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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 1240 Introduced in Senate (IS)]

111th CONGRESS
  1st Session
                                S. 1240

 To provide for the reform of health care, the Social Security system, 
   the tax code for individuals and business, and the budget process.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             June 11, 2009

  Mr. DeMint introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
 To provide for the reform of health care, the Social Security system, 
   the tax code for individuals and business, and the budget process.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Roadmap for 
America's Future Act of 2009''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purpose.
                      TITLE I--HEALTH CARE REFORM

                        Subtitle A--Tax Changes

Sec. 101. Refundable credit for health insurance coverage.
Sec. 102. Changes to existing tax preferences for medical coverage, 
                            etc., for individuals eligible for 
                            qualified health insurance credit.
     Subtitle B--Health Plan Choice; Small Business Health Fairness

Sec. 111. Cooperative governing of individual health insurance 
                            coverage.
Sec. 112. Small business health fairness.
              Subtitle C--Health Care Services Commission

                Part 1--Establishment and General Duties

Sec. 121. Establishment.
Sec. 122. General authorities and duties.
Sec. 123. Dissemination.
       Part 2--Forum for Quality and Effectiveness in Health Care

Sec. 131. Establishment of office.
Sec. 132. Membership.
Sec. 133. Duties.
Sec. 134. Adoption and enforcement of guidelines and standards.
Sec. 135. Additional requirements.
                       Part 3--General Provisions

Sec. 141. Certain administrative authorities.
Sec. 142. Funding.
Sec. 143. Definitions.
                  Part 4--Terminations and Transition

Sec. 151. Termination of Agency for Healthcare Research and Quality.
Sec. 152. Transition.
                Part 5--Independent Health Record Trust

Sec. 161. Short title of Part.
Sec. 162. Purpose.
Sec. 163. Definitions.
Sec. 164. Establishment, certification, and membership of independent 
                            health record trusts.
Sec. 165. Duties of IHRT to IHRT participants.
Sec. 166. Availability and use of information from records in IHRT 
                            consistent with privacy protections and 
                            agreements.
Sec. 167. Voluntary nature of trust participation and information 
                            sharing.
Sec. 168. Financing of activities.
Sec. 169. Regulatory oversight.
                  TITLE II--MEDICAID AND SCHIP REFORM

Sec. 201. Medicaid reform.
Sec. 202. SCHIP Reform.
                       TITLE III--MEDICARE REFORM

                    Subtitle A--New Medicare Program

Sec. 301. Benefit changes.
Sec. 302. Unified Medicare Trust Fund.
            Subtitle B--Changes in Current Medicare Program

Sec. 311. Income-related reduction in Part D premium subsidy.
Sec. 312. Reduction in hospital market basket increases.
Sec. 313. Elimination of indexing of income thresholds for Part B 
                            income-related premiums.
                    TITLE IV--SOCIAL SECURITY REFORM

Sec. 401. Short title and table of contents of title.
Sec. 402. Establishment of Personal Social Security Savings Program.
Sec. 403. Monthly insurance benefits for participating individuals.
Sec. 404. Tax treatment of accounts.
Sec. 405. Self-Liquidating Social Security Transition Fund.
Sec. 406. Budgetary treatment of Social Security.
Sec. 407. Accounting for the Old-Age, Survivors, and Disability 
                            Insurance Program and the Personal Social 
                            Security Savings Program.
Sec. 408. Progressive indexing of benefits for old-age, wife's, and 
                            husband's insurance benefits.
Sec. 409. Enhancements to Part A benefits.
                     TITLE V--SIMPLIFIED INCOME TAX

Sec. 501. Short title.
Sec. 502. Repeal of alternative minimum tax for noncorporate taxpayers.
Sec. 503. Simplified income tax system.
Sec. 504. Exclusion for capital gains, dividends, and interest.
Sec. 505. Repeal of estate and gift taxes.
                   TITLE VI--BUSINESS CONSUMPTION TAX

Sec. 601. Short title.
Sec. 602. Repeal of corporate income tax; new tax paid by corporations 
                            and other businesses.
Sec. 603. Repeal of Chapter 6.
Sec. 604. Revisions to the Code.
Sec. 605. Application of Subtitle F.
Sec. 606. Effective dates.
                     TITLE VII--BUDGET ENFORCEMENT

Sec. 701. Short title; table of contents; definitions.
Sec. 702. Long-term projections.
Sec. 703. Preview spending reduction order.
Sec. 704. Final spending reduction order.
Sec. 705. Eliminating excess spending amounts.
Sec. 706. Special procedures.
Sec. 707. Suspension in the event of war or low growth.
Sec. 708. Alternate spending reduction legislation in the House of 
                            Representatives.
Sec. 709. Alternate spending reduction legislation in the Senate.
Sec. 710. General provisions.
Sec. 711. Effective date.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress finds as follows:
            (1) The social insurance strategies of the past century, 
        which sprang from the New Deal, expanded in the Great Society, 
        and continue to dominate the terms of public debate, are headed 
        toward collapse.
            (2) Although Americans remain committed to the missions of 
        these initiatives, the goals can no longer be met on models 
        created nearly 80 years ago--with large, centralized 
        institutions, especially government, serving as sole providers 
        for an increasingly dependent population.
            (3) The failure of this approach will not occur 
        immediately, it will unfold over the next several decades, 
        becoming more intractable with each succeeding year; but it is 
        inevitable, and policies in place right now, today, are leading 
        inexorably toward it.
            (4) Among the inescapable signs are the following: an 
        unsustainable path of Government spending; levels of projected 
        debt that threaten to bankrupt the country; trillions of 
        dollars of unfunded liabilities in the Government's major 
        benefit programs; and the erosion of Americans' security and 
        confidence in health care and retirement.
            (5) These conditions pose significant potential burdens not 
        only for the Government, but for the United States economy as 
        well, threatening its ability to continue raising standards of 
        living, and its leadership in an increasingly international 
        marketplace.
            (6) A comprehensive plan is needed, and this legislation 
        aims to energize the productive capacities of Americans to 
        generate sustained economic growth.
    (b) Purpose.--The purpose of this Act is as follows:
            (1) Health care reform.--To provide access to health care 
        coverage to 47 million uninsured Americans by establishing a 
        new tax credit; to reform health insurance markets, high-risk 
        pools, and electronic health records; and to create a new 
        agency to promote the dissemination of industry-defined health 
        care price and quality data.
            (2) Medicaid and schip reform.--To improve health care 
        coverage for those who need it most by establishing a new 
        option for States' Medicaid and SCHIP programs.
            (3) Medicare reform.--To ensure the Medicare benefit 
        continues to provide health care coverage for seniors by 
        establishing a new methodology to make the program solvent and 
        fiscally sustainable.
            (4) Social security reform.--To reform Social Security to 
        ensure retirement security for future generations and to make 
        it solvent for the foreseeable future; to address inequities in 
        the system and provide millions of Americans with the 
        opportunity to build a retirement nest egg that they can pass 
        on to their heirs.
            (5) Individual income tax reform.--To offer taxpayers a 
        choice in paying their Federal income taxes; to allow 
        individuals to choose between the current tax code or a highly 
        simplified tax system with virtually no deductions or credits 
        (apart from an individual health care credit), two low tax 
        rates and a generous standard deduction and personal exemption; 
        to fully repeal the alternative minimum tax (AMT), eliminate 
        the tax on interest, capital gains and dividends in order to 
        promote saving; and to repeal the estate tax.
            (6) Business tax reform.--To eliminate the United States 
        corporate income tax and establishes a border-adjustable 
        business consumption tax in its place; to provide a new method 
        of business taxation that will level the playing field for 
        United States businesses to compete with foreign businesses and 
        will promote sustained economic growth, investment and job 
        creation in America.
            (7) Budget process.--To keep total spending of the 
        Government under control, a limit on total outlays as a 
        percentage of the gross domestic produce is established; and 
        enforced by automatic spending controls if it is exceeded.

                      TITLE I--HEALTH CARE REFORM

                        Subtitle A--Tax Changes

SEC. 101. REFUNDABLE CREDIT FOR HEALTH INSURANCE COVERAGE.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by inserting after section 36A the following new section:

``SEC. 36B. QUALIFIED HEALTH INSURANCE CREDIT.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year the sum of the monthly limitations determined 
under subsection (b) for the taxpayer and the taxpayer's spouse and 
dependents.
    ``(b) Monthly Limitation.--
            ``(1) In general.--The monthly limitation for each month 
        during the taxable year for an eligible individual is \1/12\th 
        of--
                    ``(A) the applicable adult amount, in the case that 
                the eligible individual is the taxpayer or the 
                taxpayer's spouse,
                    ``(B) the applicable adult amount, in the case that 
                the eligible individual is an adult dependent, and
                    ``(C) the applicable child amount, in the case that 
                the eligible individual is a child dependent.
            ``(2) Limitation on aggregate amount.--Notwithstanding 
        paragraph (1), the aggregate monthly limitations for the 
        taxpayer and the taxpayer's spouse and dependents for any month 
        shall not exceed \1/12\th of the applicable aggregate amount.
            ``(3) No credit for ineligible months.--With respect to any 
        individual, the monthly limitation shall be zero for any month 
        for which such individual is not an eligible individual.
    ``(c) Applicable Amounts.--For purposes of this section--
            ``(1) Applicable adult amount.--The term `applicable adult 
        amount' means $2,500.
            ``(2) Applicable child amount.--The term `applicable child 
        amount' means $1,000.
            ``(3) Applicable aggregate amount.--The term `applicable 
        aggregate amount' means $5,000.
    ``(d) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means, 
        with respect to any month, an individual who--
                    ``(A) is the taxpayer, the taxpayer's spouse, or 
                the taxpayer's dependent, and
                    ``(B) is covered under qualified health insurance 
                as of the 1st day of such month.
            ``(2) Coverage under medicare, medicaid, schip, military 
        coverage.--The term `eligible individual' shall not include any 
        individual for a month if, as of the first day of such month, 
        such individual is--
                    ``(A) entitled to benefits under part A of title 
                XVIII of the Social Security Act or enrolled under part 
                B of such title, and the individual is not a 
                participant or beneficiary in a group health plan or 
                large group health plan that is a primary plan (as 
                defined in section 1862(b)(2)(A) of such Act),
                    ``(B) in the case of a State that has not made the 
                election described in section 1939(a)(1)(B) of the 
                Social Security Act, enrolled in the program under 
                title XIX of such Act (other than under section 1928 of 
                such Act), or
                    ``(C) entitled to benefits under chapter 55 of 
                title 10, United States Code.
            ``(3) Identification requirements.--The term `eligible 
        individual' shall not include any individual for any month 
        unless the policy number associated with the qualified refund 
        eligible health insurance and the TIN of each eligible 
        individual covered under such health insurance for such month 
        are included on the return of tax for the taxable year in which 
        such month occurs.
            ``(4) Prisoners.--The term `eligible individual' shall not 
        include any individual for a month if, as of the first day of 
        such month, such individual is imprisoned under Federal, State, 
        or local authority.
            ``(5) Aliens.--The term `eligible individual' shall not 
        include any alien individual for a month if, as of the first 
        day of such month, such individual is not a lawful permanent 
        resident of the United States.
    ``(e) Qualified Health Insurance.--For purposes of this section, 
the term `qualified health insurance' means any insurance constituting 
medical care which (as determined under regulations prescribed by the 
Secretary) provides coverage for inpatient and outpatient care, 
emergency benefits, and physician care. Such term does not include any 
insurance substantially all of the coverage of which is coverage 
described in section 223(c)(1)(B).
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Dependent.--The term `dependent' has the meaning 
        given such term by section 152 (determined without regard to 
        subsections (b)(1), (b)(2), and (d)(1)(B) thereof). An 
        individual who is a child to whom section 152(e) applies shall 
        be treated as a dependent of the custodial parent for a 
        coverage month unless the custodial and noncustodial parent 
        agree otherwise.
            ``(2) Adult.--The term `adult' means an individual who is 
        not a child.
            ``(3) Child.--The term `child' means a qualifying child (as 
        defined in section 152(c)).
    ``(g) Special Rules.--
            ``(1) Coordination with medical deduction, etc.--Any amount 
        paid by a taxpayer for insurance to which subsection (a) 
        applies shall not be taken into account in computing the amount 
        allowable to the taxpayer as a credit under section 35 or as a 
        deduction under section 213(a).
            ``(2) Medical and health savings accounts.--The credit 
        allowed under subsection (a) for any taxable year shall be 
        reduced by the aggregate amount distributed from Archer MSAs 
        (as defined in section 220(d)) and health savings accounts (as 
        defined in section 223(d)) which are excludable from gross 
        income for such taxable years by reason of being used to pay 
        premiums for coverage of an eligible individual (as defined in 
        section 25E(e)) under qualified health insurance (as defined in 
        section 25E(f)) for any month.
            ``(3) Denial of credit to dependents.--No credit shall be 
        allowed under this section to any individual with respect to 
        whom a deduction under section 151 is allowable to another 
        taxpayer for a taxable year beginning in the calendar year in 
        which such individual's taxable year begins.
            ``(4) Married couples must file joint return.--
                    ``(A) In general.--If the taxpayer is married at 
                the close of the taxable year, the credit shall be 
                allowed under subsection (a) only if the taxpayer and 
                his spouse file a joint return for the taxable year.
                    ``(B) Marital status; certain married individuals 
                living apart.--Rules similar to the rules of paragraphs 
                (3) and (4) of section 21(e) shall apply for purposes 
                of this paragraph.
            ``(5) Verification of coverage, etc.--No credit shall be 
        allowed under this section with respect to any individual 
        unless such individual's coverage (and such related information 
        as the Secretary may require) is verified in such manner as the 
        Secretary may prescribe.
            ``(6) Insurance which covers other individuals; treatment 
        of payments.--Rules similar to the rules of paragraphs (7) and 
        (8) of section 35(g) shall apply for purposes of this section.
    ``(h) Coordination With Advance Payments.--
            ``(1) Reduction in credit for advance payments.--With 
        respect to any taxable year, the amount which would (but for 
        this subsection) be allowed as a credit to the taxpayer under 
        subsection (a) shall be reduced (but not below zero) by the 
        aggregate amount paid on behalf of such taxpayer under section 
        7527A for months beginning in such taxable year.
            ``(2) Recapture of excess advance payments.--If the 
        aggregate amount paid on behalf of the taxpayer under section 
        7527A for months beginning in the taxable year exceeds the sum 
        of the monthly limitations determined under subsection (b) for 
        the taxpayer and the taxpayer's spouse and dependents for such 
        months, then the tax imposed by this chapter for such taxable 
        year shall be increased by the sum of--
                    ``(A) such excess, plus
                    ``(B) interest on such excess determined at the 
                underpayment rate established under section 6621 for 
                the period from the date of the payment under section 
                7527A to the date such excess is paid.
        For purposes of subparagraph (B), an equal part of the 
        aggregate amount of the excess shall be deemed to be 
        attributable to payments made under section 7527A on the first 
        day of each month beginning in such taxable year, unless the 
        taxpayer establishes the date on which each such payment giving 
        rise to such excess occurred, in which case subparagraph (B) 
        shall be applied with respect to each date so established.
    ``(i) Annual Inflation Adjustment.--In the case of any taxable year 
beginning in a calendar year after 2010 each of the dollar amounts 
contained in subsection (c) shall be annually increased by the annual 
inflation adjustment determined under subparagraph (B) section 
1809(c)(2) of the Social Security Act for such calendar year. Any 
adjustment under the preceding sentence shall be rounded in the manner 
described in subparagraph (A) of such section.''.
    (b) Advance Payment of Credit.--Chapter 77 (relating to 
miscellaneous provisions) of such Code is amended by inserting after 
section 7527 the following new section:

``SEC. 7527A. ADVANCE PAYMENT OF QUALIFIED HEALTH INSURANCE CREDIT.

    ``(a) In General.--The Secretary shall establish a program for 
making payments on behalf of individuals to providers of qualified 
health insurance (as defined in section 36(f)) for such individuals.
    ``(b) Limitation.--The Secretary may make payments under subsection 
(a) only to the extent that the Secretary determines that the amount of 
such payments made on behalf of any taxpayer for any month does not 
exceed the sum of the monthly limitations determined under section 36 
for the taxpayer and taxpayer's spouse and dependents for such 
month.''.
    (c) Information Reporting.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 of such Code (relating to information concerning 
        transactions with other persons) is amended by inserting after 
        section 6050V the following new section:

``SEC. 6050W. RETURNS RELATING TO QUALIFIED HEALTH INSURANCE CREDIT.

    ``(a) Requirement of Reporting.--Every person who is entitled to 
receive payments for any month of any calendar year under section 7527A 
(relating to advance payment of qualified health insurance credit) with 
respect to any individual shall, at such time as the Secretary may 
prescribe, make the return described in subsection (b) with respect to 
each such individual.
    ``(b) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary may prescribe, and
            ``(2) contains, with respect to each individual referred to 
        in subsection (a)--
                    ``(A) the name, address, and TIN of each such 
                individual,
                    ``(B) the months for which amounts payments under 
                section 7527A were received,
                    ``(C) the amount of each such payment,
                    ``(D) the type of insurance coverage provide by 
                such person with respect to such individual and the 
                policy number associated with such coverage,
                    ``(E) the name, address, and TIN of the spouse and 
                each dependent covered under such coverage, and
                    ``(F) such other information as the Secretary may 
                prescribe.
    ``(c) Statements To Be Furnished to Individuals With Respect to 
Whom Information Is Required.--Every person required to make a return 
under subsection (a) shall furnish to each individual whose name is 
required to be set forth in such return a written statement showing--
            ``(1) the name and address of the person required to make 
        such return and the phone number of the information contact for 
        such person, and
            ``(2) the information required to be shown on the return 
        with respect to such individual.
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) is required to be made.
    ``(d) Returns Which Would Be Required To Be Made by 2 or More 
Persons.--Except to the extent provided in regulations prescribed by 
the Secretary, in the case of any amount received by any person on 
behalf of another person, only the person first receiving such amount 
shall be required to make the return under subsection (a).''.
            (2) Assessable penalties.--
                    (A) Subparagraph (B) of section 6724(d)(1) 
                (relating to definitions) of such Code is amended by 
                redesignating clauses (xv) through (xxi) as clauses 
                (xvi) through (xxii), respectively, and by inserting 
                after clause (xiv) the following new clause:
                            ``(xv) section 6050W (relating to returns 
                        relating to qualified health insurance 
                        credit),''.
                    (B) Paragraph (2) of section 6724(d) of such Code 
                is amended by striking the period at the end of 
                subparagraph (CC) and inserting ``, or'' and by 
                inserting after subparagraph (CC) the following new 
                subparagraph:
                    ``(DD) section 6050W (relating to returns relating 
                to qualified health insurance credit).''.
    (d) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``36B,'' after ``36A,''.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        is amended by inserting after the item relating to section 36A 
        the following new item:

``Sec. 36B. Qualified health insurance credit.''.
            (3) The table of sections for chapter 77 of such Code is 
        amended by inserting after the item relating to section 7527 
        the following new item:

``Sec. 7527A. Advance payment of qualified health insurance credit.''.
            (4) The table of sections for subpart B of part III of 
        subchapter A of chapter 61 of such Code is amended by adding at 
        the end the following new item:

``Sec. 6050W. Returns relating to qualified health insurance credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

SEC. 102. CHANGES TO EXISTING TAX PREFERENCES FOR MEDICAL COVERAGE, 
              ETC., FOR INDIVIDUALS ELIGIBLE FOR QUALIFIED HEALTH 
              INSURANCE CREDIT.

    (a) Exclusion for Contributions by Employer to Accident and Health 
Plans.--
            (1) In general.--Section 106 of the Internal Revenue Code 
        of 1986 (relating to contributions by employer to accident and 
        health plans) is amended by adding at the end the following new 
        subsection:
    ``(f) No Exclusion for Individuals Eligible for Qualified Health 
Insurance Credit.--Subsection (a) shall not apply with respect to any 
employer-provided coverage under an accident or health plan for any 
individual for any month unless such individual is described in 
paragraph (2) or (5) of section 36(e) for such month. The amount 
includible in gross income by reason of this subsection shall be 
determined under rules similar to the rules of section 4980B(f)(4).''.
            (2) Conforming amendments.--
                    (A) Section 106(b)(1) of such Code is amended--
                            (i) by inserting ``gross income does not 
                        include'' before ``amounts contributed'', and
                            (ii) by striking ``shall be treated as 
                        employer-provided coverage for medical expenses 
                        under an accident or health plan''.
                    (B) Section 106(d)(1) of such Code is amended--
                            (i) by inserting ``gross income does not 
                        include'' before ``amounts contributed'', and
                            (ii) by striking ``shall be treated as 
                        employer-provided coverage for medical expenses 
                        under an accident or health plan''.
    (b) Amounts Received Under Accident and Health Plans.--
            (1) In general.--Section 105 of such Code (relating to 
        amounts received under accident and health plans) is amended by 
        adding at the end the following new subsection:
    ``(k) No Exclusion for Individuals Eligible for Qualified Health 
Insurance Credit.--Subsection (b) shall not apply with respect to any 
employer-provided coverage under an accident or health plan for any 
individual for any month unless such individual is described in 
paragraph (2) or (5) of section 36(e) for such month.''.
    (c) Special Rules for Health Insurance Costs of Self-Employed 
Individuals.--Subsection (l) of section 162 of such Code (relating to 
special rules for health insurance costs of self-employed individuals) 
is amended by adding at the end the following new paragraph:
            ``(6) No deduction to individuals eligible for qualified 
        health insurance.--Paragraph (1) shall not apply for any 
        individual for any month unless such individual is described in 
        paragraph (2) or (5) of section 36(e) for such month.''.
    (d) Earned Income Credit Unaffected by Repealed Exclusions.--
Subparagraph (B) of section 32(c)(2) of such Code is amended by 
redesignating clauses (v) and (vi) as clauses (vi) and (vii), 
respectively, and by inserting after clause (iv) the following new 
clause:
                            ``(v) the earned income of an individual 
                        shall be computed without regard to sections 
                        105(k) and 106(f),''.
    (e) Modification of Deduction for Medical Expenses.--Subsection (d) 
of section 213 of such Code is amended by adding at the end the 
following new paragraph:
            ``(12) Premiums for qualified health insurance.--The term 
        `medical care' does not include any amount paid as a premium 
        for coverage of an eligible individual (as defined in section 
        36(e)) under qualified health insurance (as defined in section 
        36(f)) for any month.''.
    (f) Reporting Requirement.--Subsection (a) of section 6051 of such 
Code is amended by striking ``and'' at the end of paragraph (12), by 
striking the period at the end of paragraph (13) and inserting ``and'', 
and by inserting after paragraph (13) the following new paragraph:
            ``(14) the total amount of employer-provided coverage under 
        an accident or health plan which is includible in gross income 
        by reason of sections 105(k) and 106(f).''.
    (g) Retired Public Safety Officers.--Section 402(l)(4)(D) of such 
Code is amended by adding at the end the following: ``Such term shall 
not include any premium for coverage by an accident or health insurance 
plan for any month unless such individual is described in paragraph (2) 
or (5) of section 36(e) for such month.''.
    (h) Employer Deduction as Trade or Business Expense Unaffected.--
For the allowance of a deduction for amounts paid or incurred by an 
employer for employee health benefits, see section 162 of the Internal 
Revenue Code of 1986 (relating to trade or business expenses).
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

     Subtitle B--Health Plan Choice; Small Business Health Fairness

SEC. 111. COOPERATIVE GOVERNING OF INDIVIDUAL HEALTH INSURANCE 
              COVERAGE.

    (a) In General.--Title XXVII of the Public Health Service Act (42 
U.S.C. 300gg et seq.) is amended by adding at the end the following new 
part:

``PART D--COOPERATIVE GOVERNING OF INDIVIDUAL HEALTH INSURANCE COVERAGE

``SEC. 2795. DEFINITIONS.

    ``In this part:
            ``(1) Primary state.--The term `primary State' means, with 
        respect to individual health insurance coverage offered by a 
        health insurance issuer, the State designated by the issuer as 
        the State whose covered laws shall govern the health insurance 
        issuer in the sale of such coverage under this part. An issuer, 
        with respect to a particular policy, may only designate one 
        such State as its primary State with respect to all such 
        coverage it offers. Such an issuer may not change the 
        designated primary State with respect to individual health 
        insurance coverage once the policy is issued, except that such 
        a change may be made upon renewal of the policy. With respect 
        to such designated State, the issuer is deemed to be doing 
        business in that State.
            ``(2) Secondary state.--The term `secondary State' means, 
        with respect to individual health insurance coverage offered by 
        a health insurance issuer, any State that is not the primary 
        State. In the case of a health insurance issuer that is selling 
        a policy in, or to a resident of, a secondary State, the issuer 
        is deemed to be doing business in that secondary State.
            ``(3) Health insurance issuer.--The term `health insurance 
        issuer' has the meaning given such term in section 2791(b)(2), 
        except that such an issuer must be licensed in the primary 
        State and be qualified to sell individual health insurance 
        coverage in that State.
            ``(4) Individual health insurance coverage.--The term 
        `individual health insurance coverage' means health insurance 
        coverage offered in the individual market, as defined in 
        section 2791(e)(1).
            ``(5) Applicable state authority.--The term `applicable 
        State authority' means, with respect to a health insurance 
        issuer in a State, the State insurance commissioner or official 
        or officials designated by the State to enforce the 
        requirements of this title for the State with respect to the 
        issuer.
            ``(6) Hazardous financial condition.--The term `hazardous 
        financial condition' means that, based on its present or 
        reasonably anticipated financial condition, a health insurance 
        issuer is unlikely to be able--
                    ``(A) to meet obligations to policyholders with 
                respect to known claims and reasonably anticipated 
                claims; or
                    ``(B) to pay other obligations in the normal course 
                of business.
            ``(7) Covered laws.--
                    ``(A) In general.--The term `covered laws' means 
                the laws, rules, regulations, agreements, and orders 
                governing the insurance business pertaining to--
                            ``(i) individual health insurance coverage 
                        issued by a health insurance issuer;
                            ``(ii) the offer, sale, rating (including 
                        medical underwriting), renewal, and issuance of 
                        individual health insurance coverage to an 
                        individual;
                            ``(iii) the provision to an individual in 
                        relation to individual health insurance 
                        coverage of health care and insurance related 
                        services;
                            ``(iv) the provision to an individual in 
                        relation to individual health insurance 
                        coverage of management, operations, and 
                        investment activities of a health insurance 
                        issuer; and
                            ``(v) the provision to an individual in 
                        relation to individual health insurance 
                        coverage of loss control and claims 
                        administration for a health insurance issuer 
                        with respect to liability for which the issuer 
                        provides insurance.
                    ``(B) Exception.--Such term does not include any 
                law, rule, regulation, agreement, or order governing 
                the use of care or cost management techniques, 
                including any requirement related to provider 
                contracting, network access or adequacy, health care 
                data collection, or quality assurance.
            ``(8) State.--The term `State' means the 50 States and 
        includes the District of Columbia, Puerto Rico, the Virgin 
        Islands, Guam, American Samoa, and the Northern Mariana 
        Islands.
            ``(9) Unfair claims settlement practices.--The term `unfair 
        claims settlement practices' means only the following 
        practices:
                    ``(A) Knowingly misrepresenting to claimants and 
                insured individuals relevant facts or policy provisions 
                relating to coverage at issue.
                    ``(B) Failing to acknowledge with reasonable 
                promptness pertinent communications with respect to 
                claims arising under policies.
                    ``(C) Failing to adopt and implement reasonable 
                standards for the prompt investigation and settlement 
                of claims arising under policies.
                    ``(D) Failing to effectuate prompt, fair, and 
                equitable settlement of claims submitted in which 
                liability has become reasonably clear.
                    ``(E) Refusing to pay claims without conducting a 
                reasonable investigation.
                    ``(F) Failing to affirm or deny coverage of claims 
                within a reasonable period of time after having 
                completed an investigation related to those claims.
                    ``(G) A pattern or practice of compelling insured 
                individuals or their beneficiaries to institute suits 
                to recover amounts due under its policies by offering 
                substantially less than the amounts ultimately 
                recovered in suits brought by them.
                    ``(H) A pattern or practice of attempting to settle 
                or settling claims for less than the amount that a 
                reasonable person would believe the insured individual 
                or his or her beneficiary was entitled by reference to 
                written or printed advertising material accompanying or 
                made part of an application.
                    ``(I) Attempting to settle or settling claims on 
                the basis of an application that was materially altered 
                without notice to, or knowledge or consent of, the 
                insured.
                    ``(J) Failing to provide forms necessary to present 
                claims within 15 calendar days of a requests with 
                reasonable explanations regarding their use.
                    ``(K) Attempting to cancel a policy in less time 
                than that prescribed in the policy or by the law of the 
                primary State.
            ``(10) Fraud and abuse.--The term `fraud and abuse' means 
        an act or omission committed by a person who, knowingly and 
        with intent to defraud, commits, or conceals any material 
        information concerning, one or more of the following:
                    ``(A) Presenting, causing to be presented or 
                preparing with knowledge or belief that it will be 
                presented to or by an insurer, a reinsurer, broker or 
                its agent, false information as part of, in support of 
                or concerning a fact material to one or more of the 
                following:
                            ``(i) An application for the issuance or 
                        renewal of an insurance policy or reinsurance 
                        contract.
                            ``(ii) The rating of an insurance policy or 
                        reinsurance contract.
                            ``(iii) A claim for payment or benefit 
                        pursuant to an insurance policy or reinsurance 
                        contract.
                            ``(iv) Premiums paid on an insurance policy 
                        or reinsurance contract.
                            ``(v) Payments made in accordance with the 
                        terms of an insurance policy or reinsurance 
                        contract.
                            ``(vi) A document filed with the 
                        commissioner or the chief insurance regulatory 
                        official of another jurisdiction.
                            ``(vii) The financial condition of an 
                        insurer or reinsurer.
                            ``(viii) The formation, acquisition, 
                        merger, reconsolidation, dissolution or 
                        withdrawal from one or more lines of insurance 
                        or reinsurance in all or part of a State by an 
                        insurer or reinsurer.
                            ``(ix) The issuance of written evidence of 
                        insurance.
                            ``(x) The reinstatement of an insurance 
                        policy.
                    ``(B) Solicitation or acceptance of new or renewal 
                insurance risks on behalf of an insurer reinsurer or 
                other person engaged in the business of insurance by a 
                person who knows or should know that the insurer or 
                other person responsible for the risk is insolvent at 
                the time of the transaction.
                    ``(C) Transaction of the business of insurance in 
                violation of laws requiring a license, certificate of 
                authority or other legal authority for the transaction 
                of the business of insurance.
                    ``(D) Attempt to commit, aiding or abetting in the 
                commission of, or conspiracy to commit the acts or 
                omissions specified in this paragraph.

``SEC. 2796. APPLICATION OF LAW.

    ``(a) In General.--The covered laws of the primary State shall 
apply to individual health insurance coverage offered by a health 
insurance issuer in the primary State and in any secondary State, but 
only if the coverage and issuer comply with the conditions of this 
section with respect to the offering of coverage in any secondary 
State.
    ``(b) Exemptions From Covered Laws in a Secondary State.--Except as 
provided in this section, a health insurance issuer with respect to its 
offer, sale, rating (including medical underwriting), renewal, and 
issuance of individual health insurance coverage in any secondary State 
is exempt from any covered laws of the secondary State (and any rules, 
regulations, agreements, or orders sought or issued by such State under 
or related to such covered laws) to the extent that such laws would--
            ``(1) make unlawful, or regulate, directly or indirectly, 
        the operation of the health insurance issuer operating in the 
        secondary State, except that any secondary State may require 
        such an issuer--
                    ``(A) to pay, on a nondiscriminatory basis, 
                applicable premium and other taxes (including high risk 
                pool assessments) which are levied on insurers and 
                surplus lines insurers, brokers, or policyholders under 
                the laws of the State;
                    ``(B) to register with and designate the State 
                insurance commissioner as its agent solely for the 
                purpose of receiving service of legal documents or 
                process;
                    ``(C) to submit to an examination of its financial 
                condition by the State insurance commissioner in any 
                State in which the issuer is doing business to 
                determine the issuer's financial condition, if--
                            ``(i) the State insurance commissioner of 
                        the primary State has not done an examination 
                        within the period recommended by the National 
                        Association of Insurance Commissioners; and
                            ``(ii) any such examination is conducted in 
                        accordance with the examiners' handbook of the 
                        National Association of Insurance Commissioners 
                        and is coordinated to avoid unjustified 
                        duplication and unjustified repetition;
                    ``(D) to comply with a lawful order issued--
                            ``(i) in a delinquency proceeding commenced 
                        by the State insurance commissioner if there 
                        has been a finding of financial impairment 
                        under subparagraph (C); or
                            ``(ii) in a voluntary dissolution 
                        proceeding;
                    ``(E) to comply with an injunction issued by a 
                court of competent jurisdiction, upon a petition by the 
                State insurance commissioner alleging that the issuer 
                is in hazardous financial condition;
                    ``(F) to participate, on a nondiscriminatory basis, 
                in any insurance insolvency guaranty association or 
                similar association to which a health insurance issuer 
                in the State is required to belong;
                    ``(G) to comply with any State law regarding fraud 
                and abuse (as defined in section 2795(10)), except that 
                if the State seeks an injunction regarding the conduct 
                described in this subparagraph, such injunction must be 
                obtained from a court of competent jurisdiction;
                    ``(H) to comply with any State law regarding unfair 
                claims settlement practices (as defined in section 
                2795(9)); or
                    ``(I) to comply with the applicable requirements 
                for independent review under section 2798 with respect 
                to coverage offered in the State;
            ``(2) require any individual health insurance coverage 
        issued by the issuer to be countersigned by an insurance agent 
        or broker residing in that Secondary State; or
            ``(3) otherwise discriminate against the issuer issuing 
        insurance in both the primary State and in any secondary State.
    ``(c) Clear and Conspicuous Disclosure.--A health insurance issuer 
shall provide the following notice, in 12-point bold type, in any 
insurance coverage offered in a secondary State under this part by such 
a health insurance issuer and at renewal of the policy, with the 5 
blank spaces therein being appropriately filled with the name of the 
health insurance issuer, the name of primary State, the name of the 
secondary State, the name of the secondary State, and the name of the 
secondary State, respectively, for the coverage concerned:
    ```Notice
    ```This policy is issued by _____ and is governed by the laws and 
regulations of the State of _____, and it has met all the laws of that 
State as determined by that State's Department of Insurance. This 
policy may be less expensive than others because it is not subject to 
all of the insurance laws and regulations of the State of _____, 
including coverage of some services or benefits mandated by the law of 
the State of _____. Additionally, this policy is not subject to all of 
the consumer protection laws or restrictions on rate changes of the 
State of _____. As with all insurance products, before purchasing this 
policy, you should carefully review the policy and determine what 
health care services the policy covers and what benefits it provides, 
including any exclusions, limitations, or conditions for such services 
or benefits.'.
    ``(d) Prohibition on Certain Reclassifications and Premium 
Increases.--
            ``(1) In general.--For purposes of this section, a health 
        insurance issuer that provides individual health insurance 
        coverage to an individual under this part in a primary or 
        secondary State may not upon renewal--
                    ``(A) move or reclassify the individual insured 
                under the health insurance coverage from the class such 
                individual is in at the time of issue of the contract 
                based on the health-status related factors of the 
                individual; or
                    ``(B) increase the premiums assessed the individual 
                for such coverage based on a health status-related 
                factor or change of a health status-related factor or 
                the past or prospective claim experience of the insured 
                individual.
            ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed to prohibit a health insurance issuer--
                    ``(A) from terminating or discontinuing coverage or 
                a class of coverage in accordance with subsections (b) 
                and (c) of section 2742;
                    ``(B) from raising premium rates for all policy 
                holders within a class based on claims experience;
                    ``(C) from changing premiums or offering discounted 
                premiums to individuals who engage in wellness 
                activities at intervals prescribed by the issuer, if 
                such premium changes or incentives--
                            ``(i) are disclosed to the consumer in the 
                        insurance contract;
                            ``(ii) are based on specific wellness 
                        activities that are not applicable to all 
                        individuals; and
                            ``(iii) are not obtainable by all 
                        individuals to whom coverage is offered;
                    ``(D) from reinstating lapsed coverage; or
                    ``(E) from retroactively adjusting the rates 
                charged an insured individual if the initial rates were 
                set based on material misrepresentation by the 
                individual at the time of issue.
    ``(e) Prior Offering of Policy in Primary State.--A health 
insurance issuer may not offer for sale individual health insurance 
coverage in a secondary State unless that coverage is currently offered 
for sale in the primary State.
    ``(f) Licensing of Agents or Brokers for Health Insurance 
Issuers.--Any State may require that a person acting, or offering to 
act, as an agent or broker for a health insurance issuer with respect 
to the offering of individual health insurance coverage obtain a 
license from that State, with commissions or other compensation subject 
to the provisions of the laws of that State, except that a State may 
not impose any qualification or requirement which discriminates against 
a nonresident agent or broker.
    ``(g) Documents for Submission to State Insurance Commissioner.--
Each health insurance issuer issuing individual health insurance 
coverage in both primary and secondary States shall submit--
            ``(1) to the insurance commissioner of each State in which 
        it intends to offer such coverage, before it may offer 
        individual health insurance coverage in such State--
                    ``(A) a copy of the plan of operation or 
                feasibility study or any similar statement of the 
                policy being offered and its coverage (which shall 
                include the name of its primary State and its principal 
                place of business);
                    ``(B) written notice of any change in its 
                designation of its primary State; and
                    ``(C) written notice from the issuer of the 
                issuer's compliance with all the laws of the primary 
                State; and
            ``(2) to the insurance commissioner of each secondary State 
        in which it offers individual health insurance coverage, a copy 
        of the issuer's quarterly financial statement submitted to the 
        primary State, which statement shall be certified by an 
        independent public accountant and contain a statement of 
        opinion on loss and loss adjustment expense reserves made by--
                    ``(A) a member of the American Academy of 
                Actuaries; or
                    ``(B) a qualified loss reserve specialist.
    ``(h) Power of Courts To Enjoin Conduct.--Nothing in this section 
shall be construed to affect the authority of any Federal or State 
court to enjoin--
            ``(1) the solicitation or sale of individual health 
        insurance coverage by a health insurance issuer to any person 
        or group who is not eligible for such insurance; or
            ``(2) the solicitation or sale of individual health 
        insurance coverage that violates the requirements of the law of 
        a secondary State which are described in subparagraphs (A) 
        through (H) of section 2796(b)(1).
    ``(i) Power of Secondary States To Take Administrative Action.--
Nothing in this section shall be construed to affect the authority of 
any State to enjoin conduct in violation of that State's laws described 
in section 2796(b)(1).
    ``(j) State Powers To Enforce State Laws.--
            ``(1) In general.--Subject to the provisions of subsection 
        (b)(1)(G) (relating to injunctions) and paragraph (2), nothing 
        in this section shall be construed to affect the authority of 
        any State to make use of any of its powers to enforce the laws 
        of such State with respect to which a health insurance issuer 
        is not exempt under subsection (b).
            ``(2) Courts of competent jurisdiction.--If a State seeks 
        an injunction regarding the conduct described in paragraphs (1) 
        and (2) of subsection (h), such injunction must be obtained 
        from a Federal or State court of competent jurisdiction.
    ``(k) States' Authority To Sue.--Nothing in this section shall 
affect the authority of any State to bring action in any Federal or 
State court.
    ``(l) Generally Applicable Laws.--Nothing in this section shall be 
construed to affect the applicability of State laws generally 
applicable to persons or corporations.
    ``(m) Guaranteed Availability of Coverage to HIPAA Eligible 
Individuals.--To the extent that a health insurance issuer is offering 
coverage in a primary State that does not accommodate residents of 
secondary States or does not provide a working mechanism for residents 
of a secondary State, and the issuer is offering coverage under this 
part in such secondary State which has not adopted a qualified high 
risk pool as its acceptable alternative mechanism (as defined in 
section 2744(c)(2)), the issuer shall, with respect to any individual 
health insurance coverage offered in a secondary State under this part, 
comply with the guaranteed availability requirements for eligible 
individuals in section 2741.

``SEC. 2797. PRIMARY STATE MUST MEET FEDERAL FLOOR BEFORE ISSUER MAY 
              SELL INTO SECONDARY STATES.

    ``A health insurance issuer may not offer, sell, or issue 
individual health insurance coverage in a secondary State if the State 
insurance commissioner does not use a risk-based capital formula for 
the determination of capital and surplus requirements for all health 
insurance issuers.

``SEC. 2798. INDEPENDENT EXTERNAL APPEALS PROCEDURES.

    ``(a) Right to External Appeal.--A health insurance issuer may not 
offer, sell, or issue individual health insurance coverage in a 
secondary State under the provisions of this title unless--
            ``(1) both the secondary State and the primary State have 
        legislation or regulations in place establishing an independent 
        review process for individuals who are covered by individual 
        health insurance coverage, or
            ``(2) in any case in which the requirements of subparagraph 
        (A) are not met with respect to the either of such States, the 
        issuer provides an independent review mechanism substantially 
        identical (as determined by the applicable State authority of 
        such State) to that prescribed in the `Health Carrier External 
        Review Model Act' of the National Association of Insurance 
        Commissioners for all individuals who purchase insurance 
        coverage under the terms of this part, except that, under such 
        mechanism, the review is conducted by an independent medical 
        reviewer, or a panel of such reviewers, with respect to whom 
        the requirements of subsection (b) are met.
    ``(b) Qualifications of Independent Medical Reviewers.--In the case 
of any independent review mechanism referred to in subsection (a)(2)--
            ``(1) In general.--In referring a denial of a claim to an 
        independent medical reviewer, or to any panel of such 
        reviewers, to conduct independent medical review, the issuer 
        shall ensure that--
                    ``(A) each independent medical reviewer meets the 
                qualifications described in paragraphs (2) and (3);
                    ``(B) with respect to each review, each reviewer 
                meets the requirements of paragraph (4) and the 
                reviewer, or at least 1 reviewer on the panel, meets 
                the requirements described in paragraph (5); and
                    ``(C) compensation provided by the issuer to each 
                reviewer is consistent with paragraph (6).
            ``(2) Licensure and expertise.--Each independent medical 
        reviewer shall be a physician (allopathic or osteopathic) or 
        health care professional who--
                    ``(A) is appropriately credentialed or licensed in 
                1 or more States to deliver health care services; and
                    ``(B) typically treats the condition, makes the 
                diagnosis, or provides the type of treatment under 
                review.
            ``(3) Independence.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each independent medical reviewer in a case shall--
                            ``(i) not be a related party (as defined in 
                        paragraph (7));
                            ``(ii) not have a material familial, 
                        financial, or professional relationship with 
                        such a party; and
                            ``(iii) not otherwise have a conflict of 
                        interest with such a party (as determined under 
                        regulations).
                    ``(B) Exception.--Nothing in subparagraph (A) shall 
                be construed to--
                            ``(i) prohibit an individual, solely on the 
                        basis of affiliation with the issuer, from 
                        serving as an independent medical reviewer if--
                                    ``(I) a non-affiliated individual 
                                is not reasonably available;
                                    ``(II) the affiliated individual is 
                                not involved in the provision of items 
                                or services in the case under review;
                                    ``(III) the fact of such an 
                                affiliation is disclosed to the issuer 
                                and the enrollee (or authorized 
                                representative) and neither party 
                                objects; and
                                    ``(IV) the affiliated individual is 
                                not an employee of the issuer and does 
                                not provide services exclusively or 
                                primarily to or on behalf of the 
                                issuer;
                            ``(ii) prohibit an individual who has staff 
                        privileges at the institution where the 
                        treatment involved takes place from serving as 
                        an independent medical reviewer merely on the 
                        basis of such affiliation if the affiliation is 
                        disclosed to the issuer and the enrollee (or 
                        authorized representative), and neither party 
                        objects; or
                            ``(iii) prohibit receipt of compensation by 
                        an independent medical reviewer from an entity 
                        if the compensation is provided consistent with 
                        paragraph (6).
            ``(4) Practicing health care professional in same field.--
                    ``(A) In general.--In a case involving treatment, 
                or the provision of items or services--
                            ``(i) by a physician, a reviewer shall be a 
                        practicing physician (allopathic or 
                        osteopathic) of the same or similar specialty, 
                        as a physician who, acting within the 
                        appropriate scope of practice within the State 
                        in which the service is provided or rendered, 
                        typically treats the condition, makes the 
                        diagnosis, or provides the type of treatment 
                        under review; or
                            ``(ii) by a non-physician health care 
                        professional, the reviewer, or at least 1 
                        member of the review panel, shall be a 
                        practicing non-physician health care 
                        professional of the same or similar specialty 
                        as the non-physician health care professional 
                        who, acting within the appropriate scope of 
                        practice within the State in which the service 
                        is provided or rendered, typically treats the 
                        condition, makes the diagnosis, or provides the 
                        type of treatment under review.
                    ``(B) Practicing defined.--For purposes of this 
                paragraph, the term `practicing' means, with respect to 
                an individual who is a physician or other health care 
                professional, that the individual provides health care 
                services to individual patients on average at least 2 
                days per week.
            ``(5) Pediatric expertise.--In the case of an external 
        review relating to a child, a reviewer shall have expertise 
        under paragraph (2) in pediatrics.
            ``(6) Limitations on reviewer compensation.--Compensation 
        provided by the issuer to an independent medical reviewer in 
        connection with a review under this section shall--
                    ``(A) not exceed a reasonable level; and
                    ``(B) not be contingent on the decision rendered by 
                the reviewer.
            ``(7) Related party defined.--For purposes of this section, 
        the term `related party' means, with respect to a denial of a 
        claim under a coverage relating to an enrollee, any of the 
        following:
                    ``(A) The issuer involved, or any fiduciary, 
                officer, director, or employee of the issuer.
                    ``(B) The enrollee (or authorized representative).
                    ``(C) The health care professional that provides 
                the items or services involved in the denial.
                    ``(D) The institution at which the items or 
                services (or treatment) involved in the denial are 
                provided.
                    ``(E) The manufacturer of any drug or other item 
                that is included in the items or services involved in 
                the denial.
                    ``(F) Any other party determined under any 
                regulations to have a substantial interest in the 
                denial involved.
            ``(8) Definitions.--For purposes of this subsection:
                    ``(A) Enrollee.--The term `enrollee' means, with 
                respect to health insurance coverage offered by a 
                health insurance issuer, an individual enrolled with 
                the issuer to receive such coverage.
                    ``(B) Health care professional.--The term `health 
                care professional' means an individual who is licensed, 
                accredited, or certified under State law to provide 
                specified health care services and who is operating 
                within the scope of such licensure, accreditation, or 
                certification.

