An Overview and Comparison of Senate Proposals to Extend the “Bush Tax Cuts”: S. 3412 and S. 3413

Margot L. Crandall-Hollick
Analyst in Public Finance

Many of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the Jobs Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27), henceforth referred to as the Bush tax cuts, are scheduled to expire at the end of 2012. Two bills introduced in the Senate—S. 3412, the Middle Class Tax Cut Act, offered by Senator Reid and S. 3413, the Tax Hike Prevention Act, offered by Senator Hatch—propose to extend some or all of these tax cuts for one year through the end of 2013.1 A bill introduced in the House—H.R. 8, the Job Protection and Recession Prevention Act of 2012—is virtually identical to S. 3413 except for its treatment of a business expensing provision. Media reports indicate that votes on these proposals are expected to occur before the August 2012 recess.2

This report is organized to first provide an overview of the Bush tax cuts, followed by brief summaries of S. 3412 and S. 3413, henceforth referred to as the Reid and Hatch proposals, respectively. Revenue loss estimates of certain provisions of these bills are also included, as well as a brief summary of H.R. 8. In addition, detailed summary tables comparing the Reid and Hatch proposals—to each other and to current law—are provided. Finally, this report concludes with a brief overview of the current policy debate surrounding the partial or full extension of the Bush tax cuts.


Date of Report: July 25, 2012
Number of Pages: 20
Order Number: R42622
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A Brief Overview of Actions Taken by the Consumer Financial Protection Bureau (CFPB) in Its First Year

Sean M. Hoskins
Analyst in Financial Economics

The Consumer Financial Protection Bureau (CFPB), which formally started operating on July 21, 2011,1 was established by Title X of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (P.L. 111-203; the Dodd-Frank Act). The creation of the CFPB consolidates many consumer financial protection responsibilities into one agency.2 The Dodd-Frank Act states that the purpose of the CFPB is to implement and enforce federal consumer financial laws while ensuring that consumers can access financial products and services.3 The CFPB is also instructed to ensure that the markets for consumer financial services and products are fair, transparent, and competitive.4 To fulfill its mandate, the CFPB can issue rules, examine certain institutions, and enforce consumer protection laws and regulations.


Date of Report: July 18, 2012
Number of Pages: 6
Order Number: R42615
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LIBOR: Frequently Asked Questions

Edward V. Murphy
Specialist in Financial Economics

The London Interbank Offer Rate (LIBOR) is an estimate of prevailing interest rates in London money markets. Barclays, a British bank that serves on the panel responding to the LIBOR survey, recently admitted submitting false responses to manipulate the index (and attempting to manipulate a similar index, the Euro Interbank Offer Rate [EURIBOR]). The Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DOJ) reached settlements with Barclays in which the bank agreed to admit fault and pay a large fine.

This report answers several frequently asked questions.

• How is LIBOR calculated? 
• Which banks serve on the dollar LIBOR panel? 
• How can a single bank manipulate LIBOR? 
• How did Barclays manipulate LIBOR? 
• How is LIBOR used in the U.S. financial systems? 
• Are there alternatives to LIBOR? 
• Were U.S. policymakers, such as the Federal Reserve Bank of New York, aware of problems with LIBOR?

Date of Report: July 16, 2012
Number of Pages: 9
Order Number: R42608
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The Low Income Home Energy Assistance Program (LIHEAP): Program and Funding

Libby Perl
Specialist in Housing Policy

The Low Income Home Energy Assistance program (LIHEAP), established in 1981 as part of the Omnibus Budget Reconciliation Act (P.L. 97-35), is a block grant program under which the federal government makes annual grants to states, tribes, and territories to operate home energy assistance programs for low-income households. The LIHEAP statute authorizes two types of funds: regular funds (sometimes referred to as formula or block grant funds), which are allocated to all states using a statutory formula, and emergency contingency funds, which are allocated to one or more states at the discretion of the Administration in cases of emergency as defined by the LIHEAP statute.

