I
104TH CONGRESS
1ST SESSION
H. R. 2060
To promote freedom, fairness, and economic opportunity for families by
reducing the power and reach of the Federal establishment.
IN THE HOUSE OF REPRESENTATIVES
JULY 19, 1995
Mr. ARMEY introduced the following bill; which was referred to the Committee
on Ways and Means, and in addition to the Committees on Government
Reform and Oversight, the Budget, and Rules, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
A BILL
To promote freedom, fairness, and economic opportunity for
families by reducing the power and reach of the Federal
establishment.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Freedom and Fairness Restoration Act of 1995’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title.
TITLE I—TAX REDUCTION AND SIMPLIFICATION;
SUPERMAJORITY REQUIRED FOR TAX CHANGES
Subtitle A—Tax Reduction and Simplification
Sec. 101. Individual income tax.
Sec. 102. Tax on business activities.
Sec. 103. Simplification of rules relating to qualified retirement plans.
Sec. 104. Repeal of alternative minimum tax.
Sec. 105. Repeal of credits.
Sec. 106. Repeal of estate and gift taxes and obsolete income tax provisions.
Sec. 107. Effective date.
Subtitle B—Supermajority Required for Tax Changes
Sec. 111. Supermajority required.
TITLE II—SPENDING RESTRAINT AND BUDGET PROCESS
REFORM
Subtitle A—Joint Budget Resolution
Sec. 201. Joint budget resolution.
Subtitle B—Zero Based Budgeting and Decennial Sunsetting
Sec. 211. Reauthorization of discretionary programs and unearned entitle-
ments.
Sec. 212. Point of order.
Sec. 213. Decennial sunsetting.
Subtitle C—Spending Caps on the Growth of Entitlements for Fiscal Years
1996 Through 2002
Sec. 221. Spending caps on growth of entitlements and mandatories.
Sec. 222. Exempt programs and activities.
Sec. 223. Exceptions, limitations, and special rules.
Sec. 224. Point of order.
Subtitle D—Balanced Budget by Fiscal Year 2002
Sec. 231. Maximum spending amounts.
Sec. 232. Enforcing maximum spending sequestration.
Sec. 233. Total spending point of order.
TITLE I—TAX REDUCTION AND
SIMPLIFICATION;
SUPERMAJORITY 
REQUIRED
FOR TAX CHANGES
Subtitle A—Tax Reduction and
Simplification
SEC. 101. INDIVIDUAL INCOME TAX.
(a) IN GENERAL.—Section 1 of the Internal Revenue
Code of 1986 is amended to read as follows:
‘‘SECTION 1. TAX IMPOSED.
‘‘There is hereby imposed on the taxable income of
every individual a tax equal to 20 percent (17 percent in
the case of taxable years beginning after December 31,
1997) of the taxable income of such individual for such
taxable year.’’
(b) TAXABLE INCOME.—Section 63 of such Code is
amended to read as follows:
‘‘SEC. 63. TAXABLE INCOME.
‘‘(a) IN GENERAL.—For purposes of this subtitle, the
term ‘taxable income’ means the excess of—
‘‘(1) the sum of—
‘‘(A) wages (as defined in section 3121(a)
without regard to paragraph (1) thereof) which
are paid in cash and which are received during
the taxable year for services performed in the
United States,
‘‘(B) retirement distributions which are in-
cludible in gross income for such taxable year,
plus
‘‘(C) amounts received under any law of
the United States or of any State which is in
the nature of unemployment compensation, over
‘‘(2) the standard deduction.
‘‘(b) STANDARD DEDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this sub-
title, the term ‘standard deduction’ means the sum
of—
‘‘(A) the basic standard deduction, plus
‘‘(B) the additional standard deduction.
‘‘(2) BASIC STANDARD DEDUCTION.—For pur-
poses of paragraph (1), the basic standard deduction
is—
‘‘(A) $21,400 in the case of—
‘‘(i) a joint return, or
‘‘(ii) a surviving spouse (as defined in
section 2(a)),
‘‘(B) $14,000 in the case of a head of
household (as defined in section 2(b)), and
‘‘(C) $10,700 in the case of an individ-
ual—
‘‘(i) who is not married and who is
not a surviving spouse or head of house-
hold, or
‘‘(ii) who is a married individual filing
a separate return.
‘‘(3) ADDITIONAL STANDARD DEDUCTION.—For
purposes of paragraph (1), the additional standard
deduction is $5,000 for each dependent (as defined
in section 152) who is described in section 151(c)(1)
for the taxable year and who is not required to file
a return for such taxable year.
