical quality data and
meeting clinical performance standards for treating patients
with certain chronic conditions. They are eligible for an
additional incentive payment for using a certified EHR and
reporting the clinical performance data electronically.
CMS has developed a second demonstration to promote EHR
adoption using its Medicare waiver authority. The five-year
Medicare EHR demonstration is intended to build on the
foundation created by the MCMP program. It will provide
financial incentives to as many as 1,200 small- to medium-sized
physician practices in 12 communities across the country for
using certified EHRs to improve quality, as measured by their
performance on specific clinical quality measures. Additional
bonus payments will be made based on the number of EHR
functionalities a physician group has incorporated into its
practice.
The Tax Relief and Health Care Act of 2006 (P.L. 109-432)
established a voluntary physician quality reporting system,
including an incentive payment for Medicare providers who
report data on quality measures. The Medicare Physician Quality
Reporting Initiative (PQRI) was expanded by the Medicare,
Medicaid, and SCHIP Extension Act of 2007 (P.L. 110-173) and by
MIPPA, which authorized the program indefinitely and increased
the incentive that eligible physicians can receive for
satisfactorily reporting quality measures. In 2009, eligible
physicians may earn a bonus payment equivalent to 2.0 percent
of their total allowed charges for covered Medicare physician
fee schedule services. The PQRI quality measures include a
structural measure that conveys whether a physician has and
uses an EHR.
EXPLANATION OF PROVISIONS
The provision would add an incentive payment to certain
doctors for the adoption and ``meaningful use,'' defined below,
of a certified electronic health record (EHR) system. Doctors
eligible for the incentive payments are those who participate
in Medicare and who are defined under 1861(r).
Incentive payments. The amount of EHR incentive payments
that eligible providers could receive would be capped, based on
the amount of Medicare-covered professional services furnished
during the year in question, and the total possible amount of
the incentive payment would decrease over time. The bill
permits a rolling implementation period, with cohorts starting
in 2011, 2012, and 2013, respectively, being eligible for the
entire five years of incentives. For example, incentives that
start in 2011 would continue through 2015, while those that
begin in 2012 would run through 2016 and those starting in 2013
would run through 2017.
For the first calendar year of the designated period
described above, the limit would be $15,000. Over the next four
calendar years, the total possible amount would decrease
respectively by year to $12,000, $8,000, $4,000, and $2,000.
The phase-down is different for eligible professionals first
adopting EHR after 2013. For these eligible providers, the
limit on the amount of the incentive payment would equal the
limit in the first payment year for someone whose first payment
year is 2013. For example, if the first payment year is after
2014 then the limit on the incentive payments for that year
would be $12,000, despite that it is the first year. The EHR
incentive payments for professionals would not be available to
a hospital-based eligible physician, such as a pathologist,
anesthesiologist or emergency physician who furnishes
substantially all such services in a hospital setting using the
hospital's facilities and equipment, including computer
equipment. However, health IT incentive payments are made
available to hospitals in section 4312.
The payment(s) could be in the form of a single
consolidated payment or in periodic installments, as determined
by the Secretary. The Secretary would establish rules to
coordinate the limits on the incentive payments for eligible
professionals who provide covered professional services in more
than one practice (as specified by the Secretary). The
Secretary would seek to avoid duplicative requirements from
federal and state governments to demonstrate meaningful use of
certified EHR technology under the Medicare and Medicaid
programs. The Secretary would be allowed to adjust the
reporting periods in order to carry out this clause.
Meaningful use. For purposes of the EHR incentive payment,
an eligible professional would be treated as a ``meaningful
user'' of EHR technology if the eligible professional meets the
following three criteria: (1) the eligible professional
demonstrates to the satisfaction of the Secretary that during
the period the professional is using a certified EHR technology
in a meaningful manner, which would include the use of
electronic prescribing as determined to be appropriate by the
Secretary; (2) the eligible professional demonstrates to the
satisfaction of the Secretary that during such period such
certified EHR technology is connected in a manner that
provides, in accordance with law and standards applicable to
the exchange of information, for the electronic exchange of
health information to improve the quality of health care, such
as promoting care coordination; and (3) the eligible
professional submits information for the period, in a form and
manner specified by the Secretary, on clinical quality measures
and other measures as selected by the Secretary.
The Secretary could provide for the use of alternative
means for meeting the above requirements in the case of an
eligible professional furnishing covered professional services
in a group practice (as defined by the Secretary). The
Secretary would seek to improve the use of electronic health
records and health care quality over time by requiring more
stringent measures of meaningful use within the categories
specified in thus paragraph.
Clinical quality measures. The Secretary would select the
clinical quality measures and other measures but must be
consistent with the following: (1) the Secretary would provide
preference to clinical quality measures that have been endorsed
by the consensus-based entity regarding performance measurement
with which the Secretary has a contract under section 1890(a)
of the Social Security Act; (2) prior to any measure being
selected for the purposes of this provision, the Secretary
would publish the measure in the Federal Register and provide
for a period of public comment; and (3) the Secretary would, to
the extent practicable, select the same measures for purposes
of the EHR incentive payment as are selected for quality
purposes under the Medicaid program. The Secretary could not
require the electronic reporting of information on clinical
quality measures unless the Secretary has the capacity to
accept the information electronically, which may be on a pilot
basis. In selecting the measures and in establishing the form
and manner for reporting these measures, the Secretary would
seek to avoid redundant or duplicative reporting otherwise
required, including reporting under the physician quality
reporting initiative.
A professional could satisfy the demonstration requirement
above through means specified by the Secretary, which may
include the following: (1) an attestation; (2) the submission
of claims with appropriate coding (such as a code indicating
that a patient encounter was documented using certified EHR
technology); (3) a survey response; (4) reporting the clinical
quality and other measures mentioned above; and (5) other means
specified by the Secretary. Notwithstanding other provisions of
law that place restrictions on the use of Part D data, the
Secretary could use data regarding drug claims submitted for
purposes of determining payment under Part D for purposes of
determining the EHR incentive payments under this legislation.
Miscellaneous. There would be no administrative or judicial
review of any EHR incentive payment and the payment, including
the determination of a meaningful EHR user or the cap on EHR
incentive payments as described above. The Secretary would post
a list of the names, business addresses, and business phone
numbers of the eligible professionals who are meaningful EHR
users and, as determined appropriate by the Secretary, of group
practices receiving incentive payments in an easily
understandable format on the Internet website of the Centers
for Medicare & Medicaid Services.
Definitions. For purposes of the EHR incentive payment, the
following definitions would apply. The term ``certified EHR
technology'' would mean health information technology (as
defined in section 3000(13) of the Public Health Service Act as
amended by this legislation) that is certified pursuant to
3001(c)(5) of such Act as meeting standards adopted under
section 3004 of such Act that are applicable to the type of
record involved (such as an ambulatory electronic health record
for office-based physicians or an inpatient hospital electronic
health record for hospitals). Incentive payments will not be
made for EHR technology that is not certified as meeting
standards adopted by HHS to ensure systems are interoperable,
secure and clinically useful. The term ``covered professional
services'' would have the meaning given such term under current
law. The term ``eligible professional'' would mean a physician,
also as defined under current law. The term ``reporting
period'' would mean any period (or periods), with respect to a
payment year, as specified by the Secretary.
Penalties. The EHR incentive payment would be adjusted
under certain conditions as follows. For covered professional
services furnished by an eligible professional during 2016 or
any subsequent payment year, if the eligible professional is
not a meaningful EHR user during the previous year's reporting
period, the fee schedule amount would reduced to 99 percent in
2016, 98 percent in 2017, and 97 percent in 2018 and in each
subsequent year.
For 2018 and each subsequent year, if the Secretary finds
that the proportion of eligible professionals who are
meaningful EHR users is less than 75 percent, the applicable
fee schedule amount would be decreased by 1 percentage point
from the applicable percent in the preceding year, but in no
case would the applicable percent be less than 95 percent.
Hardship exemption. The Secretary could, on a case-by-case
basis, exempt an eligible professional from the application of
the payment adjustment above if the Secretary determines,
subject to annual renewal, that being a meaningful EHR user
would result in a significant hardship, such as in the case of
an eligible professional who practices in a rural area without
sufficient Internet access. In no case would an eligible
professional be granted such an exemption for more than five
years.
Medicare Advantage. In general, Medicare incentives created
under this section are not available to Medicare Advantage (MA)
plans, and both the payments and penalties made under this
section are exempt from the MA benchmark determinations.
However, the legislation establishes conditions under which the
EHR bonus payments and penalties for the adoption and
meaningful use of certified EHR technology would apply to
selected HMO-affiliated eligible professionals. In general,
with respect to eligible professionals in a qualifying MA
organization who the organization attests to the Secretary are
meaningful EHR users, the incentive payments and adjustments
would apply in a similar manner as they apply to eligible non-
MA professionals. Incentive payments would be made to, and
payment adjustments would apply to, the qualifying
organizations. With respect to a qualifying MA organization, an
eligible professional would be an eligible professional who (i)
is employed by the organization or is employed by or is a
partner of an entity that through contract furnishes at least
80 percent of the entity's patient care services to enrollees
of the organization; and furnishes at least 80 percent of the
professional services of the eligible professional to enrollees
of the organization; and (ii) furnishes, on average, at least
20 hours per week of patient care services. For these MA-
affiliated eligible professionals, the Secretary shall
determine the incentive payments which should be similar to the
payments that would have been available to the professionals
under FFS.
To avoid duplication of payments, if an eligible
professional is both an MA-affiliated professional and eligible
for the maximum payment under the fee-for-service program
(FFS), then the payment incentive would be made only under the
FFS. Otherwise, the incentive payment would be made to the
plan. The Secretary would develop a process to ensure that
duplicate payments are not made. A qualifying MA organization
would specify a year (not earlier than 2011) that would be
treated as the first payment year for all eligible
professionals with respect to the MA organization.
In applying the applicable percentage payment adjustment to
MA-affiliated eligible professionals, instead of the payment
adjustment being an applicable percent of the fee schedule
amount for a year, the payment adjustment would be 100 percent
of the fee schedule amount minus the product of the physician
penalties; the Secretary's estimate of the Medicare FFS
physician expenditure as a proportion of total Medicare FFS
expenditures for the year; and the proportion of such eligible
professionals that are not meaningful EHR users for such year.
REASON FOR CHANGE
Studies indicate that widespread adoption and use of
comprehensive health information technology (IT) can markedly
improve the quality of health care and help reduce costs at the
same time. Health IT has enormous potential to improve disease
management and coordination of care among health care
providers, reduce both medical errors and redundant services,
and enable public health research activities. Studies by the
RAND Corporation and the Center for Information Technology
Leadership each estimate that widespread meaningful use of
health IT could potentially reduce health care costs by about
$80 billion annually by enabling the health delivery system to
become more efficient. In testifying before the Ways and Means
Health Subcommittee in July 2008, then Director of the
Congressional Budget Office, Peter Orszag, said that spurring
widespread use of health IT was a critical component of efforts
to reform the health delivery system in ways that could reduce
health care spending by up to $700 billion per year.
Despite its enormous promise, health care providers have
been slow to adopt and utilize comprehensive health IT systems.
Among physicians the adoption rate is estimated to be as low as
five percent, and among hospitals the rate is estimated to be
as low as 10 percent. There are many reasons behind these low
adoption rates, but perhaps the two most important reasons are
the cost of adopting and maintaining such systems and the lack
of standards that enable interoperability among different
systems.
In a letter sent to the Committee on January 21, 2009, the
nonpartisan Congressional Budget Office (CBO) stated that the
various financial incentives provided by the legislation,
coupled with actions to establish standards for health IT,
would increase adoption rates among both physicians and
hospitals (Appendix A). Specifically, as a result of this
legislation, CBO estimates that ultimately adoption of
comprehensive EHR technology among physicians would reach 90
percent and that the hospital adoption rate would reach 70
percent. In addition, CBO estimates that increased adoption of
health IT would reduce federal spending on health care programs
such as Medicare and Medicaid by about $12 billion over the
budget window, and lead to a net reduction of more than $1
billion annually in private health care spending. Furthermore,
according to CBO, premiums in the private insurance market will
decrease as a result of this legislation. The savings from
these provisions arise from systemic improvements, including
reduced duplication of services, reduced medical errors, and
improved coordination of care. (A copy of the CBO letter is in
Appendix A)
Although not technically under the jurisdiction of the Ways
and Means Committee, subtitles A and B of this title are
integral to understanding the incentive and privacy provisions
that are within the Committee's jurisdiction. These subtitles
clarify the Federal government's leadership role in promoting
the use of health IT and ensure development of a strategic plan
and standards to achieve widespread adoption of health IT.
Subtitle A codifies the Office of the National Coordinator for
Health Information Technology, which was created by an
Executive Order in 2004. It establishes two advisory committees
to help the National Coordinator develop policy goals and
standards for health IT. It requires the Secretary of HHS to
promulgate through regulation the first generation of health IT
standards no later than December 31, 2009, and puts in place a
process to certify products and technologies as being in
compliance with those standards. It directs the Secretary to
support the development of and make available to providers a
certified EHR system at a nominal cost. This provision is
critical to assure the availability of a low-cost certified
system to all interested providers, given Limited funds. And it
would place the Office of the National Coordinator at the
center of efforts to develop a National Health Information
Exchange and promote its use by the Federal government, private
health care providers, and other stakeholders throughout the
health care sector. Subtitle B outlines the role for the
National Institute for Standards and Technology.
The Medicare program is in a particularly good position to
help catalyze the widespread adoption and use comprehensive
health IT. More than 95 percent of practicing physicians in the
United States participate in the Medicare program, and many of
those physicians receive a substantial portion of their revenue
from Medicare. Medicare also has experience with programs aimed
at promoting the use of health information technologies. More
than two decades ago, Medicare pioneered the use of electronic
billing technology and now receives about 95 percent of claims
electronically. More recently, the program started
incentivizing the use of electronic-prescribing technology by
making bonus payments available to providers who submit
prescriptions via such systems.
Using Medicare payments to encourage providers to use
comprehensive EHRs will increase adoption rates and
substantially increase the speed with which adoption occurs.
