H.R. 5652: Sequester Replacement Reconciliation Act of 2012

H.R. 5652

Sequester Replacement Reconciliation Act of 2012

Sponsor
Rep. Paul Ryan

Date
May 10, 2012 (112th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

On Thursday, May 10, 2012, the House is scheduled to consider the Sequester Replacement Reconciliation Act of 2012 under a rule.

Bill Summary

The legislation would provide mandatory spending reductions in order to replace automatic cuts to discretionary spending (primarily from defense accounts) in 2013 under the Budget Control Act and to reduce the deficit. The savings generated from these reforms to mandatory programs would first be used to offset the approximately $78 billion cost of replacing the automatic across-the-board discretionary spending cuts that are scheduled to occur on January 2, 2013, under what is known as sequestration. The amount of $78 billion reflects the remainder of the FY 2013 discretionary sequester after accounting for lowering the FY 2013 discretionary cap from $1.047 to $1.028 as provided for in the House-approved Budget Resolution. The additional savings achieved through reconciliation beyond the $78 billion (over $180 billion in the next ten years) would further reduce the deficit.

Savings contained in the legislation were produced by six House committees under reconciliation instructions contained in the House Concurrent Budget Resolution (H.Con.Res. 112). The Committees on (1) Agriculture, (2) Energy & Commerce, (3) Financial Services, (4) the Judiciary, (5) Oversight & Government Reform, and (6) Ways & Means each produced deficit reduction legislation pursuant to the reconciliation instructions in section 201 of the House-approved budget resolution. Legislation produced by these committees and contained in this package would, on net, save taxpayers $238 billion over ten years.  The legislation replaces $78 billion of foregone discretionary spending cuts in FY 2013 with $316 billion of mandatory spending cuts over ten years.  

 

Replacing the Sequester

(Figures in Millions of Dollars of Deficit Impact)

 

 2012-13

 2012-17

 2012-22

Committee on Agriculture

-7,710

-19,700

-33,200

Committee on Energy & Commerce

-3,750

-28,430

-96,760

Committee on Financial Services

-3,490

-16,700

-29,800

Committee on the Judiciary

-100

-11,200

-39,700

Committee on Oversight & Government Reform

-2,200

-30,100

-78,900

Committee on Ways & Means

-1,200

-23,000

-53,000

Gross Reconciliation Savings

-18,450

-129,130

-331,360

Adjustment to remove double-counting of policies assumed in overlapping reconciliation instructions

-100

-12,800

-69,900

Net Total Reconciliation Savings 

-18,350

-116,330

-261,460

Reconciliation Savings as a Percentage of Forgone Sequester

40%

150%

336%

Source: House Budget Committee: http://budget.house.gov/Reconciliation/QASequesterSavings.htm

 

The following is a summary of the bill’s specific provisions.

TITLE I—AGRICULTURE

ARRA SUNSET AT JUNE 30, 2012:  The Reconciliation bill would move up the termination date of temporary increases in food stamp benefits contained in the Democrats’ “stimulus” from October 1, 2013, to July 1, 2012. According to CBO, this provision would reduce spending by $5.9 billion over ten years.

The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) included an across-the-board increase in benefits provided under the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program), effective in April 2009. The ARRA effectively replaced, until after FY2018, the increase in SNAP benefits that occurs based on annual food-price inflation indexing. The ARRA substantially raised maximum monthly benefits, by 13.6 percent. In the 111th Congress, Democrats reduced this increase in order to use funds to offset the costs of $26.1 billion in temporary state bailouts and expand school meal programs. Under the Democrat changes, the increased benefits are now scheduled to cease on October 1, 2013. As a result, in November 2013 SNAP benefits will revert to what basic SNAP law directs (i.e., as calculated using annual food-price inflation).

CATEGORICAL ELIGIBILITY LIMITED TO CASH ASSISTANCE: The Reconciliation bill would restrict automatic eligibility to only those households receiving cash assistance from the Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), or a state-run General Assistance program. Under current law, individuals can become automatically eligible for SNAP assistance based on being eligible for or receiving benefits from other specified low-income assistance programs, even if they have not met federal eligibility requirements. Under the bill, individuals would no longer be considered eligible for SNAP by receiving a TANF-funded brochure or a referral to an “800” number telephone hotline. According to CBO, this proposal would save $11.7 billion over ten years. While this change would render some households no longer eligible for SNAP, any household that meets the eligibility requirements in SNAP law will continue receiving its SNAP benefits. This policy change would only affect those who are not truly eligible for the program under SNAP law.