States may use LIHEAP funds to help households pay for heating and cooling costs, for crisis assistance, weatherization assistance, and services (such as counseling) to reduce the need for energy assistance. According to the most recent data available from the Department of Health and Human Services (HHS), in FY2008, 53.3% of funds went to pay for heating assistance, 3.1% was used for cooling aid, 19.0% of funds went to crisis assistance, and 10.1% was used for weatherization. The LIHEAP statute establishes federal eligibility for households with incomes at or below 150% of poverty or 60% of state median income, whichever is higher, although states may set lower limits. In both the FY2009 and FY2010 appropriations acts, Congress gave states the authority to raise their LIHEAP eligibility standards to 75% of state median income. In FY2009, the most recent year for which HHS data are available, an estimated 35 million households were eligible for LIHEAP under the federal statutory guidelines (45 million were eligible based on the appropriations provision). According to HHS, 7.4 million households received heating or winter crisis assistance and approximately 900,000 households received cooling assistance that same year.

For FY2012, the Consolidated Appropriations Act (P.L. 112-74) provided $3.472 billion for LIHEAP formula grants; there was no appropriation for emergency contingency funds. The amount appropriated for formula grants was actually $3.478 billion, but application of an acrossthe- board rescission of 0.189% for discretionary accounts resulted in the final appropriation of $3.472 billion. Funding for LIHEAP in FY2012 was about $1.2 billion less than was provided in FY2011, when Congress appropriated $4.5 billion for regular funds and $200 million for emergency contingency funds, but exceeded the President’s total request ($1.98 billion for regular funds and $590 million for emergency contingency funds) by about $900 million. HHS announced final distributions to the states on January 19, 2012 (see Table A-1).

For FY2013, the President proposed a total of $3.02 billion for LIHEAP, $2.82 billion in regular funds and $200 million in emergency contingency funds. The regular funds would be distributed similarly to the way in which Congress has appropriated funds since FY2009—a portion of funds, approximately $2.42 billion, would be distributed according to the proportions of the “old” LIHEAP formula, and the remainder, $403 million, distributed according to the “new” LIHEAP formula. The Senate Appropriations Committee approved its Departments of Labor, HHS, and Education (LHE) funding bill on June 14, 2012 (S. 3295). The bill would provide $3.472 billion for LIHEAP, $100 million of which would be distributed as emergency contingency funds. Like the President’s budget, the regular funds would be split between the “old” formula proportions ($2.89 billion) and the “new” formula ($482 million). In the House, the Appropriations Subcommittee approved the LHE funding bill on July 18, 2012. It would provide $3.472 billion for LIHEAP, all distributed as regular funds under the statutory, or “new” LIHEAP formula.


Date of Report: July 18, 2012
Number of Pages: 27
Order Number: RL31865
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Federal Labor Relations Statutes: An Overview

Alexandra Hegji
Analyst in Social Policy

Since 1926, Congress has enacted three major laws that govern labor-management relations for private sector and federal employees. An issue for Congress is the effect of these laws on employers, workers, and the nation’s economy. The Bureau of Labor Statistics estimates that, nationwide, 9.2 million employees are represented by unions. In the 112th Congress alone, more than 30 bills have been introduced to amend federal labor relations statutes. The proposals range from making union recognition without a secret ballot election illegal to further modifying runoff election procedures. This legislative activity, and the significant number of employees affected by federal labor relations laws, illustrate the current relevance of labor relations issues to legislators and their constituents.

The three major labor relations statutes in the United States are the Railway Labor Act, the National Labor Relations Act, and the Federal Service Labor-Management Relations Statute. Each law governs a distinct population of the U.S. workforce.

The Railway Labor Act (RLA) was enacted in 1926, and its coverage extends to railway and airline carriers, unions, and employees of the carriers. The RLA guarantees employees the right to organize and collectively bargain with their employers over conditions of work and protects them against unfair employer and union practices. It lays out specific procedures for selecting employee representatives and provides a dispute resolution system that aims to efficiently resolve labor disputes between parties, with an emphasis on mediation and arbitration. The RLA provides multiple processes for dispute resolution, depending on whether the dispute is based on a collective bargaining issue or the application of an existing collective bargaining agreement.