‘‘(c) RETIREMENT DISTRIBUTIONS.—For purposes of
subsection (a), the term ‘retirement distribution’ means
any distribution from—
‘‘(1) a plan described in section 401(a) which
includes a trust exempt from tax under section
501(a),
‘‘(2) an annuity plan described in section
403(a),
‘‘(3) an annuity contract described in section
403(b),
‘‘(4) an individual retirement account described
in section 408(a),
‘‘(5) an individual retirement annuity described
in section 408(b),
‘‘(6) an eligible deferred compensation plan (as
defined in section 457);
‘‘(7) a governmental plan (as defined in section
414(d)); or
‘‘(8) a trust described in section 501(c)(18).
Such term includes any plan, contract, account, annuity,
or trust which, at any time, has been determined by the
Secretary to be such a plan, contract, account, annuity,
or trust.
‘‘(d) INCOME OF CERTAIN CHILDREN.—For purposes
of this subtitle—
‘‘(1) an individual’s taxable income shall include
the taxable income of each dependent child of such
individual who has not attained age 14 as of the
close of such taxable year, and
‘‘(2) such dependent child shall have no liability
for tax imposed by section 1 with respect to such in-
come and shall not be required to file a return for
such taxable year.
‘‘(e) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1996, each
dollar amount contained in subsection (b) shall be
increased by an amount determined by the Secretary
to be equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment for such
calendar year.
‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of paragraph (1), the cost-of-living adjustment
for any calendar year is the percentage (if any) by
which—
‘‘(A) the CPI for the preceding calendar
year, exceeds
‘‘(B) the CPI for the calendar year 1995.
‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur-
poses of paragraph (2), the CPI for any calendar
year is the average of the Consumer Price Index as
of the close of the 12-month period ending on Au-
gust 31 of such calendar year.
‘‘(4) CONSUMER PRICE INDEX.—For purposes
of paragraph (3), the term ‘Consumer Price Index’
means the last Consumer Price Index for all-urban
consumers published by the Department of Labor.
For purposes of the preceding sentence, the revision
of the Consumer Price Index which is most consist-
ent with the Consumer Price Index for calendar year
1986 shall be used.
‘‘(5) ROUNDING.—If any increase determined
under paragraph (1) is not a multiple of $10, such
increase shall be rounded to the next highest mul-
tiple of $10.
‘‘(f) MARITAL STATUS.—For purposes of this section,
marital status shall be determined under section 7703.’’
SEC. 102. TAX ON BUSINESS ACTIVITIES.
(a) IN GENERAL.—Section 11 of the Internal Reve-
nue Code of 1986 (relating to tax imposed on corpora-
tions) is amended to read as follows:
‘‘SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES.
‘‘(a) TAX IMPOSED.—There is hereby imposed on
every person engaged in a business activity a tax equal
to 20 percent (17 percent in the case of taxable years be-
ginning after December 31, 1997) of the business taxable
income of such person.
‘‘(b) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid by the person engaged in the business
activity, whether such person is an individual, partnership,
corporation, or otherwise.
‘‘(c) BUSINESS TAXABLE INCOME.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘business taxable
income’ means gross active income reduced by the
deductions specified in subsection (d).
‘‘(2) GROSS ACTIVE INCOME.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘gross active income’ means
gross receipts from—
‘‘(i) the sale or exchange of property
or services in the United States by any
person in connection with a business activ-
ity, and
‘‘(ii) the export of property or services
from the United States in connection with
a business activity.
‘‘(B) EXCHANGES.—For purposes of this
section, the amount treated as gross receipts
from the exchange of property or services is the
fair market value of the property or services re-
ceived, plus any money received.
‘‘(C) COORDINATION WITH SPECIAL RULES
FOR
FINANCIAL
SERVICES, ETC.—Except as
provided in subsection (e)—
‘‘(i) the term ‘property’ does not in-
clude money or any financial instrument,
and
‘‘(ii) the term ‘services’ does not in-
clude financial services.
‘‘(3) EXEMPTION FROM TAX FOR ACTIVITIES OF
GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA-
NIZATIONS.—For purposes of this section, the term
‘business activity’ does not include any activity of a
governmental entity or of any other organization
which is exempt from tax under this chapter.
‘‘(d) DEDUCTIONS.—
‘‘(1) IN GENERAL.—The deductions specified in
this subsection are—
‘‘(A) the cost of business inputs for the
business activity,
‘‘(B) wages (as defined in section 3121(a)
without regard to paragraph (1) thereof) which
are paid in cash for services performed in the
United States as an employee, and
‘‘(C) retirement contributions to or under
any plan or arrangement which makes retire-
ment distributions (as defined in section 63(c))
for the benefit of such employees to the extent
such contributions are allowed as a deduction
under section 404.