The Obama Administration has actively encouraged states to implement a policy called “broad-based categorical eligibility,” which means states are conveying SNAP eligibility based upon a household receiving a TANF-funded brochure or access to an “800” number hotline. As of January, there are now 43 jurisdictions—40 States, the District of Columbia, Guam, and the Virgin Islands – implementing this policy.  Of the 43 jurisdictions using broad-based categorical eligibility, 39 currently have no asset test and 27 have a gross income limit above 130 percent of the federal poverty guidelines.

STANDARD UTILITY ALLOWANCES BASED ON THE RECEIPT OF ENERGY ASSISTANCE PAYMENTS: The Reconciliation bill would change current law so that payments for Low Income Home Energy Assistance Program (LIHEAP) would no longer automatically trigger the SNAP Standard Utility Allowance (SUA) deduction. SUA allows SNAP recipients to deduct an amount of money for utility bills from a household's net income and thus increase a recipient’s SNAP benefits. According to CBO, this proposal would save $14.3 billion over ten years.

Under current law, low-income households receiving any LIHEAP payments also qualify for the SNAP SUA, which automatically increases their SNAP benefits. Approximately 16 states and DC are abusing this interaction (often at the behest of advocacy groups) by sending $1 or $5 LIHEAP checks to low-income households so they may automatically take advantage of the SUA. In practice, if a participant receives $1 in LIHEAP, they can automatically deduct the SUA from their income, so their net income goes down and they receive more SNAP benefits. For example, this can trigger as much as $130 in additional SNAP benefits per month. This provision in no way prevents those households who are paying their utility bills out-of-pocket from receiving the SNAP SUA.  Any household paying their utility bills can still receive this deduction.

END STATE BONUS PROGRAM FOR THE SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM: The Reconciliation bill would eliminate the federal bonuses that are given to states for performing their duty to carry out the SNAP program in a responsible and efficient manner. According to CBO, this provision would save $480 million over ten years.

States are responsible for administering the SNAP program and it is their duty to process applications in a timely manner, ensure households receive the accurate amount of SNAP benefits, and make certain the program is administered in the most effective and efficient manner. Under current law, states can receive a bonus for doing a good job. Annually, these bonuses total $48 million.

FUNDING OF EMPLOYMENT AND TRAINING PROGRAMS: The Reconciliation bill would eliminate the 50/50 matching requirement that the USDA is required to provide to states that provide funding towards SNAP Employment and Training (E&T) above and beyond federal formula grants. According to CBO, this provision would save $3.1 billion over ten years.

Each fiscal year, USDA provides federal formula grants to state agencies for states to operate a SNAP E&T program. In addition to this funding, states have the option of providing more funding towards their state E&T program, which USDA is required to match. According to GAO, there are 47 federal employment training programs and almost all of them overlap with at least one other program in that they provide similar services to similar populations. This bill would maintain the federal formula grants for employment training, but eliminate the 50/50 cost share thus resulting in savings for federal taxpayers.

TITLE II—COMMITTEE ON ENERGY AND COMMERCE

Repealing mandatory funding to states to establish American Health Benefit Exchanges: The Reconciliation bill would strike the unlimited direct appropriation provided through the government takeover of health care for grants to states to facilitate the purchase of qualified health plans in newly created exchanges and rescind any unobligated funds. According to CBO, this provision would save $14.5 billion over ten years. Similar legislation (H.R. 1213) was approved in the House on May 3, 2011, by a vote of 238-183.

The Democrats’ takeover of health care provided the Secretary of HHS a direct appropriation of “such sums as necessary” for grants to states to facilitate the purchase of qualified health plans in newly created exchanges. The Secretary can determine the amount of spending and spend the funds without further Congressional action—an unprecedented authority that gives an executive branch official an unlimited tap into the federal Treasury.

REPEALING PREVENTION AND PUBLIC HEALTH FUND: The Reconciliation bill would terminate the “Prevention and Public Health Fund” created by the Democrats’ government takeover of health care.  According to CBO, this provision would save $11.9 billion over ten years. 

The Democrats’ government takeover of health care created a new “Prevention and Public Health Fund” controlled by the Secretary of HHS designed to supplement spending on public health programs (all programs within the Public Health Service Act are eligible for funding). The law created an advanced appropriation of $16 billion for the first ten years of the program and a permanent $2 billion annual appropriation for the fund in perpetuity.

RESCINDING UNOBLIGATED BALANCES FOR COOP PROGRAM: The Reconciliation bill would rescind all unobligated funds made available to the CO-OP program in the Democrats’ government takeover of health care, saving approximately $872 million over ten years according to CBO. 

