prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.



Report 2: The U S  Fourth National Climate Assessment, released in 2018, concluded that "the impacts of global climate change are already being felt in the United States and are projected to intensify in the future—but the severity of future impacts will depend largely on actions taken to reduce greenhouse g as [GHG] emissions and to adapt to the changes that will occur " Although a variety of efforts seeking to reduce GHG emissions are currently underway on the international and sub-national level, federal policymakers and stakeholders have different viewpoints over what to do, if anything, about future climate change and related impacts  Their views regarding climate change cover a wide range of perspectives  For example, some contend that climate change poses a "direct, existential threat" to human society and that nations must start making significant reductions in GHG emissions in order to avoid "dire effects " To support this argument, proponents of climate change mitigation highlight the evidence and conclusions from recent reports that are generally considered authoritative, including: 1  The Intergovernmental Panel on Climate Change, Global W arming of 1 5°C , 2018; and 2  The U S  Global Change Research Program, Fourth National Climate Assessment , Volume II: Impacts, Risks, and Adaptation in the United States , 2018  On the other hand, some question whether there are sufficient risks of climate change to merit a federal program requiring GHG emission reductions  In addition, others argue that a unilateral approach to climate change by the United States could disproportionately impact domestic industries while achieving minimal results in global climate change mitigation  If Congress were to consider establishing a program to reduce GHG emissions, one option would be to apply a tax or fee on GHG emissions or the inputs that produce them  This type of approach is commonly called a carbon tax or a GHG emissions fee (see "Terminology Issues: A Carbon Tax or an Emissions Fee?")  This report does not compare and analyze the multiple policy tools available to Congress that could address climate change (see text box "Other Policy Options for Addressing GHG Emissions")  This report focuses on the policy considerations and potential impacts of using a carbon tax or GHG emissions fee to control GHG emissions  The key human-related GHG is CO 2 , which is generated primarily through the combustion of fossil fuels: coal, oil, and natural gas  In 2016, fossil fuel combustion accounted for 94% of U S  CO 2 emissions and 76% of U S  GHG emissions  A carbon tax could apply either directly to GHG emissions or to the materials—based on their carbon contents—that ultimately generate the emissions (i e , "emissions inputs")  A carbon price on emissions or their emissions inputs—mainly fossil fuels—would increase the relative price of the more carbon-intensive energy sources, particularly coal  This result could spur innovation in less carbon-intensive technologies (e g , renewable energy, nuclear power, carbon capture and sequestration [CCS]) and stimulate other behavior that may decrease emissions, such as efficiency improvements  The energy price increases could also have both economy-wide impacts and negative effects on specific industries and particular demographic groups  A carbon tax approach has received some attention and debate in recent years  In the 115 th Congress, Members introduced nine carbon tax or fee proposals  Outside of Congress, the Climate Leadership Council—a bipartisan group of former policymakers and industry leaders—published a conceptual carbon tax approach in 2017 that generated some interest  Some of the industry leaders on the council represent major energy companies, including Shell, BP, and ExxonMobil  On the other hand, many Members have expressed their opposition to a carbon tax  Starting in the 112 th Congress and going through the 115 th Congress, Members have introduced resolutions in both the House and Senate expressing the view that a carbon tax is not in the economic interests of the United States  In 2018, the House passed a resolution "expressing the sense of Congress that a carbon tax would be detrimental to the United States economy" ( H Con Res  119 )  An analogous resolution was not introduced in the Senate in the 115 th Congress  The first section of this report examines carbon tax design issues, including the point of taxation, the rate of taxation, and potential border carbon adjustments  The second section discusses issues related to the distribution of carbon tax revenues  The third section discusses additional considerations associated with a carbon tax program, including estimates of GHG emissions, federal revenue, and fossil fuel prices and changes in energy use  The fourth section provides concluding observations  If policymakers decide to establish a carbon tax system, Congress would face several key design decisions, including the point of taxation—where to impose the tax and what to tax—the rate of taxation, and whether and/or how to address imported carbon-intensive materials  Alternatively, Congress could direct one or more federal agencies to determine these design features through a rulemaking procedure  Although a few of the GHG emission reduction proposals in prior Congresses delegated such authority to an agency, such as the U S  Environmental Protection Agency (EPA), all of the proposals since the 111 th Congress have included some degree of design details in the statutory language  (A later section discusses carbon tax revenue application considerations ) The point of taxation would determine which entities would be required to (1) make tax payments based on emissions or emission inputs, such as fossil fuels, (2) monitor emissions or emission inputs, and (3) maintain records of relevant activities and transactions  This section provides some considerations for policymakers deciding which GHG emissions and/or emission sources to cover in a carbon tax system  Throughout the U S  economy, millions of discrete sources generate GHG emissions: power plants, industrial facilities, motor vehicles, households, commercial buildings, livestock, etc  Administrative costs and challenges would likely increase with a broader scope of an emissions tax  A carbon tax may apply to CO 2 emissions alone, which account for most U S  GHG emissions, or to multiple GHGs  Carbon tax proposals that apply only to CO 2 generally attach a price to a metric ton of CO 2 emissions (mtCO 2 )  Some sources emit non-CO 2 GHGs, such as methane, nitrous oxides, and sulfur hexafluoride  GHG emissions from these sources could be addressed by attaching a price to a metric ton of CO 2 emissions-equivalent (mtCO 2 e)  This term of measure is used because GHGs vary by global warming potential (GWP)  At these sources, the determined GWP values would be an important issue  Policymakers may consider limiting the tax to sectors or sources that emit above a certain percentage of total U S  GHG emissions, many of which currently report their emissions to the government  For more than 20 years, monitoring devices or systems have been installed in smokestacks of most large facilities, such as power plants, which are required to periodically report emissions data to EPA  In addition, since 2010, EPA has collected annual emissions data from approximately 8,000 facilities that directly release above certain amounts of GHG emissions  Using these established monitoring frameworks, policymakers could employ a "downstream" approach, applying a carbon tax at the point where the GHGs from these facilities are released to the atmosphere  Alternatively, the tax could be applied to reliable proxies for emissions, such as emission inputs  For example, the carbon content of fossil fuels—coal, natural gas, petroleum—can serve as a proxy for the emissions released when the fuels are combusted  Applying a tax on emission inputs allows for the consideration of various points of taxation  For instance, emission inputs could be taxed at "upstream" (e g , wells) or "midstream" stages in that process (e g , refineries), the latter allowing for potential tax administration advantages that may be provided by specific infrastructure chokepoints in the fossil fuel market  For example, with respect to petroleum, the number of upstream sources—wells that produce crude oil—is over 445,000, but the number of midstream sources—facilities that refine crude oil—is only 137  Table A-1 (in Appendix A) lists the top GHG emission sources in the United States  These sources combined to account for approximately 95% of U S  GHG emissions in 2016  Table A-1 identifies the number of entities for each source category (e g , number of coal mines, number of steel production facilities) and the percentage of total U S  GHG emissions the category contributes  In the case of fossil fuel combustion—which accounted for 76% of total U S  GHG emissions—the table provides several options for segmenting the universe of sources if policymakers choose to implement a carbon tax  It identifies the number of entities that might be subject to the carbon tax under a particular option (pending any exclusions)  For example, policymakers could address fossil fuel combustion emissions by applying a carbon tax to fossil fuels (based on their carbon content) at the following entities, which include both upstream and midstream infrastructure chokepoints: 137 petroleum refineries (based on 2017 data) and 166 petroleum importers (based on 2018 data); 671 coal mines and eight companies supplying imported coal (based on 2017 data); and 1,679 entities that report natural gas deliveries to the Energy Information Administration (EIA) on Form EIA-176 and 123 natural gas fractionators (based on 2016 data)  Some of the above points of taxation might take advantage of the administrative frameworks for existing federal excise taxes  For example, a per-barrel federal excise tax on crude oil at the refinery supports the Oil Spill Liability Trust Fund  An excise tax on the sale or use of coal supports the Black Lung Disability Trust Fund  A central policy choice when establishing a price on GHG emissions is the rate of the carbon tax  Several approaches, which are discussed below, could inform the decision  One approach would set the carbon tax rate at a level or pathway—based on modeling estimates—that would achieve a specific GHG emissions target  For example, a 2018 study estimated the carbon tax rate needed to meet the U S  GHG emission reduction targets established under the 2015 Paris Agreement: 26%-28% below 2005 net GHG emission levels by 2025  The study found that a constant tax rate of $43/ton starting in 2019 would meet the 2025 reduction target  Emissions reduction estimates from carbon tax programs are based on multiple assumptions  Accordingly, such estimates provide different tax rates needed to meet a particular emissions target depending on these assumptions  See " Impacts on GHG Emission Levels " for selected analyses of emission reductions for a given carbon price and rate of price increase  Under another approach, policymakers could base the carbon tax rate on the estimated marginal net benefits associated with reduced CO 2 emissions  The net benefits would be the avoided net damages (i e , costs) of climate change  The estimates of net benefits of avoided emissions often rely on analyses of the social cost of carbon (SC-CO 2 ) or the social cost of greenhouse gases (SC-GHG )  Therefore, policymakers could use SC-CO 2 measurements—as the basis for an estimate of the net benefits of a marginal change in emissions—to set the rate of a carbon tax or emissions fee  One potential challenge of relying on SC-CO 2 estimates to set a carbon fee are methodological concerns  For example, the existing estimates in peer-reviewed research cover a wide range  In addition, some argue that the underlying simulation models for estimating the SC-CO 2 values are insufficient  For any level of emissions, the projected increase in global average temperature may cover multiple degrees Fahrenheit, and other measures of climate change, such as precipitation patterns, may encompass directional uncertainties  No estimates of impacts are comprehensive at this time, and many of the risks are difficult to estimate and value  When valuing the SC-CO 2 , analysts encounter a range of views on methods and assumptions, and establishing study parameters may be challenging  For example, estimates of the monetary values of climate change impacts may be difficult or controversial to estimate, such as the monetary values associated with human deaths or sickness  A related framework question is whether to include global climate impacts or just domestic impacts  In addition, the element of time in climate change impacts particularly complicates the valuation  The fact that many impacts of climate change will occur in the distant future requires consideration of society's willingness to pay in the near term to reduce emissions that would cause future damages, mostly to future generations  To take time into account, economists discount future values to a calculated "present value " Economists do not agree on the appropriate discount rate(s) to use for a multi-generational, largely nonmarket issue such as human-induced climate change  The choice of discount rate can significantly increase or decrease values of the SC-CO 2   A low discount rate would give greater value today to future impacts than would a higher discount rate  High discount rates can reduce the value today of future climate change impacts to a small fraction of their undiscounted values  A high discount rate would recommend applying fewer of today's resources to addressing climate change impacts in the future  Since 2008, federal agencies have used SC-CO 2 estimates in dozens of final rulemakings as a method to estimate the net benefits of abating CO 2 emissions  An Interagency Working Group prepared SC-CO 2 estimates, which were updated over time and subjected to expert and public comment  On March 28, 2017, President Trump issued Executive Order 13783, "Promoting Energy Independence and Economic Growth," which effectively withdrew the federal SC-CO 2 estimates  Nonetheless, federal agencies have used new, interim values generated by EPA in 2017, modified from the withdrawn technical support documents, in regulatory and other decisions  Legislation could set a carbon price citing any of these SC-CO 2 values or others available from nonfederal researchers or prescribe methods for estimating new ones  Using SC-CO 2 estimates to set the tax rate would involve a cost-benefit framework  Although many posit that a cost-benefit framework remains the best option, some economists argue that a cost-benefit framework may be inappropriate for climate change policy for these reasons Many experts expect climate change—and policies to address it—to cause nonmarginal changes to economies and ecosystems  The changes are expected to increase disproportionately with incremental climate change with a potential for crossing critical "tipping points" after which systems change dramatically and rapidly  Climate change impacts are multi-generational, and uncertainty and disagreement exists about whether and how to assign a present value to social costs and benefits over generations  Some impacts from climate change may be irreversible on the timescale of human civilizations, such as melting of major ice sheets in Antarctica or Greenland  Policymakers might consider a carbon tax as a fiscal tool to help reduce the federal deficit, reduce other taxes, or pay for specific programs that may or may not be related to climate change policy  In addition, some have proposed a phased-in approach, setting a rate that is initially lower but increases at an announced or adjustable rate either for a fixed period or indefinitely  Advantages of this approach include providing an opportunity for consumers and investors to adjust their behavior before the higher tax rates go into effect, such as purchasing more energy efficient appliances or investing in low-emissions technologies  Phasing in a carbon tax, however, could delay climate-related benefits  If Congress finds agreement in principle on carbon pricing, the rate(s) could emerge from the process of reaching political agreement  Elements that might be considered include the options described above or consideration of the magnitude of overall economic impact; impacts on certain economic sectors, regions, or population groups; timing to motivate and allow an orderly transition to a lower-GHG economy; or other factors  Many stakeholders have voiced concerns over how a U S  carbon price system would interact with policies in other nations, particularly if the United States were to enact a carbon tax system that covers more sources or is more stringent than enacted elsewhere  A central concern is that a U S  carbon tax could raise U S  prices more than the prices of goods manufactured abroad, potentially creating a competitive disadvantage for some domestic businesses  Certain businesses may become less profitable, lose market share, and reduce jobs  The industries generally expected to experience disproportionate impacts under a U S  carbon tax are often described as "emission-intensive, trade-exposed" industries  An industry's CO 2 emission intensity is a function of both direct CO 2 emissions from its manufacturing process (e g , CO 2 from cement or steel production) and indirect CO 2 emissions from the inputs to the manufacturing process (e g , electricity, natural gas)  Such industries are likely to experience greater cost increases than less carbon intensive industries, all else being equal  In general, trade-exposed industries are those that face greater international competition compared to other domestic industries  A carbon tax could present a particular challenge for these industries, because they might be less able to pass along the tax in the form of higher prices, because they may lose global market share—and jobs—to competitors in countries lacking comparable carbon policies  Policymakers might consider approaches to mitigate these potential economic impacts in several ways  One approach that has received interest in recent years is a border adjustment mechanism, which is often described as a border carbon adjustment (BCA) in the carbon tax context  A BCA would apply a tariff to emission-intensive, imported goods such as steel, aluminum, cement, and certain chemicals  Each of the carbon price proposals in the 115 th Congress would have established a BCA to address emission-intensive imports  Another rationale for adding a BCA to a carbon tax system is the possibility that it would encourage other nations to adopt comparable carbon price policies  Many of the recently proposed BCA mechanisms allow for exemptions for nations with comparable programs  To date, no nations have implemented a BCA as part of their climate change policies  Establishing an economically efficient BCA would likely present substantial challenges  For example, policymakers must decide which goods and/or industries would be covered by a BCA and how the adjustment program would assess the comparability of varied climate-related policies in other nations  In addition, accurately determining and verifying the volume of GHG emissions embodied in a particular imported product would be data intensive and challenging  To alleviate some of the measurement complexity, policymakers could limit the program to selected industries and apply default values and assumptions to particular manufacturing processes  However, this simplified approach could result in less accurate import price adjustments, which could potentially affect the accuracy of GHG emission reductions achieved by the carbon tax program  Another option would be to allow companies to provide measured, independently verified emissions data as an alternative to default values  In addition, the border adjustment approach would likely raise concerns of violating international trade rules  Further, some researchers have highlighted the potential for unintended consequences from a BCA  For example, some studies have found that a border adjustment may lead to lower net exports than the carbon price alone, due to the adjustment's terms-of-trade effect on U S  currency  These issues are beyond the scope of this report, but some of the concerns may be lessened to some degree if a larger number of nations establish comparable emission reduction policies, as many have agreed to do under the Paris Agreement  Another possible rationale for a BCA is to address the concern of "emissions leakage" (or "carbon leakage")  Emissions leakage "occurs when economic activity is shifted as a result of the emission control regulation [e g , a carbon tax program] and, as a result, emission abatement achieved in one location that is subject to emission control regulation is [diminished] by increased emissions in unregulated locations " The concern of emissions leakage has been central in the debate over whether the United States (or any nation) should unilaterally address GHG emissions  A BCA may diminish the potential for emissions leakage by reducing the incentive to shift economic activity to a nation without a comparable carbon tax  However, some recent studies raise questions regarding the degree to which emissions leakage would be a concern under a unilateral U S  carbon tax  Although a tax may be levied on fossil fuels or GHG emission sources at various points in the economy, the carbon tax impacts may be experienced elsewhere  Policymakers have multiple options to address these expected impacts  Policymakers would face challenging decisions regarding the distribution of the new carbon tax revenues  As discussed below, some economic analyses indicate that certain distributions of tax revenue—depending on the level of the tax—would have a greater economic impact than the direct effects from the tax or fee on GHG emissions  Carbon tax revenues could be treated as general fund revenue without a dedication to a specific purpose in the enacting legislation (i e , subject to the annual appropriations process), or policymakers could state that the new revenues would support deficit (or debt) reduction  Alternatively, the enacting legislation could return the tax revenue to the economy in some manner, sometimes called "revenue recycling " All of the carbon tax legislative proposals in recent Congresses have proposed some manner of revenue recycling, specifically directing the carbon tax revenue to support specific policy objectives  Carbon tax revenues may be used to support a variety of policy goals  When deciding how to allocate the new revenue stream, policymakers would likely encounter trade-offs among objectives, including: reducing the economy-wide costs resulting from a carbon tax program; alleviating the costs borne by subgroups in the U S  population, particularly low-income households and/or communities most dependent on carbon-intensive economic activity; and supporting specific policy objectives, such as domestic employment, climate change adaptation, energy efficiency, technological advance, energy diversity, or federal deficit reduction, among others  In general, economic carbon tax studies have found that the relative ranking of revenue recycling options to mitigate the economy-wide impacts is generally the opposite of the relative ranking for alleviating distributional impacts  The contrasting relative rankings highlight a central tradeoff policymakers would face when deciding how to allocate carbon tax revenues  The following sections discuss these trade-offs and some of the revenue application options that have received attention in recent years  A large body of economic literature has examined the economic impacts of hypothetical carbon tax programs, particularly the impacts of using the carbon tax revenues for different purposes  Many of the economic studies cited below were prepared prior to the enactment of the Tax Cuts and Jobs Act (TCJA, P L  115-97 )  Signed by President Trump in December 2017, the act changed various elements of the U S  federal tax system  In particular, the act lowered the corporate income tax rate from 35% to 21%  As discussed below, adjusting the corporate income tax rate is one of the central policy options generally considered in carbon tax economic literature both before and after enactment of P L  115-97   Based on a selected review of the economic literature that includes the tax code changes in P L  115-97 , the central conclusions from carbon tax literature regarding revenue recycling appear to be largely unchanged  A primary concern with a carbon tax is the potential economy-wide costs that may result  Generally, a tax or fee on GHG emissions or the fuels that generate them would increase certain energy prices, namely fossil fuels, in the near- to medium-term as well as the prices of goods and services produced using these materials, like electricity  This outcome is inherent to the carbon tax, as its purpose is to increase the relative price of the more carbon-intensive energy sources compared to less carbon-intensive alternatives, encourage innovation in less carbon-intensive technologies, and promote other activity (e g , energy efficiency) that may decrease emissions  These expected outcomes will have some economy-wide impacts  Ultimately, the economy-wide effects would depend on a number of factors, including, but not limited to, the magnitude and scope of the carbon tax and, most importantly, use of the ensuing revenues
Report 2:  We found that each of these four types of potentially inaccurate data would have changed estimated Medicare CLFS expenditures from 2018 through 2020 by 1 percent or less if CMS had instead excluded the data  To conduct this analysis, we recalculated Medicare rates after excluding each type of data and estimated Medicare expenditures assuming 2016 rates of utilization  Although weighted median private-payer rates were lower than Medicare’s 2017 national limitation amounts for 88 percent of tests, we estimated the total Medicare expenditures based on the 2018 CLFS would likely increase by 3 percent ($225 million overall) compared to 2016 expenditures, assuming test utilization remained at 2016 levels  This increase in estimated expenditures is due, in part, to CMS’s use of above-average payment rates as a baseline to calculate payment rates for those laboratory tests affected by PAMA’s annual payment-rate reduction limit of 10 percent  (See fig  4 ) When applying the 10-percent payment-rate reduction limit, CMS used as its starting point the 2017 national limitation amounts in order to set a single, national payment rate for each laboratory test  Thus, the Medicare payment rate for a test in 2018 could not be less than 90 percent of the test’s 2017 national limitation amount  However, prior to 2018, some payment rates were commonly lower than the national limitation amounts because they were based on the lesser of (1) the amount billed on claims, (2) the local fee for a geographic area, or (3) a national limitation amount, and because panel tests had different bundled payment rates  As a result, by reducing payment rates from national limitation amounts, CMS did not always reduce rates from what Medicare actually paid  Panel tests, in particular, frequently received bundled payment rates that differed substantially from national limitation amounts associated with their billing codes prior to 2018  We compared national limitation amounts, which represent maximum Medicare payment rates for tests, with the average amounts Medicare allowed for payment in 2016, which reflect actual Medicare payment rates  For example, figure 5 below shows that the 2017 national limitation amount for comprehensive metabolic panel tests ($14 49) was substantially higher than both the average amount Medicare allowed for payment in 2016 ($11 45) and the median payment rate laboratories reported receiving from private payers ($9 08)  As a result, using the 2017 national limitation amount as a basis for payment reductions caused Medicare’s payment rate to increase from an average allowed amount of $11 45 in 2016, to a payment rate of $13 04 in 2018, instead of decreasing towards a lower median private- payer rate of $9 08  By increasing average payment rates rather than phasing in reductions to rates, CMS’s implementation may lead to paying more than necessary for some tests  Federal standards for internal control for information and communications require agency management to use quality information to achieve its objectives  Basing reductions on national limitation amounts rather than more relevant information on how much Medicare actually paid—such as the average allowable amounts in 2016, for example—could result in Medicare paying more than necessary by $733 million from 2018 through 2020, according to our estimates  In implementing PAMA, CMS eliminated bundled rates for panel tests that lack billing codes and started paying separately for each component test instead  CMS also implemented the 2018 CLFS in a manner that could lead to unbundling payment rates for panel tests with billing codes  If payment rates for all panel tests were unbundled, we estimated that Medicare expenditures could increase by $218 million for panel tests that lack billing codes and by as much as $10 1 billion for panel tests with billing codes from 2018 through 2020  CMS also estimated that there could be significant risks of paying more than necessary associated with unbundling and has taken initial steps to monitor these risks and explore possible responses, but had not yet responded to these risks as of July 2018  CMS Unbundled Payment Rates for Panel Tests without Billing Codes Beginning in 2018, CMS no longer uses bundled payment rates for panel tests without billing codes and instead pays laboratories individual payments for each component test that comprises these panel tests  However, CMS staff and members of its advisory panel discussed concerns with this approach  At an advisory panel meeting in 2016, CMS staff relayed concerns from stakeholders that CMS would not be able to collect valid data on private-payer rates for these panel tests  According to agency staff, stakeholders had informed CMS that private payers commonly use bundled payment rates for these panel tests, but laboratories would only be able to report unbundled payment rates for individual component tests  We estimated that unbundling these payment rates would increase Medicare expenditures from 2018 through 2020 by $218 million in comparison to the estimated Medicare expenditures over the same time period based on Medicare’s 2016 utilization and allowable amounts  For example, under the 2016 CLFS, Medicare paid approximately 435,000 claims for panel tests that included the laboratory tests assay of creatinine (HCPCS code 82565) and assay of urea nitrogen (HCPCS code 84520) at an average bundled payment rate of $6 82  In contrast, under the 2018 CLFS, these two component tests are reimbursed individually at $6 33 and $4 88, respectively, or $11 21 combined—a 63 percent increase  Despite concerns about the validity of available private-payer data on component tests for panel tests without billing codes, CMS used these data to set payment rates for component tests  CMS officials told us that they stopped using bundled payment rates for these panel tests because it is not clear that CMS has the authority to combine the individual component tests into groups for bundled payment as it did before 2018 due to PAMA’s reference to payments for each test  However, in July 2018, CMS officials told us the agency was reviewing its authority regarding this issue  CMS officials told us they are exploring alternative approaches that could limit increases to Medicare expenditures but had not yet determined what additional legal authority would be needed, if any, and did not know when CMS would make this determination  Agency officials told us that CMS has taken initial steps to monitor unbundling and explore possible responses, including the following: Monitoring unbundling: CMS has begun monitoring changes in panel test utilization, payment rates, and expenditures associated with its implementation of PAMA, according to officials  For example, CMS officials told us that preliminary data indicated that Medicare payments for individual component tests of panel tests has increased substantially in 2018, but, as of July 2018, it was too early to draw conclusions from these data because laboratories have up to one year to submit claims for tests  Collecting input on alternatives: In 2016, a subcommittee of an advisory panel that CMS established reviewed Medicare’s use of bundled payment rates for panel tests and published different approaches for CMS to consider implementing in combination with other changes to implement PAMA  CMS’s Implementation of PAMA May Have Allowed Unbundling of Payment Rates for Panel Tests with Billing Codes Beginning in 2018, laboratories that submit claims for any of the seven panel tests with billing codes by using the billing codes for the individual component tests now receive the payment rate for each component test, rather than the bundled rate  Prior to 2018, laboratories could submit claims for these panel tests either by using the specific codes for panel tests or by billing separately for each of the component tests, and, regardless of how laboratories submitted claims, Medicare Administrative Contractors would pay bundled payment rates based on how many of the 23 component tests were conducted  However, CMS instructed Medicare Administrative Contractors to stop bundling payment rates for tests that are billed individually on claims rather than billed on claims using codes for panel tests, beginning in 2018  CMS did so because it was not clear that CMS had the authority to combine the individual component tests into groups for bundled payment as it did before 2018 due to PAMA’s reference to payments for individual tests, according to agency officials  This change could potentially have a large effect on Medicare spending  For example, if a laboratory submitted a claim individually for the 14 component tests that comprise a comprehensive metabolic panel it would receive a payment of $81 91, a 528 percent increase from the 2018 Medicare bundled payment rate of $13 04 for this panel test  (See fig  6 ) Improving how reductions to payment rates for panel tests are phased in could mitigate, but not completely counteract, the effect of unbundling