T he constitutional system of checks and balances and the separation of powers among the legislative, executive, and judicial branches is a cornerstone of the American system of government. By separating and checking powers in this way, the Framers hoped to prevent any person or group from seizing control over the nation's government. For example, the Framers checked congressional legislative power by providing the President the power to veto legislation and, in turn, checked the President's veto power by providing Congress a means to override that veto. Over time, it has become clear that the presidential veto power, even when not formally exercised, provides the President with an important tool to engage in the legislative process. Most Presidents have exercised their veto power in an effort to block legislation. Of 45 Presidents, 37 have exercised their veto power. As of the end of 2019, Presidents have issued 2,580 vetoes, and Congress has overridden 111. President George W. Bush vetoed 12 bills during his presidency. Congress attempted to override six of them and succeeded four times. President Barack Obama also vetoed 12 bills during his presidency. Congress attempted to override six of them and succeeded once. Presidents have also attempted to influence the shape of legislation through the use of veto threats. Since the 1980s, formal, written Statements of Administration Policy (SAPs, pronounced "saps") have frequently been used to express the President's support for or opposition to particular pieces of legislation. SAPs sometimes threaten to use the veto power if the legislation reviewed reaches the President's desk in its current form. Among the George W. Bush Administration (2001-2009) and the Obama Administration (2009-2017) SAPs examined later in this report, for example, 24% and 48%, respectively, contained a veto threat. This report begins with a brief discussion of the veto power and Congress's role in the veto process. It then examines the ways Presidents communicate their intention to veto, oppose, or support a bill. The report then provides and discusses summary data on veto threats and vetoes during the Bush and Obama Administrations. The President's Veto Power As specified by the U.S. Constitution (Article I, Section 7), the President has 10 days, Sundays excepted, to act once he has been presented with legislation that has passed both houses of Congress and either reject or accept the bill into law. Within those 10 days, Administration officials consider various points of view from affected agencies (as is the case throughout the legislative process) and recommend a course of action to the President regarding whether or not to veto the presented bill. The President has three general courses of action during the 10-day presentment period: The President may sign the legislation into law, take no action and allow the bill to become law without signature after the 10 days, or reject the legislation by exercising the office's veto authority. The President may reject legislation in two ways. The President may veto the bill and "return it, with his Objections to that House in which it shall have originated." This action is called a "regular" or "return" veto (hereinafter return veto). Congress typically receives the objections to the bill in a written veto message. If Congress has adjourned during the 10-day period, the President might also reject the legislation through a "pocket veto." This occurs when the President retains, but does not sign, presented legislation during the 10-day period, with the understanding that the President cannot return the bill to a Congress that has adjourned. Under these circumstances, the bill will not become law. A pocket veto is typically marked by a type of written veto message known as a "Memorandum of Disapproval." As discussed in greater detail below, this practice has sometimes been controversial, because arguably it prevents Congress from attempting to override the President's veto. Congress's Response A President's return veto may be overridden, or invalidated, by a process provided for in Article 1, Section 7, of the U.S. Constitution. To override a return veto, Congress may choose to "proceed to reconsider" the bill. Passage by two-thirds of Members in each chamber is required to override a veto before the end of the Congress in which the veto is received. Neither chamber is under any constitutional, legal, or procedural obligation to conduct an override vote. It is not unusual for either chamber of Congress to make no effort to override the veto if congressional leaders do not believe they have sufficient votes to do so. If a two-thirds vote is successful in both chambers, the President's return veto is overridden, and the bill becomes law. If a two-thirds vote is unsuccessful in one or both chambers, the veto is sustained, and the bill does not become law. In contrast, Congress cannot override the President's pocket veto. By definition, a pocket veto may occur only when a congressional adjournment prevents the return of the vetoed bill. If a bill is pocket vetoed while Congress is adjourned, the only way for Congress to pass a version of the policy contained in the vetoed bill is to reintroduce the legislation as a new bill, pass it through both chambers, and present it to the President again for signature. Recent Presidents and Congresses have disagreed about what constitutes an adjournment that prevents the return of a bill such that a pocket veto may be used. For purposes of the sections below concerning the use of veto threats, the unit of analysis is a veto. The analysis does not distinguish between regular and pocket vetoes. Veto Threats in the Legislative Process Because Congress faces a two-thirds majority threshold to override a President's veto, veto threats may deter Congress from passing legislation that the President opposes. The veto override threshold may also prompt Congress to change a bill in response to a veto threat. The Framers of the U.S. Constitution viewed the veto power as a way of reminding Congress that the President also plays an important legislative role and that threatening to use the veto power can influence legislators into creating more amenable bills. Political scientist Richard A. Watson writes that "the veto is available to a President as a general weapon in his conflicts with Congress: Franklin Roosevelt sometimes asked his aides for 'something I can veto' as a lesson and reminder to congressmen that they had to deal with a President." Veto threats are, therefore, an important component in understanding the use of the President's veto power. In recent presidencies, these threats have generally been expressed either through SAPs or verbally. President Trump has also used social media to communicate his intention to veto, oppose, or support a bill. Signaling Policy Intentions Before a Veto Presidents may signal their intention to support, oppose, or veto a bill early in the legislative process using both verbal and written means. For example, Presidents can mention in a speech that they intend to veto legislation, or they can authorize others (such as a press secretary) to verbally indicate the Administration's position on specific legislation. Presidents can also issue, through the Office of Management and Budget (OMB), formal, written SAPs to communicate their intention to veto, oppose, or support a bill. Verbal Veto Threats Verbal veto threats may include commentary related to the President's strategy for working