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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 2170 Referral Instructions Senate (RIS)]

104th CONGRESS
  2d Session
                                S. 2170

    To establish spending limits for entitlement programs and other 
          mandatory spending programs, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                           September 30, 1996

Mrs. Kassebaum introduced the following bill; which was read twice and 
   referred jointly pursuant to the order of August 4, 1977, to the 
 Committees on the Budget and Governmental Affairs, with instructions 
that if one committee reports, the other committee have thirty days to 
                        report or be discharged

_______________________________________________________________________

                                 A BILL

 
    To establish spending limits for entitlement programs and other 
          mandatory spending programs, and for other purposes.

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

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Save Our Savings 
Act of 1996''.
    (b) Table of Contents.--

Sec. 1. Short title and table of contents.
         TITLE I--CAP ENTITLEMENTS AND OTHER MANDATORY SPENDING

Sec. 101. Definitions.
Sec. 102. Timetable.
Sec. 103. Direct spending caps.
Sec. 104. Economic assumptions.
Sec. 105. Revisions to the caps for entitlement and other mandatory 
                            spending.
                    TITLE II--ENFORCEMENT PROVISIONS

Sec. 201. Enforcing direct spending caps.
Sec. 202. Reporting excess spending.
Sec. 203. Enforcing direct spending limits.
Sec. 204. Exempt programs and activities.
Sec. 205. Special rules.
Sec. 206. Current law baseline.

         TITLE I--CAP ENTITLEMENTS AND OTHER MANDATORY SPENDING

SEC. 101. DEFINITIONS.

    For purposes of this Act:
            (1) The term ``eligible population'' shall mean those 
        individuals to whom the United States is obligated to make a 
        payment under the provisions of a law creating entitlement 
        authority. Such term shall not include States, localities, 
        corporations, or other non-living entities, except that 
        corporate farms may be part of the ``eligible population'' for 
        programs administered by the Commodity Credit Corporation.
            (2) The term ``sequester'' and ``sequestration'' refer to 
        or mean the cancellation of budgetary resources provided by 
        discretionary appropriations or direct spending law.
            (3) The term ``breach'' means, for any fiscal year, the 
        amount (if any) by which outlays for that year (within a 
        category of direct spending) is above that category's direct 
        spending cap for that year.
            (4) The term ``baseline'' means the projection (described 
        in section 206 of this Act) of current levels of new budget 
        authority, outlays, receipts, and the surplus or deficit into 
        the budget year and the outyears.
            (5) The term ``budgetary resources'' means new budget 
        authority; unobligated balances; direct spending authority; and 
        obligation limitations.
            (6) The term ``discretionary appropriations'' means 
        budgetary resources (except to fund direct spending programs) 
        provided in appropriations Acts. If an appropriations Act 
        alters the level of direct spending or offsetting collections, 
        that effect shall be treated as discretionary spending. 
        Classifications of new accounts or activities and changes in 
        classifications shall be made in consultation with the 
        Committees on Appropriations and the Budget of the House of 
        Representatives and the Senate and with the Congressional 
        Budget Office.
            (7) The term ``direct spending'' means--
                    (A) budget authority provided by law other than 
                appropriations Acts, including entitlement authority; 
                and
                    (B) the food stamp program.
        If a law other than an appropriations Act alters the level of 
        discretionary appropriations or offsetting collections, that 
        effect shall be treated as direct spending.
            (8) The term ``entitlement authority'' means authority 
        (whether temporary or permanent) to make payments (including 
        loans and grants), the budget authority for which is not 
        provided for in advance by appropriations Acts, to any person 
        or government if, under the provisions of the law containing 
        such authority, the United States is obligated to make such 
        payments to persons or governments who meet the requirements 
        established by such law.
            (9) The term ``current'' means, with respect to OMB 
        estimates included with a budget submission under section 
        1105(a) of title 31 U.S.C., the estimates consistent with the 
economic and technical assumptions underlying that budget.
            (10) The term ``account'' means, for items not provided for 
        in appropriations Acts, an item identified in the section 
        ``Federal Programs by Agency and Account'' as it appears in the 
        Analytical Perspectives to the President's fiscal year 1997 
        budget proposal at page 383.
            (11) The term ``budget year'' means the fiscal year of the 
        Government that starts on the next October 1.
            (12) The term ``current year'' means, with respect to a 
        budget year, the fiscal year that immediately precedes that 
        budget year.
            (13) The term ``outyear'' means, with respect to a budget 
        year, any of the fiscal years that follow the budget year.
            (14) The term ``OMB'' means the Director of the Office of 
        Management and Budget.
            (15) The term ``CBO'' means the Director of the 
        Congressional Budget Office.
            (16) The terms ``budget outlays'' and ``outlays'' mean, 
        with respect to any fiscal year, expenditures of funds under 
        budget authority during such year.
            (17) Budget authority and new budget authority.--
                    (A) In general.--The term ``budget authority'' 
                means the authority provided by Federal law to incur 
                financial obligations, as follows: provisions of law 
                that make funds available for obligation and 
                expenditure (other than borrowing authority), including 
                the authority to obligate and expend the proceeds of 
                offsetting receipts and collections; borrowing 
                authority, which means authority granted to a Federal 
                entity to borrow and obligate and expend the borrowed 
                funds, including through the issuance of promissory 
                notes or other monetary credits; contract authority, 
                which means the making of funds available for 
                obligation but not for expenditure; and offsetting 
                receipts and collections as negative budget authority, 
                and the reduction thereof as positive budget authority.
                    (B) Limitations on budget authority.--Any amount 
                that is precluded from obligation in a fiscal year by a 
                provision of law (such as a limitation or a benefit 
                formula) shall not be budget authority in that year.
                    (C) New budget authority.--The term ``new budget 
                authority'' means, with respect to a fiscal year--
                            (i) budget authority that first becomes 
                        available for obligation in that year, 
                        including budget authority that becomes 
                        available in that year as the result of a 
                        reappropriation; or
                            (ii) borrowing authority, which means 
                        authority granted to a Federal entity to borrow 
                        and obligate and expend the borrowed funds, 
                        including through the issuance of promissory 
                        notes of other monetary credits;
                            (iii) contract authority, which means the 
                        making of funds available for obligation but 
                        not for expenditure; and
                            (iv) offsetting receipts and collections as 
                        negative budget authority; and the reduction 
                        thereof as positive budget authority.
            (18) The term ``tax expenditures'' means those revenue 
        losses attributable to provisions of the Federal tax laws which 
        allow a special exclusion, exemption, or deduction from gross 
        income or which provide a special credit, a preferential rate 
        of tax, or a deferral of tax liability; and the term ``tax 
        expenditures budget'' means an enumeration of such tax 
        expenditures.
            (19) The term ``appropriations Act'' means an Act referred 
        to in section 105 of title 1 of the United States Code.
            (20) The term ``deficit'' means, with respect to a fiscal 
        year, the amount by which outlays exceed receipts during that 
        year.
            (21) The term ``surplus'' means, with respect to a fiscal 
        year, the amount by which receipts exceed outlays during that 
        year.
            (22) The term ``government-sponsored enterprise'' means a 
        corporate entity created by a law of the United States that--
                    (A) has a Federal charter authorized by law;
                            (i) is privately owned, as evidenced by 
                        capital stock owned by private entities or 
                        individuals;
                            (ii) is under the direction of a board of 
                        directors, a majority of which is elected by 
                        private owners;
                            (iii) is a financial institution with power 
                        to--
                                    (I) make loans or loan guarantees 
                                for limited purposes such as to provide 
                                credit for specific borrowers or one 
                                sector; and
                                    (II) raise funds by borrowing 
                                (which does not carry the full faith 
                                and credit of the Federal Government) 
                                or to guarantee the debt of others in 
                                unlimited amounts; and
                    (B) does not exercise powers that are reserved to 
                the Government as sovereign (such as the power to tax 
                or to regulate interstate commerce);
                            (i) does not have the power to commit the 
                        Government financially (but it may be a 
                        recipient of a loan guarantee commitment made 
                        by the Government); and
                            (ii) has employees whose salaries and 
                        expenses are paid by the enterprise and are not 
                        Federal employees subject to title 5 of the 
                        United States Code.
            (23) The term ``sale of an asset'' means the sale to the 
        public of any physical asset owned in whole or in part by the 
        United States.
            (24) The term ``direct spending caps means the nominal 
        dollar limits for entitlements and other mandatory spending 
        pursuant to section 103 of this Act (as modified by any 
        revisions provided for in this Act).