The Democrats’ government takeover of health care created the “Consumer Operated and Oriented Plan” (CO-OP) program to provide government-subsidized loans to qualified non-profit health insurance plans.  The law appropriated $6 billion for such loans (H.R. 1473, the continuing resolution for FY 2011, reduced this amount to $3.8 billion). OMB has warned of potential taxpayer losses and awards given to potentially unqualified entities have raised serious concerns about CO-OPs. In the proposed rule for CO-OPs, OMB estimated that up to “50 percent of all loans” will not be repaid–jeopardizing hundreds of millions of taxpayer dollars. Union entities, some of which appear to fail to meet basic statutory criteria for program eligibility, have been the primary recipients of awards under the CO-OP program.

Revision of provider tax indirect guarantee threshold: States receive federal matching funds for revenues from taxes on health care providers that are dedicated to Medicaid.  Under current law, states are limited to a provider tax threshold of no higher than 6 percent of the net patient service revenues. The Reconciliation package would reduce that amount to 5.5 percent (the level it was at until 2011). The president’s budget called for reducing the matching level even further, to 3.5 percent. This provision would save $11.2 billion over ten years.

Repeal of Medicaid and CHIP maintenance of effort requirements under PPACA: Under the Democrats’ government takeover of health care, states are required to maintain eligibility and enrollment policies for Medicaid or CHIP as a condition of receiving federal funding for Medicaid. States cannot change income eligibility levels or implement new enrollment policies than were in effect as of March 23, 2010. This makes it more difficult for states to implement program integrity measures. The Reconciliation package removes this restriction, saving $600 million over ten years.

Medicaid payments to territories: The Democrats’ government takeover of health care increased the federal Medicaid match rate for the territories from 50 percent to 55 percent beginning in FY 2011.  Additionally, the law increased the cap on federal Medicaid spending directed to the territories by $6.3 billion over 10 years. The Reconciliation package repeals both increases, saving $6.3 billion over ten years.

REPEALING BONUS PAYMENTS FOR ENROLLMENT UNDER MEDICAID AND CHIP: Under current law, states receive federal bonus payments for increasing their Medicaid enrollment. This was made law in the Children’s Health Insurance Reauthorization Act of 2009 (CHIPRA). The Reconciliation package would repeal these bonus payments, saving $400 million over ten years.

TITLE III—FINANCIAL SERVICES

Repeal of liquidation authority: The Reconciliation package would end “too big to fail” by repealing Dodd-Frank’s “Orderly Liquidation Authority” that gives government bureaucrats the authority to use taxpayer dollars to bail out the creditors of “too big to fail” institutions and treat similarly situated creditors differently. Eliminating the bailout fund will, according to CBO, save $22 billion over ten years.

Home Affordable Modification Program: The Reconciliation package would amend the Emergency Economic Stabilization Act of 2008 (aka “TARP”) to terminate the authority of the Secretary of the Treasury to provide new mortgage modification assistance under the Home Affordable Modification Program (HAMP), except with respect to existing obligations on behalf of homeowners already extended an offer to participate in the program. The Obama Administration claimed HAMP, its signature foreclosure prevention initiative, would help up to 4 million struggling homeowners.  Instead, HAMP has resulted in only 763,000 loans being permanently modified and has been the target of widespread and bipartisan criticism.  Of the $30 billion in TARP funds set aside for HAMP, $2.54 billion has actually been disbursed.  The Special Inspector General for TARP (SIGTARP), the Congressional Oversight Panel, the Government Accountability Office and even New York Times editorial page have all reported on the ineffectiveness of HAMP and highlighted how this program has hurt, rather than helped, many struggling homeowners. This provision would save $2.8 billion over ten years.

Bringing the Bureau of Consumer Financial Protection into the regular appropriations process: The Reconciliation package would make the Consumer Financial Protection Bureau (CFPB) subject to the ordinary congressional appropriations process and authorize the appropriation of $200 million to the agency for FY 2012 and FY 2013.  This provision would save $5.4 billion over ten years.

The centerpiece of the Dodd-Frank Act is the Consumer Financial Protection Bureau (CFPB), a large and powerful federal agency that is – by design – accountable to neither the executive branch nor Congress.  Its Director has the unprecedented and sole authority to decide which financial products Americans can and cannot use.  In addition, the Dodd-Frank Act authorizes the CFPB to fund itself by drawing money directly from the Federal Reserve to whatever extent the CFPB Director deems “necessary” up to $548 million in FY 2012, $598 million in FY 2013 and 12 percent of the Fed’s operating expenses each fiscal year thereafter.  Neither Congress, nor the President, nor the Federal Reserve which provides its funding can oversee how the CFPB Director spends these hundreds of millions of dollars. 