these payment rates  For example, for the comprehensive metabolic panel test described in figure 6, basing maximum reductions on 2016 average allowable amounts would result in a 2018 Medicare bundled payment rate of $10 31 instead of $13 04 and individual payment rates for the 14 component tests that total $56 06—a 32 percent decrease from $81 91 that Medicare would otherwise pay  If the payment rate for each panel test with a billing code were unbundled, we estimated that Medicare expenditures for these tests from 2018 through 2020 could reach $13 5 billion, a $10 1 billion increase from the $3 3 billion we estimated Medicare would spend using the bundled payment rates in the CLFS  Similarly, prior to implementing PAMA, CMS estimated that Medicare expenditures to physician-office, independent, and other non-hospital laboratories could potentially increase as much as $2 5 billion in 2018, alone if it paid for the same number of panel tests with billing codes as it did in 2016 but paid for each component test individually  These estimates represent an upper limit on the increased expenditures that could occur if every laboratory stopped using panel test billing codes and instead used the billing codes for individual component tests  We do not know the extent to which laboratories will stop filing claims using panel test billing codes  CMS officials also told us that they were aware of the risks associated with paying for the individual component tests instead of the bundled payment rate for a panel test with a billing code  However, CMS guidance, which was effective in 2018, continued to allow laboratories to use the billing codes for individual component tests rather than the billing code for the panel  CMS officials explained that this was due to PAMA’s reference to payments for individual tests, similar to CMS’s decision to stop paying bundled rates for panel tests without billing codes  At the time we did our work, CMS had not implemented a response to these risks but had taken some initial steps to monitor unbundling and consider alternative approaches to Medicare payment rates for these tests  HHS provided additional information on planned activities to address these risks in its written comments on a draft of this report  (See app  III ) CMS collected data on private-payer rates from laboratories that were required to report these data, but not all laboratories complied with the reporting requirement, and the extent of noncompliance remains unclear  PAMA’s provision directing CMS to phase in payment-rate reductions to Medicare payment rates likely moderates the potential adverse effects of incomplete private-payer data  However, in the future, failing to collect complete data could substantially affect Medicare payment rates because private-payer rates alone will determine Medicare payment rates  In addition, we estimated that Medicare expenditures on laboratory tests will be $733 million higher from 2018 through 2020, because CMS started phasing in payment-rate reductions from national limitation amounts instead of more relevant data on actual payment rates, such as average allowable amounts  Finally, changes to payment rates, billing practices, and testing practices could increase Medicare expenditures by as much as $10 3 billion from 2018 through 2020, if CMS does not address the risks associated with unbundling payment rates for panel tests  Agency officials indicated that it was unclear if PAMA limited CMS’s ability to combine individual component tests into groups for bundled payment, and, as of July 2018, CMS was reviewing this matter but did not know when it would make a determination  We are making the following three recommendations to CMS: The Administrator of CMS should take steps to collect all of the data from all laboratories that are required to report  If only partial data can be collected, CMS should estimate how incomplete data would affect Medicare payment rates and address any significant challenges to setting accurate Medicare rates  (Recommendation 1) The Administrator of CMS should phase in payment-rate reductions that start from the actual payment rates Medicare paid prior to 2018 rather than the national limitation amounts  CMS should revise these rates as soon as practicable to prevent paying more than necessary  (Recommendation 2) The Administrator of CMS should use bundled rates for panel tests, consistent with its practice prior to 2018, rather than paying for them individually; if necessary, the Administrator of CMS should seek legislative authority to do so  (Recommendation 3) We provided a draft of this report to HHS for review and comment  HHs provided written comments, which are reproduced in appendix III  HHS also provided technical comments, which we incorporated as appropriate  HHS concurred with our first recommendation to take steps to collect all data from laboratories required to report and commented that it is evaluating ways to increase reporting  In particular, in a November 2018 final rule, HHS changed the definition of an applicable laboratory, which it expects will increase the number of laboratories required to report data on private-payer rates to the agency  HHS neither agreed nor disagreed with our second recommendation to phase in payment-rate reductions that start from the actual payment rates Medicare paid prior to 2018  HHS noted that any changes to the phasing in of payment-rate reductions would need to be implemented through rulemaking  We estimated that by using the national limitation amounts as a starting point for these reductions, Medicare expenditures would increase by $733 million from 2018 through 2020  For this reason, we continue to believe CMS should revise these rates as soon as practicable and through whatever mechanism CMS determines appropriate  HHS neither agreed nor disagreed with our third recommendation to use bundled rates for panel tests  However, HHS commented that it is taking steps to address this issue  More specifically, for panel tests with billing codes, HHS is working to implement an automated process to identify claims for panel tests that should receive bundled payments, similar to the process used to bundle payment rates for these panel tests prior to PAMA’s implementation and anticipates implementing this change by the summer of 2019  In addition, HHS posted guidance on November 14, 2018, stating that the panel tests with billing codes, laboratories should submit claims using the corresponding code rather than the codes for the separate component tests beginning in 2019  To reduce the potential of paying more than necessary, we believe it is important that CMS implement its proposed automated process to allow for these payments as soon as possible  In contrast, for panel tests without billing codes, HHS commented that it is continuing to review its authority and considering other approaches to payment for these panel tests, such as adding codes to the CLFS  We estimate that unbundling the payment for these panel tests could increase Medicare expenditures by $218 million from 2018 through 2020 compared to expenditures based on Medicare’s 2016 utilization, and the actual amount could be higher if utilization increases  For this reason, we believe CMS should implement bundled payment rates for these panel tests to avoid excess payments  We are sending copies of this report to the appropriate congressional committees and the Administrator of CMS  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-7114 or cosgrovej@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix IV  Appendix I: Table of Key Dates Related to Developing the New Payment Rates for the 2018 Clinical Laboratory Fee Schedule Event Centers for Medicare and Medicaid Services (CMS) issued the CLFS proposed rule  CMS issued responses to frequently asked questions regarding the CLFS proposed rule  CMS issued the CLFS final rule  CMS issued responses to frequently asked questions regarding the CLFS final rule  CMS held the joint Annual Laboratory Public Meeting and Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting  CMS issued laboratory billing codes subject to data collection and reporting  CMS issued guidance to laboratories for collecting and reporting data  CMS held a Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting  CMS issued the CLFS data reporting template  CMS collected data on (1) the billing code associated with a laboratory test; (2) the private-payer rate for each laboratory test for which final payment was made during the data collection period (i e , January 1, 2016, through June 30, 2016); and (3) the volume of tests performed for each billing code at that private-payer rate  CMS issued additional guidance for laboratories as the data collection period began  CMS issued the CLFS fee-for-service data collection user’s manual  CMS issued revised guidance to laboratories for collecting and reporting data  CMS held a Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting  CMS released the proposed CLFS rates  CMS held a Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting  Deadline for stakeholders to submit comments on the proposed CLFS rates to CMS  CMS issued the final CLFS rates  New CLFS rates became effective  Table 4 below demonstrates the challenges the Centers for Medicare & Medicaid Services (CMS) faces in setting accurate Medicare payment rates to the extent it does not collect complete data from laboratories on private-payer rates  Specifically, the table shows the potential effect that collecting additional data for each laboratory test could have on Medicare expenditures and how this effect could vary depending on (1) the amount of additional data collected, (2) payment rates in the additional data, and (3) limits to annual reductions in Medicare payment rates  These limits are in place from 2018 through 2023 to phase in changes to payment rates  In addition to the contact named above, Martin T  Gahart, Assistant Director; Gay Hee Lee, Analyst-in-Charge; Kaitlin Farquharson, Sandra George, Dan Lee, Elizabeth T  Morrison, Laurie Pachter, Vikki Porter, and Russell Voth made key contributions to this report 

ground_truth: The Small Business Administration's (SBA's) Surety Bond Guarantee Program is designed to increase small businesses' access to federal, state, and local government contracting, as well as private-sector contracts, by guaranteeing bid, performance, and payment bonds for small businesses that cannot obtain surety bonds through regular commercial channels. The program guarantees individual contracts of up to $6.5 million, and up to $10 million if a federal contracting officer certifies that such a guarantee is necessary. The SBA's guarantee currently ranges from 80% to 90% of the surety's loss if a default occurs. In FY2018, the SBA guaranteed 10,800 bid and final surety bonds with a total contract value of nearly $6.5 billion. A surety bond is a three-party instrument between a surety (who agrees to be responsible for the debt or obligation of another), a contractor, and a project owner. The agreement binds the contractor to comply with the contract's terms and conditions. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed. Surety bonds encourage project owners to contract with small businesses that may not have the credit history or prior experience of larger businesses and may be at greater risk of failing to comply with the contract's terms and conditions. Surety bonds are important to small businesses interested in competing for federal contracts because the federal government requires prime contractors—prior to the award of a federal contract exceeding $150,000 for the construction, alteration, or repair of any building or public work of the United States—to furnish a performance bond issued by a surety satisfactory to the contracting officer in an amount that the officer considers adequate to protect the government. P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, increased the program's bond limit to $6.5 million, or up to $10 million if a federal contracting officer certifies that such a guarantee is necessary. The limit had been $2 million since 2000, with a temporary increase from February 17, 2009, through September 30, 2010, to $5 million, and up to $10 million if a federal contracting officer certified in writing that such a guarantee was necessary. Advocates of raising the program's bond limit argued that doing so would increase contracting opportunities for small businesses and bring the limit more in line with limits of other small business programs, such as the 8(a) Minority Small Business and Capital Ownership Development Program and the Historically Underutilized Business Zone (HUBZone) Program. Opponents argued that raising the limit could lead to higher amounts being guaranteed by the SBA and, as a result, increase the risk of program losses. This report examines the program's origin and development, including (1) the decision to supplement the original Prior Approval Program with the Preferred Surety Bond Guarantee Program that initially provided a lower guarantee rate (not to exceed 70%) than the Prior Approval Program (not to exceed 80% or 90%, depending on the size of the contract and the type of small business) in exchange for allowing preferred sureties to issue SBA-guaranteed surety bonds without the SBA's prior approval; (2) P.L. 114-92, the National Defense Authorization Act for Fiscal Year 2016, which increased the Preferred Surety Bond Guarantee Program's guarantee rate from not to exceed 70% to not to exceed 90% of losses; and (3) the decision to increase the program's bond limit.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs to enhance small business access to capital; contracting programs to increase small business opportunities in securing federal contracts; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion  Congressional interest in these programs has increased in recent years, primarily because assisting small business is viewed as a means to enhance economic growth  The SBA's Surety Bond Guarantee Program has been operational since April 1971  It is designed to increase small business' access to federal, state, and local government contracting, as well as private-sector contracting, by guaranteeing bid, performance, payment, and specified ancillary bonds "on contracts … for small and emerging contractors who cannot obtain bonding through regular commercial channels " The program guarantees individual contracts of up to $6 5 million, and up to $10 million if a federal contracting officer certifies that such a guarantee is necessary  The $6 5 million limit is periodically adjusted for inflation  The SBA's guarantee currently ranges from 80% to 90% of the surety's loss if a default occurs  In FY2018, the SBA guaranteed 10,800 bid and final surety bonds (a payment bond, performance bond, or both a payment and performance bond) with a total contract value of nearly $6 5 billion  Although the surety industry does not report the total value of the bonds it issues each year, estimates based on the total amount of premiums collected by the private sector in recent years suggest that the SBA's Surety Bond Guarantee Program represents, by design, a relatively small percentage of the market for surety bonds (from about 1 1% to 6 7% of the value of surety bonds issued by the private sector)  A surety bond is a three-party instrument between a surety (that agrees to be responsible for the debt or obligation of another), a contractor, and a project owner  The agreement binds the contractor to comply with the contract's terms and conditions  If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed  The surety bond reduces the risk of contracting  Surety bonds are viewed as a means to encourage project owners to contract with small businesses that may not have the credit history or prior experience of larger businesses and are considered to be at greater risk of failing to comply with the contract's terms and conditions  The four general types of surety bonds are bid bonds guarantee that the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract, payment bonds guarantee that suppliers and subcontractors will be paid for work performed under the contract, performance bonds guarantee that the contractor will perform the contract in accordance with its terms and conditions, and ancillary bonds ensure completion of requirements outside of performance or payment, such as maintenance  Surety bonds are important to small businesses interested in competing for a federal contract because the federal government requires prime contractors, prior to the award of a federal contract exceeding $150,000 for the construction, alteration, or repair of any building or public work of the United States, to furnish a performance bond issued by a surety satisfactory to the officer awarding the contract, and in an amount the contracting officer considers adequate, to protect the government  Prime contractors are also required to post a payment bond with a surety satisfactory to the contracting officer for the protection of all persons supplying labor and material in carrying out the work provided for in the contract  Both bonds become legally binding upon award of the contract and their "penal amounts," or the maximum amount of the surety's obligation, must generally