Incentive payments will only be made available to providers who
demonstrate that they are engaging in meaningful use of an EHR
system that has been certified as meeting approved standards
for interoperability, clinical functionality, and security. The
standards for meaningful use involve having providers use their
EHR system to report on quality measures, as well as a
``technology neutral'' requirement that such systems be able to
exchange health information electronically. The meaningful use
criteria are designed to provide CMS with flexibility in making
the determination about whether a provider has met the
requirement, but the Committee expects that the criteria will
continue to evolve as technology and quality reporting measures
improve over time.
Having both incentive payments phase-out over time and
penalties will encourage early adoption of EHR technology. At
the same time, the Committee recognizes that some providers may
require additional time to implement certified EHR systems.
This is why the legislation provides a ``rolling start'' that
gives providers a three-year window during which they can begin
using such systems and still be eligible for the full incentive
payments. Medicare reimbursement payments will eventually be
reduced for providers who do not demonstrate use of a certified
system.
Incentive payments are designed to reach physicians across
the spectrum of care. Payments are made available to physicians
who bill Medicare directly, as well as for those who bill
through a group practice. Staff-model Medicare Advantage plans
that use certified EHR technology are also eligible to receive
incentive payments for physicians that meet certain criteria.
In order to avoid making double payments to physicians and
hospitals for essentially the same health IT technology, the
legislation prevents incentive payments from going to
``hospital-based'' providers. This provision is based on the
knowledge that certain providers will furnish the vast majority
of their services within a hospital that is eligible for
separate incentive payments under section 4312. Since those
providers will presumably be using the hospital's enterprise-
wide health IT system, they are ineligible for separate
incentive payments under this section. This policy is not
intended to prevent incentive payments from going to providers
who would otherwise qualify simply because they are employed by
a hospital or work in a hospital-owned facility.
Sec. 4312. Incentives for Hospitals
CURRENT LAW
Medicare pays acute care hospitals using a prospectively
determined payment for each discharge. These payment rates are
increased annually by an update factor that is established, in
part, by the projected increase in the hospital market basket
(MB) index. However, starting in FY 2007, hospitals that do not
submit required quality data will have the applicable MB
percentage reduced by two percentage points. The reduction
would apply for that year and would not be taken into account
in subsequent years. Currently, Medicare's payments to acute
care hospitals under the inpatient prospective payment system
(IPPS) are not affected by the adoption of EHR technology.
Critical access hospitals (CAHs) receive cost-plus
reimbursement under Medicare. Under current law, Medicare
reimburses CAHs at 101 percent of their Medicare costs. These
reimbursements include payments for Medicare's share of CAH
expenditures on health IT, plus an additional one percent.
EXPLANATION OF PROVISIONS
The bill would establish incentives, starting in FY 2011,
within Medicare's IPPS for eligible hospitals that are
meaningful EHR users. Generally, these hospitals would receive
diminishing additional payments over a four-year period.
Starting in FY 2016, eligible hospitals that do not become
meaningful EHR users could receive lower payments because of
reductions to their annual MB updates.
Incentive payments. Subject to certain limitations, each
qualified hospital would receive an incentive payment
calculated as the sum of a base amount ($2 million) added to
its discharge related payment which would then be multiplied by
its Medicare's share. These payments would be would be reduced
over a four-year transition period. A qualified hospital would
receive $200 for each discharge paid under the inpatient
prospective payment system (IPPS) starting with its 1,150th
discharge through its 23,000th discharge.
A hospital's Medicare share would be calculated according
to a specified formula. The numerator would equal inpatient bed
days attributable to individuals for whom a Part A payment may
be made, either under traditional Medicare or for those who are
enrolled in Medicare Advantage (MA) organizations. The
denominator would equal the total number of inpatient bed days
in the hospital adjusted by a hospital's share of charges
attributed to charity care. Specifically, the hospital's total
days would be multiplied by a fraction calculated by dividing
the hospital's total charges minus its charges attributed to
charity care by its total charges. If a hospital's charge data
on charity care is not available, the Secretary would be
required to use the hospital's uncompensated care data which
may be adjusted to eliminate bad debt. If hospital data to
construct the charity care factor is unavailable, the fraction
would be set at one. If hospital data necessary to include MA
days is not available, that component of the formula would be
set at zero.
The legislation establishes a four-year incentive payment
transition schedule. A hospital that is a meaningful EHR user
would receive the full amount of the incentive payment in its
first payment year; 75 percent of the amount in its second
payment year; 50 percent of the amount in its third payment
year; and finally 25 percent of the amount in its fourth
payment year. The first payment year for meaningful EHR user
would be FY 2011 or, alternatively, the first fiscal year for
which an eligible hospital would qualify for an incentive
payment. Hospitals that first qualify for the incentive
payments after FY 2013 would receive incentive payment on the
transition schedule as if their first payment year is FY 2013.
Hospitals that become meaningful ERR after FY 2015 would not
receive incentive payments. The incentive payments may be made
as a single consolidated payment or may be made as periodic
payments, as determined by the Secretary.
Meaningful use. An eligible hospital would be treated as a
meaningful EHR user if it demonstrates that it uses certified
EHR technology in a meaningful manner and provides for the
electronic exchange of health information (in accordance with
applicable legal standards) to improve the quality of care. A
hospital would satisfy the demonstration requirements through
an attestation; the submission of appropriately coded claims, a
survey response, EHR reporting on certain measures or other
means specified by the Secretary.
Clinical quality measures. EHR measures would include
clinical quality measures and other measures selected by the
Secretary. Prior to implementation, the measures would be
published in the Federal Register and subject to public
comment. The electronic reporting of the clinical quality
measures would not be required unless the Secretary has the
capacity to accept the information electronically, which may be
on a pilot basis. When establishing the measures, the Secretary
shall provide preference to clinical quality measures that have
been selected for the Reporting Hospital Quality Data for
Annual Payment Update program (RHQDAPU) established at
1886(b)(3)(B)(viii) of the Social Security Act or that have
been endorsed by the entity with a contract with the Secretary
under section 1890(a), which is currently the National Quality
Forum. The Secretary shall seek to avoid redundant measures or
duplicative reporting. Not withstanding restrictions placed on
the use and disclosure of Medicare Part D information, the
Secretary would be able to use data regarding drug claims.
Miscellaneous. There would be no administrative or judicial
review of the determination of any incentive payment or payment
update adjustment (described subsequently), including, the
determination of a meaningful ERR user, the determination of
the measures, or the determination of an exception to the
payment update adjustment.
The Secretary would post listings of the eligible hospitals
that are meaningful ERR users or that are subject to the
penalty and other relevant data on the CMS website. Hospitals
would have the opportunity to review the other relevant data
prior to the data being made publicly available.
Penalties. Starting in FY 2016, eligible IPPS hospitals
that do not submit the required quality data would be subject
to a 25 percent reduction in their annual update, rather than
the 2 percentage point reduction under current law. Those
hospitals that are not meaningful ERR users would be subject to
a reduction in their annual MB update for the remaining three-
quarters of the update. This reduction would be implemented
over a three-year period. In 2016, one-quarter of the update
will be at risk for quality reporting and one-quarter at risk
for meaningful use of ERR. In 2017, one-quarter of the update
will be at risk for quality reporting and one-half will be at
risk for meaningful use of EHR. In 2018 and subsequent years,
one-quarter of the update will be at risk for quality reporting
and three-quarters will be at risk for meaningful use of EHR.
These reductions would apply only to the fiscal year involved
and would not be taken into account in subsequent fiscal years.
Starting in FY 2016, payments to acute care hospitals that are
not meaningful EHR users in a state operating under a Medicare
waiver under section 1814(b)(3) of the Social Security Act
would subject be to comparable aggregate reductions. The state
would be required to report its payment adjustment methodology
to the Secretary.
Hardship exemption. The Secretary would be able to exempt
certain IPPS hospitals from these payment adjustments for a
fiscal year if the Secretary determines that requiring a
hospital to be a meaningful EHR user during that year would
result in significant hardship, such as a hospital in a rural
area without adequate Internet access. Such determinations
would be subject to annual renewal. In no case would a hospital
be granted an exemption for more than five years.
Medicare Advantage. In general, Medicare incentives created
under this section are not available to Medicare Advantage (MA)
plans and the payments made under this section are exempt from
the benchmark determinations. However, payment incentives and
penalties would be established for certain qualifying MA
organizations to ensure maximum capture of relevant data
relating to Medicare beneficiaries. An eligible hospital would
be one that is under common corporate governance with a
qualifying MA organization and serves enrollees in an MA plan
offered by the organization. The Secretary would be required to
determine incentive payment amounts similar to the estimated
amount in the aggregate that would be paid if the hospital
services had been payable under Part A as described above. The
Secretary would be required to avoid duplicative ERR incentive
payments to hospitals. If an eligible hospital under Medicare
Part C was also eligible for EHR incentive payments under
Medicare Part A, and for which at least 33 percent of hospital
discharges (or bed days) were covered under Medicare Part A,
the EHR incentive payment would only be made under Part A and
not Part C. If fewer than 33 percent of discharges are covered
under Part A, the Secretary would be required to develop a
process to ensure that duplicative payments were not made and
to collect data from MA organizations to ensure against
duplicative payments.
If one or more eligible hospitals under a common corporate
governance with a qualifying MA Health Maintenance Organization
are not meaningful EHR users, the incentive payment to the
organization would be reduced by a specified percentage. The
percentage is defined as 100 percent minus the product of (a)
the percentage point reduction to the payment update for the
period described above and (b) the Medicare hospital
expenditure proportion. This hospital expenditure proportion is
defined as the Secretary's estimate of the portion of
expenditures under Parts A and B that are not attributable to
this part, that are attributable to expenditures for inpatient
hospital services. The Secretary would be required to apply the
payment adjustment based on a methodology specified by the
Secretary, taking into account the proportion of eligible
hospitals or discharges from eligible hospitals that are not
meaningful EHR users for the period.
REASON FOR CHANGE
As stated previously, studies indicate that widespread
adoption and use of comprehensive health IT can markedly
improve the quality of health care and help reduce costs. Yet
despite the potential benefits, the adoption rate of
comprehensive health IT at hospitals is estimated to be as low
as 10 percent.
Using Medicare payments to encourage hospitals to use
comprehensive EHRs will increase adoption rates and
substantially increase the speed with which adoption occurs.
Incentive payments will only be made available to hospitals who
demonstrate that they are engaging in meaningful use of an EHR
system that has been certified as meeting approved standards
for interoperability, clinical functionality, and security. The
standards for meaningful use involve having hospitals use their
EHR system to report on quality measures, as well as a
``technology neutral'' requirement that such systems be able to
exchange health information electronically. The meaningful use
criteria are designed to provide CMS with flexibility in making
the determination about whether a hospital has met the
requirement, but the Committee expects that the criteria will
continue to evolve as technology and quality reporting measures
improve over time.
Having both incentive payments phase-out over time and
penalties will encourage early adoption of EHR technology. At
the same time, the Committee recognizes that some hospitals may
require additional time to implement certified EHR systems.
This is why the legislation provides a ``rolling start'' that
gives hospitals a three-year window during which they can begin
using such systems and still be eligible for the full incentive
payments. Medicare reimbursement payments will eventually be
reduced for hospitals who do not demonstrate use of a certified
system.
Incentive payments are designed to reach acute care
hospitals of all sizes, and to reward early and new adopters,
while not penalizing those who have paved the way. Medicare
incentives to acute care hospitals are not intended to cover
the full cost of an EHR system, but rather are set at a level
sufficient to encourage hospitals to affirmatively make the
business decision to invest in an EHR system. The payment is
structured such that Medicare pays its share of this incentive
amount. The Committee believes that Medicare must be a
responsible payer, which includes covering the Medicare share
of any charity care EHR costs. However, Medicare should not
subsidize the portion of EHR costs attributable to other
payers. While not within the jurisdiction of the Ways and Means
Committee, Section 4321 of H.R. 598 provides for Medicaid
reimbursement for Medicaid's share of this incentive level,
including reimbursement for Medicaid's share of any charity
care EHR costs. This section also provides incentive payments
and a penalty formula for hospitals that are under common
corporate governance with a Medicare Advantage plan in order to
ensure that acute care hospitals receiving minimal or no
funding under Part A are encouraged to adopt EHR systems and to
enable policymakers to obtain data on care provided at these
hospitals.
Critical access hospitals (CAHs) are one of the few
categories of hospitals already reimbursed for the EHR costs
under Medicare via cost-plus reimbursement. For this reason
they are not eligible for the new incentive payments contained
in this legislation. Providing incentive payments to CAHs, in
addition to their current cost-based payment structure, would
result in a double-payment to CAHs; once over the initial four-
year period when the CAH is eligible for the new incentive
payments and again during that period when the CAH seeks its
cost-based reimbursement for EHR-related outlays. While CAHs
are not eligible for the new incentive payments, the Committee
recognizes the merits of including CAHs in the incentives and
penalty system so that they face similar incentives to adopt
certified EHR systems and use them in a meaningful manner.
Doing so will encourage interoperability of EHR systems between
CAHs and the tertiary care centers to which they refer
patients, and it will enable policymakers to obtain data on
care provided at CAHs.
The Committee is interested in pursuing a policy that will
allow CAHs to participate in the incentive and penalty system
as long as such policy does not allow for a double-payment of
EHR technology. The Committee also recognizes the concern that
cost-based reimbursement is provided after the initial
investment, and thus CAHs may face a cash flow situation
because they would be required to pay the initial cost up-
front. The Committee notes that the same scenario holds true
for acute care hospitals eligible for the incentive payment
system, as the incentives are paid after a hospital purchases a
certified EHR system and meets the Secretary's standards for
using that system in a meaningful way. The Committee further
notes that CAHs are eligible for loans under section 3017 of
this legislation, which can assist in covering this upfront
investment, and that they would be eligible for Medicaid
hospital payments provided at least 10 percent of their patient
volume is attributable to Medicaid patients.
Sec. 4313. Treatment of Payments and Savings; Implementation Funding
CURRENT LAW
Physician and outpatient services provided under Medicare
Part B are financed through a combination of beneficiary
premiums, deductibles, and federal general revenues. In
general, Part B beneficiary premiums are set to equal 25
percent of estimated program costs for the aged, with federal
general revenues accounting for the remainder. The Part B
premium fluctuates along with total Part B expenditures.