``SEC. 2799. ENFORCEMENT.

    ``(a) In General.--Subject to subsection (b), with respect to 
specific individual health insurance coverage the primary State for 
such coverage has sole jurisdiction to enforce the primary State's 
covered laws in the primary State and any secondary State.
    ``(b) Secondary State's Authority.--Nothing in subsection (a) shall 
be construed to affect the authority of a secondary State to enforce 
its laws as set forth in the exception specified in section 2796(b)(1).
    ``(c) Court Interpretation.--In reviewing action initiated by the 
applicable secondary State authority, the court of competent 
jurisdiction shall apply the covered laws of the primary State.
    ``(d) Notice of Compliance Failure.--In the case of individual 
health insurance coverage offered in a secondary State that fails to 
comply with the covered laws of the primary State, the applicable State 
authority of the secondary State may notify the applicable State 
authority of the primary State.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to individual health insurance coverage offered, issued, or sold 
after the date that is one year after the date of the enactment of this 
Act.
    (c) GAO Ongoing Study and Reports.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct an ongoing study concerning the effect of the 
        amendment made by subsection (a) on--
                    (A) the number of uninsured and under-insured;
                    (B) the availability and cost of health insurance 
                policies for individuals with pre-existing medical 
                conditions;
                    (C) the availability and cost of health insurance 
                policies generally;
                    (D) the elimination or reduction of different types 
                of benefits under health insurance policies offered in 
                different States; and
                    (E) cases of fraud or abuse relating to health 
                insurance coverage offered under such amendment and the 
                resolution of such cases.
            (2) Annual reports.--The Comptroller General shall submit 
        to Congress an annual report, after the end of each of the 5 
        years following the effective date of the amendment made by 
        subsection (a), on the ongoing study conducted under paragraph 
        (1).
    (d) Severability.--If any provision of this title or the 
application of such provision to any person or circumstance is held to 
be unconstitutional, the remainder of this title and the application of 
the provisions of such to any other person or circumstance shall not be 
affected.

SEC. 112. SMALL BUSINESS HEALTH FAIRNESS.

    (a) Rules Governing Association Health Plans.--
            (1) In general.--Subtitle B of title I of the Employee 
        Retirement Income Security Act of 1974 is amended by adding 
        after part 7 the following new part:

           ``PART 8--RULES GOVERNING ASSOCIATION HEALTH PLANS

``SEC. 801. ASSOCIATION HEALTH PLANS.

    ``(a) In General.--For purposes of this part, the term `association 
health plan' means a group health plan whose sponsor is (or is deemed 
under this part to be) described in subsection (b).
    ``(b) Sponsorship.--The sponsor of a group health plan is described 
in this subsection if such sponsor--
            ``(1) is organized and maintained in good faith, with a 
        constitution and bylaws specifically stating its purpose and 
        providing for periodic meetings on at least an annual basis, as 
        a bona fide trade association, a bona fide industry association 
        (including a rural electric cooperative association or a rural 
        telephone cooperative association), a bona fide professional 
        association, or a bona fide chamber of commerce (or similar 
        bona fide business association, including a corporation or 
        similar organization that operates on a cooperative basis 
        (within the meaning of section 1381 of the Internal Revenue 
        Code of 1986)), for substantial purposes other than that of 
        obtaining or providing medical care;
            ``(2) is established as a permanent entity which receives 
        the active support of its members and requires for membership 
        payment on a periodic basis of dues or payments necessary to 
        maintain eligibility for membership in the sponsor; and
            ``(3) does not condition membership, such dues or payments, 
        or coverage under the plan on the basis of health status-
        related factors with respect to the employees of its members 
        (or affiliated members), or the dependents of such employees, 
        and does not condition such dues or payments on the basis of 
        group health plan participation.
Any sponsor consisting of an association of entities which meet the 
requirements of paragraphs (1), (2), and (3) shall be deemed to be a 
sponsor described in this subsection.

``SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH PLANS.

    ``(a) In General.--The applicable authority shall prescribe by 
regulation a procedure under which, subject to subsection (b), the 
applicable authority shall certify association health plans which apply 
for certification as meeting the requirements of this part.
    ``(b) Standards.--Under the procedure prescribed pursuant to 
subsection (a), in the case of an association health plan that provides 
at least one benefit option which does not consist of health insurance 
coverage, the applicable authority shall certify such plan as meeting 
the requirements of this part only if the applicable authority is 
satisfied that the applicable requirements of this part are met (or, 
upon the date on which the plan is to commence operations, will be met) 
with respect to the plan.
    ``(c) Requirements Applicable to Certified Plans.--An association 
health plan with respect to which certification under this part is in 
effect shall meet the applicable requirements of this part, effective 
on the date of certification (or, if later, on the date on which the 
plan is to commence operations).
    ``(d) Requirements for Continued Certification.--The applicable 
authority may provide by regulation for continued certification of 
association health plans under this part.
    ``(e) Class Certification for Fully Insured Plans.--The applicable 
authority shall establish a class certification procedure for 
association health plans under which all benefits consist of health 
insurance coverage. Under such procedure, the applicable authority 
shall provide for the granting of certification under this part to the 
plans in each class of such association health plans upon appropriate 
filing under such procedure in connection with plans in such class and 
payment of the prescribed fee under section 807(a).
    ``(f) Certification of Self-Insured Association Health Plans.--An 
association health plan which offers one or more benefit options which 
do not consist of health insurance coverage may be certified under this 
part only if such plan consists of any of the following:
            ``(1) a plan which offered such coverage on the date of the 
        enactment of this part,
            ``(2) a plan under which the sponsor does not restrict 
        membership to one or more trades and businesses or industries 
        and whose eligible participating employers represent a broad 
        cross-section of trades and businesses or industries, or
            ``(3) a plan whose eligible participating employers 
        represent one or more trades or businesses, or one or more 
        industries, consisting of any of the following: agriculture; 
        equipment and automobile dealerships; barbering and 
        cosmetology; certified public accounting practices; child care; 
        construction; dance, theatrical and orchestra productions; 
        disinfecting and pest control; financial services; fishing; 
        food service establishments; hospitals; labor organizations; 
        logging; manufacturing (metals); mining; medical and dental 
        practices; medical laboratories; professional consulting 
        services; sanitary services; transportation (local and 
        freight); warehousing; wholesaling/distributing; or any other 
        trade or business or industry which has been indicated as 
        having average or above-average risk or health claims 
        experience by reason of State rate filings, denials of 
        coverage, proposed premium rate levels, or other means 
        demonstrated by such plan in accordance with regulations.

``SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND BOARDS OF TRUSTEES.

    ``(a) Sponsor.--The requirements of this subsection are met with 
respect to an association health plan if the sponsor has met (or is 
deemed under this part to have met) the requirements of section 801(b) 
for a continuous period of not less than 3 years ending with the date 
of the application for certification under this part.
    ``(b) Board of Trustees.--The requirements of this subsection are 
met with respect to an association health plan if the following 
requirements are met:
            ``(1) Fiscal control.--The plan is operated, pursuant to a 
        trust agreement, by a board of trustees which has complete 
        fiscal control over the plan and which is responsible for all 
        operations of the plan.
            ``(2) Rules of operation and financial controls.--The board 
        of trustees has in effect rules of operation and financial 
        controls, based on a 3-year plan of operation, adequate to 
        carry out the terms of the plan and to meet all requirements of 
        this title applicable to the plan.
            ``(3) Rules governing relationship to participating 
        employers and to contractors.--
                    ``(A) Board membership.--
                            ``(i) In general.--Except as provided in 
                        clauses (ii) and (iii), the members of the 
                        board of trustees are individuals selected from 
                        individuals who are the owners, officers, 
                        directors, or employees of the participating 
                        employers or who are partners in the 
                        participating employers and actively 
                        participate in the business.
                            ``(ii) Limitation.--
                                    ``(I) General rule.--Except as 
                                provided in subclauses (II) and (III), 
                                no such member is an owner, officer, 
                                director, or employee of, or partner 
                                in, a contract administrator or other 
                                service provider to the plan.
                                    ``(II) Limited exception for 
                                providers of services solely on behalf 
                                of the sponsor.--Officers or employees 
                                of a sponsor which is a service 
                                provider (other than a contract 
                                administrator) to the plan may be 
                                members of the board if they constitute 
                                not more than 25 percent of the 
                                membership of the board and they do not 
                                provide services to the plan other than 
                                on behalf of the sponsor.
                                    ``(III) Treatment of providers of 
                                medical care.--In the case of a sponsor 
                                which is an association whose 
                                membership consists primarily of 
                                providers of medical care, subclause 
                                (I) shall not apply in the case of any 
                                service provider described in subclause 
                                (I) who is a provider of medical care 
                                under the plan.
                            ``(iii) Certain plans excluded.--Clause (i) 
                        shall not apply to an association health plan 
                        which is in existence on the date of the 
                        enactment of this part.
                    ``(B) Sole authority.--The board has sole authority 
                under the plan to approve applications for 
                participation in the plan and to contract with a 
                service provider to administer the day-to-day affairs 
                of the plan.
    ``(c) Treatment of Franchise Networks.--In the case of a group 
health plan which is established and maintained by a franchiser for a 
franchise network consisting of its franchisees--
            ``(1) the requirements of subsection (a) and section 801(a) 
        shall be deemed met if such requirements would otherwise be met 
        if the franchiser were deemed to be the sponsor referred to in 
        section 801(b), such network were deemed to be an association 
        described in section 801(b), and each franchisee were deemed to 
        be a member (of the association and the sponsor) referred to in 
        section 801(b); and
            ``(2) the requirements of section 804(a)(1) shall be deemed 
        met.
The Secretary may by regulation define for purposes of this subsection 
the terms `franchiser', `franchise network', and `franchisee'.

``SEC. 804. PARTICIPATION AND COVERAGE REQUIREMENTS.

    ``(a) Covered Employers and Individuals.--The requirements of this 
subsection are met with respect to an association health plan if, under 
the terms of the plan--
            ``(1) each participating employer must be--
                    ``(A) a member of the sponsor,
                    ``(B) the sponsor, or
                    ``(C) an affiliated member of the sponsor with 
                respect to which the requirements of subsection (b) are 
                met,
        except that, in the case of a sponsor which is a professional 
        association or other individual-based association, if at least 
        one of the officers, directors, or employees of an employer, or 
        at least one of the individuals who are partners in an employer 
        and who actively participates in the business, is a member or 
        such an affiliated member of the sponsor, participating 
        employers may also include such employer; and
            ``(2) all individuals commencing coverage under the plan 
        after certification under this part must be--
                    ``(A) active or retired owners (including self-
                employed individuals), officers, directors, or 
                employees of, or partners in, participating employers; 
                or
                    ``(B) the beneficiaries of individuals described in 
                subparagraph (A).
    ``(b) Coverage of Previously Uninsured Employees.--In the case of 
an association health plan in existence on the date of the enactment of 
this part, an affiliated member of the sponsor of the plan may be 
offered coverage under the plan as a participating employer only if--
            ``(1) the affiliated member was an affiliated member on the 
        date of certification under this part; or
            ``(2) during the 12-month period preceding the date of the 
        offering of such coverage, the affiliated member has not 
        maintained or contributed to a group health plan with respect 
        to any of its employees who would otherwise be eligible to 
        participate in such association health plan.
    ``(c) Individual Market Unaffected.--The requirements of this 
subsection are met with respect to an association health plan if, under 
the terms of the plan, no participating employer may provide health 
insurance coverage in the individual market for any employee not 
covered under the plan which is similar to the coverage 
contemporaneously provided to employees of the employer under the plan, 
if such exclusion of the employee from coverage under the plan is based 
on a health status-related factor with respect to the employee and such 
employee would, but for such exclusion on such basis, be eligible for 
coverage under the plan.
    ``(d) Prohibition of Discrimination Against Employers and Employees 
Eligible To Participate.--The requirements of this subsection are met 
with respect to an association health plan if--
            ``(1) under the terms of the plan, all employers meeting 
        the preceding requirements of this section are eligible to 
        qualify as participating employers for all geographically 
        available coverage options, unless, in the case of any such 
        employer, participation or contribution requirements of the 
        type referred to in section 2711 of the Public Health Service 
        Act are not met;
            ``(2) upon request, any employer eligible to participate is 
        furnished information regarding all coverage options available 
        under the plan; and
            ``(3) the applicable requirements of sections 701, 702, and 
        703 are met with respect to the plan.

``SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOCUMENTS, CONTRIBUTION 
              RATES, AND BENEFIT OPTIONS.

    ``(a) In General.--The requirements of this section are met with 
respect to an association health plan if the following requirements are 
met:
            ``(1) Contents of governing instruments.--The instruments 
        governing the plan include a written instrument, meeting the 
        requirements of an instrument required under section 402(a)(1), 
        which--
                    ``(A) provides that the board of trustees serves as 
                the named fiduciary required for plans under section 
                402(a)(1) and serves in the capacity of a plan 
                administrator (referred to in section 3(16)(A));
                    ``(B) provides that the sponsor of the plan is to 
                serve as plan sponsor (referred to in section 
                3(16)(B)); and
                    ``(C) incorporates the requirements of section 806.
            ``(2) Contribution rates must be nondiscriminatory.--
                    ``(A) The contribution rates for any participating 
                small employer do not vary on the basis of any health 
                status-related factor in relation to employees of such 
                employer or their beneficiaries and do not vary on the 
                basis of the type of business or industry in which such 
                employer is engaged.
                    ``(B) Nothing in this title or any other provision 
                of law shall be construed to preclude an association 
                health plan, or a health insurance issuer offering 
                health insurance coverage in connection with an 
                association health plan, from--
                            ``(i) setting contribution rates based on 
                        the claims experience of the plan; or
                            ``(ii) varying contribution rates for small 
                        employers in a State to the extent that such 
                        rates could vary using the same methodology 
                        employed in such State for regulating premium 
                        rates in the small group market with respect to 
                        health insurance coverage offered in connection 
                        with bona fide associations (within the meaning 
                        of section 2791(d)(3) of the Public Health 
                        Service Act),
                subject to the requirements of section 702(b) relating 
                to contribution rates.
            ``(3) Floor for number of covered individuals with respect 
        to certain plans.--If any benefit option under the plan does 
        not consist of health insurance coverage, the plan has as of 
        the beginning of the plan year not fewer than 1,000 
        participants and beneficiaries.
            ``(4) Marketing requirements.--
                    ``(A) In general.--If a benefit option which 
                consists of health insurance coverage is offered under 
                the plan, State-licensed insurance agents shall be used 
                to distribute to small employers coverage which does 
                not consist of health insurance coverage in a manner 
                comparable to the manner in which such agents are used 
                to distribute health insurance coverage.
                    ``(B) State-licensed insurance agents.--For 
                purposes of subparagraph (A), the term `State-licensed 
                insurance agents' means one or more agents who are 
                licensed in a State and are subject to the laws of such 
                State relating to licensure, qualification, testing, 
                examination, and continuing education of persons 
                authorized to offer, sell, or solicit health insurance 
                coverage in such State.
            ``(5) Regulatory requirements.--Such other requirements as 
        the applicable authority determines are necessary to carry out 
        the purposes of this part, which shall be prescribed by the 
        applicable authority by regulation.
    ``(b) Ability of Association Health Plans To Design Benefit 
Options.--Subject to section 514(d), nothing in this part or any 
provision of State law (as defined in section 514(c)(1)) shall be 
construed to preclude an association health plan, or a health insurance 
issuer offering health insurance coverage in connection with an 
association health plan, from exercising its sole discretion in 
selecting the specific items and services consisting of medical care to 
be included as benefits under such plan or coverage, except (subject to 
section 514) in the case of (1) any law to the extent that it is not 
preempted under section 731(a)(1) with respect to matters governed by 
section 711, 712, or 713, or (2) any law of the State with which filing 
and approval of a policy type offered by the plan was initially 
obtained to the extent that such law prohibits an exclusion of a 
specific disease from such coverage.

``SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS FOR SOLVENCY FOR 
              PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH 
              INSURANCE COVERAGE.

    ``(a) In General.--The requirements of this section are met with 
respect to an association health plan if--
            ``(1) the benefits under the plan consist solely of health 
        insurance coverage; or
            ``(2) if the plan provides any additional benefit options 
        which do not consist of health insurance coverage, the plan--
                    ``(A) establishes and maintains reserves with 
                respect to such additional benefit options, in amounts 
                recommended by the qualified actuary, consisting of--
                            ``(i) a reserve sufficient for unearned 
                        contributions;
                            ``(ii) a reserve sufficient for benefit 
                        liabilities which have been incurred, which 
                        have not been satisfied, and for which risk of 
                        loss has not yet been transferred, and for 
                        expected administrative costs with respect to 
                        such benefit liabilities;
                            ``(iii) a reserve sufficient for any other 
                        obligations of the plan; and
                            ``(iv) a reserve sufficient for a margin of 
                        error and other fluctuations, taking into 
                        account the specific circumstances of the plan; 
                        and
                    ``(B) establishes and maintains aggregate and 
                specific excess/stop loss insurance and solvency 
                indemnification, with respect to such additional 
                benefit options for which risk of loss has not yet been 
                transferred, as follows:
                            ``(i) The plan shall secure aggregate 
                        excess/stop loss insurance for the plan with an 
                        attachment point which is not greater than 125 
                        percent of expected gross annual claims. The 
                        applicable authority may by regulation provide 
                        for upward adjustments in the amount of such 
                        percentage in specified circumstances in which 
                        the plan specifically provides for and 
                        maintains reserves in excess of the amounts 
                        required under subparagraph (A).
                            ``(ii) The plan shall secure specific 
                        excess/stop loss insurance for the plan with an 
                        attachment point which is at least equal to an 
                        amount recommended by the plan's qualified 
                        actuary. The applicable authority may by 
                        regulation provide for adjustments in the 
                        amount of such insurance in specified 
                        circumstances in which the plan specifically 
                        provides for and maintains reserves in excess 
                        of the amounts required under subparagraph (A).
                            ``(iii) The plan shall secure 
                        indemnification insurance for any claims which 
                        the plan is unable to satisfy by reason of a 
                        plan termination.
Any person issuing to a plan insurance described in clause (i), (ii), 
or (iii) of subparagraph (B) shall notify the Secretary of any failure 
of premium payment meriting cancellation of the policy prior to 
undertaking such a cancellation. Any regulations prescribed by the 
applicable authority pursuant to clause (i) or (ii) of subparagraph (B) 
may allow for such adjustments in the required levels of excess/stop 
loss insurance as the qualified actuary may recommend, taking into 
account the specific circumstances of the plan.
    ``(b) Minimum Surplus in Addition to Claims Reserves.--In the case 
of any association health plan described in subsection (a)(2), the 
requirements of this subsection are met if the plan establishes and 
maintains surplus in an amount at least equal to--
            ``(1) $500,000, or
            ``(2) such greater amount (but not greater than $2,000,000) 
        as may be set forth in regulations prescribed by the applicable 
        authority, considering the level of aggregate and specific 
        excess/stop loss insurance provided with respect to such plan 
        and other factors related to solvency risk, such as the plan's 
        projected levels of participation or claims, the nature of the 
        plan's liabilities, and the types of assets available to assure 
        that such liabilities are met.
    ``(c) Additional Requirements.--In the case of any association 
health plan described in subsection (a)(2), the applicable authority 
may provide such additional requirements relating to reserves, excess/
stop loss insurance, and indemnification insurance as the applicable 
authority considers appropriate. Such requirements may be provided by 
regulation with respect to any such plan or any class of such plans.
    ``(d) Adjustments for Excess/Stop Loss Insurance.--The applicable 
authority may provide for adjustments to the levels of reserves 
otherwise required under subsections (a) and (b) with respect to any 
plan or class of plans to take into account excess/stop loss insurance 
provided with respect to such plan or plans.
    ``(e) Alternative Means of Compliance.--The applicable authority 
may permit an association health plan described in subsection (a)(2) to 
substitute, for all or part of the requirements of this section (except 
subsection (a)(2)(B)(iii)), such security, guarantee, hold-harmless 
arrangement, or other financial arrangement as the applicable authority 
determines to be adequate to enable the plan to fully meet all its 
financial obligations on a timely basis and is otherwise no less 
protective of the interests of participants and beneficiaries than the 
requirements for which it is substituted. The applicable authority may 
take into account, for purposes of this subsection, evidence provided 
by the plan or sponsor which demonstrates an assumption of liability 
with respect to the plan. Such evidence may be in the form of a 
contract of indemnification, lien, bonding, insurance, letter of 
credit, recourse under applicable terms of the plan in the form of 
assessments of participating employers, security, or other financial 
arrangement.
    ``(f) Measures To Ensure Continued Payment of Benefits by Certain 
Plans in Distress.--
            ``(1) Payments by certain plans to association health plan 
        fund.--
                    ``(A) In general.--In the case of an association 
                health plan described in subsection (a)(2), the 
                requirements of this subsection are met if the plan 
                makes payments into the Association Health Plan Fund 
                under this subparagraph when they are due. Such 
                payments shall consist of annual payments in the amount 
                of $5,000, and, in addition to such annual payments, 
                such supplemental payments as the Secretary may 
                determine to be necessary under paragraph (2). Payments 
                under this paragraph are payable to the Fund at the 
                time determined by the Secretary. Initial payments are 
                due in advance of certification under this part. 
                Payments shall continue to accrue until a plan's assets 
                are distributed pursuant to a termination procedure.
                    ``(B) Penalties for failure to make payments.--If 
                any payment is not made by a plan when it is due, a 
                late payment charge of not more than 100 percent of the 
                payment which was not timely paid shall be payable by 
                the plan to the Fund.
                    ``(C) Continued duty of the secretary.--The 
                Secretary shall not cease to carry out the provisions 
                of paragraph (2) on account of the failure of a plan to 
                pay any payment when due.
            ``(2) Payments by secretary to continue excess/stop loss 
        insurance coverage and indemnification insurance coverage for 
        certain plans.--In any case in which the applicable authority 
        determines that there is, or that there is reason to believe 
        that there will be: (A) a failure to take necessary corrective 
        actions under section 809(a) with respect to an association 
        health plan described in subsection (a)(2); or (B) a 
        termination of such a plan under section 809(b) or 810(b)(8) 
        (and, if the applicable authority is not the Secretary, 
        certifies such determination to the Secretary), the Secretary 
        shall determine the amounts necessary to make payments to an 
        insurer (designated by the Secretary) to maintain in force 
        excess/stop loss insurance coverage or indemnification 
        insurance coverage for such plan, if the Secretary determines 
        that there is a reasonable expectation that, without such 
        payments, claims would not be satisfied by reason of 
        termination of such coverage. The Secretary shall, to the 
        extent provided in advance in appropriation Acts, pay such 
        amounts so determined to the insurer designated by the 
        Secretary.
            ``(3) Association health plan fund.--
                    ``(A) In general.--There is established on the 
                books of the Treasury a fund to be known as the 
                `Association Health Plan Fund'. The Fund shall be 
                available for making payments pursuant to paragraph 
                (2). The Fund shall be credited with payments received 
                pursuant to paragraph (1)(A), penalties received 
                pursuant to paragraph (1)(B); and earnings on 
                investments of amounts of the Fund under subparagraph 
                (B).
                    ``(B) Investment.--Whenever the Secretary 
                determines that the moneys of the fund are in excess of 
                current needs, the Secretary may request the investment 
                of such amounts as the Secretary determines advisable 
                by the Secretary of the Treasury in obligations issued 
                or guaranteed by the United States.
    ``(g) Excess/Stop Loss Insurance.--For purposes of this section--
            ``(1) Aggregate excess/stop loss insurance.--The term 
        `aggregate excess/stop loss insurance' means, in connection 
        with an association health plan, a contract--
                    ``(A) under which an insurer (meeting such minimum 
                standards as the applicable authority may prescribe by 
                regulation) provides for payment to the plan with 
                respect to aggregate claims under the plan in excess of 
                an amount or amounts specified in such contract;
                    ``(B) which is guaranteed renewable; and
                    ``(C) which allows for payment of premiums by any 
                third party on behalf of the insured plan.
            ``(2) Specific excess/stop loss insurance.--The term 
        `specific excess/stop loss insurance' means, in connection with 
        an association health plan, a contract--
                    ``(A) under which an insurer (meeting such minimum 
                standards as the applicable authority may prescribe by 
                regulation) provides for payment to the plan with 
                respect to claims under the plan in connection with a 
                covered individual in excess of an amount or amounts 
                specified in such contract in connection with such 
                covered individual;
                    ``(B) which is guaranteed renewable; and
                    ``(C) which allows for payment of premiums by any 
                third party on behalf of the insured plan.
    ``(h) Indemnification Insurance.--For purposes of this section, the 
term `indemnification insurance' means, in connection with an 
association health plan, a contract--
            ``(1) under which an insurer (meeting such minimum 
        standards as the applicable authority may prescribe by 
        regulation) provides for payment to the plan with respect to 
        claims under the plan which the plan is unable to satisfy by 
        reason of a termination pursuant to section 809(b) (relating to 
        mandatory termination);
            ``(2) which is guaranteed renewable and noncancellable for 
        any reason (except as the applicable authority may prescribe by 
        regulation); and
            ``(3) which allows for payment of premiums by any third 
        party on behalf of the insured plan.
    ``(i) Reserves.--For purposes of this section, the term `reserves' 
means, in connection with an association health plan, plan assets which 
meet the fiduciary standards under part 4 and such additional 
requirements regarding liquidity as the applicable authority may 
prescribe by regulation.
    ``(j) Solvency Standards Working Group.--
            ``(1) In general.--Within 90 days after the date of the 
        enactment of this part, the applicable authority shall 
        establish a Solvency Standards Working Group. In prescribing 
        the initial regulations under this section, the applicable 
        authority shall take into account the recommendations of such 
        Working Group.
            ``(2) Membership.--The Working Group shall consist of not 
        more than 15 members appointed by the applicable authority. The 
        applicable authority shall include among persons invited to 
        membership on the Working Group at least one of each of the 
        following:
                    ``(A) a representative of the National Association 
                of Insurance Commissioners;
                    ``(B) a representative of the American Academy of 
                Actuaries;
                    ``(C) a representative of the State governments, or 
                their interests;
                    ``(D) a representative of existing self-insured 
                arrangements, or their interests;
                    ``(E) a representative of associations of the type 
                referred to in section 801(b)(1), or their interests; 
                and
                    ``(F) a representative of multiemployer plans that 
                are group health plans, or their interests.

``SEC. 807. REQUIREMENTS FOR APPLICATION AND RELATED REQUIREMENTS.

    ``(a) Filing Fee.--Under the procedure prescribed pursuant to 
section 802(a), an association health plan shall pay to the applicable 
authority at the time of filing an application for certification under 
this part a filing fee in the amount of $5,000, which shall be 
available in the case of the Secretary, to the extent provided in 
appropriation Acts, for the sole purpose of administering the 
certification procedures applicable with respect to association health 
plans.
    ``(b) Information To Be Included in Application for 
Certification.--An application for certification under this part meets 
the requirements of this section only if it includes, in a manner and 
form which shall be prescribed by the applicable authority by 
regulation, at least the following information:
            ``(1) Identifying information.--The names and addresses 
        of--
                    ``(A) the sponsor; and
                    ``(B) the members of the board of trustees of the 
                plan.
            ``(2) States in which plan intends to do business.--The 
        States in which participants and beneficiaries under the plan 
        are to be located and the number of them expected to be located 
        in each such State.
            ``(3) Bonding requirements.--Evidence provided by the board 
        of trustees that the bonding requirements of section 412 will 
        be met as of the date of the application or (if later) 
        commencement of operations.
            ``(4) Plan documents.--A copy of the documents governing 
        the plan (including any bylaws and trust agreements), the 
        summary plan description, and other material describing the 
        benefits that will be provided to participants and 
        beneficiaries under the plan.
            ``(5) Agreements with service providers.--A copy of any 
        agreements between the plan and contract administrators and 
        other service providers.
            ``(6) Funding report.--In the case of association health 
        plans providing benefits options in addition to health 
        insurance coverage, a report setting forth information with 
        respect to such additional benefit options determined as of a 
        date within the 120-day period ending with the date of the 
        application, including the following:
                    ``(A) Reserves.--A statement, certified by the 
                board of trustees of the plan, and a statement of 
                actuarial opinion, signed by a qualified actuary, that 
                all applicable requirements of section 806 are or will 
                be met in accordance with regulations which the 
                applicable authority shall prescribe.
                    ``(B) Adequacy of contribution rates.--A statement 
                of actuarial opinion, signed by a qualified actuary, 
                which sets forth a description of the extent to which 
                contribution rates are adequate to provide for the 
                payment of all obligations and the maintenance of 
                required reserves under the plan for the 12-month 
                period beginning with such date within such 120-day 
                period, taking into account the expected coverage and 
                experience of the plan. If the contribution rates are 
                not fully adequate, the statement of actuarial opinion 
                shall indicate the extent to which the rates are 
                inadequate and the changes needed to ensure adequacy.
                    ``(C) Current and projected value of assets and 
                liabilities.--A statement of actuarial opinion signed 
                by a qualified actuary, which sets forth the current 
                value of the assets and liabilities accumulated under 
                the plan and a projection of the assets, liabilities, 
                income, and expenses of the plan for the 12-month 
                period referred to in subparagraph (B). The income 
                statement shall identify separately the plan's 
                administrative expenses and claims.
                    ``(D) Costs of coverage to be charged and other 
                expenses.--A statement of the costs of coverage to be 
                charged, including an itemization of amounts for 
                administration, reserves, and other expenses associated 
                with the operation of the plan.
                    ``(E) Other information.--Any other information as 
                may be determined by the applicable authority, by 
                regulation, as necessary to carry out the purposes of 
                this part.
    ``(c) Filing Notice of Certification With States.--A certification 
granted under this part to an association health plan shall not be 
effective unless written notice of such certification is filed with the 
applicable State authority of each State in which at least 25 percent 
of the participants and beneficiaries under the plan are located. For 
purposes of this subsection, an individual shall be considered to be 
located in the State in which a known address of such individual is 
located or in which such individual is employed.
    ``(d) Notice of Material Changes.--In the case of any association 
health plan certified under this part, descriptions of material changes 
in any information which was required to be submitted with the 
application for the certification under this part shall be filed in 
such form and manner as shall be prescribed by the applicable authority 
by regulation. The applicable authority may require by regulation prior 
notice of material changes with respect to specified matters which 
might serve as the basis for suspension or revocation of the 
certification.
    ``(e) Reporting Requirements for Certain Association Health 
Plans.--An association health plan certified under this part which 
provides benefit options in addition to health insurance coverage for 
such plan year shall meet the requirements of section 103 by filing an 
annual report under such section which shall include information 
described in subsection (b)(6) with respect to the plan year and, 
notwithstanding section 104(a)(1)(A), shall be filed with the 
applicable authority not later than 90 days after the close of the plan 
year (or on such later date as may be prescribed by the applicable 
authority). The applicable authority may require by regulation such 
interim reports as it considers appropriate.
    ``(f) Engagement of Qualified Actuary.--The board of trustees of 
each association health plan which provides benefits options in 
addition to health insurance coverage and which is applying for 
certification under this part or is certified under this part shall 
engage, on behalf of all participants and beneficiaries, a qualified 
actuary who shall be responsible for the preparation of the materials 
comprising information necessary to be submitted by a qualified actuary 
under this part. The qualified actuary shall utilize such assumptions 
and techniques as are necessary to enable such actuary to form an 
opinion as to whether the contents of the matters reported under this 
part--
            ``(1) are in the aggregate reasonably related to the 
        experience of the plan and to reasonable expectations; and
            ``(2) represent such actuary's best estimate of anticipated 
        experience under the plan.
The opinion by the qualified actuary shall be made with respect to, and 
shall be made a part of, the annual report.

``SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.

    ``Except as provided in section 809(b), an association health plan 
which is or has been certified under this part may terminate (upon or 
at any time after cessation of accruals in benefit liabilities) only if 
the board of trustees, not less than 60 days before the proposed 
termination date--
            ``(1) provides to the participants and beneficiaries a 
        written notice of intent to terminate stating that such 
        termination is intended and the proposed termination date;
            ``(2) develops a plan for winding up the affairs of the 
        plan in connection with such termination in a manner which will 
        result in timely payment of all benefits for which the plan is 
        obligated; and
            ``(3) submits such plan in writing to the applicable 
        authority.
Actions required under this section shall be taken in such form and 
manner as may be prescribed by the applicable authority by regulation.

``SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.

    ``(a) Actions To Avoid Depletion of Reserves.--An association 
health plan which is certified under this part and which provides 
benefits other than health insurance coverage shall continue to meet 
the requirements of section 806, irrespective of whether such 
certification continues in effect. The board of trustees of such plan 
shall determine quarterly whether the requirements of section 806 are 
met. In any case in which the board determines that there is reason to 
believe that there is or will be a failure to meet such requirements, 
or the applicable authority makes such a determination and so notifies 
the board, the board shall immediately notify the qualified actuary 
engaged by the plan, and such actuary shall, not later than the end of 
the next following month, make such recommendations to the board for 
corrective action as the actuary determines necessary to ensure 
compliance with section 806. Not later than 30 days after receiving 
from the actuary recommendations for corrective actions, the board 
shall notify the applicable authority (in such form and manner as the 
applicable authority may prescribe by regulation) of such 
recommendations of the actuary for corrective action, together with a 
description of the actions (if any) that the board has taken or plans 
to take in response to such recommendations. The board shall thereafter 
report to the applicable authority, in such form and frequency as the 
applicable authority may specify to the board, regarding corrective 
action taken by the board until the requirements of section 806 are 
met.
    ``(b) Mandatory Termination.--In any case in which--
            ``(1) the applicable authority has been notified under 
        subsection (a) (or by an issuer of excess/stop loss insurance 
        or indemnity insurance pursuant to section 806(a)) of a failure 
        of an association health plan which is or has been certified 
        under this part and is described in section 806(a)(2) to meet 
        the requirements of section 806 and has not been notified by 
        the board of trustees of the plan that corrective action has 
        restored compliance with such requirements; and
            ``(2) the applicable authority determines that there is a 
        reasonable expectation that the plan will continue to fail to 
        meet the requirements of section 806,
the board of trustees of the plan shall, at the direction of the 
applicable authority, terminate the plan and, in the course of the 
termination, take such actions as the applicable authority may require, 
including satisfying any claims referred to in section 
806(a)(2)(B)(iii) and recovering for the plan any liability under 
subsection (a)(2)(B)(iii) or (e) of section 806, as necessary to ensure 
that the affairs of the plan will be, to the maximum extent possible, 
wound up in a manner which will result in timely provision of all 
benefits for which the plan is obligated.

``SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOLVENT ASSOCIATION 
              HEALTH PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO 
              HEALTH INSURANCE COVERAGE.

    ``(a) Appointment of Secretary as Trustee for Insolvent Plans.--
Whenever the Secretary determines that an association health plan which 
is or has been certified under this part and which is described in 
section 806(a)(2) will be unable to provide benefits when due or is 
otherwise in a financially hazardous condition, as shall be defined by 
the Secretary by regulation, the Secretary shall, upon notice to the 
plan, apply to the appropriate United States district court for 
appointment of the Secretary as trustee to administer the plan for the 
duration of the insolvency. The plan may appear as a party and other 
interested persons may intervene in the proceedings at the discretion 
of the court. The court shall appoint such Secretary trustee if the 
court determines that the trusteeship is necessary to protect the 
interests of the participants and beneficiaries or providers of medical 
care or to avoid any unreasonable deterioration of the financial 
condition of the plan. The trusteeship of such Secretary shall continue 
until the conditions described in the first sentence of this subsection 
are remedied or the plan is terminated.
    ``(b) Powers as Trustee.--The Secretary, upon appointment as 
trustee under subsection (a), shall have the power--
            ``(1) to do any act authorized by the plan, this title, or 
        other applicable provisions of law to be done by the plan 
        administrator or any trustee of the plan;
            ``(2) to require the transfer of all (or any part) of the 
        assets and records of the plan to the Secretary as trustee;
            ``(3) to invest any assets of the plan which the Secretary 
        holds in accordance with the provisions of the plan, 
        regulations prescribed by the Secretary, and applicable 
        provisions of law;
            ``(4) to require the sponsor, the plan administrator, any 
        participating employer, and any employee organization 
        representing plan participants to furnish any information with 
        respect to the plan which the Secretary as trustee may 
        reasonably need in order to administer the plan;
            ``(5) to collect for the plan any amounts due the plan and 
        to recover reasonable expenses of the trusteeship;
            ``(6) to commence, prosecute, or defend on behalf of the 
        plan any suit or proceeding involving the plan;
            ``(7) to issue, publish, or file such notices, statements, 
        and reports as may be required by the Secretary by regulation 
        or required by any order of the court;
            ``(8) to terminate the plan (or provide for its termination 
        in accordance with section 809(b)) and liquidate the plan 
        assets, to restore the plan to the responsibility of the 
        sponsor, or to continue the trusteeship;
            ``(9) to provide for the enrollment of plan participants 
        and beneficiaries under appropriate coverage options; and
            ``(10) to do such other acts as may be necessary to comply 
        with this title or any order of the court and to protect the 
        interests of plan participants and beneficiaries and providers 
        of medical care.
    ``(c) Notice of Appointment.--As soon as practicable after the 
Secretary's appointment as trustee, the Secretary shall give notice of 
such appointment to--
            ``(1) the sponsor and plan administrator;
            ``(2) each participant;
            ``(3) each participating employer; and
            ``(4) if applicable, each employee organization which, for 
        purposes of collective bargaining, represents plan 
        participants.
    ``(d) Additional Duties.--Except to the extent inconsistent with 
the provisions of this title, or as may be otherwise ordered by the 
court, the Secretary, upon appointment as trustee under this section, 
shall be subject to the same duties as those of a trustee under section 
704 of title 11, United States Code, and shall have the duties of a 
fiduciary for purposes of this title.
    ``(e) Other Proceedings.--An application by the Secretary under 
this subsection may be filed notwithstanding the pendency in the same 
or any other court of any bankruptcy, mortgage foreclosure, or equity 
receivership proceeding, or any proceeding to reorganize, conserve, or 
liquidate such plan or its property, or any proceeding to enforce a 
lien against property of the plan.
    ``(f) Jurisdiction of Court.--
            ``(1) In general.--Upon the filing of an application for 
        the appointment as trustee or the issuance of a decree under 
        this section, the court to which the application is made shall 
        have exclusive jurisdiction of the plan involved and its 
        property wherever located with the powers, to the extent 
        consistent with the purposes of this section, of a court of the 
        United States having jurisdiction over cases under chapter 11 
        of title 11, United States Code. Pending an adjudication under 
        this section such court shall stay, and upon appointment by it 
        of the Secretary as trustee, such court shall continue the stay 
        of, any pending mortgage foreclosure, equity receivership, or 
        other proceeding to reorganize, conserve, or liquidate the 
        plan, the sponsor, or property of such plan or sponsor, and any 
        other suit against any receiver, conservator, or trustee of the 
        plan, the sponsor, or property of the plan or sponsor. Pending 
        such adjudication and upon the appointment by it of the 
        Secretary as trustee, the court may stay any proceeding to 
        enforce a lien against property of the plan or the sponsor or 
        any other suit against the plan or the sponsor.
            ``(2) Venue.--An action under this section may be brought 
        in the judicial district where the sponsor or the plan 
        administrator resides or does business or where any asset of 
        the plan is situated. A district court in which such action is 
        brought may issue process with respect to such action in any 
        other judicial district.
    ``(g) Personnel.--In accordance with regulations which shall be 
prescribed by the Secretary, the Secretary shall appoint, retain, and 
compensate accountants, actuaries, and other professional service 
personnel as may be necessary in connection with the Secretary's 
service as trustee under this section.

``SEC. 811. STATE ASSESSMENT AUTHORITY.

    ``(a) In General.--Notwithstanding section 514, a State may impose 
by law a contribution tax on an association health plan described in 
section 806(a)(2), if the plan commenced operations in such State after 
the date of the enactment of this part.
    ``(b) Contribution Tax.--For purposes of this section, the term 
`contribution tax' imposed by a State on an association health plan 
means any tax imposed by such State if--
            ``(1) such tax is computed by applying a rate to the amount 
        of premiums or contributions, with respect to individuals 
        covered under the plan who are residents of such State, which 
        are received by the plan from participating employers located 
        in such State or from such individuals;
            ``(2) the rate of such tax does not exceed the rate of any 
        tax imposed by such State on premiums or contributions received 
        by insurers or health maintenance organizations for health 
        insurance coverage offered in such State in connection with a 
        group health plan;
            ``(3) such tax is otherwise nondiscriminatory; and
            ``(4) the amount of any such tax assessed on the plan is 
        reduced by the amount of any tax or assessment otherwise 
        imposed by the State on premiums, contributions, or both 
        received by insurers or health maintenance organizations for 
        health insurance coverage, aggregate excess/stop loss insurance 
        (as defined in section 806(g)(1)), specific excess/stop loss 
        insurance (as defined in section 806(g)(2)), other insurance 
        related to the provision of medical care under the plan, or any 
        combination thereof provided by such insurers or health 
        maintenance organizations in such State in connection with such 
        plan.

``SEC. 812. DEFINITIONS AND RULES OF CONSTRUCTION.

