[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\
---------------------------------------------------------------------------
    \2\ Unless otherwise stated, all section references are to the 
Internal Revenue Code of 1986, as amended (the ``Code'').
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \3\ Possessions with mirror code tax systems are the United States 
Virgin Islands, Guam, and the Commonwealth of the Northern Mariana 
Islands.
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \11\ Rev. Proc. 2008-66.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.''
---------------------------------------------------------------------------
    \49\ 2003-2 C.B. 747.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \57\ 2008-42 I.R.B. 2008-42 (Oct. 20, 2008).
    \58\ Notice 2008-83, Section 2.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \60\ Sec. 265(a).
    \61\ See Rev. Proc. 72-18, 1972-1 C.B. 740.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \62\ Id.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    \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). .
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------
    \64\ Sec. 265(b)(3).
    \65\ Sec. 265(b)(3)(A), 291(a)(3) and 291(e)(1).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \66\ Sec. 265(b)(3)(C).
    \67\ Sec. 265(b)(3)(E).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \68\ Sec. 265(b)(3)(F).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \69\ Sec. 291(e)(1).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \70\ Sec. 103.
    \71\ Sec. 149(e).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \74\ Sec. 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.\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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------
    \82\ Sec. 141.
---------------------------------------------------------------------------
            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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \84\ Sec. 103(a) and (b)(2).
    \85\ Sec. 148.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------
    \86\ See secs. 54B, 54C, 54D, and 54E.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \88\ Joint Committee on Taxation, Present Law and Issues Related to 
Infrastructure Finance (JCX 83-08, October 24, 2008) at 23-28.
---------------------------------------------------------------------------
    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)).
---------------------------------------------------------------------------
    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.)
---------------------------------------------------------------------------
    \91\ Original issue discount (OID) is not treated as a payment of 
interest for purposes of calculating the refundable credit under the 
provision.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \92\ Sec. 141.
---------------------------------------------------------------------------
            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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \94\ Sec. 103(a) and (b)(2).
    \95\ Sec. 148.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------
    \96\ See secs. 54B, 54C, 54D, and 54E.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \98\ See ``Taxable Bond Option for Governmental Bonds'' discussed 
above.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \99\ Sec. 103.
    \100\ Sec. 141(b)(6); Treas. Reg. sec. 1.141-1(b).
    \101\ Secs. 103(b)(1) and 141.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \102\ Sec. 7871.
    \103\ Sec. 7871(c).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \105\ Sec. 38(b)(8).
    \106\ Sec. 38(c)(4)(B)(ii).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \107\ Secs. 1381-1383.
    \108\ Sec. 1382.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \110\ Sec. 48.
---------------------------------------------------------------------------

                           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)

---------------------------------------------------------------------------
    \ 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.
---------------------------------------------------------------------------
    \ 115\ Sec. 54C.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \119\ Sec. 30C.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \120\ Sec. 41.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \121\ Sec. 41(e).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \122\ Sec. 41(h)
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \128\ A special transition rule applies for fiscal year 2006-2007 
taxpayers.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\:
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    (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\
---------------------------------------------------------------------------
    \154\ Sec. 4980B(f)(3)(B); Treas. Reg. 54.4980B-4.
    \155\ Sec. 4980(f)(3)(B).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

                           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.

                                  
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