The National Labor Relations Act (NLRA) was enacted in 1935. The NLRA’s coverage extends to most other private sector businesses that are not covered by the RLA. Like the RLA, the NLRA guarantees employees the right to organize and collectively bargain over conditions of employment and protects them against unfair employer and union activities. However, its dispute resolution system differs from the RLA’s in that it is arguably more adversarial in nature; many disputes are resolved through adjudication, rather than through mediation and arbitration.

The Federal Service Labor-Management Relations Statute (FSLMRS) was enacted in 1978, and its coverage extends to most federal employees. The basic framework of the FSLMRS is similar to that of the NLRA; however, employee rights are more restricted under the FSLMRS, given the unique nature of their employer, the federal government. Federal employees have the right to organize and collectively bargain, but they cannot bargain over wages or strike. Additionally, the President has the power to unilaterally exclude an agency or subdivision from coverage under the FSLMRS if he determines that its primary work concerns national security.

This report provides a brief history and overview of the aims of each of these statutes. It also discusses key statutory provisions for each statute.


Date of Report: July 16, 2012
Number of Pages: 51
Order Number: R42526
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Trade Adjustment Assistance for Workers

Benjamin Collins
Analyst in Labor Policy

Trade Adjustment Assistance for Workers (TAA) provides federal assistance to workers who have been adversely affected by foreign trade. It was most recently authorized by the Trade Adjustment Assistance Extension Act of 2011 (TAAEA; Title II of P.L. 112-40).

To be eligible for TAA, a group of workers must establish that they were separated from their employment either because their jobs moved outside the United States or because of an increase in directly competitive imports. Workers at firms that are suppliers to or downstream producers of TAA-certified firms may also be eligible for TAA benefits. Under current law, both production and service workers are eligible for TAA.

After the Department of Labor verifies the role of foreign trade in the group’s job losses, workers may apply for individual benefits. These benefits are funded by the federal government and, with limited exception, administered by the states.

• Reemployment services are available to assist trade-affected workers in planning for and returning to employment. Training is the largest reemployment service expense. Eligible training programs include a variety of public and private options and may not exceed 104 weeks. In lieu of or in addition to training, workers may receive employment services such as case management, skills assessment, and job search assistance. Workers may also receive allowances for job searches outside their local commuting area and relocation expenses once a new job has been secured. Under current law, annual expenditures on reemployment services are capped at $575 million. 
• Trade Readjustment Allowance (TRA) is an income support for TAA-certified workers who have exhausted their unemployment insurance (UI) and are enrolled in an eligible training program. TRA payments are equal to the workers’ final UI benefit. Workers may receive UI and TRA for a combined total of 117 weeks and 130 weeks under certain circumstances. 
• Reemployment Trade Adjustment Assistance (RTAA) is available to TAAcertified workers age 50 and over. This program supplements the wages of eligible workers who secure new employment at a lower wage. 
• A Health Coverage Tax Credit (HCTC) is also available to TAA-certified workers. This program offers a refundable tax credit equal to 72.5% of expenditures on a qualified health plan. Unlike other TAA benefits, the HCTC is administered through the federal tax code and not by state agencies. 

Eligibility and benefits for TAA are scheduled to be reduced beginning on January 1, 2014. The program will operate under these reduced provisions for one year before authorization for appropriations expires on December 31, 2014.

This report provides background on the TAA program. After a brief introduction, it discusses TAA eligibility and benefits as set by TAAEA. It then describes how the program is funded and administered. The report concludes by presenting data on recent application activity and benefit usage.


Date of Report: July 11, 2012
Number of Pages: 30
Order Number: R42012
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Social Security Reform: Current Issues and Legislation

Dawn Nuschler
Specialist in Income Security

Social Security reform has been an area of interest to policymakers for many years. In 2011, Social Security program changes were discussed during negotiations on legislation to increase the federal debt limit and reduce federal budget deficits. In August 2011, the Budget Control Act of 2011 (P.L. 112-25) established a Joint Select Committee on Deficit Reduction tasked with recommending ways to reduce the deficit by at least $1.5 trillion over the fiscal year period 2012 to 2021. Social Security program changes were among the measures discussed by the Joint Committee. The Joint Committee, however, did not reach agreement on a legislative proposal by the November 23, 2011, statutory deadline.