SEC. 102. TIMETABLE.

On or Before                        Action to be Completed
    January 15.....................
                                        CBO Economic and Budget Update
    First Monday in February.......
                                        President's budget; Includes 
                                                Sequestration Update 
                                                based on new 
                                                assumptions
    July 1.........................
                                        Cutoff for in-session sequester
    August 1.......................
                                        Baseline Update--OMB and CBO
    August 15......................
                                        Preview report
    October 1......................
                                        Start of new fiscal year
    December 15....................
                                        OMB Issues Final (look back) 
                                                Report for Prior Year 
                                                and Preview for Current 
                                                Year
    December 15....................
                                        Presidential Sequester Order

SEC. 103. DIRECTOR SPENDING CAPS.

    (a) Effective upon enactment of this Act, the following direct 
spending caps shall apply to all entitlement authority except for 
undistributed offsetting receipts and net interest outlays. For 
purposes of enforcing direct spending caps under this Act, each 
separate entitlement cap shall be defined as a ``category''. The 
statement of managers to accompany this Act shall include the account 
numbers included in each specific category; that is, Medicaid through 
veterans' benefits below. All direct spending accounts not included in 
the Statement of Managers under a separate category shall be included 
under ``Other Entitlements and Mandatory Spending''.
      

                                       [Fiscal years--dollars in millions]                                      
----------------------------------------------------------------------------------------------------------------
                                               1997       1998       1999        2000        2001        2002   
----------------------------------------------------------------------------------------------------------------
Medicaid..................................   $106,505   $113,524    $120,576    $128,327    $135,318    $144,758
Food Stamps...............................     26,001     25,763      26,963      28,282      29,513      30,715
Supplemental Security Income..............     25,944     25,457      27,011      31,737      28,844      33,910
Family Support............................     19,673     20,189      20,832      21,319      21,701      21,791
Earned Income Tax Credit..................     19,746     20,438      21,228      22,106      22,919      23,642
Social Security...........................    365,403    383,402     402,351     422,412     444,081     466,767
Medicare..................................    188,684    204,807     217,543     232,051     248,109     266,981
Federal retirement:                                                                                             
    Civilian/other........................     46,083     48,499      51,093      53,888      56,689      59,680
    Military..............................     29,848     30,881      31,949      33,022      34,122      35,259
Unemployment compensation.................     25,555     26,613      27,644      28,698      29,814      30,989
Veterans' benefits........................     20,179     20,499      20,644      22,243      19,643      22,633
Other entitlements and mandatory spending.     25,922     36,380      33,839      35,746      35,224      34,645
                                           ---------------------------------------------------------------------
      Total entitlements and other                                                                              
       mandatory spending.................    899,543    956,452   1,001,673   1,059,831   1,105,977   1,171,770
----------------------------------------------------------------------------------------------------------------