‘‘(2) BUSINESS INPUTS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘cost of business inputs’
means—
‘‘(i) the amount paid for property sold
or used in connection with a business ac-
tivity,
‘‘(ii) the amount paid for services
(other than for the services of employees,
including fringe benefits paid by reason of
such services) in connection with a busi-
ness activity, and
‘‘(iii) any excise tax, sales tax, cus-
toms duty, or other separately stated levy
imposed by a Federal, State, or local gov-
ernment on the purchase of property or
services which are for use in connection
with a business activity.
Such term shall not include any tax imposed by
chapter 2 or 21.
‘‘(B) EXCEPTIONS.—Such term shall not
include—
‘‘(i) items described in subparagraphs
(B) and (C) of paragraph (1), and
‘‘(ii) items for personal use not in
connection with any business activity.
‘‘(C) EXCHANGES.—For purposes of this
section, the amount treated as paid in connec-
tion with the exchange of property or services
is the fair market value of the property or serv-
ices exchanged, plus any money paid.
‘‘(e) SPECIAL
RULES
FOR
FINANCIAL
INTER-
MEDIATION SERVICE ACTIVITIES.—In the case of the
business activity of providing financial intermediation
services, the taxable income from such activity shall be
equal to the value of the intermediation services provided
in such activity.
‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM-
PLOYEE.—For purposes of this section, the term ‘business
activity’ does not include the performance of services by
an employee for the employee’s employer.
‘‘(g) CARRYOVER OF EXCESS DEDUCTIONS.—
‘‘(1) IN GENERAL.—If the aggregate deductions
for any taxable year exceed the gross active income
for such taxable year, the amount of the deductions
specified in subsection (d) for the succeeding taxable
year (determined without regard to this subsection)
shall be increased by the sum of—
‘‘(A) such excess, plus
‘‘(B) the product of such excess and the 3-
month Treasury rate for the last month of such
taxable year.
‘‘(2) 3-MONTH TREASURY RATE.—For purposes
of paragraph (1), the 3-month Treasury rate is the
rate determined by the Secretary based on the aver-
age market yield (during any 1-month period se-
lected by the Secretary and ending in the calendar
month in which the determination is made) on out-
standing marketable obligations of the United States
with remaining periods to maturity of 3 months or
less.’’
(b) TAX
ON TAX-EXEMPT ENTITIES PROVIDING
NONCASH
COMPENSATION
TO
EMPLOYEES.—Section
4977 of such Code is amended to read as follows:
‘‘SEC. 4977. TAX ON NONCASH COMPENSATION PROVIDED
TO EMPLOYEES NOT ENGAGED IN BUSINESS
ACTIVITY.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax equal to 20 percent (17 percent in the case of cal-
endar years beginning after December 31, 1997) of the
value of excludable compensation provided during the cal-
endar year by an employer for the benefit of employees
to whom this section applies.
‘‘(b) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid by the employer.
‘‘(c) EXCLUDABLE COMPENSATION.—For purposes
of subsection (a), the term ‘excludable compensation’
means any remuneration for services performed as an em-
ployee other than—
(B) Sections 401(a)(10)(B) and 416 (re-
lating to top heavy plans).
(C) Section 401(a)(17) (relating to com-
pensation limit).
(D) Sections 401(a)(26) and 410(b) (relat-
ing to minimum participation and coverage re-
quirements).
(E) Sections 401(k)(3), 401(k)(8), and
4979 (relating to actual deferral percentage).
(F) Section 401(l) (relating to permitted
disparity in plan contributions or benefits).
(G) Section 401(m) (relating to non-
discrimination test for matching contributions
and employee contributions).
(H) Paragraphs (1)(D) and (12) of section
403(b) (relating to nondiscrimination require-
ments).
(I) Paragraph (3) of section 408(k) and
paragraph (6) (other than subparagraph (A)(i))
of such section (relating to simplified employee
pensions).
(2) CONTRIBUTION LIMITS.—
(A) Sections 401(a)(16), 403(b) (2) and
(3), and 415 (relating to limitations on benefits
and contributions under qualified plans).
(B) Sections 401(a)(30) and 402(g) (relat-
ing to limitation on exclusion for elective defer-
rals).
(C) Paragraphs (3) and (7) of section
404(a) (relating to percentage of compensation
limits).
(D) Section 404(l) (relating to limit on in-
cludible compensation).
(3) RESTRICTIONS ON DISTRIBUTIONS.—
(A) Section 72(t) (relating to 10-percent
additional tax on early distributions from quali-
fied retirement plans).
(B) Sections 401(a)(9), 403(b)(10), and
4974 (relating to minimum distribution rules).
(C) Section 402(d) (relating to tax on
lump sum distributions).
(D) Section 402(e)(4) (relating to net un-
realized appreciation).