with Congress along with a threat to veto legislation if the President's policy agenda is not heeded. For example, at a press conference President George W. Bush explained, "I want the Members of Congress to hear that once we set a budget we're going to stick by it. And if not, I'm going to use the veto pen of the President of the United States to keep fiscal sanity in Washington, D.C." In another instance, President Obama said that the House "is trying to pass the most extreme and unworkable versions of a bill that they already know is going nowhere, that can't pass the Senate and that if it were to pass the Senate I would veto. They know it." In these remarks, both President Bush and President Obama used their words to attempt to deter Congress from passing bills that did not match the President's policy agenda and unambiguously remind the public of their veto power. Written Veto Threats Formal, written SAPs are frequently used to express the President's support for or opposition to particular pieces of legislation. The decision to issue a SAP is a means for the President to insert the Administration's views into the legislative debate. While SAPs provide Presidents an opportunity to assert varying levels of support for or against a bill, perhaps the most notable statement in a SAP is whether the Administration intends to veto the bill. Members of Congress may pay particular attention to a SAP when a veto threat is being made. At least one congressional leader has characterized SAPs as forerunner indicators of a veto. SAPs are often the first public document outlining the Administration's views on pending legislation and allow for the Administration to assert varying levels of support for or opposition to a bill. Because written threats are typically required to be scrutinized by the Administration through the central legislative clearance process in advance of their release, written SAP veto threats are often considered more formal than verbal veto threats. When a SAP indicates that the Administration may veto a bill, it appears in one of two ways: 1. A statement indicating that the President intends to veto the bill (hereinafter a presidential veto threat) or 2. A statement that agencies or senior advisors would recommend that the President veto the bill (hereinafter a senior advisors veto threat). These two types of SAPs indicate degrees of veto threat certainty. Generally speaking, a presidential veto threat signals the President's strong opposition to the bill. A senior advisors veto threat, on the other hand, may signal that the President may be more likely to enter into negotiations in order to reach a compromise with Congress on the bill. By publicly issuing a veto threat, the President may leverage public pressure upon Congress to support the President's agenda. Furthermore, many SAPs propose a compromise to Congress wherein the President would not exercise a veto. In addition, a President or an Administration's senior advisors may not always issue a veto threat prior to a decision to veto passed legislation. As discussed below, both Presidents Bush and Obama vetoed legislation for which they never issued a written veto threat. Veto Threats Within Different SAP Types During both the Obama and Bush Administrations, roughly three-quarters of SAPs issued were on non-appropriations bills, and roughly one-quarter concerned appropriations bills. Each SAP signaled the Administration's intent to veto, oppose, or support a bill. There are fundamental differences between non-appropriations bill SAPs and appropriations bill SAPs. Non-appropriations bill SAPs typically involve specific policy objections, such as how a program operates or what constituency the program is designed to serve. Appropriations bill SAPs, in contrast, often involve more general budgetary policy objections, such as the perceived need to balance the budget or to reallocate resources for other purposes. Therefore, the President may generally support a particular provision in an appropriations bill on programmatic policy grounds but oppose it for budgetary reasons. Or the President may oppose a particular provision in an appropriations bill for both programmatic and budgetary reasons. This report focuses on the impact of the President's veto threat in non-appropriations bill SAPs given their more targeted nature. Veto Threats During the George W. Bush and Obama Administrations Data in this report were compiled from SAPs located on the archived White House websites of the Bush and Obama Administrations. Using the classification of SAPs on each website, analysis was conducted with only non-appropriations SAPs for reasons described above. The analysis examined each SAP and individually assessed whether the SAP contained a veto threat, the type of threat (presidential or senior advisor), and whether the veto threat concerned a part of the bill or the whole bill. The analysis considers each SAP to be an individual veto threat. In instances where one bill received veto threats in multiple SAPs, veto threats were counted individually and not combined. To assess the final outcome of bills, the analysis used information on bill statuses located at Congress.gov and does not track whether bills that received a SAP were later combined into other legislative vehicles. The inherent limitations in this methodology make it difficult to determine direct effects of any veto threat on the final outcome of a bill. However, in the aggregate, general trends may be observed. The proportion of non-appropriation bill SAPs with veto threats steadily increased over the course of each of the two presidencies reviewed. SAPs containing veto threats as a proportion of all SAPs was at its highest at the conclusion of both President Bush's and President Obama's second terms. Figure 1 illustrates this trend by showing SAP veto threats as a percentage of issued SAPs. George W. Bush Administration Veto Threats While the Bush Administration remained relatively consistent in the number of veto threats issued in SAPs during its first six years, the number of threats increased during the final two years of the Administration. The Bush Administration issued a total of 491 SAPs on non-appropriations bills. Just under one-quarter (24%) of the non-appropriations bill SAPs contained a veto threat: 24 presidential veto threats and 94 senior advisors veto threats. Of bills that received a presidential veto threat, one was signed by the President, seven were vetoed, and the remaining 16 did not make it to the President's desk. Of bills that received a senior advisors veto threat, 16 were signed, one was vetoed, and the remaining 77 were not passed by both chambers. Seven of the 12 Bush Administration vetoes were preceded by a SAP containing a veto threat. While the number of veto threats in SAPs slowly increased during the first three Congresses of the Bush Administration (two in the 107 th Congress, three in the 108 th Congress, and seven in the 109 th Congress), the number of veto threats grew sharply in the 110 th Congressâto 107 veto threatsâcoinciding with Democrats gaining control of both chambers of Congress during the Republican President's final two years in office. This might suggest (and is supported by Obama Administration data) that the partisan constitution of Congress, as well as whether the Administration is in its first or second term, may impact the number of veto threats issued. Below, Figure 2 illustrates this change in the number of veto threats over time across the