    (b) Legislation enacted subsequent to this Act, which creates new 
or increased entitlement(s) and/or mandatory spending, must make 
necessary revisions (if any) to the caps contained in the table above 
as follows--
            (1) create a new entitlement cap or caps; and
            (2) for each fiscal year contained in the table below 
        specify--
                    (A) increases/decreases (if any) in the cap(s) for 
                specific categories enumerated in that table, as 
                revised pursuant to Section 105 of this Act if 
                applicable; and or
                    (B) increases/decreases (if any) to the cap(s) for 
                ``Total Entitlements and Other Mandatory Spending'' 
                enumerated in that table above, as revised pursuant to 
                Section 105 of this Act if applicable; or
            (3) the new/increased entitlement/mandatory spending 
        created pursuant to such legislation shall be included under 
        the ``Other Entitlements and Mandatory Spending'' cap in the 
        table above, as revised pursuant to Section of this Act if 
        applicable.

SEC. 104. ECONOMIC ASSUMPTIONS.

    Subject to periodic reestimation based on changed economic 
conditions or changes in eligible population, determinations of the 
direct spending caps under section 103 of this Act, any breaches of 
such caps, and actions necessary to remedy such breaches shall be based 
on the following economic assumptions (fiscal years).

                                             Preliminary\1\ Forecast                                            
----------------------------------------------------------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
Nominal GDP (Billions of dollars)................    7,491    7,853    8,225    8,627    9,047    9,489    9,952
Nominal GDP (percentage change)..................      4.3      4.8      4.7      4.9      4.9      4.9      4.9
Real GDP\2\ (percentage change)..................      1.8      2.0      2.0      2.1      2.1      2.1      2.1
Chain-type GDP Price Index (percentage change)...      2.6      2.8      2.7      2.7      2.7      2.7      2.7
CPI-U\3\ (percentage change).....................      2.7      3.1      3.1      2.9      2.9      2.9      3.0
Unemployment Rate (percent)......................      5.7      6.0      6.0      6.0      6.0      6.0      6.0
Three-Month Treasury Bill Rate (percent).........      5.0      4.8      4.8      4.8      4.8      4.8      4.8
Ten-Year Treasury Note Rate (percent)............      6.0      6.3      6.4      6.4      6.4      6.4      6.4
Tax bases (billions of dollars:                                                                                 
    Corporate profits............................      595      609      618      618      626      643      665
    Other taxable income.........................    1,578    1,643    1,731    1,834    1,933    2,033    2,132
    Wage and salary disbursements................    3,548    3,719    3,889    4,076    4,272    4,475    4,688
                                                  --------------------------------------------------------------
      Total......................................    5,721    5,972    6,237    6,529    6,831    7,151    7,485
                                                  ==============================================================
Tax Bases (Percentage of GDP):                                                                                  
    Corporate profits............................      7.9      7.8      7.5      7.2      6.9      6.8      6.7
    Other taxable income.........................     21.1     20.9     21.0     21.3     21.4     21.4     21.4
    Wage and salary disbursements................     47.4     47.4     47.3     47.3     47.2     47.2     47.1
                                                  --------------------------------------------------------------
      Total......................................     76.4     76.0     75.8     75.7     75.5     75.4     75.2
----------------------------------------------------------------------------------------------------------------
Source: The Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 1997-2006, p. 15.        
\1\Consistent with the first official estimate for 1995 published on March 5, 1996.                             
\2\Based on chained (1992) dollars.                                                                             
\3\CPI-U is the consumer price index for all urban consumers.                                                   

SEC. 105. REVISIONS TO THE CAPS FOR ENTITLEMENTS AND OTHER MANDATORY 
              SPENDING.

                   revisions to direct spending caps

    (a) Automatic Adjustments to Caps for Entitlements and Other 
Mandatory Spending.--When the President submits the budget under 
section 1105(a) of title 31, United States Code, for any year, and when 
reports are submitted pursuant to section 201 calculate (in the order 
set forth below), and the budget and reports shall include, adjustments 
to the direct spending caps (and those limits as cumulatively adjusted) 
for the current year, the budget year and each outyear, to reflect the 
following:
            (1) Changes in concepts and definitions.--The adjustments 
        produced by changes in concepts and definitions shall equal the 
        baseline levels of new budget authority and outlays using up-
        to-date concepts and definitions minus those levels using the 
        concepts and definitions in effect before such changes. Such 
        changes in concepts and definitions may only be made in 
        consultation with the Committees on Appropriations, the Budget, 
        Government Reform and Oversight, and Governmental Affairs of 
        the House of Representatives and the Senate and the 
        Congressional Budget Office.
            (2) Changes in net outlays.--Changes in net outlays for all 
        programs and activities exempt from sequestration under section 
        204 of this Act.
            (3) Changes in inflation.--Inflation adjustment factors 
        shall equal the ratio between the level of year-over-year 
        inflation measured for the fiscal year most recently completed 
        and the applicable estimated level for that year as set forth 
        in the table at section 104 (Economic Assumptions) of this Act. 
        Inflation shall be measured as Assumptions) of this Act. 
Inflation shall be measured as follows: for indexed programs, inflation 
shall be measured by the changes in the index specified in law; for 
programs providing health care, inflation shall be measured by changes 
in the consumer price index for all urban consumers for medical care 
components (CPI-U medical care); and for all other programs, inflation 
shall be measured by changes in the consumer price index for all urban 
consumers (CPI-U). The baseline and the direct spending caps shall be 
adjusted to reflect those changes.
            (4) Changes in unemployment and interest rates.--For direct 
        spending caps, OMB shall make adjustments in new budget 
        authority and outlays for changes in actual unemployment and 
        interest rates. The adjustment factor for unemployment shall 
        equal the ratio between the level of year-over unemployment 
        measured for the fiscal year most recently completed and the 
        applicable estimated level for that year set forth in the table 
        at section 104 (Economic Assumptions) of this Act. The 
        adjustment factor for inflation shall equal the level of year-
        over-year inflation measured for the fiscal year most recently 
        completed and the applicable estimated level for that year set 
        forth in the table at section 104 (Economic Assumptions) of 
        this act. The baseline and the direct spending caps shall be 
        adjusted to reflect those changes.
            (5) Changes in eligible populations.--For direct spending 
        caps, OMB shall make adjustments in new budget authority and 
        outlays for changes in the number of eligible beneficiaries 
        (the eligible population), in the year most recently completed, 
        compared to the number projected to be eligible in the 
        calculation of CBO's Estimates of the President's Budgetary 
        Proposals contained in The Economic and Budget Outlook: Fiscal 
        Years 1997-2006. The baseline and the direct spending caps 
        shall be adjusted to reflect those changes.
            (6) Intra-budgetary payments.--From discretionary accounts 
        to mandatory accounts. The baseline and the discretionary 
        spending caps shall be adjusted to reflect those changes.
    (b) Permissible Revisions to Direct Spending Caps.--Direct spending 
caps as enacted pursuant to section 103 of this Act may be revised as 
follows: Except as required pursuant to section 105(a) of this Act, 
direct spending caps may only be amended by recorded vote. It shall be 
a matter of highest privilege in the House of Representatives and the 
Senate for a Member of the House of Representatives or the Senate to 
insist on a recorded vote solely on the question of amending such caps.