    ``(a) Definitions.--For purposes of this part--
            ``(1) Group health plan.--The term `group health plan' has 
        the meaning provided in section 733(a)(1) (after applying 
        subsection (b) of this section).
            ``(2) Medical care.--The term `medical care' has the 
        meaning provided in section 733(a)(2).
            ``(3) Health insurance coverage.--The term `health 
        insurance coverage' has the meaning provided in section 
        733(b)(1).
            ``(4) Health insurance issuer.--The term `health insurance 
        issuer' has the meaning provided in section 733(b)(2).
            ``(5) Applicable authority.--The term `applicable 
        authority' means the Secretary, except that, in connection with 
        any exercise of the Secretary's authority regarding which the 
        Secretary is required under section 506(d) to consult with a 
        State, such term means the Secretary, in consultation with such 
        State.
            ``(6) Health status-related factor.--The term `health 
        status-related factor' has the meaning provided in section 
        733(d)(2).
            ``(7) Individual market.--
                    ``(A) In general.--The term `individual market' 
                means the market for health insurance coverage offered 
                to individuals other than in connection with a group 
                health plan.
                    ``(B) Treatment of very small groups.--
                            ``(i) In general.--Subject to clause (ii), 
                        such term includes coverage offered in 
                        connection with a group health plan that has 
                        fewer than 2 participants as current employees 
                        or participants described in section 732(d)(3) 
                        on the first day of the plan year.
                            ``(ii) State exception.--Clause (i) shall 
                        not apply in the case of health insurance 
                        coverage offered in a State if such State 
                        regulates the coverage described in such clause 
                        in the same manner and to the same extent as 
                        coverage in the small group market (as defined 
                        in section 2791(e)(5) of the Public Health 
                        Service Act) is regulated by such State.
            ``(8) Participating employer.--The term `participating 
        employer' means, in connection with an association health plan, 
        any employer, if any individual who is an employee of such 
        employer, a partner in such employer, or a self-employed 
        individual who is such employer (or any dependent, as defined 
        under the terms of the plan, of such individual) is or was 
        covered under such plan in connection with the status of such 
        individual as such an employee, partner, or self-employed 
        individual in relation to the plan.
            ``(9) Applicable state authority.--The term `applicable 
        State authority' means, with respect to a health insurance 
        issuer in a State, the State insurance commissioner or official 
        or officials designated by the State to enforce the 
        requirements of title XXVII of the Public Health Service Act 
        for the State involved with respect to such issuer.
            ``(10) Qualified actuary.--The term `qualified actuary' 
        means an individual who is a member of the American Academy of 
        Actuaries.
            ``(11) Affiliated member.--The term `affiliated member' 
        means, in connection with a sponsor--
                    ``(A) a person who is otherwise eligible to be a 
                member of the sponsor but who elects an affiliated 
                status with the sponsor,
                    ``(B) in the case of a sponsor with members which 
                consist of associations, a person who is a member of 
                any such association and elects an affiliated status 
                with the sponsor, or
                    ``(C) in the case of an association health plan in 
                existence on the date of the enactment of this part, a 
                person eligible to be a member of the sponsor or one of 
                its member associations.
            ``(12) Large employer.--The term `large employer' means, in 
        connection with a group health plan with respect to a plan 
        year, an employer who employed an average of at least 51 
        employees on business days during the preceding calendar year 
        and who employs at least 2 employees on the first day of the 
        plan year.
            ``(13) Small employer.--The term `small employer' means, in 
        connection with a group health plan with respect to a plan 
        year, an employer who is not a large employer.
    ``(b) Rules of Construction.--
            ``(1) Employers and employees.--For purposes of determining 
        whether a plan, fund, or program is an employee welfare benefit 
        plan which is an association health plan, and for purposes of 
        applying this title in connection with such plan, fund, or 
        program so determined to be such an employee welfare benefit 
        plan--
                    ``(A) in the case of a partnership, the term 
                `employer' (as defined in section 3(5)) includes the 
                partnership in relation to the partners, and the term 
                `employee' (as defined in section 3(6)) includes any 
                partner in relation to the partnership; and
                    ``(B) in the case of a self-employed individual, 
                the term `employer' (as defined in section 3(5)) and 
                the term `employee' (as defined in section 3(6)) shall 
                include such individual.
            ``(2) Plans, funds, and programs treated as employee 
        welfare benefit plans.--In the case of any plan, fund, or 
        program which was established or is maintained for the purpose 
        of providing medical care (through the purchase of insurance or 
        otherwise) for employees (or their dependents) covered 
        thereunder and which demonstrates to the Secretary that all 
        requirements for certification under this part would be met 
        with respect to such plan, fund, or program if such plan, fund, 
        or program were a group health plan, such plan, fund, or 
        program shall be treated for purposes of this title as an 
        employee welfare benefit plan on and after the date of such 
        demonstration.''.
            (2) Conforming amendments to preemption rules.--
                    (A) Section 514(b)(6) of such Act (29 U.S.C. 
                1144(b)(6)) is amended by adding at the end the 
                following new subparagraph:
    ``(E) The preceding subparagraphs of this paragraph do not apply 
with respect to any State law in the case of an association health plan 
which is certified under part 8.''.
                    (B) Section 514 of such Act (29 U.S.C. 1144) is 
                amended--
                            (i) in subsection (b)(4), by striking 
                        ``Subsection (a)'' and inserting ``Subsections 
                        (a) and (d)'';
                            (ii) in subsection (b)(5), by striking 
                        ``subsection (a)'' in subparagraph (A) and 
                        inserting ``subsection (a) of this section and 
                        subsections (a)(2)(B) and (b) of section 805'', 
                        and by striking ``subsection (a)'' in 
                        subparagraph (B) and inserting ``subsection (a) 
                        of this section or subsection (a)(2)(B) or (b) 
                        of section 805'';
                            (iii) by redesignating subsection (d) as 
                        subsection (e); and
                            (iv) by inserting after subsection (c) the 
                        following new subsection:
    ``(d)(1) Except as provided in subsection (b)(4), the provisions of 
this title shall supersede any and all State laws insofar as they may 
now or hereafter preclude, or have the effect of precluding, a health 
insurance issuer from offering health insurance coverage in connection 
with an association health plan which is certified under part 8.
    ``(2) Except as provided in paragraphs (4) and (5) of subsection 
(b) of this section--
            ``(A) In any case in which health insurance coverage of any 
        policy type is offered under an association health plan 
        certified under part 8 to a participating employer operating in 
        such State, the provisions of this title shall supersede any 
        and all laws of such State insofar as they may preclude a 
        health insurance issuer from offering health insurance coverage 
        of the same policy type to other employers operating in the 
        State which are eligible for coverage under such association 
        health plan, whether or not such other employers are 
        participating employers in such plan.
            ``(B) In any case in which health insurance coverage of any 
        policy type is offered in a State under an association health 
        plan certified under part 8 and the filing, with the applicable 
        State authority (as defined in section 812(a)(9)), of the 
        policy form in connection with such policy type is approved by 
        such State authority, the provisions of this title shall 
        supersede any and all laws of any other State in which health 
        insurance coverage of such type is offered, insofar as they may 
        preclude, upon the filing in the same form and manner of such 
        policy form with the applicable State authority in such other 
        State, the approval of the filing in such other State.
    ``(3) Nothing in subsection (b)(6)(E) or the preceding provisions 
of this subsection shall be construed, with respect to health insurance 
issuers or health insurance coverage, to supersede or impair the law of 
any State--
            ``(A) providing solvency standards or similar standards 
        regarding the adequacy of insurer capital, surplus, reserves, 
        or contributions, or
            ``(B) relating to prompt payment of claims.
    ``(4) For additional provisions relating to association health 
plans, see subsections (a)(2)(B) and (b) of section 805.
    ``(5) For purposes of this subsection, the term `association health 
plan' has the meaning provided in section 801(a), and the terms `health 
insurance coverage', `participating employer', and `health insurance 
issuer' have the meanings provided such terms in section 812, 
respectively.''.
                    (C) Section 514(b)(6)(A) of such Act (29 U.S.C. 
                1144(b)(6)(A)) is amended--
                            (i) in clause (i)(II), by striking ``and'' 
                        at the end;
                            (ii) in clause (ii), by inserting ``and 
                        which does not provide medical care (within the 
                        meaning of section 733(a)(2)),'' after 
                        ``arrangement,'', and by striking ``title.'' 
                        and inserting ``title, and''; and
                            (iii) by adding at the end the following 
                        new clause:
            ``(iii) subject to subparagraph (E), in the case of any 
        other employee welfare benefit plan which is a multiple 
        employer welfare arrangement and which provides medical care 
        (within the meaning of section 733(a)(2)), any law of any State 
        which regulates insurance may apply.''.
                    (D) Section 514(e) of such Act (as redesignated by 
                subparagraph (B)(iii)) is amended--
                            (i) by striking ``Nothing'' and inserting 
                        ``(1) Except as provided in paragraph (2), 
                        nothing''; and
                            (ii) by adding at the end the following new 
                        paragraph:
    ``(2) Nothing in any other provision of law enacted on or after the 
date of the enactment of part 8 shall be construed to alter, amend, 
modify, invalidate, impair, or supersede any provision of this title, 
except by specific cross-reference to the affected section.''.
            (3) Plan sponsor.--Section 3(16)(B) of such Act (29 U.S.C. 
        102(16)(B)) is amended by adding at the end the following new 
        sentence: ``Such term also includes a person serving as the 
        sponsor of an association health plan under part 8.''.
            (4) Disclosure of solvency protections related to self-
        insured and fully insured options under association health 
        plans.--Section 102(b) of such Act (29 U.S.C. 102(b)) is 
        amended by adding at the end the following: ``An association 
        health plan shall include in its summary plan description, in 
        connection with each benefit option, a description of the form 
        of solvency or guarantee fund protection secured pursuant to 
        this Act or applicable State law, if any.''.
            (5) Savings clause.--Section 731(c) of such Act is amended 
        by inserting ``or part 8'' after ``this part''.
            (6) Report to the congress regarding certification of self-
        insured association health plans.--Not later than January 1, 
        2013, the Secretary of Labor shall report to the Committee on 
        Education and the Workforce of the House of Representatives and 
        the Committee on Health, Education, Labor, and Pensions of the 
        Senate the effect association health plans have had, if any, on 
        reducing the number of uninsured individuals.
            (7) Clerical amendment.--The table of contents in section 1 
        of the Employee Retirement Income Security Act of 1974 is 
        amended by inserting after the item relating to section 734 the 
        following new items:

           ``Part 8--Rules Governing Association Health Plans

``801. Association health plans.
``802. Certification of association health plans.
``803. Requirements relating to sponsors and boards of trustees.
``804. Participation and coverage requirements.
``805. Other requirements relating to plan documents, contribution 
                            rates, and benefit options.
``806. Maintenance of reserves and provisions for solvency for plans 
                            providing health benefits in addition to 
                            health insurance coverage.
``807. Requirements for application and related requirements.
``808. Notice requirements for voluntary termination.
``809. Corrective actions and mandatory termination.
``810. Trusteeship by the Secretary of insolvent association health 
                            plans providing health benefits in addition 
                            to health insurance coverage.
``811. State assessment authority.
``812. Definitions and rules of construction.''.
    (b) Clarification of Treatment of Single Employer Arrangements.--
Section 3(40)(B) of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1002(40)(B)) is amended--
            (1) in clause (i), by inserting after ``control group,'' 
        the following: ``except that, in any case in which the benefit 
        referred to in subparagraph (A) consists of medical care (as 
        defined in section 812(a)(2)), two or more trades or 
        businesses, whether or not incorporated, shall be deemed a 
        single employer for any plan year of such plan, or any fiscal 
        year of such other arrangement, if such trades or businesses 
        are within the same control group during such year or at any 
        time during the preceding 1-year period,'';
            (2) in clause (iii), by striking ``(iii) the 
        determination'' and inserting the following:
            ``(iii)(I) in any case in which the benefit referred to in 
        subparagraph (A) consists of medical care (as defined in 
        section 812(a)(2)), the determination of whether a trade or 
        business is under `common control' with another trade or 
        business shall be determined under regulations of the Secretary 
        applying principles consistent and coextensive with the 
        principles applied in determining whether employees of two or 
        more trades or businesses are treated as employed by a single 
        employer under section 4001(b), except that, for purposes of 
        this paragraph, an interest of greater than 25 percent may not 
        be required as the minimum interest necessary for common 
        control, or
            ``(II) in any other case, the determination'';
            (3) by redesignating clauses (iv) and (v) as clauses (v) 
        and (vi), respectively; and
            (4) by inserting after clause (iii) the following new 
        clause:
            ``(iv) in any case in which the benefit referred to in 
        subparagraph (A) consists of medical care (as defined in 
        section 812(a)(2)), in determining, after the application of 
        clause (i), whether benefits are provided to employees of two 
        or more employers, the arrangement shall be treated as having 
        only one participating employer if, after the application of 
        clause (i), the number of individuals who are employees and 
        former employees of any one participating employer and who are 
        covered under the arrangement is greater than 75 percent of the 
        aggregate number of all individuals who are employees or former 
        employees of participating employers and who are covered under 
        the arrangement,''.
    (c) Enforcement Provisions Relating to Association Health Plans.--
            (1) Criminal penalties for certain willful 
        misrepresentations.--Section 501 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1131) is amended--
                    (A) by inserting ``(a)'' after ``Sec. 501.''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(b) Any person who willfully falsely represents, to any employee, 
any employee's beneficiary, any employer, the Secretary, or any State, 
a plan or other arrangement established or maintained for the purpose 
of offering or providing any benefit described in section 3(1) to 
employees or their beneficiaries as--
            ``(1) being an association health plan which has been 
        certified under part 8;
            ``(2) having been established or maintained under or 
        pursuant to one or more collective bargaining agreements which 
        are reached pursuant to collective bargaining described in 
        section 8(d) of the National Labor Relations Act (29 U.S.C. 
        158(d)) or paragraph Fourth of section 2 of the Railway Labor 
        Act (45 U.S.C. 152, paragraph Fourth) or which are reached 
        pursuant to labor-management negotiations under similar 
        provisions of State public employee relations laws; or
            ``(3) being a plan or arrangement described in section 
        3(40)(A)(i),
shall, upon conviction, be imprisoned not more than 5 years, be fined 
under title 18, United States Code, or both.''.
            (2) Cease activities orders.--Section 502 of such Act (29 
        U.S.C. 1132) is amended by adding at the end the following new 
        subsection:
    ``(n) Association Health Plan Cease and Desist Orders.--
            ``(1) In general.--Subject to paragraph (2), upon 
        application by the Secretary showing the operation, promotion, 
        or marketing of an association health plan (or similar 
        arrangement providing benefits consisting of medical care (as 
        defined in section 733(a)(2))) that--
                    ``(A) is not certified under part 8, is subject 
                under section 514(b)(6) to the insurance laws of any 
                State in which the plan or arrangement offers or 
                provides benefits, and is not licensed, registered, or 
                otherwise approved under the insurance laws of such 
                State; or
                    ``(B) is an association health plan certified under 
                part 8 and is not operating in accordance with the 
                requirements under part 8 for such certification,
        a district court of the United States shall enter an order 
        requiring that the plan or arrangement cease activities.
            ``(2) Exception.--Paragraph (1) shall not apply in the case 
        of an association health plan or other arrangement if the plan 
        or arrangement shows that--
                    ``(A) all benefits under it referred to in 
                paragraph (1) consist of health insurance coverage; and
                    ``(B) with respect to each State in which the plan 
                or arrangement offers or provides benefits, the plan or 
                arrangement is operating in accordance with applicable 
                State laws that are not superseded under section 514.
            ``(3) Additional equitable relief.--The court may grant 
        such additional equitable relief, including any relief 
        available under this title, as it deems necessary to protect 
        the interests of the public and of persons having claims for 
        benefits against the plan.''.
            (3) Responsibility for claims procedure.--Section 503 of 
        such Act (29 U.S.C. 1133) is amended by inserting ``(a) In 
        General.--'' before ``In accordance'', and by adding at the end 
        the following new subsection:
    ``(b) Association Health Plans.--The terms of each association 
health plan which is or has been certified under part 8 shall require 
the board of trustees or the named fiduciary (as applicable) to ensure 
that the requirements of this section are met in connection with claims 
filed under the plan.''.
    (d) Cooperation Between Federal and State Authorities.--Section 506 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1136) 
is amended by adding at the end the following new subsection:
    ``(d) Consultation With States With Respect to Association Health 
Plans.--
            ``(1) Agreements with states.--The Secretary shall consult 
        with the State recognized under paragraph (2) with respect to 
        an association health plan regarding the exercise of--
                    ``(A) the Secretary's authority under sections 502 
                and 504 to enforce the requirements for certification 
                under part 8; and
                    ``(B) the Secretary's authority to certify 
                association health plans under part 8 in accordance 
                with regulations of the Secretary applicable to 
                certification under part 8.
            ``(2) Recognition of primary domicile state.--In carrying 
        out paragraph (1), the Secretary shall ensure that only one 
        State will be recognized, with respect to any particular 
        association health plan, as the State with which consultation 
        is required. In carrying out this paragraph--
                    ``(A) in the case of a plan which provides health 
                insurance coverage (as defined in section 812(a)(3)), 
                such State shall be the State with which filing and 
                approval of a policy type offered by the plan was 
                initially obtained, and
                    ``(B) in any other case, the Secretary shall take 
                into account the places of residence of the 
                participants and beneficiaries under the plan and the 
                State in which the trust is maintained.''.
    (e) Effective Date and Transitional and Other Rules.--
            (1) Effective date.--The amendments made by this section 
        shall take effect 1 year after the date of the enactment of 
        this Act. The Secretary of Labor shall first issue all 
        regulations necessary to carry out such amendments within 1 
        year after the date of the enactment of this Act.
            (2) Treatment of certain existing health benefits 
        programs.--
                    (A) In general.--In any case in which, as of the 
                date of the enactment of this Act, an arrangement is 
                maintained in a State for the purpose of providing 
                benefits consisting of medical care for the employees 
                and beneficiaries of its participating employers, at 
                least 200 participating employers make contributions to 
                such arrangement, such arrangement has been in 
                existence for at least 10 years, and such arrangement 
                is licensed under the laws of one or more States to 
                provide such benefits to its participating employers, 
                upon the filing with the applicable authority (as 
                defined in section 812(a)(5) of the Employee Retirement 
                Income Security Act of 1974 (as amended by this 
                subtitle)) by the arrangement of an application for 
                certification of the arrangement under part 8 of 
                subtitle B of title I of such Act--
                            (i) such arrangement shall be deemed to be 
                        a group health plan for purposes of title I of 
                        such Act;
                            (ii) the requirements of sections 801(a) 
                        and 803(a) of the Employee Retirement Income 
                        Security Act of 1974 shall be deemed met with 
                        respect to such arrangement;
                            (iii) the requirements of section 803(b) of 
                        such Act shall be deemed met, if the 
                        arrangement is operated by a board of directors 
                        which--
                                    (I) is elected by the participating 
                                employers, with each employer having 
                                one vote; and
                                    (II) has complete fiscal control 
                                over the arrangement and which is 
                                responsible for all operations of the 
                                arrangement;
                            (iv) the requirements of section 804(a) of 
                        such Act shall be deemed met with respect to 
                        such arrangement; and
                            (v) the arrangement may be certified by any 
                        applicable authority with respect to its 
                        operations in any State only if it operates in 
                        such State on the date of certification.
                The provisions of this subparagraph shall cease to 
                apply with respect to any such arrangement at such time 
                after the date of the enactment of this Act as the 
                applicable requirements of this subparagraph are not 
                met with respect to such arrangement.
                    (B) Definitions.--For purposes of this paragraph, 
                the terms ``group health plan'', ``medical care'', and 
                ``participating employer'' shall have the meanings 
                provided in section 812 of the Employee Retirement 
                Income Security Act of 1974, except that the reference 
                in paragraph (7) of such section to an ``association 
                health plan'' shall be deemed a reference to an 
                arrangement referred to in this paragraph.

              Subtitle C--Health Care Services Commission

                PART 1--ESTABLISHMENT AND GENERAL DUTIES

SEC. 121. ESTABLISHMENT.

    (a) In General.--There is hereby established a Health Care Services 
Commission (in this subtitle referred to as the ``Commission'') to be 
composed of five commissioners (in this subtitle referred to as the 
``Commissioners'') to be appointed by the President by and with the 
advice and consent of the Senate. Not more than three of such 
commissioners shall be members of the same political party, and in 
making appointments members of different political parties shall be 
appointed alternately as nearly as may be practicable. No commissioner 
shall engage in any other business, vocation, or employment than that 
of serving as commissioner. Each commissioner shall hold office for a 
term of five years and until his successor is appointed and has 
qualified, except that he shall not so continue to serve beyond the 
expiration of the next session of Congress subsequent to the expiration 
of said fixed term of office, and except (1) any commissioner appointed 
to fill a vacancy occurring prior to the expiration of the term for 
which his predecessor was appointed shall be appointed for the 
remainder of such term, and (2) the terms of office of the 
commissioners first taking office after the enactment of this subtitle 
shall expire as designated by the President at the time of nomination, 
one at the end of one year, one at the end of two years, one at the end 
of three years, one at the end of four years, and one at the end of 
five years, after the date of the enactment of this Act.
    (b) Purpose.--The purpose of the Commission is to enhance the 
quality, appropriateness, and effectiveness of health care services, 
and access to such services, through the establishment of a broad base 
of scientific research and through the promotion of improvements in 
clinical practice and in the organization, financing, and delivery of 
health care services.
    (c) Appointment of Chairman.--The President shall, from among the 
Commissioners appointed under subsection (a), designate an individual 
to serve as the Chairman of the Commission.

SEC. 122. GENERAL AUTHORITIES AND DUTIES.

    (a) In General.--In carrying out section 121(b), the Commissioners 
shall conduct and support research, demonstration projects, 
evaluations, training, guideline development, and the dissemination of 
information, on health care services and on systems for the delivery of 
such services, including activities with respect to--
            (1) the effectiveness, efficiency, and quality of health 
        care services;
            (2) subject to subsection (d), the outcomes of health care 
        services and procedures;
            (3) clinical practice, including primary care and practice-
        oriented research;
            (4) health care technologies, facilities, and equipment;
            (5) health care costs, productivity, and market forces;
            (6) health promotion and disease prevention;
            (7) health statistics and epidemiology; and
            (8) medical liability.
    (b) Requirements With Respect to Rural Areas and Underserved 
Populations.--In carrying out subsection (a), the Commissioners shall 
undertake and support research, demonstration projects, and evaluations 
with respect to--
            (1) the delivery of health care services in rural areas 
        (including frontier areas); and
            (2) the health of low-income groups, minority groups, and 
        the elderly.

SEC. 123. DISSEMINATION.

    (a) In General.--The Commissioners shall--
            (1) promptly publish, make available, and otherwise 
        disseminate, in a form understandable and on as broad a basis 
        as practicable so as to maximize its use, the results of 
        research, demonstration projects, and evaluations conducted or 
        supported under this subtitle and the guidelines, standards, 
        and review criteria developed under this subtitle;
            (2) promptly make available to the public data developed in 
        such research, demonstration projects, and evaluations; and
            (3) as appropriate, provide technical assistance to State 
        and local government and health agencies and conduct liaison 
        activities to such agencies to foster dissemination.
    (b) Prohibition Against Restrictions.--Except as provided in 
subsection (c), the Commissioners may not restrict the publication or 
dissemination of data from, or the results of, projects conducted or 
supported under this subtitle.
    (c) Limitation on Use of Certain Information.--No information, if 
an establishment or person supplying the information or described in it 
is identifiable, obtained in the course of activities undertaken or 
supported under this subtitle may be used for any purpose other than 
the purpose for which it was supplied unless such establishment or 
person has consented (as determined under regulations of the Secretary) 
to its use for such other purpose. Such information may not be 
published or released in other form if the person who supplied the 
information or who is described in it is identifiable unless such 
person has consented (as determined under regulations of the Secretary) 
to its publication or release in other form.
    (d) Certain Interagency Agreement.--The Commissioners and the 
Director of the National Library of Medicine shall enter into an 
agreement providing for the implementation of subsection (a)(1).

       PART 2--FORUM FOR QUALITY AND EFFECTIVENESS IN HEALTH CARE

SEC. 131. ESTABLISHMENT OF OFFICE.

    There is established within the Commission an office to be known as 
the Office of the Forum for Quality and Effectiveness in Health Care. 
The office shall be headed by a director (referred to in this subtitle 
as the ``Director''), who shall be appointed by the Commissioners.

SEC. 132. MEMBERSHIP.

    (a) In General.--The Office of the Forum for Quality and 
Effectiveness in Health Care shall be composed of 15 individuals 
nominated by private sector health care organizations and appointed by 
the Commission and shall include representation from at least the 
following:
            (1) Health insurance industry.
            (2) Health care provider groups.
            (3) Non-profit organizations.
            (4) Rural health organizations.
    (b) Terms.--
            (1) In general.--Except as provided in subparagraph (B), 
        members of the Office of the Forum for Quality and 
        Effectiveness in Health Care shall serve for a term of 5 years.
            (2) Staggered rotation.--Of the members first appointed to 
        the Office of the Forum for Quality and Effectiveness in Health 
        Care, the Commission shall appoint 5 members to serve for a 
        term of 2 years, 5 members to serve for a term of 3 years, and 
        5 members to serve for a term of 4 years.
    (c) Treatment of Other Employment.--Each member of the Office of 
the Forum for Quality and Effectiveness in Health Care shall serve the 
Office independently from any other position of employment.

SEC. 133. DUTIES.

    (a) Establishment of Forum Program.--The Commissioners, acting 
through the Director, shall establish a program to be known as the 
Forum for Quality and Effectiveness in Health Care. For the purpose of 
promoting transparency in price, quality, appropriateness, and 
effectiveness of health care, the Director, using the process set forth 
in section 134, shall arrange for the development and periodic review 
and updating of standards of quality, performance measures, and medical 
review criteria through which health care providers and other 
appropriate entities may assess or review the provision of health care 
and assure the quality of such care.
    (b) Certain Requirements.--Guidelines, standards, performance 
measures, and review criteria under subsection (a) shall--
            (1) be based on the best available research and 
        professional judgment regarding the effectiveness and 
        appropriateness of health care services and procedures; and
            (2) be presented in formats appropriate for use by 
        physicians, health care practitioners, providers, medical 
        educators, and medical review organizations and in formats 
        appropriate for use by consumers of health care.
    (c) Authority for Contracts.--In carrying out this part, the 
Director may enter into contracts with public or nonprofit private 
entities.
    (d) Public Disclosure of Recommendations.--For each fiscal year 
beginning with 2011, the Director shall make publicly available the 
following:
            (1) quarterly reports for public comment that include 
        proposed recommendations for guidelines, standards, performance 
        measures, and review criteria under subsection (a) and any 
        updates to such guidelines, standards, performance measures, 
        and review criteria; and
            (2) after consideration of such comments, a final report 
        that contains final recommendations for such guidelines, 
        standards, performance measures, review criteria, and updates.
    (e) Date Certain for Initial Guidelines and Standards.--The 
Commissioners, by not later than January 1, 2013, shall assure the 
development of an initial set of guidelines, standards, performance 
measures, and review criteria under subsection (a).

SEC. 134. ADOPTION AND ENFORCEMENT OF GUIDELINES AND STANDARDS.

    (a) Adoption of Recommendations of Forum for Quality and 
Effectiveness in Health Care.--For each fiscal year, the Commissioners 
shall adopt the recommendations made for such year in the final report 
under subsection (d)(2) of section 133 for guidelines, standards, 
performance measures, and review criteria described in subsection (a) 
of such section.
    (b) Enforcement Authority.--The Commissioners, in consultation with 
the Secretary of Health and Human Services, have the authority to make 
recommendations to the Secretary to enforce compliance of health care 
providers with the guidelines, standards, performance measures, and 
review criteria adopted under subsection (a). Such recommendations may 
include the following, with respect to a health care provider who is 
not in compliance with such guidelines, standards, measures, and 
criteria:
            (1) Exclusion from participation in Federal health care 
        programs (as defined in section 1128B(f) of the Social Security 
        Act).
            (2) Imposition of a civil money penalty on such provider.

SEC. 135. ADDITIONAL REQUIREMENTS.

    (a) Program Agenda.--The Commissioners shall provide for an agenda 
for the development of the guidelines, standards, performance measures, 
and review criteria described in section 133(a), including with respect 
to the standards, performance measures, and review criteria, 
identifying specific aspects of health care for which the standards, 
performance measures, and review criteria are to be developed and those 
that are to be given priority in the development of the standards, 
performance measures, and review criteria.

                       PART 3--GENERAL PROVISIONS

SEC. 141. CERTAIN ADMINISTRATIVE AUTHORITIES.

    The Commissioners, in carrying out this subtitle, may accept 
voluntary and uncompensated services.

SEC. 142. FUNDING.

    For the purpose of carrying out this subtitle, there are authorized 
to be appropriated such sums as may be necessary for fiscal years 2011 
through 2015.

SEC. 143. DEFINITIONS.

    For purposes of this subtitle:
            (1) The term ``Commissioners'' means the Commissioners of 
        the Health Care Services Commission.
            (2) The term ``Commission'' means the Health Care Services 
        Commission.
            (3) The term ``Director'' means the Director of the Office 
        of the Forum for Quality and Effectiveness in Health Care.
            (4) The term ``Secretary'' means the Secretary of Health 
        and Human Services.

                  PART 4--TERMINATIONS AND TRANSITION

SEC. 151. TERMINATION OF AGENCY FOR HEALTHCARE RESEARCH AND QUALITY.

    As of the date of the enactment of this Act, the Agency for 
Healthcare Research and Quality is terminated, and title IX of the 
Public Health Service Act is repealed.

SEC. 152. TRANSITION.

    All orders, grants, contracts, privileges, and other determinations 
or actions of the Agency for Healthcare Research and Quality that are 
effective as of the date before the date of the enactment of this Act, 
shall be transferred to the Secretary and shall continue in effect 
according to their terms unless changed pursuant to law.

                PART 5--INDEPENDENT HEALTH RECORD TRUST

SEC. 161. SHORT TITLE OF PART.

    This part may be cited as the ``Independent Health Record Trust Act 
of 2009''.

SEC. 162. PURPOSE.

    It is the purpose of this part to provide for the establishment of 
a nationwide health information technology network that--
            (1) improves health care quality, reduces medical errors, 
        increases the efficiency of care, and advances the delivery of 
        appropriate, evidence-based health care services;
            (2) promotes wellness, disease prevention, and the 
        management of chronic illnesses by increasing the availability 
        and transparency of information related to the health care 
        needs of an individual;
            (3) ensures that appropriate information necessary to make 
        medical decisions is available in a usable form at the time and 
        in the location that the medical service involved is provided;
            (4) produces greater value for health care expenditures by 
        reducing health care costs that result from inefficiency, 
        medical errors, inappropriate care, and incomplete information;
            (5) promotes a more effective marketplace, greater 
        competition, greater systems analysis, increased choice, 
        enhanced quality, and improved outcomes in health care 
        services;
            (6) improves the coordination of information and the 
        provision of such services through an effective infrastructure 
        for the secure and authorized exchange and use of health 
        information; and
            (7) ensures that the health information privacy, security, 
        and confidentiality of individually identifiable health 
        information is protected.

SEC. 163. DEFINITIONS.

    In this part:
            (1) Access.--The term ``access'' means, with respect to an 
        electronic health record, entering information into such 
        account as well as retrieving information from such account.
            (2) Account.--The term ``account'' means an electronic 
        health record of an individual contained in an independent 
        health record trust.
            (3) Affirmative consent.--The term ``affirmative consent'' 
        means, with respect to an electronic health record of an 
        individual contained in an IHRT, express consent given by the 
        individual for the use of such record in response to a clear 
        and conspicuous request for such consent or at the individual's 
        own initiative.
            (4) Authorized ehr data user.--The term ``authorized EHR 
        data user'' means, with respect to an electronic health record 
        of an IHRT participant contained as part of an IHRT, any entity 
        (other than the participant) authorized (in the form of 
        affirmative consent) by the participant to access the 
        electronic health record.
            (5) Confidentiality.--The term ``confidentiality'' means, 
        with respect to individually identifiable health information of 
        an individual, the obligation of those who receive such 
        information to respect the health information privacy of the 
        individual.
            (6) Electronic health record.--The term ``electronic health 
        record'' means a longitudinal collection of information 
        concerning a single individual, including medical records and 
        personal health information, that is stored electronically.
            (7) Health information privacy.--The term ``health 
        information privacy'' means, with respect to individually 
        identifiable health information of an individual, the right of 
        such individual to control the acquisition, uses, or 
        disclosures of such information.
            (8) Health plan.--The term ``health plan'' means a group 
        health plan (as defined in section 2208(1) of the Public Health 
        Service Act (42 U.S.C. 300bb-8(1))) as well as a plan that 
        offers health insurance coverage in the individual market.
            (9) HIPAA privacy regulations.--The term ``HIPAA privacy 
        regulations'' means the regulations promulgated under section 
        264(c) of the Health Insurance Portability and Accountability 
        Act of 1996 (42 U.S.C. 1320d-2 note).
            (10) Independent health record trust; ihrt.--The terms 
        ``independent health record trust'' and ``IHRT'' mean a legal 
        arrangement under the administration of an IHRT operator that 
        meets the requirements of this part with respect to electronic 
        health records of individuals participating in the trust or 
        IHRT.
            (11) IHRT operator.--The term ``IHRT operator'' means, with 
        respect to an IHRT, the organization that is responsible for 
        the administration and operation of the IHRT in accordance with 
        this part.
            (12) IHRT participant.--The term ``IHRT participant'' 
        means, with respect to an IHRT, an individual who has a 
        participation agreement in effect with respect to the 
        maintenance of the individual's electronic health record by the 
        IHRT.
            (13) Individually identifiable health information.--The 
        term ``individually identifiable health information'' has the 
        meaning given such term in section 1171(6) of the Social 
        Security Act (42 U.S.C. 1320d(6)).
            (14) Security.--The term ``security'' means, with respect 
        to individually identifiable health information of an 
        individual, the physical, technological, or administrative 
        safeguards or tools used to protect such information from 
        unwarranted access or disclosure.

SEC. 164. ESTABLISHMENT, CERTIFICATION, AND MEMBERSHIP OF INDEPENDENT 
              HEALTH RECORD TRUSTS.

    (a) Establishment.--Not later than one year after the date of the 
enactment of this Act, the Federal Trade Commission, in consultation 
with the National Committee on Vital and Health Statistics, shall 
prescribe standards for the establishment, certification, operation, 
and interoperability of IHRTs to carry out the purposes described in 
section 162 in accordance with the provisions of this part.
    (b) Certification.--
            (1) Certification by ftc.--The Federal Trade Commission 
        shall provide for the certification of IHRTs. No IHRT may be 
        certified unless the IHRT is determined to meet the standards 
        for certification established under subsection (a).
            (2) Decertification.--The Federal Trade Commission shall 
        establish a process for the revocation of certification of an 
        IHRT under this section in the case that the IHRT violates the 
        standards established under subsection (a).
    (c) Membership.--
            (1) In general.--To be eligible to be a participant in an 
        IHRT, an individual shall--
                    (A) submit to the IHRT information as required by 
                the IHRT to establish an electronic health record with 
                the IHRT; and
                    (B) enter into a privacy protection agreement 
                described in section 166(b)(1) with the IHRT.
        The process to determine eligibility of an individual under 
        this subsection shall allow for the establishment by such 
        individual of an electronic health record as expeditiously as 
        possible if such individual is determined so eligible.
            (2) No limitation on membership.--Nothing in this 
        subsection shall be construed to permit an IHRT to restrict 
        membership, including on the basis of health condition.

SEC. 165. DUTIES OF IHRT TO IHRT PARTICIPANTS.

    (a) Fiduciary Duty of IHRT; Penalties for Violations of Fiduciary 
Duty.--
            (1) Fiduciary duty.--With respect to the electronic health 
        record of an IHRT participant maintained by an IHRT, the IHRT 
        shall have a fiduciary duty to act for the benefit and in the 
        interests of such participant and of the IHRT as a whole. Such 
        duty shall include obtaining the affirmative consent of such 
        participant prior to the release of information in such 
        participant's electronic health record in accordance with the 
        requirements of this part.
            (2) Penalties.--If the IHRT knowingly or recklessly 
        breaches the fiduciary duty described in paragraph (1), the 
        IHRT shall be subject to the following penalties:
                    (A) Loss of certification of the IHRT.
                    (B) A fine that is not in excess of $50,000.
                    (C) A term of imprisonment for the individuals 
                involved of not more than 5 years.
    (b) Electronic Health Record Deemed To Be Held in Trust by IHRT.--
With respect to an individual, an electronic health record maintained 
by an IHRT shall be deemed to be held in trust by the IHRT for the 
benefit of the individual and the IHRT shall have no legal or equitable 
interest in such electronic health record.

SEC. 166. AVAILABILITY AND USE OF INFORMATION FROM RECORDS IN IHRT 
              CONSISTENT WITH PRIVACY PROTECTIONS AND AGREEMENTS.

    (a) Protected Electronic Health Records Use and Access.--
            (1) General rights regarding uses of information.--
                    (A) In general.--With respect to the electronic 
                health record of an IHRT participant maintained by an 
                IHRT, subject to paragraph (2)(C), primary uses and 
                secondary uses (described in subparagraphs (B) and (C), 
                respectively) of information within such record (other 
                than by such participant) shall be permitted only upon 
                the authorization of such use, prior to such use, by 
                such participant.
                    (B) Primary uses.--For purposes of subparagraph (A) 
                and with respect to an electronic health record of an 
                individual, a primary use is a use for purposes of the 
                individual's self-care or care by health care 
                professionals.
                    (C) Secondary uses.--For purposes of subparagraph 
                (B) and with respect to an electronic health record of 
                an individual, a secondary use is any use not described 
                in subparagraph (B) and includes a use for purposes of 
                public health research or other related activities. 
                Additional authorization is required for a secondary 
                use extending beyond the original purpose of the 
                secondary use authorized by the IHRT participant 
                involved. Nothing in this paragraph shall be construed 
                as requiring authorization for every secondary use that 
                is within the authorized original purpose.
            (2) Rules for primary use of records for health care 
        purposes.--With respect to the electronic health record of an 
        IHRT participant (or specified parts of such electronic health 
        record) maintained by an IHRT standards for access to such 
        record shall provide for the following:
                    (A) Access by ihrt participants to their electronic 
                health records.--
                            (i) Ownership.--The participant maintains 
                        ownership over the entire electronic health 
                        record (and all portions of such record) and 
                        shall have the right to electronically access 
                        and review the contents of the entire record 
                        (and any portion of such record) at any time, 
                        in accordance with this subparagraph.
                            (ii) Addition of personal information.--The 
                        participant may add personal health information 
                        to the health record of that participant, 
                        except that such participant shall not alter 
                        information that is entered into the electronic 
                        health record by any authorized EHR data user. 
                        Such participant shall have the right to 
                        propose an amendment to information that is 
                        entered by an authorized EHR data user pursuant 
                        to standards prescribed by the Federal Trade 
                        Commission for purposes of amending such 
                        information.
                            (iii) Identification of information entered 
                        by participant.--Any additions or amendments 
                        made by the participant to the health record 
                        shall be identified and disclosed within such 
                        record as being made by such participant.
                    (B) Access by entities other than ihrt 
                participant.--
                            (i) Authorized access only.--Except as 
                        provided under subparagraph (C) and paragraph 
                        (4), access to the electronic health record (or 
                        any portion of the record)--
                                    (I) may be made only by authorized 
                                EHR data users and only to such 
                                portions of the record as specified by 
                                the participant; and
                                    (II) may be limited by the 
                                participant for purposes of entering 
                                information into such record, 
                                retrieving information from such 
                                record, or both.
                            (ii) Identification of entity that enters 
                        information.--Any information that is added by 
                        an authorized EHR data user to the health 
                        record shall be identified and disclosed within 
                        such record as being made by such user.
                            (iii) Satisfaction of hipaa privacy 
                        regulations.--In the case of a record of a 
                        covered entity (as defined for purposes of 
                        HIPAA privacy regulations), with respect to an 
                        individual, if such individual is an IHRT 
                        participant with an independent health record 
                        trust and such covered entity is an authorized 
                        EHR data user, the requirement under the HIPAA 
                        privacy regulations for such entity to provide 
                        the record to the participant shall be deemed 
                        met if such entity, without charge to the IHRT 
                        or the participant--
                                    (I) forwards to the trust an 
                                appropriately formatted electronic copy 
                                of the record (and updates to such 
                                records) for inclusion in the 
                                electronic health record of the 
                                participant maintained by the trust;
                                    (II) enters such record into the 
                                electronic health record of the 
                                participant so maintained; or
                                    (III) otherwise makes such record 
                                available for electronic access by the 
                                IHRT or the individual in a manner that 
                                permits such record to be included in 
                                the account of the individual contained 
                                in the IHRT.
                            (iv) Notification of sensitive 
                        information.--Any information, with respect to 
                        the participant, that is sensitive information, 
                        as specified by the Federal Trade Commission, 
                        shall not be forwarded or entered by an 
                        authorized EHR data user into the electronic 
                        health record of the participant maintained by 
                        the trust unless the user certifies that the 
                        participant has been notified of such 
                        information.
                    (C) Deemed authorization for access for emergency 
                health care.--
                            (i) Findings.--Congress finds that--
                                    (I) given the size and nature of 
                                visits to emergency departments in the 
                                United States, readily available health 
                                information could make the difference 
                                between life and death; and
                                    (II) because of the case mix and 
                                volume of patients treated, emergency 
                                departments are well positioned to 
                                provide information for public health 
                                surveillance, community risk 
                                assessment, research, education, 
                                training, quality improvement, and 
                                other uses.
                            (ii) Use of information.--With respect to 
                        the electronic health record of an IHRT 
                        participant (or specified parts of such 
                        electronic health record) maintained by an 
                        IHRT, the participant shall be deemed as 
                        providing authorization (in the form of 
                        affirmative consent) for health care providers 
                        to access, in connection with providing 
                        emergency care services to the participant, a 
                        limited, authenticated information set 
                        concerning the participant for emergency 
                        response purposes, unless the participant 
                        specifies that such information set (or any 
                        portion of such information set) may not be so 
                        accessed. Such limited information set may 
                        include information--
                                    (I) patient identification data, as 
                                determined appropriate by the 
                                participant;
                                    (II) provider identification that 
                                includes the use of unique provider 
                                identifiers;
                                    (III) payment information;
                                    (IV) information related to the 
                                individual's vitals, allergies, and 
                                medication history;
                                    (V) information related to existing 
                                chronic problems and active clinical 
                                conditions of the participant; and
                                    (VI) information concerning 
                                physical examinations, procedures, 
                                results, and diagnosis data.
            (3) Rules for secondary uses of records for research and 
        other purposes.--
                    (A) In general.--With respect to the electronic 
                health record of an IHRT participant (or specified 
                parts of such electronic health record) maintained by 
                an IHRT, the IHRT may sell such record (or specified 
                parts of such record) only if--
                            (i) the transfer is authorized by the 
                        participant pursuant to an agreement between 
                        the participant and the IHRT and is in 
                        accordance with the privacy protection 
                        agreement described in subsection (b)(1) 
                        entered into between such participant and such 
                        IHRT;
                            (ii) such agreement includes parameters 
                        with respect to the disclosure of information 
                        involved and a process for the authorization of 
                        the further disclosure of information in such 
                        record;
                            (iii) the information involved is to be 
                        used for research or other activities only as 
                        provided for in the agreement;
                            (iv) the recipient of the information 
                        provides assurances that the information will 
                        not be further transferred or reused in 
                        violation of such agreement; and
                            (v) the transfer otherwise meets the 
                        requirements and standards prescribed by the 
                        Federal Trade Commission.
                    (B) Treatment of public health reporting.--Nothing 
                in this paragraph shall be construed as prohibiting or 
                limiting the use of health care information of an 
                individual, including an individual who is an IHRT 
                participant, for public health reporting (or other 
                research) purposes prior to the inclusion of such 
                information in an electronic health record maintained 
                by an IHRT.
            (4) Law enforcement clarification.--Nothing in this part 
        shall prevent an IHRT from disclosing information contained in 
        an electronic health record maintained by the IHRT when 
        required for purposes of a lawful investigation or official 
        proceeding inquiring into a violation of, or failure to comply 
        with, any criminal or civil statute or any regulation, rule, or 
        order issued pursuant to such a statute.
            (5) Rule of construction.--Nothing in this section shall be 
        construed to require a health care provider that does not 
        utilize electronic methods or appropriate levels of health 
        information technology on the date of the enactment of this Act 
        to adopt such electronic methods or technology as a requirement 
        for participation or compliance under this part.
    (b) Privacy Protection Agreement; Treatment of State Privacy and 
Security Laws.--
            (1) Privacy protection agreement.--A privacy protection 
        agreement described in this subsection is an agreement, with 
        respect to an electronic health record of an IHRT participant 
        to be maintained by an independent health record trust, between 
        the participant and the trust--
                    (A) that is consistent with the standards described 
                in subsection (a)(2);
                    (B) under which the participant specifies the 
                portions of the record that may be accessed, under what 
                circumstances such portions may be accessed, any 
                authorizations for indicated authorized EHR data users 
                to access information contained in the record, and the 
                purposes for which the information (or portions of the 
                information) in the record may be used;
                    (C) which provides a process for the authorization 
                of the transfer of information contained in the record 
                to a third party, including for the sale of such 
                information for purposes of research, by an authorized 
                EHR data user and reuse of such information by such 
                third party, including a provision requiring that such 
                transfer and reuse is not in violation of any privacy 
                or transfer restrictions placed by the participant on 
                the independent health record of such participant; and
                    (D) under which the trust provides assurances that 
                the trust will not transfer, disclose, or provide 
                access to the record (or any portion of the record) in 
                violation of the parameters established in the 
                agreement or to any person or entity who has not agreed 
                to use and transfer such record (or portion of such 
                record) in accordance with such agreement.
            (2) Treatment of state laws.--
                    (A) In general.--Except as provided under 
                subparagraph (B), the provisions of a privacy 
                protection agreement entered into between an IHRT and 
                an IHRT participant shall preempt any provision of 
                State law (or any State regulation) relating to the 
                privacy and confidentiality of individually 
                identifiable health information or to the security of 
                such health information.
                    (B) Exception for privileged information.--The 
                provisions of a privacy protection agreement shall not 
                preempt any provision of State law (or any State 
                regulation) that recognizes privileged communications 
                between physicians, health care practitioners, and 
                patients of such physicians or health care 
                practitioners, respectively.
                    (C) State defined.--For purposes of this section, 
                the term ``State'' has the meaning given such term when 
                used in title XI of the Social Security Act, as 
                provided under section 1101(a) of such Act (42 U.S.C. 
                1301(a)).

SEC. 167. VOLUNTARY NATURE OF TRUST PARTICIPATION AND INFORMATION 
              SHARING.

    (a) In General.--Participation in an independent health record 
trust, or authorizing access to information from such a trust, is 
voluntary. No employer, health insurance issuer, group health plan, 
health care provider, or other person may require, as a condition of 
employment, issuance of a health insurance policy, coverage under a 
group health plan, the provision of health care services, payment for 
such services, or otherwise, that an individual participate in, or 
authorize access to information from, an independent health record 
trust.
    (b) Enforcement.--The penalties provided for in subsection (a) of 
section 1177 of the Social Security Act (42 U.S.C. 1320d-6) shall apply 
to a violation of subsection (a) in the same manner as such penalties 
apply to a person in violation of subsection (a) of such section.

SEC. 168. FINANCING OF ACTIVITIES.

    (a) In General.--Except as provided in subsection (b), an IHRT may 
generate revenue to pay for the operations of the IHRT through--
            (1) charging IHRT participants account fees for use of the 
        trust;
            (2) charging authorized EHR data users for accessing 
        electronic health records maintained in the trust;
            (3) the sale of information contained in the trust (as 
        provided for in section 166(a)(3)(A)); and
            (4) any other activity determined appropriate by the 
        Federal Trade Commission.
    (b) Prohibition Against Access Fees for Health Care Providers.--For 
purposes of providing incentives to health care providers to access 
information maintained in an IHRT, as authorized by the IHRT 
participants involved, the IHRT may not charge a fee for services 
specified by the IHRT. Such services shall include the transmittal of 
information from a health care provider to be included in an 
independent electronic health record maintained by the IHRT (or 
permitting such provider to input such information into the record), 
including the transmission of or access to information described in 
section 166(a)(2)(C)(ii) by appropriate emergency responders.
    (c) Required Disclosures.--The sources and amounts of revenue 
derived under subsection (a) for the operations of an IHRT shall be 
fully disclosed to each IHRT participant of such IHRT and to the 
public.
    (d) Treatment of Income.--For purposes of the Internal Revenue Code 
of 1986, any revenue described in subsection (a) shall not be included 
in gross income of any IHRT, IHRT participant, or authorized EHR data 
user.

SEC. 169. REGULATORY OVERSIGHT.