four Congresses associated with President Bush's two terms in office. Nevertheless, presidential veto threats in the Bush Administration remained a fraction of overall veto threats and often resulted in an actual veto. The rarity with which the Bush Administration issued presidential veto threats suggests that the Administration viewed them as a message to be used sparingly. Although the relationship between Congress and a President may change every two years with each new Congress, the relationship between an Administration and its President may also change by presidential term. Compared to a President's first term, in a second term Administration, executive branch officials may become more adept in coordinating the veto power. Additionally, a second-term President cannot be re-elected, which may allow the Administration to take a stronger position on unfavorable legislation. Alternatively, it could be that the President lacks the political influence necessary to advance his legislative agenda and instead relies on veto power to block legislative vehicles more often as his presidency concludes. Figure 3 presents veto threat percentages by presidential term for the Bush Administration, showing an increase in the President's second term. During President Bush's first term (2001-2005), 98% of SAPs did not contain a veto threat, 1% contained a senior advisors veto threat, and 1% contained a presidential veto threat. During President Bush's second term (2005-2009), 60% did not contain a veto threat, 32% contained a senior advisors veto threat, and 8% contained a presidential veto threat. Obama Administration Veto Threats In comparison to the Bush Administration, the Obama Administration steadily increased its use of veto threats issued in SAPs in every subsequent Congress. The Obama Administration issued 472 SAPs on non-appropriations bills. Just under half (48%) of these contained a veto threat: 43 presidential veto threats and 186 senior advisors veto threats. Of bills that received a presidential veto threat, four were ultimately signed by the President, five were vetoed, and 34 did not make it to the President's desk. Of bills that received a senior advisors veto threat, 17 were signed, two were vetoed, and 167 were not passed by the two chambers. Six of the 12 Obama Administration vetoes were preceded by a SAP containing a veto threat. President Obama (a Democrat) issued more veto threats in his SAPs with each passing Congress. (Democrats controlled both chambers during the 111 th Congress and the Senate during the 112 th Congress, and Republicans controlled the House during the 113 th Congress and both chambers during the 114 th Congress. ) Below, Figure 4 illustrates this change in the number of veto threats over time by Congress. Although the number of veto threats increased over the course of the Obama presidency (eight in the 111 th Congress, 54 in the 112 th Congress, 63 in the 113 th Congress, and 104 in the 114 th Congress), the number of presidential veto threats remained small when compared to the total number of veto threats, varying from a low of 14.3% in the 111 th Congress to a high of 28.3% in the 114 th Congress. The increase over time in total number of veto threats may indicate that President Obama was presented with more legislation he was likely to oppose. However, the increase is mostly composed of senior advisors veto threats. This suggests that the Administration nonetheless treated presidential veto threats, compared to senior advisors veto threats, as a tool to be used more rarely. As with the Bush Administration, President Obama's use of veto threats in the first and second terms differ. Figure 5 presents veto threat percentages by presidential term as opposed to by Congress. During President Obama's first term (2009-2013), 69% of SAPs did not contain a veto threat, 27% contained a senior advisors veto threat, and 4% contained a presidential veto threat. During President Obama's second term (2013-2017), 39% of SAPs did not contain a veto threat, 49% contained a senior advisors veto threat, and 13% contained a presidential veto threat. Congressional Responses to Veto Threats CRS analyzed all veto threats contained in SAPs on non-appropriations legislation across these two Administrations and determined whether the veto threat was isolated to a provision of the bill (a partial bill veto threat) or if the veto threat was not particularized (a whole bill veto threat). President Bush issued partial bill veto threats and whole bill veto threats an equal amount of the time. However, the type of threat he used in each category varied. Of partial bill veto threats, 7% were presidential veto threats and the remaining 93% were senior advisors veto threats. Of whole bill veto threats, 34% were presidential veto threats and the remaining 66% were senior advisors veto threats. In contrast, President Obama issued partial bill veto threats more sparingly (8% versus 92% for whole bill veto threats). Similar to President Bush, however, of partial bill veto threats, 6% were presidential veto threats and the remaining 94% were senior advisors veto threats. Of whole bill veto threats, 20% were presidential veto threats and the remaining 80% were senior advisors veto threats. The difference in frequency of partial and whole bill veto threats across the Administrations may suggest that the two Presidents viewed the use of veto threats differently: One President may have used partial threats to negotiate more with Congress, whereas another President preferred to threaten a veto only when he viewed an entire bill as unfavorable. Likewise, the increased frequency of partial bill senior advisors veto threats suggests that both Presidents preferred to use presidential veto threats in rejecting an entire bill and leaving senior advisors veto threats for negotiations where only part of a bill is unfavorable. Legislative Action Following a Veto Threat A presidential veto threat in a SAP may be more likely than a senior advisors veto threat to deter passage of a bill because of the President's direct association with the threat. However, an analysis of these two Administrations does not necessarily support this argument. Figure 6 shows that bills appeared less likely to pass when the bill received a senior advisors veto threat versus a presidential veto threat. This may be due to a number of factors, including that senior advisors threats are more frequently issued than presidential veto threats (279 senior advisors threats and 67 presidential veto threats were issued across these two presidencies) or that Congress may perceive it to be beneficial to pass presidentially threatened legislation anyway based on certain political calculations and circumstances. Veto Threats and Veto Patterns During the Bush and Obama Administrations, enrolled bills that passed both chambers and were met with a presidential veto threat SAP were vetoed more often than were those that were met with a senior advisors threat. Figure 7 shows the outcomes of bills receiving veto threats that were passed by Congress and sent to the President. Across both the Bush and Obama Administrations, a bill that received a presidential veto threat and was passed was followed by a veto 70.6% of the time, whereas a bill that received a senior advisors veto threat was later vetoed 8.3% of the time. When a President vetoes a bill, it marks the end of the President's ability to procedurally affect whether or not a bill becomes law. Whether or not that specific