Absent specific legislation to exempt premiums from policy
effects, the recent growth in expenditures for physician
services, led by the increase in imaging and diagnostic
services, generally results in premium increases to cover the
beneficiaries' 25 percent share of total expenditures. While an
individual's Social Security payment cannot decrease from one
year to the next as a result of an increase in the Part B
premium (except for those subject to the income-related
premium), current law does permit the entire cost-of-Iiving
(COLA) increase to be consumed by Medicare premium increases.
MIPPA established the Medicare Improvement Fund, available
to the Secretary to make improvements under the original fee-
for-service program under parts A and B for Medicare
beneficiaries.
For fiscal years 2009 through 2013, the Secretary of Health
and Human Services would transfer $140 million from the Federal
Hospital Insurance Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund to the CMS Program Management
Account. The amounts drawn from the funds would be in the same
proportion as for Medicare managed care payments (Medicare
Advantage), that is, in a proportion that reflects the relative
weight that benefits under part A and under part B represent of
the actuarial value of the total benefits.
EXPLANATION OF PROVISIONS
The legislation exempts spending under this title from the
annual amount of Medicare physician expenditures used to
calculate the Part B premium; beneficiaries would be held
harmless from potential premium increases due to the increased
Part B expenditures that result from this added payment.
Further, the provision authorizes the transfer of funds from
the Treasury to the Supplementary Medical Insurance (Part B)
Trust Fund to cover the amount of EHR payment incentives that
would otherwise be offset by Part B premiums.
The provision modifies the purposes of the Medicare
Improvement Fund by allowing the monies to be used to adjust
Medicare part B payments to protect against projected
shortfalls due to any increase in the conversion factor used to
calculate the Medicare Part B fee schedule.
The amount in the fund in fiscal year 2014, after taking
into account the transfer directed by this section, is modified
to be $22.29 billion. For fiscal year 2020 and each subsequent
fiscal year, the amount in the fund would be the Secretary's
estimate, as of July 1 of the fiscal year, of the aggregate
reduction in Medicare expenditures directly resulting from the
penalties imposed as a result of various Medicare providers not
using health IT in a meaningful fashion.
To implement the provisions in and amendments made by this
section, $60 million for each of FY 2009 through FY 2015 and
$30 million for each succeeding fiscal year through FY 2019
would be appropriated to the Secretary for the CMS Program
Management Account. The amounts appropriated would be available
until expended.
REASON FOR CHANGE
The adoption and use of health IT will help improve care
for Medicare beneficiaries and result in overall savings for
Medicare and the entire health care system, but incentive
payments are not directly related to items and services
furnished to them. Therefore, the effects on Part B spending
are excluded from beneficiary premiums.
In addition, the legislation makes a technical adjustment
to the timing of payments required from the Medicare
Improvement Fund and provides CMS with the funds necessary to
administer the Medicare health IT incentive program.
Sec. 4314. Study on Application of HIT Payment Incentives for Providers
Not Receiving Other Incentive Payments
CURRENT LAW
No current law.
EXPLANATION OF PROVISIONS
This provision would require the Secretary of Health and
Human Services to conduct a study to determine whether payment
incentives to implement and use qualified health information
technology should be made available to health care providers
who are receiving minimal or no payment incentives or other
funding under this Act, including from Medicare or Medicaid, or
any other funding. These health care providers could include
skilled nursing facilities, home health agencies, hospice
programs, laboratories, federally qualified health centers, and
non-physician professionals.
The study would include an examination of the following:
(A) the adoption rates of qualified health information
technology by such health care providers; (B) the clinical
utility of HIT by such health care providers; (C) whether the
services furnished by such health care providers are
appropriate for or would benefit from the use of such
technology; (D) the extent to which such health care providers
work in settings that might otherwise receive an incentive
payment or other funding under this Act, Medicare or Medicaid,
or otherwise; (E) the potential costs and the potential
benefits of making payment incentives and other funding
available to such health care providers; and (F) any other
issues the Secretary deems to be appropriate. The Secretary
would submit a report to Congress on the findings and
conclusions of the study by June 30, 2010.
REASON FOR CHANGE
In order to realize the full benefits of health IT,
adoption and use of the technology must be as widespread as
possible throughout the health care sector. Making Medicare
incentive payments available to hospitals and physicians is the
first step in that process. This study will provide
policymakers with guidance when designing future initiatives to
promote the use of the health IT among a broader group of
providers.
Sec. 4400. Definitions
CURRENT LAW
Under the Administrative Simplification provisions of the
Health Insurance Portability and Accountability Act of 1996
(HIPAA; P.L. 104-191), Congress set itself a three-year
deadline to enact health information privacy legislation. If,
as turned out to be the case, lawmakers were unable to pass
such legislation before the deadline, the HHS Secretary was
instructed to promulgate regulations containing standards to
protect the privacy of individually identifiable health
information. The HIPAA privacy rule (45 CFR Parts 160, 164)
established a set of patient rights, including the right of
access to one's medical information, and placed certain
limitations on when and how health plans, health care providers
and health care clearinghouses may use and disclose such
protected health information (PHI). Generally, plans and
providers may use and disclose health information for the
purpose of treatment, payment, and other health care operations
without the individual's authorization and with few
restrictions. In certain other circumstances (e.g., disclosures
to family members and friends), the rule requires plans and
providers to give the individual the opportunity to object to
the disclosure. The rule also permits the use and disclosure of
health information without the individual's permission for
various specified activities (e.g., public health oversight,
law enforcement) that are not directly connected to the
treatment of the individual. For all uses and disclosures of
health information that are not otherwise required or permitted
by the rule, plans and providers must obtain a patient's
written authorization.
The HIPAA privacy rule also permits health plans, health
care providers and health care clearinghouses--referred to as
HIPAA ``covered entities''--to share health information with
their ``business associates'' who may provide a wide variety of
functions for them, including legal, actuarial, accounting,
data aggregation, management, administrative, accreditation,
and financial services. A covered entity is permitted to
disclose health information to a business associate or to allow
a business associate to create or receive protected health
information on its behalf, provided the covered entity receives
satisfactory assurance in the form of a written contract that
the business associate will appropriately safeguard the
information.
In addition to health information privacy standards,
HIPAA's Administrative Simplification provisions instructed the
Secretary to issue security standards to safeguard PHI in
electronic form against unauthorized access, use, and
disclosure. The security rule (45 CFR Parts 160, 164) specifies
a series of administrative, technical, and physical security
procedures for providers and plans to use to ensure the
confidentiality of electronic health information.
EXPLANATION OF PROVISIONS
The bill defines the following key privacy and security
terms, in most cases by reference to definitions in the HIPAA
Administrative Simplification standards: breach, business
associate, covered entity, disclose, electronic health record,
electronic medical record, health care operations, health care
provider, health plan, National Coordinator, payment, personal
health record, protected health information, Secretary,
security, state, treatment, use, and vendor of personal health
records.
REASON FOR CHANGE
To ensure a common understanding of the terms used in the
law.
Part I--Improved Privacy Provisions and Security Provisions
Sec. 4401. Application of Security Provisions and Penalties to Business
Associates of Covered Entities; Annual Guidance on Security Provisions
CURRENT LAW
As under the privacy rule, the security rule permits
business associates to create, receive, maintain or transmit
electronic health information on behalf of a covered entity,
provided the covered entity receives satisfactory assurance in
the form of a written contract that the business associate will
implement administrative, technical, and physical safeguards
that reasonably and appropriately protect the information.
Covered entities are not liable for, or required to monitor,
the actions of their business associates. If a covered entity
finds out about a material breach or violation of the contract
by a business associate, it must take reasonable steps to
remedy the situation, and, if unsuccessful, terminate the
contract. If termination is not feasible, the covered entity
must notify HHS.
HIPAA authorized the Secretary to impose civil monetary
penalties on any person failing to comply with the privacy and
security standards. The maximum civil penalty is $100 per
violation and up to $25,000 for all violations of an identical
requirement or prohibition during a calendar year. The HHS
Office of Civil Rights (OCR) is responsible for enforcing the
privacy rule. For certain wrongful disclosures of PHI, OCR may
refer the case to the Department of Justice for criminal
prosecution. HIPAA's criminal penalties include fines of up to
$250,000 and up to 10 years in prison for disclosing or
obtaining health information with the intent to sell, transfer
or use it for commercial advantage, personal gain, or malicious
harm. In July 2005, the Justice Department's Office of Legal
Counsel (OLC) addressed which persons may be prosecuted under
HIPAA and concluded that only a covered entity could be
criminally liable.
EXPLANATION OF PROVISIONS
The bill would apply the HIPAA security standards and the
civil and criminal penalties for violating those standards to
business associates in the same manner as they apply to covered
entities. It also would require the Secretary, in consultation
with industry stakeholders, to issue annual guidance on the
most effective and appropriate technical safeguards for
protecting electronic health information.
REASON FOR CHANGE
The failure to apply the HIPAA security rule directly to
business associates is a major gap in the current HIPAA
structure. Holding business associates and covered entities to
the same standards will help to close that gap and promote the
secure and seamless handling of protected health information.
Sec. 4402. Notification in the Case of Breach
CURRENT LAW
The HIPAA privacy and security rules do not require covered
entities to notify HHS or others of a breach of the privacy,
security, or integrity of PHI. However, business associate
contracts must include a provision requiring business
associates to report to covered entities if they become aware
of any security incident or any use or disclosure of PHI that
is not provided for by the contract.
The security standards include three sets of safeguards:
administrative, physical, and technical. Administrative
safeguards include such functions as assigning or delegating
security responsibilities to employees, as well as security
training requirements. Physical safeguards are intended to
protect electronic systems and data from threats, environmental
hazards, and unauthorized access. They include restricting
access to computers and off-site backups. Technical safeguards
are primarily IT functions used to protect and control access
to data. They include using authentication and password
controls, and encrypting data for storage and transmission.
The security standards are flexible and scalable, allowing
covered entities to take into account their size, capabilities,
and the costs of specific security measures. The standards are
also technology neutral. They do not prescribe the use of
specific technologies, so that covered entities will not be
bound by particular systems and/or software.
EXPLANATION OF PROVISIONS
In the event of a breach of unsecured PHI that is
discovered by a covered entity, the bill would require the
covered entity to notify each individual whose information has
been, or is reasonably believed to have been, accessed,
acquired, or disclosed as a result of such breach. For a breach
of unsecured PHI under the control of a business associate, the
business associate upon discovery of the breach would be
required to notify the covered entity. All breach notifications
would have to be made without unreasonable delay and no later
than 60 days after their discovery. Notification could be
delayed, in the same manner as provided in Section
164.528(a)(2) of the HIPAA privacy rule, if it would impede
criminal investigation or damage national security. The
provision specifies the methods by which individuals would be
notified and the contents of the notification. Notice of the
breach would have to be provided to prominent media outlets
serving a particular area if more than 500 individuals in that
area were impacted. Covered entities also would have to
immediately notify the Secretary of breaches of unsecured PHI
involving 500 or more individuals. If the breach impacted fewer
than 500 individuals, the covered entity involved would have to
maintain a log of such breaches and annually submit it to the
Secretary. The Secretary would be required to list on the HHS
website each covered entity involved in a breach that impacted
more than 500 individuals.
The bill would define unsecured PHI as information that is
not secured through the use of a technology or methodology
identified by the Secretary as rendering the information
unusable, unreadable, and undecipherable to unauthorized
individuals. Within 60 days, and annually thereafter, the
Secretary would be required to issue guidelines specifying such
technologies and methodologies. If the Secretary failed to meet
those deadlines, PHI would be considered unsecure if not
secured by a technology standard rendering it unusable,
unreadable, or indecipherable to unauthorized individuals that
was developed or endorsed by a standards development
organization accredited by the American National Standards
Institute (ANSI).
The bill would require the Secretary to report annually to
the Committees on Ways and Means and Energy and Commerce in the
House and to the Committees on Finance and HELP in the Senate
on the number and type of breaches, actions taken in response,
and recommendations made by the National Coordinator on how to
reduce the number of breaches. Within 180 days of enactment,
the Secretary would be required to issue interim final
regulations to implement this section. The provisions in the
section would apply to breaches discovered at least 30 days
after the regulations were published.
REASON FOR CHANGE
The unauthorized release of unsecured personal health
information by a covered entity or business associate can put
patients at risk financially, as well as in ways that are not
immediately tangible, detectable or easily quantifiable. As
such, patients should be promptly notified if their health
information has been accessed or released to an unauthorized
party. It is the Committee's intent that in providing guidance
on securing personal health information, efforts should be made
to ensure that such guidance is achieves the goal of ensuring
compliance and accountability, but is not overly onerous and
takes into consideration the variation in size and
technological capabilities of covered entities and business
associates. The Committee hopes that public disclosure of major
breaches will increase accountability and incentives to
maintain security measures and protect patient privacy.
Sec. 4403. Education on Health Information Privacy
CURRENT LAW
The HIPAA privacy rule requires each covered entity to
designate a privacy official for the development and
implementation of its policies and procedures.
EXPLANATION OF PROVISIONS
Within six months of enactment, the bill would require the
Secretary to designate a privacy advisor in each HHS regional
office to offer education and guidance to covered entities,
business associates and individuals on their federal health
information privacy and security rights and responsibilities.
Within 12 months of enactment, OCR would be required to develop
and maintain a national education program to educate the public
about their privacy rights and the potential uses of their PHI.
REASON FOR CHANGE
The HIPAA rules are complex and some covered entities and
business associates may experience difficulty in correctly
interpreting the rules. Having OCR take a proactive role in
assisting covered entities and business associates understand
the rules will help to promote proper compliance and avoid
violations. In addition, public outreach will help individuals
understand their rights and responsibilities.
Sec. 4404. Application of Privacy Provisions and Penalties to Business
Associates of Covered Entities
CURRENT LAW
Under the privacy rule, a covered entity is permitted to
disclose health information to a business associate or to allow
a business associate to create or receive health information on
its behalf, provided the covered entity receives satisfactory
assurance in the form of a written contract that the business
associate will appropriately safeguard the information. Covered
entities are not liable for, or required to monitor, the
actions of their business associates. If a covered entity funds
out about a material breach or violation of the contract by a
business associate, it must take reasonable steps to remedy the
situation, and, if unsuccessful, terminate the contract. If
termination is not feasible, the covered entity must notify
HHS.