                    TITLE II--ENFORCEMENT PROVISIONS

SEC. 201. ENFORCING DIRECT SPENDING CAPS.

    (a) General Statement on Spending Caps.--This title provides 
enforcement of the direct spending caps on categories of spending 
established pursuant to section 103 of this Act. The provisions of this 
title trigger sequestration of direct spending that exceeds an 
applicable spending cap.
    (b) Overall Rules.--
            (1) Eliminating a breach.--Each non-exempt account within a 
        category shall be reduced by a dollar amount calculated by 
        multiplying the baseline level of sequestrable budgetary 
        resources in that account at that time by the uniform 
        percentage necessary to eliminate a breach within that 
        category.
            (2) Programs, projects, or activities.--Except as otherwise 
        provided, the same percentage sequestration 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 amounts not included 
        in appropriations Acts, as identified in the section ``Federal 
        Programs by Agency and Account'' as it appears in the 
        Analytical Perspectives to the President's FY 1997 Budget 
        Proposal beginning at page 383.
            (3) Administrative expenses associated with certain 
        programs.--Notwithstanding any exemption, general rule or 
        special rule in this Act, administrative expenses associated 
        with all programs shall be fully subject to sequestration under 
        this section.
            (4) Indefinite authority.--Except as otherwise provided, 
        sequestration in accounts for which obligations are indefinite 
        shall be taken in a manner to ensure that obligations in the 
        fiscal year of a sequestration and succeeding fiscal years are 
        reduced, from the level that would actually have occurred, by 
        the applicable sequestration percentage or percentages.
            (5) Cancellation of budgetary resources.--Budgetary 
        resources sequestered from any account other than an 
        entitlement trust, special or revolving fund account shall 
        revert to the Treasury and be permanently canceled or repealed.
            (6) Implementing regulations.--Administrative regulations 
        or similar actions implementing the sequestration of a program 
        or activity shall be made within 30 days of the effective date 
        of the sequestration of that program or activity.

SEC. 202. REPORTING EXCESS SPENDING.

    (a) Analysis of Actual Spending Levels.--Following the end of any 
fiscal year the Director of the Office of Management and Budget shall 
compile a statement of actual direct spending for that year. The 
statement shall identify such spending by categories contained in 
section 103 of this Act.
    (b) Estimate of Necessary Spending Reduction.--Based on the 
statement provided under subsection (a), the Director of the Office of 
Management and Budget shall issue a report to the President and the 
Congress on December 15 of any year in which such statement identifies 
actual or projected spending, in the current and/or immediately 
preceding fiscal years, in excess of the total direct spending cap(s) 
in section 103 of this Act, as adjusted pursuant to section 105 of this 
Act, by more than one percent of the total direct spending cap(s) for 
such year(s).
            (1) All instances in which actual direct spending has 
        exceeded the direct spending cap or caps identified in the 
        preceding paragraph;
            (2) For the current fiscal year, the difference between the 
        amount of spending available under the direct spending caps 
        identified under paragraph (b) above and estimated actual 
        spending for the categories associated with such caps;
            (3) The amounts by which direct spending must be reduced in 
        the current fiscal year so that total actual and estimated 
        direct spending for all cap categories identified under 
        paragraph (b) for the current and immediately preceding fiscal 
        years shall not exceed the amounts available under the direct 
        spending caps for such fiscal years; and
            (4) If the excess spending, in whole or in part, has 
        resulted solely from changes in inflation, interest rates, 
        unemployment or eligible population, the amounts by which such 
        spending has resulted solely from such factors.
    (c) Timetable.--

Date                                Actions to be completed
    January 15.....................
                                        CBO Economic and Budget Update
    First Monday in February.......
                                        President's Budget (Includes 
                                                Sequestration Update 
                                                Based on New 
                                                Assumptions
    August 1.......................
                                        CBO and OMB Updates
    August 15......................
                                        Preview Report
    December 15....................
                                        OMB Issues Final (look back) 
                                                Report for Prior Year 
                                                and Preview for Current 
                                                Year
    December 15....................
                                        Presidential Sequester Order

SEC. 203. ENFORCING DIRECT SPENDING LIMITS.

