H.R. 1314 – Bipartisan Budget Act of 2015

Floor Situation: The House passed H.R. 1314 by a vote of 266-167 on October 28. On October 28, cloture was filed on the motion to concur in the House amendment to the Senate amendment to H.R. 1314.  Absent consent, the cloture vote will occur one hour after the Senate convenes on Friday.

Executive Summary: The bill would increase discretionary spending subject to the caps by $80 billion over two years. The bill contains offsets that total $80.9 billion over 10 years (fiscal years 2016-25). Of this, $47.6 billion comes in the way of lower direct spending, $32.3 billion is via increased revenue, and $1.1 billion is via program integrity savings. In addition, the bill would establish a funding target for Overseas Contingency Operations of $73.7 billion, which includes $58.8 billion for defense and $14.9 billion for budget function 150 (international affairs; primarily the State Department). This total amount is equal to the amount provided in fiscal year 2015 and is $15.7 billion greater than President Obama’s request for OCO for fiscal year 2016. The bill would also suspend the application of the debt limit until March 15, 2017.

Overview of the Issue

In 2011, Congress passed the Budget Control Act, which provided a mechanism for increasing the debt limit in exchange for spending cuts. The BCA created the Joint Select Committee on Deficit Reduction, colloquially known as the “super committee,” to find additional deficit reductions. When the super committee failed to report savings, that triggered the automatic enforcement mechanism of sequestration in fiscal year 2013 and a downward revision of the discretionary spending caps in future years.

Subsequent budget deals raised the caps and offset the increased discretionary spending with reductions in mandatory spending and higher revenues: a $24 billion increase in the spending caps was provided for fiscal year 2013 in the American Taxpayer Relief Act of 2012 (fiscal cliff deal); and the Bipartisan Budget Act of 2013 (Ryan-Murray) provided $45 billion in increased spending caps in fiscal year 2014 and $18 billion in increased spending caps in 2015. These cap increases were all split evenly between defense and non-defense.

For fiscal year 2016, the president submitted a base budget request for the Department of Defense of $534.3 billion and $50.9 billion for overseas contingency operations. The Budget Control Act cap on national security spending (budget function 050) is $523 billion for fiscal year 2016. CBO points out base Department of Defense spending usually comprises 95.5 percent of all budget authority in this category. OCO funding is unrestrained by the Budget Control Act discretionary spending caps. The president’s request for amounts greater than those allowed by the BCA are paid for in his budget by tax increases. As a point of comparison, when President Obama submitted his fiscal year 2012 budget request, the last budget request made before the sequester and revised caps structure was implemented, the Defense Department was projecting a budget of more than $600 billion in fiscal year 2016.

There have been four debt limit increases or suspensions since 2011: an increase in 2011 from the Budget Control Act (actually several smaller increases but all resulting as a consequence of the BCA); and three suspensions in the application of the debt limit in February 2013, October 2013, and February 2014.

Considerations on the Bill

The Bipartisan Budget Act of 2015 would increase discretionary spending caps by $80 billion over two years. The increase is $50 billion in fiscal year 2016: $25 billion for defense (budget function 050) and $25 billion for non-defense (everything that is not function 050). The bill will also increase discretionary spending caps by $30 billion in fiscal year 2017, split $15 billion for defense and $15 billion for non-defense. In addition to these changes to the discretionary spending caps, the bill establishes a target level of OCO spending for budget function 050 at $58.8 billion in each of fiscal years 2016 and 2017, and $14.9 billion for function 150 (international affairs) in each of fiscal years 2016 and 2017. The president’s budget request for fiscal year 2016 included $58 billion for OCO, which included $7 billion for the State Department. The net effect for budget function 050 for fiscal year 2016 is to provide $606.8 billion in total spending, where President Obama’s request for that amount was $612 billion.

The bill provides offsets that total $80.9 billion over 10 years (2016-2025). $47.6 billion of this comes in the way of lower direct spending, while $32.3 billion is via increased revenue, and an additional $1.1 billion is saved from increased efforts to eliminate waste, fraud, and abuse in the Social Security disability insurance program.