The spectrum of ideas for reform ranges from relatively minor changes to the pay-as-you-go social insurance system enacted in the 1930s to a redesigned, “modernized” program based on personal savings and investments modeled after IRAs and 401(k)s. Proponents of the fundamentally different approaches to reform cite varying policy objectives that go beyond simply restoring long-term financial stability to the Social Security system. They cite objectives that focus on improving the adequacy and equity of benefits, as well as those that reflect different philosophical views about the role of the Social Security program and the federal government in providing retirement income. However, the system’s projected long-range financial outlook provides a backdrop for much of the Social Security reform debate in terms of the timing and degree of recommended program changes.

On April 23, 2012, the Social Security Board of Trustees released it latest projections showing that the trust funds will be exhausted in 2033 and that an estimated 75% of scheduled annual benefits will be payable with incoming receipts at that time (under the intermediate projections). The primary reason is demographics. Between 2010 and 2030, the number of people aged 65 and older is projected to increase by 77%, while the number of workers supporting the system is projected to increase by 7%. In addition, the trustees project that the system will run a cash flow deficit in each year of the 75-year projection period. When current Social Security tax revenues are insufficient to pay benefits and administrative costs, federal securities held by the trust funds are redeemed and Treasury makes up the difference with other receipts. When there are no surplus governmental receipts, policymakers have three options: raise taxes or other income, reduce other spending, or borrow from the public (or a combination of these options).

Public opinion polls show that less than 50% of respondents are confident that Social Security can meet its long-term commitments. There is also a public perception that Social Security may not be as good a value for future retirees. These concerns, and a belief that the nation must increase national savings, have led to proposals to redesign the system. At the same time, others suggest that the system’s financial outlook is not a “crisis” in need of immediate action. Supporters of the current program structure point out that the trust funds are projected to have a positive balance until 2033 and that the program continues to have public support and could be affected adversely by the risk associated with some of the reform ideas. They contend that only modest changes are needed to restore long-range solvency to the Social Security system.

During the 111th Congress, four Social Security reform measures were introduced. None of the measures received congressional action. In the 112th Congress, several Social Security reform measures have been introduced; none have received congressional action.


Date of Report: July 11, 2012
Number of Pages: 38
Order Number: RL33544
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The Self-Employment Assistance (SEA) Program

Katelin P. Isaacs
Analyst in Income Security

Self-employment is one potential pathway to exit a spell of unemployment. The regular Unemployment Compensation (UC) program generally requires unemployed workers to be actively seeking work and to be available for wage and salary jobs as a condition of eligibility for UC benefits. These requirements constitute a barrier to self-employment and small business creation for unemployed workers who need income support. The Self-Employment Assistance (SEA) program, however, provides an avenue for combining income support during periods of unemployment with activities related to starting one’s own business.

Thus, within the joint federal-state UC program, the SEA program focuses on the reemployment of UC beneficiaries. State SEA programs help unemployed workers generate their own jobs through small business creation. SEA waives state UC work search requirements for those individuals who are working full time to establish their own small businesses. SEA provides a weekly allowance in the same amount and for the same duration as regular UC benefits. It is available only to individuals who would otherwise be entitled to UC benefits and have been determined likely to exhaust their UC benefits. Despite the unique configuration of SEA, which pairs self-employment activities and income support, participation in the program by states as well as unemployed workers is limited. Currently, only seven states have active SEA programs for UC claimants, and in one of these states—New York—authorization for the SEA program is scheduled to expire December 7, 2013. In part, the small-scale nature of the program is likely due to the authorizing legislation requirement that SEA be budget neutral; that is, no UC funds may be used to provide self-employment training.