be 100% of the original contract price plus 100% of any price increases  Most state and local governments have adopted similar legislation, often called "Little Miller Acts," referencing the Miller Act of 1935 that established the federal requirement  Many private project owners also require contractors to furnish a surety bond before awarding them a contract  This report opens with an examination of the SBA's Surety Bond Guarantee Program's legislative origin and provides a historical summary of the major issues that have influenced the program's development, including the decision to supplement the original Prior Approval Program with a Preferred Surety Bond Guarantee Program (PSB program) that initially provided SBA-approved sureties a lower guarantee rate (not to exceed 70%) than those participating in the Prior Approval Program (not to exceed 80% or 90%, depending on the size of the contract and the type of small business) in exchange for allowing preferred sureties to issue SBA-guaranteed bonds to small businesses without the SBA's prior approval; P L  114-92 , the National Defense Authorization Act for Fiscal Year 2016, which increased the PSB program's guarantee rate from not to exceed 70% to not to exceed 90% of losses; and the decision to increase the program's bond limit  It then examines the program's current eligibility standards and requirements, and provides performance statistics, including the number and amount of bond guarantees issued annually  In addition, it provides data concerning the number and amount of final bonds guaranteed from FY1971 through FY2017 (see Table A-1 ) and for bid and final bonds combined from FY2000 through FY2017 (see Table A-2 )  P L  91-609, the Housing and Urban Development Act of 1970, authorized the SBA's Surety Bond Guarantee Program  The act amended Title IV of the Small Business Investment Act of 1958 (P L  85-699, as amended) to provide the SBA authority to guarantee any surety against loss as the result of a breach of the terms of a bid bond, payment bond, or performance bond by a principal on any contract up to $500,000  The act specified that (1) the principal of the bond is a small business, (2) the bond is required as a condition of bidding on the contract or serving as a prime contractor or subcontractor on the project, (3) the small business is not able to obtain such bond on reasonable terms and conditions without the guarantee, (4) the SBA determines that there is a reasonable expectation that the small business will perform the covenants and conditions of the contract, (5) the contact meets SBA requirements concerning the feasibility of the contract being completed successfully and at a reasonable cost, and (6) the bond's terms and conditions are reasonable in light of the risks involved and the extent of the surety's participation  The act also required that the SBA's guarantee not exceed 90% of the loss incurred by the surety in the event of a breach of the bond's terms and conditions by the small business  The SBA was authorized to finance the program through the Leasing Guarantee Revolving Loan Fund within the Department of the Treasury, which renamed that fund the Lease and Surety Bond Guarantee Revolving Fund  The act authorized the transfer of $5 million from the SBA's Business Loan and Investment Revolving Fund to the Lease and Surety Bond Guarantee Revolving Fund, raising that fund's capital to $10 million available without fiscal year limitation, to support both the lease guarantee program and the surety bond guarantee program  The act also recommended that the program be appropriated up to $1 5 million each fiscal year for three fiscal years after its date of enactment (December 31, 1970) if additional funding were needed to offset the program's expenses  The SBA was directed to administer the program "on a prudent and economically justifiable basis " It was authorized to offset the program's administrative costs by charging a uniform annual fee, subject to periodic review to ensure that the fee is the "lowest fee that experience under the program shows to be justified," and uniform fees for the processing of applications for guarantees  The SBA also was authorized to "obligate the surety to pay the Administration such portions of the bond fee as the Administration determines to be reasonable in light of the relative risks and costs involved " The program's sponsors argued in 1970 that "there is widespread evidence that a significant number of construction contracting organizations find varying degrees of difficulty in obtaining surety bonds" and that "the major share of these organizations are small businesses, and many of them are headed by minority groups " They argued that the Surety Bond Guarantee Program would "facilitate the entry and advancement of small and minority contractors in the construction business " At that time, witnesses at congressional hearings testified that surety bonds were not necessarily required for most private sector construction contracts, but they were required for most public sector construction contracts  The SBA implemented the program on a pilot basis on April 5, 1971, in Kansas City  The program later was expanded to Los Angeles and became nationwide on September 2, 1971  Initially, the SBA guaranteed 90% of the amount of all of the surety bonds in the program and charged sureties 10% of the bond premium paid to the surety company by the contractor  It also charged small business applicants for payment and performance bonds 0 2% of the contract price upon their obtaining the contract  It did not charge for the processing of bid bonds, rejected applications, or applications that did not result in a contract award  Contractors wishing to participate in the program were required to have less than $750,000 in gross annual receipts for the past fiscal year or to have averaged less than $750,000 in gross annual receipts over the past three fiscal years  This size standard was more stringent than for other SBA programs, and it was designed "to reach that segment of small business which was obviously intended to benefit from the legislation as evidenced by the limit of $500,000 on any one contract " Demand for the program exceeded the SBA's expectations  In 1971, the SBA estimated that it would guarantee about 8,000 contracts amounting to about $540 million from FY1972 through FY1974  Instead, it guaranteed 16,118 contracts amounting to nearly $1 1 billion (see Table A-1 in the Appendix)  Because the demand for the program exceeded expectations and the initial fees proved to be insufficient to recoup the program's expenses, in 1974, the SBA requested an additional $25 million for the program  The SBA argued that the additional funds were necessary to take into account the program's projected growth and to establish a reserve fund "to protect against having to suspend [the] program in the fact of more rapid growth than is projected " In response to the SBA's request for additional funding for the program, Congress held congressional hearings to reassess the need for the program and to explore options concerning how to finance the program's proposed expansion  The financing discussions focused on the relative merits of relying primarily on higher fees to increase the program's revenue, reductions in the guarantee percentage to reduce the program's expenses, or additional appropriations to finance the program's proposed expansion  Although the SBA has periodically increased the program's fees and later instituted a tiered system of guarantee percentages, historically, the SBA has tried to keep the program's fees as low as economically feasible and the guarantee percentage as high as economically feasible to encourage the program's use  As an SBA official testified before Congress in 1975: SBA's loss exposure could be reduced by a decrease in the guarantee extended to sureties from 90% to 80%  Before proceeding with this recommendation, a thorough analysis will have to be made of the adverse effect on the willingness of sureties to participate in the program which would result from the increase from 10% to 20% of the sureties' share of the loss potential  An increase in contractor's fees would obviously be beneficial to the operating income of the program, but would also increase the bids which small business-contractors would have to make, thus placing them at a competitive disadvantage with contractors with more ready access to bonding  Moreover, as mentioned previously, the SBA is required by statute to ensure that the fees are the lowest "that experience under the program shows to be justified " Determining the program's appropriate size became a recurring theme at congressional hearings, and continues to be of congressional interest today  For example, Congress has regularly requested testimony from representatives of the surety bond industry and various construction organizations concerning the extent to which the program is necessary to assist small businesses generally, and minority-owned small businesses in particular, in gaining access to surety bonds  Congress has also periodically asked the Government Accountability Office (GAO) to examine the need for the SBA's surety bond guarantee program and to recommend ways to improve the program's management  That testimony and GAO's reports have supported a need for the program, but, as will be discussed, have had somewhat limited usefulness in helping Congress determine the program's appropriate size  In 1974, Congress responded to the SBA's request for additional funding by passing P L  93-386 , the Small Business Amendments of 1974  It established a separate Surety Bond Guarantees Revolving Fund account (hereinafter Revolving Fund) within the Department of the Treasury to support the program  The act also increased the total contract amount that could be guaranteed to $1 million from $500,000 and recommended that the Revolving Fund receive $35 million in additional funding  The Ford Administration objected to providing additional appropriations for the Revolving Fund  Instead, the Administration recommended that the Revolving Fund receive a $20 million transfer from the SBA's Business Loan and Investment Revolving Fund  The transfer would provide the program access to additional capital without affecting the federal budget deficit  Congress approved the Administration's proposal  As shown in Table 1 , the Revolving Fund received $130 5 million in additional appropriations for FY1976 through FY1979 and continued to receive additional appropriations during the 1980s and 1990s  In addition, the program's bond limit was increased to $1 25 million from $1 million in 1986  As discussed below, the increased appropriations and bond limit were not sufficient to continue the program's growth  Instead, both the number and amount of final surety bonds guaranteed by the SBA began to slowly diminish  This general trend continued until the maximum individual surety contract amount was increased, first on a temporary basis by P L  111-5 , the American Recovery and Reinvestment Act of 2009, and later, on a permanent statutory basis, by P L  112-239 , the National Defense Authorization Act for Fiscal Year 2013  As shown in Table 1 , Congress did not appropriate funding for the Revolving Fund from FY2000 to FY2004, allowing the program to cover the cost of claim defaults through its reserve  Congress also increased the program's bond limit to $2 million from $1 25 million in 2000  Congress provided the Revolving Fund $2 9 million in FY2005, $2 86 million in FY2006, $2 86 million in FY2007, and $3 million in FY2008  During the 111 th Congress, P L  111-5 provided the Revolving Fund a separate appropriation of $15 million to support a temporary increase in the program's bond limit to $5 million, and up to $10 million if a federal contracting officer certified in writing that a guarantee in excess of $5 million was necessary, from $2 million  Those funds were in addition to the $2 million appropriation that had already been approved for FY2009  In FY2010, the Revolving Fund received $1 million  Congress has not approved appropriations for the Revolving Fund since then, noting that there have been sufficient funds in the program's reserve to cover the cost of anticipated claim defaults  As mentioned previously, the SBA relied primarily on increased appropriations to finance the program's expansion during the 1970s, but it also increased the program's fees charged to applicants and sureties  For example, in 1976, the SBA increased its fees to sureties to 20% from 10% of the bond premium, instituted a deductible clause on bond claims, and generally limited its approval for bid, participation, and performance bonds to $250,000 unless specified circumstances were met  In 1977, it increased the contractor applicant fee for payment and performance bonds to 0 5% from 0 2% of the contract price upon obtaining the contract  The program's current fee structure is discussed later in this report  Both the number and amount of final surety bonds guaranteed by the SBA increased relatively rapidly during the 1970s (see Table A-1 in the Appendix)  The number of final surety bonds guaranteed by the SBA increased from 1,339 in FY1972 to 20,095 in FY1979, and the amount guaranteed by the SBA increased from $94 4 million in FY1972 to $1 39 billion in FY1979  During the 1980s and 1990s, both the number and amount of final surety bonds guaranteed by the SBA generally declined, in both nominal and inflation-adjusted dollars  A review of congressional testimony during that period suggests that there was no single, discernible factor to account for the program's slow contraction  Because the demand for surety bonds tends to fluctuate with changes in the economy, the program might have been expected to contract somewhat during recessions, but the economy experienced periods of both economic growth and decline during the 1980s and 1990s  There also was no indication that the ability of small businesses to access surety bonds in the private marketplace without the SBA's assistance had materially improved, which, if that had been the case, might have contributed to the decline by reducing the number of small businesses applying for assistance  One possible contributing factor to the decline in SBA-guaranteed surety bonds during that period was the continuing reluctance of many surety companies to participate in the program, either because they did not view the program as particularly profitable or they "had developed alternative methods to the program, such as requiring collateral or funds controls and underwriting programs based in part on credit scores, in order to write small and emerging contractors " Another possible contributing factor was a change in the way the program was perceived by congressional leaders and their reluctance to provide additional resources to continue the program's expansion  During the 1970s, at congressional hearings, witnesses praised the program as a great success in helping small businesses access surety bonds and compete for government contracts  During the 1980s and 1990s, congressional hearings focused less on the program's successes and more on its shortcomings  For example, in 1982, the chair of the Senate Committee on Small Business indicted that the program was subject to "the most insidious types of fraud," including "evidence of involvement of organized crime figures " In addition, reports by both GAO and the SBA's inspector general questioned the SBA's management of the program, arguing, among other things, that the SBA lacked useful underwriting guidelines for surety companies and adequate procedures for verifying applicants' information  During the 1980s, the SBA guaranteed, on average, 11,840 final surety bonds each fiscal year, with the SBA's share of those bonds' value averaging $1 0 billion  During the 1990s, the SBA guaranteed, on average, 5,859 final surety bonds each fiscal year, with the SBA's share of those bonds' value averaging $823 million  During the first decade of the 2000s, the SBA guaranteed, on average, about 1,802 final surety bonds each fiscal year, with the SBA's share of those bonds' value averaging about $385 million  Since then, as indicated in Table 2 and Table A-1 , the number and amount of final surety bonds guaranteed by the SBA has generally increased  This increase is likely due to generally improving economic conditions and the increase in 2013 of the maximum individual contract amount that could be guaranteed from $2 million to $6 5 million, and up to $10 million if a federal contracting officer certifies that such a guarantee is necessary  The surety bonding process begins when a contractor applies for a bond  As GAO has reported Surety companies are generally corporations that are licensed under various insurance laws and, under their charters, have legal power to act as a surety (making themselves responsible for another's obligations) for others  Most surety companies accept business only through independent agents and brokers  In screening a bond applicant, a surety attempts to measure the contractor's ability to undertake and complete the job  When the surety's evaluation of the contractor's acceptability to perform the contract is favorable, the surety underwrites the bond  If the surety does not provide a bond to the