    (a) In General.--In carrying out this part, the Federal Trade 
Commission shall promulgate regulations for independent health record 
trusts.
    (b) Establishment of Interagency Steering Committee.--
            (1) In general.--The Secretary of Health and Human Services 
        shall establish an Interagency Steering Committee in accordance 
        with this subsection.
            (2) Chairperson.--The Secretary of Health and Human 
        Services shall serve as the chairperson of the Interagency 
        Steering Committee.
            (3) Membership.--The members of the Interagency Steering 
        Committee shall consist of the Attorney General, the 
        Chairperson of the Federal Trade Commission, the Chairperson 
        for the National Committee for Vital and Health Statistics, a 
        representative of the Federal Reserve, and other Federal 
        officials determined appropriate by the Secretary of Health and 
        Human Services.
            (4) Duties.--The Interagency Steering Committee shall 
        coordinate the implementation of this part, including the 
        implementation of policies described in subsection (d) based 
        upon the recommendations provided under such subsection, and 
        regulations promulgated under this part.
    (c) Federal Advisory Committee.--
            (1) In general.--The National Committee for Vital and 
        Health Statistics shall serve as an advisory committee for the 
        IHRTs. The membership of such advisory committee shall include 
        a representative from the Federal Trade Commission and the 
        chairperson of the Interagency Steering Committee. Not less 
        than 60 percent of such membership shall consist of 
        representatives of nongovernment entities, at least one of whom 
        shall be a representative from an organization representing 
        health care consumers.
            (2) Duties.--The National Committee for Vital and Health 
        Statistics shall issue periodic reports and review policies 
        concerning IHRTs based on each of the following factors:
                    (A) Privacy and security policies.
                    (B) Economic progress.
                    (C) Interoperability standards.
    (d) Policies Recommended by Federal Trade Commission.--The Federal 
Trade Commission, in consultation with the National Committee for Vital 
and Health Statistics, shall recommend policies to--
            (1) provide assistance to encourage the growth of 
        independent health record trusts;
            (2) track economic progress as it pertains to operators of 
        independent health records trusts and individuals receiving 
        nontaxable income with respect to accounts;
            (3) conduct public education activities regarding the 
        creation and usage of the independent health records trusts;
            (4) establish standards for the interoperability of health 
        information technology to ensure that information contained in 
        such record may be shared between the trust involved, the 
        participant, and authorized EHR data users, including for the 
        standardized collection and transmission of individual health 
        records (or portions of such records) to authorized EHR data 
        users through a common interface and for the portability of 
        such records among independent health record trusts; and
            (5) carry out any other activities determined appropriate 
        by the Federal Trade Commission.
    (e) Regulations Promulgated by Federal Trade Commission.--The 
Federal Trade Commission shall promulgate regulations based on, at a 
minimum, the following factors:
            (1) Requiring that an IHRT participant, who has an 
        electronic health record that is maintained by an IHRT, be 
        notified of a security breech with respect to such record, and 
        any corrective action taken on behalf of the participant.
            (2) Requiring that information sent to, or received from, 
        an IHRT that has been designated as high-risk should be 
        authenticated through the use of methods such as the periodic 
        changing of passwords, the use of biometrics, the use of tokens 
        or other technology as determined appropriate by the council.
            (3) Requiring a delay in releasing sensitive health care 
        test results and other similar information to patients directly 
        in order to give physicians time to contact the patient.
            (4) Recommendations for entities operating IHRTs, including 
        requiring analysis of the potential risk of health transaction 
        security breeches based on set criteria.
            (5) The conduct of audits of IHRTs to ensure that they are 
        in compliance with the requirements and standards established 
        under this part.
            (6) Disclosure to IHRT participants of the means by which 
        such trusts are financed, including revenue from the sale of 
        patient data.
            (7) Prevention of certification of an entity seeking 
        independent heath record trust certification based on--
                    (A) the potential for conflicts between the 
                interests of such entity and the security of the health 
                information involved; and
                    (B) the involvement of the entity in any activity 
                that is contrary to the best interests of a patient.
            (8) Prevention of the use of revenue sources that are 
        contrary to a patient's interests.
            (9) Public disclosure of audits in a manner similar to 
        financial audits required for publicly traded stock companies.
            (10) Requiring notification to a participating entity that 
        the information contained in such record may not be 
        representative of the complete or accurate electronic health 
        record of such account holder.
    (f) Compliance Report.--Not later than 1 year after the date of the 
enactment of this Act, and annually thereafter, the Commission shall 
submit to the Committee on Health, Education, Labor, and Pensions and 
the Committee on Finance of the Senate and the Committee on Energy and 
Commerce and the Committee on Ways and Means of the House of 
Representatives, a report on compliance by and progress of independent 
health record trusts with this part. Such report shall describe the 
following:
            (1) The number of complaints submitted about independent 
        health record trusts, which shall be divided by complaints 
        related to security breaches, and complaints not related to 
        security breaches, and may include other categories as the 
        Interagency Steering Committee established under subsection (b) 
        determines appropriate.
            (2) The number of enforcement actions undertaken by the 
        Commission against independent health record trusts in response 
        to complaints under paragraph (1), which shall be divided by 
        enforcement actions related to security breaches and 
        enforcement actions not related to security breaches and may 
        include other categories as the Interagency Steering Committee 
        established under subsection (b) determines appropriate.
            (3) The economic progress of the individual owner or 
        institution operator as achieved through independent health 
        record trust usage and existing barriers to such usage.
            (4) The progress in security auditing as provided for by 
        the Interagency Steering Committee council under subsection 
        (b).
            (5) The other core responsibilities of the Commission as 
        described in subsection (a).
    (g) Interagency Memorandum of Understanding.--The Interagency 
Steering Committee shall ensure, through the execution of an 
interagency memorandum of understanding, that--
            (1) regulations, rulings, and interpretations issued by 
        Federal officials relating to the same matter over which 2 or 
        more such officials have responsibility under this part are 
        administered so as to have the same effect at all times; and
            (2) the memorandum provides for the coordination of 
        policies related to enforcing the same requirements through 
        such officials in order to have coordinated enforcement 
        strategy that avoids duplication of enforcement efforts and 
        assigns priorities in enforcement.

                  TITLE II--MEDICAID AND SCHIP REFORM

SEC. 201. MEDICAID REFORM.

    (a) In General.--Title XIX of the Social Security Act is amended by 
adding at the end the following new section:

                     ``revision of medicaid program

    ``Sec. 1943.  (a) Election of Block Grant or Implementation of 
Refundable Tax Credit for Medicaid Population for Acute Care Services 
and Maintenance of Effort Spending.--
            ``(1) In general.--Each State shall elect--
                    ``(A) to receive block grant funding under 
                subsection (b); or
                    ``(B) to have Medicaid-eligible individuals 
                eligible to receive refundable tax credits under 
                section 36B of the Internal Revenue Code of 1986 and to 
                provide for maintenance of effort described in 
                subsection (c).
        If a State fails to make such an election, the State shall be 
        treated as making the election described in subparagraph (A).
            ``(2) Limitations on election.--If a State makes the 
        election described in paragraph (1)(B), the State may not 
        change such election. A State that makes the election described 
        in paragraph (1)(A) may change such election with notice to the 
        Secretary.
            ``(3) Effective date; implementation.--This subsection 
        shall first take effect as of January 1, 2011. For items and 
        services furnished on or after such date, no payment shall be 
        made under section 1903 to any State.
    ``(b) Block Grant Payment for Acute Care Services.--
            ``(1) In general.--The block grant payment amount under 
        this subsection for a State--
                    ``(A) for 2011 is equal to the total Federal 
                payments under this title and title XXI to the State 
                for calendar quarters in 2010 (other than payments for 
                medical assistance for long-term care services, as 
                defined for purposes of subsection (e)), increased by 
                the inflation adjustment factor for the year (described 
                in paragraph (2)); or
                    ``(B) for a subsequent year is, subject to 
                subsection (d), equal to the block grant payment amount 
                under this subsection for the State for the previous 
                year increased by the inflation adjustment factor for 
                the year (described in paragraph (2)) and a population 
                growth factor (described in paragraph (3)).
            ``(2) Inflation adjustment factor.--The inflation 
        adjustment factor in this paragraph for a year is equal to the 
        average of the projected annual rate of increase in the 
        consumer price index for urban consumers (all items; U.S. city 
        average) and the percentage increase in the MEI (as defined in 
        section 1842(i)(3)) for the year.
            ``(3) Population growth factor.--The Secretary shall 
        determine and apply a population growth factor based on the 
        percentage increase in the population included in the 
        computation of National Health Expenditures from the calendar 
        year in which the previous fiscal year ends to the calendar 
        year in which the fiscal year involved ends, as most recently 
        published by the Secretary, but adjusted among the States so as 
        to reflect differences in relative population growth rates 
        among such States.
            ``(4) Limitation.--Payment under this subsection shall only 
        be available to States for costs of health care and related 
        administrative costs.
            ``(5) No requirement for state matching payment.--Nothing 
        in this subsection shall be construed as requiring a State to 
        make any matching payments as a condition of receiving payment 
        under this subsection.
            ``(6) Periodicity of payments.--The Secretary shall provide 
        for making payments under this subsection on a quarterly or 
        other appropriate basis.
    ``(c) Maintenance of Effort (MOE) Requirement.--
            ``(1) In general.--The maintenance of effort requirement 
        under this subsection for a State for a year is to provide for 
        payment in the MOE amount specified in paragraph (2) for the 
        year for purposes described in, and in accordance with, 
        paragraph (3).
            ``(2) MOE amount.--The MOE amount specified in this 
        paragraph for a State--
                    ``(A) for 2011 is equal to the amount of 
                expenditures of the State under this title and title 
                XXI for calendar quarters in 2009, not taking into 
                account Federal payments made to the State under the 
                respective title and not taking into account such 
                payments that are attributable to medical assistance 
                for long-term care services (as defined for purposes of 
                subsection (e)), increased by the inflation adjustment 
                factor described in subsection (b)(2) for 2010 and 
                further increased by such factor for 2011; or
                    ``(B) for a subsequent year is equal to the MOE 
                amount specified in this paragraph for the State for 
                the previous year increased by the inflation adjustment 
                factor described in subsection (b)(2) for such 
                subsequent year.
            ``(3) Application toward spending.--Payments by a State 
        shall be used for the following purposes, with priority given 
        to such purposes in the following order:
                    ``(A) To develop an auto-enrollment program for 
                previously eligible Medicaid recipients.
                    ``(B) To assist individuals in low-income families 
                (as defined by the State) and high-cost individuals and 
                families (for those for whom insurance is unavailable 
                or very expensive because of their health status) to 
                purchase qualifying health insurance. Eligible expenses 
                shall include direct assistance with premiums and cost-
                sharing.
                    ``(C) For purposes of funding qualified high risk 
                pools (as defined in section 2744(c)(2) of the Public 
                Health Service Act).
                    ``(D) For establishment and funding of reinsurance 
                mechanisms.
                    ``(E) For establishment and maintenance of networks 
                designed to improve consumer information, transparency 
                in price and quality data, and reduction in transaction 
                costs associated with enrolling individuals in health 
                insurance coverage.
    ``(d) Phase-Out of DSH Payments.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, the amount of DSH allotment otherwise provided under 
        section 1923(f) for each State for a fiscal year shall be 
        reduced--
                    ``(A) by 25 percent for fiscal year 2011;
                    ``(B) by 50 percent for fiscal year 2012;
                    ``(C) by 75 percent for fiscal year 2013; and
                    ``(D) entirely for fiscal year 2014 and each 
                succeeding fiscal year.
            ``(2) Adjustment in block grant.--The amount of any block 
        grant for a State under subsection (b) for a fiscal year shall 
        be adjusted to reflect the amount of reductions in DSH 
        allotment under paragraph (1) for the State and the fiscal 
        year.
    ``(e) Block Grant for Long-Term Care Services.--
            ``(1) In general.--Notwithstanding any other provision of 
        this title, instead of any payment under this title to a State 
        for long-term care services (as defined by the Secretary), the 
        Secretary shall pay to a State the long-term care block grant 
        amount specified in paragraph (2).
            ``(2) Long-term care block grant amount.--The long-term 
        block grant payment amount under this paragraph for a State--
                    ``(A) for 2011 is equal to the total Federal 
                payments under this title to the State for calendar 
                quarters in 2010 for long-term care services, as 
                defined for purposes of paragraph (1), increased by the 
                inflation adjustment factor for the year (described in 
                subsection (b)(2)); or
                    ``(B) for a subsequent year is equal to the long-
                term care block grant payment amount under this 
                paragraph for the State for the previous year increased 
                by such inflation adjustment factor for the year.
            ``(3) Application of provisions.--The provisions of 
        paragraphs (3), (4), and (5) of subsection (b) shall apply to 
        payments under this subsection.
            ``(4) Effective date; implementation.--This subsection 
        shall first take effect as of January 1, 2011. For long-term 
        care items and services furnished on or after such date, no 
        payment shall be made under section 1903 to any State.''.

SEC. 202. SCHIP REFORM.

    (a) In General.--Effective for items and services furnished on or 
after January 1, 2011, title XXI of the Social Security Act is 
repealed.
    (b) Construction.--Subsection (a) shall not affect payment for 
items and services furnished before such date.

                       TITLE III--MEDICARE REFORM

                    Subtitle A--New Medicare Program

SEC. 301. BENEFIT CHANGES.

    Title XVIII of the Social Security Act is amended by inserting 
after section 1809 the following new section:

       ``program for new medicare beneficiaries beginning in 2019

    ``Sec. 1809A.  (a) Application.--
            ``(1) In general.--Notwithstanding any other provision of 
        law (including sections 226 and 226A), the provisions of this 
        section shall apply to individuals (other than individuals 
        entitled to benefits only because of the application of section 
        1881(d)) who first become entitled to benefits under part A, or 
        whose coverage period under part B begins, on or after January 
        1, 2019.
            ``(2) No impact on fica/seca tax revenues.--Nothing in this 
        section shall be construed as affecting revenues through the 
        payment of hospital insurance taxes under sections 1401(b), 
        3101(b), and 3111(b) of the Internal Revenue Code of 1986.
            ``(3) No impact on other beneficiaries.--
                    ``(A) In general.--This section shall not apply to 
                individuals not described in paragraph (1).
                    ``(B) No impact on computation of medicare premiums 
                for older medicare beneficiaries.--Premiums under parts 
                A, B, and D shall be computed for individuals not 
                described in paragraph (1) based on the average costs 
                that the Secretary estimates would have been applicable 
                if this section did not apply.
    ``(b) Alternative Benefits.--
            ``(1) In general.--An individual described in subsection 
        (a)(1) is only entitled to benefits under this title in 
        accordance with this section. In the case of such an individual 
        who has qualified health insurance coverage, the individual is 
        entitled under this section--
                    ``(A) to an income-related payment under subsection 
                (c); and
                    ``(B) in the case of a low-income individual (as 
                defined in paragraph (3) of subsection (d)), to a 
                contribution to a medical savings account of the 
                individual in the amount specified in such subsection.
            ``(2) Alternative premium obligations.--An individual 
        described in subsection (a)(1)--
                    ``(A) is not responsible for payment of any premium 
                otherwise applicable under part B or D; but
                    ``(B) is responsible for payment of the premium for 
                qualified health insurance coverage referred to in 
                paragraph (1) and may apply the income-related payment 
                under subsection (c) toward such premium.
            ``(3) Qualified health insurance coverage defined.--In this 
        subsection, the term `qualified health insurance coverage' 
        means health benefits coverage, whether under a group health 
        plan, health insurance coverage or otherwise, but does not 
        include coverage under a health plan if substantially all of 
        its coverage is coverage described in section 223(c)(1)(B) of 
        the Internal Revenue Code of 1986.
    ``(c) Income-Related Payment.--
            ``(1) In general.--The amount of the income-related payment 
        under this subsection for an individual for a year is equal 
        to--
                    ``(A) the annual amount specified for the year in 
                paragraph (2);
                    ``(B) subject to reduction under paragraph (3) 
                (relating to higher income individuals);
                    ``(C) further subject to adjustment under paragraph 
                (4); and
                    ``(D) subject to pro-ration under paragraph (5).
            ``(2) Annual amount.--
                    ``(A) In general.--The annual amount specified in 
                this paragraph--
                            ``(i) for 2019 is $9,500; and
                            ``(ii) for any subsequent year is the 
                        annual amount specified in this paragraph for 
                        the preceding year increased by the annual 
                        inflation adjustment described in subparagraph 
                        (B) for such subsequent year.
                Any amount computed under clause (ii) that is not a 
                multiple of $12 shall be rounded to the nearest 
                multiple of $12.
                    ``(B) Annual inflation adjustment.--The annual 
                inflation adjustment under this subparagraph for a year 
                is equal to the average of--
                            ``(i) the annual rate of increase in the 
                        consumer price index for urban consumers (all 
                        items; U.S. city average) for the year, as 
                        projected by the Secretary in consultation with 
                        the Bureau of Labor Statistics before the 
                        beginning of the year; and
                            ``(ii) the annual rate of increase in the 
                        medical care component of the consumer price 
                        index for all urban consumers (U.S. city 
                        average) for the year, as projected by the 
                        Secretary in consultation with the Bureau of 
                        Labor Statistics before the beginning of the 
                        year.
            ``(3) Reduction for higher-income individuals.--
                    ``(A) In general.--In the case of an individual 
                whose modified adjusted gross income exceeds the 
                threshold amount specified in paragraph (2) of section 
                1839(i), as adjusted under paragraph (5) of such 
                section, the annual amount under paragraph (2) shall be 
                reduced by the adjustment percentage specified in 
                subparagraph (B).
                    ``(B) Adjustment percentage.--In the case of an 
                individual for whom the applicable percentage specified 
                in section 1839(i)(3)(C)--
                            ``(i) is less than 80 percent, the 
                        adjustment percentage under this subparagraph 
                        shall be 50 percent; or
                            ``(ii) is equal to 80 percent, the 
                        adjustment percentage under this subparagraph 
                        shall be 70 percent.
                    ``(C) Application of certain provisions.--The 
                provisions of paragraphs (4) through (6) of section 
                1839(i) shall apply under this paragraph in the same 
                manner as they apply for purposes of such section.
            ``(4) Risk, geographic area, and other adjustments.--
                    ``(A) Risk adjustment.--The payment amount under 
                this subsection for an individual shall be adjusted, 
                using a methodology specified by the Secretary, in a 
                manner that takes into account the relative risk 
                factors (such as those described in section 
                1853(a)(1)(C)(i)) associated with such individual. Such 
                adjustment shall be made in such a manner as not to 
                change the total amount of payments made under this 
                subsection as a result of such adjustment.
                    ``(B) Partial geographic area adjustment.--Such 
                payment amount for an individual also shall be 
                adjusted, using a methodology specified by the 
                Secretary, in a manner that takes into account the 
                relative differences in area health care costs for the 
                area in which the individual resides compared to other 
                areas. Such adjustment shall be made in such a manner 
                as not to change the total amount of payments made 
                under this subsection as a result of such adjustment. 
                The Secretary shall provide for a decrease over time in 
                the adjustment made under this subparagraph.
                    ``(C) Certain part a buy-in individuals.--Such 
                payment amount for an individual who is not eligible 
                for benefits under part A pursuant to section 226 or 
                226A shall be adjusted by such proportion or amount as 
                the Secretary determines appropriate to take into 
                account premiums that would otherwise be payable under 
                section 1818 or 1818A for benefits under part A.
            ``(5) Pro-ratio for partial year of eligibility.--In the 
        case of an individual whose entitlement under this section is 
        for less than an entire year, the payment amount under this 
        subsection shall be pro-rated to reflect the portion of the 
        year included in such entitlement.
            ``(6) Payment on periodic basis.--The Secretary shall 
        provide for the payment under this subsection on an appropriate 
        monthly or other periodic basis.
    ``(d) Contribution to a Medical Savings Account (MSA) for Low-
Income Individuals.--
            ``(1) In general.--The amount of the contribution under 
        subsection (b)(1)(B) to a medical savings account of a low-
        income individual is equal--
                    ``(A) in the case of an individual described in 
                clause (i) or (ii) of paragraph (4)(A), to the full MSA 
                contribution amount (as defined in paragraph (2)); or
                    ``(B) in the case of any other individual, to 75 
                percent of the full MSA contribution amount.
            ``(2) Full msa contribution amount.--For purposes of this 
        subsection, the term `full MSA contribution amount' means, for 
        a year for an individual, an amount to be equivalent to the 
        full amount of the average deductible of a high-deductible 
        health plan (as defined in section 223(c)(2) of the Internal 
        Revenue Code of 1986) as determined by the Secretary.
            ``(3) No medicaid coverage for medicare-covered services.--
                    ``(A) In general.--In the case of an individual who 
                is eligible to be provided a contribution to a medical 
                savings account under this subsection, the individual 
                is not entitled to any payment under a State plan under 
                title XIX with respect to any benefits relating to 
                items and services for which coverage is provided under 
                this title.
                    ``(B) Construction.--Subparagraph (A) shall not 
                affect the continued provision of medical assistance 
                under title XIX for items and services, such as dental, 
                vision, or long-term care facility services, for which 
                benefits are not provided under this title regardless 
                of medical necessity.
            ``(4) Periodic payment.--The Secretary shall provide for 
        the contribution into medical savings accounts of amounts under 
        this subsection on an appropriate monthly or other periodic 
        basis.
            ``(5) Low-income individual defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `low-income individual' means an individual 
                described in subsection (a)(1)--
                            ``(i) who meets the requirement of section 
                        1936(c)(6)(A)(ii) (relating to a full-benefit 
                        dual eligible individual);
                            ``(ii) whose income (as determined under 
                        section 1612 for purposes of the supplemental 
                        security income program, except as provided in 
                        subparagraph (B)) does not exceed 100 percent 
                        of the official income poverty line (referred 
                        to in section 1905(p)(1)) applicable to a 
                        family of the size involved; or
                            ``(iii) whose income (as so determined) 
                        exceeds 100 percent, but does not exceed 150 
                        percent, of such official income poverty line 
                        applicable to a family of the size involved.
                    ``(B) Application of special rule regarding 
                application of social security increases.--The 
                provisions of subparagraph (D) of section 1905(p)(2) 
                shall apply to determinations of income under 
                subparagraph (A) in the same manner they apply under 
                such section.
                    ``(C) Determination process.--The Secretary shall 
                specify a process for the determination of whether 
                individuals are low-income individuals.''.

SEC. 302. UNIFIED MEDICARE TRUST FUND.

    (a) In General.--The Federal Hospital Insurance Trust Fund 
(established under section 1817 of the Social Security Act) and the 
Federal Supplementary Medical Insurance Trust Fund (established under 
section 1841 of such Act) are hereby consolidated into a unified 
Medicare trust fund. Such trust fund shall have separate accounts for 
parts A, B, and D of such title and shall be administered by the same 
board of trustees that administers the current Trust Funds.
    (b) Construction.--Nothing in this section shall be construed as 
affecting the actual transfer of funds or computations of amounts of 
premiums under any part of the Medicare program.
    (c) Solvency.--The Medicare trustee shall establish a measure of 
program solvency for the Medicare program of total outlays as a measure 
of gross domestic product.

            Subtitle B--Changes in Current Medicare Program

SEC. 311. INCOME-RELATED REDUCTION IN PART D PREMIUM SUBSIDY.

    (a) Income-Related Reduction in Part D Premium Subsidy.--
            (1) In general.--Section 1860D-13(a) of the Social Security 
        Act (42 U.S.C. 1395w-113(a)) is amended by adding at the end 
        the following new paragraph:
            ``(7) Reduction in premium subsidy based on income.--
                    ``(A) In general.--In the case of an individual 
                whose modified adjusted gross income exceeds the 
                threshold amount applicable under paragraph (2) of 
                section 1839(i) (including application of paragraph (5) 
                of such section) for the calendar year, the monthly 
                amount of the premium subsidy applicable to the premium 
                under this section for a month after December 2009 
                shall be reduced (and the monthly beneficiary premium 
                shall be increased) by the monthly adjustment amount 
                specified in subparagraph (B).
                    ``(B) Monthly adjustment amount.--The monthly 
                adjustment amount specified in this subparagraph for an 
                individual for a month in a year is equal to the 
                product of--
                            ``(i) the quotient obtained by dividing--
                                    ``(I) the applicable percentage 
                                determined under paragraph (3)(C) of 
                                section 1839(i) (including application 
                                of paragraph (5) of such section) for 
                                the individual for the calendar year 
                                reduced by 25.5 percent; by
                                    ``(II) 25.5 percent; and
                            ``(ii) the base beneficiary premium (as 
                        computed under paragraph (2)).
                    ``(C) Modified adjusted gross income.--For purposes 
                of this paragraph, the term `modified adjusted gross 
                income' has the meaning given such term in subparagraph 
                (A) of section 1839(i)(4), determined for the taxable 
                year applicable under subparagraphs (B) and (C) of such 
                section.
                    ``(D) Determination by commissioner of social 
                security.--The Commissioner of Social Security shall 
                make any determination necessary to carry out the 
                income-related reduction in premium subsidy under this 
                paragraph.
                    ``(E) Procedures to assure correct income-related 
                reduction in premium subsidy.--
                            ``(i) Disclosure of base beneficiary 
                        premium.--Not later than September 15 of each 
                        year beginning with 2009, the Secretary shall 
                        disclose to the Commissioner of Social Security 
                        the amount of the base beneficiary premium (as 
                        computed under paragraph (2)) for the purpose 
                        of carrying out the income-related reduction in 
                        premium subsidy under this paragraph with 
                        respect to the following year.
                            ``(ii) Additional disclosure.--Not later 
                        than October 15 of each year beginning with 
                        2009, the Secretary shall disclose to the 
                        Commissioner of Social Security the following 
                        information for the purpose of carrying out the 
                        income-related reduction in premium subsidy 
                        under this paragraph with respect to the 
                        following year:
                                    ``(I) The modified adjusted gross 
                                income threshold applicable under 
                                paragraph (2) of section 1839(i) 
                                (including application of paragraph (5) 
                                of such section).
                                    ``(II) The applicable percentage 
                                determined under paragraph (3)(C) of 
                                section 1839(i) (including application 
                                of paragraph (5) of such section).
                                    ``(III) The monthly adjustment 
                                amount specified in subparagraph (B).
                                    ``(IV) Any other information the 
                                Commissioner of Social Security 
                                determines necessary to carry out the 
                                income-related reduction in premium 
                                subsidy under this paragraph.
                    ``(F) Rule of construction.--The formula used to 
                determine the monthly adjustment amount specified under 
                subparagraph (B) shall only be used for the purpose of 
                determining such monthly adjustment amount under such 
                subparagraph.''.
            (2) Collection of monthly adjustment amount.--Section 
        1860D-13(c) of the Social Security Act (42 U.S.C. 1395w-113(c)) 
        is amended--
                    (A) in paragraph (1), by striking ``(2) and (3)'' 
                and inserting ``(2), (3), and (4)''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(4) Collection of monthly adjustment amount.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this subsection or section 1854(d)(2), 
                subject to subparagraph (B), the amount of the income-
                related reduction in premium subsidy for an individual 
                for a month (as determined under subsection (a)(7)) 
                shall be paid through withholding from benefit payments 
                in the manner provided under section 1840.
                    ``(B) Agreements.--In the case where the monthly 
                benefit payments of an individual that are withheld 
                under subparagraph (A) are insufficient to pay the 
                amount described in such subparagraph, the Commissioner 
                of Social Security shall enter into agreements with the 
                Secretary, the Director of the Office of Personnel 
                Management, and the Railroad Retirement Board as 
                necessary in order to allow other agencies to collect 
                the amount described in subparagraph (A) that was not 
                withheld under such subparagraph.''.
    (b) Conforming Amendments.--
            (1) Medicare.--Part D of title XVIII of the Social Security 
        Act (42 U.S.C. 1395w-101 et seq.) is amended--
                    (A) in section 1860D-13(a)(1)--
                            (i) by redesignating subparagraph (F) as 
                        subparagraph (G);
                            (ii) in subparagraph (G), as redesignated 
                        by clause (i), by striking ``(D) and (E)'' and 
                        inserting ``(D), (E), and (F)''; and
                            (iii) by inserting after subparagraph (E) 
                        the following new subparagraph:
                    ``(F) Increase based on income.--The monthly 
                beneficiary premium shall be increased pursuant to 
                paragraph (7).''; and
                    (B) in section 1860D-15(a)(1)(B), by striking 
                ``paragraph (1)(B)'' and inserting ``paragraphs (1)(B) 
                and (1)(F)''.
            (2) Internal revenue code.--Section 6103(l)(20) of the 
        Internal Revenue Code of 1986 (relating to disclosure of return 
        information to carry out Medicare part B premium subsidy 
        adjustment) is amended--
                    (A) in the heading, by striking ``part b premium 
                subsidy adjustment'' and inserting ``parts b and d 
                premium subsidy adjustments'';
                    (B) in subparagraph (A)--
                            (i) in the matter preceding clause (i), by 
                        inserting ``or 1860D-13(a)(7)'' after 
                        ``1839(i)''; and
                            (ii) in clause (vii), by inserting after 
                        ``subsection (i) of such section'' the 
                        following: ``or under section 1860D-13(a)(7) of 
                        such Act''; and
                    (C) in subparagraph (B)--
                            (i) by inserting ``or such section 1860D-
                        13(a)(7)'' before the period at the end;
                            (ii) as amended by clause (i), by inserting 
                        ``or for the purpose of resolving tax payer 
                        appeals with respect to any such premium 
                        adjustment'' before the period at the end; and
                            (iii) by adding at the end the following 
                        new sentence: ``Officers, employees, and 
                        contractors of the Social Security 
                        Administration may disclose such return 
                        information to officers, employees, and 
                        contractors of the Department of Health and 
                        Human Services, the Office of Personnel 
                        Management, the Railroad Retirement Board, the 
                        Department of Justice, and the courts of the 
                        United States to the extent necessary to carry 
                        out the purposes described in the preceding 
                        sentence.''; and
                    (D) by adding at the end the following new 
                subparagraph:
                    ``(C) Timing of disclosure.--Return information 
                shall be disclosed to officers, employees, and 
                contractors of the Social Security Administration under 
                subparagraph (A) not later than the date that is 90 
                days prior to the date on which the taxpayer first 
                becomes entitled to benefits under part A of title 
                XVIII of the Social Security Act or eligible to enroll 
                for benefits under part B of such title.''.

SEC. 312. REDUCTION IN HOSPITAL MARKET BASKET INCREASES.

    Notwithstanding any other provision of law:
            (1) Outpatient hospital services.--For 2010 and each 
        succeeding year, the OPD fee schedule increase factor otherwise 
        computed under section 1833(t)(3)(C)(iv) of the Social Security 
        Act (42 U.S.C. 1395l(t)(3)(C)(iv)) shall be reduced by .4 
        percentage points.
            (2) Inpatient hospital services.--For fiscal year 2010 and 
        each succeeding fiscal year, the applicable percentage increase 
        otherwise computed under clauses (i) and (ii) of section 
        1886(b)(3)(B) of such Act (42 U.S.C. 1395ww(b)(3)(B)) shall be 
        reduced by .4 percentage points.

SEC. 313. ELIMINATION OF INDEXING OF INCOME THRESHOLDS FOR PART B 
              INCOME-RELATED PREMIUMS.

    (a) In General.--Section 1839(i) of the Social Security Act (42 
U.S.C. 1395r(i)) is amended by striking paragraph (5).
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to premiums for years beginning with 2010.

                    TITLE IV--SOCIAL SECURITY REFORM

SEC. 401. SHORT TITLE AND TABLE OF CONTENTS OF TITLE.

    (a) Short Title of Title.--This title may be cited as the ``Social 
Security Personal Savings Guarantee and Prosperity Act of 2009''.
    (b) Table of Contents of Title.--The table of contents for this 
title is as follows:

                    TITLE IV--SOCIAL SECURITY REFORM

Sec. 401. Short title and table of contents of title.
Sec. 402. Establishment of Personal Social Security Savings Program.
           ``Part B--Personal Social Security Savings Program

        ``Sec. 251. Definitions.
        ``Sec. 252. Social Security Personal Savings Fund.
        ``Sec. 253. Participation in Program.
        ``Sec. 254. Personal Social Security savings accounts.
        ``Sec. 255. Tier I Investment Fund.
        ``Sec. 256. Tier II Investment Fund.
        ``Sec. 257. Tier III Investment Options.
        ``Sec. 258. Personal Social Security savings annuity and other 
                            distributions.
        ``Sec. 259. Guarantee of promised benefits.
        ``Sec. 260. Personal Social Security Savings Board.
        ``Sec. 261. Executive Director.
Sec. 403. Monthly insurance benefits for participating individuals.
Sec. 404. Tax treatment of accounts.
Sec. 405. Self-Liquidating Social Security Transition Fund.
Sec. 406. Budgetary treatment of Social Security.
Sec. 407. Accounting for the Old-Age, Survivors, and Disability 
                            Insurance Program and the Personal Social 
                            Security Savings Program.
Sec. 408. Progressive indexing of benefits for old-age, wife's, and 
                            husband's insurance benefits.
Sec. 409. Enhancements to Part A benefits.

SEC. 402. ESTABLISHMENT OF PERSONAL SOCIAL SECURITY SAVINGS PROGRAM.

    (a) In General.--Title II of the Social Security Act is amended--
            (1) by inserting before section 201 the following:

                    ``PART A--INSURANCE BENEFITS'';

        and
            (2) by adding at the end the following new part:

           ``PART B--PERSONAL SOCIAL SECURITY SAVINGS PROGRAM

``SEC. 251. DEFINITIONS.

    ``For purposes of this part--
            ``(1) Participating individual.--The term `participating 
        individual' has the meaning provided in section 253(a).
            ``(2) Board.--The term `Board' means the Personal Social 
        Security Savings Board established under section 260.
            ``(3) Executive director.--The term `Executive Director' 
        means the Executive Director appointed under section 261.
            ``(4) Personal social security savings account.--The term 
        `personal social security savings account' means an account 
        established under section 254(a).
            ``(5) Personal social security savings annuity.--The term 
        `personal social security savings annuity' means an annuity 
        approved by the Board under section 258(b)(3).
            ``(6) Savings fund.--The term `Savings Fund' means the 
        Social Security Personal Savings Fund established under section 
        252.
            ``(7) Tier i investment fund.--The term `Tier I Investment 
        Fund' means the trust fund created under section 255.
            ``(8) Tier ii investment fund.--The term `Tier II 
        Investment Fund' means the trust fund created under section 
        256.
            ``(9) Tier iii investment option.--The term `Tier III 
        Investment Option' means an investment option which is--
                    ``(A) offered by an eligible entity certified by 
                the Board under section 257(b); and
                    ``(B) approved by the Board under section 257(c).

``SEC. 252. SOCIAL SECURITY PERSONAL SAVINGS FUND.

    ``(a) Establishment of Savings Fund.--
            ``(1) Establishment.--There is established in the Treasury 
        of the United States a trust fund to be known as the `Social 
        Security Personal Savings Fund'.
            ``(2) Amounts in fund.--The Savings Fund shall consist of--
                    ``(A) all amounts transferred to or deposited into 
                the Savings Fund under subsection (b), increased by the 
                total net earnings from investments of sums in the 
                Savings Fund attributable to such transferred or 
                deposited amounts, and reduced by the total net losses 
                from investments of such sums, and
                    ``(B) the reserves held in the Annuity Reserves 
                Account established under section 258(b)(3), increased 
                by the total net earnings from investments of such 
                reserves, and reduced by the total net losses from 
                investments of such reserves.
            ``(3) Trustees.--The Board shall serve as trustees of the 
        Savings Fund.
            ``(4) Budget authority; appropriation.--This part 
        constitutes budget authority in advance of appropriations Acts 
        and represents the obligation of the Board to provide for the 
        payment of amounts provided under this part. The amounts held 
        in the Savings Fund are appropriated and shall remain available 
        without fiscal year limitation.
    ``(b) Deposits Into Fund.--
            ``(1) In general.--During each calendar year, the Secretary 
        of the Treasury shall deposit into the Savings Fund, from 
        amounts held in the Federal Old-Age and Survivors Insurance 
        Trust Fund, a total amount equal, in the aggregate, to 100 
        percent of the redirected social security contribution for such 
        calendar year of each individual who is a participating 
        individual for such calendar year.
            ``(2) Transfers based on estimates.--
                    ``(A) In general.--The amounts deposited pursuant 
                to paragraph (1) shall be transferred in at least 
                weekly payments from the Federal Old-Age and Survivors 
                Insurance Trust Fund to the Savings Fund.
                    ``(B) Determination of amounts.--The amounts 
                transferred under subparagraph (A) shall be determined 
                on the basis of estimates, made by the Commissioner of 
                Social Security and certified to the Secretary of the 
                Treasury, of the wages paid to, and self-employment 
                income derived by, participating individuals. Proper 
                adjustments shall be made in amounts subsequently 
                transferred to the extent prior estimates were in 
                excess of or were less than actual amounts transferred.
            ``(3) Redirected social security contributions.--For 
        purposes of paragraph (1)--
                    ``(A) In general.--The term `redirected social 
                security contributions' means, with respect to an 
                individual for a calendar year, the sum of--
                            ``(i) the product derived by multiplying--
                                    ``(I) the sum of the total wages 
                                paid to, and self-employment income 
                                derived by, such individual during such 
                                calendar year, to the extent such total 
                                wages and self-employment income do not 
                                exceed the base amount for such 
                                calendar year; by
                                    ``(II) the applicable base 
                                percentage for the calendar year; and
                            ``(ii) the product derived by multiplying--
                                    ``(I) the sum of the total wages 
                                paid to, and self-employment income 
                                derived by, such individual during such 
                                calendar year, to the extent such total 
                                wages and self-employment income exceed 
                                the base amount (taking into account 
                                the limits imposed by the contribution 
                                and benefit base under section 230); by
                                    ``(II) the applicable supplemental 
                                percentage for the calendar year.
                    ``(B) Base amount.--For purposes of subparagraph 
                (A)--
                            ``(i) Initial base amount.--The base amount 
                        for calendar year 2012 is $10,000.
                            ``(ii) Adjustments to base amount.--The 
                        base amount for any calendar year after 2012 is 
                        the product derived by multiplying $10,000 by a 
                        fraction--
                                    ``(I) the numerator of which is the 
                                national average wage index (as defined 
                                in section 209(k)) for the first of the 
                                2 preceding calendar years; and
                                    ``(II) the denominator of which is 
                                the national average wage index (as so 
                                defined) for 2010.
                    ``(C) Applicable base percentage.--For purposes of 
                subparagraph (A), the applicable base percentage for a 
                calendar year is--
                            ``(i) for calendar years after 2011 and 
                        before 2022, 2 percent;
                            ``(ii) for calendar years after 2021 and 
                        before 2032, 4 percent;
                            ``(iii) for calendar years after 2031 and 
                        before 2042, 6 percent; and
                            ``(iv) for calendar years after 2041, 8 
                        percent.
                    ``(D) Applicable supplemental percentage.--For 
                purposes of subparagraph (A), the applicable 
                supplemental percentage for a calendar year is--
                            ``(i) for calendar years after 2011 and 
                        before 2022, 1 percent;
                            ``(ii) for calendar years after 2021 and 
                        before 2032, 2 percent;
                            ``(iii) for calendar years after 2031 and 
                        before 2042, 3 percent; and
                            ``(iv) for calendar years after 2041, 4 
                        percent.
    ``(c) Availability.--The sums in the Savings Fund are appropriated 
and shall remain available without fiscal year limitation--
            ``(1) to invest funds in the Tier I Investment Fund of the 
        Savings Fund and the Tier II Investment Fund of the Savings 
        Fund under sections 255 and 256, respectively;
            ``(2) to transfer into Tier III Investment Options under 
        section 257;
            ``(3) to make distributions in accordance with section 258; 
        and
            ``(4) to pay the administrative expenses of the Board in 
        accordance with subsection (e).
    ``(d) Limitations on Use of Funds.--
            ``(1) In general.--Sums in the Savings Fund credited to a 
        participating individual's personal social security savings 
        account may not be used for, or diverted to, purposes other 
        than for the exclusive benefit of the participating individual 
        or the participating individual's beneficiaries under this 
        part.
            ``(2) Assignments.--Sums in the Savings Fund may not be 
        assigned or alienated and are not subject to execution, levy, 
        attachment, garnishment, or other legal process.
    ``(e) Payment of Administrative Expenses.--Administrative expenses 
incurred to carry out this part shall be paid out of net earnings in 
the Savings Fund in conjunction with the allocation of investment 
earnings and losses under section 254(c).
    ``(f) Limitation.--The sums in the Savings Fund shall not be 
appropriated for any purpose other than the purposes specified in this 
part and may not be used for any other purpose.

``SEC. 253. PARTICIPATION IN PROGRAM.

    ``(a) Participating Individual.--For purposes of this part, the 
term `participating individual' means any individual--
            ``(1)(A) who receives wages in any calendar year after 
        December 31, 2011, on which there is imposed a tax under 
        section 3101(a) of the Internal Revenue Code of 1986, or
            ``(B) who derives self-employment income for a taxable year 
        beginning after December 31, 2011, on which there is imposed a 
        tax under section 1401(a) of the Internal Revenue Code of 1986,
            ``(2) who is born on or after January 1, 1955, and
            ``(3) who has not filed an election to renounce such 
        individual's status as a participating individual under 
        subsection (b) or has filed such an election and has 
        subsequently filed an election to reinstate such individual's 
        status as a participating individual under subsection (c).
    ``(b) Renunciation of Participation.--
            ``(1) In general.--An individual--
                    ``(A) who has not attained retirement age (as 
                defined in section 216(l)(1)), and
                    ``(B) with respect to whom no distribution has been 
                made from amounts credited to the individual's personal 
                social security savings account for the purchase of a 
                personal social security savings annuity,
        may elect, in such form and manner as shall be prescribed in 
        regulations of the Board, to renounce such individual's status 
        as a `participating individual' for purposes of this part. Upon 
        completion of the procedures provided for under paragraph (2), 
        any such individual who has made such an election shall not be 
        treated as a participating individual under this part, 
        effective as if such individual had never been a participating 
        individual. The Board shall provide for immediate notification 
        of such election to the Commissioner of Social Security, the 
        Secretary of the Treasury, and the Executive Director.
            ``(2) Procedure.--The Board shall prescribe by regulation 
        procedures governing the termination of an individual's status 
        as `participating individual' pursuant to an election under 
        this subsection. Such procedures shall include--
                    ``(A) prompt closing of the individual's personal 
                social security savings account established under 
                section 254,
                    ``(B) revocation of any benefit credit certificate 
                assigned to the individual's personal social security 
                savings account under section 255, and
                    ``(C) prompt transfer to the Federal Old-Age and 
                Survivors Insurance Trust Fund as general receipts of 
                any amount held in the Tier II Investment Fund of the 
                Savings Fund or under a Tier III Investment Option 
                pursuant to section 256 or 257 and credited to such 
                individual's personal social security savings account.
    ``(c) Reinstatement of Participation.--
            ``(1) In general.--Any individual who has filed an election 
        under subsection (b) to renounce such individual's status as a 
        `participating individual' under this part may elect, in such 
        form and manner as shall be prescribed in regulations of the 
        Board, to reinstate such status. Such regulations shall provide 
        for regular, periodic opportunities for the filing of such an 
        election. The Board shall provide for immediate notification to 
        the Commissioner of Social Security, the Secretary of the 
        Treasury, and the Executive Director of such election.
            ``(2) Effectiveness of reinstatement.--An election under 
        this subsection shall be effective with respect to wages 
        earned, and self-employment income derived, on the earliest 
        date on which the Board determines is practicable to make such 
        election effective following the date of the filing of the 
        election. The individual filing the election shall be treated 
        as becoming a participating individual under this part on the 
        effective date of the election as if such individual first met 
        the requirements of subsection (a) on such date.
            ``(3) Irrevocability.--An election under this subsection 
        shall be irrevocable.

``SEC. 254. PERSONAL SOCIAL SECURITY SAVINGS ACCOUNTS.

    ``(a) Establishment of Publicly Administered System of Personal 
Security Savings Accounts.--As soon as practicable after the later of 
January 1, 2012, or the date on which an individual becomes a 
participating individual under this part, the Executive Director shall 
establish a personal social security savings account for such 
individual. Such account shall be the means by which amounts held in 
the Tier I Investment Fund and the Tier II Investment Fund of the 
Savings Fund under sections 255 and 256 and amounts held under Tier III 
Investment Options under section 257 are credited to such individual, 
under procedures which shall be established by the Board by regulation. 
Each account of a participating individual shall be identified to such 
participating individual by means of the participating individual's 
social security account number.
    ``(b) Account Balance.--The balance in a participating individual's 
account at any time is the sum of--
            ``(1) the balance in the Tier I Investment Fund of the 
        Savings Fund credited to such participating individual prior to 
        transfer of the credited amount to the Tier II Investment Fund 
        of the Savings Fund; plus
            ``(2) the excess of--
                    ``(A) all deposits in the Tier II Investment Fund 
                of the Savings Fund credited to such participating 
                individual's personal social security savings account, 
                subject to such increases and reductions as may result 
                from allocations made to and reductions made in the 
                account pursuant to subsection (c)(1); over
                    ``(B) amounts paid out of the Tier II Investment 
                Fund in connection with amounts credited to such 
                participating individual's personal social security 
                savings account; plus
            ``(3) the excess of--
                    ``(A) the deposits in the Tier III Investment 
                Options credited to such participating individual's 
                personal social security savings account, subject to 
                such increases and reductions as may result from 
                amounts credited to, and reductions made in, the 
                account pursuant to subsection (c)(2); over
                    ``(B) amounts paid out of the Tier III Investment 
                Options of such participating individual.
The calculation made under paragraph (3) shall be made separately for 
each Tier III Investment Option of the participating individual. The 
Board shall also hold for the participating individual any benefit 
credit certificate assigned to the participating individual's personal 
social security savings account under section 255.
    ``(c) Allocation of Earnings and Losses.--Pursuant to regulations 
which shall be prescribed by the Board, the Executive Director shall 
allocate to each personal social security savings account an amount 
equal to the net earnings and net losses from each investment of sums--
            ``(1) in the Tier I Investment Fund and the Tier II 
        Investment Fund which are attributable to sums credited to such 
        account reduced by an appropriate share of the administrative 
        expenses paid out of the net earnings, as determined by the 
        Executive Director; and
            ``(2) in the Tier III Investment Options which are 
        attributable to sums credited to such account reduced by the 
        administrative expenses paid out of the net earnings.

``SEC. 255. TIER I INVESTMENT FUND.

    ``(a) Establishment of Tier I Investment Fund.--
            ``(1) In general.--The Savings Fund shall include a 
        separate fund to be known as the `Tier I Investment Fund'.
            ``(2) Amounts in fund.--The Tier I Investment Fund consists 
        of all amounts derived from payments into the Fund under 
        section 252(b) and remaining after investment of such amounts 
        under subsection (b), including additional amounts derived as 
        income from such investments.
            ``(3) Use of funds.--The amounts held in the Fund are 
        appropriated and shall remain available without fiscal year 
        limitation--
                    ``(A) to be held for investment on behalf of 
                participating individuals under subsection (b),
                    ``(B) to pay the administrative expenses related to 
                the Fund, and
                    ``(C) to make transfers from the Fund under 
                subsection (c)(2).
    ``(b) Investment of Fund Balance.--For purposes of investment of 
the Tier I Investment Fund, the Board shall contract with appropriate 
professional asset managers, recordkeepers, and custodians selected for 
investment of amounts held in the Fund, so as to provide for investment 
of the balance of the Fund, in a manner providing broad diversification 
in accordance with regulations of the Board, in--
            ``(1) insurance contracts,
            ``(2) certificates of deposit, or
            ``(3) other instruments or obligations selected by such 
        asset managers,
which return the amount invested and pay interest, at a specified rate 
or rates, on that amount during a specified period of time.
    ``(c) Separate Crediting to Personal Social Security Savings 
Accounts and Transfers to the Tier II Investment Fund or to Tier III 
Investment Options.--
            ``(1) Crediting to accounts.--
                    ``(A) In general.--Subject to this paragraph, the 
                Board shall provide for prompt, separate crediting, as 
                soon as practicable, of the amounts deposited in the 
                Tier I Investment Fund to the personal social security 
                savings account of each participating individual with 
                respect to the redirected social security contributions 
                (as defined in section 252(b)(3)) of such participating 
                individual. The Board shall include in such crediting, 
                with respect to each such individual, any increases or 
                decreases in such amounts so as to reflect the net 
                returns and losses from investment of the balance of 
                the Fund prior to such crediting. For purposes of 
                determining such increases and decreases for each 
                calendar year, the amounts deposited into the Fund in 
                connection with such individual during such calendar 
                year shall be deemed to have been deposited on June 30 
                of such year.
                    ``(B) Treatment of married participating 
                individuals.--If the participating individual is 
                married as of the end of the calendar year in which the 
                amounts to be credited were deposited in the Tier I 
                Investment Fund and the spouse is also a participating 
                individual, the personal social security savings 
                account of the participating individual and the 
                personal social security savings account of his or her 
                spouse shall each be credited with 50 percent of such 
                amounts.
            ``(2) Transfers from the tier i investment fund.--In 
        accordance with elections filed with the Board by a 
        participating individual, any amount credited to the personal 
        social security savings account of such participating 
        individual under paragraph (1) shall be promptly transferred to 
        the Tier II Investment Fund of the Savings Fund for investment 
        in accordance with section 256 and, to the extent available 
        under section 257, to Tier III Investment Options in accordance 
        with section 257.
    ``(d) Treatment of Amounts Held in Tier I Investment Fund.--Subject 
to this part--
            ``(1) until amounts deposited into the Tier I Investment 
        Fund during any calendar year are credited to personal social 
        security savings accounts, such amounts shall be treated as the 
        unallocated property of all participating individuals with 
        respect to whom amounts were deposited in the Fund during such 
        year, jointly held in trust for such participating individuals 
        in the Savings Fund, and
            ``(2) amounts deposited into the Fund which are credited to 
        the personal social security savings account of a participating 
        individual shall be treated as property of the participating 
        individual, held in trust for such participating individual in 
        the Savings Fund.