(E) Section 4980A (relating to tax on ex-
cess distributions from qualified retirement
plans).
(4) SPECIAL REQUIREMENTS FOR PLAN BENE-
FITING SELF-EMPLOYED INDIVIDUALS.—Subsections
(a)(10)(A) and (d) of section 401.
(5) PROHIBITION OF TAX-EXEMPT ORGANIZA-
TIONS AND GOVERNMENTS FROM HAVING QUALIFIED
CASH
OR
DEFERRED
ARRANGEMENTS.—Section
401(k)(4)(B).
(b) EMPLOYER REVERSIONS OF EXCESS PENSION
ASSETS PERMITTED SUBJECT ONLY TO INCOME INCLU-
SION.—
(1) REPEAL
OF
TAX
ON
EMPLOYER
REVER-
SIONS.—Section 4980 of such Code is hereby re-
pealed.
(2) EMPLOYER REVERSIONS PERMITTED WITH-
OUT
PLAN
TERMINATION.—Section 420 of such
Code is amended to read as follows:
‘‘SEC. 420. TRANSFERS OF EXCESS PENSION ASSETS.
‘‘(a) IN GENERAL.—If there is a qualified transfer
of any excess pension assets of a defined benefit plan
(other than a multiemployer plan) to an employer—
‘‘(1) a trust which is part of such plan shall not
be treated as failing to meet the requirements of sec-
tion 401(a) or any other provision of law solely by
reason of such transfer (or any other action author-
ized under this section), and
‘‘(2) such transfer shall not be treated as a pro-
hibited transaction for purposes of section 4975.
The gross income of the employer shall include the amount
of any qualified transfer made during the taxable year.
‘‘(b) QUALIFIED TRANSFER.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified trans-
fer’ means a transfer—
‘‘(A) of excess pension assets of a defined
benefit plan to the employer, and
‘‘(B) with respect to which the vesting re-
quirements of subsection (c) are met in connec-
tion with the plan.
‘‘(2) ONLY 1 TRANSFER PER YEAR.—No more
than 1 transfer with respect to any plan during a
taxable year may be treated as a qualified transfer
for purposes of this section.
‘‘(c) VESTING REQUIREMENTS OF PLANS TRANSFER-
RING ASSETS.—The vesting requirements of this sub-
section are met if the plan provides that the accrued pen-
sion benefits of any participant or beneficiary under the
plan become nonforfeitable in the same manner which
would be required if the plan had terminated immediately
before the qualified transfer (or in the case of a partici-
pant who separated during the 1-year period ending on
the date of the transfer, immediately before such separa-
tion).
‘‘(d) DEFINITION AND SPECIAL RULE.—For pur-
poses of this section—
‘‘(1) EXCESS PENSION ASSETS.—The term ‘ex-
cess pension assets’ means the excess (if any) of—
‘‘(A) the amount determined under section
412(c)(7)(A)(ii), over
‘‘(B) the greater of—
‘‘(i) the amount determined under
section 412(c)(7)(A)(i), or
‘‘(ii) 125 percent of current liability
(as defined in section 412(c)(7)(B)).
The determination under this paragraph shall be
made as of the most recent valuation date of the
plan preceding the qualified transfer.
‘‘(2) COORDINATION
WITH
SECTION
412.—In
the case of a qualified transfer—
‘‘(A) any assets transferred in a plan year
on or before the valuation date for such year
(and any income allocable thereto) shall, for
purposes of section 412, be treated as assets in
the plan as of the valuation date for such year,
and
‘‘(B) the plan shall be treated as having a
net 
experience 
loss 
under 
section
412(b)(2)(B)(iv) in an amount equal to the
amount of such transfer and for which amorti-
zation charges begin for the first plan year
after the plan year in which such transfer oc-
curs, except that such section shall be applied
to such amount by substituting ‘10 plan years’
for ‘5 plan years’.’’
SEC. 104. REPEAL OF ALTERNATIVE MINIMUM TAX.
Part VI of subchapter A of chapter 1 of the Internal
Revenue Code of 1986 is hereby repealed.
SEC. 105. REPEAL OF CREDITS.
Part IV of subchapter A of chapter 1 of the Internal
Revenue Code of 1986 is hereby repealed.
SEC. 106. REPEAL OF ESTATE AND GIFT TAXES AND OBSO-
LETE INCOME TAX PROVISIONS.
(a) REPEAL OF ESTATE AND GIFT TAXES.—
(1) IN GENERAL.—Subtitle B of the Internal
Revenue Code of 1986 is hereby repealed.
(2) EFFECTIVE
DATE.—The repeal made by
paragraph (1) shall apply to the estates of decedents
dying, and gifts and generation-skipping transfers
made, after December 31, 1995.