P.L. 103-182, the North American Free Trade Agreement Implementation Act, created the SEA program on December 8, 1993. It was permanently authorized by P.L. 105-306, the Noncitizen Benefit Clarification and Other Technical Amendments Act, which was signed on October 28, 1998. Like the rest of UC, the SEA program is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Acts (SUTA).

Most recently, provisions in P.L. 112-96, the Middle Class Tax Relief and Job Creation Act of 2012, gave states the authority to expand SEA participation to certain claimants in the Extended Benefit (EB) and temporarily authorized Emergency Unemployment Compensation (EUC08) programs.


Date of Report: July 12, 2012
Number of Pages: 10
Order Number: R41253
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Small Business Set-Aside Programs: An Overview and Recent Developments in the Law

Kate M. Manuel
Legislative Attorney

Erika K. Lunder
Legislative Attorney

In government contracting law, a “set-aside” is a procurement in which only certain businesses may compete. Set-asides can be total or partial, depending upon whether the entire procurement, or just a severable segment of it, is so restricted. Eligibility for set-asides is typically based on business size, as well as demographic characteristics of the business owners. Currently, under the Small Business Act, there are set-aside programs for (1) small disadvantaged businesses participating in the 8(a) Minority Small Business and Capital Ownership Development Program (8(a) small businesses); (2) Historically Underutilized Business Zone (HUBZone) small businesses; (3) women-owned small businesses; (4) service-disabled veteran-owned small businesses; and (5) small businesses not belonging to any of the prior four categories.

These programs are all government-wide and could potentially be used by any agency. However, the programs differ in their eligibility requirements and the types of contracting preferences they provide for participating small businesses. For example, there are some significant differences among the programs as to when set-asides may be used (e.g., the value of qualifying contracts). Additionally, while the Small Business Act provides special authority for agencies to make solesource awards to 8(a), HUBZone, and service-disabled veteran-owned small businesses, solesource awards to women-owned or other small businesses are generally possible only under the authority of the Competition in Contracting Act (CICA). CICA authorizes noncompetitive awards, or awards made after soliciting and negotiating with only one source, to any size firm when certain conditions exist (e.g., single source; urgent and compelling circumstances). Moreover, only HUBZone small businesses qualify for “price evaluation preferences” in unrestricted competitions.

In addition, the Veterans Benefits, Health Care, and Information Technology Act of 2006 (P.L. 109-461) provides the Department of Veterans Affairs (VA) with additional authority to award set-aside or sole-source contracts to veteran-owned and service-disabled veteran-owned small businesses. Contracts with a value of less than $150,000 may be awarded on a set-aside or solesource basis at the contracting officer’s discretion. Contracts valued in excess of $150,000 must generally be awarded via a set-aside, although sole-source awards of up to $5 million may be made in certain circumstances.

The 111th Congress enacted legislation (P.L. 111-240) amending the statutory language that the Government Accountability Office (GAO) and U.S. Court of Federal Claims had construed, in a series of decisions issued in 2008-2010, as requiring agencies to give set-asides for HUBZone small businesses “precedence” over those for 8(a) and service-disabled veteran-owned small businesses. However, in 2010-2011, GAO and the Court of Federal Claims issued several other decisions interpreting the statutes and regulations governing the set-aside programs that could also affect the number of awards to such businesses. Among other things, these decisions found that VA is generally required to use set-asides for small businesses instead of procuring goods or services through the “optional” Federal Supply Schedules, although it was within VA’s discretion to promulgate guidelines providing that AbilityOne organizations are to be given priority when it purchases items on the AbilityOne list. (The Federal Supply Schedules are online “catalogs” that contain goods or services offered by multiple vendors. AbilityOne is a procurement program that promotes employment opportunities for persons who are blind or severely disabled.) Other decisions have addressed the market research underlying set-aside determinations; withdrawal of requirements from the 8(a) Program; and the applicability of the non-manufacturer rule and price evaluation preferences in HUBZone set-asides.