bond applicant, the appropriate forms are forwarded to SBA for consideration of a surety bond guarantee  Initially, the SBA surety guaranteed program's bonds were underwritten and issued by large, "standard" surety companies  However, these companies' participation in the program soon began to decline, reportedly because of the administrative burdens associated with the program, such as the SBA's requirement that sureties submit all bond applications to the SBA for review and approval  In addition, the administrative costs of dealing with relatively small bonds versus relatively large ones may have also played a role in the larger, standard surety companies leaving the program  As a congressional witness testified in 1976: You have a professional underwriter, who     is going to be asked to spend 3 or 4 days looking into a $25,000 first-time application  There are many expenses involved  That same underwriter could very easily be writing four or five bonds for $10 million for contractors that everyone knows can perform  And it becomes a matter of how much time and resources can the surety industry devote to this type of business  Another reason may have been the outbreak of the Israeli-Egyptian War in 1973, which was followed by a tripling of oil prices and double-digit inflation  This led to the failure of many smaller contracting companies  In response to the economic downturn, many surety companies enhanced their underwriting standards to protect themselves from rising defaults  As a result, many of the larger surety companies became increasingly reluctant to participate in a program in which the profit margins were relatively small given the required paperwork and the program's limitation on the bond amount, and when the risk of defaults was at a historically high level  As standard sureties left the program, "specialty" surety companies filled the void  Initially, specialty sureties devoted almost all their business exclusively to SBA-guaranteed surety bonds  These companies later expanded their business into offering other high-risk bonds not normally handled by standard sureties  Specialty sureties typically required the contractor to provide collateral for the projects they bonded, and, in most cases, charged higher premiums than standard sureties  In 1982, the SBA invited officials from the Surety Association of America, representing the standard surety companies, to recommend ways to encourage their participation in the program  As mentioned previously, at that time, some specialty surety companies had been accused of associating with organized crime and GAO and the SBA's inspector general had reported fraud and mismanagement in the program  This may help to explain why the SBA was interested in encouraging the larger, more established surety companies to return to the program  The SBA also hoped that greater participation by the larger sureties would lead to lower premiums for small business contractors  During this outreach period, standard surety companies indicated a willingness to increase their participation in the program if the SBA would create a second special program, similar to the SBA's 7(a) loan guarantee program's Preferred Lenders Program  Under the proposal, a surety meeting specified qualification standards would be designed as a "preferred surety" and would be allowed to issue SBA-guaranteed surety bonds prior to receiving the SBA's approval  To participate in the preferred program, the surety's underwriting and administrative standards and procedures would be pre-approved by the SBA, and the surety's decisions would be subject to regular, annual audits  In addition, the SBA's reporting and access to records requirements would be retained  As a measure of their confidence in their own underwriting standards and claims decisions, the standard surety firms indicated that they would accept a 70% guarantee against losses as opposed to the then-allowed 80% or 90% guarantee against losses, as long as firms would not be required to seek the SBA's prior approval for underwriting decisions, bond administration, and claims procedures  Congress subsequently authorized the proposed Preferred Surety Bond Guarantee Program in P L  100-590 , the Small Business Administration Reauthorization and Amendment Act of 1988 (Title II, the Preferred Surety Bond Guarantee Program Act of 1988)  The program was initially authorized on a three-year trial basis, and it was provided permanent statutory authority by P L  108-447 , the Consolidated Appropriations Act, 2005  As discussed in " 114th Congress: Preferred Surety Bond Guarantee Rates " below, P L  114-92 , the National Defense Authorization Act for Fiscal Year 2016, increased the SBA's guarantee for preferred sureties from not less than 70% to not less than 90% of losses  The SBA is authorized to guarantee surety bonds issued to contractors or subcontractors when the business, together with its affiliates, meets the SBA's size standard for the primary industry in which it is engaged; the bond is required; the applicant is not able to obtain such bond on reasonable terms and conditions without a guarantee; and there is a reasonable expectation that the applicant will perform the covenants and conditions of the contract, and the terms and conditions of the bond are reasonable in light of the risks involved and the extent of the surety's participation  The applicant must also "possess good character and reputation," as demonstrated by (1) not being under indictment, being convicted of a felony, or having a final civil judgment stating that the applicant has committed a breach of trust or has violated a law or regulation protecting the integrity of business transactions or business relationships; (2) not having a regulatory authority revoke, cancel, or suspend a license held by the applicant, which is necessary to perform the contract; and (3) never having obtained a bond guarantee by fraud or material misrepresentation or failing to keep the surety informed of unbonded contracts or of a contract bonded by another surety  Applicants must also certify the percentage of work under the contract to be subcontracted  The SBA does not guarantee bonds for applicants that are primarily brokers or have effectively transferred control over the project to one or more subcontractors  Applicants must also certify that they are not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from transactions with any federal department or agency  In addition, the SBA will not guarantee a bond issued by a particular surety if that surety, an affiliate of that surety, or a close relative or member of the household of that surety or affiliate owns, directly or indirectly, 10% or more of the business applying for the guarantee  This conflict of interest prohibition also applies to ownership interests in any of the applicant's affiliates  As mentioned previously, the SBA guarantees contracts up to $6 5 million, and up to $10 million if a federal contracting officer certifies that such a guarantee is necessary  There is no limit to the number of bonds that can be guaranteed for any one contractor  The SBA guarantees up to 90% of the loss incurred and paid by a surety if the contract is $100,000 or less, or if the bond is issued on behalf of a socially and economically disadvantaged-owned and controlled small business, a qualified HUBZone small business, a veteran-owned and controlled small business, or a service-disabled veteran-owned and controlled small business  The guarantee rate is 80% if the contract is greater than $100,000, and the business is not owned and controlled by socially and economically disadvantaged individuals, a qualified HUBZone small business, or a veteran-owned or service-disabled veteran-owned small business  The SBA does not charge principals (small business applicants) application or bid bond guarantee fees  If the SBA guarantees a final bond, the principal must pay a contractor fee equal to a percentage of the contract amount, which is determined by the SBA and published in the Federal Register   The FY2019 contractor fee is 0 6% of the contract price for a final bond  The contractor fee is rounded to the nearest dollar, paid to the surety, and the surety remits the fee to the SBA  Sureties also charge principals a premium for issuing and servicing the bond  Sureties are not allowed to charge principals a premium that is more than the amount permitted under applicable state law  Premiums vary depending on the surety's assessment of the risk involved and job size; typically ranging from 1 5% to 3 0% of the contract amount  Sureties interested in participating in the Prior Approval Program or the Preferred Surety Bond Guarantee Program (PSB program) must apply in writing to the SBA  Applicants must be a corporation listed by the U S  Treasury as eligible to issue bonds in connection with federal procurement contracts  The SBA considers several factors when evaluating sureties for the PSB program: the surety must have an underwriting limitation of at least $6 5 million on the Department of the Treasury's list of acceptable sureties; the surety must agree that it will neither charge a bond premium in excess of that authorized by the appropriate state insurance department nor impose any non-premium fee unless such fee is permitted by applicable state law and approved by the SBA; the surety's premium income from contract bonds guaranteed by any government agency (federal, state, or local) can account for no more than one-quarter of the surety's total contract bond premium income; and the surety must vest the underwriting authority for SBA guaranteed bonds to its own employees and final settlement authority for claims and recovery to employees in the surety's permanent claims department  The SBA also considers the surety's rating or ranking designation assigned by a recognized authority  Sureties participating in the PSB program are not eligible to participate in the Prior Approval Program  However, this prohibition does not apply to the surety's affiliates provided that the affiliate is not a participant in the PSB program, their affiliation has been fully disclosed to the SBA, and the affiliate has been approved to participate in the Prior Approval Program  Sureties in the Prior Approval Program must obtain the SBA's approval before issuing a guaranteed bond  Sureties in the PSB program may issue, monitor, and service SBA-guaranteed bonds without prior approval  However, these sureties must notify the SBA electronically of all bonds issued and, for final bonds, they must report and submit to the SBA on a monthly basis all contractor and surety fees that are due  These sureties are also subject to a periodic maximum guarantee authority amount set by the SBA  In addition, effective August 21, 2017, sureties are required, during their initial nine months in the PSB program, to obtain the SBA's prior written approval before executing a bond greater than $2 million  The SBA argued that it was in the taxpayer's interest to require newer sureties to "demonstrate an understanding of the program before being allowed to issue bonds larger than $2 million without SBA's oversight " The terms and conditions of the SBA's bond guarantee agreements with the surety, including the guarantee percentage, may vary from surety to surety, depending on past experience with the SBA  The SBA may take into consideration, among other things, the rating or ranking assigned to the surety by recognized authorities, the surety's loss rate, average contract amount, average bond penalty per guaranteed bond, and the ratio of bid bonds to final bonds, all in comparison with other sureties participating in the same SBA Surety Bond Guarantee Program (Prior Approval or PSB programs)  Sureties are required, among other things, to evaluate the credit, capacity, and character of a principal using standards generally accepted by the surety industry and in accordance with the SBA's standard operating procedures on underwriting and the surety's principles and practices on unguaranteed bonds; reasonably expect that the principal will successfully perform the contract to be bonded; provide bond terms and conditions that are reasonable in light of the risks involved and the extent of the surety's participation; be satisfied as to the reasonableness of cost and the feasibility of successful completion of the contract; ensure that the principal remains viable and eligible for the program; monitor the principal's progress on guaranteed contracts; maintain documentation of job status requests; take all reasonable action to minimize risk of loss, including, but not limited to, obtaining from each principal a written indemnity agreement, secured by such collateral as the surety or the SBA finds appropriate, which covers actual losses under the contract and imminent breach payments; and in the case of loss, pursue all possible sources of salvage and recovery  Participating sureties are subject to audits by SBA-selected and -approved examiners  Prior Approval Program sureties are audited at least once each year and PSB sureties are audited at least once every three years  The SBA does not charge sureties (or small businesses) application or bid bond guarantee fees  It does require sureties to pay a guarantee fee on each SBA-guaranteed bond (other than bid bonds)  The surety fee, which is determined by the SBA and published in the Federal Register , is a percentage of the bond premium  The FY2019 surety fee is 20% of the bond premium that the surety charges the small business, rounded to the nearest dollar  The surety fee is due within 60 days after the SBA's approval of the prior approval payment or performance bond  The SBA does not receive any portion of a surety's non-premium charges  As shown in Table 2 , the number and amount of bid bonds guaranteed by the SBA has generally increased in recent years  For example, in FY2007, the SBA guaranteed 4,192 bid bonds totaling $1 7 billion  In FY2018, the SBA guaranteed 7,354 bid bonds totaling $4 7 billion  Table 2 also shows that the number and amount of SBA-guaranteed final bonds declined somewhat from FY2007 through FY2009 (coinciding with the 2007-2009 recession), and has generally increased since then  Recent increases are likely due to generally improving economic conditions and legislation that temporarily ( P L  111-5 ) and then permanently ( P L  112-239 ) raised the program's maximum individual contract amount from $2 million to $5 million, and up to $10 million if a federal contracting officer certifies that such a guarantee is necessary  As shown in Table 3 , excluding program costs of about $4 million annually, the program has experienced a net positive cash flow in each of the past 12 fiscal years  There is about $97 million in the Surety Bond Guarantee Program Revolving Fund  Historically, the program's default rate has averaged about 3% to 5%  According to the SBA, on average, the default rate on larger contracts tends to be lower than for smaller contracts and the recovery rate for larger contract defaults tends to be greater than for smaller contract defaults  Currently, 28 sureties participate in the Prior Approval Program and 6 participate in the PSB program  Agents empowered to represent a participating surety company are located, or licensed, in all 50 states, American Samoa, the District of Columbia, Guam, the Marshall Islands, Micronesia, the Northern Mariana Islands, Palau, Puerto Rico, and the Virgin Islands  About 80% of the SBA's surety bonds are issued through the Prior Approval Program and 20% through the PSB program  P L  111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), provided the program an additional appropriation of $15 million and temporarily increased, from February 17, 2009, through September 30, 2010, the maximum bond amount from $2 million to $5 million  The act also authorized the SBA to guarantee a bond of up to $10 million if a federal contracting officer certified in writing that a guarantee in excess of $5 million was necessary  It also revised the program's size standard to "the size standard for the primary industry in which such business concern, and the affiliates of such business concern, is engaged, as determined by the Administrator in accordance with the North American Industry Classification System " The new size standard (e g , up to $36 5 million in average annual receipts over the previous three years for most heavy construction contractors, and up to $15 million in average annual receipts over the previous three years for specialty trade contractors) increased the number of businesses that qualified for the program  Using its rulemaking authority, the SBA made ARRA's temporary size standard permanent on August 11, 2010  Proponents argued that the increased bond limit and size were necessary to "ensure that small businesses are able to secure the surety bonds they need to compete for contracts, grow, and hire more employees " They also argued that "in our current economic recession, small businesses are finding it even more difficult to secure the credit lines necessary to get bonds in the private sector " In their view, the temporary changes would create "significant opportunities to create jobs now in which small businesses will participate and be the driving engine for creation of new jobs in our