bill becomes law is no longer in the President's hands. Congress may or may not elect to attempt an override. George W. Bush Administration Vetoes and Ensuing Congressional Action President Bush exercised the veto power 12 times. Four of these vetoes were overridden. Six vetoed bills were forewarned with a written veto threat. (Four received a presidential threat, and two received senior advisors threats.) Three additional bills received statements noting the Administration's opposition to the bill but did not include a veto threat. None of the bills that Congress later overrode were preceded by a presidential veto threat. Three-quarters of President Bush's vetoes (9 of 12) were preceded by a written statement of opposition to the bill. President Bush also issued multiple written veto threats on four bills that would later receive a veto: Three bills received two threats each, and one bill received two statements of opposition. Obama Administration Vetoes and Ensuing Congressional Action President Obama vetoed 12 bills, and Congress overrode his veto once. As was true for President Bush, six of President Obama's vetoes were preceded by a written veto threat (four presidential and two senior advisors threats). Unlike the patterns observed for the Bush presidency, however, all of President Obama's veto threats were whole bill veto threats. Whereas President Bush also communicated in SAPs his opposition to three bills short of threatening a veto, President Obama either did not issue a SAP at all or issued one that contained a veto threat. One of President Obama's vetoed bills received two veto threats. President Obama's approach of issuing either no statement at all on a bill or a statement containing a veto threat marks a different approach from the one used by President Bush.


T he current September 11 th Victim Compensation Fund (VCF) provides cash benefits to certain persons whose health may have been affected by the aftermath of the September 11, 2001, terrorist attacks on the Pentagon and the World Trade Center, and the terrorist-related aircraft crash at Shanksville, PA. The current iteration of the VCF may be unable to pay full benefits to eligible persons and is scheduled to sunset on December 18, 2020. Current VCF data are provided in this report's Appendix . History of the VCF On September 22, 2001, the Air Transportation Safety and System Stabilization Act (ATSSA; P.L. 107-42 ) was enacted into law. Quickly passed by Congress in the wake of the September 11, 2001, terrorist attacks, this legislation provided various forms of relief to the American airline industry and affirmed Congress's commitment to improving airline safety. Title IV of the ATSSA also established the VCF to compensate persons injured or the representatives of persons killed in the attacks or their immediate aftermath. The VCF originally closed in 2003 and was reopened in 2011 and expanded to provide compensation to responders to the September 11, 2001, terrorist attacks and others, such as certain New York City residents, who may have suffered health effects in the aftermath of the attacks. The VCF was reauthorized in 2015 and, if not reauthorized in the 116 th Congress, will sunset on December 18, 2020. Original VCF The original VCF, as created by Title IV of the ATSSA, provided cash benefits to the following groups of persons who suffered physical injury or death as a result of the terrorist attacks of September 11, 2001: persons who were present at the World Trade Center, Pentagon, or aircraft crash site in Shanksville, PA, at the time of or in the immediate aftermath of the aircraft crashes at those sites on September 11, 2001; and passengers and crew of any aircraft that crashed on September 11, 2001, as a result of terrorist activity. The amount of benefits available to each claimant was determined by a Special Master appointed by the Attorney General. The amount of benefits payable to each claimant was based on each person's economic losses (such as loss of future earnings) and noneconomic losses (such as pain and suffering). The VCF statute specifically prohibited the payment of punitive damages. Benefits were reduced by certain collateral source payments, such as life insurance benefits, available to the claimant. There was no cap on the amount of benefits that any one person could receive or on total benefits paid. By filing a VCF claim, a person waived his or her right to file a civil action or be a party to such an action in any federal or state court for damages related to the September 11, 2001, terrorist-related aircraft crashes. This provision established the VCF as an alternate and expedited route to compensation for victims while providing some protection against lawsuits for damages that may have been brought by victims against the air carriers; airframe manufacturers; the Port Authority of New York and New Jersey, who owned the World Trade Center; or any other entity. Congress provided funding for the VCF through an appropriation of "such sums as may be necessary" for benefit payment and administration. The Special Master of the VCF was required to promulgate regulations to govern the program within 90 days of the law's enactment, and all claims had to be filed within two years of the regulations' promulgation, at which time the VCF would close. The original VCF received 7,403 claims and made awards totaling $7.049 billion to 5,560 claimants. Reopened VCF The original VCF was closed to new claims in December 2003. However, concerns about injuries and illnesses incurred by persons involved in emergency response, recovery, and debris removal operations at the September 11 th aircraft crash sites led Congress to reopen the VCF with the enactment of Title II of the James Zadroga 9/11 Health and Compensation Act of 2010 (Zadroga Act; P.L. 111-347 ). The reopened VCF extended eligibility for cash benefits to persons who suffered physical injuries or illnesses as a result of rescue, recovery, or debris removal work at or near the September 11 th aircraft crash sites during the period from September 11, 2001, to May 30, 2002, as well as certain persons who lived, worked, or were near the World Trade Center on September 11, 2001. The VCF was initially reopened for new claims through October 3, 2016. Total benefits and administrative costs paid by the reopened VCF were limited to $2.775 billion, unlike in the original VCF, which had no cap on total funding for benefits, allowing the Special Master to award benefits without considering the benefits' total cost. Under the reopened VCF, attorneys' fees were limited to 10% of the VCF award. VCF Reauthorization The reopened VCF was scheduled to stop taking claims on October 3, 2016. The VCF was reauthorized on December 18, 2015, with the enactment of Title IV of Division O of the Consolidated Appropriations Act, 2016 (Zadroga Reauthorization Act of 2015; P.L. 114-113 ). Under this reauthorization, claims approved before the reauthorization date are considered Group A claims. Group A claims are subject to the same rules as claims under the reopened VCF and are subject to the $2.775 billion cap on total benefit payments. All other claims filed before the final VCF deadline of December 18, 2020, are considered Group B claims subject to additional rules and funding caps established by the reauthorization legislation. Thus, all current claims are Group B claims. Overview of the VCF Under Current Law VCF Eligibility To be eligible for VCF benefits, a person must have died as a passenger