EXPLANATION OF PROVISIONS
Business associates would only be permitted to use or
disclose PHI if such action was in compliance with the
contract. The current provisions regarding a covered entity
acting on its knowledge of a material breach or violation by a
business associate would apply equally to a business associate
gaining such knowledge. In the case of a business associate
violating the privacy contract requirements in this section,
the bill would apply the civil and criminal penalties to that
business associate in the same manner as they apply to covered
entities. Any additional privacy requirements under this
subtitle that were made applicable to covered entities also
would apply to business associates and would have to be
incorporated into the contract.
REASON FOR CHANGE
As with the security rule, the failure to extend many of
the privacy requirements that apply to covered entities to
business associates is a major gap in the current HIPAA law.
Holding business associates and covered entities to the same
standards will help to close that gap and promote patient
privacy.
Sec. 4405. Restrictions on Certain Disclosures and Sales of Health
Information; Accounting of Certain Protected Health Information
Disclosures; Access to Certain Information in Electronic Format
CURRENT LAW
The privacy rule established several individual privacy
rights. First, it established a new federal legal right for
individuals to see and obtain a copy of their own PHI in the
form or format requested by the individual, if it is readily
producible in such form or format. If not, then the information
must be provided in hard copy or such form or format as agreed
to by the covered entity and the individual. The covered entity
can impose reasonable, cost-based fees for providing the
information. Second, the rule gives individuals the right to
amend or supplement their own PHI. The covered entity must act
on an individual's request for amendment within 60 days of
receiving the request. That deadline may be extended up to 30
days. Third, individuals have the right to request that a
covered entity restrict the use and disclosure of their PHI for
the purposes of treatment, payment, or health care operations.
However, the covered entity is not required to agree to such a
restriction unless it has entered into an agreement to
restrict, in which case it must abide by the agreement.
Finally, individuals have the right to an accounting of
disclosures of their PHI by a covered entity during the
previous six years, with certain exceptions. For example, a
covered entity is not required to provide an accounting of
disclosures that have been made to carry out treatment,
payment, and health care operations.
The privacy rule incorporates a ``minimum necessary''
standard, which is not clearly defined. Whenever a covered
entity uses or discloses PHI or requests such information from
another covered entity, it must make reasonable efforts to
limit the information to the minimum necessary to accomplish
the intended purpose of the use or disclosure. There are a
number of circumstances in which the minimum necessary standard
does not apply; for example, disclosures to or requests by a
health care provider for treatment purposes. The rule also
permits the requestor of the information to determine what is
the minimum information necessary to accomplish the task. And
the rule permits the disclosure of a ``limited data set'' for
certain specified purposes (e.g., research), pursuant to a data
use agreement with the recipient. A limited data set, while not
meeting the rule's definition of de-identified information (see
below), has most direct identifiers removed and is considered
by HHS to pose a low privacy risk.
EXPLANATION OF PROVISIONS
The bill would give individuals the right to receive an
electronic copy of their PHI, if it is maintained in an
electronic health record. Any associated fee charged by the
covered entity could only cover its labor costs for providing
the electronic copy. The bill would require a health care
provider to honor a patient's request that the PHI regarding a
specific health care item or service not be disclosed to a
health plan for purposes of payment or health care operations,
if the patient paid out-of-pocket in full for that item or
service. The bill also would give an individual the right to
receive an accounting of PHI disclosures made by covered
entities or their business associates for treatment, payment,
and health care operations during the previous three years, if
the disclosures were through an electronic health record.
Within 18 months of adopting standards on accounting of
disclosures (as required under PHSA Section 3002, as added by
Section 4101 of this Act), the Secretary would be required to
issue regulations on what information shall be collected about
each disclosure. For current users of electronic health
records, the accounting requirements would apply to disclosures
made on or after January 1, 2014. For covered entities yet to
acquire electronic health records, the accounting requirements
would apply to disclosures on or after January 1, 2011, or the
date of electronic health record acquisition, whichever is
later.
The bill would require covered entities to limit the use,
disclosure, or request of PHI, to the extent practicable, to a
limited data set or, if needed, to the minimum necessary to
accomplish the intended purpose of such use, disclosure, or
request. This requirement would hold until such time as the
Secretary issued guidance on what constitutes minimum
necessary. The Secretary would have 18 months to issue such
guidance. In addition, the bill would clarify that the entity
disclosing the PHI, and not the requestor, makes the minimum
necessary determination. The HIPAA privacy rule's exceptions to
the minimum necessary standard would continue to apply.
Within 18 months of enactment, the Secretary would be
required to issue regulations to eliminate from the definition
of health care operations those activities that can reasonably
and efficiently be conducted with de-identified information or
that should require authorization for the use or disclosure of
PHI.
Finally, the bill would prohibit the sale of PHI by a
covered entity or business associate without patient
authorization. In certain specified circumstances, remuneration
would be permitted to recoup the costs of preparing and
transmitting data for public health or research activities (as
defined in the HIPAA privacy rule), or to provide an individual
with a copy of his or her PHI. Within 18 months of enactment,
the Secretary would be required to issue regulations governing
the sale of PHI.
REASON FOR CHANGE
Greater use of electronic health records and other forms of
health IT presents an opportunity to enhance transparency and
accountability within the health care system in terms of how
information is used. If a patient's health care information is
stored in an electronic record, he or she should have the right
to receive a copy of that record electronically rather than a
paper format. Furthermore, if a patient's information is shared
or disclosed electronically, he or she should have the right to
see what information was disclosed and to whom. The ability to
track both sanctioned and permissible access to EHRs creates an
environment that is potentially even more protective of
personal health information than is available with paper
records.
However, increased use of health IT also presents an
opportunity for personal health information to be misused or
fall into the hands of unauthorized users. Taking steps to
encourage the use of more limited amounts of personal health
information where possible, looking at which activities
involving the use of identifiable health information should
require patient authorization, and prohibiting the sale of
health care information with very limited exceptions will go a
long way toward protecting patients against potential abuses.
Sec. 4406. Conditions of Certain Contracts as Part of Health Care
Operations
CURRENT LAW
Generally, covered entities may use and disclose health
information for the purpose of treatment, payment, and other
health care operations without the individual's authorization
and with few restrictions. Health care operations are broadly
defined to include quality assessment and improvement
activities, case management and care coordination, evaluation
of health care professionals, underwriting, legal services,
business planning, customer services, grievance resolution, and
fimdraising.
Under the privacy rule, a covered entity may not disclose
health information to a third party (e.g., pharmaceutical
company), in exchange for direct or indirect remuneration, for
the marketing activities of the third party without first
obtaining a patient's authorization. Similarly, a covered
entity may not use or disclose health information for its own
marketing activities without authorization. Marketing is
defined as a communication about a product or service that
encourages the recipient to purchase or use the product or
service. However, communications made by a covered entity (or
its business associate) to encourage a patient to purchase or
use a health care-related product or service on behalf of
either the covered entity or a third party are excluded from
this definition and, therefore, do not require the patient's
authorization, even if the covered entity is paid by a third
party to engage in such activities.
EXPLANATION OF PROVISIONS
The bill would clarify what constitutes a marketing
communication by a covered entity or business associate under
the HIPAA definition of health care operations. Further, it
would prohibit a covered entity or business associate from
receiving direct or indirect payment for marketing a health
care-related product or service without first obtaining the
recipient's authorization. Business associates would be
permitted to receive payment from a covered entity for using
PHI to make such communication on behalf of the covered entity
that is consistent with the contract. Fundraising for the
benefit of the covered entity also would not be considered a
health care operation.
REASON FOR CHANGE
Certain health care providers receive substantial sums of
money to engage in marketing activities that target patients
using their own personal health information. So long as
personal health information is not provided to a third party,
such marketing activities can be conducted under current law
without the patient's consent or authorization. This type of
marketing can take many forms, ranging from direct-to-consumer
marketing for higher priced drugs to prescription refill
reminders. Patients should have the ability to decide whether
they wish to have their personal health information used to
conduct marketing activities when a third party is paying their
provider to engage in that activity. The Committee is concerned
that some have misinterpreted the new protections or
requirements as inhibiting the ability of providers to
communicate with their patients to improve care. To clarify,
this provision does not affect a pharmacy or other provider's
ability to communicate with patients about disease management
programs, refill reminders, or other types health care products
and services otherwise allowable under HIPAA, so long as they
are not paid by a third party to use PHI to engage in such
activities. Alternatively, a provider could receive third-party
remuneration for these activities if the provider obtained
authorization from the patient to do so.
Sec. 4407. Temporary Breach Notification Requirement for Vendors of
Personal Health Records and Other Non-HIPAA Covered Entities
CURRENT LAW
As already noted, the HIPAA privacy and security rules do
not require covered entities to notify HHS or others of a
breach of the privacy, security, or integrity of PHI. However,
business associate contracts must include a provision requiring
them to report to covered entities if they become aware of any
security incident or any use or disclosure of PHI that is not
provided for by the contract.
EXPLANATION OF PROVISIONS
The bill would require personal health record (PHR) vendors
and entities offering products and services through a PHR
vendor's website, upon discovery of a breach of security of
unsecured PHR health information, to notify the individuals
impacted and the Federal Trade Commission (FTC). Further, third
party service providers that provide services to PHR vendors
and to other entities offering products and services through a
PHR vendor's website and, as a result, that handle unsecured
PER health information would, following the discovery of a
breach of security of such information, be required to * * *
* * * * * * *
U.S. Congress,
Congressional Budget Office,
Washington, DC, January 21, 2009.
Hon. Charles B. Rangel,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: At your request, CBO has analyzed the
effect on federal direct spending and revenues of the Health
Information Technology for Economic and Clinical Health
(HITECH) Act as posted on the Web site of the Committee on Ways
and Means on January 16, 2009.\1\
---------------------------------------------------------------------------
\1\ See http://waysandmeans.house.gov/media/pdf/110/sbill.pdf. The
HITECH Act is title IV.
---------------------------------------------------------------------------
The HITECH Act would establish payment incentives in the
Medicare and Medicaid programs to encourage providers to adopt
health information technology (health IT). Health IT refers to
information technology applications specifically designed for
the practice of clinical medicine, including electronic health
records (EHR), personal health records, health information
exchange, computerized physician order entry, clinical decision
support systems, and electronic prescribing. To meet the
requirements set forth in the bill, providers would have to
purchase a ``qualifying electronic health record'' system with
a standard package of functionalities. Although adoption would
be encouraged through payment incentives in the Medicare and
Medicaid programs, all health care spending--both public and
private--would be affected by the increased use of health IT.
CBO expects that its adoption on a nationwide basis would
reduce total spending on health care by diminishing the number
of inappropriate tests and procedures, reducing paperwork and
administrative overhead, and decreasing the number of adverse
events resulting from medical errors.
The bill also would accelerate spending from the Medicare
Improvement Fund, provide funding for some costs incurred by
the Centers for Medicare & Medicaid Services in administering
the payment-incentive provisions, and make other changes to the
Medicare program.
As a result of the HITECH Act's effects on direct spending
and revenues, CBO estimates that enacting the bill would
increase on-budget deficits by a total of $17.1 billion over
the 2009-2019 period; it would increase the unified budget
deficit over the same period by an estimated $15.8 billion (see
attached table). The effects on direct spending and revenues
over the 2009-2013 and 2009-2018 periods are relevant for
enforcing pay-as-you-go rules under the current budget
resolution. CBO estimates that those effects would increase on-
budget deficits by $15.5 billion over the 2009-2013 period and
$19.8 billion over the 2009-2018 period.
This legislation also would authorize the appropriation of
such sums as are necessary for the Office of the National
Coordinator for Health Information Technology to develop a
national infrastructure for health IT, as well as activities
related to the promotion of IT adoption. The amount of such
funding could vary greatly depending on what the Congress
decides to appropriate for those purposes.
Direct spending
Bonus Payments and Penalties. The bill would establish a
schedule of Medicare bonus payments, beginning in 2011, that
would be paid to hospitals and physicians that adopt and use
qualifying health IT. Beginning in 2016, Medicare would reduce
payment rates to hospitals and physicians that are not using
qualifying health IT. (Payment adjustments also would be
applied to Medicare Advantage plans that operate hospitals or
employ physicians.) Medicare's bonus payments and penalties
would not affect the Part B premiums (which are set to cover
one-quarter of that program's costs) or the benchmarks that are
used in the calculation of payment rates for Medicare Advantage
plans. CBO estimates that spending for the bonuses and payment
reductions from the penalties would increase net Medicare
spending by $17.7 billion over the 2011-2019 period.
The bill also would establish bonus payments (but not
penalties) in the Medicaid program for providers that adopt and
use qualifying health IT. The Medicaid bonus payments to
providers would be paid entirely by the federal government; the
federal government also would pay states 90 percent of certain
administrative costs related to the bonus-payment program. CBO
estimates that the direct effect on Medicaid spending from
those provisions would be an increase of $12.4 billion over the
2011-2019 period. In combination, net Medicare and Medicaid
spending for bonuses and penalties would total $30.0 billion
over that period.
Under current law, CBO estimates that about 45 percent of
hospitals and 65 percent of physicians will have adopted
qualifying health IT in 2019.\2\ CBO estimates the incentive
mechanism would boost those adoption rates to about 70 percent
for hospitals and about 90 percent for physicians.
---------------------------------------------------------------------------
\2\ In Budget Options, Volume 1: Health Care (December, 2008), CBO
stated that, by 2019, about 40 percent of physicians will adopt health
IT that conforms to interoperability standards for that year. The
higher adoption rate mentioned above reflects a less-stringent standard
to qualify for bonus payments or avoid penalties under the HITECH Act.
---------------------------------------------------------------------------
Spending for Benefits. CBO anticipates that accelerating
the adoption of health IT would result in reductions in health
care spending. Those reductions would be realized by, among
other things, reducing the number of inappropriate tests and
procedures, reducing paperwork and administrative overhead, and
decreasing the number of adverse events resulting from medical
errors. Health IT could also improve the quality of care
provided to patients by improving the information available to
clinicians at the time of treatment, by encouraging the use of
evidence-based medicine, and by helping physicians manage
patients with complex, chronic conditions. The use of health IT
could also increase some costs because improved adherence to
treatment protocols could increase the amount of care provided.