Flood Insurance Reform: The provision would reauthorize and reform the National Flood Insurance Program (NFIP) to ensure that it is actuarially sound and able to respond to future emergencies without incurring more debt or lapsing as it has three times since 2010. As of January 31, 2011, the NFIP’s outstanding debt and accrued interest cost stood at $17.7 billion. Under current law, these funds borrowed from the U.S. Treasury must be repaid with interest. The program, however, is not in a position to repay the debt.  This legislation would reauthorize the program through FY 2016 and make a number of changes to the NFIP aimed at improving the financial status of the program, including increased premiums for certain higher-risk properties and removing premium subsidies for certain properties. 

The legislation would reauthorize the NFIP through September 30, 2016, and amends the National Flood Insurance Act. Some key provisions of extension include: (1) a five-year reauthorization of the NFIP; (2) a one-year delay in the mandatory purchase requirement for certain properties; (3) a phase-in of full-risk, actuarial rates for areas newly designated as Special Flood Hazard; (4) establishment of the Technical Mapping Advisory Council; and (5) an emphasis on greater private sector participation in providing flood insurance coverage.  The bill would establish minimum deductibles set at $1,000 for properties with full-risk rates and at $2,000 for properties with discounted rates.  The bill would also index maximum coverage limits for inflation beginning in 2012. 

TITLE IV—COMMITTEE ON THE JUDICIARY 

[The ‘‘Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act”]

Many state supreme courts have judicially nullified reasonable litigation management provisions enacted by state legislatures, many of which sought to address the crisis in medical professional liability that reduces patients’ access to health care and increases overall health care costs.  Consequently, in such states, passage of federal legislation by Congress may be the only means of addressing the state’s current crisis in medical professional liability, restoring patients’ access to health care, and controlling unnecessary costs.

To address these issues, the House Judiciary Committee has proposed the HEALTH Act, modeled after California’s decades-old and highly successful health care litigation reforms.  This reform addresses the current crisis in health care by reigning in unlimited lawsuits and thereby making health care delivery more accessible and cost-effective in the United States. California’s Medical Injury Compensation Reform Act (“MICRA”), which was signed into law by Governor Jerry Brown in 1976, has proved immensely successful in increasing access to affordable medical care. CBO pronounced that the legal reforms contained in the HEALTH Act would reduce the federal budget deficit by an estimated $40 billion over the next ten years. The following is a summary of the specific provisions of the HEALTH Act.

Encouraging Speedy Resolution of Claims:  The bill would states that a health care lawsuit could be commenced within 3 years after the date of manifestation of injury or 1 year after the claimant discovers, or through the use of reasonable diligence should have discovered, the injury, whichever occurs first.  In no event would the time for commencement of a health care lawsuit exceed 3 years after the manifestation of injury unless tolled for any of the following: (1) upon proof of fraud; (2) intentional concealment; or (3) the presence of a foreign body, which has no therapeutic or diagnostic purpose or effect, in the person of the injured person.  The bill would provide an exception for alleged injuries sustained by a minor before the age of 6, in which case a health care lawsuit could be commenced by or on behalf of the minor until the later of 3 years from the date of manifestation of injury, or the date on which the minor attains the age of 8. 

Compensating Patient Injury: The bill would provide that in any health care lawsuit, nothing in this bill would limit a claimant’s recovery for the full amount of available economic damages. Under the bill there would be no more than $250,000 in non-economic damages with respect to the same injury. The cap in this section would apply separately to each party with a direct personal injury. The legislation would make clear that courts should apply the $250,000 cap for non-economic damages without calculations that include discounting to present value. Juries would not be informed about the maximum award for non-economic damages. The bill would provide that each party shall be liable for the amount of damages allocated to such party. This allocation shall be determined in direct proportion to such party’s percentage of responsibility for the damages. 

Maximizing Patient Recovery: The legislation would require that courts supervise the arrangements for payment of damages rendered by a judgment in a civil action to protect against conflicts of interests. This section would also establish a sliding fee schedule for the payment of attorneys’ contingency fees.  Payments would be allocated as follows: 40 percent of the first $50,000 recovered by the claimant(s); 33 1⁄3 percent of the next $50,000 recovered by the claimant(s); 25 percent of the next $500,000 recovered by the claimant(s); and 15 percent of any amount by which the recovery by the claimant(s) is in excess of $600,000.  The fee schedule would apply whether the recovery is by judgment, settlement, mediation, arbitration or any other form of alternative dispute resolution.