or crew member on one of the aircraft hijacked on September 11, 2001; died as a direct result of the terrorist-related aircraft crashes or rescue, recovery, or debris removal in the immediate aftermath of the September 11, 2001, terrorist attacks; or been present at a September 11 th crash site in the immediate aftermath of the September 11, 2001, terrorist attacks and suffered physical harm as a direct result of the crashes or the rescue, recovery, and debris removal efforts. Immediate Aftermath For the purposes of VCF eligibility, the immediate aftermath of the September 11 th terrorist attacks is the time period from September 11, 2001, to May 30, 2002. September 11th Crash Sites For the purposes of VCF eligibility, the September 11 th crash sites include the World Trade Center, Pentagon, or Shanksville, PA, crash sites; the buildings or portions of buildings that were destroyed as a result of the September 11 th terrorist attacks; the area in Manhattan that is south of the line that runs along Canal Street from the Hudson River to the intersection of Canal Street and East Broadway, north on East Broadway to Clinton Street, and east on Clinton Street to the East River; and any area related to debris removal, such as the debris-removal barges and Fresh Kills in Staten Island, New York. Physical Harm To be eligible for the VCF, individuals who did not die as passengers or crew members of one of the hijacked aircraft, or as a direct result of the September 11 th terrorist attacks (including rescue, recovery, and debris removal), must have suffered physical harm as a result of the attacks. For the purposes of VCF eligibility, physical harm is demonstrated by the presence of a World Trade Center (WTC)-related physical health condition as defined for the purposes of the World Trade Center Health Program (WTCHP). WTC-Related Physical Health Condition A WTC-related physical health condition is a physical health condition covered by the WTCHP. These conditions are those provided in statute at Sections 3312(a) and 3322(b) of the Public Health Service Act (PHSA) and those added through rulemaking by the WTCHP administrator. Per Section 3312(a) of the PHSA, to be covered by the WTCHP and thus compensable under the VCF, a condition must be on the list of covered WTCHP-covered conditions and it must be determined that exposure in the aftermath of the September 11, 2001, terrorist attacks "is substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition." In most cases, the VCF requires that a person's condition be certified by the WTCHP for that condition to be compensable. The WTCHP provides guidance on how to evaluate if a person's condition meets the standard to be linked to exposure in the aftermath of the September 11, 2001, terrorist attacks. This evaluation is based on a combination of the amount of time a person was physically present at a site and the specific activitiesâsuch as search and rescue, sleeping in a home in Lower Manhattan, or just passing through a siteâin which the person engaged. For example, a person who was engaged in search and rescue activities at the World Trade Center site between September 11 and September 14, 2001, must have been present for at least 4 hours for the WTCHP to certify his or her condition and thus compensable by the VCF, whereas a person whose only activity was passing through Lower Manhattan during the same period, and who was not caught in the actual dust cloud resulting from the buildings' collapse, would have to have been in the area for at least 20 hours to be eligible for compensation. The WTCHP evaluates conditions that do not meet the minimum exposure criteria on a case-by-case basis using "professional judgement" and "any relevant medical and/or scientific information." WTCHP-covered mental health conditions may not be used to establish VCF eligibility, as the VCF does not include any provisions for benefit payments for mental health conditions. Cancer as a WTC-Related Physical Health Condition The WTCHP statute does not include any type of cancer in the list of WTC-related health conditions. However, the statute does require the WTCHP administrator to periodically review the available scientific evidence to determine if any type of cancer should be covered by the WTCHP and, by extension, the VCF. In response to a petition to add conditions to the list of WTC-related health conditions, the WTCHP administrator is required, within 90 days, to either request a recommendation on action from the WTC Scientific/Technical Advisory Committee (STAC) or make a determination on adding the health condition. If the WTCHP administrator requests a recommendation from the STAC, that recommendation must be made within 90 days of its receipt and the WTCHP administrator must act on that request within an additional 90 days. On September 7, 2011, Representatives Carolyn B. Maloney, Jerrold Nadler, Peter King, Charles B. Rangel, Nydia M. Velazquez, Michael G. Grimm, and Yvette Clarke and Senators Charles E. Schumer and Kirsten E. Gillibrand filed a petition, in the form of a letter to the WTCHP administrator, requesting that the administrator "conduct an immediate review of new medical evidence showing increased cancer rates among firefighters who served at ground zero" and that the administrator "consider adding coverage for cancer under the Zadroga Act." In response to this petition, the WTC administrator requested that the STAC "review the available information on cancer outcomes associated with the exposures resulting from the September 11, 2001, terrorist attacks, and provide advice on whether to add cancer, or a certain type of cancer, to the List specified in the Zadroga Act." On September 12, 2012, based on the STAC's recommendations, the WTCHP administrator added more than 60 types of cancer, covering nearly every body system and including any cancers in persons less than 20 years of age and any rare cancers, to the list of WTC-related health conditions, thus making these conditions compensable under the VCF. In a review of the decision to add cancers to the list of WTC-related health conditions, the Government Accountability Office (GAO) found that the WTCHP administrator used a hazards-based approach to evaluate cancers. This approach evaluated whether exposures in the aftermath of the September 11, 2001, terrorist attacks were associated with types of cancer but did not evaluate the probability of developing cancer based on a given exposure. A GAO-convened scientific panel indicated that the hazards-based approach the WTCHP administrator used was reasonable given data constraints and the fact that there is a certification process to determine if a cancer or other condition on the list of WTC-related health conditions meets the statutory requirement of being "substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition." The panel also indicated that this approach could have benefited from an independent peer review process. The WTCHP administrator stated that peer review was not possible given the statutory time constraints to act on the petition and the STAC's recommendation. One year later, the WTCHP administrator added prostate cancer to the list of WTC-related health conditions. The WTCHP administrator has also established minimum latency periods for certain types of cancer and maximum onset periods for certain types of aerodigestive disorders. VCF Operations The Civil Division of the Department of Justice administers the VCF. The VCF Special Master, currently Rupa