``SEC. 256. TIER II INVESTMENT FUND.

    ``(a) Establishment of Tier II Investment Fund.--
            ``(1) In general.--The Savings Fund shall include a 
        separate fund to be known as the `Tier II Investment Fund'.
            ``(2) Amounts in fund.--The Tier II Investment Fund 
        consists of all amounts derived from payments into the Fund 
        under section 255(c)(2) and remaining after investment of such 
        amounts under subsection (b), including additional amounts 
        derived as income from such investments.
            ``(3) Use of funds.--The amounts held in the Fund are 
        appropriated and shall remain available without fiscal year 
        limitation--
                    ``(A) to be held for investment under subsection 
                (b),
                    ``(B) to pay the administrative expenses related to 
                the Fund, and
                    ``(C) to make transfers to Tier III Investment 
                Options under section 257 or to make payments under 
                section 258.
    ``(b) Payments Into Tier II Investment Fund.--
            ``(1) In general.--Upon the crediting under section 252 to 
        the personal social security savings account of a participating 
        individual of any amount held in the Tier I Investment Fund for 
        any calendar year, the Board shall transfer from the Tier I 
        Investment Fund into the Tier II Investment Fund any amount so 
        credited to such participating individual's account which is 
        not transferred to a Tier III Investment Option pursuant to an 
        election under section 257(a).
            ``(2) Ongoing separate crediting.--Subject to this 
        paragraph, the Board shall provide for ongoing separate 
        crediting to each participating individual's personal social 
        security savings account of the amounts deposited in the Tier 
        II Investment Fund with respect to such participating 
        individual, together with any increases or decreases therein so 
        as to reflect the net returns and losses from investment 
        thereof while held in the Fund.
    ``(c) Investment Accounts.--
            ``(1) In general.--For purposes of investment of the Tier 
        II Investment Fund, the Board shall divide the Fund into 6 
        investment accounts. The Board shall contract with appropriate 
        investment managers, recordkeepers, and custodians selected for 
        investment of amounts held in each investment account. Such 
        accounts shall consist of--
                    ``(A) a Lifecycle Investment Account,
                    ``(B) a Government Securities Investment Account,
                    ``(C) a Fixed Income Investment Account,
                    ``(D) a Common Stock Index Investment Account,
                    ``(E) a Small Capitalization Stock Index Investment 
                Account, and
                    ``(F) an International Stock Index Investment 
                Account.
            ``(2) Election of investment options.--
                    ``(A) Default investment account.--Except as 
                provided in an election in effect under subparagraph 
                (B), amounts held in the Tier II Investment Fund shall 
                be credited to the Lifecycle Investment Account.
                    ``(B) Election of transfers between investment 
                accounts.--In any case in which a participating 
                individual who has an amount in such individual's 
                personal social security savings account credited to 
                any of the investment accounts in the Tier II 
                Investment Fund files with the Secretary of the 
                Treasury a written election under this subparagraph, 
                not more frequently than annually and in accordance 
                with regulations of the Board, the Secretary of the 
                Treasury shall transfer the full amount so credited in 
                such investment account from such investment account to 
                any one of the other investment accounts in the Tier II 
                Investment Fund (whichever is designated in such 
                election).
    ``(d) Lifecyle Investment Account.--
            ``(1) In general.--The investment manager, recordkeeper, 
        and custodian selected for investment of amounts held in the 
        Lifecyle Investment Account shall invest such amounts under 
        regulations which shall be prescribed by the Board in a mix of 
        equities and fixed income instruments so as to ensure, to the 
        maximum extent practicable, that, of the total balance in the 
        Fund credited to such account and available for investment 
        (after allowing for administrative expenses), the percentage 
        invested in fixed income instruments by individuals in 
        designated cohorts, ranging in age up to those of at least 
        retirement age, will increase in a linear progression from 0 
        percent to 100 percent as the cohort approaches retirement age.
            ``(2) Investment in equities.--In accordance with 
        regulations which shall be prescribed by the Board, the Board 
        shall establish standards which must be met by equities 
        selected for investment in the Lifecycle Investment Account. In 
        conformity with such standards, the Board shall select, for 
        purposes of such investment, indices which are comprised of 
        equities the aggregate market value of which is, in each case, 
        a reasonably broad representation of companies whose shares are 
        traded on the equity markets. Amounts invested in equities 
        under an investment option shall be held in a portfolio 
        designed to replicate the performance of one or more of such 
        indices.
            ``(3) Investment in fixed income instruments.--In 
        accordance with regulations which shall be prescribed by the 
        Board, the Board shall establish standards which must be met by 
        fixed income instruments selected for investment in the 
        Lifecycle Investment Account. Such standards shall take into 
        account the competing considerations of risk and return. 
        Amounts invested in fixed income instruments in an investment 
        option shall be held in a portfolio which shall consist of a 
        diverse range of fixed income instruments, taking into full 
        account the opposing considerations of risk and maximization of 
        return.
    ``(e) Government Securities Investment Account.--
            ``(1) In general.--Amounts in the Government Securities 
        Investment Account shall be invested in securities of the 
        United States Government as provided in this subsection.
            ``(2) Issuance of special obligations.--The Secretary of 
        the Treasury is authorized to issue special interest-bearing 
        obligations of the United States for purchase by the Tier II 
        Investment Fund for purposes of investment of amounts in the 
        Government Securities Investment Account. Such obligations 
        shall have maturities fixed with due regard to the needs of the 
        Fund as determined by the Board, and shall bear interest at a 
        rate equal to the average market yield (computed by the 
        Secretary of the treasury on the basis of market quotations as 
        of the end of the calendar month next preceding the date of 
        issue of such obligations) on all marketable interest-bearing 
        obligations of the United States then forming a part of the 
        public debt which are not due or callable earlier than 4 years 
        after the end of such calendar month. Any average market yield 
        computed under this paragraph which is not a multiple of one-
        eighth of 1 percent shall be rounded to the nearest multiple of 
        one-eighth of 1 percent.
    ``(f) Fixed Income Investment Account.--Amounts in the Fixed Income 
Investment Account shall be invested in instruments or obligations 
which return the amount invested and pay interest, at a specified rate 
or rates, on that amount during a specified period of time, consisting 
of instruments or obligations in one or more of the following 
categories:
            ``(1) insurance contracts;
            ``(2) certificates of deposit; or
            ``(3) other instruments or obligations selected by 
        qualified professional asset managers.
    ``(g) Common Stock Index Investment Account.--
            ``(1) Portfolio design.--Amounts held in the Common Stock 
        Investment Account shall be invested in a portfolio of common 
        stock designed to replicate the performance of the index 
        selected under paragraph (2). The portfolio shall be designed 
        such that, to the extent practicable, the percentage of the 
        balance in the Common Stock Index Investment Account that is 
        invested in each stock is the same as the percentage determined 
        by dividing the aggregate market value of all shares of that 
        stock by the aggregate market value of all shares of all stocks 
        included in such index.
            ``(2) Selection of index.--The Board shall select, for 
        purposes of investment of amounts held in the Common Stock 
        Investment Account, an index which is a commonly recognized 
        index comprised of common stock the aggregate market value of 
        which is a reasonably complete representation of the United 
        States equity markets.
    ``(h) Small Capitalization Stock Index Investment Account.--
            ``(1) Portfolio design.--Amounts held in the Small 
        Capitalization Stock Index Investment Account shall be invested 
        in a portfolio of common stock designed to replicate the 
        performance of the index selected under paragraph (2). The 
        portfolio shall be designed such that, to the extent 
        practicable, the percentage of the balance in the Small 
        Capitalization Stock Index Investment Account that is invested 
        in each stock is the same as the percentage determined by 
        dividing the aggregate market value of all shares of that stock 
        by the aggregate market value of all shares of all stocks 
        included in such index.
            ``(2) Selection of index.--The Board shall select, for 
        purposes of investment of amounts held in the Small 
        Capitalization Stock Index Investment Account, an index which 
        is a commonly recognized index comprised of common stock the 
        aggregate market value of which represents the United States 
        equity markets excluding the common stocks included in the 
        Common Stock Index Investment Account.
    ``(i) International Stock Index Investment Account.--
            ``(1) Portfolio design.--Amounts held in the International 
        Stock Index Investment Account shall be invested in a portfolio 
        of stock designed to replicate the performance of the index 
        selected under paragraph (2). The portfolio shall be designed 
        such that, to the extent practicable, the percentage of the 
        balance in the International Stock Index Investment Account 
        that is invested in each stock is the same as the percentage 
        determined by dividing the aggregate market value of all shares 
        of that stock by the aggregate market value of all shares of 
        all stocks included in such index.
            ``(2) Selection of index.--The Board shall select, for 
        purposes of investment of amounts held in the International 
        Stock Index Investment Account, an index which is a commonly 
        recognized index comprised of common stock the aggregate market 
        value of which is a reasonably complete representation of the 
        international equity markets excluding the United States equity 
        markets.
    ``(j) Additional Investment Options.--The Board may from time to 
time, as determined by regulation as appropriate to further the 
purposes of this section, shall--
            ``(1) establish investment accounts in the Tier II 
        Investment Fund meeting the requirements of this section in 
        addition to those established by this section, and
            ``(2) terminate investment accounts in the Tier II 
        Investment Fund established pursuant to paragraph (1).
    ``(k) Disclosure of Administrative Costs.--The Board shall provide 
to each participating individual an annual disclosure of the rate of 
administrative costs chargeable with respect to investment in each 
investment account in the Tier II Investment Fund. Such disclosure 
shall be written in a manner calculated to be understood by the average 
participating individual.
    ``(l) Treatment of Amounts Held in Tier II Investment Fund.--
Subject to this part, amounts deposited into, and held and accounted 
for in, the Tier II Investment Fund with respect to any participating 
individual shall continue to be treated as property of such 
participating individual, held in trust for such participating 
individual in the Fund.

``SEC. 257. TIER III INVESTMENT OPTIONS.

    ``(a) Election of Tier III Investment Options.--
            ``(1) In general.--A participating individual may elect to 
        direct transfers from amounts in the Savings Fund credited to 
        the personal social security savings account of such individual 
        into 1 or more Tier III Investment Options in accordance with 
        paragraph (2).
            ``(2) Commencement of tier iii investment options upon 
        attainment of election threshold.--In any case in which, as of 
        the end of any calendar year, the total balance in the Savings 
        Fund credited to a participating individual's personal social 
        security savings account exceeds for the first time the 
        election threshold, the Board shall, by regulation, provide for 
        an opportunity for such participating individual to make, at 
        any time thereafter, such individual's first election of one or 
        more of the Tier III Investment Options for investment of an 
        amount in the Savings Fund credited to such account. Such 
        election may be in lieu of or in addition to investment in the 
        options available with respect to the Tier II Investment Fund 
        of the Savings Fund.
            ``(3) Allocation of funds.--In the case of an election 
        under paragraph (1), funds credited to the personal social 
        security savings account of the participating individual and 
        elected for transfer to one or more Tier III Investment Options 
        shall be transferred to the Tier III Investment Options so 
        elected for such calendar year, in percentages specified in the 
        election by the participating individual for each applicable 
        portfolio.
            ``(4) Election threshold.--
                    ``(A) In general.--Subject to subparagraph (B), for 
                purposes of this subsection the term `election 
                threshold' means an amount equal to $25,000.
                    ``(B) Adjustments.--The Board shall adjust annually 
                (effective for annual reporting months occurring after 
                December 2012) the dollar amount set forth in 
                subparagraph (A) under procedures providing for 
                adjustments in the same manner and to the same extent 
                as adjustments are provided for under the procedures 
                used to adjust benefit amounts under section 
                215(i)(2)(A), except that any amount so adjusted that 
                is not a multiple of $1.00 shall be rounded to the 
                nearest multiple of $1.00.
            ``(5) Subsequent investment of amounts held in tier iii 
        investment options.--Any amounts held in one or more Tier III 
        Investment Options may be--
                    ``(A) transferred at any time to one or more other 
                Tier III Investment Options, subject to applicable 
                regulations of the Board and the terms governing the 
                affected Tier III Investment Options, and
                    ``(B) transferred, not more frequently than 
                annually, to the Tier II Investment Fund, for deposit 
                in the applicable investment account then selected by 
                the participating individual under section 256.
    ``(b) Certification of Eligible Entities.--
            ``(1) In general.--The Board shall certify eligible 
        entities to offer Tier III Investment Options under this part.
            ``(2) Application.--Any eligible entity that desires to be 
        certified by the Board to offer a Tier III Investment Option 
        shall submit an application to the Board at such time, in such 
        manner, and containing such information as the Board may 
        require.
            ``(3) Requirements for approval.--The Board shall not 
        certify an eligible entity unless such eligible entity agrees 
        to the following requirements:
                    ``(A) Separate accounting.--Each eligible entity 
                shall, with respect to each Tier III Investment Option 
                offered by such eligible entity to participating 
                individuals--
                            ``(i) establish separate accounts for the 
                        contributions of each participating individual, 
                        and any earnings properly allocable to the 
                        contributions, and
                            ``(ii) maintain separate recordkeeping with 
                        respect to each account.
                    ``(B) Treatment of amounts held in fund.--Amounts 
                deposited into, and held and accounted for in, a Tier 
                III Investment Option with respect to any participating 
                individual shall be treated as property of such 
                participating individual, held in trust for such 
                participating individual.
                    ``(C) Trust requirements.--Amounts held and 
                accounted for with respect to a participating 
                individual shall be held in a trust created or 
                organized in the United States for the exclusive 
                benefit of such individual or his beneficiaries.
                    ``(D) Exemption from third party claims.--Each Tier 
                III Investment Option shall be exempt from any and all 
                third party claims against the eligible entity.
                    ``(E) Disclosure of administrative costs.--Each 
                eligible entity offering a Tier III Investment Option 
                under this section shall provide to each participating 
                individual an annual disclosure of the rate of 
                administrative costs chargeable with respect to 
                investment in such Option. Such disclosure shall be 
                written in a manner calculated to be understood by the 
                average participating individual. The Board shall 
                provide for coordination of disclosures with respect to 
                Tier III Investment Options under this subparagraph so 
                as to assist participating individuals in comparing 
                alternative Options based on administrative costs.
                    ``(F) Reporting to the executive director and the 
                board.--Each eligible entity shall provide reports to 
                the Executive Director and the Board at such time, in 
                such manner, and containing such information as the 
                Board may require.
            ``(4) Eligible entity defined.--For purposes of this 
        section, the term `eligible entity' means any investment 
        company (as defined in section 3 of the Investment Company Act 
        of 1940) or other person that the Board determines appropriate 
        to offer Tier III Investment Options under this part.
    ``(c) Approval of Tier III Investment Options.--
            ``(1) In general.--No funds may be transferred into a Tier 
        III Investment Option unless the Board has approved an 
        application submitted under paragraph (2) with respect to the 
        option.
            ``(2) Application.--With respect to each Tier III 
        Investment Option that an eligible entity certified under 
        subsection (b)(1) seeks to offer, such entity shall submit an 
        application to the Board at such time, in such manner, and 
        containing such information as the Board may require.
            ``(3) Qualifications for approval.--The Board may not 
        approve an application submitted under paragraph (2) in 
        connection with a Tier III Investment Option unless the 
        following requirements are met:
                    ``(A) Option must be offered by certified eligible 
                entity.--The Tier III Investment Option is offered by 
                an eligible entity certified under subsection (b).
                    ``(B) Option must meet quality factors.--
                            ``(i) In general.--The Tier III Investment 
                        Option meets qualifications which shall be 
                        prescribed by the Board relating to the quality 
                        factors described in clause (ii).
                            ``(ii) Quality factors.--The quality 
                        factors described in this clause are--
                                    ``(I) the safety and soundness of 
                                the Tier III Investment Option's 
                                proposed investment policy;
                                    ``(II) the experience and record of 
                                performance of the proposed investment 
                                option, if any;
                                    ``(III) the experience and record 
                                of performance of the entity issuing or 
                                offering such option; and
                                    ``(IV) such other factors as the 
                                Board may determine appropriate.
    ``(d) Considerations for Certification and Approval.--In 
determining whether to certify an eligible entity under subsection (b) 
or to approve a Tier III Investment Option under subsection (c), the 
Board shall--
            ``(1) act in the best interests of the participating 
        individuals;
            ``(2) base its determination solely on considerations of 
        balancing safety and soundness of the Tier III Investment 
        Option with the maximization of returns of such option; and
            ``(3) not base any determination related to the entity or 
        option on political or other extraneous considerations.
    ``(e) Sponsorship of Tier III Investment Options by Membership and 
Labor Organizations.--
            ``(1) In general.--A membership or labor organization (as 
        defined by the Board) may sponsor Tier III Investment Options 
        under contracts with eligible entities certified under 
        subsection (b) who shall administer the investment option if 
        such investment option is approved by the Board under 
        subsection (c).
            ``(2) Limitation to membership.--A membership or labor 
        organization (as so defined) may limit to the members of such 
        organization participation in a Tier III Investment Option 
        sponsored by such organization.
    ``(f) Distributions in Case of Death.--Upon the death of a 
participating individual, the amount of any assets held under a Tier 
III Investment Option credited to the personal social security savings 
account of such individual shall be distributed in accordance with 
section 258(e).

``SEC. 258. PERSONAL SOCIAL SECURITY SAVINGS ANNUITY AND OTHER 
              DISTRIBUTIONS.

    ``(a) Date of Initial Distribution.--Except as provided in 
subsection (e), distributions may be made to a participating individual 
from amounts credited to the personal social security savings account 
of such individual only on or after the earliest of--
            ``(1) the date the participating individual attains 
        retirement age (as defined in section 216(l)(1)) or, if elected 
        by the individual, early retirement age (as defined in section 
        216(l)(2)); or
            ``(2) the date on which the amount credited to the 
        participating individual's personal social security savings 
        account is sufficient to purchase a personal social security 
        savings annuity with a monthly benefit that is at least equal 
        to the minimum annuity payment amount (as defined in subsection 
        (b)(4)(C)(iii)).
    ``(b) Personal Social Security Savings Annuities.--
            ``(1) Notice of available annuities.--Not later than the 
        date determined under subsection (a), the Board shall notify 
        each participating individual of--
                    ``(A) the most recent listing of personal social 
                security savings annuities offered by the Annuity 
                Issuance Authority under paragraph (2); and
                    ``(B) the entitlement of the participating 
                individual to purchase such an annuity.
            ``(2) Annuity issuance authority.--There is established in 
        the office of the Board an agency which shall be known as the 
        `Annuity Issuance Authority'. The Authority shall provide, in 
        accordance with regulations of the Board, for the issuance of 
        personal social security savings annuities for purchase from 
        the Authority under this section and to otherwise administer 
        the issuance of such annuities in accordance with such 
        regulations.
            ``(3) Annuity reserves account.--There is established in 
        the Savings Fund an Annuity Reserves Account. The Account shall 
        consist of all amounts received by the Authority from the 
        purchase of personal social security savings annuities under 
        this section (plus such amounts as may be transferred to the 
        Account under paragraph (5)(B)), increased by the total net 
        earnings from investments of such reserves under subparagraph 
        (A) of paragraph (5) and reduced by the total net losses from 
        investments of such reserves under such subparagraph.
            ``(4) Purchase of annuities.--
                    ``(A) Selection of annuity.--On a date elected by 
                the participating individual, but no earlier than the 
                date determined under subsection (a), a participating 
                individual may purchase a personal social security 
                savings annuity selected from among the annuities 
                offered by the Authority under paragraph (2).
                    ``(B) Transfer of assets.--Upon the selection of an 
                annuity by a participating individual under 
                subparagraph (A), the Board shall provide for the 
                transfer of assets, credited to the personal social 
                security savings account of the participating 
                individual and held in the Tier II Investment Fund or 
                under 1 or more Tier III Investment Options (or any 
                combination thereof), in a total amount sufficient to 
                purchase the annuity selected by the participating 
                individual from annuities offered by the Authority.
                    ``(C) Minimum annuity payment amount.--
                            ``(i) In general.--Subject to subparagraph 
                        (D), if, at the time a personal social security 
                        savings annuity is purchased under subparagraph 
                        (A), the assets credited to the personal social 
                        security savings account of the participating 
                        individual are sufficient to purchase a 
                        personal social security savings annuity 
                        offered by the Authority under paragraph (2) 
                        with a monthly annuity payment that is at least 
                        equal to the minimum annuity payment amount, 
                        the amount of the monthly annuity payment 
                        provided by such annuity may not be less then 
                        the minimum annuity payment amount.
                            ``(ii) Construction.--Nothing in this 
                        subparagraph shall be construed to prohibit a 
                        participating individual from using personal 
                        social security savings account assets to 
                        purchase a personal social security savings 
                        annuity offered by the Authority under 
                        paragraph (2) which provides for a monthly 
                        payment in excess of the minimum amount 
                        required under clause (i).
                            ``(iii) Minimum annuity payment amount 
                        defined.--For purposes of this part, the term 
                        `minimum annuity payment amount' means, as of 
                        any date, an amount equal to the monthly 
                        equivalent of 150 percent of the poverty line 
                        for an individual (as in effect on such date), 
                        determined under the poverty guidelines of the 
                        Department of Health and Human Services issued 
                        under sections 652 and 673(2) of the Omnibus 
                        Budget Reconciliation Act of 1981.
                    ``(D) Purchase of annuities in the event of 
                insufficient assets.--If a participating individual 
                desires, or is required under subsection (f), to 
                purchase a personal social security savings annuity 
                under subsection (b) on or after the date determined 
                under subsection (a)(1) and the assets of the personal 
                social security savings account of such individual are 
                insufficient to purchase a personal social security 
                savings annuity that provides for a monthly payment 
                that is at least equal to the minimum annuity payment 
                amount (as defined in paragraph (4)(C)(iii)), the 
                participating individual shall purchase a personal 
                social security savings annuity with a monthly payment 
                equal to the maximum amount that the participating 
                individual's personal social security savings account 
                can fund, as determined in accordance with regulations 
                which shall be prescribed by the Authority, and that 
                otherwise meets the requirements of this subsection 
                (including the cost-of-living protection requirement of 
                subsection (c)(1)(C)), and the Authority shall provide 
                for appropriate certification to the Secretary of the 
                Treasury with respect to the participating individual's 
                eligibility for guarantee payments under section 259.
            ``(5) Maintenance of reserves for payment of annuities.--
                    ``(A) Investment of reserves.--For purposes of 
                investment of reserves held in the Annuity Reserves 
                Account, the Authority shall contract with appropriate 
                investment managers, recordkeepers, and custodians 
                selected by the Authority for investment of such 
                reserves. Such reserves shall be invested under 
                regulations which shall be prescribed by the Authority 
                so as to ensure, to the maximum extent practicable, 
                that, of the total balance of the reserves (after 
                payment of administrative expenses to such managers, 
                recordkeepers, and custodians)--
                            ``(i) 65 percent is invested in equities in 
                        the same manner and under the same standards as 
                        are provided in section 256(c)(4), and
                            ``(ii) 35 percent is invested in fixed 
                        income instruments in the same manner and under 
                        the same standards as are provided in section 
                        256(c)(5).
                    ``(B) Provision for full payment of annuities.--
                Payment of personal social security savings annuities 
                in accordance with the terms of such annuities shall be 
                made, irrespective of the sufficiency of reserves in 
                the Annuity Reserves Fund attributable to funds 
                obtained from the purchase of such annuities. In the 
                event of any impending insufficiency in the Annuity 
                Reserves Account for the next fiscal year, the 
                Authority shall certify to the Secretary of the 
                Treasury the amount of such insufficiency, and the 
                Secretary of the Treasury shall transfer from the 
                Federal Old-Age and Survivors Insurance Trust Fund to 
                the Annuity Reserves Account the amount of the 
                insufficiency, as so certified, in such installments, 
                made prior to or during such fiscal year, as are 
                necessary to eliminate in advance such insufficiency.
    ``(c) Personal Social Security Savings Annuity.--
            ``(1) In general.--For purposes of this part, the term 
        `personal social security savings annuity' means an annuity 
        that meets the following requirements:
                    ``(A) The annuity starting date (as defined in 
                section 72(c)(4) of the Internal Revenue Code of 1986) 
                commences on the first day of the month beginning after 
                the date of the purchase of the annuity.
                    ``(B) The terms of the annuity provide--
                            ``(i) for a monthly payment to the 
                        participating individual during the life of the 
                        participating individual equal to at least the 
                        minimum annuity payment amount (as defined in 
                        subsection (b)(4)(C)(iii)), or
                            ``(ii) in the case of an annuity purchased 
                        under subparagraph (D) of subsection (b)(4), 
                        the maximum monthly payment determined under 
                        regulations prescribed under such subparagraph.
                    ``(C) The terms of the annuity include procedures 
                providing for adjustments in the amount of the monthly 
                payments in the same manner and to the same extent as 
                adjustments are provided for under the procedures used 
                to adjust benefit amounts under section 215(i)(2)(A). 
                Nothing in this subparagraph shall be construed to 
                preclude the terms governing such an annuity from 
                providing for adjustments in the amount of monthly 
                payments resulting in a payment for any month greater 
                than the payment for that month that would result from 
                adjustments required under the preceding sentence 
                (b)(4)(D).
                    ``(D) The terms of the annuity include such other 
                terms and conditions as the Board requires for the 
                protection of the annuitant.
            ``(2) Exemption from third party claims.--Each personal 
        social security savings annuity shall be exempt from any and 
        all third party claims against the issuer.
    ``(d) Right To Use Excess Personal Social Security Savings Account 
Assets.--To the extent assets credited to a participating individual's 
personal social security savings account remain after the purchase of 
an annuity under subsection (b), the remaining assets shall be payable 
to the participating individual at such time, in such manner, and in 
such amounts as the participating individual may specify, subject to 
subsection (f).
    ``(e) Distributions in Case of Death.--If the participating 
individual dies before all amounts which are held in the Tier I 
Investment Fund or the Tier II Investment Fund of the Savings Fund or 
held under a Tier III Investment Option and which are credited to the 
personal social security savings account of the individual are 
otherwise distributed in accordance with this section, such amounts 
shall be distributed, under regulations which shall be prescribed by 
the Board--
            ``(1) in any case in which one or more beneficiaries have 
        been designated in advance, to such beneficiaries in accordance 
        with such designation as provided in such regulations, and
            ``(2) in the case of any amount not distributed as 
        described in paragraph (1), to such individual's estate.
    ``(f) Date of Final Distribution.--All amounts credited to the 
personal social security savings account of an individual shall be 
distributed, by means of the purchase of annuities or otherwise in a 
manner consistent with the requirements of this section, not later than 
5 years after the date the individual attains retirement age (as 
defined in section 216(l)). The Board shall provide by regulation for 
means of distribution necessary to ensure compliance with the 
requirements of this subsection.

``SEC. 259. GUARANTEE OF PROMISED BENEFITS.

    ``(a) In General.--If, for any month ending after the date on which 
a participating individual attains retirement age (as defined in 
section 216(l)(1)), the monthly payment under a participating 
individual's personal social security savings annuity is less than the 
minimum annuity payment amount (as defined in section 
258(b)(4)(C)(iii)), adjusted as provided in section 258(c)(1)(C), the 
Annuity Issuance Authority shall so certify to the Secretary of the 
Treasury and, upon receipt of such certification, such Secretary shall 
provide to the participating individual, from amounts in the Federal 
Old-Age and Survivors Insurance Trust Fund, a guaranty payment for such 
month to supplement the personal social security savings annuity and to 
guarantee full payment of such individual's monthly promised benefits.
    ``(b) Guaranty Payment.--For purposes of subsection (a), a 
participating individual's guaranty payment for any month is equal to 
the excess of--
            ``(1) the minimum annuity payment amount (as defined in 
        section 258(b)(4)(C)(iii)), adjusted as provided in section 
        258(c)(1)(C); over
            ``(2) the payment for such month of the personal social 
        security savings annuity purchased by the participating 
        individual.
    ``(c) Protection of Part A Normal Retirement Benefit Levels.--
            ``(1) In general.--In any case in which, for any month 
        ending after the date on which a participating individual 
        attains retirement age (as defined in section 216(l)(1))--
                    ``(A) such individual's assumed total normal 
                retirement part A benefit for such month, exceeds
                    ``(B) the monthly payment payable for such month 
                under such individual's personal social security 
                savings annuity,
        the Secretary of the Treasury shall pay to such individual for 
        such month, from amounts in the Federal Old-Age and Survivors 
        Insurance Trust Fund, an additional amount (if any) equal to 
        the excess of the amount described in subparagraph (A) over the 
        amount described in subparagraph (B).
            ``(2) Definition.--For purposes of this subsection, the 
        term `assumed total normal retirement part A benefit' means, in 
        connection with a participating individual, the total amount of 
        monthly insurance benefits under section 202 based on such 
        individual's wages and self-employment income (adjusted by 
        taking into account adjustments under section 215(i)) that 
        would have been payable if--
                    ``(A) section 202(z) did not apply, and
                    ``(B) such individual applied for old-age insurance 
                benefits under section 202(a) during the month in which 
                such individual attains retirement age (as defined in 
                section 216(l)(1)).

``SEC. 260. PERSONAL SOCIAL SECURITY SAVINGS BOARD.

    ``(a) Establishment.--There is established in the executive branch 
of the Government a Personal Social Security Savings Board.
    ``(b) Composition.--The Board shall be composed of--
            ``(1) 3 members appointed by the President, of whom 1 shall 
        be designated by the President as Chairman; and
            ``(2) 2 members appointed by the President, of whom--
                    ``(A) 1 shall be appointed by the President after 
                taking into consideration the recommendation made by 
                the Speaker of the House of Representatives in 
                consultation with the minority leader of the House of 
                Representatives; and
                    ``(B) 1 shall be appointed by the President after 
                taking into consideration the recommendation made by 
                the majority leader of the Senate in consultation with 
                the minority leader of the Senate.
    ``(c) Advice and Consent.--Appointments under subsection (b) shall 
be made by and with the advice and consent of the Senate.
    ``(d) Membership Requirements.--Members of the Board shall have 
substantial experience, training, and expertise in the management of 
financial investments and pension benefit plans.
    ``(e) Length of Appointments.--
            ``(1) Terms.--A member of the Board shall be appointed for 
        a term of 4 years, except that of the members first appointed 
        under subsection (b)--
                    ``(A) the Chairman shall be appointed for a term of 
                4 years;
                    ``(B) the members appointed under subsection (b)(2) 
                shall be appointed for terms of 3 years; and
                    ``(C) the remaining members shall be appointed for 
                terms of 2 years.
            ``(2) Vacancies.--
                    ``(A) In general.--A vacancy on the Board shall be 
                filled in the manner in which the original appointment 
                was made and shall be subject to any conditions that 
                applied with respect to the original appointment.
                    ``(B) Completion of term.--An individual chosen to 
                fill a vacancy shall be appointed for the unexpired 
                term of the member replaced.
            ``(3) Expiration.--The term of any member shall not expire 
        before the date on which the member's successor takes office.
    ``(f) Duties.--The Board shall--
            ``(1) administer the program established under this part;
            ``(2) establish policies for the investment and management 
        of the Savings Fund, including the Tier I Investment Fund and 
        the Tier II Investment Fund, and amounts held under Tier III 
        Investment Options, including policies applicable to the asset 
        managers, recordkeepers, and custodians with responsibility for 
        managing the investment of amounts credited to personal social 
        security investment accounts, and for the management and 
        operation of personal social security savings annuities, which 
        shall provide for--
                    ``(A) prudent investments suitable for accumulating 
                funds for payment of retirement income;
                    ``(B) sound management practices; and
                    ``(C) low administrative costs;
            ``(3) review the performance of investments made for the 
        Tier I Investment Fund and the Tier II Investment Fund;
            ``(4) review the performance of investments made under Tier 
        III Investment Options;
            ``(5) review the management and operation of personal 
        social security savings annuities;
            ``(6) review and approve the budget of the Board; and
            ``(7) comply with the fiduciary requirements of part 4 of 
        subtitle B of title I of the Employee Retirement Income 
        Security Act of 1974 (relating to fiduciary responsibility) in 
        connection with any exercise of discretion in connection with 
        the assets of the Savings Fund.
    ``(g) Administrative Provisions.--
            ``(1) In general.--The Board may--
                    ``(A) adopt, alter, and use a seal;
                    ``(B) except as provided in paragraph (4), direct 
                the Executive Director to take such action as the Board 
                considers appropriate to carry out the provisions of 
                this part and the policies of the Board in accordance 
                with delegations under this part;
                    ``(C) upon the concurring votes of 4 members, 
                remove the Executive Director from office for good 
                cause shown;
                    ``(D) provide to the Executive Director such 
                resources as are necessary to carry out the duties of 
                the Executive Director; and
                    ``(E) take such other actions as may be necessary 
                to carry out the functions of the Board.
            ``(2) Meetings.--The Board shall meet--
                    ``(A) not less than once during each month; and
                    ``(B) at additional times at the call of the 
                Chairman.
            ``(3) Exercise of powers.--
                    ``(A) In general.--Except as provided in paragraph 
                (1)(C), the Board shall perform the functions and 
                exercise the powers of the Board on a majority vote of 
                a quorum of the Board. Three members of the Board shall 
                constitute a quorum for the transaction of business.
                    ``(B) Vacancies.--A vacancy on the Board shall not 
                impair the authority of a quorum of the Board to 
                perform the functions and exercise the powers of the 
                Board.
            ``(4) Limitations on investments.--The Board may not direct 
        any person to invest or to cause to be invested any sums in the 
        Tier II Investment Fund or any personal social security 
        investment account in a specific asset or to dispose of or 
        cause to be disposed of any specific asset of such Fund or any 
        such account.
    ``(h) Compensation.--
            ``(1) In general.--Each member of the Board who is not an 
        officer or employee of the Federal Government shall be 
        compensated at the daily rate of basic pay for level IV of the 
        Executive Schedule for each day during which such member is 
        engaged in performing a function of the Board.
            ``(2) Expenses.--A member of the Board shall be paid 
        travel, per diem, and other necessary expenses under subchapter 
        I of chapter 57 of title 5, United States Code, while traveling 
        away from such member's home or regular place of business in 
        the performance of the duties of the Board.
            ``(3) Source of funds.--Payments authorized under this 
        subsection shall be paid from the Tier I Investment Fund or the 
        Tier II Investment Fund, as determined appropriate by the 
        Board.
    ``(i) Discharge of Responsibilities.--The members of the Board 
shall discharge their responsibilities solely in the interest of the 
participating individuals and their beneficiaries under this part.
    ``(j) Annual Independent Audit.--The Board shall annually engage an 
independent qualified public accountant to audit the activities of the 
Board.
    ``(k) Submission of Budget to Congress.--The Board shall prepare 
and submit to the President, and, at the same time, to the appropriate 
committees of Congress, an annual budget of the expenses and other 
items relating to the Board which shall be included as a separate item 
in the budget required to be transmitted to Congress under section 1105 
of title 31, United States Code.
    ``(l) Submission of Legislative Recommendations.--The Board may 
submit to the President, and, at the same time, shall submit to each 
House of Congress, any legislative recommendations of the Board 
relating to any of its functions under this part or any other provision 
of law.

``SEC. 261. EXECUTIVE DIRECTOR.

    ``(a) Appointment of Executive Director.--The Board shall appoint, 
without regard to the provisions of law governing appointments in the 
competitive service, an Executive Director by action agreed to by a 
majority of the members of the Board.
    ``(b) Duties.--The Executive Director shall, as determined 
appropriate by the Board--
            ``(1) carry out the policies established by the Board;
            ``(2) invest and manage the Tier I Investment Fund and the 
        Tier II Investment Fund in accordance with the investment 
        policies and other policies established by the Board;
            ``(3) administer the provisions of this part relating to 
        the Tier I Investment Fund and the Tier II Investment Fund; and
            ``(4) prescribe such regulations (other than regulations 
        relating to fiduciary responsibilities) as may be necessary for 
        the administration of this part relating to the Tier I 
        Investment Fund and the Tier II Investment Fund.
    ``(c) Administrative Authority.--The Executive Director may, within 
the scope of the duties of the Executive Director as determined by the 
Board--
            ``(1) appoint such personnel as may be necessary to carry 
        out the provisions of this part relating to the Tier I 
        Investment Fund and the Tier II Investment Fund;
            ``(2) subject to approval by the Board, procure the 
        services of experts and consultants under section 3109 of title 
        5, United States Code;
            ``(3) secure directly from an Executive agency, the United 
        States Postal Service, or the Postal Rate Commission any 
        information necessary to carry out the provisions of this part 
        and the policies of the Board relating to the Tier I Investment 
        Fund and the Tier II Investment Fund;
            ``(4) make such payments out of sums in the Tier I 
        Investment Fund and the Tier II Investment Fund as the 
        Executive Director determines, in accordance with regulations 
        of the Board, are necessary to carry out the provisions of this 
        part and the policies of the Board;
            ``(5) pay the compensation, per diem, and travel expenses 
        of individuals appointed under paragraphs (1), (2), and (6) 
        from the Tier I Investment Fund or the Tier II Investment Fund, 
        in accordance with regulations of the Board;
            ``(6) accept and use the services of individuals employed 
        intermittently in the Government service and reimburse such 
        individuals for travel expenses, authorized by section 5703 of 
        title 5, United States Code, including per diem as authorized 
        by section 5702 of such title;
            ``(7) except as otherwise expressly prohibited by law or 
        the policies of the Board, delegate any of the Executive 
        Director's functions to such employees under the Board as the 
        Executive Director may designate and authorize such successive 
        redelegations of such functions to such employees under the 
        Board as the Executive Director may consider to be necessary or 
        appropriate; and
            ``(8) take such other actions as are appropriate to carry 
        out the functions of the Executive Director.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to wages paid after December 31, 2011, for pay 
periods ending after such date and self-employment income for taxable 
years beginning after such date.

SEC. 403. MONTHLY INSURANCE BENEFITS FOR PARTICIPATING INDIVIDUALS.

    Section 202 of the Social Security Act (42 U.S.C. 402) is amended 
by adding at the end the following new subsection:

                ``Benefits for Participants Under Part B

    ``(z)(1) Notwithstanding the preceding provisions of this section--
            ``(A) a participating individual under the Personal Social 
        Security Savings Program under part B shall not be entitled to 
        old-age insurance benefits under subsection (a); and
            ``(B) except as provided in paragraph (2), no individual 
        shall be entitled to benefits under this section on the basis 
        of the wages and self-employment income of such a participating 
        individual.
    ``(2) In the case of any such participating individual who dies 
before such individual purchases a personal social security savings 
annuity under section 258, paragraph (1)(B) shall not apply with 
respect to child's insurance benefits under subsection (d), widow's 
insurance benefits under subsection (e), widower's insurance benefits 
under subsection (f), mother's and father's insurance benefits under 
subsection (g), and parent's insurance benefits under subsection 
(h).''.

SEC. 404. TAX TREATMENT OF ACCOUNTS.

    (a) In General.--
            (1) In general.--Subchapter F of chapter 1 of the Internal 
        Revenue Code of 1986 (relating to exempt organizations) is 
        amended by adding at the end the following new part:

          ``PART IX--PERSONAL SOCIAL SECURITY SAVINGS PROGRAM

``Sec. 530A. Personal social security savings program.

``SEC. 530A. PERSONAL SOCIAL SECURITY SAVINGS PROGRAM.

    ``(a) General Rule.--The Social Security Personal Savings Fund and 
each Tier III Investment Option are exempt from taxation under this 
subtitle. Notwithstanding the preceding sentence, sums in a personal 
social security savings account which are attributable to a Tier III 
Option shall be subject to the taxes imposed by section 511 (relating 
to imposition of tax on unrelated business income of charitable, etc. 
organizations).
    ``(b) Distributions.--
            ``(1) In general.--Any qualified distribution from--
                    ``(A) amounts credited to a personal social 
                security savings account from the Social Security 
                Personal Savings Fund or attributable to a Tier III 
                Investment Option, or
                    ``(B) a personal social security savings annuity,
        shall not be included in the gross income of the distributee.
            ``(2) Qualified distribution.--For purposes of paragraph 
        (1), the term `qualified distribution' means a distribution 
        which meets the requirements of section 258 of the Social 
        Security Act and which is not a guaranty payment (as defined by 
        section 259 of such Act).
    ``(c) Definitions.--For purposes of this section--
            ``(1) Personal social security savings account.--The term 
        `personal social security savings account' means an account 
        established under section 254(a) of the Social Security Act.
            ``(2) Personal social security savings annuity.--The term 
        `personal social security savings annuity' means an annuity 
        approved by the Personal Social Security Savings Board under 
        section 258(b)(3) of the Social Security Act.
            ``(3) Social security personal savings fund.--The term 
        `Social Security Personal Savings Fund' means the Savings Fund 
        established under section 252 of the Social Security Act.
            ``(4) Tier iii investment option.--The term `Tier III 
        Investment Option' has the meaning given such term by section 
        251(9) of the Social Security Act.
    ``(d) Estate Tax Treatment.--No amount shall be includible in the 
gross estate of any individual for purposes of chapter 11 by reason of 
an interest in the Tier I Investment Fund or the Tier II Investment 
Fund of the Savings Fund or held under a Tier III Investment Option and 
which is credited to the personal social security savings account of 
the individual.''.
            (2) Conforming amendment.--Section 86(d)(1)(A) of such Code 
        is amended by inserting ``part A of'' after ``under''.
            (3) Clerical amendment.--The table of parts for subchapter 
        F of chapter 1 of such Code is amended by adding after the item 
        relating to part VIII the following new item:

        ``Part IX. Personal Social Security Savings Program.''.

    (b) Guaranty Payments.--Paragraph (1) of section 86(d) of the 
Internal Revenue Act of 1986, as amended by subsection (a)(2), is 
amended by striking ``or'' at the end of subparagraph (A), by striking 
the period and inserting ``, or'' at the end of subparagraph (B), and 
by adding at the end the following new subparagraph:
                    ``(C) a guaranty payment under section 259(a), and 
                a payment of an additional amount under section 259(c), 
                of the Social Security Act.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 405. SELF-LIQUIDATING SOCIAL SECURITY TRANSITION FUND.

    Part B of title II of the Social Security Act (as added by section 
101 of this Act) is amended by adding at the end the following new 
section:

``SEC. 262. SELF-LIQUIDATING SOCIAL SECURITY TRANSITION FUND.

    ``(a) Establishment.--There is hereby created on the books of the 
Treasury of the United States a trust fund to be known as the Self-
Liquidating Social Security Transition Fund (in this section referred 
to as the `Transition Fund').
    ``(b) Board of Trustees.--
            ``(1) Establishment.--With respect to the Transition Fund, 
        there is hereby created a body to be known as the Board of 
        Trustees of the Transition Fund (in this section referred to as 
        the `Board of Trustees') composed of the Commissioner of Social 
        Security, the Secretary of the Treasury, and the members of the 
        Personal Social Security Savings Board.
            ``(2) Duties.--The Board of Trustees shall--
                    ``(A) provide for the issuance of obligations by 
                the Transition Fund pursuant to subsection (c),
                    ``(B) provide for the receipt and management of 
                amounts paid into the Transition Fund pursuant to 
                subsection (d),
                    ``(C) use all funds paid into the Transition Fund 
                to redeem obligations issued under subsection (c) as 
                soon as practicable,
                    ``(D) report to Congress not later than the first 
                day of April of each year on the operation and status 
                of the Transition Fund during the preceding fiscal year 
                and on its expected operation and status during the 
                current fiscal year and the next 2 fiscal years, and
                    ``(E) review the general policies followed in 
                managing the Transition Fund, and recommend changes in 
                such policies, including necessary changes in the 
                provisions of law which govern the way in which the 
                Transition Fund is to be managed.
            ``(3) Meetings.--The Board of Trustees shall meet not less 
        frequently than once each calendar year.
    ``(c) Issuance of Transition Fund Bonds.--
            ``(1) Issuance.--
                    ``(A) In general.--The purposes for which 
                obligations of the United States may be issued under 
                chapter 31 of title 31, United States Code, are hereby 
                extended to authorize the issuance at par of public-
                debt obligations by the Transition Fund.
                    ``(B) Required issuance.--Beginning on January 1, 
                2012, whenever any obligation held in the Federal Old-
                Age and Survivors Insurance Trust Fund or the Federal 
                Disability Insurance Trust Fund is repaid from the 
                general fund of the Treasury to either of such Trust 
                Funds, the Transition Fund shall issue an obligation 
                under this subsection in an amount equal to the amount 
                of interest and principal so repaid.
                    ``(C) Transfer of proceeds to general fund of the 
                treasury.--Proceeds from the issuance of any obligation 
                issued under this section shall be transferred to the 
                general fund of the Treasury.
                    ``(D) Accounting.--The debt owed on any obligation 
                issued under this section shall be considered to be 
                debt of the Transition Fund and shall be accounted for 
                in such manner.
            ``(2) Maturities and interest rate.--Such obligations 
        issued by the Transition Fund for purchase by the public shall 
        have maturities fixed with due regard for the needs of the 
        Transition Fund and shall bear interest at a rate equal to the 
        average market yield (computed by the Secretary of the Treasury 
        on the basis of market quotations as of the end of the calendar 
        month next preceding the date of such issue) on all marketable 
        interest-bearing obligations of the United States then forming 
        a part of the public debt which are not due or callable until 
        after the expiration of 4 years from the end of such calendar 
        month, except that where such average market yield is not a 
        multiple of one-eighth of 1 per centum, the rate of interest on 
        such obligations shall be the multiple of one-eighth of 1 per 
        centum nearest such market yield.
            ``(3) Repayment of obligations.--Obligations issued under 
        this subsection may be redeemed only by funds in the Transition 
        Fund.
    ``(d) Deposit of OASDI Trust Fund Surplus.--
            ``(1) In general.--There are appropriated to the Transition 
        Fund for the fiscal year beginning in 2033, and for each fiscal 
        year thereafter, out of any moneys in the Federal Old-Age and 
        Survivors Insurance Trust Fund, amounts equivalent to the OASDI 
        trust fund surplus (as defined in paragraph (2)) for the 
        preceding fiscal year.
            ``(2) Transfers based on estimates.--The amounts 
        appropriated by paragraph (1) shall be transferred from time to 
        time from the Federal Old-Age and Survivors Insurance Trust 
        Fund to the Transition Fund, such amounts to be determined on 
        the basis of estimates by the Commissioner of Social Security. 
        Proper adjustments shall be made in amounts subsequently 
        transferred to the extent prior estimates were in excess of or 
        were less than such surplus.
            ``(3) OASDI trust fund surplus defined.--In this section, 
        the term `OASDI trust fund surplus' for a fiscal year means the 
        dollar amount by which the Federal Old-Age and Survivors 
        Insurance Trust Fund could be reduced as of the end of such 
        fiscal year so as to result in an OASDI trust fund ratio (as 
        defined in section 201(p)(4)) for such fiscal year equal to 125 
        percent.
            ``(4) Rule of construction.--This section shall not be 
        construed to require redemption of obligations of the Trust 
        Fund for the purpose of making transfers to the Transition Fund 
        under this section or for any other purpose other than to 
        provide for payment of benefits under part A of title II of the 
        Social Security Act.
    ``(e) Redemption of Obligations Upon Deposit of Funds.--Obligations 
issued under subsection (c) may be redeemed only by funds in the 
Transition Fund. The Board of Trustees shall provide for the redemption 
of such obligations as soon as possible with funds deposited into the 
Transition Fund pursuant to subsection (d).
    ``(f) Sunset.--On the first date as of which all of the obligations 
issued under subsection (c) have been redeemed, any balance remaining 
in the Transition Fund as of such date shall be deposited in the 
Federal Old-Age and Survivors Insurance Trust Fund, the terms of the 
Board of Trustees shall end, the Transition Fund shall cease to exist, 
and this section shall be repealed.''.