Punitive Damages: The legislation would specify guidelines for awarding punitive damages.  Under this section, punitive damages may be awarded, if otherwise permitted by applicable state or Federal law, against any person in a health care lawsuit. The amount of punitive damages awarded could be as high as two times the amount of economic damages awarded or $250,000, whichever amount is greater.   

This section would not permit juries to be informed of the formula for calculating punitive damages. Moreover, punitive damages could only be awarded if it is first proven by clear and convincing evidence that a defendant acted with malicious intent to injure the claimant, or that such person deliberately failed to avoid unnecessary injury that such person knew the claimant was substantially certain to suffer.  This section would state that no demand for punitive damages could be included in a health care lawsuit as initially filed. Further, punitive damages in healthcare lawsuits would not be awarded if compensatory damages are not awarded. 

The bill would shield manufacturers and distributors of medical products from punitive damages in certain instances. The provision is intended to shield those companies that are fully compliant with all Federal Food, Drug, and Cosmetic Act (FFDCA) laws and regulations (in the case of biological medical products, full compliance with the FFDCA and section 351 of the Public Health Service Act (PHSA) is required). The FFDCA ensures the safety and effectiveness of drugs, devices, and biological products, all of which are covered by this section. Unless a claimant could demonstrate by clear and convincing evidence a lack of compliance with any FFDCA or PHSA section 351 law or regulation, then a manufacturer, distributor or supplier would be shielded from punitive damages.  All other damages, if proven, would still available to the claimant.

Under the bill, if a claimant could prove by clear and convincing evidence that a manufacturer, distributor or supplier has not complied with the FFDCA or section 351 of the PHSA, the claimant would then need to further prove that the harm attributed to the medical product resulted from the proven compliance failure.  A technical violation of the Act that is wholly unrelated to the harm would not remove the shield provided for in this section. Rather, punitive damages would only be available to claimants who could prove both a violation of the Act or regulations, and then could draw the nexus between failed compliance and harm. The bill would not create an affirmative obligation on the part of the FDA to demonstrate compliance or noncompliance for the purposes of private litigation.  The section would also revoke the shield for persons: (1) who knowingly misrepresent information to the FDA or withhold information from the FDA; (2) who bribe government officials for the purpose of obtaining approval of medical products; and (3) who caused the medical product, which caused the claimant’s harm, to be misbranded or adulterated.  

The bill would prohibit a health care provider who prescribes, or who dispenses pursuant to a prescription, a medical product that is approved by the FDA from being named as a party in a product liability lawsuit.

The legislation would provide that when the alleged harm relates to the adequacy of the packaging or labeling of a drug required to have tamper-resistant packaging, there would be no liability for punitive damages for a manufacturer or seller unless the trier of fact finds by clear and convincing evidence that the packaging or labeling is substantially out of compliance with applicable regulations.

Authorization of Payment of Future Damages to Claimants in Health Care Lawsuits:The legislation would require the court, at the request of any party, to order that the award of future damages equaling or exceeding $50,000 be paid by periodic payments as long as the liable party has sufficient insurance or other assets to fund periodic payments.

Effect on Other Laws: The legislation would state that this legislation does not apply to civil actions brought for a vaccine-related injury or death which is covered under provisions of the Public Health Service Act. It also would state that nothing in this bill should affect any defense available to a defendant in a health care lawsuit or action under any other provision of federal law. 

State Flexibility and Protection of State’s Rights: The legislation would specify many of the rules governing the relationship between the HEALTH Act and state and Federal laws. Specifically, subsection 110(a) would provide that provisions governing health care lawsuits outlined in the bill preempt state law to the extent that state law prevents the application of these provisions. The bill would supersede the Federal Tort Claims Act (FTCA) to the extent that the FTCA provides for a greater amount of damages or contingent fees, a longer period in which a health care lawsuit may be commenced, or a reduced application of periodic payments of future damages. The FTCA would also be superseded if it prohibits the introduction of evidence regarding collateral source benefits, or mandates or permits subrogation or a lien on collateral source benefits.

Under the legislation if an issue would not be addressed by a provision of law established by this legislation, it would be governed by otherwise applicable state or Federal law.  The subsection further states that the bill would not preempt or supersede any law that imposes greater procedural or substantive protections for health care providers and health care organizations from liability, loss, or damages.  