Bhattacharyya decides VCF eligibility and benefits. A claimant dissatisfied with the Special Master's decision on his or her claim may file an appeal and request a hearing before a VCF hearing officer appointed by the VCF. There is no further right of appeal or judicial review of VCF decisions. A claimant may amend his or her claim after a decision has been made if the claimant has new material relevant to the claim. Registration and Claim Deadlines All claims for VCF benefits must be filed by December 18, 2020, five years after the VCF reauthorization act's enactment. Before filing a claim, a potential claimant must have registered with the VCF by one of the following applicable deadlines: by October 3, 2013, if the claimant knew, or reasonably should have known, that he or she suffered a physical harm or died as a result of the September 11 th attacks or rescue, recovery, or debris removal efforts, and that he or she was eligible for the VCF, on or before October 3, 2011; within two years of the date the claimant knew, or reasonably should have known, that he or she has a WTC-related physical health condition or died as a result of the September 11 th attacks and is eligible for the VCF. If a claimant has a condition that is later added to the list of conditions covered by the WTCHP, then the two-year period begins on the later of the dates when a government entity, such as the WTCHP or a state workers' compensation agency, determines that the condition is related to the September 11 th attacks, or when a claimant's condition is added to the list of conditions covered by the WTCHP. VCF Benefits Benefits under the original VCF were not subject to any caps on individual or total payments. When the VCF was reopened, total benefits were subject to a cap of $2.775 billion; however, there were no specific caps on individual benefits. VCF benefits for Group B are subject to caps on noneconomic losses and total benefits. Benefits under the VCF for Group B claims are determined by the Special Master based on the claimant's economic and noneconomic losses. For noneconomic losses, there is a cap of $250,000 for claims based on cancer and $90,000 for all other claims. However, for cases in which a person's death was caused by a WTC-related health condition, the VCF regulations provide that the presumed award for noneconomic loss is $250,000 plus an additional $100,000 for the person's spouse and each dependent. When calculating economic losses, the Special Master is only permitted to consider the first $200,000 in annual income when determining losses to past earnings and future earning capacity, which limits the amount of economic losses that can be paid. There is a total cap of $4.6 billion for VCF Group B awards. As in past iterations of the VCF, benefits are reduced by certain collateral source payments available to claimants, such as life insurance benefits, workers' compensation payments, and government benefits related to the person's injury or death, such as Social Security Disability Insurance (SSDI) and the Public Safety Officers' Benefits Program (PSOB). VCF Financing The costs of VCF benefits and administration are not subject to annual appropriations. Rather, costs for Group A benefits and administration were financed by the $2.775 billion in appropriations provided by the Zadroga Act. Costs for Group B benefits and administration are financed by the one-time appropriation of $4.6 billion provided in the Zadroga Reauthorization Act of 2015. Thus, the total funding available for the VCF since its reopening is $7.375 billion. Funding was made exempt from budget sequestration by the Zadroga Reauthorization Act of 2015. Special Master's Reduction of Future Awards Total funding for VCF benefits and administrative costs is capped by the $7.375 billion in appropriations that have been provided in the Zadroga Act and Zadroga Reauthorization Act of 2015, with a total cap of $4.6 billion for VCF Group B awards. The VCF statute requires the Special Master to annually reassess VCF policies and procedures to determine if these policies and procedures satisfy the statutory requirements that claimants with the most debilitating physical conditions have their claims prioritized and that total expenditures for awards and administrative costs associated with Group B claims do not exceed the $4.6 billion in available funding. Special Master's Assessment Notice of Inquiry In October 2018, the Special Master published a Notice of Inquiry in the Federal Register seeking public comments on possible policy changes that the Special Master could consider to ensure there is sufficient funding to administer and pay future VCF claims without exceeding the $4.6 billion cap on Group B expenditures. The Special Master received 28 comments in response to this Notice of Inquiry, of which 16 were relevant to the request for information on possible VCF policy and procedure changes. Projections of Future VCF Expenditures In February 2019, the Special Master published her most recent annual assessment of VCF policies and procedures. This report includes two sets of projections of future VCF benefit and administrative costs. One projection is based on historical program data and another projection is based on these historical data, augmented by data on recent program trends. These two models were also used in the 2017 assessment, whereas the 2018 assessment only projected costs based on historical program data. As shown in Table 1 , the Special Master projects under both models that total VCF program costs by the end of the program will far exceed the $7.375 billion in available funding. This is the first time the Special Master projects that program funding will be insufficient to pay all VCF benefits and administrative expenses. On June 21, 2019, during testimony before the House Committee on the Judiciary, the Special Master pointed to increases in death claims, cancer claims, and claims from non-responders have played a role in driving projected benefit costs above the amount of available funding Congress provided. The Special Master did not, however, break down how much of the cost increases can be attributed to each of these three factors. Death Claims As of May 31, 2019, the Special Master has determined that 1,057 death claims are eligible for the reopened VCF. Of these, award decisions based on economic and noneconomic loss have been made in 856 cases. As a comparison, the original VCF paid awards in 2,880 cases of death. Because there is a regulatory presumption of noneconomic loss of $250,000 for the decedent and an additional $100,000 for the spouse and any dependents, noneconomic loss awards in death cases have the potential to be larger than those in injury cases. Since the VCF's reauthorization in 2015, the number of eligible and awarded death cases has increased significantly. For claims paid prior to reauthorization (Group A claims), awards were paid in 17 death cases. Thus, in less than four years since reauthorization, there has been a nearly 5,000% increase in death awards. Of the 839 death awards paid since reauthorization, 517 were awarded in the period between April 30, 2018, and April 30, 2019, with an additional 43 claims paid in May 2019. Through the end of May 2019, there has been an average of more than 35 new eligibility decisions and more than 48 new awards in death claims per month. Although the Special Master does not discuss the causes of the increases in death claims, the nature of many of the compensable medical