On net, CBO estimates that the accelerated adoption of health
IT that would result from implementing the HITECH Act would
reduce costs in the health care system by about 0.3 percent
during the 2011-2019 period.\3\
---------------------------------------------------------------------------
\3\ CBO anticipates near universal adoption of health IT over the
next quarter century even without legislative action. As a result, the
0.3 percent reduction in health care costs estimated to result in the
near term from enactment of this bill would diminish in later years,
when the use of health IT will be more pervasive in any event.
---------------------------------------------------------------------------
Under Medicare's current payment rules, the only savings in
Medicare's expenditures from the adoption of health IT would be
from reducing the utilization of some types of services--for
example, by reducing the probability of hospital admissions
resulting from preventable adverse medical events or reducing
the utilization of unnecessary diagnostic services. Health IT
also would help providers reduce their operating costs.
However, because Medicare's payment rates in the fee-for-
service sector are not adjusted to reflect changes in such
operating costs, those savings would not result in lower
expenditures for the Medicare program. CBO estimates that the
changes in utilization from accelerating the adoption of health
IT would reduce Medicare spending by $4.4 billion over the
2011-2019 period.
By contrast, CBO expects that state Medicaid programs,
plans in the Federal Employees Health Benefits (FEHB) program,
and private insurance plans would negotiate payment rates with
providers that would enable those payers to realize most of the
savings from reductions in providers' operating costs (in
addition to realizing the savings from reducing the utilization
of some types of services). CBO estimates that the resulting
federal savings in Medicaid would total $7.3 billion over the
2011-2019 period.
Federal payments of FEHB premiums for retired federal
employees are considered direct spending. (Most contributions
for retired employees of the U.S. Postal Service are considered
off-budget direct spending.) CBO estimates that enacting the
HITECH Act would reduce on-budget direct spending for the FEHB
program by $0.5 billion over the 2011-2019 period, and would
reduce off budget direct spending for the FEHB program by an
additional $0.2 billion. Thus, the total reduction in direct
spending for the FEHB program would amount to $0.7 billion over
the 2011-2019 period.\4\
---------------------------------------------------------------------------
\4\ CBO also estimates that enacting the HITECH Act would reduce
the cost of health insurance for active federal workers by about $0.1
billion over the 2009-2014 period. Those costs are considered
discretionary spending because the federal she of FEHB premiums for
active workers is funded through appropriations to the agencies that
employ those workers. Realizing the potential discretionary savings
would require adjustments to the amounts appropriated to each agency.
---------------------------------------------------------------------------
In total, CBO estimates that enacting the HITECH Act would
reduce federal direct spending for benefits in the Medicare,
Medicaid, and FEHB programs by about $12 billion over the 2011-
2019 period.
Other Direct Spending. The HITECH Act would modify the
timing of spending from the Medicare Improvement Fund, which
the Secretary of Health and Human Services may use to make
improvements in the fee-for-service program. The bill would
accelerate that spending from 2016, 2017, and 2018 to 2014 and
2015; that change would not affect total Medicare spending over
the 2009-2013 or 2009-2018 periods. The bill also would provide
about $0.9 billion to pay for some of the administrative costs
that the Centers for Medicare & Medicaid Services would incur
in implementing the new payment-incentive provisions. It also
would modify certain payment rates and rules for hospices and
certain hospitals. CBO estimates those changes would cost $0.3
billion over the 2009-2019 period (with most of that spending
in 2009).
Federal revenues
Because accelerating the use of health IT would lower
health care costs for private payers, it would result in lower
health insurance premiums in the private sector. As a result,
private employers would pay less of their workers' compensation
in the form of tax-advantaged health insurance premiums and
more in the form of taxable wages and salaries. Therefore,
federal tax revenues would increase. CBO estimates that on-
budget revenues (from income taxes and the Hospital Insurance
payroll tax--for Medicare Part A) would increase by $2.0
billion over the 2011-2019 period. Higher receipts from Social
Security payroll taxes, which are off-budget, would add another
$1.1 billion, resulting in an estimated increase in total tax
revenues of $3.1 billion over the 2011-2019 period.
If you wish further details on this estimate, we wi11 be
pleased to provide them. The CBO staff contact is Tom Bradley.
Sincerely,
Robert A. Sunshine,
Acting Director.
Attachment.
ESTIMATED EFFECT ON FEDERAL DIRECT SPENDING AND REVENUES OF THE HEALTH INFORMATION TECHNOLOGY FOR ECONOMIC AND CLINICAL HEALTH ACT OF 2009, AS POSTED ON
THE WEB SITE OF THE COMMITTEE ON WAYS AND MEANS ON JANUARY 16, 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
by fiscal years; in billions of dollars--
----------------------------------------------------------------------------------------------------------
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING (Outlays)Bonus Payments and Penalties:
Medicare................................. 0 0 2.7 4.6 5.0 4.0 2.5 0.9 -0.2 -0.9 -1.0 17.7
Medicaid................................. 0 0 1.5 1.9 2.2 2.1 1.7 1.5 0.8 0.5 0.3 12.4
----------------------------------------------------------------------------------------------------------
Subtotal............................. 0 0 4.2 6.5 7.1 6.1 4.3 2.4 0.6 -0.4 -0.7 30.0
Changes in Spending for Benefits:
Medicare................................. 0 0 -0.1 -0.3 -0.5 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6 -4.4
Medicaid................................. 0 0 -0.4 -0.6 -0.8 -0.8 -0.9 -0.9 -0.9 -1.1 -1.1 -7.3
FEHB (on-budget)......................... 0 0 * * -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.5
----------------------------------------------------------------------------------------------------------
Subtotal, on-budget.................. 0 0 -0.5 -0.9 -1.3 -1.5 -1.5 -1.5 -1.6 -1.8 -1.7 -12.1
FEHB (off-budget)........................ 0 0 * * * * * * * * * -0.2
----------------------------------------------------------------------------------------------------------
Subtotal, Changes in Spending for 0 0 -0.5 -0.9 -1.3 -1.5 -1.5 -1.6 -1.6 -1.8 -1.7 -12.3
Benefits............................
Medicare Improvement Fund.................... 0 0 0 0 0 9.2 1.2 -6.3 -3.5 -0.7 0 0
Mandatory Administrative Funding:
Medicare................................. 0.1 0.1 0.1 0.1 0.1 0.1 0.1 * * * * 0.5
Medicaid................................. * * * * * * * * * * * 0.4
----------------------------------------------------------------------------------------------------------
Subtotal............................. 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.9
Other Provisions............................. 0.3 * * 0 0 0 0 0 0 0 0 0.3
Total Changes in Direct Spending......... 0.4 0.1 3.8 5.7 5.9 13.9 4.1 -5.4 -4.4 -2.8 -2.4 18.9 CHANGES IN REVENUESIncome and HI Payroll Taxes (on-budget)...... 0 0 0.1 0.1 0.2 0.3 0.3 0.3 0.3 0.3 0.3 2.0
Social Security Payroll Taxes (off-budget)... 0 0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.1 1.1
----------------------------------------------------------------------------------------------------------
Total Revenue Changes.................... 0 0 0.1 0.2 0.3 0.4 0.4 0.4 0.4 0.4 0.4 3.1 CHANGES IN FEDERAL DEFICITS FROM DIRECT SPENDING AND REVENUES \1\On-budget Changes............................ 0.4 0.1 3.8 5.6 5.7 13.7 3.8 -5.6 -4.7 -3.1 -2.6 17.1
Total Changes............................ 0.4 0.1 3.7 5.5 5.6 13.5 3.7 -5.7 -4.8 -3.2 -2.8 15.8
Memorandum:
Changes in Direct Spending, by Program:
Medicare............................. 0.3 0.1 2.7 4.4 4.5 12.6 3.2 -5.9 -4.2 -2.1 -1.5 14.2
Medicaid............................. * * 1.2 1.4 1.5 1.4 0.9 0.6 -0.1 -0.6 -0.8 5.4
FEHB (Total)......................... 0 0 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Positive numbers indicate an increase in the deficit; negative numbers indicate a reduction in the deficit. In addition to the direct spending and
revenue effects shown in the table, the legislation would authorize increases in spending that is subject to appropriation action.
Notes: * = between -$50 million and $50 million. Details may not add to totals because of rounding. FEHB is the Federal Employees Health Benefits
program (most FEHB spending for annuitants of the U.S. Postal Service is off-budget); HI is the Medicare Hospital Insurance program (Part A).
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in
consideration of H.R. 598, the ``American Recovery and
Reinvestment Tax Act of 2009.''
MOTION TO REPORT THE BILL
The bill, H.R. 598, as amended, was ordered favorably
reported by a roll call vote of 24 yeas to 13 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel........................ X ....... ....... Mr. Camp............ ....... X .......
Mr. Stark......................... X ....... ....... Mr. Herger.......... ....... X .......
Mr. Levin......................... X ....... ....... Mr. Johnson......... ....... X .......
Mr. McDermott..................... X ....... ....... Mr. Brady........... ....... X .......
Mr. Lewis (GA).................... X ....... ....... Mr. Ryan............ ....... X .......
Mr. Neal.......................... X ....... ....... Mr. Cantor.......... ....... X .......
Mr. Tanner........................ ........ ....... ....... Mr. Linder.......... ....... ........ .......
Mr. Becerra....................... X ....... ....... Mr. Nunes........... ....... X .......
Mr. Doggett....................... X ....... ....... Mr. Tiberi.......... ....... ........ .......
Mr. Pomeroy....................... X ....... ....... Ms. Brown-Waite..... ....... X .......
Mr. Thompson...................... X ....... ....... Mr. Davis (KY)...... ....... X .......
Mr. Larson........................ X ....... ....... Mr. Reichert........ ....... X .......
Mr. Blumenauer.................... X ....... ....... Mr. Boustany........ ....... X .......
Mr. Kind.......................... X ....... ....... Mr. Heller.......... ....... X .......
Mr. Pascrell...................... X ....... ....... Mr. Roskam.......... ....... X .......
Mr. Berkley....................... X ....... .......
Mr. Crowley....................... X ....... .......
Mr. Van Hollen.................... X ....... .......
Mr. Meek.......................... X ....... .......
Mr. Schwartz...................... X ....... .......
Mr. Davis (AL).................... X ....... .......
Mr. Davis (IL).................... X ....... .......
Mr. Etheridge..................... X ....... .......
Ms. Sanchez....................... ........ ....... .......
Mr. Higgins....................... X ....... .......
Mr. Yarmuth....................... X ....... .......
----------------------------------------------------------------------------------------------------------------
VOTES ON AMENDMENTS
A roll call vote was conducted on the following amendments
to the Chairman's Amendment in the Nature of a Substitute.
An amendment offered by Mr. Camp which would strike the
Making Work Pay tax credit and lower the 10% and 15% marginal
tax rates to 5% and 10% respectively for tax years 2009 and
2010 was defeated by a roll call vote of 14 yeas to 23 nays.
The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel........................ ....... X ....... Mr. Camp............ X ....... .......
Mr. Stark......................... ....... X ....... Mr. Herger.......... X ....... .......
Mr. Levin......................... ....... X ....... Mr. Johnson......... X ....... .......
Mr. McDermott..................... ....... X ....... Mr. Brady........... X ....... .......
Mr. Lewis (GA).................... ....... ........ ....... Mr. Ryan............ X ....... .......
Mr. Neal.......................... ....... X ....... Mr. Cantor.......... X ....... .......
Mr. Tanner........................ ....... ........ ....... Mr. Linder.......... X ....... .......
Mr. Becerra....................... ....... X ....... Mr. Nunes........... X ....... .......
Mr. Doggett....................... ....... X ....... Mr. Tiberi.......... ........ ....... .......
Mr. Pomeroy....................... ....... X ....... Ms. Brown-Waite..... X ....... .......
Mr. Thompson...................... ....... X ....... Mr. Davis (KY)...... X ....... .......
Mr. Larson........................ ....... X ....... Mr. Reichert........ X ....... .......
Mr. Blumenauer.................... ....... X ....... Mr. Boustany........ X ....... .......
Mr. Kind.......................... ....... X ....... Mr. Heller.......... X ....... .......
Mr. Pascrell...................... ....... X ....... Mr. Roskam.......... X ....... .......
Ms. Berkley....................... ....... X .......
Mr. Crowley....................... ....... X .......
Mr. Van Hollen.................... ....... X .......
Mr. Meek.......................... ....... X .......
Ms. Schwartz...................... ....... X .......
Mr. Davis (AL).................... ....... X .......
Mr. Davis (IL).................... ....... X .......
Mr. Etheridge..................... ....... X .......
Ms. Sanchez....................... ....... ........ .......
Mr. Higgins....................... ....... X .......
Mr. Yarmuth....................... ....... X .......
----------------------------------------------------------------------------------------------------------------
An amendment offered by Mr. Johnson which would exempt
unemployment compensation from income taxation in 2008 and 2009
was defeated by a vote of 14 yeas and 24 nays. The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel........................ ....... X ....... Mr. Camp............ X ....... .......
Mr. Stark......................... ....... X ....... Mr. Herger.......... X ....... .......
Mr. Levin......................... ....... X ....... Mr. Johnson......... X ....... .......
Mr. McDermott..................... ....... X ....... Mr. Brady........... X ....... .......
Mr. Lewis (GA).................... ....... X ....... Mr. Ryan............ X ....... .......
Mr. Neal.......................... ....... X ....... Mr. Cantor.......... X ....... .......
Mr. Tanner........................ ....... ........ ....... Mr. Linder.......... X ....... .......
Mr. Becerra....................... ....... X ....... Mr. Nunes........... X ....... .......
Mr. Doggett....................... ....... X ....... Mr. Tiberi.......... ........ ....... .......
Mr. Pomeroy....................... ....... X ....... Ms. Brown-Waite..... X ....... .......
Mr. Thompson...................... ....... X ....... Mr. Davis (KY)...... X ....... .......
Mr. Larson........................ ....... X ....... Mr. Reichert........ X ....... .......
Mr. Blumenauer.................... ....... X ....... Mr. Boustany........ X ....... .......
Mr. Kind.......................... ....... X ....... Mr. Heller.......... X ....... .......
Mr. Pascrell...................... ....... X ....... Mr. Roskam.......... X ....... .......