(b) REPEAL
OF OBSOLETE INCOME TAX PROVI-
SIONS.—
(1) IN GENERAL.—Except as provided in para-
graph (2), chapter 1 of the Internal Revenue Code
of 1986 is hereby repealed.
(2) EXCEPTIONS.—Paragraph (1) shall not
apply to—
(A) sections 1, 11, and 63 of such Code,
as amended by this Act,
(B) those provisions of chapter 1 of such
Code which are necessary for determining
whether or not—
(i) retirement distributions are includ-
ible in the gross income of employees, or
(ii) an organization is exempt from
tax under such chapter, and
(C) subchapter D of such chapter 1 (relat-
ing to deferred compensation).
SEC. 107. EFFECTIVE DATE.
Except as otherwise provided in this subtitle, the
amendments made by this subtitle shall apply to taxable
years beginning after December 31, 1995.
Subtitle B—Supermajority
Required for Tax Changes
SEC. 111. SUPERMAJORITY REQUIRED.
(a) IN GENERAL.—It shall not be in order in the
House of Representatives or the Senate to consider any
bill, joint resolution, amendment thereto, or conference re-
port thereon that includes any provision that—
(1) increases any Federal income tax rate,
(2) creates any additional Federal income tax
rate,
(3) reduces the standard deduction, or
(4) provides any exclusion, deduction, credit or
other benefit which results in a reduction in Federal
revenues.
(b) WAIVER OR SUSPENSION.—This section may be
waived or suspended in the House of Representatives or
the Senate only by the affirmative vote of three-fifths of
the Members, duly chosen and sworn.
TITLE II—SPENDING RESTRAINT
AND BUDGET PROCESS REFORM
Subtitle A—Joint Budget
Resolution
SEC. 201. JOINT BUDGET RESOLUTION.
(a) DEFINITIONS.—Paragraph (4) of section 3 of the
Congressional Budget Act of 1974 is amended to read as
follows:
‘‘(4) the term ‘joint resolution on the budget’
means—
‘‘(A) a joint resolution setting forth the
congressional budget for the United States Gov-
ernment for a fiscal year as provided in section
301; and
‘‘(B) any other joint resolution revising the
congressional budget for the United States Gov-
ernment for a fiscal year as described in section
304.’’.
(b) JOINT RESOLUTION ON THE BUDGET.—(1) Sec-
tion 300 is amended by striking ‘‘concurrent resolution’’
each place it appears and inserting ‘‘joint resolution’’.
(2) Section 301(a) of the Congressional Budget Act
of 1974 is amended by striking ‘‘concurrent resolution’’
each place it appears including in the caption and insert-
ing ‘‘joint resolution’’.
(3) Section 301(b) is amended by striking ‘‘concur-
rent resolution’’ each place it appears including in the cap-
tion and inserting ‘‘joint resolution’’.
(4) Section 301(c) is amended by striking ‘‘concur-
rent resolution’’ each place it appears and inserting ‘‘joint
resolution’’.
(5) Section 301(e) is amended by striking ‘‘concur-
rent resolution’’ each place it appears and inserting ‘‘joint
resolution’’.
(6) Section 301(f) is amended by striking ‘‘concur-
rent resolution’’ each place it appears and inserting ‘‘joint
resolution’’.
(7) Section 301(g) is amended by striking ‘‘concur-
rent resolution’’ each place it appears and inserting ‘‘joint
resolution’’.
(8) Section 301(h) is amended by striking ‘‘concur-
rent resolution’’ and inserting ‘‘joint resolution’’.
(9) Section 301(i) is amended by striking ‘‘concur-
rent resolution’’ each place it appears and inserting ‘‘joint
resolution’’.
(10) The section heading of section 301 is amended
by striking ‘‘ANNUAL ADOPTION OF CONCURRENT’’
and inserting ‘‘ANNUAL ADOPTION OF JOINT’’.
(11) The table of contents set forth in section 1(b)
of the Congressional Budget and Impoundment Control
Act of 1974 is amended by striking ‘‘Annual adoption of
the concurrent’’ in the item relating to section 301 and
inserting ‘‘Annual adoption of the joint’’.
(12) Section 302 is amended by striking ‘‘concurrent
resolution’’ each place it appears and inserting ‘‘joint reso-
lution’’.
(13) Section 303, including the heading, is amended
by striking ‘‘concurrent resolution’’ each place it appears
and inserting ‘‘joint resolution’’.
(14) The table of contents set forth in section 1(b)
of the Congressional Budget and Impoundment Control
SEC. 212. POINT OF ORDER.
(a) IN GENERAL.—It shall not be in order in the
House of Representatives or the Senate to consider any
bill, joint resolution, amendment, or conference report that
includes any provision that appropriates funds unless such
appropriation has been previously authorized by law.
