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BEA Report for H.R. 4328, the Omnibus Consolidated and Emergency Appropriations Act, FY 1999

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November 25, 1998

The Honorable Al Gore
President of the Senate
Washington D.C. 20515

Dear Mr. President:

        The Balanced Budget and Emergency Deficit Control Act of 1985 (Section 251 (a) (7)), as amended by the Budget Enforcement Act of 1997, requires that OMB submit a report to Congress on appropriations legislation within seven days of enactment. Section 252(d) requires that OMB submit a report to Congress on direct spending or receipts legislation within seven days of enactment. Enclosed are separate appropriations and pay-as-you-go reports for Public Law 105-277, which became law on October 21, 1998.

/s/

Jacob J. Lew
Director

Enclosure PDF Information (82 kb)

Identical Letter Sent to The Honorable Newt Gingrich

November 25, 1998

The Honorable Newt Gingrich
Speaker of the House of
    Representatives
Washington, D.C. 20515

Dear Mr. Speaker:

        The Balanced Budget and Emergency Deficit Control Act of 1985 (Section 251 (a) (7)), as amended by the Budget Enforcement Act of 1997, requires that OMB submit a report to Congress on appropriations legislation within seven days of enactment. Section 252(d) requires that OMB submit a report to Congress on direct spending or receipts legislation within seven days of enactment. Enclosed are separate appropriations and pay-as-you-go reports for Public Law 105-277, which became law on October 21, 1998.

/s/

Jacob J. Lew
Director

Enclosure PDF Information (82 kb)

Identical Letter Sent to The Honorable Al Gore

NOTE:   This PAYGO report should proceed after table 12, page 39 of this 7-Day-After-Report)



OMB COST ESTIMATE
FOR PAY-AS-YOU-GO CALCULATIONS

Report No: 471
Date: 11/25/98

  1. LAW NUMBER:   P.L. 105-277 (H.R. 4328)


  3. BILL TITLE:   Omnibus Consolidated and Emergency Supplemental Appropriations Act, FY 1999


  5. BILL PURPOSE:   The sections of P.L. 105-277 that are subject to pay-as-you-go scoring extend certain expiring tax and trade provisions, provide relief for farmers, close certain tax loopholes and make other changes in the tax code. The pay-as-you-go sections of the bill also affect various mandatory programs, including Medicare, veterans compensation, and Tennessee Valley Authority (TVA) debt refinancing.


  7. OMB ESTIMATE:   Additional detail shown in Table 12

    (Fiscal years; in millions of dollars)
    1998 1999 2000 2001 2002 2003
    Outlay effect...... 0 69 618 641 295 330
    Receipt effect...... 0 -181 3,498 2,147 1,413 2,724
    Net........ 0 250 -2,880 -1,506 -1,118 -2,394

    OMB estimates that P.L. 105-277 will result in pay-as-you-go costs of $250 million in 1999 but savings of $7.6 billion over five years. The revenue provisions are estimated to reduce receipts $181 million in 1999 and increase them $9.6 billion over five years. The major tax provisions include the following:

    • Extensions of the research and experimentation credit, the work opportunity tax credit, the welfare-to-work tax credit, and the Generalized System of Preferences. The extensions reduce receipts $2.5 billion in 1999 and $4.6 billion from 1999-2003.


    • Offsets from closure of a corporate loophole regarding certain deductible liquidating distributions of regulated investment companies (RICs) and real estate investment trusts (REITs). This offset increases receipts $2.7 billion in 1999 and $15 billion from 1999-2003.


    • A change in the tax treatment of cash options for "qualified prizes", which results in higher receipts of $220 million in 1999, and $1.4 billion from 1999-2003.


    • Several sections provide tax relief to farmers, including the permanent extension of income averaging, and extending the net operating loss carryback period from two to five years. These provisions reduce receipts $170 million in 1999 and $1.0 billion over five years.


    • P.L. 105-277 also accelerates the full deductibility of health insurance costs for the self-employed, phases in an increase in the private activity bond cap, and allows non-refundable personal tax credits to offset an individual's regular tax in full for 1998. These and other tax reduction provisions reduce receipts $601 million in 1999 and $1.9 billion over five years.

    P.L. 105-277 also includes a variety of provisions affecting direct spending, which are estimated to increase outlays $69 million in 1999 and $2.0 billion over five years. The major provisions include the following:

    • Medicare home health provisions that modify the interim payment system and delay by one year implementation of the prospective payment system and across-the-board payment reductions. The bill also reduces the home health inflation adjustment over the period 2000-2003. The net cost of these and other changes is $20 million in 1999, and $710 million from 1999-2003.