SEC. 406. BUDGETARY TREATMENT OF SOCIAL SECURITY.

    (a) In General.--Section 710 of the Social Security Act (42 U.S.C. 
911) is amended to read as follows:

                ``budgetary treatment of social security

    ``Sec. 710. 
    ``Notwithstanding any other provision of law and except as provided 
in subsection (b), the receipts and disbursements shall be treated in 
the same manner as section 13301 of the Budget Enforcement Act of 
1990.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to fiscal years beginning on or after October 1, 
2011.

SEC. 407. ACCOUNTING FOR THE OLD-AGE, SURVIVORS, AND DISABILITY 
              INSURANCE PROGRAM AND THE PERSONAL SOCIAL SECURITY 
              SAVINGS PROGRAM.

    Title VII of the Social Security Act is amended by inserting after 
section 705 (42 U.S.C. 906) the following new section:

   ``accounting for the old-age, survivors, and disability insurance 
        program and the personal social security savings program

                    ``Social Security Lockbox Budget

    ``Sec. 706. (a) At the time of the transmittal to the Congress by 
the President of the budget of the United States Government, the 
President shall transmit to each House of the Congress a separate 
report (to be known as the `Social Security Lockbox Budget') detailing 
the performance during the preceding fiscal year of each of the 
accounts established under subsection (b). Such report shall set forth, 
as determined as of the end of the year--
            ``(1) the amount of the balance of each account,
            ``(2) the amount of the total charges and the amount of the 
        total credits to each account for the year, and
            ``(3) the amount of the total for the year of each category 
        of charges and credits itemized in subsection (b).

                      ``Establishment of Accounts

    ``(b) For purposes of accounting for certain receipts and 
disbursement of the Treasury of the United States in connection with 
the Old-Age, Survivors, and Disability Insurance Program under part A 
of title II of the Social Security Act and the Personal Security 
Savings Program under part B of such title, the Secretary of the 
Treasury shall establish and maintain a Social Security Part A Account, 
a Social Security Part B Account, and a Self-Liquidating Social 
Security Transition Fund Account.

      ``Credits and Charges to the Social Security Part A Account

    ``(c)(1) For each fiscal year, the Social Security Part A Account 
shall be credited with the sum of--
            ``(A) all receipts during the year by the Federal Old-Age 
        and Survivors Insurance Trust Fund and the Federal Disability 
        Insurance Trust Fund under section 201 (including amounts 
        received as interest on notes and obligations purchased by the 
        Trust Funds under section 201(d) of such Act, and excluding 
        amounts received in redemption of such notes and obligations 
        and amounts received by either such Trust Fund as transfers 
        from the other such Trust Fund), and
            ``(B) all receipts during the year by the Federal Old-Age 
        and Survivors Insurance Trust Fund and the Federal Disability 
        Insurance Trust Fund under section 121(e) of the Social 
        Security Amendments of 1983 (relating to appropriation of 
        amounts equivalent to taxes on social security benefits) (42 
        U.S.C. 401 note).
    ``(2) For each fiscal year, the Social Security Part A Account 
shall be charged with the sum of--
            ``(A) all benefits paid during the year from the Federal 
        Old-Age and Survivors Insurance Trust Fund and the Federal 
        Disability Insurance Trust Fund under part A of title II of the 
        Social Security Act,
            ``(B) all redirected social security contributions 
        transferred during the year to the Social Security Personal 
        Savings Fund under section 252(b),
            ``(C) all other expenditures during the year from the Trust 
        Funds under part A of title II (excluding amounts expended as 
        transfers by either such Trust Fund to the other such Trust 
        Fund and amounts paid for the purchase of notes and obligations 
        under section 201(d)), and
            ``(D) all transfers from the Federal Old-Age and Survivors 
        Insurance Trust Fund to the Self-Liquidating Social Security 
        Transition Fund under section 262(d).

      ``Charges and Credits to the Social Security Part B Account

    ``(d)(1) For each fiscal year, the Social Security Part B Account 
shall be credited with--
            ``(A) all redirected social security contributions 
        transferred during the year to the Personal Social Security 
        Savings Fund under section 252(b) of the Social Security Act, 
        and
            ``(B) any net increase in the Tier I Investment Fund 
        attributable to investment for the fiscal year, any net 
        increase in the Tier II Investment Fund attributable to 
        investment for the fiscal year, and the total amount of any net 
        increases in Tier III Investment Options attributable to 
        investment for the fiscal year.
    ``(2) For each fiscal year, the Social Security Part B Account 
shall be charged with--
            ``(A) all administrative costs incurred for the fiscal year 
        with respect to the Tier I Investment Fund, the Tier II 
        Investment Fund, and the Tier III Investment Options,
            ``(B) any net decrease in the Tier I Investment Fund 
        attributable to investment for the fiscal year, any net 
        decrease in the Tier II Investment Fund attributable to 
        investment for the fiscal year, and the total amount of any net 
        decreases in Tier III Investment Options attributable to 
        investment for the fiscal year, and
            ``(C) annuity payments made during the year under section 
        258 from the Annuity Reserve Account in the Savings Fund.

     ``Charges and Credits to the Self-Liquidating Social Security 
                        Transition Fund Account

    ``(e)(1) For each fiscal year, the Self-Liquidating Social Security 
Transition Account shall be credited with--
            ``(A) all transfers to the Transition Fund from the Federal 
        Old-Age and Survivors Insurance Trust Fund under section 
        262(b), and
            ``(B) all amounts expended during the fiscal year from the 
        Trust Funds in the redemption under section 262(e) of 
        obligations issued by the Transition fund under section 262(c).
    ``(2) For each fiscal year, the Self-Liquidating Social Security 
Transition Fund Account shall be charged with the total amount of 
obligations issued during the fiscal year by the Transition Fund under 
section 262(c)''.

SEC. 408. PROGRESSIVE INDEXING OF BENEFITS FOR OLD-AGE, WIFE'S, AND 
              HUSBAND'S INSURANCE BENEFITS.

    (a) In General.--Section 215(a) of the Social Security Act (42 
U.S.C. 415(a)) is amended--
            (1) by striking ``The'' in paragraph (1)(A) and inserting 
        ``In the case of any benefit other than an applicable benefit 
        to which paragraph (2) applies, the'', and
            (2) by redesignating paragraphs (2) through (7) as 
        paragraphs (3) through (8), respectively, and by inserting 
        after paragraph (1) the following new paragraph:
    ``(2)(A) In the case of an applicable benefit with respect to any 
individual who initially becomes eligible for old-age insurance 
benefits or who dies (before becoming eligible for such benefits) in 
calendar year 2017 or later, the primary insurance amount of the 
individual shall be equal to the sum of--
            ``(i) 90 percent of the individual's average indexed 
        monthly earning (determined under subsection (b)) to the extent 
        that such earnings do not exceed the amount established for 
        purposes of paragraph (1)(A)(i) by paragraph (1)(B);
            ``(ii) 32 percent of the individual's average indexed 
        monthly earnings to the extent that such earnings exceed the 
        amount established for purposes of paragraph (1)(A)(i) by 
        paragraph (1)(B) but do not exceed the amount established for 
        purposes of this clause by subparagraph (B);
            ``(iii) 32 percent (reduced as provided in subparagraph 
        (C)) of the individual's average indexed monthly earnings to 
        the extent that such earnings exceed the amount established for 
        purposes of clause (ii) but do not exceed the amount 
        established for purposes of paragraph (1)(A)(ii) by paragraph 
        (1)(B); and
            ``(iv) 15 percent (reduced as provided in subparagraph (C)) 
        of the individual's average indexed monthly earnings to the 
        extent that such earnings exceed the amount established for 
        purposes of paragraph (1)(A)(ii) by paragraph (1)(B).
    ``(B)(i) For purposes of subparagraph (A)(ii), the amount 
established under this subparagraph for calendar year 2017 shall be the 
level of average indexed monthly earnings determined by the Chief 
Actuary of the Social Security Administration under clause (ii) as 
being at the 30th percentile for the period of calendar years 2006 
through 2008.
    ``(ii) For purposes of clause (i), the average indexed monthly 
earnings for the period of calendar years 2006 through 2008 shall be 
determined by--
            ``(I) determining the average indexed monthly earnings for 
        each individual who initially became eligible for old-age 
        insurance benefits or who died (before becoming eligible for 
        such benefits) during such period, except that in determining 
        such average indexed monthly earnings under subsection (b), 
        subsection (b)(3)(A)(ii)(I) shall be applied by substituting 
        calendar year 2002 for the second calendar year described in 
        such subsection; and
            ``(II) multiplying the amount determined for each 
        individual under subclause (I) by the quotient obtained by 
        dividing the national average wage index (as defined in section 
        209(k)(1)) for the calendar year 2015 by such index for the 
        calendar year 2003.
    ``(iii) For purposes of subparagraph (A)(ii), the amount 
established under this subparagraph for any calendar year after 2017 
shall be equal to the product of the amount in effect under clause (i) 
with respect to calendar year 2017 and the quotient obtained by 
dividing--
            ``(I) the national average wage index (as defined in 
        section 209(k)(1)) for the second calendar year preceding the 
        calendar year for which the determination is being made, by
            ``(II) the national average wage index (as so defined) for 
        2015.
    ``(iv) The amount established under this subparagraph for any 
calendar year shall be rounded to the nearest $1, except that any 
amount so established which is a multiple of $0.50 but not of $1 shall 
be rounded to the next higher $1.
    ``(C)(i) Except as provided in clause (ii), in the case of any 
calendar year after 2016, each of the percentages to which this 
subparagraph applies by reason of clauses (iii) or (iv) of subparagraph 
(A) shall be a percentage equal to such percentage multiplied by the 
quotient obtained by dividing--
            ``(I) the difference of the maximum CPI-indexed benefit 
        amount for such year over the amount determined under this 
        paragraph for an individual whose average indexed monthly 
        earnings are equal to the amount established for purposes of 
        subparagraph (A)(ii) for such year, by
            ``(II) the difference of the maximum wage-indexed benefit 
        amount for such year over the amount determined under this 
        paragraph for an individual whose average indexed monthly 
        earnings are equal to the amount established for purposes of 
        subparagraph (A)(ii) for such year.
    ``(ii)(I) In the case of any calendar year which is a positive 
balance year, clause (i) shall not apply and each of the percentages to 
which this subparagraph applies by reason of clause (iii) or (iv) of 
subparagraph (B) shall be a percentage equal to the percentage 
determined under this subparagraph for the preceding year (determined 
after the application of this subparagraph).
    ``(II) In the case of any calendar year after a positive balance 
year which is not a positive balance year, this subparagraph shall be 
applied by substituting `the second calendar year preceding the most 
recent positive balance year' for `2014' each place it appears in 
clause (iv).
    ``(iii) For purposes of clause (i), the maximum wage-indexed 
benefit amount for any calendar year shall be equal to the amount 
determined under this paragraph (determined without regard to any 
reduction under this subparagraph) for an individual with wages paid in 
and self-employment income credited to each computation base year in an 
amount equal to the contribution and benefit base for each calendar 
year.
    ``(iv) For purposes of clause (i), the maximum CPI-indexed benefit 
amount for any calendar year shall be an amount equal to the amount 
determined under clause (iii) for such year multiplied by a fraction--
            ``(I) the numerator of which is the ratio (rounded to the 
        nearest one-thousandth of 1 percent) of the Consumer Price 
        Index for the second preceding year to such index for 2014; and
            ``(II) the denominator of which is the ratio (rounded to 
        the nearest one-thousandth of 1 percent) of the national wage 
        index (as defined in section 209(k)(1)) for the second year 
        preceding such year to such index for 2014.
    ``(v)(I) For purposes of this subparagraph, a positive balance year 
is a calendar year following any calendar year after 2081 for which the 
Chief Actuary of the Social Security Administration certifies to the 
Secretary of the Treasury and the Congress that the combined balance 
ratio of the Federal Old-Age and Survivors Trust Fund and the Federal 
Disability Insurance Trust Fund is not less than 100 percent for such 
year.
    ``(II) For purposes of subclause (I), the combined balance ratio of 
the Federal Old-Age and Survivors Trust Fund and the Federal Disability 
Insurance Trust Fund for any calendar year is the ratio of the combined 
balance of such Trust Funds as of the last day of such calendar year 
(reduced by any transfer made pursuant to section 201(o) in such 
calendar year) to the amount estimated by the Commissioner of Social 
Security under section 201(l)(3)(B)(iii)(II) to be paid from such Trust 
Funds during the calendar year following such calendar year for all 
purposes authorized by section 201 (determined as if such following 
calendar year were a positive balance year).
    ``(D) For purposes of this paragraph, rules similar to the rules of 
subparagraphs (C) and (D) of paragraph (1) shall apply.
    ``(E) For purposes of this paragraph, the term `applicable benefit' 
means any benefit under section 202 other than--
            ``(i) a child's insurance benefit under section 202(d) with 
        respect to a child of an individual who has died;
            ``(ii) a widow's insurance benefit under section 202(e) 
        with respect to a widow who has not attained age 60 and is 
        under a disability (as defined in section 223(d)) which began 
        before the end of the period specified in section 202(e)(4);
            ``(iii) a widower's insurance benefit under section 202(f) 
        with respect to a widower who has not attained age 60 and is 
        under a disability (as defined in section 223(d)) which began 
        before the end of the period specified in section 202(f)(4); 
        and
            ``(iv) a mother's and father's insurance benefit under 
        section 202(g).''.
    (b) Treatment of Disabled Beneficiaries.--Section 215(a) of such 
Act (as amended by subsection (a)) is amended further by adding at the 
end the following new paragraph:
    ``(9)(A) Notwithstanding the preceding provisions of this 
subsection, in the case of an individual who has or has had a period of 
disability and who initially becomes eligible for old-age insurance 
benefits or who dies (before becoming eligible for such benefits) in 
any calendar year in or after 2017, the primary insurance amount of 
such individual shall be the sum of--
            ``(i) the amount determined under subparagraph (B); and
            ``(ii) the product derived by multiplying--
                    ``(I) the excess of the amount determined under 
                subparagraph (C) over the amount determined under 
                subparagraph (B), by
                    ``(II) the adjustment factor for such individual 
                determined under subparagraph (D).
    ``(B) The amount determined under this subparagraph is the amount 
of such individual's primary insurance amount as determined under this 
section without regard to this paragraph.
    ``(C) The amount determined under this subparagraph is the amount 
of such individual's primary insurance amount as determined under this 
section as in effect with respect to individuals becoming eligible for 
old-age or disability insurance benefits under section 202(a) on the 
date of the enactment of the Social Security Personal Savings Guarantee 
and Prosperity Act of 2009.
    ``(D) The adjustment factor determined under this subparagraph for 
any individual is the ratio (not greater than 1) of--
            ``(i) the total number of months during which such 
        individual is under a disability (as defined in section 223(d)) 
        during the period beginning on the date the individual attains 
        age 22 and ending on the first day of such individual's first 
        month of eligibility for old-age insurance benefits under 
        section 202(a) (or, if earlier, the month of such individual's 
        death), to
            ``(ii) the number of months during the period beginning on 
        the date the individual attains age 22 and ending on the first 
        day of such individual's first month of eligibility for old-age 
        insurance benefits under section 202(a) (or, if earlier, the 
        month of such individual's death).''.
    (c) Conforming Amendments.--
            (1) Subsections (e)(2)(B)(i)(I) and (f)(2)(B)(i)(I) of 
        section 202 of the Social Security Act are each amended by 
        inserting ``or section 215(a)(2)(B)(iii)'' after ``section 
        215(a)(1)(B)(i) and (ii)''.
            (2) Section 203(a)(10) of such Act is amended--
                    (A) in subparagraph (A)(i), by striking 
                ``215(a)(2)(B)(i)'' and inserting ``215(a)(3)(B)(i)'';
                    (B) in subparagraph (A)(ii), by striking 
                ``215(a)(2)(C)'' and inserting ``215(a)(3)(C)''; and
                    (C) in subparagraph (B)(ii), by striking 
                ``215(a)(2)'' and inserting ``215(a)(3)''.
            (3) Section 209(k)(1) of such Act is amended by inserting 
        ``215(a)(2)(B), 215(a)(2)(C),'' after ``215(a)(1)(D),''.
            (4) Section 215(a) of such Act is amended--
                    (A) in paragraph (4)(A), as redesignated by 
                paragraph (2), by striking ``paragraph (4)'' and 
                inserting ``paragraph (5)'';
                    (B) in paragraph (4)(B), as redesignated by 
                paragraph (2), by striking ``paragraph (2)(A)'' and 
                inserting ``paragraph (3)(A)'';
                    (C) in paragraph (5), as redesignated by paragraph 
                (2), by striking ``paragraph (3)(A)'' and inserting 
                ``paragraph (4)(A)'';
                    (D) in paragraph (6)(A), as redesignated by 
                paragraph (2), by striking ``paragraph (4)(B)'' and 
                inserting ``paragraph (5)(B)''; and
                    (E) in paragraph (8)(B)(ii)(I), as redesignated by 
                paragraph (2), by striking ``paragraph (3)(B)'' and 
                inserting ``paragraph (4)(B)''.
            (5) Section 215(d)(3) of such Act is amended--
                    (A) by striking ``paragraph (4)(B)(ii)'' and 
                inserting ``paragraph (5)(B)(ii)''; and
                    (B) by striking ``subsection (a)(7)(C)'' and 
                inserting ``subsection (a)(8)(C)''.
            (6) Subsection 215(f) of such Act is amended--
                    (A) in paragraph (2)(B), by striking ``subsection 
                (a)(4)(B)'' and inserting ``subsection (a)(5)(B)'';
                    (B) in paragraph (7), by striking ``subsection 
                (a)(4)(B)'' and inserting ``subsection (a)(5)(B)'', and 
                by striking ``subsection (a)(6)'' and inserting 
                ``subsection (a)(7)'';
                    (C) in paragraph (9)(A)--
                            (i) by striking ``subsection (a)(7)(A)'' 
                        and inserting ``subsection (a)(8)(A)''; and
                            (ii) by striking ``subsection (a)(7)(C)'' 
                        and inserting ``subsection (a)(8)(C)''; and
                    (D) in paragraph (9)(B), by striking ``subsection 
                (a)(7)'' each place it appears and inserting 
                ``subsection (a)(8)''.

SEC. 409. ENHANCEMENTS TO PART A BENEFITS.

    (a) CPI Indexing in Part A Benefit Formula.--Section 215(a)(1)(B) 
of the Social Security Act (42 U.S.C. 415(a)(1)(B)) is amended--
            (1) by redesignating clause (iii) as clause (iv);
            (2) in clause (ii), by inserting ``and before 2017'' after 
        ``1979'';
            (3) in clause (iv) (as so redesignated), by inserting ``or 
        (iii)'' after ``clause (ii)''; and
            (4) by inserting after clause (ii) the following new 
        clause:
    ``(iii) For individuals who initially become eligible for old-age 
or disability insurance benefits, or who die (before becoming eligible 
for such benefits), in any calendar year after 2016, each of the 
amounts so established shall be equal to the product of the 
corresponding amount established with respect to the calendar year 2016 
under clause (ii) of this subparagraph and the quotient obtained by 
dividing--
            ``(I) the Consumer Price Index for the second calendar year 
        preceding the calendar year for which the determination is 
        made, by
            ``(II) the Consumer Price Index for 2014.
For purposes of this clause, the term `Consumer Price Index' for a 
calendar year means the arithmetical mean of the Consumer Price Index 
(within the meaning of such term as used in subsection (i)) for the 12 
months in such calendar year.''.
    (b) Enhanced Part A Benefit Levels for Low Earners.--Section 215(a) 
of such Act (as amended by section 408) is amended by adding at the end 
the following new paragraph:
    ``(10)(A) In the case of any individual who initially becomes 
eligible for old-age or disability insurance benefits, or who dies 
(before becoming eligible for such benefits), in any calendar year 
after 2016 and whose average indexed monthly earnings is less than 
twice the 35-year low earner AIME for such calendar year, each primary 
insurance amount otherwise determined under paragraph (1) or (2) shall 
be the product of--
            ``(i) such primary insurance amount as so determined, and
            ``(ii) the applicable adjustment factor for such 
        individual.
    ``(B) For purposes of this paragraph, the applicable adjustment 
factor for an individual is 100 percent plus the product of--
            ``(i) the applicable percentage for the calendar year,
            ``(ii) the applicable AIME factor, and
            ``(iii) the applicable coverage factor.
    ``(C) For purposes of subparagraph (B)(i), the applicable 
percentage for a calendar year is the percentage set forth in 
connection with such calendar year in the following table:

``If the calendar year is:                           The percentage is:
        2017...............................................       4.04 
        2018...............................................       8.08 
        2019...............................................      12.12 
        2020...............................................      16.16 
        2021...............................................      20.20 
        2022...............................................      24.24 
        2023...............................................      28.28 
        2024...............................................      32.32 
        2025...............................................      36.36 
        2026 or thereafter.................................      40.40.
    ``(D) For purposes of subparagraph (B)(ii)--
            ``(i) in any case in which an individual's average indexed 
        monthly earnings is less than or equal to the 30-year low 
        earner AIME for the calendar year referred to in subparagraph 
        (A), the applicable AIME factor in connection with the 
        individual for the calendar year is 1,
            ``(ii) in any case in which an individual's AIME is greater 
        than the 30-year low earner AIME for the calendar year referred 
        to in subparagraph (A) and less than twice the 35-year low 
        earner AIME for the calendar year, the applicable AIME factor 
        in connection with the individual for the calendar year is the 
        quotient derived by dividing--
                    ``(I) the excess of twice the 35-year low earner 
                AIME for the calendar year over the individual's 
                average indexed monthly earnings, by
                    ``(II) the excess of twice the 35-year low earner 
                AIME for the calendar year over the 30-year low earner 
                AIME for the calendar year, and
            ``(iii) in any case in which an individual's average 
        indexed monthly earnings is greater than or equal to twice the 
        35-year low earner AIME for the calendar year referred to in 
        subparagraph (A), the applicable AIME factor in connection with 
        an individual for the calendar year is 0.
    ``(E) For purposes of subparagraph (B)(iii)--
            ``(i) in any case in which the number of an individual's 
        quarters of coverage earned prior to the date on which the 
        individual became eligible or died as described in subparagraph 
        (A) is less than or equal to twice the number of elapsed years 
        with respect to the individual, the applicable coverage factor 
        in connection with the individual is 0,
            ``(ii) in any case in which the number of an individual's 
        quarters of coverage earned prior to the date on which the 
        individual became eligible or died as described in subparagraph 
        (A) is greater than twice the number of elapsed years with 
        respect to the individual and less than three times the number 
        of elapsed years with respect to the individual, the applicable 
        coverage factor in connection with the individual is 1 plus the 
        quotient derived by dividing--
                    ``(I) the excess of the number of the individual's 
                quarters of coverage over 3 times the number of elapsed 
                years with respect to the individual, by
                    ``(II) the number of elapsed years with respect to 
                the individual, and
            ``(iii) in any case in which the number of an individual's 
        quarters of coverage earned prior to the date on which the 
        individual became eligible or died as described in subparagraph 
        (A) is greater than or equal to 3 times the number of elapsed 
        years with respect to the individual, the applicable coverage 
        factor in connection with the individual is 1.
    ``(F) For purposes of this paragraph--
            ``(i) The term `30-year low earner AIME' for a calendar 
        year means the amount which would be the average indexed 
        monthly earnings of an individual--
                    ``(I) whose benefit computation years are the 
                preceding 30 calendar years, and
                    ``(II) whose primary insurance amount is based 
                solely on wages earned during such calendar years for 
                40 hours per week at an hourly rate equivalent to the 
                minimum wage required under section 6 of the Fair Labor 
                Standards Act of 1938 (29 U.S.C. 206) at the time such 
                wages were earned.
            ``(ii) The term `35-year low earner AIME' for a calendar 
        year means the amount which would be the average indexed 
        monthly earnings of an individual--
                    ``(I) whose benefit computation years are the 
                preceding 35 calendar years, and
                    ``(II) whose primary insurance amount is based 
                solely on wages earned during such calendar years for 
                40 hours per week at an hourly rate equivalent to the 
                minimum wage required under section 6 of the Fair Labor 
                Standards Act of 1938 (29 U.S.C. 206) at the time such 
                wages were earned.
            ``(iii) The term `number of elapsed years' has the meaning 
        provided in subsection (b)(2)(B)(iii).''.

                     TITLE V--SIMPLIFIED INCOME TAX

SEC. 501. SHORT TITLE.

    This title may be cited as the ``Taxpayer Choice Act of 2009''.

SEC. 502. REPEAL OF ALTERNATIVE MINIMUM TAX FOR NONCORPORATE TAXPAYERS.

    (a) In General.--Section 55(a) of the Internal Revenue Code of 1986 
(relating to alternative minimum tax imposed) is amended by adding at 
the end the following new flush sentence:
``In the case of a taxpayer other than a corporation, no tax shall be 
imposed by this section for any taxable year beginning after December 
31, 2009, and the tentative minimum tax of any taxpayer other than a 
corporation for any such taxable year shall be zero for purposes of 
this title.''.
    (b) Conforming Amendments.--
            (1) Section 26(c) of such Code is amended by striking ``the 
        term `tentative minimum tax' means the amount determined under 
        section 55(b)(1)'' and inserting ``the tentative minimum tax is 
        zero.''.
            (2) Section 911(f)(2) of such Code is amended to read as 
        follows:
            ``(2) the tentative minimum tax under section 55 for the 
        taxable year shall be zero.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

SEC. 503. SIMPLIFIED INCOME TAX SYSTEM.

    (a) In General.--Part I of subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 (relating to tax on individuals) is 
amended by redesignating section 5 as section 6 and by inserting after 
section 4 the following new section:

``SEC. 5. SIMPLIFIED INCOME TAX SYSTEM.

    ``(a) Election.--
            ``(1) In general.--A taxpayer other than a corporation may 
        elect in accordance with this subsection to be subject to the 
        tax imposed by this section in lieu of the tax imposed by 
        section 1 for a taxable year and all subsequent taxable years.
            ``(2) Effect of election.--For purposes of this title, if 
        an election is in effect under paragraph (1) for any taxable 
        year, the tax imposed by this section shall be treated as the 
        tax imposed by section 1 for the taxable year and, except as 
        provided by sections 31 and 36, no amount shall be allowed as a 
        credit against such tax for the taxable year.
            ``(3) Election.--
                    ``(A) In general.--
                            ``(i) In general.--Except as provided in 
                        clause (ii) of this subparagraph and clauses 
                        (ii) and (iii) of subparagraph (B), the 
                        election under paragraph (1) may only be made 
                        with respect to any taxable year beginning 
                        before January 1, 2019, on a timely filed 
                        return for the first taxable year for which the 
                        election applies.
                            ``(ii) New taxpayers.--In the case of an 
                        individual with no tax liability under this 
                        title before January 1, 2019, the election 
                        under paragraph (1) may only be made for the 
                        first taxable year beginning after December 31, 
                        2018, for which such individual has tax 
                        liability under this title.
                    ``(B) Effect of election.--
                            ``(i) In general.--Except as provided in 
                        clauses (ii) and (iii), the election under 
                        paragraph (1), once made, shall be irrevocable.
                            ``(ii) One-time revocation of election.--A 
                        taxpayer may revoke an election under paragraph 
                        (1) for a taxable year and all subsequent 
                        taxable years. The preceding sentence shall not 
                        apply if the taxpayer has made a revocation 
                        under such sentence for any prior taxable year.
                            ``(iii) Filing status changes due to major 
                        life events.--In the case of any major life 
                        event described in clause (iv), a taxpayer may 
                        make an election under paragraph (1) or revoke 
                        such an election under clause (ii). Any such 
                        election or revocation shall apply for the 
                        taxable year for which made and all subsequent 
                        taxable years until the taxpayer makes an 
                        election under the preceding sentence for any 
                        subsequent (and all succeeding) taxable year.
                            ``(iv) Major life event.--For purposes of 
                        clause (iii), a major life event described in 
                        this clause is marriage, divorce, and death.
    ``(b) Tax Imposed.--
            ``(1) Married individuals and surviving spouses.--In the 
        case of a taxpayer for whom an election under subsection (a) is 
        in effect and who is a married individual (as defined in 
        section 7703) who makes a single return jointly with his spouse 
        under section 6013 or a surviving spouse (as defined in section 
        2(a)), there is hereby imposed on the alternative taxable 
        income of such individual a tax determined in accordance with 
        the following table:

``If taxable income is:             The tax is:
    Not over $100,000..............
                                        10% of alternative taxable 
                                                income.
    Over $100,000..................
                                        $10,000, plus 25% of the excess 
                                                over $100,000.
            ``(2) Unmarried individuals (other than surviving 
        spouses).--In the case of a taxpayer for whom an election under 
        subsection (a) is in effect and who is not described in 
        paragraph (1), there is hereby imposed on the alternative 
        taxable income of such individual a tax determined in 
        accordance with the following table:

``If taxable income is:             The tax is:
    Not over $50,000...............
                                        10% of alternative taxable 
                                                income.
    Over $50,000...................
                                        $5,000, plus 25% of the excess 
                                                over $50,000.
    ``(c) Alternative Taxable Income.--For purposes of this section--
            ``(1) In general.--The term `alternative taxable income' 
        means--
                    ``(A) gross income,
                    ``(B) the amount excluded from income under section 
                139C for capital gains, dividends, and interest, minus
                    ``(C) the sum of--
                            ``(i) the personal exemption,
                            ``(ii) the dependent allowance, plus
                            ``(iii) the alternative standard deduction.
            ``(2) Personal exemption.--The personal exemption is--
                    ``(A) 200 percent of the dollar amount in effect 
                under subparagraph (B) in the case of--
                            ``(i) a joint return, or
                            ``(ii) a surviving spouse (as defined in 
                        section 2(a)), and
                    ``(B) $3,500 in the case of an individual--
                            ``(i) who is not married and is not a 
                        surviving spouse, or
                            ``(ii) who is a married individual filing a 
                        separate return.
            ``(3) Dependent allowance.--The dependent allowance is 
        $3,500 for each dependent (as defined in section 152).
            ``(4) Alternative standard deduction.--The alternative 
        standard deduction means--
                    ``(A) $25,000 in the case of--
                            ``(i) a joint return, or
                            ``(ii) a surviving spouse (as defined in 
                        section 2(a)), and
                    ``(B) $12,500 in the case of an individual--
                            ``(i) who is not married and is not a 
                        surviving spouse, or
                            ``(ii) who is a married individual filing a 
                        separate return.
    ``(d) Inflation Adjustments.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 2009, each of the dollar 
        amounts for the rate brackets in subsection (b) and each of the 
        dollar amounts in subsection (d)(2)(B), (d)(3), and (d)(4) 
        shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, by substituting `calendar year 
                2008' for `calendar year 1992' in subparagraph (B) 
                thereof.
            ``(2) Rounding.--If any amount as adjusted under clause (i) 
        is not a multiple of $100, such amount shall be rounded to the 
        nearest multiple of $100.''.
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter A of chapter 1 of such Code is amended by striking the item 
relating to section 5 and inserting after the item relating to section 
4 the following:

``Sec. 5. Simplified income tax System.
``Sec. 6. Cross references relating to tax on individuals.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

SEC. 504. EXCLUSION FOR CAPITAL GAINS, DIVIDENDS, AND INTEREST.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 139C the 
following new section:

``SEC. 139D. CAPITAL GAINS, DIVIDENDS, AND INTEREST.

    ``(a) Exclusion.--Gross income does not include amounts received by 
an individual as net capital gains, qualified dividends, and interest.
    ``(b) Qualified Dividends.--For purposes of this section--
            ``(1) In general.--The term `qualified dividends' means 
        dividends received during the taxable year from--
                    ``(A) domestic corporations, and
                    ``(B) qualified foreign corporations.
            ``(2) Qualified foreign corporations.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `qualified foreign 
                corporation' means any foreign corporation if--
                            ``(i) such corporation is incorporated in a 
                        possession of the United States, or
                            ``(ii) such corporation is eligible for 
                        benefits of a comprehensive income tax treaty 
                        with the United States which the Secretary 
                        determines is satisfactory for purposes of this 
                        paragraph and which includes an exchange of 
                        information program.
                    ``(B) Dividends on stock readily tradable on united 
                states securities market.--A foreign corporation not 
                otherwise treated as a qualified foreign corporation 
                under subparagraph (A) shall be so treated with respect 
                to any dividend paid by such corporation if the stock 
                with respect to which such dividend is paid is readily 
                tradable on an established securities market in the 
                United States.
                    ``(C) Exclusion of dividends of certain foreign 
                corporations.--Such term shall not include any foreign 
                corporation which for the taxable year of the 
                corporation in which the dividend was paid, or the 
                preceding taxable year, is a passive foreign investment 
                company (as defined in section 1297).
            ``(3) Special rule.--If a taxpayer to whom this section 
        applies receives, with respect to any share of stock, qualified 
        dividend income from 1 or more dividends which are 
        extraordinary dividends (within the meaning of section 
        1059(c)), any loss on the sale or exchange of such share shall, 
        to the extent of such dividends, be treated as long-term 
        capital loss.
    ``(c) Interest.--For purposes of this section, the term `interest' 
means--
            ``(1) interest on deposits with a bank (as defined in 
        section 581),
            ``(2) amounts (whether or not designated as interest) paid, 
        in respect to deposits, investment certificates, or 
        withdrawable or repurchasable shares, by--
                    ``(A) a mutual savings bank, cooperative bank, 
                domestic building and loan association, industrial loan 
                association or bank, or credit union, or
                    ``(B) any other savings or thrift institution, 
                which is chartered and supervised under Federal or 
                State law,
        the deposits or accounts in which are insured under Federal or 
        State law or which are protected and guaranteed under State 
        law,
            ``(3) interest on--
                    ``(A) evidences of indebtedness (including bonds, 
                debentures, notes, and certificates) issued by a 
                domestic corporation in registered form, and
                    ``(B) to the extent provided in regulations 
                prescribed by the Secretary, other evidences of 
                indebtedness issued by a domestic corporation of a type 
                offered by corporations to the public,
            ``(4) interest on obligations of the United States, a 
        State, or a political subdivision of a State (not excluded from 
        gross income of the taxpayer under any other provision of law), 
        and
            ``(5) interest attributable to participation shares in a 
        trust established and maintained by a corporation established 
        pursuant to Federal law.
    ``(d) Certain Nonresident Aliens Ineligible for Exclusion.--In the 
case of a nonresident alien individual, subsection (a) shall apply 
only--
            ``(1) in determining the tax imposed for the taxable year 
        pursuant to section 871(b)(1) and only in respect to dividends 
        and interest which are effectively connected with the conduct 
        of a trade or business within the United States, or
            ``(2) in determining the tax imposed for the taxable year 
        pursuant to section 877(b).''.
    (b) Conforming Amendment.--Section 1 of such Code is amended by 
striking subsection (h).
    (c) Clerical Amendment.--The table of sections for such part III is 
amended by inserting after the item relating to section 139C the 
following new item:

``Sec. 13DC. Capital gains, dividends, and interest.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

SEC. 505. REPEAL OF ESTATE AND GIFT TAXES.

    (a) In General.--Subtitle B of the Internal Revenue Code of 1986 is 
hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to the estates of decedents dying, and gifts made, and generation-
skipping transfers after December 31, 2009.

                   TITLE VI--BUSINESS CONSUMPTION TAX

SEC. 601. SHORT TITLE.

    This title may be cited as the ``Competitive American Business 
Tax''.

SEC. 602. REPEAL OF CORPORATE INCOME TAX; NEW TAX PAID BY CORPORATIONS 
              AND OTHER BUSINESSES.

    (a) In General.--Subtitle A of the Internal Revenue Code of 1986 is 
amended by inserting after chapter 6 the following new chapter:

                 ``CHAPTER 7--BUSINESS CONSUMPTION TAX

                   ``subchapter a. imposition of tax.

       ``subchapter b. basic rules for business consumption tax.

   ``subchapter c. capital contributions, mergers, acquisitions, and 
                             distributions.

                ``subchapter d. accounting method rules.

               ``subchapter e. land and rental property.

           ``subchapter f. insurance and financial products.

  ``subchapter g. financial intermediation and financial institutions.

               ``subchapter h. tax-exempt organizations.

                     ``subchapter i. cooperatives.

                    ``subchapter j. sourcing rules.

                      ``subchapter k. import tax.

                   ``subchapter l. transition rules.

    ``subchapter m. rules for administration, consolidated returns.

         ``subchapter n. definitions and rules of application.

                   ``Subchapter A--Imposition of Tax

``Sec. 1601. Imposition of tax.
``Sec. 1602. Taxable amount.
``Sec. 1603. Zero rating for exports and interest.
``Sec. 1604. Governmental entities.
``Sec. 1605. Exempt organizations.
``Sec. 1606. Credit against tax.

``SEC. 1601. IMPOSITION OF TAX.

    ``(a) General Rule.--A tax is hereby imposed on each taxable 
transaction.
    ``(b) Amount of Tax.--Except as otherwise provided in this chapter, 
the amount of the tax shall be 8.5 percent of the taxable amount.
    ``(c) Taxable Transaction.--For purposes of this chapter, the term 
`taxable transaction' means--
            ``(1) the sale of property in the United States,
            ``(2) the performance of services in the United States, and
            ``(3) the importing of property into the United States,
by a taxable person in a business transaction.
    ``(d) Business Transaction.--
            ``(1) General rule.--For purposes of this chapter, the term 
        `business transaction' means a transaction engaged in by--
                    ``(A) a corporation, or
                    ``(B) any person (other than a corporation) in 
                connection with a business.
            ``(2) Sales and leases of real property; imports.--For 
        purposes of this chapter--
                    ``(A) In general.--The term `business transaction' 
                includes--
                            ``(i) any sale or leasing of real property, 
                        and
                            ``(ii) any importing of property,
                whether or not such transaction is described in 
                paragraph (1).
                    ``(B) Certain imported articles.--Notwithstanding 
                subparagraph (A)(ii), the importing of an article which 
                is free of duty under part 2 of schedule 8 of the 
                Tariff Schedules of the United States shall not be 
                treated as a business transaction unless such 
                transaction is described in paragraph (1).
    ``(e) Taxable Person.--
            ``(1) General rule.--Except as otherwise provided in this 
        chapter, for purposes of this chapter, the term `taxable 
        person' means a person who engages in a business or in a 
        business transaction.
            ``(2) Treatment of employees, etc.--For purposes of this 
        chapter, an employee shall not be treated as a taxable person 
        with respect to activities engaged in as an employee.
    ``(f) Transactions in the United States.--
            ``(1) Sales of property.--For purposes of this chapter--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the sale of property shall be treated 
                as occurring where delivery takes place.
                    ``(B) Real property.--The sale of real property 
                shall be treated as occurring where the real property 
                is located.
            ``(2) Performance of service.--For purposes of this 
        chapter--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, a service shall be treated as occurring 
                where it is performed.
                    ``(B) Services performed inside and outside the 
                united states.--If a service is performed both inside 
                and outside the United States, such service shall be 
                treated as performed--
                            ``(i) inside the United States, if 50 
                        percent or more of such service is performed 
                        inside the United States, and
                            ``(ii) outside the United States, if less 
                        than 50 percent of such service is performed 
                        inside the United States.
    ``(g) Rules Relating to Other Terms Used in Subsection (c).--
            ``(1) Exchanges treated as sales.--For purposes of this 
        chapter--
                    ``(A) an exchange of property for property or 
                services shall be treated as a sale of property, and
                    ``(B) an exchange of services for property or 
                services shall be treated as the performance of 
                services.
            ``(2) Certain transfers to employees treated as sales.--For 
        purposes of this chapter, the transfer of property to an 
        employee as compensation (other than a transfer of a type for 
        which no amount is includible in the gross income of employees 
        for purposes of chapter 1) shall be treated as the sale of 
        property.
            ``(3) Performance of services.--For purposes of this 
        chapter--
                    ``(A) Certain activities treated as performance of 
                services.--Activities treated as included in the 
                performance of services shall include (but shall not be 
                limited to)--
                            ``(i) permitting the use of property,
                            ``(ii) the granting of a right to the 
                        performance of services or to reimbursement 
                        (including the granting of warranties, 
                        insurance, and similar items), and
                            ``(iii) the making of a covenant not to 
                        compete (or similar agreement to refrain from 
                        doing something).
                    ``(B) Employers and employees.--
                            ``(i) Services for employer.--An employee's 
                        services for the employee's employer shall not 
                        be treated as the performance of services.
                            ``(ii) Services for employee.--An 
                        employer's services for the employer's employee 
                        shall not be treated as the performance of 
                        services unless such services are of a type 
                        which constitute gross income to the employee 
                        for purposes of chapter 1.
                    ``(C) Performance of services treated as sale of 
                services.--The performance of services shall be treated 
                as the sale of services.

``SEC. 1602. TAXABLE AMOUNT.

    ``(a) Amount Charged Customer.--For purposes of this chapter, the 
taxable amount for any transaction for which money is the only 
consideration shall be the price charged the purchaser of the property 
or services by the seller thereof--
            ``(1) including all invoiced charges for transportation, 
        and other items payable to the seller with respect to this 
        transaction, but
            ``(2) excluding the tax imposed by section 1601 with 
        respect to this transaction and excluding any State and local 
        sales and use taxes with respect to this transaction.
    ``(b) Exchanges.--For purposes of this chapter, the taxable amount 
in any exchange of property or services shall be the fair market value 
of the property or services transferred by the person liable for the 
tax (determined as if such person had sold the property or services to 
the other party to the exchange).
    ``(c) Imports.--For purposes of this chapter, the taxable amount in 
the case of any import shall be--
            ``(1) the customs value plus customs duties and any other 
        duties which may be imposed, or
            ``(2) if there is no such customs value, the fair market 
        value (determined as if the importer had sold the property).

``SEC. 1603. ZERO RATING FOR EXPORTS AND INTEREST.

    ``The rate of the tax imposed by section 1601 shall be zero with 
respect to the following:
            ``(1) Exports.--Exports of property.
            ``(2) Interest.--Interest.

``SEC. 1604. GOVERNMENTAL ENTITIES.

    ``(a) Zero Rating for Sales to Governmental Entities and 
Educational Activities of Governmental Entities.--The rate of the tax 
imposed by section 1601 shall be zero with respect to the following:
            ``(1) Sales to governmental entities.--Any sale of property 
        or services to a governmental entity.
            ``(2) Educational activities.--The providing by a 
        governmental entity of property and services in connection with 
        the education of students.
    ``(b) Sales, etc., by Governmental Entities Taxable Only Where 
Separate Charge Is Made.--For purposes of this chapter, the sale of 
property and the performance of services by a governmental entity shall 
be a taxable transaction if (and only if) a separate charge of fee is 
made therefor.
    ``(c) Governmental Entity Defined.--For purposes of this chapter, 
the term `governmental entity' means the United States, any State or 
political subdivision thereof, the District of Columbia, a Commonwealth 
or possession of the United States, or any agency or instrumentality of 
any of the foregoing.

``SEC. 1605. EXEMPT ORGANIZATIONS.

    ``(a) Zero Rating for Section 501(c)(3) Organizations; Credit 
Allowed for All Purchases.--
            ``(1) Zero rating.--The rate of the tax imposed by section 
        1601 shall be zero with respect to any taxable transaction 
        engaged in by a section 501(c)(3) organization other than as 
        part of an unrelated business.
            ``(2) Credit allowed for all purchases.--For purposes of 
        this chapter, a section 501(c)(3) organization shall be treated 
        as engaged in a business with respect to all of its activities.
    ``(b) Taxable Transactions in Case of Other Exempt Organizations.--
For purposes of this chapter, the sale of property and the performance 
of services by any exempt organization other than a section 501(c)(3) 
organization shall be a taxable transaction if (and only if) a charge 
or fee is made for such services.
    ``(c) Definitions.--For purposes of this chapter--
            ``(1) Section 501(c)(3) organizations.--The term `section 
        501(c)(3) organization' means an organization described in 
        section 501(c)(3) which is exempt from tax under section 
        501(a).
            ``(2) Other exempt organization.--The term `other exempt 
        organization' means any organization (other than a section 
        501(c)(3) organization) which is exempt from tax under chapter 
        1.