Ms. Berkley....................... ....... X .......
Mr. Crowley....................... ....... X .......
Mr. Van Hollen.................... ....... X .......
Mr. Meek.......................... ....... X .......
Ms. Schwartz...................... ....... X .......
Mr. Davis (AL).................... ....... X .......
Mr. Davis (IL).................... ....... X .......
Mr. Etheridge..................... ....... X .......
Ms. Sanchez....................... ....... ........ .......
Mr. Higgins....................... ....... X .......
Mr. Yarmuth....................... ....... X .......
----------------------------------------------------------------------------------------------------------------
An amendment offered by Mr. Brady which would raise the
exemption amounts under the alternative minimum tax for tax
year 2009 to $46,700 for individuals ($70,950 for married
couples) and extend through 2009 the allowance of certain
personal credits against the alternative minimum tax was
defeated by a vote of 14 yeas and 24 nays. The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel....................... ....... X ........ Mr. Camp............ X ....... .......
Mr. Stark........................ ....... X ........ Mr. Herger.......... X ....... .......
Mr. Levin........................ ....... X ........ Mr. Johnson......... X ....... .......
Mr. McDermott.................... ....... X ........ Mr. Brady........... X ....... .......
Mr. Lewis (GA)................... ....... X ........ Mr. Ryan............ X ....... .......
Mr. Neal......................... ....... X ........ Mr. Cantor.......... X ....... .......
Mr. Tanner....................... ....... ........ ........ Mr. Linder.......... X ....... .......
Mr. Becerra...................... ....... X ........ Mr. Nunes........... X ....... .......
Mr. Doggett...................... ....... X ........ Mr. Tiberi.......... ........ ....... .......
Mr. Pomeroy...................... ....... X ........ Ms. Brown-Waite..... X ....... .......
Mr. Thompson..................... ....... X ........ Mr. Davis (KY)...... X ....... .......
Mr. Larson....................... ....... X ........ Mr. Reichert........ X ....... .......
Mr. Blumenauer................... ....... X ........ Mr. Boustany........ X ....... .......
Mr. Kind......................... ....... X ........ Mr. Heller.......... X ....... .......
Mr. Pascrell..................... ....... X ........ Mr. Roskam.......... X ....... .......
Ms. Berkley...................... ....... X ........
Mr. Crowley...................... ....... X ........
Mr. Van Hollen................... ....... X ........
Mr. Meek......................... ....... X ........
Ms. Schwartz..................... ....... X ........
Mr. Davis (AL)................... ....... X ........
Mr. Davis (IL)................... ....... X ........
Mr. Etheridge.................... ....... X ........
Ms. Sanchez...................... ....... ........ ........
Mr. Higgins...................... ....... X ........
Mr. Yarmuth...................... ....... X ........
----------------------------------------------------------------------------------------------------------------
An amendment offered by Ms. Brown-Waite on GAO health
studies was defeated by a vote of 14 yeas and 23 nays. The vote
was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel....................... ....... X ........ Mr. Camp............ X ....... .......
Mr. Stark........................ ....... ........ X Mr. Herger.......... X ....... .......
Mr. Levin........................ ....... X ........ Mr. Johnson......... X ....... .......
Mr. McDermott.................... ....... X ........ Mr. Brady........... X ....... .......
Mr. Lewis (GA)................... ....... X ........ Mr. Ryan............ X ....... .......
Mr. Neal......................... ....... X ........ Mr. Cantor.......... X ....... .......
Mr. Tanner....................... ....... ........ ........ Mr. Linder.......... X ....... .......
Mr. Becerra...................... ....... X ........ Mr. Nunes........... X ....... .......
Mr. Doggett...................... ....... X ........ Mr. Tiberi.......... ........ ....... .......
Mr. Pomeroy...................... ....... X ........ Ms. Brown-Waite..... X ....... .......
Mr. Thompson..................... ....... X ........ Mr. Davis (KY)...... X ....... .......
Mr. Larson....................... ....... X ........ Mr. Reichert........ X ....... .......
Mr. Blumenauer................... ....... X ........ Mr. Boustany........ X ....... .......
Mr. Kind......................... ....... X ........ Mr. Heller.......... X ....... .......
Mr. Pascrell..................... ....... X ........ Mr. Roskam.......... X ....... .......
Ms. Berkley...................... ....... X ........
Mr. Crowley...................... ....... X ........
Mr. Van Hollen................... ....... X ........
Mr. Meek......................... ....... X ........
Ms. Schwartz..................... ....... X ........
Mr. Davis (AL)................... ....... X ........
Mr. Davis (IL)................... ....... X ........
Mr. Etheridge.................... ....... X ........
Ms. Sanchez...................... ....... ........ ........
Mr. Higgins...................... ....... X ........
Mr. Yarmuth...................... ....... X ........
----------------------------------------------------------------------------------------------------------------
An amendment offered by Mr. Heller which would modify the
first-time homebuyer provision in the Chairman's mark by
extending the tax credit through 2009; removing first-time
homebuyer requirement; and adding an additional requirement
that individual's claiming this credit make at least a 5% down
payment was defeated by a vote of 14 yeas and 23 nays. The vote
was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel....................... ........ X ........ Mr. Camp........... X ....... .......
Mr. Stark........................ ........ X ........ Mr. Herger......... X ....... .......
Mr. Levin........................ ........ X ........ Mr. Johnson........ X ....... .......
Mr. McDermott.................... ........ X ........ Mr. Brady.......... X ....... .......
Mr. Lewis (GA)................... ........ X ........ Mr. Ryan........... X ....... .......
Mr. Neal......................... ........ X ........ Mr. Cantor......... X ....... .......
Mr. Tanner....................... ........ ........ ........ Mr. Linder......... ........ ....... .......
Mr. Becerra...................... ........ X ........ Mr. Nunes.......... X ....... .......
Mr. Doggett...................... ........ X ........ Mr. Tiberi......... ........ ....... .......
Mr. Pomeroy...................... ........ X ........ Ms. Brown-Waite.... X ....... .......
Mr. Thompson..................... ........ X ........ Mr. Davis (KY)..... X ....... .......
Mr. Larson....................... ........ X ........ Mr. Reichert....... X ....... .......
Mr. Blumenauer................... ........ X ........ Mr. Boustany....... X ....... .......
Mr. Kind......................... ........ X ........ Mr. Heller......... X ....... .......
Mr. Pascrell..................... ........ X ........ Mr. Roskam......... X ....... .......
Ms. Berkley...................... X ........ ........
Mr. Crowley...................... ........ X ........
Mr. Van Hollen................... ........ X ........
Mr. Meek......................... ........ X ........
Ms. Schwartz..................... ........ X ........
Mr. Davis (AL)................... ........ X ........
Mr. Davis (IL)................... ........ X ........
Mr. Etheridge.................... ........ X ........
Ms. Sanchez...................... ........ ........ ........
Mr. Higgins...................... ........ X ........
Mr. Yarmuth...................... ........ X ........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 598 as reported.
The bill is estimated to have the following effects on
Federal budget receipts for fiscal years 2009-2019:
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B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures.
C. Macroeconomic Impact Analysis
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the staff of the Joint
Committee on Taxation provides the following macroeconomic
analysis of the tax provisions in H.R. 598, the ``American
Recovery and Reinvestment Tax Act of 2009,'' that amends the
Internal Revenue Code of 1986.
Framework and summary
According to the National Bureau of Economic Research, the
economy has been in a period of negative growth and growing
unemployment, or recession, since December, 2007. The
Congressional Budget Office has projected that under present
law, the economy (as measured by gross domestic product) will
decline by 2.2 percent in 2009, and the unemployment rate would
grow from an average of 5.7 percent in 2008 to 8.3 percent in
2009 and 9.0 percent in 2010.\157\ In a recession, unemployment
grows because consumers reduce their purchases, of goods and
services, and businesses respond by reducing their production.
---------------------------------------------------------------------------
\157\ Congressional Budget Office, The Budget and Economic Outlook,
Fiscal Years 2009 to 2019, January 8, 2009, p.3.
---------------------------------------------------------------------------
Consistent with the current economic environment, the tax
provisions in H.R. 598 were primarily designed to promote
short-term stimulus, or increase in demand for goods and
services. The bill includes a number of changes to the
individual income tax, most of them temporary, and most of them
changing average tax rates more than marginal tax rates. The
largest of these is the ``making work pay'' tax credit of 6.2
percent of earnings up to $500 per single filer and $1,000 for
joint filers. We estimate that the changes in the individual
income tax would decrease the income-weighted average
individual income tax rate by one percentage point (to
approximately 10.9 percent in 2009 and 11.0 percent in 2010).
The income-weighted average tax rate for individuals after 2010
is essentially unchanged from present law. In contrast, because
of interactions with phase-outs of credits and deductions, H.R.
598 has small increases in average marginal rates for 2009 and
2010. For example, the income weighted average marginal tax
rate on wage income increases from 23.5 percent to 23.9 percent
in 2009.
These reductions in individual tax liability result in more
disposable income for individuals, and thus may be expected to
increase their consumption. The increase in consumption is
expected to create an improved market for more goods and
services, thus increasing firms' incentive to hire more
workers, and generating additional output and employment. To
the extent that the provisions increase the marginal tax rate
on earnings, they may provide negative incentives for the
individuals to work. As indicated by the rate changes
enumerated above, H.R. 598 is expected to produce very little
change in marginal tax rates. In the current economy with high
unemployment, it is unlikely that this effect would be
significant.
The bill also includes some temporary tax cuts for
businesses designed to augment their ability to respond to this
increased demand. The largest of these are the one-year bonus
depreciation provision, a three year extension of production
credits for certain renewable energy facilities, and the two
year provision to allow a five-year carry back for the
deduction of net operating losses. The combined effects of the
changes to corporate and other business taxes, is to
temporarily reduce average tax rates on businesses by about 5
percentage points in 2009. Marginal tax rates are reduced by a
considerably smaller amount, about 1 percentage point in 2009.
In subsequent years, the effect is reversed. The reduction of
average tax rates for businesses does not provide a direct
incentive for a permanent increase in the business capital
stock, but may provide businesses with needed liquidity in a
time when investment capital is extremely expensive.
Finally, there are several provisions to provide various
forms of tax-favored financing for the development of public
and private infrastructure and housing. These provisions enter
our analysis through their effects on average and marginal tax
rates on capital for individual and businesses providing
financing through these vehicles. The analysis does not
incorporate the effects of these provisions on the activities
fmanced by the instruments created.
Overall, the tax provisions in H.R. 598 have the potential
to increase GDP by 0.3 to 0.8 percent and employment by 0.3 to
0.8 percent at their peak period of effectiveness in the fourth
quarter of 2010. Effects decline rapidly after that. The range
in estimated effects of these tax proposals on short-run growth
derives primarily from uncertainty as to what portion of their
increased disposable income consumers would spend. More details
on these effects appear below in Tables 1-3. Each table
corresponds to a different assumed tendency to spend, or
``marginal propensity to consume'' out of the disposable income
generated by the tax cuts. The effects described above are only
those attributable to the tax portions of H.R. 598; this
analysis does not attempt to estimate the effects of government
spending provisions on the economy. It is also important to
note that these projected ``increases'' are relative to what
GDP and employment would have been without the stimulus, not
relative to their levels today. Because GDP and employment are
projected to fall under present law, an increase in output and
employment due to the stimulative effects of the tax title of
H.R. 598 could still be associated with an overall decline in
output and employment.
Modeling the stimulus proposal
In earlier analyses of the macroeconomic effects of various
tax proposals, the Joint Committee staff has relied on several
different models to simulate the short and long term growth
effects of various tax proposals. These include the Joint
Committee's Macroeconomic Equilibrium Growth model (``MEG''),
an overlapping generations model,\158\ and in one recent
analysis, a dynamic stochastic general equilibrium model.\159\
---------------------------------------------------------------------------
\158\ Descriptions of the macroeconomic equilibrium growth model
and the overlapping generations model may be found in Joint Committee
on Taxation, Overview of the Work of the Staff of the Joint Committee
on Taxation to Model the Macroeconomic Effects of Proposed Tax
Legislation to Comply with House Rule XIII.3(h), JCX-105-03, December
22, 2003, pp.10-12.
\159\ The dynamic stochastic general equilibrium model is described
in Joint Committee on Taxation, Background Information about the
Dynamic Stochastic General Equilibrium Model Used by the Staff of the
Joint Committee on Taxation in the Macroeconomic Analysis of Tax
Policy, JCX-52-06, December 14, 2006.
---------------------------------------------------------------------------
Developmental work that Joint Committee staff has done with
all of these models has been targeted at improving their
ability to simulate the long-term growth effects of different
types of tax policy. Long-term growth effects in these models
are generated by incentives provided to individuals to supply
labor and capital to the economy, and by willingness of firms
to use the labor and capital to produce. During a recession, it
is not clear how important these effects might be in promoting
growth; they will depend in part on whether the stimulus
creates a demand for the services of these workers. Because the
overlapping generations and dynamic stochastic equilibrium
models are constructed to simulate an economy that is always at
full employment, these models are not helpful in analyzing the
short-term effects of policies designed to provide stimulus to
an economy that is in a recession.
In contrast, the MEG model is designed to allow simulations
of policy in an economy with less than full employment in
addition to simulating longer-run growth incentives, and
therefore it is the model used for the purpose of this
analysis.
JCT staff typically provides a range of possible
macroeconomic outcomes, depending on variations in monetary and
fiscal policy, and occasionally in the responsiveness of
individuals to the incentives provided in the policy,
particularly in the desire of potential workers to change the
amount of labor they wish to supply in response to changes in
marginal tax rates on labor compensation. In the current
situation, there is little uncertainty about monetary policy
response. The Federal Reserve Board is fully accommodating all
stimulus policies. Joint Committee staff simulations assume
fully accommodating monetary policy, both in the baseline
simulations and policy alternative simulations. Nevertheless,
private sector interest rates are assumed to be high through
2010, reflecting the current credit crunch in the economy.
Since the perfect foresight general equilibrium models are not
being used in this analysis, there is no need to make
assumptions about future fiscal policy that would be necessary
to bring the path of Government debt into a stable pattern. In
addition, because changes in marginal tax rates generated by
this policy are low, the responsiveness of individuals to labor
incentives is also of small importance to the results.