The legislation would state that this legislation does not preempt any state law (enacted before, on, or after the date of enactment of H.R. 5) that specifies a particular amount of compensatory or punitive damages (or the total amount of damages) that may be awarded in a health care lawsuit.  The subsection would also provide that the bill does not preempt any defense available to a party in a health care lawsuit under any other provision of state or Federal law.

Applicability; Effective Date: The bill would provide that the provisions of the bill apply to any health care lawsuit brought in Federal or state court, or subject to alternative dispute resolutions system, that would be initiated on or after the date of the enactment of the bill, except that any health care lawsuit arising from an injury occurring prior to the date of the enactment of the bill would be governed by the applicable statute of limitations provision in effect at the time the injury occurred.

TITLE V—COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

RETIREMENT CONTRIBUTIONS: The Reconciliation package would increase pension contributions by 5 percent of salary over five years for current federal employees. Members of Congress will pay an additional 8.5 percent of salary. These increases would bring the employee contribution to approximately 50 percent of the normal pension cost and according to CBO would save taxpayers approximately $80 billion.

Federal employees benefit from one of the most generous pension programs in the country. In addition to having both a defined contribution and defined benefit plan, federal employees pay a relatively modest amount towards their defined benefit retirement. While in the private sector the cost of retirement benefits are split relatively evenly between the employer and the employee, under the defined benefit portion of the Federal Employee Retirement System, federal employees receive a lopsided 15-to-1 match for their pension. In other words, for every $1 that a federal employee contributes towards the cost of their defined benefit pension, the taxpayer is on the hook for $15.

ANNUITY SUPPLEMENT: The Reconciliation package would eliminate a benefit for federal employees who voluntarily retire before age 62 and receive annuities on top of their retirement until they reach age 62. This provision would only apply to new federal hires. The proposal permits individuals who are subject to mandatory early retirement (such as law enforcement and air traffic control officers) to continue to be eligible.

TITLE VI—COMMITTEE ON WAYS AND MEANS

RECAPTURE OF OVERPAYMENTS RESULTING FROM CERTAIN FEDERALLY-SUBSIDIZED HEALTH INSURANCE: The Democrats’ health care law fails to adequately protect taxpayers from overpayments of health insurance Exchange subsidies, even in the case of fraud. Exchange subsidy eligibility is based on two-year old income tax return data. Because income can change (new job, promotion, spouse returns to the workforce, etc.), the government will conduct an annual review to determine if someone received more taxpayer-funded subsidies than he/she was entitled to.

If an overpayment was made, the recipient is required to repay some or all of the overpayment, subject to certain limits described below. Originally, under the health care law, the maximum amount a subsidy recipient was required to repay was $250 for an individual or $400 for a family, even if he/she/they received thousands of dollars in subsidy overpayments.  Since the health care law’s enactment, two laws have increased the maximum amount of improper Exchange subsidy payments the government can recoup, but in some instances still fails to require full repayment.

The proposal would require those who receive Exchange subsidies to which they are not entitled to repay the full amount of overpayments. Individuals and families would still be allowed to keep the subsidies they are entitled to receive under the law. The Joint Committee on Taxation and CBO estimate this provision would reduce the deficit by $43.9 billion over ten years.

Social Security Number Required to Claim the Refundable Portion of the Child Tax Credit: The bill would save taxpayers billions and reduce the deficit by eliminating waste, fraud, and abuse and ensuring that federal benefits reach their intended recipient. Unlike many other tax benefits, the law does not require the taxpayer or eligible child to have a social security number in order to receive the Child Tax Credit (CTC) and its refundable component, the Additional Child Tax Credit (ACTC), which provides a refundable tax credit of up to $1,000 per child. According to a June 2011 report from the Department of Treasury, individuals who are not authorized to work in the United States were paid $4.2 billion in refundable credits in 2010. This provision would close this loophole by requiring taxpayers to provide a social security number in order to claim the refundable portion of the child tax credit.  According to the Joint Committee on Taxation, this proposal would save $7.6 billion over ten years.

REPEAL OF THE PROGRAM OF BLOCK GRANTS TO STATES FOR SOCIAL SERVICES: The Social Services Block Grant (SSBG) is a source of Federal funds that states use for a wide variety of social services.  Begun in 1956 as a way to match State spending on services to help families leave welfare, the SSBG is now a 100 percent federal funding stream that can be used to provide almost any service to anyone regardless of their income. Many of the services funded by SSBG are duplicative of other federal programs including the Community Services Block Grant, Head Start, Foster Care and Adoption Assistance, Promoting Safe and Stable Families, the Child Care and Development Block Grant, Child Welfare Services, Chafee Foster Care Independence Program, and Temporary Assistance for Needy Families, among many others.