Date of Report: June 15, 2012
Number of Pages: 30
Order Number: R41945
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Pension Benefit Guaranty Corporation (PBGC) and Defined Benefit Pension Plan Funding Issues

John J. Topoleski
Analyst in Income Security

The Pension Benefit Guaranty Corporation (PBGC) is a federal government agency established in 1974 by the Employee Retirement Income Security Act (ERISA; P.L. 93-406). It was created to protect the pensions of participants and beneficiaries covered by private sector, defined benefit (DB) plans. These pension plans provide a specified monthly benefit at retirement, usually either a percentage of salary or a flat dollar amount multiplied by years of service. Defined contribution plans, such as §401(k) plans, are not insured. The PBGC is chaired by the Secretary of Labor, with the Secretaries of the Treasury and Commerce serving as board members.

The PBGC runs two distinct insurance programs for single-employer and multiemployer plans. Multiemployer plans are collectively bargained plans to which more than one company makes contributions. PBGC maintains separate reserve funds for each program. In FY2011, the PBGC insured about 27,066 DB pension plans covering 44.2 million people. The PBGC paid or owed benefits to 1.5 million people and took in 152 newly terminated pension plans. A firm must be in financial distress to end an underfunded plan. Most workers in single-employer plans taken over by PBGC receive the full benefit earned at the time of termination, but the ceiling on multiemployer plan benefits that could be guaranteed has left almost all of these retirees without full benefit protection.

In general, defined benefit pension plans are required to have sufficient funds from which to pay current and expected future benefits. Each year, plan sponsors are required to contribute the value of benefits earned by participants in that year and a portion of any prior years’ underfunding, which is the amount by which the value of current and future benefits exceeds current plan assets. Changes by Congress to pension funding requirements and the economic recession that began in December 2007 and ended in June 2009 have caused required contributions to pension plans to increase in recent years. To improve pension plan funding, Congress passed the Pension Protection Act of 2006 (PPA, P.L. 109-280), which resulted in increases in the amount of required contributions to pension plans by plan sponsors. Two other factors have caused increases in required contributions: (1) investment losses experienced by pension plans in the 2008 stock market downturn, which lowered the value of plan assets, and (2) lower interest rates as a result of Federal Reserve actions to try to influence economic activity, which increased the value of future pension plan benefit obligations. In addition, the recession negatively affected company profits, which made required contributions to pensions more difficult to make.

In the 111th Congress, H.R. 3962, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (P.L. 111-192), provided defined benefit pension plans sponsors the opportunity to spread over a greater number of years than specified under then current law contributions to offset the losses which resulted from the stockmarket downturn in 2008. In the 112th Congress, the Senate approved an amendment offered by Senate Majority Leader Harry Reid to S. 1813, Moving Ahead for Progress in the 21st Century (MAP-21), which contains provisions that would address the use of excess defined benefit pension plan assets and the interest rates that defined benefit plans use to value plan liabilities. Senate Majority Leader Harry Reid has proposed (1) using the pension-related provisions in S. 1813, as passed by the Senate on March 14, 2012, and (2) increasing the premiums that pension plan sponsors pay to PBGC as an offset for a one-year extension of current student loan interest rates.


Date of Report: July 11, 2012
Number of Pages: 13
Order Number: R42599
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An Analysis of Charitable Giving and Donor Advised Funds

Molly F. Sherlock
Specialist in Public Finance

Jane G. Gravelle
Senior Specialist in Economic Policy

Congress has long been concerned with ensuring that contributions for which tax deductions are claimed directly benefit charitable activities. Private foundations, a traditional arrangement that allows donations to non-active charitable entities, typically pay grants out of earnings on donated assets. Another arrangement that is growing rapidly is the donor advised fund (DAF). A taxpayer contributes to a DAF, taking a tax deduction. The fund sponsor makes grants to active charities, advised by the donor. Unlike private foundations, DAFs are not required to pay out a certain proportion of assets as grants each year. DAFs have become increasingly popular in recent years, partly due to commercial funds (e.g., Fidelity) with limited traditional charitable interests.