The bill addresses the impending Social Security disability fund insolvency due next year, which would otherwise result in a 19% across-the-board benefit cut. Payroll tax revenue would be reallocated by temporarily giving the Disability Insurance Trust Fund 2.37 percentage points of the 12.4 percent payroll tax, which is an increase of 0.57 percentage point from current law. The bill contains provisions designed to ensure compliance, increase penalties for fraud, modify demonstration project authority, and improve program administration. Over the 75-year actuarial window, the Social Security actuary estimates that the DI reforms in the bill will reduce program costs by $168 billion.

The bill would also suspend the application of the debt limit until March 15, 2017. This suspension takes the same form as the past debt limit suspensions that Congress has passed.

Notable Bill Provisions

TITLE I – Budget Enforcement

Section 101 – Revised spending levels

This section increases discretionary spending caps as outlined above. The increase is $80 billion over two years: $50 billion in fiscal year 2016, split evenly between defense (budget function 050) and non-defense; and $30 billion in fiscal year 2017, also split evenly.

In addition to these changes to the discretionary spending caps, the bill provides a target for OCO spending for budget function 050 of $58.8 billion in each of fiscal years 2016 and 2017, and $14.9 billion for function 150 (international affairs) in each of fiscal years 2016 and 2017. The president’s budget request for fiscal year 2016 included $58 billion for OCO, which included $7 billion for the State Department. The net effect for budget function 050 for fiscal year 2016 is to provide $606.8 billion in total spending, where President Obama’s request for that amount was $612 billion.

This section also extends the mandatory BCA sequester currently scheduled to end with fiscal year 2024 for one more year to 2025, for total ten-year savings of $14 billion in outlays. The Medicare portion of the sequester would total $21 billion in budget authority and $11.2 billion in outlays over ten years; the Defense mandatory spending sequester would total $871 million in budget authority and $802 million in outlays over ten years; and the non-defense, non-Medicare mandatory spending sequester would total $3.9 billion in budget authority and $2 billion in outlays over ten years.

Section 102 – Authority for fiscal year 2017 budget resolution

This section contains discretionary authority for the Budget Committee chairman to set allocations, aggregates, and levels for budget enforcement purposes in the Senate if a concurrent resolution on the budget is not agreed to next year.

TITLE II – Agriculture

Section 201 – Standard reinsurance agreement

This section amends 2014 farm bill language to require renegotiation of the financial terms and conditions of the Standard Reinsurance Agreement under the Federal Crop Insurance Act by December 31, 2016, and each five years thereafter. It also lowers the rate of return for private insurance issuers from the current negotiated 14.5 percent to a cap of 8.9 percent. CBO reports that this section would decrease deficits by $3 billion from 2016-2025.

TITLE III – Commerce

Section 301 – Debt collection improvements

This section amends the Communications Act of 1934 to authorize the use of automated calls to cell phones for the purpose of collecting debts owed to the federal government. Section 301(a) also authorizes the FCC to issue regulations placing limitations on the number and duration of these automated calls. CBO reports that this provision would have a negligible deficit impact.

TITLE IV – Strategic Petroleum Reserve

Title IV contains provisions relating to the Strategic Petroleum Reserve, including authorization to sell 58 million barrels of oil from 2018-2025, with proceeds to be deposited into the Treasury’s general fund. CBO reports that section 403 is expected to reduce deficits by $5 billion from 2016-2025. It also authorizes, subject to appropriation, an additional $2 billion in sales to fund Reserve modernization.

TITLE V – Pensions

Section 501 – Single-employer plan annual premium rates

Currently, single-employer pension plans pay both a fixed- and variable-rate premium to the Pension Benefit Guaranty Corporation. The fixed rate premium will remain $64 in 2016 and increase to $69 for 2017, $74 for 2018, and $80 for 2019 and continue to be indexed for inflation thereafter. The variable-rate premium, also indexed, is currently $30 per $1,000 of under-funding in 2016. It would continue to be indexed but increase an additional $3 in 2017, an additional $4 in 2018, and an additional $4 in 2019. CBO reports that this provision would decrease outlays by $4 billion over ten years.

Section 502 – Pension payment acceleration

This section would move up the due date for premiums payments from October 15 to September 15 for plan years beginning in 2025. CBO reports that this provision would decrease outlays by $2.6 billion over ten years.