conditions, especially certain types of cancer with low survival rates, means that many persons eligible for compensation from the VCF will likely die as a result of their WTC-related health conditions, thus possibly making their families eligible for death compensation. Cancer Claims Cancers were first added to the VCF as compensable conditions in September 2012. Since then, there have been 8,734 cases with at least one form of cancer determined to be eligible for the VCF. As of the end of April 2019, eligible claims with at least one type of cancer made up 37% of all eligible VCF claims. As shown in Table 2 , the most significant growth in cancer claims occurred shortly after cancers were added to the list of WTC-eligible health conditions and also in the most recent year. Between September 30, 2014, and December 31, 2015, the number of eligible claims with cancer as the only compensable condition (cases that would not otherwise be eligible for the VCF if not for the addition of cancer) increased 194% from 472 claims to 1,387 claims. This increase is understandable and expected given that this was early in the period during which cancer claims were first eligible for compensation. However, the recent increase in eligible cancer-only claims as a percentage of all eligible claims is one of the factors that drove the projected program costs, which were just below total available funds in the 2018 assessment, over the funding cap in the 2019 assessment. In 2018, the number of eligible cancer-only claims increased 58%. At the end of 2018, eligible cancer-only claims made up 18% of all eligible claims. The increase in eligible cancer claims is notable for three reasons. First, no types of cancer were compensable when the VCF was originally reopened in 2010 and no cancers were included in the list of WTC-related health conditions created by Congress in the Zadroga Act. Cancers were added to the list of covered conditions by the WTCHP administrator in two determinations made in 2012 and 2013. These determinations resulted in more than 60 types of cancer covering nearly every body system being compensable under the VCF. Neither the VCF nor WTCHP statutes include any specific provisions requiring any follow-up or continuous review of scientific evidence to determine if, in the nearly seven years since these determinations were made, there is any additional evidence to support or refute including these types of cancers in the list of WTC-related health conditions compensable under the VCF. The GAO cited limitations on data available in 2012 as a reason that its scientific panel found the WTCHP administrator's use of a hazards-based rather than probability model to add cancers to the list of WTC-related health conditions reasonable. Given the increases in the number of persons receiving services from the WTCHP and developing cancer in the years since the 2012 and 2013 cancer determinations, there may be additional data to warrant reevaluating the list of covered cancers or evaluating the likelihood of developing cancer after different types of exposures in the aftermath of the September 11, 2001, terrorist attacks. In addition, the VCF covers a wide range of persons from firefighters and police officers who were the first responders to the attacks, to construction and other workers who were involved in debris removal, and to adults and children who were in lower Manhattan at the time of the attacks, all of whom may have had different types and durations of exposure to toxic substances in the aftermath of the attacks. Although the determination that a person's health condition was linked to his or her exposure in the aftermath of the September 11, 2001, terrorist attacks is based on a combination of duration and nature of exposure, the list of covered conditions, including all cancers except childhood cancer, applies equally to all persons with no accounting for individual exposure experience. Second, the VCF is a program of presumptive eligibility. Thus, when determining eligibility for the VCF, controlling factors such as genetics, age, behaviors such as tobacco use, or exposure to other toxins are not considered and the Special Master does not make a determination as to the probability that a person's exposure in the aftermath of the September 11, 2001, terrorist attacks caused his or her cancer. Rather, the only requirement that a cancer or other health condition be linked to a person's exposure in the aftermath of the attacks is the WTCHP's determination that such exposure "is substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition." In addition, the WTCHP administrator did not consider the likelihood or probability that any given cancer would occur based on the hazards experienced in the aftermath of the September 11, 2001, attacks when cancers were added to list of WTC-related health conditions. This approach is different than the probability of causation model used for some cancer claims under Part B of the Energy Employees Occupational Illness Compensation Program Act (EEOICPA), in which the probability that a person's cancer was caused by occupational exposure to ionizing radiation must be 50% or greater to receive compensation. The VCF's presumptive eligibility model is also in contrast to the probability of causation model recommended by the National Research Council Board on Radiation Effects Research to be used to determine eligibility for benefits under the Radiation Exposure Compensation Act (RECA) for persons who lived near the Nevada Test Site during atmospheric atomic weapons testing. However, the presumptive eligibility model is used for other federal compensation programs, including disability compensation for veterans exposed to radiation and Agent Orange. Third, cancer claims have the potential to result in higher benefits than non-cancer claims. The cap on noneconomic loss awards for cancer claims is $250,000 versus $90,000 for non-cancer claims. Non-responder Claims Since it was reauthorized in 2015, the VCF has paid awards to an increasing number of non-responders. For claims paid prior to reauthorization (Group A claims), awards to non-respondersâincluding those who participated in cleaning or maintenance work near one of the crash sites or persons who lived in, worked in, attended school in, or were visiting lower Manhattan between September 11, 2001, and May 30, 2002âmade up 14% of total initial compensation awards. As of the end of 2018, the percentage of total awards made to non-responders had risen to 19% of total initial awards. Although the Special Master cites the increase in non-responder claims as one of the causes of the increase in VCF benefit costs and the recent projection that program costs will exceed available funding, limitations in the data reported by the VCF make analyzing this potential cost driver difficult. In her congressional testimony, the Special Master states "At the time of Reauthorization in December 2015, not quite 14% of all VCF awards were paid to non-responders. Today, just about 38% of claims filed are from this population." However, this is not a direct comparison, as the Special Master is comparing data on awards with data on claims filed, regardless of whether those claims result in awards without any additional information on the percentage of claims filed that may result in awards. In addition, the data reported by the VCF in its annual status reports are, according to the VCF, self-reported data. Finally, in each year's data on claimant