``SEC. 1606. CREDIT AGAINST TAX.

    ``(a) General Rule.--There shall be allowed as a credit against the 
tax imposed by section 1601 the aggregate amount of tax imposed by 
section 1601 which has been paid by sellers to the taxpayer of property 
and services which the taxpayer uses in the business to which the 
transaction relates.
    ``(b) Exempt Transactions, etc.--If--
            ``(1) property or services are used partly in the business 
        and partly for other purposes, or
            ``(2) property or services are used partly for taxable 
        transactions and partly for other transactions,
the credit shall be allowable only with respect to the property and 
services used for taxable transactions in the business. No credit shall 
be allowable for any transaction occurring when the taxpayer was a 
nontaxable person.
    ``(c) Excess Credit Treated as Overpayment.--
            ``(1) In general.--If for any taxable period the aggregate 
        amount of the credits allowable by subsection (a) exceeds the 
        aggregate amount of the tax imposed by section 1601 for such 
        period, such excess shall be treated as an overpayment of the 
        tax imposed by section 1601.
            ``(2) Time when overpayment arises.--Any overpayment under 
        paragraph (1) for any taxable period shall be treated as 
        arising on the later of--
                    ``(A) the due date for the return for such period, 
                or
                    ``(B) the date on which the return is filed.

        ``Subchapter B--Basic Rules for Business Consumption Tax

``Sec. 1611. Gross profits.
``Sec. 1612. Taxable receipts.
``Sec. 1613. Deductible amounts.
``Sec. 1614. Cost of business purchases.
``Sec. 1615. Business entity and business activity.
``Sec. 1616. Loss carryover deduction.

``SEC. 1611. GROSS PROFITS.

    ```Gross profits' means for a taxable transaction of a business 
entity the amount by which--
            ``(1) the taxable receipts of the business entity with 
        respect to the taxable transaction, exceed
            ``(2) the deductible amounts for the business entity with 
        respect to the taxable transactions.

``SEC. 1612. TAXABLE RECEIPTS.

    ``(a) In General.--`Taxable receipts' means all receipts from the 
sale of property, use of property, and performance of services in the 
United States.
    ``(b) Games of Chance.--Amounts received for playing games of 
chance by business entities engaging in the activity of providing such 
games shall be treated as receipts from the sale of property or 
services.
    ``(c) In-Kind Receipts.--The taxable receipts attributable to the 
receipt of property, use of property or services in whole or partial 
exchange for property, use of property or services equal the fair 
market value of the services or property received.
    ``(d) Taxes.--Taxable receipts do not include any excise tax, sales 
tax, custom duty, or other separately stated levy imposed by a Federal, 
State, or local government received by a business entity in connection 
with the sale of property or services or the use of property.
    ``(e) Financial Receipts.--Except as provided in subchapter G 
(relating to financial intermediation and financial institutions), 
taxable receipts do not include financial receipts (as defined by 
regulations by the Secretary).

``SEC. 1613. DEDUCTIBLE AMOUNTS.

    ```Deductible amounts' for a business entity in a taxable 
transaction include--
            ``(1) the cost of business purchases with respect to the 
        taxable transaction (as determined under section 1614),
            ``(2) such entity's loss carryover deduction (as determined 
        under section 1616), and
            ``(3) the transition basis deduction (as determined under 
        section 1711).

``SEC. 1614. COST OF BUSINESS PURCHASES.

    ``(a) Business Purchases.--
            ``(1) In general.--`Business purchases' means the 
        acquisition of--
                    ``(A) property,
                    ``(B) the use of property, or
                    ``(C) services,
        in the United States for use in a business activity.
            ``(2) Examples.--Business purchases include (without 
        limitation) the--
                    ``(A) purchase or rental of real property,
                    ``(B) purchase or rental of capital equipment,
                    ``(C) purchase of supplies and inventory,
                    ``(D) purchase of services from independent 
                contractors,
                    ``(E) purchase of financial intermediation services 
                (as determined in accordance with section 1661),
                    ``(F) imports for use in a business activity, and
                    ``(G) premiums for the cost of health insurance 
                policies for which the service provider, members of his 
                family, or persons designated by him or members of his 
                family are the beneficiaries.
            ``(3) Exclusions.--Business purchases do not include--
                    ``(A) payments for use of money or capital, such as 
                interest or dividends (except to the extent that a 
                portion so paid is a fee for financial intermediation 
                services),
                    ``(B) premiums for life insurance,
                    ``(C) the acquisition of savings assets or other 
                financial instruments.
                    ``(D) property acquired outside the United States 
                (but such property shall be taken into account as an 
                import if imported),
                    ``(E) services performed outside the United States 
                (unless treated as imported into the United States),
                    ``(F) compensation expenses for an individual 
                (other than amounts paid to an individual in his 
                capacity as a business entity), or
                    ``(G) taxes (except as provided in subsection 
                (b)(2) relating to product taxes).
            ``(4) Compensation expenses.--`Compensation expenses' 
        means--
                    ``(A) wages, salaries or other cash payable for 
                services,
                    ``(B) any taxes imposed on the recipient that are 
                withheld by the business entity,
                    ``(C) the cost of property purchased to provide 
                employees with compensation (other than property 
                incidental to the provision of fringe benefits that are 
                excluded from income under the individual tax), and
                    ``(D) the cost of fringe benefits which are 
                includible in an employee's, partner's, or proprietor's 
                income under section 5 (or are excluded solely because 
                they constitute employee savings), including (without 
                limitation)--
                            ``(i) contributions to retirement and 
                        severance benefit plans,
                            ``(ii) premiums for the cost of life, 
                        accident, disability and other insurance 
                        policies for which the service provider, 
                        members of his family, or persons designated by 
                        him or members of his family are the 
                        beneficiaries,
                            ``(iii) rental of parking spaces or parking 
                        fees (unless the parking space is used for a 
                        vehicle that is regularly used in a business 
                        activity);
                            ``(iv) employer paid educational benefits;
                            ``(v) employer paid housing (other than 
                        housing provided for the convenience of the 
                        employer); and
                            ``(vi) employer paid meals (other than 
                        meals provided for the convenience of the 
                        employer).
    ``(b) Cost of Business Purchases.--
            ``(1) In general.--The `cost of a business purchase' is the 
        amount paid or to be paid for the business purchase.
            ``(2) Taxes.--
                    ``(A) In general.--The `cost of business purchases' 
                includes any product taxes paid with respect to the 
                property or services purchased.
                    ``(B) Product tax.--`Product tax' means any excise 
                tax, sales or use tax, custom duty, or other separately 
                stated levy imposed by a Federal, State, or local 
                government on the production, severance or consumption 
                of property or on the provision of services, whether or 
                not separately stated, and including any such taxes 
                that are technically imposed on the seller of property 
                or services.
                    ``(C) Taxes not product taxes.--Product taxes do 
                not include--
                            ``(i) the import tax,
                            ``(ii) state and local property taxes,
                            ``(iii) franchise or income taxes,
                            ``(iv) payroll taxes and self-employment 
                        taxes, or
                            ``(v) the business tax.
            ``(3) Imports.--In the case of an import by a business 
        entity, the cost of the import is the import price for purposes 
        of the import tax. The import tax is not part of the cost of 
        the import.
    ``(c) Property and Services Acquired for Property.--If a business 
entity receives property or services from a business entity in whole or 
partial exchange for property or services, the property or services 
acquired shall be treated as if they were purchased for an amount equal 
to the fair market value of the services or property received. For 
purposes of this section, property includes stock and other equity 
interests in business other than stock or an equity interest in the 
business entity acquiring the property or services.
    ``(d) Gambling Payments.--In the case of a business involving 
gambling, lotteries, or other games of chance, business purchases 
include amounts paid to winners.
    ``(e) Savings Assets.--`Savings assets' means stocks, bonds, 
securities, certificates of deposits, investments in partnerships and 
limited liability companies, shares of mutual funds, life insurance 
policies, annuities, and other similar savings or investment assets.

``SEC. 1615. BUSINESS ENTITY AND BUSINESS ACTIVITY.

    ``(a) Business Entity.--For purposes of the business tax, `business 
entity' means any corporation, unincorporated association, partnership, 
limited liability company, proprietorship, independent contractor, 
individual, or any other person engaging in business activity in the 
United States. An individual shall be considered a business entity only 
with respect to the individual's business activities.
    ``(b) Business Activity.--`Business activity' means the sale of 
property or services, the leasing of property, the development of 
property or services for subsequent sale or use in producing property 
or services for subsequent sale. `Business activity' does not include 
casual or occasional sales of property used by an individual (other 
than in a business activity), such as the sale by an individual of a 
vehicle used by the individual.
    ``(c) Exception for Certain Employees.--
            ``(1) In general.--`Business activity' does not include--
                    ``(A) the performance of services by an employee 
                for an employer that is a business entity with respect 
                to the activity in which the employee is engaged, or
                    ``(B) the performance of regular domestic household 
                services (including babysitting, housecleaning, and 
                lawn cutting) by an employee of an employer that is an 
                individual or family.
            ``(2) Employee defined.--For purposes of this subsection, 
        `employee' includes an individual partner who provides services 
        to a partnership or an individual member who provides services 
        to a limited liability company, or a proprietor with respect to 
        compensation for services from his proprietorship.

``SEC. 1616. LOSS CARRYOVER DEDUCTION.

    ``(a) Deduction.--The `loss carryover deduction' for a taxable 
period is the lesser of--
            ``(1) the business entity's gross profits for the taxable 
        period (determined without the loss carryover deduction), or
            ``(2) the amount of the loss carryover to the taxable 
        period.
    ``(b) Loss Carryover.--
            ``(1) General rule.--A loss for any taxable period shall be 
        a loss carryover to the succeeding taxable period.
            ``(2) Loss carryovers to a taxable period.--The loss 
        carryover to a taxable period is the sum of the loss carryovers 
        from all prior taxable periods beginning on or after January 1 
        of the year following the year in which this chapter is 
        enacted.
            ``(3) Reduction of loss carryovers as a result of the 
        deduction.--A business entity's loss carryovers shall be 
        reduced each year by the amount of the loss carryover deduction 
        for the year. Loss carryovers shall be reduced in the order 
        that they arose.
    ``(c) Loss for Taxable Period.--A business entity's loss (if any) 
for the taxable period equals the excess (if any) of--
            ``(1) the sum of--
                    ``(A) the cost of business purchases for the 
                taxable period, and
                    ``(B) the transition basis adjustment for the 
                taxable period, over
            ``(2) taxable receipts for the taxable period.
    ``(d) Special Rules.--
            ``(1) Consolidated returns.--In the case of a consolidated 
        return, the loss for a taxable period shall be determined on a 
        consolidated group basis. In the case of a deconsolidation, the 
        loss carryovers from the consolidated group shall be allocated 
        in accordance with rules to be prescribed by the Secretary.
            ``(2) Loss carryovers of acquired business entity.--Any 
        loss arising in the case of the acquisition of a business 
        entity shall be allowed as prescribed by the Secretary.
    ``(e) Interest.--Interest shall be allowed on each loss carried 
forward under this section at a rate determined by the Secretary of the 
Treasury.

   ``Subchapter C--Capital Contributions, Mergers, Acquisitions, and 
                             Distributions

``Sec. 1621. Contributions to a business entity.
``Sec. 1622. Distributions of property.
``Sec. 1623. Asset acquisitions.
``Sec. 1624. Mergers and stock acquisitions.
``Sec. 1625. Spin-offs, split-offs, etc.
``Sec. 1626. Allocation of certain tax attributes.

``SEC. 1621. CONTRIBUTIONS TO A BUSINESS ENTITY.

    ``(a) By Business Entity.--
            ``(1) Cash.--If a business entity contributes cash to a 
        business entity of which it is or becomes a partial or full 
        owner, the amount contributed is not a deductible amount to the 
        contributor or a taxable receipt to the recipient.
            ``(2) Property or services.--If a business entity 
        contributes property or services to a business entity of which 
        it is or becomes a partial or full owner, the transaction will 
        not result in taxable receipts to the contributor or a 
        deduction for a business purchase for the recipient and will 
        not constitute a sale resulting in taxable receipts to the 
        contributor.
    ``(b) By Individual.--
            ``(1) Cash.--If an individual contributes cash to a 
        business entity, the cash received is not a taxable receipt.
            ``(2) New property.--If an individual contributes to a 
        business entity property that the individual purchased for the 
        business entity but which was not used by any person after its 
        purchase, the property shall be considered purchased by such 
        business entity from the person from which the individual 
        purchased the property.
            ``(3) Personal use property.--
                    ``(A) In general.--If an individual contributes 
                personal use property to a business entity in which the 
                individual has an ownership interest or for which the 
                individual receives an ownership interest, the business 
                entity shall not be permitted to deduct the value of 
                the property received as a business expense. The 
                business entity will have a tax basis in the 
                contributed property equal to the contributor's basis.
                    ``(B) Personal use property.--`Personal use 
                property' means any property used by an individual at 
                any time other than in a business activity.
            ``(4) Services.--If an individual contributes services to a 
        business entity in which the individual has an ownership 
        interest or receives an ownership interest, the business entity 
        shall not be permitted to deduct the value of the services 
        received (or the value of the equity interest provided to the 
        services provider).

``SEC. 1622. DISTRIBUTIONS OF PROPERTY.

    ``(a) Distributions Other Than to Controlling Business.--If a 
business entity distributes all or a portion of its assets to its 
owners (other than a controlling business entity), the business entity 
will be treated as if it sold the assets to its owners at fair market 
value. The fair market value will be determined by the distributing 
corporation and those determinations, unless unreasonable, will be 
binding on the recipients.
    ``(b) Distributions to a Controlling Business.--If a business 
entity distributes all or a portion of its assets to a controlling 
business, the controlling business will assume the distributing 
entity's tax attributes with respect to the assets and neither entity 
will have taxable receipts or a deduction as a result of the 
transaction.
    ``(c) Distribution of Personal Use Property.--If personal use 
property is distributed to the individual who contributed the personal 
use property to a business entity, the fair market value of the 
property for purposes of paragraph (a) shall equal the basis of the 
property plus any enhancement in value of the property attributable to 
business purchases with respect to the property.
    ``(d) Controlling Business Entity.--A business entity is a 
`controlling business entity' with respect to another business entity 
if it owns directly or indirectly more than 50 percent of the profits 
or capital interest in the other business entity.
    ``(e) Application of This Section.--This section applies to both 
liquidating and nonliquidating distributions. Property shall be treated 
as distributed if the property is used for a nonbusiness purpose for 
more than an insubstantial period of time during a taxable period.

``SEC. 1623. ASSET ACQUISITIONS.

    ``(a) In General.--If a business entity transfers some or all of 
its assets, the consideration received for such assets shall be 
allocated among the assets transferred in the same manner as was 
required by section 1060. If the transferee and transferor agree in 
writing on the allocation of any consideration, or as to the fair 
market value of any of the assets, such agreement shall be binding on 
both the transferor and transferee unless the Secretary determines that 
such allocation (or fair market value) is not appropriate.
    ``(b) Tax Consequences.--The tax consequences of an asset 
acquisition shall be determined in accordance with the rules of this 
chapter and shall be dependent upon allocations made under subsection 
(a). In general, consideration allocable to savings assets, such as 
stock in another business entity, would not be included in taxable 
receipts of the transferor and would not be a business purchase of the 
purchaser, but consideration allocable to the sale of tangible property 
and intangible property (other than savings assets) will constitute 
taxable receipts of the seller and a business purchase of the 
purchaser.
    ``(c) Election To Treat Asset Acquisition as a Stock Acquisition.--
In the case of the sale of substantially all of the assets of a 
business entity or substantially all of the assets of a line of 
business or a separately standing business of a business entity, the 
transferee and transferor can jointly elect to treat the acquisition as 
if it were an acquisition of the stock of a business entity holding the 
assets so transferred. In such case, the rules of section 1624 shall 
apply.
    ``(d) Authority To Require Allocation Agreement and Notice to the 
Secretary.--If the Secretary determines that certain types of asset 
acquisitions have significant possibilities of tax avoidance, the 
Secretary may require--
            ``(1) parties to such types of acquisitions to enter into 
        agreements allocating consideration,
            ``(2) parties to acquisitions involving certain kinds of 
        assets to enter into agreements allocating part of the 
        consideration to those assets, or
            ``(3) parties to certain acquisitions to report information 
        to the Secretary.
    ``(e) Asset Acquisition Rules Do Not Apply if Consideration 
Includes Equity in Purchaser.--
            ``(1) In general.--If a business entity issues its own 
        equity or equity in a subsidiary or other controlled entity as 
        part of the consideration for the transfer of assets to it, the 
        transaction shall not be treated as an asset acquisition and 
        the rules of section 1624 shall apply.
            ``(2) Equity.--For purposes of this subsection, equity 
        means--
                    ``(A) stock, in the case of a corporation,
                    ``(B) partnership or similar interest, in the case 
                of a partnership or limited liability company, and
                    ``(C) an ownership interest or interest in profits 
                in the case of any other business entity.

``SEC. 1624. MERGERS AND STOCK ACQUISITIONS.

    ``(a) Mergers.--A merger of one business entity into another or two 
businesses entities into a third business entity or any other similar 
transaction shall have no direct consequences under the business tax. 
The surviving entity shall assume the tax attributes of the merged 
corporations, including any loss carryovers and credit carryovers.
    ``(b) Stock Acquisition.--The acquisition of all or substantially 
all of the ownership interest in one business entity either for cash or 
in exchange for ownership in the acquiring entity or an entity 
controlled by the acquired entity shall have no direct consequences 
under the business tax.

``SEC. 1625. SPIN-OFFS, SPLIT-OFFS, ETC.

    ``A spin-off, split-off or split-up of a business entity shall have 
no direct tax consequences under the business tax.

``SEC. 1626. ALLOCATION OF CERTAIN TAX ATTRIBUTES.

    ``The Secretary shall prescribe rules for allocation of loss 
carryovers in cases of substantial shifts of assets from one business 
entity to another business entity. Under such rules, a portion of a 
business entity's carryovers may be deemed transferred when assets are 
transferred.

                ``Subchapter D--Accounting Method Rules

``Sec. 1631. General accounting rules.
``Sec. 1632. Use of the cash method of accounting.
``Sec. 1633. Long-term contracts.
``Sec. 1634. Post-sale price adjustments and refunds.
``Sec. 1635. Bad debts.
``Sec. 1636. Transition rules.

``SEC. 1631. GENERAL ACCOUNTING RULES.

    ``(a) In General.--Except as provided in section 1632, a business 
entity shall use an accrual method of accounting for purposes of 
determining the timing of recognition of taxable receipts and deduction 
of business purchases. All business purchases shall be deducted when 
incurred (in the case of a business entity using the accrual method of 
accounting) or when paid (in case of a business entity using the cash 
method of accounting) without regard to whether the business purchases 
are for or relate to--
            ``(1) inventory,
            ``(2) assets with a useful life of more than one year, or
            ``(3) property that will be used to produce other property.
    ``(b) Economic Performance.--For purposes of determining whether an 
amount has been incurred, the all events test shall not be treated as 
met any earlier than when economic performance with respect to such 
item occurs.
    ``(c) Consistent Accounting Methods.--Except as otherwise expressly 
provided in this chapter, a business entity shall secure the consent of 
the Secretary before changing the method of accounting by which it 
determines gross profits. This provision shall not apply to changes 
required by the adoption of the business tax.

``SEC. 1632. USE OF THE CASH METHOD OF ACCOUNTING.

    ``(a) In General.--A business entity that was permitted to use and 
used the cash method of accounting under the Internal Revenue Code of 
1986 shall be permitted to continue to use the cash method of 
accounting.
    ``(b) New Business Entities.--A new business entity shall be 
permitted to use the cash method of accounting if permitted to under 
regulations prescribed by the Secretary.
    ``(c) Change or Expansion of Business.--Subsection (a) shall cease 
to apply to a business entity that changes or expands its business such 
that under regulations prescribed by the Secretary it is no longer 
eligible to use the cash method of accounting.
    ``(d) Regulations.--
            ``(1) Use of cash method.--The Secretary shall prescribe 
        regulations defining which business entities may use the cash 
        method of accounting. In general, those regulations shall be 
        consistent with the rules under sections 447 and 448, except 
        that all corporations shall be treated as C corporations were 
        treated under those sections. The regulations shall not require 
        a business entity described in subsection (a) to convert to the 
        accrual method prior to January 1, 2010.
            ``(2) Change in accounting method.--The Secretary shall 
        prescribe regulations to prevent double counting of taxable 
        receipts and deductible expenses in the case of a change in 
        accounting method.

``SEC. 1633. LONG-TERM CONTRACTS.

    ``(a) In General.--In the case of a long-term contract--
            ``(1) Contractor expenses.--The contractor shall be 
        entitled to deduct its business purchases when paid or 
        incurred.
            ``(2) Contractor receipts.--The contractor shall recognize 
        taxable receipts--
                    ``(A) in the case of a project in which the 
                acquirer has no ownership interest in the project until 
                delivery--
                            ``(i) upon delivery of the project, in the 
                        case of an accrual basis contractor, or
                            ``(ii) upon the later of delivery of the 
                        project or the receipt of payment, in the case 
                        of cash-basis contractor.
                    ``(B) in the case of a project in which the 
                acquirer obtains an ownership interest as the project 
                is constructed--
                            ``(i) when the contractor has the right to 
                        payments, in the case of an accrual basis 
                        contractor, or
                            ``(ii) upon the later of when the 
                        contractor receives the cash or has the right 
                        to payments, in the case of a cash basis 
                        contractor.
            ``(3) Acquirer expenses.--The acquirer that is a business 
        entity shall be entitled to deduct its costs of the business 
        purchase--
                    ``(A) in the case of a cash-basis acquirer, at such 
                time as a cash basis contractor would be required to 
                treat the amounts paid as taxable receipts, or
                    ``(B) in the case of an accrual-basis acquirer, at 
                such time as an accrual basis contractor would be 
                required to treat the amounts paid or due as taxable 
                receipts.
    ``(b) Right to Payments.--
            ``(1) In general.--A contractor shall be treated as having 
        a right to payments with respect to a project at any time to 
        the extent that the contractor would not be required to return 
        payments received (or would be entitled to collect payments not 
        yet received) if the project were terminated at such time by 
        the contractor.
            ``(2) Contractual provisions.--If a long-term contract 
        includes a procedure for paying the contractor as work is 
        completed (for example, by reason of a draw down from a trust 
        account), the contractual provisions shall generally govern 
        when a contractor has a right to payment.
            ``(3) Percentage completion method of accounting.--If a 
        long-term contract does not include a mechanism for paying the 
        contractor as work is completed, the percentage-of-completion 
        method of accounting shall be used to determine the timing of 
        taxable receipts of the contractor and business purchases of 
        the acquirer.
    ``(c) Long-Term Contract.--
            ``(1) In general.--`Long-term contract' means--
                    ``(A) any contract that covers service or 
                production through parts of two different calendar 
                years if the contract includes a formal deposit and 
                draw-down mechanism, and
                    ``(B) any contract for the manufacture, building, 
                installation, or construction of property if such 
                contract is not completed within the taxable period of 
                the contractor in which such contract is entered into.
            ``(2) Exception.--A contract for the manufacture of 
        property shall not be treated as a long-term contract unless 
        such contract involves the manufacture of--
                    ``(A) any unique item of a type which is not 
                normally included in the finished goods inventory of 
                the taxpayer, or
                    ``(B) any item which normally requires more than 12 
                calendar months to complete.
    ``(d) Consistency.--The Secretary may require business entities to 
file statements containing such information with respect to long-term 
contracts as the Secretary may prescribe to ensure consistency in 
reporting.
    ``(e) Foreign Contracts.--This section shall not be construed to 
permit a deduction for a business purchase for the cost of property 
produced outside the United States pursuant to a long-term contract at 
any time prior to the import of such property into the United States.

``SEC. 1634. POST-SALE PRICE ADJUSTMENTS AND REFUNDS.

    ``(a) Receipt of Price Adjustment.--In the case of a post-sale 
price adjustment attributable to a business purchase which was taken 
into account in computing gross profits for a prior taxable 
transaction, the amount of such adjustment shall be treated as a 
reduction or increase, as the case may be, in the cost of business 
purchases for the taxable period in which the adjustment is made or 
incurred.
    ``(b) Issuance of Price Adjustment.--In the case of a post-sale 
price adjustment attributable to a sale the receipts from which were 
taken into account in determining taxable receipts for a prior taxable 
transaction, the amount of such adjustment shall be treated as a 
reduction or increase, as the case may be, in taxable receipts for the 
taxable period in which the adjustment is made or incurred.
    ``(c) Post-Sale Price Adjustment.--`Post-sale price adjustment' 
means a refund, rebate, or other price allowance attributable to a sale 
of property or services or an upward adjustment in price that was not 
previously taken into account under the business entity's method of 
accounting.

``SEC. 1635. BAD DEBTS.

    ``(a) Seller.--If an amount owed to an accrual basis business 
entity for property or services sold--
            ``(1) was taken into account as a taxable receipt in a 
        prior taxable period, and
            ``(2) becomes wholly or partially uncollectible during the 
        taxable period, then the seller shall treat the amount as a 
        reduction in taxable receipts for the taxable period in which 
        it becomes wholly or partially uncollectible.
    ``(b) Notice Requirement.--No reduction shall be allowed under 
subsection (a) unless the seller notifies the purchaser of the amount 
which the seller has treated as wholly or partially uncollectible.
    ``(c) Subsequent Collection.--If an amount which was treated as 
uncollectible under subsection (a) is subsequently collected, it shall 
be treated as a taxable receipt when collected.
    ``(d) Purchaser.--If a purchaser receives notice under subsection 
(b) from a seller and the purchaser has treated the amount labeled 
uncollectible as a business purchase in a prior taxable period, then 
the purchaser shall treat such amount as a reduction in the cost of 
business purchases in the taxable period to which the notice relates. 
If the purchaser subsequently repays such amount, the repayment shall 
constitute the cost of a business purchase.

``SEC. 1636. TRANSITION RULES.

    ``(a) No Double Deductions.--A business entity shall not be 
entitled to treat as a `cost of business purchase' any amount that the 
business entity deducted in computing taxable income under the income 
tax in effect prior the effective date of the business tax.
    ``(b) No Double Inclusion.--A business entity shall not be required 
to include in taxable receipts any receipt that the business entity 
took into account in computing taxable income under the income tax in 
effect prior to the effect date of the business tax.
    ``(c) No Loss of Deduction.--An expense which--
            ``(1) a business entity would have been able to deduct as a 
        cost of a business purchase in an accounting period before the 
        effective date of the business tax if the business tax had been 
        in effect in such period, and
            ``(2) the business entity would have been able to deduct as 
        an expense in computing taxable income in a period after the 
        business tax is effective if the income tax had continued in 
        effect, shall be treated as a cost of a business purchase 
        incurred or paid at the time that it would have been paid or 
        incurred under the income tax if the income tax had continued 
        in effect. This subsection shall not apply to any amount which 
        is to be taken into account under subchapter N (relating to 
        amortization of transition basis, inventory costs, and safe 
        harbor leases), any amounts which would have been deducted 
        under the income tax through loss carryover deductions, or any 
        deductions deferred by the uniform capitalization rules under 
        section 263A.
    ``(d) All Taxable Receipts Taxed.--A receipt which--
            ``(1) a business entity would have been required to treat 
        as a taxable receipt in an accounting period before the 
        effective date of the business tax if the business tax had been 
        in effect in such period, and
            ``(2) the business entity would have been required to 
        include in gross income in a period after the business tax is 
        effective if the income tax had continued in effect
shall be treated as a taxable receipt at the time that it would have 
been included in income if the income tax had continued in effect.

                ``Subchapter E--Land and Rental Property

``Sec. 1641. No deduction for land purchased for nonbusiness use.
``Sec. 1642. Taxable receipts for land held for nonbusiness use.
``Sec. 1643. Certain rental property.

``SEC. 1641. NO DEDUCTION FOR LAND PURCHASED FOR NONBUSINESS USE.

    ``(a) In General.--The acquisition of unimproved land shall not 
constitute a business purchase if the unimproved land is not acquired 
to be used in a business activity or if the land is acquired for--
            ``(1) speculation,
            ``(2) development (including subdivision),
            ``(3) temporary leasing or other use not commensurate with 
        the value of the land,
            ``(4) indefinite future use in a business activity, or
            ``(5) use in compensating employees.
    ``(b) Future Use in Business Activity.--Unimproved land will not be 
considered held for `indefinite future use in a business activity' if 
promptly upon acquisition, the purchaser or the lessee begins 
construction of improvements on the land (other than improvements, such 
as paving or sewage lines, intended for indefinite future development) 
that will be used in a business activity. Such improvement must be 
commensurate with the value of the land.
    ``(c) Unimproved Land.--`Unimproved land' means--
            ``(1) land with no buildings on it,
            ``(2) land with improvements if the value of the 
        improvements is relatively small in comparison to the value of 
        the land and it is anticipated that the improvements will be 
        demolished and not used, and
            ``(3) land in excess of the amount reasonably needed for 
        the buildings located on it.
    ``(d) Conversion to Business Use.--If the acquisition of land is 
not treated as a business purchase by reason of subsection (a) and the 
land is subsequently used in a manner for which it could have been 
treated as a business purchase, the cost of the land will be treated as 
a business purchase when the improvements on the land are placed in 
service (or in the case of construction for sale, substantially 
completed and advertised for sale).

``SEC. 1642. TAXABLE RECEIPTS FROM SALE OF LAND HELD FOR NONBUSINESS 
              USE.

    ``(a) Tax Basis.--A business entity shall have a tax basis in land 
equal to the cost of the land if such cost is not deductible by reason 
of section 1641(a) and the land has not been converted to business use 
for purposes of section 1641(d).
    ``(b) Taxable Receipts of a Land Sale.--The taxable receipts from 
the sale of land (or portion thereof) in which a business entity has a 
tax basis by reason of subsection (a) shall be the amount by which the 
proceeds exceed the basis of such land (or portion thereof).

``SEC. 1643. CERTAIN RENTAL PROPERTY.

    ``(a) In General.--Except as provided in subsection (b), the 
activity of rental of real estate is a business activity to which the 
business tax applies.
    ``(b) Rental Property Becomes Nonrental Property.--If property 
which is considered rental property for purposes of subsection (a) in 
one taxable period ceases to be rental property in the following 
taxable period, the property (and any associated debt) shall be treated 
as distributed by the business entity to its owners. Section 1622(a) 
shall apply to such distribution.

            ``Subchapter F--Insurance and Financial Products

``Sec. 1651. General rules.
``Sec. 1652. Fees for financial intermediation services.

``SEC. 1651. GENERAL RULES.

    ``(a) Taxable Receipts.--Except in the case of a financial 
intermediation business, taxable receipts do not include financial 
receipts (as defined in section 1662).
    ``(b) Business Purchases.--Except in the case of a financial 
intermediation business, business purchases do not include the cost of 
financial instruments or payments for use of money or capital, other 
than fees for financial intermediation services.

``SEC. 1652. FEES FOR FINANCIAL INTERMEDIATION SERVICES.

    ``(a) Business Purchase.--Business purchases include explicit fees 
and implicit fees for financial intermediation services (except to the 
extent that such fees are for services treated as performed outside the 
United States and not imported into the United States or for services 
treated as exported.).
    ``(b) Financial Intermediation Services.--Except as provided in 
subchapter G, the term `financial intermediation service' shall be 
determined in accordance with regulations promulgated by the Secretary.

  ``Subchapter G--Financial Intermediation and Financial Institutions

``Sec. 1661. Activities constituting a financial intermediation 
                            business.
``Sec. 1662. General rule for taxation.
``Sec. 1663. Special rule for banks.
``Sec. 1664. Insurance companies.
``Sec. 1665. Financial pass-through entities.

``SEC. 1661. ACTIVITIES CONSTITUTING A FINANCIAL INTERMEDIATION 
              BUSINESS.

    ``(a) Financial Intermediation Business.--The providing of 
financial intermediation services shall be considered a business 
activity. The gross profit of a business entity providing financial 
intermediation services shall be determined by taking into account the 
rules of this subchapter.
    ``(b) Separate Business Activity.--The provision of financial 
intermediation services for unrelated persons shall be considered a 
separate business activity and a business shall be considered a 
separate entity with respect to such activity. An entity engaging in 
such business is referred to in this chapter as a `financial 
intermediation business'.
    ``(c) Definitions.--
            ``(1) Financial intermediation services.--`Financial 
        intermediation services' include--
                    ``(A) lending services,
                    ``(B) insurance services,
                    ``(C) market-making and dealer services, and
                    ``(D) any other service provided as business 
                activity in which a person acts as an intermediary in--
                            ``(i) the transfer of property, services, 
                        or financial assets, liabilities, risks or 
                        instruments (or income or expense derived 
                        therefrom) between two or more persons, or
                            ``(ii) the pooling of economic risk among 
                        other persons,
                and derives all or a portion of such person's gross 
                receipts from streams of income or expense, discounts, 
                or other financial flows associated with the matter 
                with respect to which such person is acting as an 
                intermediary.
            ``(2) Lending services.--`Lending services' means the 
        regular making of loans and providing credit to, or taking 
        deposits from customers, but does not include an installment or 
        delayed payment arrangement provided by a seller of property or 
        services under which additional charges or fees are imposed by 
        the seller for the late payment.
            ``(3) Market-making or dealer services.--`Market-making or 
        dealer services' means services provided by a person who--
                    ``(A) regularly purchases financial instruments 
                from or sells financial instruments to customers in the 
                ordinary course of a trade or business, and
                    ``(B) regularly offers to enter into, assume, 
                offset, assign, or otherwise terminate positions in 
                financial instruments with customers in the ordinary 
                course of a trade or business.

``SEC. 1662. GENERAL RULE FOR TAXATION.

    ``(a) In General.--In the case of a financial intermediation 
business, gross profits shall be computed by--
            ``(1) substituting financial receipts for taxable receipts, 
        and
            ``(2) including financial expenses as business purchases.
    ``(b) Definitions.--
            ``(1) Financial receipts.--`Financial receipts' means all 
        receipts other than amounts received as contributions to 
        capital.
            ``(2) Financial expenses.--`Financial expenses' include--
                    ``(A) payments for principal and interest that is 
                properly allocable to the provision of financial 
                intermediation services,
                    ``(B) the cost of and payments under financial 
                instruments (other than financial instruments in the 
                person subject to the tax imposed under this chapter 
                and any person related to such person),
                    ``(C) claims and cash surrender values paid in 
                connection with insurance or reinsurance services, and
                    ``(D) amounts paid for reinsurance.
            ``(3) Financial instrument.--`Financial instrument' means 
        any--
                    ``(A) share of stock in a corporation,
                    ``(B) equity ownership in any widely held or 
                publicly traded partnership, trust, or other business 
                entity,
                    ``(C) note, bond, debenture, or other evidence of 
                indebtedness,
                    ``(D) interest rate, currency, or equity notional 
                principal contract,
                    ``(E) evidence or interest in, or a derivative 
                financial instrument in, any financial instrument 
                described in subparagraph (A), (B), (C), or (D), or any 
                currency, including any option, forward contract, short 
                position, and any similar financial instrument in such 
                a financial instrument or currency, and
                    ``(F) a position which--
                            ``(i) is not a financial instrument 
                        described in subparagraph (A), (B), (C), (D) or 
                        (E),
                            ``(ii) is a hedge with respect to such a 
                        financial instrument, and
                            ``(iii) is clearly identified in the 
                        dealer's records as being described in this 
                        subparagraph before the close of the day on 
                        which it was acquired or entered into.
    ``(c) International Matters.--For purposes of this section in the 
case of a financial intermediation business with activity in and 
outside the United States--
            ``(1) Inclusion regardless of source.--
                    ``(A) Financial receipts shall be determined 
                without regard to whether they are received for 
                property or service provided in or outside the United 
                States, except that financial receipts do not include 
                amounts that--
                            ``(i) are not taxable receipts (as 
                        determined without regard to this section), but
                            ``(ii) would have been taxable receipts (as 
                        determined without regard to this section) if 
                        they had been received for services or property 
                        in the United States.
                    ``(B) Financial expenses shall be determined 
                without regard to whether they are received for 
                property or services acquired in or outside the United 
                States.
            ``(2) Allocation.--Under regulations prescribed by the 
        Secretary, gross profits (as determined without regard to this 
        paragraph) shall be reduced by the amount of financial 
        intermediation gross profit attributable to financial 
        intermediation activity provided outside the United States.
            ``(3) Gross profit attributable to financial intermediation 
        activity.--`Gross profits attributable to financial 
        intermediation activity' means the excess of--
                    ``(A) gross profits as determined under this 
                section (but without regard to paragraph (2)), over
                    ``(B) gross profits as determined without regard to 
                this subchapter.

``SEC. 1663. SPECIAL RULES FOR BANKS.

    ``(a) In General.--In the case of a bank, gross profits shall be 
determined in accordance with section 1662, except that--
            ``(1) Financial receipts.--Financial receipts shall include 
        only--
                    ``(A) taxable receipts (as determined without 
                regard to this subchapter),
                    ``(B) interest on loans made or acquired by the 
                bank,
                    ``(C) gain on the sale of loans,
                    ``(D) discount points received, and
                    ``(E) any explicit fees for financial or fiduciary 
                services not included in subparagraphs (A) through (E).
            ``(2) Financial expenses.--Financial expenses shall include 
        only--
                    ``(A) interest paid to depositors and on other 
                funds borrowed by the bank, and
                    ``(B) reasonable additions to reserves for bad 
                debts.
            ``(3) Foreclosure property.--Gross profits shall properly 
        take into account proceeds from the operation or sale of 
        foreclosure property.
    ``(b) Bank.--
            ``(1) In general.--`Bank' means a bank or trust company 
        incorporated and doing business under the laws of the United 
        States, the District of Columbia, or any State, a substantial 
        part of the business of which consists of receiving deposits 
        and making loans and discounts, or of exercising fiduciary 
        powers similar to those exercised by national banks under the 
        authority of the Comptroller of the Currency, and which is 
        subject by law to supervision and examination by State or 
        Federal authority having supervision over banking institutions 
        or credit unions. Such term includes domestic building and loan 
        associations and credit unions.
            ``(2) Other activities.--If a bank is engaged in 
        significant amounts of activities other than those described in 
        paragraph (1), the bank shall be considered as a separate 
        business entity with respect to such other activity.

``SEC. 1664. INSURANCE COMPANIES.

    ``(a) In General.--In the case of companies providing insurance 
services, gross profits shall be determined in accordance with section 
1662, except--
            ``(1) subsection (c) of section 1662 (relating to 
        international operations) shall not apply, and
            ``(2) the rules of subchapter J (sourcing rules) shall 
        apply to determine financial receipts and financial expenses.
    ``(b) Result Inconsistent With Statutory Intent.--If an insurance 
company determines that the application of subsection (a) produces 
results inconsistent with the territorial approach of the business tax, 
it may apply to the Secretary for permission to apply section 1662(c) 
in lieu of subsection (a).

``SEC. 1665. FINANCIAL PASS-THROUGH ENTITIES.

    ``(a) In General.--In the case of a financial pass-thru entity, 
gross profits shall be determined in accordance with section 1662, 
except--
            ``(1) financial receipts shall include contributions to 
        capital, and
            ``(2) financial expenses shall include--
                    ``(A) distributions to persons holding interests in 
                the pass-thru entity, and
                    ``(B) investments in related entities (including 
                wholly owned entities) engaging in real estate 
                investment.
    ``(b) Pass-Thru Entity.--`Pass-thru entity' means a business entity 
that is intended to serve as a conduit. The Secretary shall prescribe 
regulations defining pass-thru entity.

                ``Subchapter H--Tax-Exempt Organizations

``Sec. 1671. Exemption for governmental entities.
``Sec. 1672. Tax-exempt organizations.
``Sec. 1673. Tax on unrelated business activity.
``Sec. 1674. Unrelated business activity.

``SEC. 1671. EXEMPTION FOR GOVERNMENTAL ENTITIES.

    ``(a) States.--Except as provided in section 1672, a state, 
political subdivision thereof and the District of Columbia shall be 
exempt from taxation under this chapter on any gross profits derived 
from the exercise of any essential governmental function.
    ``(b) Possessions.--The government of any possession of the United 
States shall be exempt from taxation under this chapter on any gross 
profits earned by the possession.

``SEC. 1672. TAX-EXEMPT ORGANIZATIONS.

    ``(a) Exemption From Taxation.--An organization described in 
subsection (c) or (d) of section 501 and exempt from tax under section 
501(a) shall be exempt from taxation under this chapter.
    ``(b) Tax on Unrelated Business Activity.--An organization exempt 
from taxation under subsection (a) shall be subject to tax to the 
extent provided in sections 1675 and 1676, but shall be considered a 
tax-exempt organization for purposes of any law that refers to tax-
exempt organizations.

``SEC. 1673. TAX ON UNRELATED BUSINESS ACTIVITY.

    ``(a) In General.--Each organization described in subsection (b) 
shall be subject to the Business Consumption Tax under section 1601 on 
its gross profits from its unrelated business activity.
    ``(b) Organizations Subject to Tax.--This section shall apply to--
            ``(1) organizations exempt from the business tax under 
        section 1672, other than instrumentalities of the United 
        States, and
            ``(2) colleges and universities which are instrumentalities 
        of any government and corporations owned by one or more such 
        colleges or universities.

``SEC. 1674. UNRELATED BUSINESS ACTIVITY.

    ``(a) In General.--`Unrelated business activity' means any trade or 
business the conduct of which is not substantially related (aside from 
the need of such organization for income or funds or the use it makes 
of the profits derived) to the exercise or performance by such 
organization of its charitable, educational, or other purpose or 
function constituting the basis for its exemption under section 501, 
except that such term does not include any trade or business--
            ``(1) in which substantially all the work in carrying on 
        such trade or business is performed for the organization 
        without compensation;
            ``(2) which is carried on, in the case of an organization 
        described in section 501(c)(3) or in the case of a college or 
        university described in section 1673(b), by the organization 
        primarily for the convenience of its members, students, 
        patients, officers, or employees, which is the selling by the 
        organization of items of work-related clothes and equipment and 
        items normally sold through vending machines, through food 
        dispensing facilities, or by snack bars, for the convenience of 
        its members at their usual places of employment; or
            ``(3) which is the selling of merchandise, substantially 
        all of which has been received by the organization as gifts or 
        contributions.
    ``(b) Advertising, etc., Activities.--For purposes of this section, 
`trade or business' includes any activity which is carried on for the 
production of income from the sale of goods or the performance of 
services. For purposes of the preceding sentence, an activity does not 
lose identity as a trade or business merely because it is carried on 
within a larger aggregate of similar activities or within a larger 
complex of other endeavors which may, or may not, be related to the 
exempt purposes of the organization. Where an activity carried on for 
profit constitutes an unrelated trade or business, no part of such 
trade or business shall be excluded from such classification merely 
because it does not result in profit.
    ``(c) Trade or Business.--
            ``(1) Certain business activities.--An activity shall not 
        be considered a `trade or business' solely because the activity 
        is a business activity (such as certain passive rental 
        activity) that would be subject to the business tax if 
        conducted by a business entity other than a tax-exempt 
        organization.
            ``(2) Regulations.--The Secretary shall prescribe 
        regulations defining a `trade or business'. Such regulations 
        shall be consistent with the provisions under sections 511 
        through 513, except to the extent such provisions are 
        inconsistent with other principles of the business tax.
            ``(3) Trade shows.--The conduct of trade shows and 
        conventions shall not be excluded from the definition of trade 
        or business.

                      ``Subchapter I--Cooperatives

``Sec. 1681. Patronage dividends of cooperatives.

``SEC. 1681. PATRONAGE DIVIDENDS OF COOPERATIVES.

    ``(a) Patronage Dividends Paid by Supply Cooperatives.--A qualified 
patronage dividend paid by a supply cooperative to a patron shall be 
treated as if it is a refund of a portion of the amounts paid by the 
patron for goods, services, or use of capital.
    ``(b) Patronage Dividends Paid by Marketing Cooperatives.--A 
qualified patronage dividend paid to a patron by a marketing 
cooperative shall be treated as an upward price adjustment in the 
amount received by the patron for its goods marketed by the 
cooperative.
    ``(c) Dividend Treatment.--Only the portion of a patronage dividend 
that is not a qualified patronage dividend shall be treated as a 
dividend under this chapter.
    ``(d) Regulations.--The Secretary shall prescribe regulations for 
the application of this section. The regulations shall generally be 
consistent with subchapter T of chapter 1 except to the extent that 
such rules are inconsistent with provisions of this chapter.

                     ``Subchapter J--Sourcing Rules

``Sec. 1691. Exports of property or services.
``Sec. 1692. Imports of property or services.
``Sec. 1693. Import or export of services.
``Sec. 1694. International transportation services.
``Sec. 1695. International communications.
``Sec. 1696. Insurance.
``Sec. 1697. Banking services.

``SEC. 1691. EXPORTS OF PROPERTY OR SERVICES.

    ``(a) General Rule.--Taxable receipts do not include amounts 
received by the exporter thereof for property or services exported from 
the United States for use or consumption outside the United States.
    ``(b) Export Through Nonbusiness Entity.--For purposes of 
subsection (a), if property or services are sold to a governmental 
entity or a tax-exempt organization for export and are exported other 
than in an activity of such entity which is subject to the business 
tax, then the seller of such property or services is deemed to be the 
exporter thereof.

``SEC. 1692. IMPORTS OF PROPERTY OR SERVICES.

    ``(a) In General.--The import of property or services for 
consumption in the United States shall constitute a business purchase 
if such property or service is to be used in a business activity in the 
United States. Property being held for sale or retail by a business 
entity that is in the business of selling goods shall be considered 
held for `use in a business activity'.
    ``(b) Amount of Business Purchase.--
            ``(1) In general.--The cost of business purchases with 
        respect to the import of property or services for use or 
        consumption in the United States is the customs value, price or 
        other amount used for purposes of determining the import tax 
        under section 1701 or section 1702.
            ``(2) Import tax.--The cost of business purchases does not 
        include any import tax paid. No deduction shall be allowed with 
        respect to property or service imported by a business entity 
        unless the import tax is paid with respect to such import.