country " There was no apparent organized opposition to these specific temporary changes to the Surety Bond Guarantee Program  However, there was opposition to ARRA's package of program enhancements for the SBA as a whole, which among other things, provided the SBA $730 million in additional funding, including $255 million for a temporary, two-year small business stabilization program to guarantee loans of $35,000 or less to small businesses for qualified debt consolidation, later named the America's Recovery Capital (ARC) Loan program and $375 million to temporarily subsidize fees for the SBA's 7(a) and 504/CDC loan guaranty programs and increase the 7(a) program's maximum loan guaranty percentage to 90%  Instead of modifying the SBA's program requirements and increasing the SBA's appropriation, opponents advocated business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses, generate economic growth, and create jobs  On September 12, 2011, the Obama Administration advocated, as part of its proposed American Jobs Act, a temporary increase in the SBA surety bond limit to $5 million until the end of FY2012  The Administration argued that raising the program's bond limit "will make it easier for small businesses to take advantage of contracting opportunities generated by the American Jobs Act's proposed infrastructure investments " On December 7, 2012, the Administration also recommended, as part of its request for an additional $60 4 billion in federal resources to address damage caused by Hurricane Sandy, that the SBA surety bond limit be increased to $5 million to enable "more small businesses to participate in the recovery efforts " There were several legislative efforts during the 112 th Congress to increase the program's bond limit  S  1334 , the Expanding Opportunities for Main Street Act of 2011, and its companion bill in the House, H R  2424 , would have reinstated and made permanent ARRA's higher limits (up to $5 million and up to $10 million if a federal contracting officer certifies in writing that a guarantee in excess of $5 million is necessary)  Neither of these bills was reported by a committee for consideration by the House or the Senate  S  1660 , the American Jobs Act of 2011, and its companion bill in the House, H R  12 , would have provided $3 million in additional funding to pay for the cost of temporarily increasing the program's bond limit to $5 million from $2 million until the end of FY2012  Cloture on a motion to proceed to S  1660 was not invoked in the Senate on October 11, 2011, by a vote of 50 to 49  H R  12 was not reported by a committee for consideration in the House  On December 12, 2012, the Senate Committee on Appropriations released its draft of the Hurricane Sandy Emergency Assistance Supplemental bill  It included a provision to increase the program's bond limit to $5 million  This provision was later removed following congressional approval of H R  4310 , the National Defense Authorization Act for Fiscal Year 2013, which became law ( P L  112-239 ) on January 2, 2013  It increased the program's bond limit to $6 5 million, and up to $10 million if a federal contracting officer certifies that such a guarantee is necessary  There was relatively little discussion in the legislative record concerning the reasons for increasing the surety bond program's bond limits, and even less discussion of the reasons for not increasing the limits  Hearings were not held on S  1334 and H R  2424   Also, only one witness during hearings on H R  4310 addressed the SBA surety bond program  That witness supported an increase in the surety bond limit to $5 million, and up to $10 million if a contracting officer certifies its necessity  Advocates argued that bond limits should be raised to bring them more in line with the contracting amounts for other small business programs, such as the 8(a) Minority Small Business and Capital Ownership Development Program, the Historically Underutilized Business Zone (HUBZone) program, the Women-Owned Small Business Federal Contract program, and the Service-Disabled Veteran-Owned Small Business Concerns Program  For example, under 8(a) Minority Small Business and Capital Ownership Development Program, federal contracting officials, at that time, could provide a sole source award to a 8(a) small business if the anticipated award price of the contract did not exceed $6 5 million for manufacturing contracts (now $7 0 million) or $4 million for other contract opportunities, and the contracting officer believed that the award could be made at a fair and reasonable price  Advocates argued that raising the program's bond limit would provide more consistency across small business contracting programs and make it easier for agencies experiencing difficulty issuing contracts in increments of $2 million or less (e g , the Department of Defense [DOD], the General Services Administration, and the Department of State) to participate in the program  Advocates also argued that small businesses awarded contracts exceeding $2 million under the other small business contracting programs are at risk of not being able to complete those contracts due to difficulties in securing a surety bond  For example, the House Committee on Armed Services' Panel on Business Challenges in the Defense Industry argued that the SBA surety bond program's limit should be increased to $6 5 million to match the 8(a) program's $6 5 million threshold for manufacturing contracts and to "increase the opportunities for small businesses to compete for federal contracts, especially in those departments, such as the Department of Defense, where the average size of construction contracts awarded to small businesses for FY2010 exceeded $5 9 million—nearly triple the size for which SBA can provide bonding support " There was no organized opposition to raising the program's bond limits  One possible argument that could have been raised is that higher limits could lead to higher amounts being guaranteed by the SBA and, as a result, increase the risk of program losses  However, the SBA's experience with Recovery Act bonds (over $2 million) suggested that raising the limit may not lead to an increased risk of program losses  The SBA reported that the program's default rate on Recovery Act bonds was lower, in 2009 and 2010, than for its other bonds  The SBA guaranteed 166 Recovery Act bid bonds valued at $518 million and 52 Recovery Act final bonds valued at $145 4 million  There were two defaults, with a bond value of $2 7 million and $2 2 million, respectively  In an effort to enhance surety participation in the SBA's program, H R  776 , the Security in Bonding Act of 2013, introduced and referred to the House Committee on the Judiciary and the House Committee on Small Business on February 15, 2013, would have increased the PSB program's guarantee rate from not to exceed 70% to not to exceed 90% of losses  The bill was reported favorably by both committees on May 21, 2014, and included in H R  4435 , the Howard P  "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015, which was passed by the House on May 22, 2014  This provision was not included in the final version of the bill which was subsequently passed by Congress  Advocates of increasing the PSB program's guarantee rate argued that Despite the different guarantee amounts and the differing levels of review, both the PAP [Prior Approval Program] and PSBP [Preferred Surety Bond Guarantee Program] have similar levels of default  However, over the years, the PSBP program has become less effective for small businesses since only four sureties currently participate in the program because the guarantee rates are no longer competitive enough to encourage commercial sureties to participate  Therefore, since the PSBP is the more efficient program and … does not expose taxpayers to any risk, this legislation amends the SBIA [Small Business Investment Act] to standardize the guarantee rate at 90 percent  The SBA did not formally endorse the proposed guarantee rate increase  However, in its FY2015 and FY2016 congressional budget justification documents, the SBA indicated that it "will investigate establishing a single guaranty percentage in the Prior Approval and PSB programs and restructuring the Prior Approval program " Also, when asked at a congressional hearing held on May 23, 2013, about the proposed guarantee rate increase, an SBA official testified that We are looking very closely at the program  We have seen a decline in the preferred sureties going down from 50% to 14% of our program, which is a very small number  We would like to see more participation in that program  Because of the additional cash flow we have, we do not expect it to increase our costs  And we have some history in our other programs that demonstrate that having the same guarantee level is not a disincentive  There was no discussion in the legislative record during the 113 th Congress opposing an increase in the guarantee rate for the PSB program  One possible objection might have been that increasing the guarantee rate could increase the risk of program losses and result in higher program fees  Higher fees, in turn, could cause hardship for some companies seeking a surety bond  H R  838 , the Security in Bonding Act of 2015, was introduced and referred to the House Committee on the Judiciary and the House Committee on Small Business on February 10, 2015  The bill would have increased the PSB program's guarantee rate from not to exceed 70% to not to exceed 90%, specify requirements concerning the pledge of assets by individual sureties, and require GAO to examine the effects of these changes on small businesses  The House-passed version of H R  1735 , the National Defense Authorization Act for Fiscal Year 2016, included H R  838 's provisions  The Senate-passed version of the bill did not  The conference agreement for H R  1735 , which became P L  114-92 , included H R  838 's provision to increase the PSB program's guarantee rate from not to exceed 70% to not to exceed 90% of losses and its provision to specify requirements concerning the pledge of assets by individual sureties, subject to a one-year delay "to allow for the necessary rulemaking " Congress specified additional requirements concerning the pledge of assets by individual sureties as a means to ensure that "individual sureties have sufficient assets to redeem the bonds " The SBA's final rule implementing the increased PSB program's guarantee rate was effective as of September 20, 2017  The SBA has reported that it is focusing on "strengthening relationships with individual surety companies and the large network of bond agents and producers across the country in order to reach more small businesses in need of bonding " As part of this outreach effort, the SBA has reported that it will continue to emphasize "process improvements that will streamline the application requirements for small businesses and surety companies and their agents " For example, in August 2012, the SBA announced a "Quick APP" for surety bonds up to $250,000 that provides a streamlined underwriting and application process by combining "two applications into one to make it easier and faster for small businesses and contractors, including veteran-owned small businesses, to compete for contracts " The SBA increased the Quick APP (now called the Quick Bond Program) eligibility threshold to $400,000 in 2017  In addition, the SBA reported in 2016 that it was also considering combing the Prior Approval Program and PSB program into a single program featuring the streamlined bond approval and monitoring processes under the PSB program  Several industry groups, including the National Association of Surety Bond Producers and The Surety & Fidelity Association of America, have recommended that the programs be merged, the emphasis on reduced regulatory burdens under the PSB program be maintained, and the program's fees kept as low as economically feasible as a means to encourage more sureties to participate in the program  Perhaps because the proposal has not been formally introduced as a bill, there are no public statements opposing the merger of the two programs  Opposition might come from (1) those who are not convinced that the Surety Bond Guarantee Program is necessary to supplement the private market for surety bonds and would prefer that the program be eliminated rather than reformed or (2) those who believe that a federal program is necessary to supplement the private market for surety bonds, but the existing program is sufficient to meet that need and does not require changes to encourage its expansion  Still other opponents might argue that providing additional authority to sureties to approve and monitor bonds could increase the risk of defaults and program losses  Throughout the program's history, both congressional testimony and GAO examinations have indicated that smaller contracting firms, and especially minority-owned and women-owned small business contracting firms, often have a more difficult time accessing surety bonds in the private marketplace than larger firms  For example, in 1995, GAO reported that "it is not unusual for a small construction company to have some difficulty in obtaining a surety bond " GAO found that about one in three of the smallest contracting firms it surveyed, compared with about one in six of the larger contracting firms it surveyed, reported that they were required to provide collateral  GAO also reported The experiences of the minority-owned firms differed from those of the firms not owned by minorities in several areas  For example, these firms were more likely to be asked to provide certain types of financial documentation, as well as to provide collateral or to meet other conditions; were more likely to be denied a bond and to report losing an opportunity to bid because of delays in processing their request for a bond; and were more likely to depend on jobs requiring bonds for a higher proportion of their revenues  The women-owned firms differed from the firms not owned by women in a few key respects  For example, they … were more likely to be asked to provide more types of financial or other documentation to obtain a bond  In addition, the minority-owned firms reported more often than the firms not owned by minorities that they had to (1) establish an escrow account controlled by the surety company, (2) hire a CPA or a management or consulting firm selected by the surety company to manage the contract, and (3) enter into an arrangement that allows the surety company to manage the job even when the firm is not in default  Although congressional testimony and GAO examinations have supported the need for a program such as the SBA's Surety Bond Guarantee Program, that testimony and GAO's surveys of businesses have been somewhat less useful in helping Congress determine the appropriate size for the program  For example, a review of congressional hearings since the program's inception suggests that congressional witnesses representing the surety companies and various construction organizations, including minority-owned small contracting businesses, have focused their testimony on the need to reduce the SBA's paperwork requirements, which are designed to prevent fraud but increase the sureties' costs; keep the program's fees as low as possible; and keep the program's guarantee rates as high as possible  The SBA's testimony has tended to focus on the need to attract more sureties to the program so that it can reverse the slow downward trajectory the program has experienced over the past two decades in the number and amount of final bonds guaranteed  There has been relatively little testimony provided concerning the broader issue of how large the program should be in comparison with the private sector and what measures or metrics could be used to help make that determination  One possible starting point for determining the program's size in comparison with the private sector is to examine congressional testimony concerning the supply and demand for sureties in the private sector  That testimony suggests that the supply and demand for sureties tends to fluctuate with changes in the overall economy, with the supply of sureties contracting during economic recessions and expanding during economic expansions and the demand for sureties slowing during economic recessions and increasing during economic expansions  Arguably, federal policies could take these fluctuations into account—enacting policies that expand federal support for surety guarantees when supply is tight and reducing federal support for surety guarantees when supply is more plentiful  Of course, when making these decisions, it is necessary to first establish measures or metrics to determine current market conditions  In addition, this line of reasoning assumes that having a federal presence in the surety marketplace is desirable, an assumption not held by all  Ultimately, although having established measures or metrics concerning the supply and demand for surety bonds might be helpful in determining the appropriate size for the SBA's Surety Bond Guarantee Program, that decision will largely rest on personal views concerning the role of the federal government in the private marketplace and the level of acceptable risk in assisting small businesses to gain greater access to surety bonds 