Consequently, the range of outcomes presented below is
generated by assumed differences in the portion of the tax
reduction consumers can be expected to spend.
Results
The three simulations below show the estimated effects of
the tax policy in H.R. 598 on GDP, the capital stock, and
employment under different assumptions about consumers'
spending out of their increased disposable income. The
simulation shown on Table 1 assumes that consumers spend the
additional income due to the tax. reduction in roughly the same
proportion that they typically spend disposable income. Table 2
shows the results of assuming that consumers would spend a
lower portion of the tax reduction because the tax cuts are
temporary, and individuals tend to spend a smaller portion of
temporary tax cuts than of permanent tax cuts. And Table 3
shows the results of assuming that recipients of the tax
reduction would spend 50 percent more of the proceeds of the
tax reduction relative to consumption out of overall income--
based on the premise that the tax cuts are concentrated among
lower income earners, who tend to spend larger shares of their
income.
TABLE 1.--EFFECTS OF TAX PROVISIONS OF H.R. 598 ON ECONOMY ASSUMING FULL
CONSUMPTION RESPONSE
------------------------------------------------------------------------
Percent change relative to
baseline--
---------------------------
2009-2014 2010: Q4
------------------------------------------------------------------------
GDP Change:
Real.................................... 0.1 0.5
Nominal................................. 0.7 1.1
Capital Stock, Real:
Total Capital........................... -0.2 -0.0
Producer's Capital...................... -0.2 0.0
Residential Capital..................... -0.1 -0.1
Real Consumption............................ 0.2 0.8
Employment.................................. 0.1 0.6
Revenue Increase as Percent of Conventional 12 ...........
Revenue Estimate...........................
------------------------------------------------------------------------
At the peak of the stimulus effect, in the fourth quarter
of 2010, consumption is increased by .8 percent, real Gross
Domestic Product (``GDP'') is increased by 0.5 percent, and
employment by .6 percent relative to what they would have of
been without the tax stimulus. The growth effects of the
stimulus decline quickly once most of the tax changes have
expired, so that on average during the period from 2009-2014,
consumption increases by just 0.3 percent, real GDP by 0.1
percent, and employment by 0.2 percent. Producers' capital
stock is increased by less than 0.1 percent at the peak, and
reduced on average over the five-year period. This pattern is
consistent with the theory that temporary bonus depreciation
and other business tax cuts are more likely to change the
timing of investment than the total level of investment. In
addition, the decline in producers' capital stock indicates the
beginnings of crowding out effects on private investment due to
growing government debt. The growth during this period
generates a revenue feedback of 12 percent, relative to the
cost of the tax provisions as estimated using conventional
revenue analysis. The MEG model simulation indicates that in
the years beyond this period, the effects of growing Federal
government debt start to reverse the effects of the stimulus.
However, this result may not fully take into account the role
of the stimulus in restoring the economy to a more stable
growth path.
TABLE 2.--EFFECTS OF TAX PROVISIONS OF H.R. 598 ON ECONOMY ASSUMING
REDUCED CONSUMPTION RESPONSE
------------------------------------------------------------------------
Percent change relative to
baseline--
---------------------------
2009-2014 2010: Q4
------------------------------------------------------------------------
GDP Change:
Real.................................... 0.0 0.3
Nominal................................. 0.4 0.7
Capital Stock, Real:
Total Capital........................... -0.1 0.0
Producer's Capital...................... -0.1 0.1
Residential Capital..................... -0.1 -0.1
Real Consumption............................ 0.1 0.5
Employment.................................. 0.1 0.3
Revenue Increase as Percent of Conventional 7 ...........
Revenue Estimate...........................
------------------------------------------------------------------------
Assuming that consumers spend additional disposable income
out of the tax cut at roughly half the rate they normally
would, the stimulus effects are significantly reduced. At the
peak of the stimulus effect, in the fourth quarter of 2010,
consumption is increased by 0.5 percent, real Gross Domestic
Product (``GDP'') is increased by 0.3 percent, and employment
by 0.3 percent relative to what they would have been without
the tax stimulus. The growth effects of the stimulus decline
quickly once most of the tax changes have expired, so that on
average during the period from 2009-2014, consumption increases
by just 0.1 percent, real GDP by less than 0.1 percent, and
employment by 0.1 percent. Again, producers' capital stock is
increased by less than 0.1 percent at the peak, and reduced on
average over the five-year period The growth during this period
generates a revenue feedback of 7 percent, relative to the cost
of the tax provisions as estimated using conventional revenue
analysis. Again, the MEG model simulation indicates that in the
years beyond this period, the effects of growing Federal
government debt start to reverse the effects of the stimulus
fairly quickly.
TABLE 3.--EFFECTS OF TAX PROVISIONS OF H.R. 598 ON ECONOMY ASSUMING
REDUCED CONSUMPTION RESPONSE
------------------------------------------------------------------------
Percent change relative to
baseline--
---------------------------
2009-2014 2010: Q4
------------------------------------------------------------------------
GDP Change:
Real.................................... 0.1 0.8
Nominal................................. 0.9 1.5
Capital Stock, Real:
Total Capital........................... -0.2 -0.1
Producer's Capital...................... -0.3 -0.1
Residential Capital..................... -0.1 -0.1
Real Consumption............................ 0.3 1.2
Employment.................................. 0.2 0.8
Revenue Increase as Percent of Conventional 17 ...........
Revenue Estimate...........................
------------------------------------------------------------------------
Assuming that spending out of the tax-induced increase in
disposable income is 50 percent higher than average spending,
the stimulus effects of the bill are increased. At the peak of
the stimulus effect, in the fourth quarter of 2010, consumption
is increased by 1.2 percent, real Gross Domestic Product
(``GDP'') is increased by .8 percent, and employment by 0.8
percent relative to what they would have been without the tax
stimulus. The growth effects of the stimulus decline quickly
once most of the tax changes have expired, so that on average
during the period from 2009-2014, consumption increases by just
0.3 percent, real GDP by 0.1 percent, and employment by .8
percent. This simulation illustrates the trade-off between
short-term stimulus and investment. With the increased
consumption out of disposable income, savings are reduced, and
investment in producers' capital actually declines by 0.1
percent in the fourth quarter of 2010, and by 0.3 percent in
the first five years. As with the other simulations, in later
years, the growth in government debt leads to increasing
crowding out of private activity. The growth during this period
generates a revenue feedback of 17 percent, relative to the
cost of the tax provisions as estimated using conventional
revenue analysis.
Conclusion
The modeling of short- and long-run responses of the
economy to fiscal stimulus in the current economic environment
is subject to a substantial amount of uncertainty. The results
are sensitive to assumptions about how much of their increased
disposable income consumers choose to spend rather than save,
as discussed above. In addition, most macroeconomic simulation
models are not structured to account for the types of factors
that led to our current economic condition; for example, it is
difficult to ascertain how large an asset bubble is, how much
leveraging is behind it, and when it will burst before the
fact. Much judgment was required to create simulations in the
MEG model that roughly approximate current economic conditions
so that the impact of the policy could be analyzed. Subject to
these considerations, the Joint Committee staff estimates that
the tax provisions in H.R. 598 would result in a short-term
increase in gross domestic product and employment ranging from
approximately 0.3 to 0.8 percent (from 300,000 to 900,000 full-
time equivalent jobs) at the tax stimulus peak of the fourth
quarter of 2010, with five-year effects ranging from near zero
to 0.1 percent increase in GDP, and 0.1 to 0.2 percent increase
in employment, relative to what these variables would have been
without the stimulus. Beyond the five year period, the effects
of growing government debt on interest rates and the
availability of private capital could be expected to reduce
growth.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it is appropriate and timely to
enact the revenue provision included in the bill as reported.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of the rule XIII of the
Rules of the House of Representatives (relating to
Constitutional Authority), the Committee states that the
Committee's action in reporting this bill is derived from
Article I of the Constitution, Section 8 (``The Congress shall
have Power To lay and collect Taxes, Duties, Imposts and
Excises . . .''), and from the 16th Amendment to the
Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
The Committee has determined that the tax provisions of the
bill contain one private sector mandate: Clarification of
regulations related to limitations on certain built-in losses
following an ownership change. The costs required to comply
with each Federal private sector mandate generally are no
greater than the aggregate estimated budget effects of the
provision. Benefits from the provisions include improved
administration of the tax laws and a more accurate measurement
of income for Federal income tax purposes.
The Committee has determined that the tax provisions of the
reported bill contain no intergovernmental mandates within the
meaning of Public Law 104-4, the Unfunded Mandates Reform Act
of 1995.
E. Applicability of House Rule XXI 5(b)
Clause of rule XXI of the Rules of the House of
Representatives provides, in part, that ``A bill or joint
resolution, amendment, or conference report carrying a Federal
income tax rate increase may not be considered as passed or
agreed to unless so determined by a vote of not less than
three-fifths of the Members voting, a quorum being present.''
The Committee has carefully reviewed the provisions of the
bill, and states that the provisions of the bill do not involve
any Federal income tax rate increases within the meaning of the
rule.
F. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
staff of the Joint Committee on Taxation (in consultation with
the Internal Revenue Service and the Treasury Department) to
provide a tax complexity analysis. The complexity analysis is
required for all legislation reported by the Senate Committee
on Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses. For each such provision identified by the staff of
the Joint Committee on Taxation a summary description of the
provision is provided along with an estimate of the number and
type of affected taxpayers, and a discussion regarding the
relevant complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and Treasury regarding
each of the provisions included in the complexity analysis.
1. Make Work Pay Credit
Summary description of the provision
The provision creates a refundable tax credit for taxable
years beginning in 2009 and 2010 equal to the lesser of (1) 6.2
percent of an individual's earned income or (2) $500 ($1,000 in
the case of a joint return). The credit is phased out at a rate
of four percent of the eligible individual's modified adjusted
gross income above $75,000 ($150,000 in the case of a joint
return).
Number of affected taxpayers returns.
It is estimated that the provision will affect in excess of
100 million individual tax returns.
Discussion
The provision will require additional paperwork for
taxpayers and additional processing burdens for IRS. It is
expected that taxpayers will need to complete additional
worksheets and or forms to compute the amount of the credit.
Taxpayers may also wish to adjust their income tax withholding
by filing the appropriate forms before the end of 2009. The IRS
is anticipated to revise income tax withholding schedules and
publish new schedules. These revised income tax withholding
schedules should be designed to reduce taxpayers' income tax
withheld for each remaining pay period in the remainder of 2009
so that the full benefit of the provision is reflected in the
income tax withholding schedules during the balance of 2009.
2. Special Allowance for Certain Property Acquired During 2009
Summary description of the provision
The provision extends the additional first-year
depreciation deduction under section 168(k) for one year,
generally through 2009 (through 2010 for certain longer-lived
and transportation property).
Number of affected taxpayers
It is estimated that more than 10 percent of small
businesses will be affected by the provision.
Discussion
It is not anticipated that small businesses will have to
keep additional records due to this provision, nor will
additional regulatory guidance be necessary to implement this
provision. It is not anticipated that the provision will result
in an increase in disputes between small businesses and the
IRS. However, small businesses will have to perform additional
analysis to determine whether property qualifies for the
provision. In addition, for qualified property, small
businesses will be required to perform additional calculations
to determine the proper amount of allowable depreciation.
Complexity may also be increased because the provision is
temporary. For example, different tax treatment will apply for
identical equipment based on the acquisition and placed in
service date. Further, the Secretary of the Treasury is
expected to have to make appropriate revisions to the
applicable depreciation tax forms.
Premium Assistance for COBRA Benefits
Summary description of the provision
The provision reimburses employers providing COBRA
continuation health coverage to employees to the extent of 65
percent of the premium amount and requires the eligible
individual to pay 35 percent of the premium. The program is
mandatory for employers required to offer COBRA continuation
health coverage. Eligible individuals must have a qualifying
event between September 1, 2008 and December 31, 2009, and must
have been terminated involuntarily. Employers will reduce
payroll taxes in the amount of 65 percent of the premium for
all eligible individuals who opt into the provision, or will be
reimbursed directly through a program established by the
Department of the Treasury. COBRA continuation health coverage
for this purpose includes not only coverage that applies to
private, nongovernmental employers with 20 or more employees
(and the parallel ERISA rules) but also coverage rules that
apply to Federal and State and local governmental employers
pursuant to Federal law and to State law mandates that apply to
small employers (employers with less than 20 employees) and
other employers not covered by Federal law, provided that such
State law mandates require an employer or other entity to offer
comparable continuation health coverage. The social security
trust fund is held harmless from payroll tax offsets that are
permitted under the program.
Number of affected taxpayers
It is estimated that more than 10 percent of small
businesses will be affected by the provision.
Discussion
This provision will require additional processing by the
IRS in two areas; accounting and enforcement. First, for all
firms with employees eligible, the firm must deduct that amount
from their payroll taxes, so IRS must be aware of the number of
employees eligible for the reimbursement and the average
premium at the firm to properly assess the amount of the
deduction from payroll taxes. The Department of the Treasury
must then transfer the appropriate amount of funds back into
the social security trust fund. All employers bound by COBRA or
COBRA-type legislation described above and who terminate
individuals from employment between September 1, 2008 and
December 31, 2009 are affected by this provision.
Second, the IRS must create rules and regulations to
prevent fraud and abuse of this provision. For example,
taxpayers may be required to provide evidence of eligibility
for the subsidy including evidence of involuntary separation
from work, which can include attestation from the former
employer or certification from state unemployment insurance
agencies. If a premium assistance eligible individual becomes
eligible for other group coverage while receiving premium
assistance, that individual must forfeit the subsidy or face a
penalty.
G. Limited Tax Benefits
Department of the Treasury,
Internal Revenue Service,
Washington, DC, January 27, 2009.
Mr. Edward D. Kleinbard,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
Dear Mr. Kleinbard: Enclosed are the combined comments of
the Internal Revenue Service and the Treasury Department for
the Committee Report of the ``American Recovery and
Reinvestment Tax Act of 2009.'' Our complexity analysis covers
the three provisions that you preliminarily identified in your
letter dated January 27, 2009: the making work pay credit, the
special allowance for certain property acquired during 2009,
and premium assistance for COBRA benefits and extension of
COBRA benefits for older or long-term employees.