Section 503 – Mortality tables

Current law requires private defined benefit pension plans to use mortality tables prescribed by Treasury to calculate pension liabilities. Plans may seek to use a different table based on the actual mortality experience of the plan if the plan has the “credible information” necessary to establish that actual experience. The section changes the credible information requirement to conform to established actuarial credibility theory to permit a plan to use different mortality tables that are adjusted from the Treasury table that reflect a plan’s actual experience. This provision would decrease deficits by $618 million over ten years; outlays would increase by $500 million over ten years, and revenues would increase by $1.1 billion over ten years.

Section 504 – Extension of current funding stabilization percentages

Extends for three years – 2018, 2019, and 2020 – the pension smoothing provision, enacted in 2012 as a part of the MAP-21 legislation and in 2014 as part of the highway bill, so that the phase-out starts in 2019 instead of 2017. This is at the discretion of employers who choose to take advantage of this pension funding relief and serves to reduce companies’ deductible required pension contribution. The provision would retain the corridor on interest rates at 10 percent through 2020. After 2020, the corridor would increase by five percent each year until it reaches 30 percent in 2024, where it would remain permanently. This provision would decrease deficits by $7.6 billion; outlays would decrease by $1.1 billion over ten years, and revenues would increase by $6.5 billion over ten years.

CBO also notes that interactions between the four Title V provisions would further decrease outlays by $915 million over ten years.

TITLE VI – Health Care

CBO estimates that the health care provisions of the agreement would decrease outlays by about $6.25 billion and increase revenues by $12.2 billion over 10 years.

Section 601 – Medicare Part B premium and deductible levels

This section prevents a dramatic increase to Medicare Part B premiums in 2016 for beneficiaries not protected by a hold-harmless provision. This section limits the 52 percent Part B premium increase that about 30 percent of those enrolled in Medicare Part B were expected to see in 2016. The amount these enrollees will pay would be limited to the amount all beneficiaries would have paid if no hold-harmless protection applied. The groups subject to the premium increases in 2016 who now will pay a smaller increase are those who do not have their Medicare premiums deducted directly from their Social Security check, high-income earners, new beneficiaries, and dual-eligibles (though states pick up the tab for dual eligibles). The fix is funded by a loan from the trust fund that will be repaid by adding a $3 per month surcharge for the beneficiaries not subject to the hold-harmless provision in 2016 and to all Part B beneficiaries starting in 2017 (assuming there is a COLA). That surcharge starts in 2016 and continues until the loan is repaid. CBO reports that this section would decrease outlays by $240 million over ten years.

Section 602 – Applying the Medicaid additional rebate requirement to generic drugs

Brand name drugs currently pay Medicaid an additional rebate if the price of the drug increases faster than inflation. This section extends this requirement to generic drugs as well. CBO reports that this section would decrease outlays by $1 billion over ten years.

Section 603 – Treatment of off-campus outpatient departments of a provider

Would allow any hospital that currently owns provider-based off-campus hospital outpatient departments to continue receiving payment under the Medicare Hospital Outpatient Prospective Payment System. New provider-based off-campus hospital outpatient departments (executed after the budget proposal is enacted) would be reimbursed according to either the Ambulatory Surgical Center Prospective Payment System or the Medicare Physician Fee Schedule. CBO reports that this section would decrease outlays by $9.3 billion over ten years.

Section 611 – Repeal of Automatic Enrollment Requirement

This section repeals Obamacare Section 1511, which requires employers with more than 200 employees to automatically enroll new full-time equivalents into a qualifying health plan offered by the employer and to automatically continue enrollment of current employees. CBO reports that this section would decrease deficits by $7.9 billion over ten years; outlays would decrease by $4.3 billion over ten years and revenues would increase by $12.2 billion over ten years.

TITLE VII – Judiciary

CBO estimates that this title would decrease deficits by nearly $3.6 billion over ten years; outlays would decrease by $2.2 billion over ten years and revenues would increase by $1.3 billion over ten years.

Section 701 – Civil monetary penalty inflation adjustments

This section amends the Federal Civil Penalties Inflation Adjustment Act of 1990 to require all agencies with civil monetary penalties covered by the statute to adjust those penalties to represent the change in CPI by January 31, 2016, and annually thereafter. Annual inflation adjustments would be exempt from rulemaking requirements. CBO and JCT report that this section would increase revenue by $1.3 billion over ten years.