(b) WAIVER OR SUSPENSION.—This section may be
waived or suspended in the House of Representatives or
the Senate only by the affirmative vote of three-fifths of
the Members, duly chosen and sworn.
SEC. 213. DECENNIAL SUNSETTING.
(a) FIRST DECENNIAL CENSUS YEAR.—Effective on
the first day of the fiscal year beginning in the first decen-
nial census year after the year 2001 and each 10 years
thereafter, the spending authority described in section
211(a) is terminated unless such spending authority is re-
authorized after the last date the spending authority was
required to be reauthorized under this subtitle.
(b) FIRST DECENNIAL CENSUS YEAR.—Effective on
the first day of the fiscal year beginning in the year after
the first decennial census year after the year 2001 and
each 10 years thereafter, the spending authority described
in section 211(b) is terminated unless such spending au-
thority is reauthorized after the last date the spending au-
thority was required to be reauthorized under this subtitle.
Subtitle C—Spending Caps on the
Growth of Entitlements for Fis-
cal Years 1996 Through 2002
SEC. 221. SPENDING CAPS ON GROWTH OF ENTITLEMENTS
AND MANDATORIES.
(a) CAP ON GROWTH OF ENTITLEMENTS.—Effective
for each of the fiscal years 1996 through 2002, the total
level of entitlement and mandatory spending, excluding
Social Security, shall not exceed the total level for the pre-
vious fiscal year increased by the consumer price index,
and the growth in eligible population.
(b) SEQUESTRATION.—Within 15 days after Con-
gress adjourns to end a session, and on the same day as
a sequestration (if any) under section 253 of the Balanced
Budget and Emergency Deficit Control Act of 1985, there
shall be a sequestration to reduce the amount of entitle-
ment and mandatory spending for the fiscal year begin-
ning in the year the Congress adjourns by any amount
necessary to reduce such spending to the level set forth
in subsection (a) unless that amount is less than
$250,000,000.
(c) UNIFORM
REDUCTIONS; LIMITATIONS.—The
amount required to be sequestered for the fiscal year
under subsection (a) shall be obtained from nonexempt di-
rect spending accounts by actions taken in the following
order:
(1) FIRST.—The reductions in the programs
specified in section 223(a) (National Wool Act and
special milk), section 223(b) (guaranteed student
loans), and section 223(c) (foster care and adoption
assistance) shall be made.
(2) SECOND.—Any additional reductions that
may be required shall be achieved by reducing each
remaining nonexempt direct spending account by the
uniform percentage necessary to achieve those addi-
tional reductions, except that—
(A) the low-income programs specified in
section 223(d) shall not be reduced by more
than 1 percent;
(B) the retirement and veterans benefits
specified in section 223(e) shall not be reduced
by more than 2 percent in the manner specified
in that section; and
(C) the medicare programs shall not be re-
duced by more than 4 percent in the manner
specified in section 223(f).
The limitations set forth in subparagraphs (A), (B),
and (C) shall be applied iteratively, and after each
iteration the uniform percentage applicable to all
other programs under this paragraph shall be in-
creased (if necessary) to a level sufficient to achieve
the reductions required by this paragraph.
SEC. 222. EXEMPT PROGRAMS AND ACTIVITIES.
(a) DESCRIPTIONS AND LISTS.—Except as provided
in subsection (b), the following budget accounts or activi-
ties shall be exempt from sequestration:
(1) Net interest.
(2) All payments to trust funds from excise
taxes or other receipts or collections properly cred-
itable to those trust funds.
(3) All payments from one Federal direct
spending budget account to another Federal budget
account; and all intragovernmental funds including
those from which funding is derived primarily from
other Government accounts, except to the extent
that such funds are augmented by direct appropria-
tions for the fiscal year for which the order is in ef-
fect.
(4) Activities resulting from private donations,
bequests, or voluntary contributions to the Govern-
ment.
(5) Payments from any revolving fund or trust-
revolving fund (or similar activity) that provides de-
posit insurance or other Government insurance, Gov-
ernment 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.
(6) Credit liquidating and financing accounts.
(7) The following accounts, which largely fulfill
requirements of the Constitution or otherwise make
payments to which the Government is committed—
Administration of Territories, Northern
Mariana Islands Covenant grants (14–0412–0–
1–806);
Bureau of Indian Affairs, miscellaneous
payments to Indians (14–2303–0–1–452);
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 as-
sistance 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);
Panama Canal Commission, operating ex-
penses and capital outlay (95–5190–0–2–403);
Payments of Vietnam and USS Pueblo
prisoner-of-war claims (15–0104–0–1–153);
Payments to copyright owners (03–5175–
0–2–376);
Payments to the United States territories,
fiscal assistance (14–0418–0–1–801);
Payments to widows and heirs of deceased
Members of Congress (00–0215–0–1–801);
Salaries of Article III judges;
Soldier’s and Airmen’s Home, payment of
claims (84–8930–0–7–705);
Washington Metropolitan Area Transit Au-
thority, interest payments (46–0300–0–1–401).