Report 2:  Economy-wide costs (referred to as macroeconomic costs) are often measured in terms of changes in projected gross domestic product (GDP) or another societal-scale metric, such as economic welfare  The magnitude of macroeconomic impacts from a carbon tax has been a subject of debate among policymakers and stakeholders  In addition, results of economy-wide impacts will not include comparisons of impacts to different subpopulations or geographic regions, which may be of interest to policymakers  Multiple economic studies and models have examined and compared various options for addressing the economy-wide impacts that may result from a carbon tax  One option for reducing the economic cost of a carbon tax is using the revenue to reduce existing taxes, such as those on labor, income, and investment  Economists generally describe such taxes as distortionary, because the taxes discourage economically beneficial activity, such as employment and investment  Another option for policymakers is to use the tax revenues to address the national debt  Fewer studies have examined deficit reduction scenarios, because "modeling the effects of budget deficits is much more difficult than modeling the effects of tax cuts " Some studies have concluded that using tax revenues for this purpose would help alleviate economy-wide costs from a carbon tax because of the reduced need to impose distortionary taxes in the future  These studies indicate that the economy-wide benefit would be delayed and its realization assumes policymakers would, sometime in the future, address the deficit by raising taxes  Many recent legislative proposals would distribute the carbon tax revenue back to households in lump-sum payments  Policymakers have generally included this carbon tax revenue application to address distribution impacts (discussed below)  These payments could take multiple forms  Economic analyses typically assume an equal payment to individuals or households regardless of their income or location or the effects of the carbon price on them individually  Alternatively, payments could be targeted or scaled to different segments of the population  Among the options mentioned above, economic studies indicate that using carbon tax revenues to offset reductions in existing, distortionary taxes would be the most economically efficient use of the revenues and yield the greatest benefit to the economy overall  This concept is sometimes referred to as a "tax swap " Using carbon tax or fee revenues to offset other distortionary taxes (e g , labor or capital) may yield a "double-dividend," which includes: reduced GHG emissions; and reduced market distortions by reducing other distortionary taxes, such as investment or income  The economic models that examine the economic impacts of a carbon tax differ in their frameworks and underlying assumptions and often include multiple scenarios involving different uses of carbon tax revenue  In general, the economic models find that certain revenue recycling options may reduce the economy-wide carbon tax impacts but may not eliminate them entirely  Some studies cite particular economic modeling scenarios in which a carbon tax with certain revenue recycling applications would produce a net increase in GDP or economic welfare compared to a baseline scenario  These results indicate that, in certain modeling conditions, the economic improvements gained by reducing existing distortionary taxes would be greater than the costs imposed by the new carbon tax (without including the intended climate benefits of the policy)  For example, results from a 2018 study demonstrated a net increase in GDP, compared to baseline conditions, when carbon tax revenues were used to finance proportionate reductions in labor tax rates (payroll tax)  In general, the economic carbon tax studies usually agree on the relative ranking of revenue recycling options in terms of their ability to mitigate the economy-wide impacts of a carbon tax program  The studies indicate that the approaches that use carbon tax revenue to proportionately lower existing tax rates are able to mitigate more of the carbon tax economy-wide costs than using the revenue to provide a lump-sum distribution to individuals or households  Researchers prepared multiple carbon tax analyses prior to the enactment of the TCJA in 2017 that estimated the magnitude GDP impacts  As with other estimates relating to carbon tax impacts, the results depend on the scope of the carbon tax, underlying assumptions in the analytical model, and the terms of measurement: Some estimates measure GDP growth rates; others measure actual GDP  Figure 1 illustrates the modeled GDP results from a 2018 carbon tax analysis that includes the changes made by the TCJA  This study assessed the GDP impacts under a $50/mtCO 2 e carbon tax (starting in 2020 and increasing by 2% annually) that would apply to CO 2 emissions from fossil fuel combustion and methane emissions from fossil fuel production activities  The figure compares projected GDP impacts under a baseline scenario (i e , no carbon tax) with three carbon tax revenue applications: a payroll tax rate reduction tax swap, a lump-sum distribution to households, and a scenario that would use tax revenue to reduce the national debt for 10 years and then use revenues for a lump-sum distribution to households  The figure projects GDP impacts in 2020, 2024, 2029, and 2039  As the figure indicates, the payroll tax rate scenario would result in a 0 1% loss of GDP in the first year (2020), but would yield GDP gains in subsequent years compared to baseline  The lump-sum distribution approach would yield GDP losses each year, ranging from 0 3% to 0 4% below the projected baseline  The deficit reduction approach would yield a range of GDP losses in the first 10 years—ranging from 0 4% to 0 04%—but would yield a GDP gain in 2039 (if not before), compared to baseline  Opponents of a carbon tax approach often highlight the GDP losses that would result from a carbon tax  Policymakers and stakeholders may have different perspectives regarding whether the magnitude of the GDP impacts are significant  In addition, GDP impact estimates may be presented in several ways  For example, one could compare the differences in GDP value for a particular year between carbon tax scenarios and a baseline scenario  This approach is employed in the above figure  Alternatively, one could present the GDP losses with a cumulative measure  For instance, if one were to add up the annual GDP losses (for example, over a 10-year period) from the lump-sum scenario compared to the baseline scenario, the resulting sum would be much larger  These types of calculations would require assumptions about annual GDP growth rates  Some may point out that the GDP impact estimates do not account for the environmental and public health benefits for reducing GHG emissions and that the GDP projections should be compared with the climate benefits achieved from the program as well as the estimated costs of taking no action  As discussed above, estimates of climate-related benefits and costs often contain considerable uncertainty and have generated debate in recent years  Many economic analyses have found that a carbon tax (before revenue recycling) would produce a regressive outcome among households, with lower-income households facing a larger impact from the tax than higher-income households  However, "the degree to which a carbon tax is found to disproportionately burden low-income households varies across studies, based on the metrics against which analysts measure costs " Entities that pay the carbon tax may pass its costs back to fuel producers or forward to fuel consumers  If entities pass the costs forward, consumers would face higher prices for fuels and electricity and carbon-intensive products  When the carbon tax is passed forward to consumers, lower-income households in particular would likely face a disproportionate impact (i e , regressive outcome), because a larger percentage of their income is used to pay for energy needs, such as electricity, gasoline, or home heating oil  Many economic analyses of carbon price scenarios assume that the vast majority (if not all) of the carbon tax impact is passed forward to consumers, leading to a regressive outcome  On the other hand, if entities pass the costs backward to producers, the tax impacts would fall on labor through reduced wages or owners of capital through reduced returns on investment  Economic models that assume this outcome produce more progressive results (absent revenue recycling), with lower-income households experiencing smaller impacts than higher-income households  The economic analyses appear to agree that the distributional effects among households (i e , regressive vs  progressive) of a carbon tax program would be largely dependent on how the carbon tax revenues were used  A number of economic studies have used models to estimate the impacts of a carbon tax across households under several revenue distribution scenarios  The results vary because the studies use different modeling frameworks, carbon tax rates and scopes, underlying assumptions, and ways to measure impacts  For example, a 2018 study assessed the impacts to household income for different household quintiles under a carbon tax of $50/mtCO 2 e, starting in 2020  This study examined four revenue distribution scenarios: 1  reduce federal deficit, 2  reduce corporate income tax rate, 3  reduce payroll tax rate, and 4  provide a per-capita rebate to households  This report highlights this study, because it includes carbon tax revenue applications that have generated interest in recent years  In addition, this analysis was prepared after the 2017 tax rate changes in P L  115-97   Figure 2 illustrates the modeled results, which the study measured as percentage reductions to household income  Thus, negative percentages illustrated in the figure are gains to household income  The per-capita rebate approach provides the most progressive result, yielding a net benefit for the bottom three household quintiles but a net loss for the top quintile  The fourth quintile impact is zero  By comparison, the other approaches produce varying degrees of regressive outcomes while providing a net gain for wealthier groups in two particular instances  Of the four options, the payroll tax rate reduction approach estimates the smallest variance between the income quintiles, ranging from a 0 5% loss for the lowest quintile to a 0 2% gain for the fourth quintile  The fifth quintile impact is zero  The relative ranking among options for progressivity is generally the opposite of the relative ranking for mitigating economy-wide impacts  Other economic analyses have found similar relative rankings of revenue recycling options  The contrasting rankings highlight a central tradeoff policymakers would face when deciding how to allocate carbon tax revenues  Policymakers could allot some portion of the revenues to partially support both objectives  In a 2018 carbon tax study, economic modelers assessed a scenario in which a portion of the revenue was used to offset the welfare impacts for the lowest-income household quintile and the remaining revenue supported reductions in capital tax rates  The study's models estimated that a carbon tax's impacts on the lowest-income household quintile could be counteracted with approximately 10% of the revenue  This would allow for 90% of the revenue to be used to reduce capital tax rates and thus address the economy-wide impacts from the carbon tax  As discussed above, a carbon tax is projected to disproportionately impact certain industries, particularly those that are described as "emission-intensive, trade-exposed industries " To address these concerns, many of the recent carbon tax legislative proposals have included design mechanisms that would attach a carbon price to certain imported materials and products (see " Border Carbon Adjustments ")  Another approach to addressing the competitiveness concerns of domestic industries would involve distributing a portion of the carbon tax revenues to emission-intensive, trade-exposed industries as rebates based on their output  Output rebate proposals generally determine rebate amounts by measuring emissions intensity at the relevant sector level or by a benchmark that would encourage facilities to reduce their emissions intensity  These rebates could be phased out over time or continue until other nations adopt comparable carbon price policies  Under a carbon tax system in Canada, which is scheduled to take effect in 2019, industries will be subject to an "output-based pricing system " Some contend that the data and administrative resources necessary to implement such a program would be substantial  A carbon tax system is also expected to disproportionately impact fossil fuel industries and the communities that rely on their employment  In particular, coal-mining communities are expected to experience substantial impacts based on the coal production declines predicted in carbon tax analyses  For example, one model estimates that under a $50/mtCO 2 e carbon tax, annual U S  coal production would decline by almost 80% in 2030 compared to a reference case  Policymakers may consider supporting worker transition or community transition assistance to help mitigate the economic impacts  Several of the recent carbon tax proposals would have devoted carbon tax revenues for this objective  Policymakers may also consider using the carbon tax revenues to provide funding to support a range of objectives, which may include policy goals that are not directly related to climate change  Some options are identified below, and many have been included in recent legislative proposals or in state GHG mitigation programs that raise revenues: Technology development and deployment: Efforts to reduce the costs of emission mitigation technologies—particularly carbon capture, utilization, and sequestration—are often considered in carbon tax programs, and Congress has funded such programs in other legislation  Energy efficiency programs: Although a carbon tax would likely stimulate energy efficiency to some degree, Congress may consider using the revenues to provide additional incentives and/or technical assistance, particularly to encourage households and small businesses to increase efficiency, which would also reduce the effects of the tax on their energy bills  States in the Regional Greenhouse Gas Initiative (RGGI) have used revenues from the program to support efficiency improvements, among other objectives  Biological sequestration: Trees, plants, and soils sequester carbon, removing it from the earth's atmosphere  Revenues could be used to promote carbon sequestration efforts, particularly forestry or agricultural activities, which would supplement the GHG reductions of the carbon tax  Adaptation to climate change: Regardless of emission reduction efforts taken today, climatic changes are expected due to the ongoing accumulation of GHGs in the atmosphere  Therefore, some advocate using revenues to reduce potential damage—domestically and internationally—of a changing climate  Deficit reduction: The possible contribution of a carbon tax to deficit reduction would depend on the magnitude and scope of the carbon tax, various market factors, and assumptions about the size of the deficit  Some carbon tax proposals in recent congressional sessions would have allotted a portion of revenues for deficit reduction  Infrastructure funding: Some recent proposals have provided funding for infrastructure projects  This objective could be combined with funding for adaptation activities  Multiple economic studies have estimated the emission reductions that particular carbon tax designs could achieve  Economic models provide estimates based on the best information available at the time  Comparing results from different studies is problematic, because the studies' scenarios differ in multiple ways, including the tax rate, start date, scope of the program, assumptions about economic growth and technological advances, and assumptions about other federal and state policies and their effects  A 2018 study avoided some of these comparison difficulties by inviting modeling teams to analyze a coordinated set of scenarios  The 2018 Stanford Energy Modeling Forum study ("EMF 32") assembled 11 modeling teams to analyze the economic impacts of four carbon tax scenarios starting in 2020: a $25/metric ton and $50/metric ton carbon tax, increasing annually by 1% and 5%  Within each of these carbon price frameworks, the models ran separate revenue distribution scenarios: a reduction in labor tax rates, a reduction in capital tax rates, and household rebates  Figure 3 illustrates the study's estimates of CO 2 emissions from fossil fuel combustion  The red lines in the figure display the average values for the 11 models  The shaded areas illustrate the range of results, highlighting the uncertainties in emission reduction estimates  Based on these results, the study authors concluded that each of the tax rate scenarios would likely achieve the U S  CO 2 emission reduction targets under the Paris Agreement  As Figure 3 indicates, a carbon tax or emissions fee could be set with the expectation that it would achieve an emissions reduction target, but