Our comments are based on the description of the provision
provided in your letter and the statutory language and
description of this provision in the ``American Recovery and
Reinvestment Tax Act of 2009'' (H.R. 598). Due to the short
turnaround time, our comments are provisional and subject to
change upon a more complete and in-depth analysis of the
provision.
Sincerely,
Douglas Shulman,
Commissioner.
Enclosure.
COMPLEXITY ANALYSIS OF THE AMERICAN RECOVERY AND REINVESTMENT TAX ACT
OF 2009 (H.R. 598)
1. Making Work Pay Credit
Provision
The bill provides a refundable tax credit equal to the
smaller of 6.2% of earned income or $500 ($1,000 in the case of
a joint return), effective for tax years beginning after 2008
and before 2011. The credit is reduced (but not below zero) by
2% of the modified adjusted gross income in excess of $75,000
($150,000 if married filing jointly).
IRS/Treasury comments
New withholding rate schedules and tables would be
required to permit employers to adjust withholding and assure
that most of the benefits of the credit are provided to
taxpayers on a current basis.
For 2009, a new 9-line form would be developed to
figure and claim the credit.
The 2009 Form 1040, 1040A, and 1040EZ and their
instructions would be revised to reflect the new credit form. A
new line would be added to these forms to enter the amount of
the credit.
Programming changes would be required to reflect
the new credit form.
The 2009 Publications 505 and 919 would be revised
to explain how taxpayers can use the credit to increase their
2009 withholding allowances and thereby decrease their 2009
withholding.
Training of IRS employees would be necessary and
the Internal Revenue Manual would require revisions.
2. Special Depreciation Allowance for Certain Property Acquired During
2009
Provision
The bill extends the additional first-year depreciation
deduction equal to 50% of the adjusted basis of qualified
property. Qualified property is defined in the same manner as
provided by the Economic Stimulus Act of 2008 (P.L. 110-185,
H.R. 5140), except that the applicable time period for
acquisition (or self-construction) of the property is modified
to include property acquired (or constructed) during 2009 (and
in certain cases, 2010).
IRS/Treasury comments
The extension of the time period for property
eligible for additional first-year depreciation would have no
significant impact on Form 4562 or any other tax forms. The
Instructions for Form 4562, Publication 946, and other
instructions and publications would be revised to reflect the
extension.
No programming changes would be required by this
provision.
3. Premium Assistance for COBRA Benefits and Extension of COBRA
Benefits for Older or Long-Term Employees
Provision
The bill reimburses employers providing COBRA continuation
health coverage to employees to the extent of 65% of the
premium amount and requires the eligible individual to pay 35%
of the premium. The program is mandatory for employers required
to offer COBRA continuation health coverage. Eligible
individuals must have a qualifying even between September 1,
2008 and December 31, 2009, and must have been terminated
involuntarily. Employers will reduce payroll taxes in the
amount of 65% of the premium for all eligible individuals who
opt into the provision, or will be reimbursed directly through
a program established by the Department of the Treasury. COBRA
continuation health coverage for this purpose includes not only
coverage that applies to private, nongovernmental employers
with 20 or more employees (and the parallel ERISA rules) but
also coverage rules that apply to Federal and State and local
governmental employers pursuant to Federal law and to State law
mandates that apply to small employers (employers with less
than 20 employees) and other employers not covered by Federal
law, provided that such State law mandates require an employer
or other entity to offer comparable continuation health
coverage. The social security trust fund is held harmless from
payroll tax offsets that are permitted under the program.
IRS/Treasury comments
For the 2009 1st quarter Forms 941, 941-SS, and
941-PR, three lines would be added to enter the aggregate
amount of employer payments, the number of individuals provided
the premium assistance, and a total line.
For the 2009 2nd quarter Forms 941-X and 941-X
(PR) (new returns used to amend previously filed Forms 941 and
941-PR, respectively), three corresponding lines would also be
added.
The annual 2009 Forms 943, 944, 944-SS, 944-X,
944-PR, 944-X (PR), & 945 would be revised by adding lines to
capture the aggregate amount of employer payments and the
number of individuals provided the premium assistance, plus an
additional total line if necessary.
Substantial programming and processing changes
would be required to allow for the new lines and to capture the
aggregate amount of employer payments and number of individuals
provided the premium assistance for reporting purposes. Given
the substantive nature of the changes and the short time frame
between introduction/passage of this legislation and the first
available filing date for Form 941 (April 1, 2009), the IRS has
already begun preparing for the necessary form, instruction,
printing, mailing, programming, and processing changes.
Training of IRS employees would be necessary and
the Internal Revenue Manual would require revisions.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In the opinion of the committee, in order to expedite the
business of the House of Representatives, it is necessary to
dispense with the requirements of clause 3(e) of rule XIII of
the Rules of the House of Representatives (relating to showing
changes in existing law made by the bill as reported).
VII. DISSENTING VIEWS
I. Overview
It is obvious that many American families and businesses
are facing significant economic and financial challenges. The
best way to help American employers through these rough times
is to promote private sector job growth.
We were hopeful that we could work with our colleagues to
craft, in the words of President Obama, ``American Solutions''
to these difficult challenges. Unfortunately, House Democrats
were nearly monolithic in rejecting our suggestions and instead
advanced a partisan proposal that relies heavily on expanding
the government and ``spreading the wealth.''
II. Questions About Job Creation and Economic Growth
We were disappointed the Committee did not hold a hearing
on this bill, as it would have provided us an opportunity to
better understand the impact a bill of this size and shape
would have on the economy.
A study by advisors to President Obama was mentioned by the
Majority to support their view that the bill would result in
substantial job creation. But even if all of that report's
estimates turn out to be correct (and the authors noted they
are ``are subject to significant margins of error''), the
Democrats will spend roughly $210,000 for each job ``saved or
created.''
We are not alone in our concerns about those claims; Senate
Budget Committee Chairman Kent Conrad said he thought the bill
could produce only half the number of jobs promised.
III. Missed Opportunities in the Tax Title
The bill does include a few business-related tax provisions
that Republicans have long supported, such as an extension of
the enhanced bonus depreciation and small business expensing
rules that were originally enacted as part of last year's
stimulus package. And even as modified by the Chairman's
amendment at the mark-up, the expanded five-year carryback
rules for net operating losses would provide many previously
profitable companies the opportunity to seek immediate refunds
of past taxes paid, giving them critical cash infusions that
would help them weather the current economic storm.
Regrettably, however, these important incentives for the
businesses that create good jobs for American workers represent
a tiny fraction--only 7%--of the Majority's $275 billion tax
title over the 2009-2019 period.
We are particularly troubled by the so-called ``Making Work
Pay'' provision. Capped at $500 per individual and $1,000 per
family, the provision is advertised by the Majority as a means
of offsetting a portion of workers' payroll taxes, because it
allows people to receive a check back from the IRS in excess of
their income taxes paid.
In reality, however, the Making Work Pay provision would
increase the number of tax filers receiving more in checks from
the IRS than they actually pay in income and payroll taxes
combined from 15 million in current law to approximately 20
million. While Republicans have long supported efforts to
provide tax relief to actual taxpayers at all income levels, it
strains logic to call this aspect of the Making Work Pay
provision ``tax relief.''
During the mark-up, Ranking Member Camp offered an
amendment that would have replaced the Making Work Pay section
with a reduction in the two lowest marginal income tax rates in
2009 and 2010, providing real tax relief to all American
workers who pay income taxes. Regrettably, this amendment was
defeated on a party-line vote.
Another Republican effort to provide additional middle-
class tax relief--this time an amendment by Mr. Brady to add
the AMT ``patch''--fell short on a similar, party-line vote. We
certainly hope the Majority's failure to include the patch is
not a sign that Democrats are returning again to the
discredited view that the AMT patch should only be enacted if
it is paired with unnecessary, job-killing tax increases. Other
Republican amendments would have meaningfully addressed the
everyday economic challenges facing many Americans during these
difficult times were also rejected on party-line votes,
including one by Mr. Johnson to temporarily exclude from income
the value of unemployment benefits.
IV. Assistance for the Unemployed
While the Majority would like to focus attention on the
bill's extension of unemployment benefits, there are other
provisions that would benefit from further examination.
For instance, the measure offers States a one-time payoff
of up to $7 billion in Federal funds if they make permanent
changes to their unemployment benefits laws. We raised concerns
that the long-term effect would be to drain state unemployment
funds, leading to future payroll tax increases.
In contrast with this flawed attempt at ``modernization,''
Republicans offered two amendments that would have resulted in
significant payroll tax relief, a fairer distribution of
benefits among States, and a far better chance States might
choose to cover more workers in need during the recession.
Mr. Linder, the Ranking Republican on the Income Security
and Family Support Subcommittee, offered an amendment that
would force States to ensure that unemployed individuals who
have the most difficulty finding new jobs, including younger
individuals without a high school diploma, use their time on
unemployment to make progress toward a GED or getting
retraining to help them find better jobs sooner. That
amendment, too, was defeated by the Majority.
V. Health Provisions of Concern
A. COBRA
COBRA allows many unemployed workers to continue their
health insurance coverage for up to 18 months, but only if they
pay 102% of the cost of premiums. This bill would waive the 18
month COBRA coverage limit for those who have worked for an
employer for 10 years or more or who are aged 55 and older.
While appearing relatively harmless on its face, the COBRA
expansion could threaten the ability of employers to offer
health insurance to their current employees. That is COBRA
experiences adverse selection, meaning those who expect to use
the benefits regularly are the ones who opt to pay the costly
premiums. That is why employers report that COBRA participants
actually cost 150% as much as the average employee.
Additionally, by allowing individuals to enroll in COBRA at
age 55, this bill turns COBRA into a pre-Medicare health
entitlement. Not surprisingly, given the age of these
individuals, employers expect these enrollees would incur even
higher health care costs than current employees or typical
COBRA enrollees. Though paying 102% of premiums, near-retirees
on COBRA actually cost employers, according to one examination,
about 185% of premiums paid. Covering the difference will
impose substantial financial burdens on employers, something we
should do cautiously in such a rocky time for so many of them.
We were thus surprised the Majority defeated--on a party
line basis--an amendment offered by Ms. Brown-Waite to have the
GAO examine, among other things, the impact these changes would
have on employers' health care costs.
B. HEALTH IT
The legislation funds substantial new spending on incentive
payments to physicians and hospitals to purchase health
information technology (HIT) equipment and software. We share
the goal of wanting to bring health care into the 21st Century
through the adoption of HIT and away from the inefficiencies
associated with paper records.
However, we are concerned that such software is not yet
ready to ensure electronic health information can be seamlessly
transferred between physician offices and hospitals. The
purchase of such non-interoperable equipment and software could
turn this into truly wasted spending. To address that concern,
Mr. Reichert offered an amendment to delay these payments until
interoperability standards have been approved and certified.
Despite the Majority's recognition of this risk, they summarily
rejected this amendment.
Moreover, even if the necessary standards are promulgated
quickly, the HIT spending will not occur until 2011, calling
into question whether this will provide immediate stimulus to
the economy.
C. ADMINISTRATIVE BURDENS
We have significant concerns about the expansion of HIPAA
privacy rules in this bill and question how expanding what the
National Governors Association called ``one of the largest
unfunded federal mandates in recent history'' is viewed as
stimulative.
Even more troubling, the HIPAA expansions threaten access
to high-quality coordinated care, as well as health care
research that will lead to future improvements and innovation.
We were therefore disappointed the Majority rejected an
amendment by Mr. Boustany to study this issue before further
extending the long tentacles of HIPAA.
D. COMPARATIVE EFFECTIVENESS RESEARCH
While not written into the jurisdiction of the Ways and
Means Committee, a provision to fund comparative effectiveness
research could substantially impact Medicare and its
beneficiaries. While this research does hold real promise, we
are concerned it could be used to deny seniors access to needed
care on the basis of cost or a patient's age.
The Appropriations Committee report language clearly
anticipates that, as a result of this data, treatments ``that
are found to be less effective and in some cases, more
expensive, will no longer be prescribed.'' An amendment offered
by Mr. Boustany to ensure that treatment decisions remain in
the hands of seniors and their physicians, not in the hands of
federal bureaucrats, was rejected by the Majority.
VI. Conclusion
While our ideas and suggestions were met with near
universal opposition in Committee, we remain committed to
identifying American Solutions that will restore America's
economic health.
This bill fell short of what we believe is needed and
therefore we cannot support it.
Dave Camp.
Wally Herger.
Sam Johnson.
Kevin Brady.
Paul Ryan.
Eric Cantor.
John Linder.
Devin Nunes.
Pat Tiberi.
Ginny Brown-Waite.
Geoff Davis.
Dave Reichert.
Charles Boustany.
Dean Heller.
Peter Roskam.
ADDITIONAL DISSENTING VIEWS OF REP. SAM JOHNSON
Health Information Technology
With regard to the health information technology (HIT)
provisions, I have a number of concerns that differ from the
views already expressed by the Minority.
As I stated in committee, I believe HIT has a very
important role in transforming our healthcare delivery system.
However, I believe how the federal government inserts itself
into this industry has very real consequences. More doctors
should be buying and using technology to revolutionize their
offices and patient care. However, this provision spends too
much money. The majority hopes if they spend enough, it might
make a difference.
The reality is that the average cost of an HIT system in
this country is $35,000 per doctor. Under this legislation,
physicians could receive over $60,000 from the federal
government simply because they purchased an HIT system that
cost half that amount. Unfortunately, the majority doesn't
include any restrictions on how physicians can spend the extra
money. I am committed to ensuring that every penny, or as is
the case with this legislation, every billion dollars, is spent
efficiently and effectively. That is why I offered an amendment
in committee that would replace these incentives in the
majority's legislation with a provision that extends small
business tax breaks to healthcare providers that purchase HIT
systems.
Our healthcare system needs providers purchasing technology
today, technology they choose that will help them coordinate
the care of their patients and work to increase the quality of
the entire system. I have concerns that provisions in the
majority's legislation would take away a provider's ability to
choose the best system for them and insert a government, one-
size-fits-all solution. This legislation gives providers too
many incentives to wait on the sidelines until they can receive
a government check or handout instead of investing in
lifesaving technology that is ready and working today.
Sam Johnson.