    (a) In General.--All direct spending (except matters exempted from 
the caps under section 204 of this Act) shall be subject to caps on 
total direct spending outlays for each fiscal year. Consistent with the 
cap on total outlays, separate caps are established for--
            (1) any program (named in the table at section 103 of this 
        Act,
            (2) such other program or groups of programs for which 
        additional caps shall be established in subsequent legislation, 
        or
            (3) the remainder of direct spending programs, except that 
        the separate caps in section 103 of this Act, plus any 
        additional direct spending under such additional separate caps 
        as shall be established in subsequent legislation, shall not 
        exceed the cap for total direct spending in section 103, as 
        adjusted in accordance with section 105 of this Act.
    (b) For all direct spending programs (except matters exempted under 
section 204, and programs subject to special rules set forth under 
section 205, of this Act), notwithstanding any other provisions of law, 
any sequestration required under this Act shall reduce benefit levels 
by an amount sufficient to eliminate all excess spending identified in 
the report issued pursuant to section 202, while maintaining the same 
uniform percentage reduction in the monetary value of benefits subject 
to reduction under this subsection.
    (c) General Rules.--For programs subject to direct spending caps--
            (1) sequestration is triggered if total direct spending 
        subject to the caps exceeds or is projected to exceed by more 
        than 1 percent in any year the aggregate cap for direct 
        spending for the current or immediately preceding fiscal year; 
        or
            (2) sequestration shall reduce spending under each separate 
        direct spending cap in proportion to the amounts each category 
        of direct spending contributes or contributed to the overage.
            (3) Uniform percentages.--In calculating the uniform 
        percentage applicable to the sequestration of all spending 
        programs or activities within each category, or the uniform 
        percentage applicable to the sequestration of nonexempt direct 
        spending programs or activities with each category, the 
        sequestrable base for direct spending programs and activities 
        is the total level of outlays for the fiscal year for those 
        programs or activities in that category each current law 
        baseline.
            (4) Permanent sequestration of direct spending.--
        Obligations in sequestered direct spending accounts shall be 
        reduced in the fiscal year in which a sequestration occurs and 
        in all succeeding fiscal years. Notwithstanding any other 
        provision of this section, after the first direct spending 
        sequestration, any later sequestration shall reduce direct 
        spending by an amount in addition to, rather than in lieu of, 
        the reduction in direct spending in place under the existing 
        sequestration or sequestrations.
            (5) For any direct spending program in which--
                    (A) outlays pay for entitlement benefits,
                    (B) a current-year sequestration takes effect after 
                the first day of the budget year, and
                    (C) that delay reduces the amount of entitlement 
                authority that is subject to sequestration in the 
                budget.
        The uniform percentage otherwise applicable to the budget-year 
        sequestration of a program or activity is increased due to the 
        delay, then it shall revert to the uniform percentage 
        calculated under paragraph (3) when the budget year is 
        completed.
            (6) Indexed benefit payments.--If, under any entitlement 
        program--
                    (A) benefit payments are made to persons or 
                governments more frequently than once a year, and
                    (B) the amount of entitlement authority is 
                periodically adjusted under existing law to reflect 
                changes in a price index (commonly called ``cost of 
                living adjustments'').
        Sequestration shall first be applied to the cost of living 
        adjustment before reductions are made to the base benefit. For 
        the first fiscal year to which a sequestration order applies, 
        the benefit payment reductions in such programs accomplished by 
        the order shall take effect starting with the payment made at 
        the beginning of January following a final sequester order. For 
        the purposes of this subsection Veterans Compensation shall be 
        considered a program that meets the conditions of the preceding 
        sentence.
            (7) Loan programs.--For all loans made, extended or 
        otherwise modified on or after the date of sequestration, under 
        loan programs subject to direct spending caps--
                    (A) the sequestrable base shall be total fees 
                associated with all loans made extended or otherwise 
                modified on or after the date of sequestration; and
                    (B) the fees paid by borrowers shall be increased 
                by a uniform percentage sufficient to produce the 
                dollar savings in such loan programs for the fiscal 
                year or years of the sequestrations required by this 
                section. Notwithstanding any other provision of law, in 
                any year in which a sequester is in effect, all 
                subsequent fees shall be increased by the uniform 
                percentage and all proceeds from such fees shall be 
                paid into the general fund of the Treasury.
            (8) Insurance programs.--Any sequestration in a Federal 
        program that sells insurance contracts to the public (including 
        the Federal Crop Insurance fund, the National Insurance 
        Development fund, the National Flood Insurance fund, insurance 
        activities of the Overseas Private Insurance Corporation, and 
        Veterans' Life insurance programs)--
                    (A) the sequestrable base shall be all fees 
                associated with all contracts executed, extended or 
                otherwise modified on or after the date sequestration 
                takes effect; and
                    (B) shall be accomplished by increasing premiums on 
                contracts entered into extended or otherwise modified, 
                after the date a sequestration order takes effect by a 
                uniform sequestration percentage sufficient to produce 
                the dollar savings in such programs required by the 
                sequestration.
        Notwithstanding any other provision of law, for any year in 
        which a sequester affecting such programs is in effect, 
        subsequent premiums shall be increased by the uniform 
        percentage and all proceeds from the premium increase shall be 
        paid from the insurance fund or account to the general fund of 
        the Treasury.
            (9) State grant formulas.--For all State grant programs 
        subject to direct spending caps--
                    (A) for all State grant programs subject to direct 
                spending caps, the total amount of funds available for 
                all States shall be reduced by the amount required to 
                be sequestered; or
                    (B) for State grant programs subject to direct 
                spending caps, if in the absence of caps States would 
                receive increased funding in the current year compared 
                to the immediately preceding fiscal year, sequestration 
                shall first be applied to the estimated increases 
                before reductions are made compared to actual payments 
                to States in the previous year--
                            (i) the reductions shall be applied first 
                        to the total estimated increases for all 
                        States; then
                            (ii) the uniform reduction shall be made 
                        from each State's grant; and
                            (iii) the uniform reduction shall apply to 
                        the base funding levels available to States in 
                        the immediately preceding fiscal year only to 
                        the extent necessary to eliminate any remaining 
                        excess over the direct spending cap(s).
    (d) Within Session Sequester.--If a bill or resolution providing 
direct spending for a fiscal year in progress is enacted before July 1 
of that fiscal year and causes a breach within a direct spending cap or 
caps for that fiscal year, 15 days later there shall be a sequestration 
to eliminate that breach within that cap or caps following the 
procedures set forth in subsection (a).