Provisions enacted in the Pension Protection Act of 2006 (P.L. 109-280) required DAF sponsors to report data on grants. The data are reported at the sponsoring organization level, where sponsoring organizations may maintain multiple individual DAF accounts. The 2006 act also directed the Treasury Department to study DAFs, with Congress expressing particular interest in issues relating to potential restrictions on deductions and minimum payout requirements. The Treasury study was released in 2011. Senator Chuck Grassley, Senate Finance chairman at the time of the 2006 legislation, has criticized the study as being “disappointing and nonresponsive.”

The Treasury did not recommend restrictions on deductions (such as those that apply to private foundations where grants are typically made out of earnings), appealing to the lack of legal control by the donor. However, evidence from public comments in the report and sponsor websites indicate that sponsoring organizations typically follow the donor’s advice, thus suggesting that donors have effective control over donations and, in some cases, investments.

Private foundations have a 5% minimum payout rate (and actual payouts are only slightly above that amount). The Treasury also did not recommend a minimum payout for DAFs, indicating that more years of data are needed. The Treasury also appealed to the higher estimated average payout rate of DAF sponsoring organizations (9.3% in 2006) as compared to foundations.

This report uses 2008 data to examine the minimum payout requirement, finding results similar to those found by Treasury. The average payout rate was 13.1%. More than 181,000 individual DAF accounts were maintained by roughly 1,800 DAF sponsoring organizations. Most individual accounts were maintained by institutions with a large number of accounts (two-thirds of all DAF accounts were held by sponsoring organizations that maintained at least 500 accounts; nearly half of all DAF accounts were held by commercial DAF institutions). Assets in DAF accounts were $29.5 billion, contributions were $7.1 billion, and DAF accounts paid out $7.0 billion in grants.

Because DAF accounts have heterogeneous objectives, in some cases to manage giving with high payout rates and in others to establish an asset base, a DAF sponsor can have a high average payout rate although many accounts have little or no payout. In both 2006 and 2008, a substantial share of DAF sponsoring organizations paid out less than 5% of assets each year. To provide some insight into the payout behavior of individual DAF accounts, sponsoring organizations that reportedly maintained only one DAF account in 2008 are analyzed separately. Although the average payout rate was over 10%, more than 70% of DAF sponsoring organizations with a single DAF account paid out less than 5%, and 53% had no grants. In contrast, less than 4% of sponsors with 100 or more accounts, accounting for 87% of DAF accounts, have a payout rate of less than 5%. This suggests that a minimum payout rate for sponsors would not be effective; an effective minimum payout requirement would need to be applied to individual DAF accounts.


Date of Report: July 11, 2012
Number of Pages: 32
Order Number: R42595
Price: $29.95

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Monetary Policy and the Federal Reserve: Current Policy and Conditions

Marc Labonte
Specialist in Macroeconomic Policy

The Federal Reserve (Fed) defines monetary policy as the actions it undertakes to influence the availability and cost of money and credit. Since the expectations of market participants play an important role in determining prices and growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence how the future is perceived. In addition, the Fed acts as a “lender of last resort” to the nation’s financial system, meaning that it ensures continued smooth functioning of financial intermediation by providing financial markets with adequate liquidity. This role has become of great importance following the onset of the recent financial crisis.

Traditionally, the Fed has three means for achieving its goals: open market operations involving the purchase and sale of U.S. Treasury securities, the discount rate charged to banks who borrow from the Fed, and reserve requirements that governed vault cash or deposits with the Fed as a proportion of deposits. Historically, open market operations have been the primary means for executing monetary policy. Recently, in response to the financial crisis, direct lending became important once again and the Fed has created a number of new ways for injecting reserves, credit, and liquidity into the banking system, as well as making loans to firms that are not banks. As financial conditions normalized, direct lending tapered off. Emergency lending programs have been wound down, with the exception of foreign central bank liquidity swaps.

The Fed traditionally conducts open market operations by setting an interest rate target that it believes will allow it to achieve price stability and maximum sustainable employment. The interest rate targeted is the federal funds rate, the price at which banks buy and sell reserves on an overnight basis. This rate is linked to other short-term rates and these, along with inflation expectations, influence longer-term interest rates. Interest rates affect interest-sensitive spending such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. Through this channel, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions by households and businesses.