``SEC. 1693. IMPORT OR EXPORT OF SERVICES.

    ``(a) In General.--Except as otherwise provided in this subchapter 
or in rules prescribed under subchapter G (relating to financial 
intermediation business), services shall not be treated as imported or 
exported from the location in which they are performed.
    ``(b) Import of Services.--A business entity shall be treated as 
importing a service if--
            ``(1) the entire benefit of the service will be realized in 
        the United States, and
            ``(2) the benefit will be realized in connection with the 
        United States business activities of the business entity.
    ``(c) Export of Services.--A business will be treated as exporting 
a service if--
            ``(1) the entire benefit of the service will be realized 
        outside of the United States, and
            ``(2) the benefit will be realized solely in connection 
        with the activities of the purchaser occurring outside the 
        United States.
    ``(d) Services Acquired From Service Provider That Provides 
Services In and Outside the United States.--
            ``(1) In general.--If a business entity acquires services 
        from a service provider that provides services both in and 
        outside the United States and the service provider shows on the 
        invoice where the services are provided--
                    ``(A) the business entity shall treat the services 
                as provided where stated on the invoice, and
                    ``(B) the service provider shall treat as taxable 
                receipts any services listed as provided in the United 
                States.
            ``(2) No invoice.--If a business entity acquires services 
        from a service provider that provides services both in and 
        outside the United States and the service provider does not 
        show on an invoice where such services are provided--
                    ``(A) the business entity shall treat the services 
                as if provided in the location to which payment is 
                sent, and
                    ``(B) the service provider shall treat as taxable 
                receipts any payments received in the United States.

``SEC. 1694. INTERNATIONAL TRANSPORTATION SERVICES.

    ``(a) Transportation of Property.--
            ``(1) Taxable receipts.--
                    ``(A) Exports.--Taxable receipts do not include 
                receipts from the transportation of property exported 
                from the United States.
                    ``(B) Imports.--Taxable receipts include receipts 
                from transportation of property imported into the 
                United States only if such costs are not taken into 
                account in determining the import tax.
                    ``(C) Presumptions.--The Secretary shall prescribe 
                regulations describing situations in which a 
                transporter of property must presume that no import tax 
                has been paid on the cost of its services.
            ``(2) Business purchases.--
                    ``(A) Exports.--Business purchases do not include 
                amounts paid or incurred for the cost of transportation 
                of property exported from the United States.
                    ``(B) Imports.--Amounts paid or incurred for 
                transportation of goods imported into the United 
                States, shall constitute a cost of business purchase 
                only to the extent that they are taken into account in 
                determining the customs value for purposes of section 
                1701(a) (relating to the import tax).
    ``(b) Transportation of Passengers.--
            ``(1) Taxable receipts.--Taxable receipts--
                    ``(A) include receipts from the transportation of 
                passengers from the United States to a destination 
                outside the United States, but
                    ``(B) do not include receipts from the 
                transportation of passengers from outside the United 
                States to a destination in the United States.
            ``(2) Business purchases.--Business purchases--
                    ``(A) include amounts paid or incurred in a 
                business activity for the transportation of passengers 
                from the United States to a destination outside the 
                United States, but
                    ``(B) do not include amounts paid or incurred for 
                transportation of passengers from outside the United 
                States to a destination in the United States.
            ``(3) Simplifying rules.--The Secretary may provide rules 
        that simplify this subsection, including rules under which--
                    ``(A) half of receipts attributable to 
                transportation to or from the United States are treated 
                as taxable receipts,
                    ``(B) half of the cost for business trips to and 
                from the United States are treated as business 
                purchases, and
                    ``(C) all transportation expenses of a business 
                entity that has no regular business outside the United 
                States are treated as business purchases.

``SEC. 1695. INTERNATIONAL COMMUNICATIONS.

    ``(a) In General.--For purposes of section 1692, communications 
services shall be treated as provided at the point of origin of the 
communications and shall not be treated as imported or exported.
    ``(b) Communications Services.--Communications services include--
            ``(1) telephone communications services,
            ``(2) courier services (except in the case of 
        transportation of property that is imported or exported),
            ``(3) satellite transmission services,
            ``(4) telegraph services,
            ``(5) facsimile transmission services, and
            ``(6) other similar services.

``SEC. 1696. INSURANCE.

    ``(a) In General.--Insurance services will be treated as provided 
at the location of the insurance company providing the services. Except 
as the Secretary may prescribe by regulations, insurance companies will 
be treated as providing services at the location to which insurance 
payments are made.
    ``(b) Insured Risks in the United States.--If insurance services 
are provided outside the United States and the insured risk is located 
in the United States--
            ``(1) the insurance service shall be treated as imported,
            ``(2) the insurance premiums shall be subject to the import 
        tax, and
            ``(3) payments of insurance benefits shall not be treated 
        as imported.
    ``(c) Insured Risk Outside the United States.--If insurance 
services are provided inside the United States and the insured risk is 
located outside the United States--
            ``(1) insurance services shall be treated as exported, and
            ``(2) payments of insurance benefits shall be treated as 
        payments for services outside the United States, and shall not 
        be deducted as business purchases.
    ``(d) Insurance Services.--Insurance services means the provision 
of insurance and services related to insurance other than insurance 
that is treated as a savings asset.

``SEC. 1697. BANKING SERVICES.

    ``The Secretary shall prescribe regulations on the location of 
banking services and the extent to which such services are to be 
treated as imported or exported.

                       ``Subchapter K--Import Tax

``Sec. 1701. Imposition of tax on property.
``Sec. 1702. Imposition of tax on import of services.
``Sec. 1703. General rules for the import tax.

``SEC. 1701. IMPOSITION OF TAX ON PROPERTY.

    ``(a) General Rule.--There is hereby imposed a tax equal to 8.5 
percent of the customs value of all property entered into the United 
States for consumption, use or warehousing.
    ``(b) Liability for Tax.--The tax imposed on the import of property 
by subsection (a) shall be paid by the person entering the property 
into the United States for consumption, use or warehousing. Such tax 
shall be due and payable at the time of import.
    ``(c) Imports of Previously Exported Property.--In the case of any 
article that is classified under a heading or subheading of subchapter 
I or II of chapter 98 of the Tariff Schedules of the United States, the 
tax under this section shall be imposed only on that portion of the 
customs value of such article that is dutiable under such heading or 
subheading.
    ``(d) Imports for Personal Consumption.--The import tax imposed by 
this section shall not apply to any article entered into the United 
States duty free under subchapters I through VII of chapter 98 of the 
Tariff Schedules of the United States.

``SEC. 1702. IMPOSITION OF TAX ON IMPORT OF SERVICES.

    ``(a) General Rule.--There is hereby imposed a tax equal to 8.5 
percent of the cost of all services treated as imported into the United 
States during the taxable period of the service recipient.
    ``(b) Liability for the Tax.--The tax on the import of services 
imposed by subsection (a) shall be paid by the person who receives the 
imported services. The tax shall be payable as if it were an addition 
to the business tax imposed by section 1601.
    ``(c) Imported Services.--For purposes of this section, services 
shall be treated as imported if they are treated as imported under 
section 1693 (general rules on import of services) or section 1696 
(related to insurance).

``SEC. 1703. GENERAL RULES FOR THE IMPORT TAX.

    ```Import tax' means the tax imposed by section 1701 on the import 
of property and the tax imposed by section 1702 on the import of 
services.

                    ``Subchapter L--Transition Rules

``Sec. 1711. Amortization of transition basis.

``SEC. 1711. AMORTIZATION OF TRANSITION BASIS.

    ``(a) Transition Basis Deduction.--The `transition basis deduction' 
for a taxable period is the sum of the amortization allowance 
determined under this section for the taxable period.
    ``(b) Treatment of Interest Flows.--Interest flows between non-
financial businesses shall be treated as under current law, phased out 
over 5 years.
    ``(c) Amortization Rules.--The amortization allowance to all 
property placed in service before the effective date of this section 
shall be the lesser of--
            ``(1) the amortization period under current law remaining 
        on such date, or
            ``(2) a 5-year ratable period beginning on such date.

     ``Subchapter M--Rules for Administration, Consolidated Returns

``Sec. 1721. Returns, due dates, etc.
``Sec. 1722. Consolidated returns.
``Sec. 1723. Seller liable for tax.
``Sec. 1724. Tax invoices.
``Sec. 1725. Time for filing return and claiming credit; deposits of 
                            tax.
``Sec. 1726. Secretary to be notified of certain events.
``Sec. 1727. Regulations.

``SEC. 1721. RETURNS, DUE DATES, ETC.

    ``(a) In General.--Until subtitle F is amended to reflect the 
adoption of this chapter, the rules of subtitle F relating to C 
corporations shall apply to business entities with respect to--
            ``(1) returns and records;
            ``(2) time and place for paying tax;
            ``(3) assessment of taxes;
            ``(4) collections and liens;
            ``(5) abatements, credits, and refunds;
            ``(6) interest on underpayments and overpayments;
            ``(7) additions to tax and penalties;
            ``(8) closing agreements and compromises;
            ``(9) crimes;
            ``(10) judicial proceedings;
            ``(11) discovery of liability and enforcement; and
            ``(12) estimated taxes.
    ``(b) Individuals Engaging in Business Activities.--Under rules 
prescribed by the Secretary, individuals engaging in business 
activities on their own or with their spouses shall be permitted to 
file their business tax returns with their individual tax returns and 
shall be subject to estimated tax rules for individual income tax 
returns.

``SEC. 1722. CONSOLIDATED RETURNS.

    ``(a) In General.--Business entities may file consolidated returns 
of business tax if they would have been permitted to file consolidated 
returns under section 1501 and such section were applied by treating 
each business entity as a corporation and its owners or partners as 
shareholders.
    ``(b) Financial Institutions.--Financial intermediation businesses 
may be included in consolidated returns, but each financial 
intermediation business must compute its gross profits separately.
    ``(c) Intercompany Transactions.--In computing the gross profits of 
a consolidated group, intercompany transactions can be taken into 
account, or at the election of the filer, be disregarded (except in the 
case of transactions with financial intermediation businesses).

``SEC. 1723. SELLER LIABLE FOR TAX.

    ``The person selling the property or services shall be liable for 
the tax imposed by section 1601.

``SEC. 1724. TAX INVOICES.

    ``(a) Seller Must Give Purchaser Tax Invoice.--Any taxable person 
engaging in a taxable transaction shall give the purchaser a tax 
invoice with respect to such transaction if the seller has reason to 
believe that the purchaser is a taxable person.
    ``(b) Content of Invoice.--The tax invoice required by subsection 
(a) with respect to any transaction shall set forth--
            ``(1) the name and identification number of the seller,
            ``(2) the name of the purchaser,
            ``(3) the amount of the tax imposed by section 1601, and
            ``(4) such other information as may be prescribed by 
        regulations.
    ``(c) No Credit Without Invoice.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), a purchaser may claim a credit with respect to a 
        transaction only if the purchaser--
                    ``(A) has received from the seller and has in the 
                purchaser's possession a tax invoice which meets the 
                requirements of subsection (b), and
                    ``(B) is named as the purchaser in such invoice.
            ``(2) Employees or other agents named in invoices.--To the 
        extent provided in regulations, the naming of an employee or 
        other agent of the purchaser shall be treated as the naming of 
        the purchaser.
            ``(3) Waiver of invoice requirement in certain cases.--To 
        the extent provided in regulations, paragraph (1) shall not 
        apply--
                    ``(A) where the purchaser without fault on the 
                purchaser's part fails to receive or fails to have in 
                the purchaser's possession a tax invoice,
                    ``(B) to a taxable transaction (or category of 
                transactions) where--
                            ``(i) the amount involved is de minimis, or
                            ``(ii) the information required by 
                        subsection (b) can be reliably established by 
                        sampling or by another method and can be 
                        adequately documented.
    ``(d) Time for Furnishing Invoice.--Any invoice required to be 
furnished by subsection (a) with respect to any transaction shall be 
furnished not later than 15 business days after the tax point for such 
transaction.

``SEC. 1725. TIME FOR FILING RETURN AND CLAIMING CREDIT; DEPOSITS OF 
              TAX.

    ``(a) Filing Return.--Before the first day of the second calendar 
month beginning after the close of each taxable period, each taxable 
person shall file a return of the tax imposed by section 1601 on 
taxable transactions having a tax point within such taxable period.
    ``(b) Credit Allowed for Taxable Period in Which Purchaser Receives 
Invoice.--
            ``(1) In general.--Except as provided in paragraph (2), a 
        credit allowable by section 1606 with respect to a transaction 
        may be allowed only for the first taxable period by the close 
        of which the taxpayer--
                    ``(A) has paid or accrued amounts properly 
                allocable to the tax imposed by section 1601 with 
                respect to such transaction, and
                    ``(B) has a tax invoice (or equivalent) with 
                respect to such transaction.
            ``(2) Use for later period.--Under regulations, a credit 
        allowable by section 1606 may be allowed for a period after the 
        period set forth in paragraph (1).
    ``(c) Taxable Period.--For purposes of this chapter--
            ``(1) In general.--The term `taxable period' means a 
        calendar quarter.
            ``(2) Exception.--
                    ``(A) Election of 1-month period.--If the taxpayer 
                so elects, the term `taxable period' means a calendar 
                month.
                    ``(B) Other periods.--To the extent provided in 
                regulations, the term `taxable period' includes a 
                period, other than a calendar quarter or month, 
                selected by the taxpayer.
    ``(d) Tax Point.--For purposes of this chapter--
            ``(1) Chapter 1 rules with respect to seller govern.--
        Except as provided in paragraph (2), the tax point for any sale 
        of property or services is the earlier of--
                    ``(A) the time (or times) when any income from the 
                sale should be treated by the seller as received or 
                accrued (or any loss should be taken into account by 
                the seller) for purposes of chapter 1, or
                    ``(B) the time (or times) when the seller receives 
                payment for the sale.
            ``(2) Imports.--In the case of the importing of property, 
        the tax point is when the property is entered, or withdrawn 
        from warehouse, for consumption in the United States.
    ``(e) Monthly Deposits Required.--To the extent provided in 
regulations, monthly deposits may be required of the estimated 
liability for any taxable period for the tax imposed by section 1601.

``SEC. 1726. SECRETARY TO BE NOTIFIED OF CERTAIN EVENTS.

    ``To the extent provided in regulations, each person engaged in a 
business shall notify the Secretary (at such time or times as may be 
prescribed by such regulations) of any change in the form in which a 
business is conducted or any other change which might affect the 
liability for the tax imposed by section 1601 or the amount of such tax 
or any credit against such tax, or otherwise affect the administration 
of such tax in the case of such person.

``SEC. 1727. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary to carry out the purposes of this chapter.

          ``Subchapter N--Definitions and Rules of Application

``Sec. 1731. Definitions.
``Sec. 1732. Rules of application.

``SEC. 1731. DEFINITIONS.

    ``If a term that is used but not defined in this chapter or in 
section 7701 is defined in chapter 1, the definition in chapter 1 shall 
apply except if manifestly incompatible with the intent of the 
provision in which the term is used.

``SEC. 1732. RULES OF APPLICATION.

    ``(a) Definitions.--Any definition included in this chapter shall 
apply for all purposes of this chapter unless--
            ``(1) such definition is limited to the purposes of a 
        particular chapter, section, or subsection, or
            ``(2) the definition clearly would not be applicable in a 
        particular context.
    ``(b) Interpretations Consistent With Internal Revenue Code of 
1986.--Terms not defined in this chapter, chapter 1 or section 7701, 
but defined elsewhere in this title, shall be interpreted in a manner 
consistent with this title, except to the extent such interpretation 
would be inconsistent with the principles and purposes of this 
chapter.''.
    (b) The amendments made by this section shall be effective on 
January 1, 2010, except to the extent otherwise specifically provided 
in the text of such amendments.

SEC. 603. REPEAL OF CHAPTER 6.

    Chapter 6 of the Code (relating to consolidated returns) is 
repealed as of January 1, 2010.

SEC. 604. REVISIONS TO THE CODE.

    Not later than January 1, 2010, the Secretary shall submit to 
Congress proposed changes in the Internal Revenue Code of 1986 that--
            (1) revise subtitles C through J of such Code to fully 
        reflect the amendments to subtitle A of such Code made by this 
        title and the repeal of subtitle B of such Code,
            (2) include statutory definitions or rules in cases where 
        the Secretary concludes that the definitions or rules cannot or 
        should not be addressed by regulation,
            (3) revise chapter 2 of such Code (relating to the self-
        employment tax) to conform to changes made by this title, and
            (4) revise chapter 3 of such Code (relating to withholding 
        on nonresident aliens and foreign corporations) to reflect 
        changes made by this title.

SEC. 605. APPLICATION OF SUBTITLE F.

    Until such time as subtitle F of the Internal Revenue Code of 1986 
is amended to reflect the amendments made by this title, the provisions 
of such subtitle F shall be treated as generally applying to chapter 7 
of subtitle A of such Code--
            (1) without regard to specific cross references,
            (2) without regard to provisions relating to partnerships, 
        and
            (3) as if the business tax under such chapter 7 were the 
        corporate income tax and all business entities were 
        corporations (except for purposes of collection, in which case 
        the owners of noncorporate entities shall be obligated for 
        taxes owned by the entities to the same extent as they would if 
        the entity owed the tax prior to the amendment of the Code).

SEC. 606. EFFECTIVE DATES.

    (a) In General.--Except as otherwise provided in this title, the 
amendments made by this title shall be effective on and after January 
1, 2010, with respect to tax years beginning on such date.
    (b) Special Rules for Businesses With 52-53 Week Year.--If a 
business uses a 52-53 week taxable period the amendments made by this 
title shall apply to the business with respect to its tax year 
beginning in the last week in December except with respect to any 
transactions occurring during 2009 that were structured to take 
advantage of the application of this title to such business at a time 
when this title did not apply to other businesses or to individuals.

                     TITLE VII--BUDGET ENFORCEMENT

SEC. 701. SHORT TITLE; TABLE OF CONTENTS; DEFINITIONS.

    (a) Short Title.--This title may be cited as the ``Budget Control 
Act of 2009''.
    (b) Table of Contents.--

                     TITLE VII--BUDGET ENFORCEMENT

Sec. 701. Short title; table of contents; definitions.
Sec. 702. Long-term projections.
Sec. 703. Preview spending reduction order.
Sec. 704. Final spending reduction order.
Sec. 705. Eliminating excess spending amounts.
Sec. 706. Special procedures.
Sec. 707. Suspension in the event of war or low growth.
Sec. 708. Alternate spending reduction legislation in the House of 
                            Representatives.
Sec. 709. Alternate spending reduction legislation in the Senate.
Sec. 710. General provisions.
Sec. 711. Effective date.
    (c) Definitions.--As used in this title:
            (1) The terms ``budget authority'' and ``outlays'' have the 
        meanings given to such terms in section 3 of the Congressional 
        Budget Act of 1974.
            (2) The term ``budgetary resources'' means new budget 
        authority, budget authority, unobligated balances, direct 
        spending authority, and obligation limitations.
            (3) The term ``spending reduction'' refers to the 
        cancellation of budgetary resources provided by discretionary 
        appropriations or direct spending.
            (4) The term ``discretionary appropriations'' means 
        budgetary resources provided in appropriation Acts.
            (5) The term ``direct spending'' means budget resources 
        provided in law other than appropriation Acts.
            (6) The term ``gross domestic product'', with respect to 
        any fiscal year, means the gross national product during such 
        fiscal year consistent with Department of Commerce definitions.
            (7) The term ``account'' means an item for which 
        appropriations are made in any appropriation Act and, for items 
        not provided for in appropriation Acts, such term means an item 
        for which there is a designated budget account identification 
        code number in the President's budget.
            (8) The term ``budget year'' means, with respect to a 
        session of Congress, the fiscal year of the Government that 
        starts on October 1 of the calendar year in which that session 
        begins.
            (9) The term ``current year'' means, with respect to a 
        budget year, the fiscal year that immediately precedes that 
        budget year.
            (10) The term ``OMB'' means the Director of the Office of 
        Management and Budget.
            (11) The term ``CBO'' means the Director of the 
        Congressional Budget Office.
            (12) The term ``baseline'' means the baseline estimates OMB 
        or CBO, as applicable, annually submits to Congress consistent 
        with section 257 of the Balanced Budget and Emergency Deficit 
        Control Act of 1985.
            (13) The term ``guideline period'' means the period of 
        fiscal years as set forth in section 702(f).
            (14) The term ``excess spending amount'' means the amount 
        of outlays a projected spending amount exceeds the guideline 
        spending amount for a fiscal year within the guideline period.
            (15) The term ``projected spending amount'' means the 
        amount of total outlays of the Federal Government for a fiscal 
        year within the guideline period and as calculated in section 
        702(c).
            (16) The term ``guideline spending amount'' means the 
        amount of total outlays of the Federal Government for a fiscal 
        year as a percentage of the gross domestic product for such 
        fiscal year within the guideline period.
            (17) The term ``preview order'' means a preview spending 
        reduction order as defined in section 703.
            (18) The term ``final order'' means a final spending 
        reduction order as defined in section 704.

SEC. 702. LONG-TERM PROJECTIONS.

    (a) OMB Long-Term Economic Growth and Budget Projections.--For each 
fiscal year within the guideline period, OMB shall prepare a report 
that sets forth the amount of total spending of the Government in 
outlays, within the budget as submitted by the President anually under 
section 1105(a) of title 31, United States Code.
    (b) CBO Long-Term Economic Growth and Budget Projections.--By 
February 1 of each calendar year, for each fiscal year within the 
guideline period, CBO shall prepare a report that sets forth the amount 
of total spending of the Government in outlays, and the amount of 
spending of each program within the budget as CBO prepares its annual 
baseline and its reestimate of the President's budget.
    (c) Inclusion in the Final Spending Reduction.--Each report 
prepared pursuant to subsections (a) and (b) shall be included in the 
preview spending reduction and final spending reduction, as applicable, 
set forth in sections 703 and 704.

SEC. 703. PREVIEW SPENDING REDUCTION ORDER.

    (a) Issuance.--Not later than 15 calendar days after the date 
Congress adjourns to end a session of Congress, every fiscal year other 
than which a final order is issued, OMB shall issue a preview spending 
reduction order.
    (b) Contents.--A preview order shall be subject to the same 
requirements as that set forth for a final spending reduction in 
section 704.
    (c) Availability.--A preview order required to be issued by this 
section shall be submitted by OMB to the House of Representatives and 
the Senate on the day it is issued.
    (d) Effect.--A preview order shall not cause a spending reduction.

SEC. 704. FINAL SPENDING REDUCTION ORDER.

    (a) Issuance.--Not later than 15 calendar days after the date 
Congress adjourns to end a session of Congress, every fifth fiscal year 
following the fiscal year in which this Act is enacted, OMB shall issue 
a final spending reduction order to eliminate an excess spending amount 
(if any) as calculated under subsection (b).
    (b) Content of a Final Spending Control Order.--In addition to any 
other information required under this title to be included in any final 
spending control order, this order shall contain, for the budget year, 
for each account to be subject to a spending reduction, estimates of 
the baseline level of budgetary resources and resulting outlays and the 
amount of budgetary resources to be subject to a spending reduction and 
resulting outlay reductions. The order shall also contain estimates of 
the effects on outlays of the spending reduction in each outyear for 
direct spending programs.
    (c) Availability.--A final order required to be issued by this 
section shall be submitted by OMB to the House of Representatives, the 
Senate, and the President on the day it is issued.
    (d) Spending Control Buffer.--If there is an excess spending amount 
in only one fiscal year or in one period of two successive fiscal years 
during the guideline period, and such amount or amounts exceed the 
guideline spending amount by .1 percent of GDP or less, then the final 
spending reduction shall be issued, but shall not take effect.
    (e) Presidential Order.--On the date specified in subsection (a), 
if in its final spending reduction OMB calculates there exists an 
impermissible excess spending amount, the President shall issue an 
order fully implementing without change all spending reductions 
required by the OMB calculations set forth in that report. This order 
shall be effective on the first day of the fiscal year following the 
fiscal year in which the order is issued.

SEC. 705. ELIMINATING EXCESS SPENDING AMOUNTS.

    (a) Enforcing a Spending Reduction for Discretionary Spending.--
            (1) Eliminating a discretionary spending excess.--OMB shall 
        include in its final order a requirement that each 
        discretionary account shall be reduced by an amount of budget 
        authority calculated by multiplying the baseline level of 
        budgetary resources in that account at that time by the uniform 
        percentage necessary to reduce outlays sufficient to eliminate 
        an excess spending amount.
            (2) Part-year appropriations.--If, on the date a final 
        spending reduction is issued, there is in effect an Act making 
        or continuing appropriations for part of a fiscal year for any 
        budget account, then the dollar spending reduction calculated 
        for that account under paragraph (1) shall be subtracted from--
                    (A) the annualized amount otherwise available by 
                law in that account under that or a subsequent part-
                year appropriation; and
                    (B) when a full-year appropriation for that account 
                is enacted, from the amount otherwise provided by the 
                full-year appropriation.
    (b) Eliminating a Direct Spending Excess.--OMB shall include in its 
final order a requirement that each direct spending account shall be 
reduced by an amount of budget authority calculated by multiplying the 
baseline level of budgetary resources in that account at that time by 
the uniform percentage necessary to reduce outlays sufficient to 
eliminate an excess spending amount.
    (c) Uniform Percentage.--The percentage required to produce a 
spending reduction, as ordered by a final order, shall be calculated by 
OMB by adding all budgetary resources of the Government, and reducing 
that amount by an amount sufficient to reduce the total amount of 
outlays of the Government to equal, or lower, a level of outlays than 
the amount set forth in the guideline period.

SEC. 706. SPECIAL PROCEDURES.

    (a) Social Security Benefits.--Benefits payable under the old-age, 
survivors, and disability insurance program established under title II 
of the Social Security Act, shall be exempt from a spending reduction 
required by a final order if--
            (1) the Social Security Trustees issue, in the fiscal year 
        such order is issued, a statement that the old-age, survivors, 
        and disability Trust Funds have achieved or will achieve 
        solvency under current law within the guideline period 
        beginning in the year following the year the final order is 
        issued;
            (2) it would require an amount that exceeds such amount as 
        the Trustees determine are required to achieve solvency in that 
        period, as determined by the Social Security Trustees; and
            (3) it would require a spending reduction of an amount 
        greater than 1 percent of budgetary resources in any fiscal 
        year within the guideline period.
    (b) Net Interest.--A spending reduction shall not cause any effect 
on payments for net interest (as set forth in function 900).
    (c) Obligated Balances.--Obligated balances of budget authority 
carried over from prior fiscal years shall be exempt from a spending 
reduction under any order issued under this title.
    (d) Application to Fast Growing Programs.--Any program whose growth 
in the budget year is less than the rate of inflation as determined by 
OMB, shall be exempt from a spending reduction issued under this title.
    (e) Limitation on Spending Reductions.--No program shall be subject 
to a spending reduction of more than 1 percent of its budgetary 
resources.
    (f) Uniform Percentage Rate of Reduction and Other Limitations.--
All spending reductions with respect to a fiscal year shall be made so 
as to ensure that outlays for each program, project, activity, or 
account involved are reduced by a percentage rate that is uniform for 
all such programs, projects, activities, and accounts, and may not be 
made so as to achieve a percentage rate of reduction in any such item 
exceeding the rate specified in the order.
    (g) Effect of a Final Order.--Upon the issue of a final order, a 
spending reduction shall be ordered for all nonexempt spending 
accounts. The spending reduction shall be effective as follows:
            (1) Budgetary resources subject to a spending reduction to 
        any discretionary account shall be permanently cancelled.
            (2) The same percentage spending reduction shall apply to 
        all programs, projects, and activities within a budget account 
        (with programs, projects, and activities as delineated in the 
        appropriation Act or accompanying report for the relevant 
        fiscal year covering that account, or for accounts not included 
        in appropriation Acts, as delineated in the most recently 
        submitted President's budget).
            (3) Administrative regulations implementing a spending 
        reduction shall be made within 120 days of the issue of a final 
        order.
            (4) Budgetary resources subject to a spending reduction in 
        revolving, trust, and special fund accounts and offsetting 
        collections subject to a spending reduction in appropriation 
        accounts shall not be available for obligation during the 
        fiscal year in which the spending reduction is issued, and 
        shall be available in subsequent years only to the extent as 
        provided by law.

SEC. 707. SUSPENSION IN THE EVENT OF WAR OR LOW GROWTH.

    (a) Procedures in the Event of a Low Growth Report.--
            (1) Low growth report.--Whenever OMB or CBO issues a low-
        growth report under section 710(a), the majority leader of the 
        House of Representatives and the majority leader of the Senate 
        shall introduce a joint resolution suspending the relevant 
        provisions of this title, titles III and IV of the 
        Congressional Budget Act of 1974, and section 1103 of title 31, 
        United States Code.
            (2) Form of joint resolution.--
                    (A) The matter after the resolving clause in any 
                joint resolution introduced pursuant to paragraph (1) 
                shall be as follows: ``That the Congress declares that 
                the conditions specified in section 711(a) of the 
                Budget Control Act of 2008 are met, and the 
                implementation of the Congressional Budget and 
                Impoundment Control Act of 1974, chapter 11 of title 
                31, United States Code, and the Budget Control Act of 
                2008 is hereby suspended.''.
                    (B) The title of the joint resolution shall be ``A 
                joint resolution suspending certain provisions of law 
                pursuant to section 711(a) of the Budget Control Act of 
                2008.''
            (3) Supermajority.--A joint resolution introduced pursuant 
        to paragraph (1), an amendment thereto, or a conference report 
        thereon, shall only be passed if it receives not less than 
        three-fifths vote of approval of the total number of Members of 
        the House of Representatives and the Senate.
    (b) Suspension of Spending Reduction Procedures.--Upon the 
enactment of a declaration of war or a joint resolution described in 
subsection (a)--
            (1) the subsequent issuance of any final spending reduction 
        is precluded;
            (2) titles III and IV of the Congressional Budget Act of 
        1974 are suspended; and
            (3) section 1103 of title 31, United States Code, is 
        suspended.
    (c) Restoration of Spending Control Procedures.--
            (1) War.--In the event of a suspension of spending control 
        procedures due to a declaration of war, then, effective with 
        the fifth fiscal year that begins in the session after the 
        state of war is concluded, the provisions of subsection (b) 
        triggered by that declaration of war are no longer effective.
            (2) Suspension.--In the event of a suspension of spending 
        control procedures due to the enactment of a joint resolution 
        described in subsection (a), then, effective with regard to the 
        first fiscal year beginning at least 12 months after the 
        enactment of that resolution, the provisions of subsection (b) 
        triggered by that resolution are no longer effective.

SEC. 708. ALTERNATE SPENDING REDUCTION LEGISLATION IN THE HOUSE OF 
              REPRESENTATIVES.

    (a) Introduction of Joint Resolution.--At any time after the 
Director of OMB issues a final order for a fiscal year, but before the 
end of the session of Congress in session on the date of the issuance 
of such order, the majority leader of the House of Representatives may 
introduce a joint resolution which contains provisions directing the 
President to modify the most recent final order issued pursuant to this 
title, or provide an alternative to eliminate the spending excess for 
such fiscal year or years. After the introduction of the first such 
joint resolution in either House of Congress in any calendar year, then 
no other joint resolution introduced pursuant to this section shall be 
subject to the procedures set forth in this section.
    (b) Procedures for Consideration of Joint Resolutions.--
            (1) Any committee of the House of Representatives to which 
        an alternative spending compliance measure is referred shall 
        report it to the House without amendment not later than the 
        seventh legislative day after the date of its introduction. If 
        a committee fails to report the bill within that period or the 
        House has adopted a concurrent resolution providing for 
        adjournment sine die at the end of a Congress, it shall be in 
        order to move that the House discharge the committee from 
        further consideration of the bill. Such a motion shall be in 
        order only at a time designated by the Speaker in the 
        legislative schedule within two legislative days after the day 
        on which the proponent announces his intention to offer the 
        motion. Such a motion shall not be in order after a committee 
        has reported a spending compliance measure with respect to that 
        special message or after the House has disposed of a motion to 
        discharge with respect to that special message. The previous 
        question shall be considered as ordered on the motion to its 
        adoption without intervening motion except twenty minutes of 
        debate equally divided and controlled by the proponent and an 
        opponent. If such a motion is adopted, the House shall proceed 
        immediately to consider the spending compliance measure bill in 
        accordance with paragraph (3). A motion to reconsider the vote 
        by which the motion is disposed of shall not be in order.
            (2) After a spending compliance measure is reported or a 
        committee has been discharged from further consideration, or 
        the House has adopted a concurrent resolution providing for 
        adjournment sine die at the end of a Congress, it shall be in 
        order to move to proceed to consider the spending compliance 
        measure in the House. Such a motion shall be in order only at a 
        time designated by the Speaker in the legislative schedule 
        within two legislative days after the day on which the 
        proponent announces his intention to offer the motion. Such a 
        motion shall not be in order after the House has disposed of a 
        motion to proceed with respect to that special message. The 
        previous question shall be considered as ordered on the motion 
        to its adoption without intervening motion. A motion to 
        reconsider the vote by which the motion is disposed of shall 
        not be in order.
            (3) The spending compliance measure shall be considered as 
        read. All points of order against an approval bill and against 
        its consideration are waived. The previous question shall be 
        considered as ordered on an approval bill to its passage 
        without intervening motion except five hours of debate equally 
        divided and controlled by the proponent and an opponent and one 
        motion to limit debate on the bill. A motion to reconsider the 
        vote on passage of the bill shall not be in order.
            (4) A spending compliance measure received from the Senate 
        shall not be referred to committee.
    (c) Voting.--The vote on final passage of a joint resolution or 
conference report thereon referred to in paragraph (1) shall require 
approval of not less than three-fifths of the Members of the House of 
Representatives.

SEC. 709. ALTERNATE SPENDING REDUCTION LEGISLATION IN THE SENATE.

    (a) Introduction of Joint Resolution.--At any time after OMB issues 
a final order for a fiscal year, but before the end of the session of 
Congress in session on the date of the issuance of such order, the 
majority leader of either House of Congress may introduce a joint 
resolution which contains provisions directing the President to modify 
the most recent final order provide an alternative to eliminate the 
spending excess for such fiscal year or years. After the introduction 
of the first such joint resolution in either House of Congress in any 
calendar year, then no other joint resolution introduced in such House 
in such calendar year shall be subject to the procedures set forth in 
this section.
    (b) Procedures for Consideration of Joint Resolutions.--
            (1) Referral to committee.--A joint resolution introduced 
        in the Senate under subsection (a) shall not be referred to a 
        committee of the Senate and shall be placed on the calendar 
        pending disposition of such joint resolution in accordance with 
        this subsection.
            (2) Consideration in the senate.--On or after the third 
        calendar day (excluding Saturdays, Sundays, and legal holidays) 
        beginning after a joint resolution is introduced under 
        subsection (a), notwithstanding any rule or precedent of the 
        Senate, including rule XXII of the Standing Rules of the 
        Senate, it is in order (even though a previous motion to the 
        same effect has been disagreed to) for any Member of the Senate 
        to move to proceed to the consideration of the joint 
        resolution. The motion is not in order after the eighth 
        calendar day (excluding Saturdays, Sundays, and legal holidays) 
        beginning after a joint resolution (to which the motion 
        applies) is introduced. The joint resolution is privileged in 
        the Senate. A motion to reconsider the vote by which the motion 
        is agreed to or disagreed to shall not be in order. If a motion 
        to proceed to the consideration of the joint resolution is 
        agreed to, the Senate shall immediately proceed to 
        consideration of the joint resolution without intervening 
        motion, order, or other business, and the joint resolution 
        shall remain the unfinished business of the Senate until 
        disposed of.
            (3) Debate in the senate.--
                    (A) In the Senate, debate on a joint resolution 
                introduced under subsection (a), amendments thereto, 
                and all debatable motions and appeals in connection 
                therewith shall be limited to not more than 10 hours, 
                which shall be divided equally between the majority 
                leader and the minority leader (or their designees).
                    (B) A motion to postpone, or a motion to proceed to 
                the consideration of other business is not in order. A 
                motion to reconsider the vote by which the joint 
                resolution is agreed to or disagreed to is not in 
                order, and a motion to recommit the joint resolution is 
                not in order.
                    (C)(i) No amendment that is not germane to the 
                provisions of the joint resolution shall be in order in 
                the Senate. In the Senate, an amendment, any amendment 
                to an amendment, or any debatable motion or appeal is 
                debatable for not to exceed 30 minutes to be equally 
                divided between, and controlled by, the mover and the 
                majority leader (or their designees), except that in 
                the event that the majority leader favors the 
                amendment, motion, or appeal, the minority leader (or 
                the minority leader's designee) shall control the time 
                in opposition to the amendment, motion, or appeal.
                    (ii) In the Senate, an amendment that is otherwise 
                in order shall be in order notwithstanding the fact 
                that it amends the joint resolution in more than one 
                place or amends language previously amended. It shall 
                not be in order in the Senate to vote on the question 
                of agreeing to such a joint resolution or any amendment 
                thereto unless the figures then contained in such joint 
                resolution or amendment are mathematically consistent.
            (4) Vote on final passage.--Immediately following the 
        conclusion of the debate on a joint resolution introduced under 
        subsection (a), a single quorum call at the conclusion of the 
        debate if requested in accordance with the rules of the Senate, 
        and the disposition of any pending amendments under paragraph 
        (3), the vote on final passage of the joint resolution shall 
        occur.
            (5) Appeals.--Appeals from the decisions of the Chair shall 
        be decided without debate.
            (6) Conference reports.--In the Senate, points of order 
        under titles III and IV of the Congressional Budget Act of 1974 
        are applicable to a conference report on the joint resolution 
        or any amendments in disagreement thereto.
            (7) Resolution from other house.--If, before the passage by 
        the Senate of a joint resolution of the Senate introduced under 
        subsection (a), the Senate receives from the House of 
        Representatives a joint resolution introduced under subsection 
        (a), then the following procedures shall apply:
                    (A) The joint resolution of the House of 
                Representatives shall not be referred to a committee 
                and shall be placed on the calendar.
                    (B) With respect to a joint resolution introduced 
                under subsection (a) in the Senate--
                            (i) the procedure in the Senate shall be 
                        the same as if no joint resolution had been 
                        received from the House; but
                            (ii)(I) the vote on final passage shall be 
                        on the joint resolution of the House if it is 
                        identical to the joint resolution then pending 
                        for passage in the Senate; or
                            (II) if the joint resolution from the House 
                        is not identical to the joint resolution then 
                        pending for passage in the Senate and the 
                        Senate then passes the Senate joint resolution, 
                        the Senate shall be considered to have passed 
                        the House joint resolution as amended by the 
                        text of the Senate joint resolution.
                    (C) Upon disposition of the joint resolution 
                received from the House, it shall no longer be in order 
                to consider the resolution originated in the Senate.
            (8) Senate action on house resolution.--If the Senate 
        receives from the House of Representatives a joint resolution 
        introduced pursuant to this section after the Senate has 
        disposed of a Senate originated resolution which is identical 
        to the House passed joint resolution, the action of the Senate 
        with regard to the disposition of the Senate originated joint 
        resolution shall be deemed to be the action of the Senate with 
        regard to the House originated joint resolution. If it is not 
        identical to the House passed joint resolution, then the Senate 
        shall be considered to have passed the joint resolution of the 
        House as amended by the text of the Senate joint resolution.
            (9) The vote on final passage of a joint resolution or 
        conference report thereon referred to in paragraph (1) shall 
        require approval of not less than three-fifths of the Members 
        of the Senate.

SEC. 710. GENERAL PROVISIONS.

    (a) Low Growth Report.--OMB and CBO shall notify the Congress if--
            (1) during the period consisting of the quarter during 
        which such notification is given, the quarter preceding such 
        notification, and the 4 quarters following such notification, 
        OMB or CBO has determined that real economic growth is 
        projected or estimated to be less than zero with respect to 
        each of any 2 consecutive quarters within such period; or
            (2) the most recent of the Department of Commerce's advance 
        preliminary or final reports of actual real economic growth 
        indicate that the rate of real economic growth for each of the 
        most recently reported quarter and the immediately preceding 
        quarter is less than one percent.
    (b) Economic and Technical Assumptions.--For all purposes of this 
title, OMB shall use the same economic and technical assumptions as 
used in the most recent budget submitted under section 1105(a) of title 
31, United States Code.
    (c) Social Security Trustee Report.--The Trustees of the Social 
Security Administration shall annually issue a report consistent with 
section 708(c) and OMB shall include such report in a final order and a 
preview order.
    (d) Congressional Spending Limit.--(1) The Congressional Budget and 
Impoundment Control Act of 1974 is amended by adding at the end of 
title III the following new section:

``SEC. 316 AGGREGATE SPENDING LIMITS.

    ``It shall not be in order in the House of Representatives or the 
Senate to consider any bill, joint resolution, amendment, motion, or 
conference report that would cause an excess spending amount, as 
defined in section 701(c)(16) of the Budget Control Act of 2008.''.
    (2) The table of contents set forth in section 1(b) of the 
Congressional Budget and Impoundment Control Act of 1974 is amended by 
inserting after the item relating to section 315 the following new 
item:

``Sec. 316. Aggregate spending limits.''.
    (e) Congressional Revenue Limits.--(1) The Congressional Budget Act 
of 1974 (as amended by subsection (d)) is further amended by adding at 
the end of title III the following new section:

``SEC. 317. TAX RATE LIMITS.

    ``It shall not be in order in the House of Representatives or the 
Senate to consider any bill, joint resolution, amendment, motion, or 
conference report that would cause aggregate Federal revenue levels, in 
any fiscal year, to exceed the percentage of revenue relative to the 
Gross Domestic Product set forth in subsection (b) unless so determined 
by a vote of not less than three-fifths of the Members voting, a quorum 
being present.''.
    (2) The table of contents set forth in section 1(b) of the 
Congressional Budget and Impoundment Control Act of 1974 is amended by 
inserting after the item relating to section 316 the following new 
item:

``Sec. 317. Tax rate limits.''.
    (f) Fiscal Years of the Guideline Period.--The fiscal years within 
the 75-year period referred to as a guideline period in this title 
shall be as follows:
            (1) Fiscal year 2010: 19.9 percent.
            (2) Fiscal year 2011: 19.8 percent.
            (3) Fiscal year 2012: 20.0 percent.
            (4) Fiscal year 2013: 20.1 percent.
            (5) Fiscal year 2014: 20.2 percent.
            (6) Fiscal year 2015: 20.1 percent.
            (7) Fiscal year 2016: 20.1 percent.
            (8) Fiscal year 2017: 20.2 percent.
            (9) Fiscal year 2018: 20.3 percent.
            (10) Fiscal year 2019: 20.4 percent.
            (11) Fiscal year 2020: 20.5 percent.
            (12) Fiscal year 2021: 20.7 percent.
            (13) Fiscal year 2022: 21.5 percent.
            (14) Fiscal year 2023: 21.7 percent.
            (15) Fiscal year 2024: 22.0 percent.
            (16) Fiscal year 2025: 22.3 percent.
            (17) Fiscal year 2026: 22.5 percent.
            (18) Fiscal year 2027: 22.3 percent.
            (19) Fiscal year 2028: 22.6 percent.
            (20) Fiscal year 2029: 22.9 percent.
            (21) Fiscal year 2030: 23.1 percent.
            (22) Fiscal year 2031: 23.2 percent.
            (23) Fiscal year 2032: 23.9 percent.
            (24) Fiscal year 2033: 23.9 percent.
            (25) Fiscal year 2034: 23.9 percent.
            (26) Fiscal year 2035: 23.9 percent.
            (27) Fiscal year 2036: 24.0 percent.
            (28) Fiscal year 2037: 24.2 percent.
            (29) Fiscal year 2038: 24.2 percent.
            (30) Fiscal year 2039: 24.3 percent.
            (31) Fiscal year 2040: 24.1 percent.
            (32) Fiscal year 2041: 24.1 percent.
            (33) Fiscal year 2042: 24.7 percent.
            (34) Fiscal year 2043: 24.5 percent.
            (35) Fiscal year 2044: 24.5 percent.
            (36) Fiscal year 2045: 24.4 percent.
            (37) Fiscal year 2046: 24.3 percent.
            (38) Fiscal year 2047: 24.2 percent.
            (39) Fiscal year 2048: 24.2 percent.
            (40) Fiscal year 2049: 24.0 percent.
            (41) Fiscal year 2050: 24.0 percent.
            (42) Fiscal year 2051: 24.0 percent.
            (43) Fiscal year 2052: 23.8 percent.
            (44) Fiscal year 2053: 23.6 percent.
            (45) Fiscal year 2054: 23.4 percent.
            (46) Fiscal year 2055: 23.3 percent.
            (47) Fiscal year 2056: 23.2 percent.
            (48) Fiscal year 2057: 23.0 percent.
            (49) Fiscal year 2058: 22.9 percent.
            (50) Fiscal year 2059: 22.7 percent.
            (51) Fiscal year 2060: 22.7 percent.
            (52) Fiscal year 2061: 22.4 percent.
            (53) Fiscal year 2062: 22.2 percent.
            (54) Fiscal year 2063: 22.0 percent.
            (55) Fiscal year 2064: 21.8 percent.
            (56) Fiscal year 2065: 21.7 percent.
            (57) Fiscal year 2066: 21.5 percent.
            (58) Fiscal year 2067: 21.2 percent.
            (59) Fiscal year 2068: 20.8 percent.
            (60) Fiscal year 2069: 20.5 percent.
            (61) Fiscal year 2070: 20.1 percent.
            (62) Fiscal year 2071: 19.9 percent.
            (63) Fiscal year 2072: 19.7 percent.
            (64) Fiscal year 2073: 19.6 percent.
            (65) Fiscal year 2074: 19.4 percent.
            (66) Fiscal year 2075: 19.2 percent.
            (67) Fiscal year 2076: 18.9 percent.
            (68) Fiscal year 2077: 18.5 percent.
            (69) Fiscal year 2078: 18.0 percent.
            (70) Fiscal year 2079: 17.5 percent.
            (71) Fiscal year 2080: 17.3 percent.
            (72) Fiscal year 2081: 16.9 percent.
            (73) Fiscal year 2082: 16.5 percent.
            (74) Fiscal year 2083: 16.0 percent.
            (75) Fiscal year 2084: 16.0 percent.

SEC. 711. EFFECTIVE DATE.

    This title shall apply to fiscal year 2010 and subsequent fiscal 
years.
                                 <all>
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