Democrats say that ending the SSBG will end critical services for millions. The most common “critical service” supported by SSBG funds is called “information and referral services,” which were provided to 4.9 million recipients in FY 2009. “Information and referral services” are defined as providing “information about services provided by public and private service providers.” In other words, the single most common “service” supported by SSBG funds is not child care, or meals on wheels or whatever else Democrats’ overheated rhetoric suggests.  It’s to cover state administrative costs of providing people with information about and referrals to other government programs and services. This common-sense proposal would eliminate the SSBG program saving taxpayers almost $17 billion over 10 years, according to CBO.

TITLE VII—SEQUESTER REPLACEMENT

The provision would amend the Budget Control Act (BCA) to repeal the automatic discretionary cuts scheduled to occur on January 2, 2013 as a result of sequestration. The bill would remove the distinction between defense and other discretionary programs subjected to automatic cuts under sequestration and set the caps on all discretionary spending subject to sequestration at $1.028 trillion. The bill would also remove veterans’ medical care from the accounts subject to sequester under the BCA. The automatic defense and discretionary sequestration cuts repealed under H.R. 4966 would be fully replaced by accompanying legislation (the Sequester Replacement Reconciliation Act of 2012) which is also scheduled to be considered on May 10, 2012. Provision of the legislation would be contingent on the enactment of the Reconciliation legislation contained in section 201 of the FY 2013 House Concurrent Budget Resolution (H. Con. Res. 112). 

In addition, the legislation would lower the discretionary spending caps under the BCA in order to reflect the discretionary spending levels contained in tH.Con.Res. 112. The bill would lower discretionary spend limits set forth in the BCA by $19.1 billion, from $1.047 trillion to $1.028 trillion. Under the BCA, the sequestration process would automatically lower the BCA discretionary limits from $1.047 trillion to $949 billion on January 2, 2013. Thus, H.R. 4966 would replace the BCA limit beginning on January 2, 2013, to ensure that the automatic discretionary cuts would not occur and to ensure that new discretionary limits reflect the amounts agreed to in H.Con.Res. 112. The legislation would have no impact on the discretionary spending levels agreed to in H.Con.Res. 112 during the first three months of FY 2013. Discretionary spending from the beginning of FY 2013 through January 2, 2013, would still be subject to the 302(a) limits set forth in the Budget Resolution ($1.028 trillion).

 

Background

On August 1, 2011, the House approved the Budget Control Act (BCA) of 2011 (S. 365), by a vote of 269-161. Among other things, the bill established the Joint Committee on Deficit Reduction (“Super Committee”) with the stated goal of producing recommendations to achieve between $1.2 trillion and $1.5 trillion in deficit reduction legislation. The BCA provided that, if the specific deficit reduction targets were not met, automatic sequestration of mandatory and discretionary spending would occur beginning on January 2, 2013, to achieve cuts equal to a debt limit increase $1.2 trillion. Under the bill, half of the annual sequestration under this section would be derived from defense accounts (budget function 050) and half from non-defense accounts.

As a result of political posturing by the Democrats, the “Super Committee” failed to report and Congress failed to enact $1.2 trillion in deficit reduction last December. Thus, current law requires that there be across-the-board cuts, known as a “sequester,” imposed on January 2, 2013. The sequester will result in a 10 percet reduction in Department of Defense programs and an 8% reduction in certain domestic programs, such as the National Institutes of Health (NIH) and border security.

Intended as a mechanism to force action, there is bipartisan agreement that the sequester going into place would undercut key responsibilities of the federal government.

As the Obama Administration makes clear in their own Budget, “By design, the sequester is not good policy and is meant to force Congress to take action: it would lead to significant cuts to critical domestic programs such as education and research and cuts to defense programs that could undermine our national security. … [C]uts of this magnitude done in an across-the-board fashion would be devastating both to defense and non-defense programs.” [The Budget of the United States Government, Fiscal Year 2013, p. 24, February 13, 2012]

Of particular concern is the impact sequestration, if allowed to occur, would have on our national security.

The sequestration cuts would be on top of the savings in discretionary defense spending that were already implemented as part of the debt limit agreement last August.

The House Armed Services Committee has analyzed the impact of the sequestration, and found that if left in place, sequestration would cut the military to its smallest size since before the Second World War – all while we are still a nation at war in Afghanistan, facing increased threats from Iran and North Korea, unrest in the Middle East, and a rising China. 