SEC. 204. EXEMPT PROGRAMS AND ACTIVITIES.

    (a) The following budget accounts, activities within accounts, or 
income shall be exempt from sequestration:
            (1) Net interest.
            (2) All payments to trust funds from excise taxes or other 
        receipts or collections properly creditable to those trust 
        funds.
            (3) Offsetting receipts and collections.
            (4) All payments from one Federal direct spending budget 
        account to another Federal budget account; all 
        intragovernmental funds including those from which funding is 
        derived primarily from other Government accounts.
            (5) Expenses to the extent they result from private 
        donations, bequests, or voluntary contributions to the 
        Government.
            (6) Nonbudgetary activities, including but not limited to--
                    (A) credit liquidating and financing accounts;
                    (B) the Pension Benefit Guarantee Corporation Trust 
                funds;
                    (C) the Thrift Savings fund;
                    (D) the Federal Reserve System; and
                    (E) appropriations for the District of Columbia to 
                the extent they are appropriations of locally raised 
                funds.
            (7) Payments resulting from Government insurance, 
        Government guarantees, or any other form of contingent 
        liability, to the extent those payments result from contractual 
        or other legally binding commitments of the Government at the 
        time of any sequestration.
            (8) The following accounts, which largely fulfill 
        requirements of the Constitution or otherwise make payments to 
        which the Government is committed: Bureau of Indian Affairs, 
        miscellaneous trust funds, tribal trust funds (14-9973-0-7-
        999); claims, defense; claims, judgments and relief act (20-
        1895-0-1-806); Compact of Free Association, economic assistance 
        pursuant to Public Law 99-658 (14-0415-0-1-806); compensation 
        of the President (11-0001-0-1-802); Customs Service, 
        miscellaneous permanent appropriations (20-9992-0-2-852); 
        Eastern Indian land claims settlement fund (14-2202-0-1-806); 
        Farm Credit System Financial Assistance Corporation, interest 
        payments (20-1850-0-1-351); Internal Revenue collections of 
        Puerto Rico (20-5737-0-2-852; payments of Vietnam and USS 
        Pueblo prisoner-of-war claims (15-0104-0-1-153); payments to 
        copyright owners (03-5175-0-2-376); salaries of article III 
        judges (not including cost of living adjustments); Soldier's 
        and Airman's Home, payment of claims (84-8930-0-7-705); and 
        Washington Metropolitan Area Transit Authority, interest 
        payments (46-0300-0-1-401).
            (9) The Following Noncredit Special, Revolving, or Trust-
        Revolving Funds: Exchange Stabilization fund (20-4444-0-3-155); 
        and Foreign Military Sales trust fund (11-82232-0-7-155).
    (b) Optional Exemption of Military Personnel--.
            (1) The President may, with respect to any military 
        personnel account, exempt that account from sequestration or 
        provide for a lower uniform percentage reduction that would 
        otherwise apply.
            (2) The President may not use the authority provided by 
        paragraph (1) unless he notifies the Congress of the manner in 
        which such authority will be exercised on or before the initial 
        snapshot date for the budget year.

SEC. 205. SPECIAL RULES.