    • A veterans compensation provision that lowers the standard for award of monthly veterans disability benefits for those who served in the Gulf War by requiring a presumption of service connection for illnesses based on a simple "positive association" standard. This provision increases outlays $502 million from 2001-2003.


    • An authorization for TVA to prepay debt it owes the Federal Financing Bank at the "nominal value" of that debt, rather than at the debt's higher "current market value," resulting in a total 17-year cost to the Federal government of about $1.2 billion. This provision increases outlays $94 million in 1999, and $690 million from 1999-2003.


    • Other outlay provisions in P.L. 105-277 affect visa fees for skilled nonimmigrant workers, amend the Public Health Service Act concerning vaccine injury compensation, accelerate privatization of the Student Loan Marketing Association, extend the Trade Adjustment Assistance program, and sell or convey land. These remaining outlay provisions result in net savings of $45 million in 1999 and a net cost of $51 million from 1999-2003.


  8. CBO ESTIMATE: Additional detail shown in Table 12


  9. (Fiscal years; in millions of dollars)
    1998 1999 2000 2001 2002 2003
    Outlay effect... 0 121 1,989 -1,037 102 -40
    Receipt effect.. 0 201 1,869 14 -734 -240
    Net cost.......... 0 -80 120 -1,051 836 200

  10. EXPLANATION OF DIFFERENCES BETWEEN OMB AND CBO ESTIMATES:

For the bill as a whole, OMB estimates a net pay-as-you-go cost of $250 million in 1999, and a net savings of $7.6 billion over five years. CBO estimates a net savings of $80 million in 1999, and a net cost of $25 million over five years. OMB estimates a net increase in outlays of $32 million in 1999 and $1.9 billion over five years. CBO estimates a net increase in outlays of $121 million in 1999, and $1.1 billion over five years. OMB estimates a net reduction in receipts of $181 million in 1999, and a net revenue gain of $9.6 billion over five years. CBO estimates a net revenue gain of $201 million in 1999, and $1.1 billion over five years.

Of the five-year, $8.5 billion receipts difference, the largest difference is due to the provision restricting abusive liquidating REIT transactions. Over five years, OMB estimates receipt increases of $15 billion from this provision, while CBO estimates receipt increases of $5.6 billion. P.L. 105-277 required that OMB score this provision using the economic and technical assumptions used in preparing the FY 1999 Mid-Session Review (MSR) baseline receipts forecast. The OMB MSR receipts baseline contained an explicit adjustment for anticipated revenue losses associated with liquidating REIT transactions. It is believed that CBO's estimate was made relative to a baseline that did not fully capture the potential revenue erosion of these transactions. Because of the baseline differences, OMB estimates that the provision restricting liquidating REIT transactions raises significantly more revenue.

Partially offsetting the estimating difference for the liquidating REIT provision are differences in estimates for the extension of certain expiring tax and trade provisions and provisions relating to farmers. OMB estimates of the revenue loss for the tax and trade extensions and farming provisions exceed CBO's estimates by $886 million and $675 million, respectively. Technical modeling differences of the 1-year extension of a modified exception from subpart F for active financing income and the provision of a special 5-year net operating loss carryback period for farming losses account for most of the estimating differences.

There are differences between OMB and CBO scoring of the provisions affecting Medicare, veterans compensation, and TVA debt refinancing. For the Medicare provisions, CBO estimates $150 million in outlays in 1999 and $800 million over five years. OMB estimates 1999 outlays of $20 million, and five-year outlays of $710 million. In 2000, OMB estimates outlays of $510 million, while CBO estimates outlays of $2.0 billion. In 2001, OMB estimates outlays $480 million, while CBO estimates outlay savings of $1.1 billion. CBO's baseline assumes higher Medicare spending, and this accounts for the large differences in the home health estimates in 2000 and 2001. For veterans compensation, OMB and CBO differ in their assumptions of veterans behavior and how quickly the Department of Veterans Affairs (VA) will implement the provision affecting benefits for Gulf War veterans. Based on experience with Agent Orange legislation, OMB assumes VA will process and grant more claims than CBO does. OMB estimates outlays of $502 million from 2001-2003, while CBO estimates outlays of $40 million over the same three years. For the TVA debt repayment provision, OMB assumes lower long-term interest rates and thus a higher market value for TVA's debt than does CBO. OMB estimates outlays of $94 million in 1999, and $690 million over five years. CBO estimates outlays of $16 million in 1999, and $306 million over five years.

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