Major consequences include:

  • 200,000 soldiers and Marines separated from service, bringing our force well below our pre-9/11 levels;
  • Ability to respond to contingencies in North Korea or Iran at jeopardy;
  • The smallest ground force since 1940;
  • A fleet of fewer than 230 ships, the smallest level since 1915;
  • The smallest tactical fighter force in the history of the Air Force;
  • Our nuclear triad that has kept the US and 30 of our allies safe for decades will be in jeopardy;
  • Reductions of 20 percent in defense civilian personnel; and
  • Two BRAC rounds of base closings.

[House Armed Services Committee Memo “Assessment of Impacts of Budget Cuts”, 9/22/2011]

Secretary Panetta and the professional military leadership have also looked at the impact of sequestration and reached similar conclusions:

Secretary Panetta stated, “If the maximum sequestration is triggered, the total cut will rise to about $1 trillion compared with the FY 2012 plan.  The impacts of these cuts would be devastating for the Department… Facing such large reductions, we would have to reduce the size of the military sharply.  Rough estimates suggest after ten years of these cuts, we would have the smallest ground force since 1940, the smallest number of ships since 1915, and the smallest Air Force in its history.” [Secretary Panetta, Letter to Senator John McCain, 11/14/2011]

General Dempsey, Chairman of the Joint Chiefs of Staff, stated, “[S]equestration leaves me three places to go to find the additional money: operations, maintenance, and training. That’s the definition of a hollow force.”

The individual branch service chiefs echoed General Dempsey: 

 

  • “Cuts of this magnitude would be catastrophic to the military…My assessment is that the nation would incur an unacceptable level of strategic and operational risk.” – General Ray T. Odierno, Chief Of Staff, United States Army
  • “A severe and irreversible impact on the Navy’s future,” – Admiral Jonathan W. Greenert, Chief of Naval Operations
  • “A Marine Corps below the end strength that’s necessary to support even one major contingency,” – General James F. Amos, Commandant of the Marine Corps
  • “Even the most thoroughly deliberated strategy may not be able to overcome dire consequences,” – General Norton A. Schwartz, Chief of Staff, United States Air Force

[Testimony of Service Chief before House Armed Services Committee, 11/2/2011]

Armed Services Ranking Member Adam Smith recently gave a speech about the need to reverse sequestration.  During a question and answer period after the speech, he stated, “What I am saying is, we are going to have to re-write the sequestration law before January 1, one way or another, in order to make sure i[t] makes sense and can fit.  I believe that between now and then we will find $1.2 trillion in deficit reduction somewhere, somehow, and avoid the immediate sequestration.  But as the gentleman asked, the problem is now.  If we wait until September we will have done great harm to the economy.”

According to an analysis by the House Appropriations Committee, the sequester will also have a significant impact on non-defense discretionary programs, including:

  • Automatically reducing Head Start by $650 million, resulting in 75,000 fewer slots for children in the program;
  • Automatically reducing the National Institutes of Health (NIH) by $2.4 billion, an amount equal to nearly half of total NIH spending on cancer this year; and
  • A reduction of approximately 1,870 Border Patrol Agents (a reduction of nearly 9 percent of the total number of agents).

Democrats Have Failed to Offer a Credible Solution

While both Republicans and Democrats have warned of the consequences from both immediate sequestration cuts and the looming debt crisis, the President and leading Senate Democrats refuse to advance credible solutions:

  • The President insists on taking more money from hardworking families and small businesses, a policy that will only exacerbate our current economic problems.
    • Just as bad, Senate Democrats have failed to pass a budget in more than 1,000 days, and have chosen to give up on budgeting again this year.


Common-Sense Republican Reforms

Pursuant to the Budget Resolution, the House will advance a series of reforms that replace across-the-board cuts scheduled in law with common-sense reforms that take steps to address government’s autopilot spending. 

Six House Committees will advance legislation that will:

  • Stop Fraud, by Ensuring that Individuals are Actually Eligible for the Taxpayer Benefits They Receive;
  • Eliminate Government Slush Funds and Stop Bailouts;
  • Control Runaway, Unchecked Spending;
  • Restrain Spending on Government Bureaucracies; and
  • Reduce Waste and Duplicative Programs.

The savings from these reforms will replace the arbitrary discretionary sequester cuts and lay the groundwork for further efforts to avert the spending-driven economic crisis before us.

Cost

A CBO score for H.R. 5652 was unavailable as of press time.