    (a) Child Support Enforcement Program.--Any sequestration order 
shall accomplish the full amount of any required reduction in payments 
under sections 455 and 458 of the Social Security Act by reducing the 
Federal matching rate for State administrative costs under the program, 
as specified (for the fiscal year involved) in section 455(a) of such 
Act, to the extent necessary to reduce such expenditures by that 
amount.
    (b) Commodity Credit Corporation.--
            (1) Effective date.--For the Commodity Credit Corporation, 
        the date on which a sequestration order takes effect in a 
        fiscal year shall vary for each crop of a commodity. In 
        general, the sequestration order shall take effect when issued, 
        but for each crop of a commodity for which 1-year contracts are 
        issued as an entitlement, the sequestration order shall take 
        effect with the start of the sign-up period for that crop that 
        beings after the sequestration order is issued. Payments for 
each contract in such a crop shall be reduced under the same terms and 
conditions.
            (2) Dairy program--
                    (A) As the sole means of achieving any reduction in 
                outlays under the milk price-support program, the 
                Secretary of Agriculture shall provide for a reduction 
                to be made in the price received by producers for all 
                milk in the United States and marketed by producers for 
                commercial use.
                    (B) That price reduction (measured in cents per 
                hundred-weight of milk marketed) shall occur under 
                subparagraph (A) of section 201(d)(2) of the 
                Agricultural Act of 1949 (7 U.S.C. 1446(d)(2)(A)), 
                shall begin on the day any sequestration order is 
                issued, and shall not exceed the aggregate amount of 
                the reduction in outlays under the milk price-support 
                program, that otherwise would have been achieved by 
                reducing payments made for the purchase of mild or the 
                products of milk under this subsection during that 
                fiscal year.
            (3) Effect of delay.--For purposes of subsection (b)(1), 
        the sequestrable base for Commodity Credit Corporation is the 
        current-year level of gross outlays resulting from new budget 
        authority that is subject to reduction under paragraphs (1) and 
        (2).
            (4) Certain authority not to be limited.--Nothing in this 
        Act shall restrict the Corporation in the discharge of its 
        authority and responsibility as a corporation to buy and sell 
        commodities in world trade, or limit or reduce in any way any 
        appropriation that provides the Corporation with funds to cover 
        its realized losses.
    (c) Earned Income Tax Credit.--
            (1) The sequestrable base for Earned Income Tax Credit 
        Program is the dollar value of all current year benefits to the 
        entire eligible population.
            (2) All Earned Income Tax Credits shall be reduced, whether 
        or not such credits otherwise would result in cash payments to 
        beneficiaries, by a uniform percentage sufficient to produce 
        the dollar savings required by the sequestration.
    (d) Regular and Extended Unemployment Compensation.--
            (1) A State may reduce each weekly benefit payment made 
        under the regular and extended unemployment benefit programs 
        for any week of unemployment occurring during any period with 
        respect to which payments are reduced under any sequestration 
        order by a percentage not to exceed the percentage by which the 
        Federal payment to the State is to be reduced for such week as 
        a result of such order.
            (2) A reduction by a State in accordance with paragraph (1) 
        shall not be considered as a failure to fulfill the 
        requirements of section 3304(a)(11) of the Internal Revenue 
        Code of 1986.
    (e) Federal Employees Health Benefits Fund.--For the Federal 
Employees Health Benefits Fund, a sequestration order shall take effect 
with the next open season. The sequestration shall be accomplished by 
annual payments from that fund to the General Fund of the Treasury. 
Those annual payments shall be financed solely by charging higher 
premiums. The sequestrable base for the Fund is the current-year level 
of gross outlays resulting from claims paid after the sequestration 
order takes effect.
    (f) Federal Housing Finance Board.--Any sequestration of the 
Federal Housing Board shall be accomplished by annual payments (by the 
end of each fiscal year) from that Board to the general fund of the 
Treasury, in amounts equal to the uniform sequestration percentage for 
that year times the gross obligations of the Board in that year.
    (g) Federal Pay.--
            (1) In general.--New budget authority to pay Federal 
        personnel from direct spending accounts shall be reduced by the 
        uniform percentage calculated under section 203(3), as 
        applicable, but no sequestration order may reduce or have the 
        effect of reducing the rate of pay to which any individual is 
        entitled under any statutory pay system (as increased by any 
        amount payable under section 5304 of title 5, United States 
        Code, or any increase in rates of pay which is scheduled to 
        take effect under section 5303 of title 5, United States Code, 
section 1109 of title 37, United States Code, or any other provision of 
law.
            (2) Definitions.--For purposes of this subsection:
                    (A) The term ``statutory pay system'' shall have 
                the meaning given that term in section 5302(1) of title 
                5, United States Code.
                    (B) The term ``elements of military pay'' means--
                            (i) the elements of compensation of members 
                        of the uniformed services specified in section 
                        1009 of title 37, United States Code,
                            (ii) allowances provided members of the 
                        uniformed services under sections 403(a) and 
                        405 of such title, and
                            (iii) cadet pay and midshipman pay under 
                        section 203 of such title.
                    (C) The term ``uniformed services'' shall have the 
                same meaning given that term in section 101(3) of title 
                37, United States Code.
    (h) Medicare.--
            (1) Timing of application of reductions.--
                    (A) In general.--Except as provided in subparagraph 
                (B), if a reduction is made in payment amounts pursuant 
                to sequestration order, the reduction shall be applied 
                to payment for services furnished after the effective 
                date of the order. For purposes of the previous 
                sentence, in the case of inpatient services furnished 
                for an individual, the services shall be considered to 
                be furnished on the date of the individual's discharge 
                from the inpatient facility.
                    (B) Payment on the basis of cost reporting 
                periods.--In the case in which payment for services of 
                a provides of services is made under title XVIII of the 
                Social Security Act on a basis relating to the 
                reasonable cost incurred for the services during a cost 
                reporting period of the provider, if a reduction is 
                made in payment amounts pursuant to a sequestration 
                order, the reduction shall be applied to payment for 
                costs for such services incurred at any time during 
                each cost reporting period of the provider any part of 
                which occurs after the effective date of order, but 
                only (for each such cost reporting period) in the same 
                proportion as the fraction of the cost reporting period 
                that occurs after the effective date of the order.
            (2) No increase in beneficiary charges in assignment-
        related cases.--If a reduction in payment amounts is made 
        pursuant to a sequestration order for services for which 
        payment under part B of title XVIII of the Social Security Act 
        is made on the basis of an assignment described in section 
        1842(b)(3)(B)(ii), in accordance with section 1842(b)(6)(B), or 
        under the procedure described in section 1870(f)(1) of such 
        Act, the person furnishing the services shall be considered to 
        have accepted payment of the reasonable charge for the 
        services, less any reduction in payment amount made pursuant to 
        a sequestration order, as payment in full.
            (3) Part b premiums.--In computing the amount and method of 
        sequestration from part B of title XVIII of the Social Security 
        Act--
                    (A) the amount of sequestration shall be calculated 
                by multiplying the total amount by which Medicare 
                spending exceeds the appropriate spending cap by a 
                percentage that reflects the ratio of total spending 
                under part B to total Medicare spending; and
                    (B) sequestration in the part B program shall be 
                accomplished by increasing premiums to beneficiaries.
            (4) No effect on computation of aapcc.--In computing the 
        adjusted average per capita cost for purposes of section 
        1876(a)(4) of the Social Security Act, the Secretary of Health 
        and Human Services shall not take into account any reductions 
in payment amounts which have been or may be effected under this part.
    (i) Postal Service Fund.--Any sequestration of the Postal Service 
fund shall be accomplished by annual payments from that fund to the 
General Fund of the Treasury, and the Postmaster General of the United 
States and shall have the duty to make those payments during the first 
fiscal year to which the sequestration order applies and each 
succeeding fiscal year. The amount of each annual payment shall be--
            (1) the uniform sequestration percentage, times
            (2) the estimated gross obligations of the Postal Service 
        fund in that year other than those obligations financed with an 
        appropriation for revenue forgone that year.
Any such payment for a fiscal year shall be made as soon as possible 
during the fiscal year, except that it may be made in installments 
within that year if the payment schedule is approved by the Secretary 
of the Treasury. Within 30 days after the sequestration order is 
issued, the Postmaster General shall submit to the Postal Rate 
Commission a plan for financing the annual payment for that fiscal year 
and publish that plan in the Federal Register. The plan may assume 
efficiencies in the operation of the Postal Service, reductions in 
capital expenditures, increases in the prices of services, or any 
combination, but may not assume a lower fund surplus or higher fund 
deficit and must follow the requirements of existing law governing the 
Postal Service in all other respects. Within 30 days of the receipt of 
that plan, the Postal Rate Commission shall approve the plan or modify 
it in the manner that modifications are allowed under current law. If 
the Postal Rate Commission does not respond to the plan within 30 days, 
the plan submitted by the Postmaster General shall go into effect. Any 
plan may be later revised by the submission of a new plan to the Postal 
Rate Commission, which may approve or modify it.
    (j) Power Marketing Administrations and TVA.--Any sequestration of 
the Department of Energy power marketing administration funds or the 
Tennessee Valley Authority fund shall be accomplished by annual 
payments from those funds to the General Fund of the Treasury, and the 
administrators of those funds shall have the duty to make those 
payments during the fiscal year to which the sequestration order 
applies and each succeeding fiscal year. The amount of each payment by 
a fund shall be--
            (1) the direct spending uniform sequestration percentage, 
        times
            (2) the estimated gross obligations of the fund in that 
        year other than those obligations financed from discretionary 
        appropriations for that year.
Any such payment for a fiscal year shall be made as soon as possible 
during the fiscal year, except that it may be made in installments 
within that year if the payment schedule is approved by the Secretary 
of the Treasury. Annual payments by a fund may be financed by 
reductions in costs required to produce the pre-sequester amount of 
power (but those reductions shall not include reductions in the amount 
of power supplied by the fund), by reductions in capital expenditures, 
by increases in tax rates, or by any combination, but may not be 
financed by a lower fund surplus, a higher fund deficit, additional 
borrowing, delay in repayment of principal on outstanding debt and must 
follow the requirements of existing law governing the fund in all other 
respects. The administrator of a fund or the TVA Board is authorized to 
take the actions specified above in order to make the annual payments 
to the Treasury.
    (k) Businesslike Transactions.--Notwithstanding any other provision 
of law, for programs which provide a businesslike service in exchange 
for a fee, sequestration shall be accomplished through a uniform 
increase in fees (sufficient to produce the dollar savings in such 
programs for the fiscal year of the sequestration required by section 
202(a)(2), all subsequent fees shall be increased by the same 
percentage, and all proceeds from such fees shall be paid into the 
general fund of the Treasury, in any year for which a sequester 
affecting such programs are in effect.