(8) The following noncredit special, revolv-
ing, or trust-revolving funds—
Coinage profit fund (20–5811–0–2–803);
Comptroller of the Currency;
Director of the Office of Thrift Super-
vision;
Exchange Stabilization Fund (20–4444–0–
3–155);
Federal Housing Finance Board;
Foreign Military Sales trust fund (11–
82232–0–7–155).
(9) Thrift Savings Fund.
(10) Appropriations for the District of Colum-
bia to the extent they are appropriations of locally
raised funds.
(11)(A) Any amount paid as regular unemploy-
ment compensation by a State from its account in
the Unemployment Trust Fund (established by sec-
tion 904(a) of the Social Security Act).
(B) Any advance made to a State from the
Federal unemployment account (established by sec-
tion 904(g) of such Act) under title XII of such Act
and any advance appropriated to the Federal unem-
ployment account pursuant to section 1203 of such
Act.
(C) Any payment made from the Federal Em-
ployees Compensation Account (as established under
section 909 of such Act) for the purpose of carrying
out chapter 85 of title 5, United States Code, and
funds appropriated or transferred to or otherwise
deposited in such Account.
(12) The earned income tax credit (payments to
individuals pursuant to section 32 of the Internal
Revenue Code of 1986).
(b) FEDERAL ADMINISTRATIVE EXPENSES.—
(1) Notwithstanding any provision of law other
than paragraph (3), administrative expenses in-
curred by the departments and agencies, including
independent agencies, of the Federal Government in
connection with any program, project, activity, or ac-
count shall be subject to reduction pursuant to any
sequestration order, without regard to any exemp-
tion, exception, limitation, or special rule otherwise
applicable with respect to such program, project, ac-
tivity, or account, and regardless of whether the pro-
gram, project, activity, or account is self-supporting
and does not receive appropriations.
(2) Payments made by the Federal Government
to reimburse or match administrative costs incurred
by a State or political subdivision under or in con-
(E) National Credit Union Administration,
central liquidity facility.
(F) Federal Retirement Thrift Investment
Board.
(G) Resolution Funding Corporation.
(H) Resolution Trust Corporation.
(I) Board of Governors of the Federal Re-
serve System.
SEC. 223. EXCEPTIONS, LIMITATIONS, AND SPECIAL RULES.
(a) NATIONAL WOOL ACT AND THE SPECIAL MILK
PROGRAM.—Automatic spending increases are increases
in outlays due to changes in indexes in the following pro-
grams:
(1) National Wool Act; and
(2) Special milk program.
In those programs all amounts other than the automatic
spending increases shall be exempt from reduction under
any sequestration order.
(b) THE GUARANTEED STUDENT LOAN PROGRAM.—
(1) Any reductions which are required to be achieved from
the student loan programs operated pursuant to part B
of title IV of the Higher Education Act of 1965 under
any sequestration order shall be achieved only from loans
described in paragraphs (2) and (3) by the application of
the measures described in such paragraphs.
(2) For any loan made during the period beginning
on the date that a sequestration order takes effect with
respect to a fiscal year, the rate used in computing the
special 
allowance 
payment 
pursuant 
to 
section
438(b)(2)(A)(iii) of such Act for each of the first four spe-
cial allowance payments for such loan shall be adjusted
by reducing such rate by the lesser of—
(A) 0.40 percent, or
(B) the percentage by which the rate specified
in such section exceeds 3 percent.
(3) For any loan made during the period beginning
on the date that a sequestration order takes effect with
respect to a fiscal year, the origination fee which is author-
ized to be collected pursuant to section 438(c)(2) of such
Act shall be increased by 0.50 percent.
(c) FOSTER CARE AND ADOPTION ASSISTANCE PRO-
GRAMS.—Any sequestration order shall make the reduc-
tion otherwise required under the foster care and adoption
assistance programs (established by part E of title IV of
the Social Security Act) only with respect to payments and
expenditures made by States in which increases in foster
care maintenance payment rates or adoption assistance
payment rates (or both) are to take effect during the fiscal
year involved, and only to the extent that the required re-
duction can be accomplished by applying a uniform per-
centage reduction to the Federal matching payments that
each such State would otherwise receive under section 474
of that Act (for such fiscal year) for that portion of the
State’s payments attributable to the increases taking ef-
fect during that year. No State’s matching payments from
the Federal Government for foster care maintenance pay-
ments or for adoption assistance maintenance payments
may be reduced by a percentage exceeding the applicable
domestic sequestration percentage. No State may, after
the date of the enactment of this Act, make any change
in the timetable for making payments under a State plan
approved under part E of title IV of the Social Security
Act which has the effect of changing the fiscal year in
which expenditures under such part are made.