the resulting level of emissions would be uncertain  The uncertainty of resulting emissions may lead some stakeholders to disfavor a carbon tax or fee option to control GHG emissions  Although uncertain emissions are inherent with a carbon tax approach, Congress could employ certain design elements to enhance the emission control certainty  For example, the existing GHG emission reporting data could be used to track the impact and performance of a carbon price  If policymakers determine that emission reduction is not occurring at a desired pace, the price could be amended  Legislation could establish the conditions and process by which price changes could occur  Some may argue that adjusting the carbon price to reflect actual emissions performance would undermine the benefits of price certainty  Others may point out that unplanned adjustments to the carbon price could be politically unpalatable  For example, it may be difficult for policymakers to increase the tax rate, especially during periods of high energy prices  Some have suggested that Congress authorize an independent board or agency with the mandate to modify the tax rate administratively in order to meet pre-determined emission reduction objectives  Although this approach would likely improve emission certainty, long-term price certainty may be sacrificed to some degree, depending on the authority of the delegated entity to adjust the tax rate  Some would argue that potential year-to-year emission variations under a carbon tax would not undermine efforts to control climate change so long as long-term emission goals are achieved  Indeed, they would assert that annual emission fluctuations are preferable to price volatility that could result from an emissions cap program  They support their preference for price control by suggesting that CO 2 generates damages through its overall accumulation as concentrations in the atmosphere, not its annual flow  A potential concern of a carbon tax is whether it would be effective in reducing GHG emissions in all of its covered sectors, particularly emissions in the transportation sector  As of 2016, the transportation sector contributes the largest percentage (36%) of CO 2 emissions from fossil fuel combustion, with electric power second at 35%  Carbon tax analyses generally agree that the majority of the emission reductions resulting from a carbon tax program would occur in the electricity sector  By comparison, economic models generally conclude that a carbon tax would have much less of an impact on emissions in the transportation sector  Several factors explain this projected outcome  The transportation sector offers fewer opportunities to switch to less carbon-intensive fuels in the short term than does the electric power sector, which can displace coal with natural gas relatively quickly  In addition, short-term emission changes in the transportation sector are largely influenced by changes in driving demand, which has historically been relatively insensitive to gasoline price increases  Based on these projected outcomes, some may contend that to achieve deeper, long-term reductions in total GHG emissions, policymakers would need to complement a carbon tax with other programs, such as vehicle technology standards (e g , Corporate Average Fuel Economy, CAFE) or fuel performance standards, among other options  The quantity of revenues generated under a carbon tax system depend on the program's design features, namely the tax base and rate, as well as such independent factors as prices in global energy markets  They would also depend on how covered emission sources respond to the carbon price, for example by adopting alternative technologies or changing behavior  Several carbon tax studies have prepared revenue estimates, which are presented in Table 1   From a public finance perspective, a carbon tax may not be a reliable source of long-term funding, because a primary goal of the carbon tax is to reduce its tax base—GHG emissions  The estimates in Table 1 project carbon tax revenue values in 2020  Multiple studies have projected carbon tax revenue trajectories beyond 2020  In the 2018 EMF 32 study, all but one of eight models projected carbon tax revenue increases from 2020 through 2040  The carbon tax scenarios with larger annual rate increases resulted in steeper trajectories of increasing revenues through 2040  The models' estimates of annual carbon tax revenue in 2040 ranged from approximately $250 billion to $475 billion (under the tax rate scenario of $50/metric ton, increasing 5% annually)  Fossil fuels have a wide range of CO 2 emission intensity (i e , emissions per unit of energy)  As illustrated in Figure 4 , the CO 2 emission intensity of coal is approximately 30% more than oil and approximately 80% more than natural gas  These emissions intensity differences would lead to different tax rates per unit of energy across different fuels in a carbon tax regime  Carbon taxes could affect fuel prices in complex ways  The change in consumer fuel prices would likely not be the same as the price paid by the party directly subject to the tax  Actual price impacts for consumers would depend on multiple factors, including whether: a carbon tax is applied at the beginning of the production process ("upstream") to fossil fuels; and the price impacts are passed through to end users and not absorbed by upstream energy producers or midstream entities, such as retailers  In addition, market participants such as electric power plant operators can avoid paying the increased costs by substituting fuels or technologies  Energy consumers may modify their behavior in the marketplace—energy conservation, consuming less or different products and services—to mitigate impacts from the increased prices  Table 2 includes estimates of price increases on coal, crude oil, natural gas, home heating oil, and motor gasoline based on a carbon tax rate of $25/mtCO 2 that applies CO 2 emissions from fossil fuel combustion  As indicated in the table, a carbon tax would have the greatest impact on the price of coal due to coal's relatively high CO 2 emissions intensity  By comparison, a carbon tax is expected to have less of an impact on the price of gasoline, increasing its price by 8%  Economic models have projected how carbon prices would impact energy use, particularly the consumption of different fossil fuels and less carbon-intensive alternatives, such as renewables or nuclear power  For example, the 2018 EMF 32 study, which included results from 11 modeling groups, assessed how several carbon tax scenarios would impact energy consumption  Highlights of these models' results (compared to reference case scenarios) include the following: Coal consumption could decline by 40% to nearly 100% by 2030 under a $50/mtCO 2 carbon tax, though one model projected an increase in coal due to the model incorporating CCS technology  Natural gas consumption estimates vary across the models, with some showing minimal change in 2030 and others showing declines ranging between 40% and 60%  Oil consumption estimates indicate that the largest decline (approximately 4% by 2030) would occur under the $50/mtCO 2 carbon tax scenario  Wind energy consumption could increase by 48% to 300% by 2030 under a $50/mtCO 2 carbon tax scenario  A carbon tax is one policy option to address U S  GHG emission levels, which contribute to climate change and related impacts  Economic modeling indicates that a carbon tax would achieve emission reductions, the level of which would depend on which GHG emissions and sources are covered and the rate of the carbon tax  A carbon tax would generate a new revenue stream  The magnitude of the revenues would depend on the scope and rate of the tax and multiple market factors, which introduce uncertainty in the revenue projections  A 2018 CBO study estimated that a $25/metric ton tax on CO 2 emissions from energy-related activities and other selected GHG emission sources would yield approximately $100 billion in the first year of the program  To put this estimate in context, the CBO projected that total federal revenue would be $3 5 trillion in FY2019  Policymakers would face challenging decisions regarding the distribution of the new carbon tax revenues  Depending on the level of the tax, some economic analyses indicate that the distribution of tax revenue could yield greater economic impacts than the direct impacts of the tax  Some models indicate that the economic impacts are greatest in the early years of the carbon tax  Policymakers could apply the tax revenues to support a range of policy objectives  When deciding how to allocate the revenues, policymakers would encounter trade-offs among objectives  The central trade-offs involve minimizing economy-wide costs, lessening the costs borne by specific groups—particularly low-income households—and supporting a range of specific policy objectives  A primary concern with a carbon tax is the potential economy-wide costs that may result  The potential costs would depend on a number of factors, including the magnitude, design, and use of revenues of the carbon tax  In general, economic literature finds that some of the modeled revenue applications would reduce the economy-wide costs imposed by a carbon tax but may not eliminate them entirely  Policymakers and stakeholders may have different perspectives regarding whether these estimated economy-wide costs (typically measured in terms of GDP loss) represent a significant concern  Some argue that the estimated economy-wide costs should be compared with the policy option of not establishing a carbon tax  This comparison is uncertain as carbon tax analyses do not generally consider the benefits that would be gained by reducing GHG emissions and avoiding climate change and its adverse impacts  Some studies cite particular economic modeling scenarios in which a carbon tax and revenue recycling could produce a net increase in GDP or economic welfare, compared to a baseline scenario  These scenarios involve using carbon tax revenues to offset reductions in existing, distortionary taxes, such as corporate income or payroll taxes  Although the models indicate that these revenue applications would yield the greatest benefit to the economy overall, the models also find that lower-income households would likely face a disproportionate impact under such revenue applications  As lower-income households spend a greater proportion of their income on energy needs, these households are expected to experience disproportionate impacts from a carbon tax if revenues were not recycled back to them in some fashion, such as a lump-sum distribution  Carbon tax revenues that are used to offset the burden imposed on various sectors or specific population groups would not be available to support other objectives  An additional concern with a carbon tax involves potential disproportionate impacts to "emission-intensive, trade-exposed industries " Policymakers could select among several options to address these concerns, either by establishing a border carbon adjustment program or allocating some of the carbon tax revenues to selected industry sectors based on an output-based metric  If other nations were to adopt comparable carbon price policies, this concern may be alleviated to some degree  Relatedly, a carbon tax is projected to disproportionately impact fossil fuel industries, particularly coal, and the communities that rely on their employment  To alleviate these impacts, policymakers could allocate some of the carbon tax revenue to provide transition assistance to employees or affected communities  Table A-1 identifies sources of GHG emissions that account for 0 5% or more of total U S  GHG emissions  The sources are listed in descending order by their percentage contribution  CO 2 emissions from fossil fuel combustion, which accounts for almost 76% of total U S  GHG emissions, are broken down by fossil fuel type: petroleum, coal, and natural gas  The table identifies potential points in the economy at which a carbon tax could be applied  The table lists the approximate number of entities that would be involved with different tax applications  The number of entities listed is current as of the most recent data available and varies accordingly by category  See table notes for details  The right-hand column of the table provides additional comments for some of the emission sources  In some cases the comments discuss potential opportunities for additional GHG emissions coverage at a particular source  In other cases, the comments address potential limitations of covering all of the emissions from a particular source 

ground_truth: The U.S. Fourth National Climate Assessment, released in 2018, concluded that "the impacts of global climate change are already being felt in the United States and are projected to intensify in the future—but the severity of future impacts will depend largely on actions taken to reduce greenhouse gas [GHG] emissions and to adapt to the changes that will occur." Members of Congress and stakeholders articulate a wide range of perspectives over what to do, if anything, about GHG emissions, future climate change, and related impacts. If Congress were to consider establishing a program to reduce GHG emissions, one option would be to attach a price to GHG emissions with a carbon tax or GHG emissions fee. In the 115th Congress, Members introduced nine bills to establish a carbon tax or emissions fee program. However, many Members have expressed their opposition to such an approach. In particular, in the 115th Congress, the House passed a resolution "expressing the sense of Congress that a carbon tax would be detrimental to the United States economy." Multiple economic studies have estimated the emission reductions that particular carbon tax would achieve. For example, a 2018 study analyzed various impacts of four carbon tax rate scenarios: a $25/metric ton of CO2 and $50/metric ton of CO2 carbon tax, increasing annually by 1% and 5%. The study concluded that each of the scenarios would likely achieve the U.S. GHG emission reduction target pledged under the international Paris Agreement (at least in terms of CO2 emissions). A carbon tax system would generate a new revenue stream, the magnitude of which would depend on the scope and rate of the tax, among other factors. In 2018, the Congressional Budget Office (CBO) estimated that a $25/metric ton carbon tax would yield approximately $100 billion in its first year. CBO projected that federal revenue would total $3.5 trillion in FY2019. Policymakers would face challenging decisions regarding the distribution of the new carbon tax revenues. Congress could apply revenues to support a range of policy objectives but would encounter trade-offs among the objectives. The central trade-offs involve minimizing economy-wide costs, lessening the costs borne by specific groups—particularly low-income households and displaced workers in certain industries (e.g., coal mining)—and supporting other policy objectives. A primary argument against a carbon tax regards it potential economy-wide impacts, often measured as impacts to the U.S. gross domestic product (GDP). Some may argue that projected impacts should be compared with the climate benefits achieved from the program as well as the estimated costs of taking no action. The potential impacts would depend on a number of factors, including the program's magnitude and design and, most importantly, the use of carbon tax revenues. In general, economic literature finds that some of the revenue applications would reduce the economy-wide costs from a carbon tax but may not eliminate them entirely. In addition, some studies cite particular economic modeling scenarios in which certain carbon tax revenue applications produce a net increase in GDP compared to a baseline scenario. These scenarios involve using carbon tax revenues to offset reductions in other tax rates (e.g., corporate income or payroll taxes). Although economic models generally indicate that these particular revenue applications would yield the greatest benefit to the economy overall, the models also find that lower-income households would likely face a disproportionate impact under such an approach. As lower-income households spend a greater proportion of their income on energy needs (electricity, gasoline), these households are expected to experience disproportionate impacts from a carbon tax if revenues were not recycled back to them in some fashion (e.g., lump-sum distribution). A price on GHG emissions could create a competitive disadvantage for some industries, particularly "emission-intensive, trade-exposed industries." Policymakers have several options to address this concern, including establishing a "border carbon adjustment" program, which would levy a fee on imports from countries without comparable GHG reduction programs. Alternatively, policymakers could allocate (indefinitely or for a period of time) some of the carbon tax revenues to selected industry sectors or businesses. Relatedly, a carbon tax system is projected to disproportionately impact fossil fuel industries, particularly coal, and the communities that rely on their employment. To alleviate these impacts, policymakers may consider using some of the revenue to provide transition assistance to employees or affected communities.