SEC. 206. THE CURRENT LAW BASELINE

    (a) Determination of the Budget Baseline.--The Directors of the 
Congressional Budget Office and the Office of Management and Budget 
shall submit to the President and the Congress reports setting forth 
the budget baselines for the budget year and at least the subsequent 
nine fiscal years. The CBO report shall be submitted on or before 
January 15. The OMB report shall accompany the President's budget. The 
budget baseline shall be based on the common economic assumptions set 
forth in Section 104 of this Act, adjusted to reflect revisions 
pursuant to (b) below. The budget baseline shall consist of a 
projection of current year levels of budget authority, outlays, 
revenues and the surplus or deficit into the budget year and the 
relevant outyears based on current enacted laws as of the date of the 
projection.
    (b) Revisions to the Baseline.--The baseline shall be adjusted for 
up-to-date economic assumptions when CBO submits its Economic and 
Budget Update and when OMB submits their its Budget Update, and by 
August 1 each year, when CBO and OBM submit their Midyear Reviews. For 
Discretionary spending items, the baseline shall be the spending caps 
in effect pursuant to section 601(a)(2) of the Congressional Budget Act 
of 1974 as amended. For years in which there are no caps, the baseline 
for discretionary spending shall be the same as in the last year for 
which there were statutory caps. For all other expenditures, and for 
revenues, the baseline shall be adjusted by comparing unemployment, 
inflation, interest rates, growth and other economic indicators--and 
changes ineligible population--for the most recent period for which 
actual data are available, compared to the assumptions contained in 
section 104 of this Act. The budget baseline shall provide the basis 
for scorekeeping procedures pursuant to title II of this Act.
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