(d) LOW-INCOME ENTITLEMENTS.—(1) Benefit pay-
ments or payments to States or other entities for the pro-
grams listed in paragraph (2) shall not be reduced by
more than 1 percent under any sequestration order. When
reduced under an end-of-session sequestration order, those
benefit reductions shall occur starting with the payment
made at the start of January. When reduced under a with-
in-session sequestration order, those benefit reductions
shall occur starting with the next periodic payment.
(2) The programs referred to in paragraph (1) are
the following:
Aid to families with dependent children (75–
0412–0–1–609);
Child nutrition (12–3539–0–1–605);
Food stamp programs (12–3505–0–1–605) and
(12–3550–0–1–605);
Grants to States for medicaid (75–0512–0–1–
551); and
Supplemental security income program (75–
0406–0–1–609).
(e) FEDERAL RETIREMENT AND VETERANS’ PRO-
GRAMS.—
(1) For each of the programs listed in para-
graph (2) and except as provided in paragraph (3),
monthly (or other periodic) benefit payments shall
be reduced by the uniform percentage applicable to
direct spending sequestrations for such programs
under section 221(c)(2), which shall in no case ex-
ceed 2 percent under any sequestration order. When
reduced under an end-of-session sequestration order,
those benefit reductions shall occur starting with the
payment made at the start of January or 7 weeks
after the order is issued, whichever is later. When
reduced under a within-session sequestration order,
those benefit reductions shall occur starting with the
next periodic payment.
(2) The programs subject to paragraph (1) are:
Benefits payable under sections 3(a),
3(f)(3), 4(a), or 4(f) of the Railroad Retirement
Act of 1974;
Benefits under chapter 21 of title 38,
United States Code, relating to specially adapt-
ed housing and mortgage-protection life insur-
ance for certain veterans with service-connected
disabilities (36–0137–0–1–702);
Benefits under section 907 of title 38,
United States Code, relating to burial benefits
for veterans who die as a result of service-con-
nected disability (36–0155–0–1–701);
Benefits under chapter 39 of title 38,
United States Code, relating to automobiles and
adaptive equipment for certain disabled veter-
ans and members of the Armed Forces (36–
0137–0–1–702);
Black lung benefits (20–8144–0–7–601);
Central Intelligence Agency retirement and
disability system fund (56–3400–0–1–054);
Civil service retirement and disability fund
(24–8135–0–7–602);
Comptrollers general retirement system
(05–0107–0–1–801);
Foreign service retirement and disability
fund (19–8186–0–7–602);
Judicial survivors’ annuities fund (10–
8110–0–7–602);
Longshoremen’s and harborworkers’ com-
pensation benefits (16–9971–0–7–601);
Military retirement fund (97–8097–0–7–
602);
National Oceanic and Atmospheric Admin-
istration retirement (13–1450–0–1–306);
Pensions for former Presidents (47–0105–
0–1–802);
Railroad retirement tier II (60–8011–0–7–
601);
Railroad supplemental annuity pension
fund (60–8012–0–7–602);
Retired pay, Coast Guard (69–0241–0–1–
403);
Retirement pay and medical benefits for
commissioned officers, Public Health Service
(75–0379–0–1–551);
Special benefits, Federal Employees’ Com-
pensation Act (16–1521–0–1–600);
Special benefits for disabled coal miners
(75–0409–0–1–601);
Tax Court judges survivors annuity fund
(23–8115–0–7–602);
Veterans’ compensation (36–0153–0–1–
701); and
Veterans’ pensions (36–0154–0–1–701).
(f) MEDICARE PROGRAM.—
(1) CALCULATION OF REDUCTION IN INDIVID-
UAL PAYMENT AMOUNTS.—To achieve the total per-
centage reduction in those programs required by sec-
tion 221, the percentage reduction that shall apply
to payments under the health insurance programs
under title XVIII of the Social Security Act for serv-
ices furnished after any sequestration order is issued
shall be such that the reduction made in payments
under that order shall achieve the required total per-
centage reduction in those payments for that fiscal
year as determined on a 12-month basis.
(2) TIMING
OF
APPLICATION
OF
REDUC-
TIONS.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), if a reduction is made under
paragraph (1) in payment amounts pursuant to
a sequestration order, the reduction shall be ap-
plied to payment for services furnished after the
effective date of the order. For purposes of the