This section also amends the Federal Civil Penalties Inflation Adjustment Act to include the Occupational Safety and Health Administration, resulting in annual inflation-based civil monetary penalty adjustments under the OSH Act for the first time. This section also requires OSHA to make an initial, “catch-up” adjustment to reach the current inflation level. This adjustment would go into effect no later than August 2016 through an interim final rulemaking.

Section 702 – Crime Victims Fund

This sections rescinds and permanently cancels $1.5 billion from the Crime Victims Fund, which provides funding for victim compensation and assistance programs. The CVF is funded through criminal fines and penalties, not taxpayer revenues. The CVF’s use as a CHIMP has been controversial in the past. CBO reports that this section would decrease outlays by $1.5 billion over ten years.

Section 703 – Assets Forfeiture Fund

This section rescinds and permanently cancels $746 million from the Department of Justice Asset Forfeiture Fund. CBO reports that this section would decrease outlays by $746 million over ten years.

TITLE VIII – Social Security

CBO estimates that Title VIII would result in $4.4 billion in decreased outlays over ten years, with lower revenue of $81 million over ten years. However, Social Security’s chief actuary wrote to Speaker John Boehner to report that over the next 75 years, the bill would reduce the old-age and disability insurance combined trust funds’ actuarial deficits by 0.04 percent of taxable payroll. The current total actuarial deficit over the next 75 years is 2.68 percent of taxable payroll, so this bill would close 1.5 percent of the total 75 year actuarial deficit.

Subtitle A – Ensuring correct payments and reducing fraud

This subtitle contains provisions to ensure compliance and decrease fraud. Cooperative Disability Investigations units will be required to cover the entire nation. These units investigate potential fraud before benefits are awarded. Evidence from unlicensed physicians and health care providers will not be considered when determining whether someone is eligible for disability benefits. This subtitle creates a new felony, conspiracy to commit Social Security fraud, and increases penalties for existing fraud. A total of $484 million in additional program integrity funding will be allowed from fiscal years 2017-20.

Subtitle B – Promoting opportunity for disability beneficiaries

This subtitle would require the Social Security Administration to initiate a five year “promoting opportunity demonstration project,” which would change how earnings are treated in the context of eligibility for future benefits. The subtitle would also use electronic reporting of earnings to improve program administration.

Subtitle C – Protecting Social Security benefits

This subtitle addresses the impending Social Security disability fund insolvency due next year. Payroll tax revenue would be reallocated by temporarily giving the Disability Insurance Trust Fund 2.37 percentage points of the 12.4 percent payroll tax, which is an increase of 0.57 percentage point from current law. The subtitle also closes loopholes, requires that “every reasonable effort” must be made to ensure that a qualified medical professional has reviewed the case before an initial determination of disability is made. The subtitle would allow SSA to electronically verify a person’s financial information if he or she requests that the requirement to repay funds from an erroneous overpayment made to them be waived because they were without fault and are unable to repay the funds.

Subtitle D – Relieving administration burdens and miscellaneous provisions

This subtitle makes administrative and reporting changes, including solving an issue with concurrent receipt of disability payments and a federal employee annuity.

TITLE IX – Temporary Extension of Public Debt Limit

This title would suspend the application of the debt limit until March 15, 2017. This suspension takes the same form as the past debt limit suspensions that Congress has passed.

TITLE X – Spectrum Pipeline

Section 1004 – Identification, reallocation, and auction of federal spectrum

The “Spectrum Pipeline Act of 2015” requires the federal government to identify 30 MHz of spectrum below 3 GHz by 2022 for an auction by the FCC no later than July 1, 2024. The FCC would be required to hold the auction. CBO reports that this section will score as lowering outlays by $4.4 billion over ten years.

TITLE XI – Revenue Provisions Related to Tax Compliance

CBO and JCT report that this title would increase revenue by $11.2 billion from 2016-2025.

Section 1101 – Partnership audits and adjustments

This section would streamline the audit procedures used when the IRS audits partnerships. This would make it easier to determine proper tax liability in cases with complex partnerships. CBO and JCT report that this section will increase revenue by $9.3 billion over ten years.

Section 1102 – Partnership interests created by a gift

This section would clarify the application of rules for determining when a person with a capital interest in a venture is a partner. CBO and JCT report that this section will increase revenue by $1.9 billion over ten years.