Beginning in September 2007, in a series of 10 moves, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% on December 16, 2008, where it now remains. Since then, the Fed has added liquidity to the financial system beyond what is needed to meet its federal funds target through direct lending and, more recently, purchases of Treasury and governmentsponsored enterprise (GSE) securities. This practice is sometimes referred to as quantitative easing, which has tripled the size of the Fed’s balance sheet since financial turmoil began. Since quantitative easing has ended, the Fed has bought long-term Treasury securities and sold an equal amount of short-term securities through the Maturity Extension Program, popularly known as “Operation Twist.”

Congress has delegated responsibility for monetary policy to the Fed, but retains oversight responsibilities to ensure that the Fed is adhering to its statutory mandate “maximum employment, stable prices, and moderate long-term interest rates.” H.R. 245 would switch to a single mandate of price stability. The Dodd-Frank Act enhanced the GAO’s ability to audit the Fed, and required a review of its emergency programs. H.R. 459/H.R. 1496/S. 202 would remove all remaining restrictions on GAO’s audit powers. H.R. 1512 and H.R. 3428 would remove the regional Fed bank presidents from the Federal Open Market Committee.


Date of Report: July 6, 2012
Number of Pages: 20
Order Number: RL30354
Price: $29.95

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Small Business Administration HUBZone Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including the Historically Underutilized Business Zone Empowerment Contracting (HUBZone) program. The HUBZone program is a small business federal contracting assistance program “whose primary objective is job creation and increasing capital investment in distressed communities.” It provides participating small businesses located in areas with low income, high poverty rates, or high unemployment rates with contracting opportunities in the form of “setasides,” sole-source awards, and price-evaluation preferences.

In FY2011, the federal government awarded contracts valued at $9.9 billion to HUBZone certified businesses, with about $2.75 billion of that amount awarded through a HUBZone setaside, sole source, or price-evaluation preference award. The program’s FY2011 administrative cost was about $15.6 million. Its FY2012 appropriation is $2.5 million, with the additional cost of administering the program provided by the SBA’s appropriation for general administrative expenses.

Congressional interest in the HUBZone program has increased in recent years, primarily due to reports of fraud in the program. Some Members have called for the program’s termination. Others have recommended that the SBA continue its efforts to improve its administration of the program, especially its efforts to prevent fraud.

This report examines the arguments presented both for and against targeting assistance to geographic areas with specified characteristics, such as low income, high poverty, or high unemployment, as opposed to providing assistance to people or businesses with specified characteristics. It then assesses the arguments presented both for and against the continuation of the HUBZone program.

The report also discusses the HUBZone program’s structure and operation, focusing on the definitions of HUBZone areas and HUBZone small businesses and the program’s performance relative to federal contracting goals. The report includes an analysis of (1) the SBA’s administration of the program, (2) the SBA’s performance measures, and (3) the effect of the 2010 decennial census on which areas qualify as a HUBZone.

This report also examines congressional action on P.L. 111-240, the Small Business Jobs Act of 2010, which amended the Small Business Act to remove certain language that had prompted federal courts and the Government Accountability Office (GAO) to find that HUBZone set-asides have “precedence” over other small business set-asides. It also discusses H.R. 2131, the Protect HUBZones Act of 2011, S. 1756, the HUBZone Protection Act of 2011, and S. 633, the Small Business Contracting Fraud Prevention Act of 2011. These bills would extend HUBZone eligibility for firms that lost their HUBZone eligibility due to the release of 2010 decennial census economic data for three years after the first date on which the SBA publishes a HUBZone map that is based on the results from the 2010 decennial census. S. 633 would also require the SBA to implement several GAO recommendations designed to improve the SBA’s administration of the program. Also, S. 1874, the HUBZone Qualified Census Tract Act of 2011, would expedite the identification of HUBZone qualified census tracts following the release of 2010 census data.


Date of Report: July 5, 2012
Number of Pages: 34
Order Number: R41268
Price: $29.95

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