categories, there are a number of cases listed as "no response." Of the 20,981 initial awards reported in the VCF's most recent status report, for example, 370 cases, or 2% of total awards, are listed in the "no response" category. Reductions of Future Awards Because award costs under both models are projected to exceed the $7.375 billion in available funding, in February 2019, the Special Master announced the following reductions in the amounts of all future VCF awards for all cases pending as of February 25, 2019: For all cases filed on or before February 1, 2019; the calculated award is to be reduced by 50%; For all cases that qualify for expedited processing because the claimant has a terminal illness or significant financial hardship, the calculated award is to be reduced by 50%; and For all cases filed after February 1, 2019, the calculated award is to be reduced by 70%. In all cases, the full amount of any offsets for collateral source payments are to continue to be taken. The award reductions are not to apply to appeals decisions initially issued before February 25, 2019. However, there will be scheduling adjustments for future appeals. For appeals of noneconomic loss decisions, the VCF is to schedule appeals hearings only for cases involving the most severe conditions, such as cancer, interstitial lung disease, and sarcoidosis. For all other noneconomic loss and economic-loss cases, the VCF is not to schedule appeals hearings until after December 18, 2020. These schedule changes are designed to ensure that there is sufficient funding to pay increased noneconomic loss determinations made on appeal for the most severe conditions. Potential VCF Reauthorization in the 116th Congress The VCF is scheduled to sunset on December 18, 2020. The 116 th Congress faces the question of whether to reauthorize the program or let it expire. On June 12, 2019, the House Committee on the Judiciary ordered that H.R. 1327 , the Never Forget the Heroes: Permanent Authorization of the September 11 th Victim Compensation Fund Act, be reported. Identical legislation, S. 546 , is pending committee action in the Senate. This reauthorization legislation includes the following major components: authorization for the VCF through FY2090, with a deadline of October 1, 2089, to file claims; removal of the cap on VCF funding; appropriations of "such sums as may be necessary" for the VCF for each fiscal year through FY2090; payment of the difference between the full award and the actual amount received for all persons who received reduced awards due to the Special Master's actions; authority for the Special Master to exceed the limit on noneconomic loss if it is determined that a person's pain and suffering is of such severity as to make the award "insufficiently compensatory"; and a cost of living adjustment, to be made every five years, to the maximum amount of annual income permitted to be considered by the Special Master when determining economic loss (currently $200,000). The reauthorization legislation would not make any changes to the basic eligibility for VCF awards. The legislation also would not specifically address the three drivers of increased VCF costs that the Special Master identified in her 2019 congressional testimony: (1) increases in death claims, (2) cancer claims, and (3) claims from non-responders. However, because this legislation would provide full funding for the VCF not subject to annual appropriations, any increases in program costs would not result in the VCF having insufficient funding to pay all benefits. The Congressional Budget Office has estimated that this legislation, if enacted, would result in $6.785 billion in direct spending on benefits and administration between FY2019 and FY2024 and $10.180 billion in spending between FY2019 and FY2029. House Passage of Reauthorization Legislation On July 12, 2019, the House of Representatives passed H.R. 1327 with the following amendments: the bill's title was changed to the "Never Forget the Heroes: James Zadroga, Ray Pfeifer, and Luis Alvarez Permanent Authorization of the September 11 th Victim Compensation Fund Act"; the appropriations of "such sums as may be necessary" for the VCF for each fiscal year through FY2090 is changed to include each fiscal year through FY2092, and the deadline for filing claims is changed from October 1, 2089, to October 1, 2090; the authority for the Special Master to exceed the limit on noneconomic loss is changed from requiring a determination that a person's pain and suffering is of such severity as to make the award "insufficiently compensatory" to a determination that the claim "presents special circumstances"; the original bill's requirement that the Special Master apply a cost-of-living adjustment to the maximum amount of annual income permitted to be considered when determining economic loss (currently $200,000) every five years was replaced with a provision requiring the Special Master to "periodically" adjust the limit "to account for inflation"; a provision was added permitting the Attorney General to appoint up to two Deputy Special Masters and providing that the Special Master and the deputies serve at the pleasure of the Attorney General; and a provision was added specifying that the legislation's budgetary effects shall not be entered on the statutory or Senate PAYGO scorecards, thus making the legislation exempt from PAYGO requirements that new legislative spending not increase the deficit. Appendix. September 11th Victim Compensation Fund Awards and Amounts


T he economic effects of the Coronavirus Disease 2019 (COVID-19) pandemic has led Congress to consider general fiscal stimulus in the form of tax cuts. Additional stimulus proposals are under consideration. This report discusses tax cuts proposed or enacted during the Great Recession, current enacted provisions, and potential ones, and their potential effectiveness. Tax Cuts During the Great Recession Several tax cuts were discussed during consideration of fiscal stimulus in response to the Great Recession, and the specific proposal (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 ). This stimulus as enacted included individual tax cuts directed at lower- and middle-income individuals and also included business tax cuts. An earlier fiscal stimulus ( P.L. 110 - 185 ) adopted in February 2008 included rebates and accelerated depreciation (bonus depreciation) for businesses. Some of these types of provisions were included in stimulus tax cut legislation in 2001-2003 and some of the debate centered on the effectiveness of alternatives. Among the tax cuts discussed in 2001 were tax rebates targeted toward lower-income individuals, a speed-up of tax rate reductions for higher-income individuals, a temporary sales tax holiday, a temporary payroll tax holiday, a temporary investment stimulus, corporate tax cuts (primarily repealing the alternative minimum tax), and dividend reductions. The 2001 tax cut included a rebate and the final version of the 2002 tax cut bill included a temporary investment stimulus. President Bush proposed accelerated rate cuts and dividend relief in his stimulus package for 2003. Proposals such as rebates were made by Democratic leaders. Although the economy recovered from the recession, issues of fiscal stimulus arose again in the 109 th Congress in the wake of Hurricane Katrina. The tax stimulus enacted in response included rebates for both low- and middle-income individuals and temporary bonus depreciation for businesses. In February of 2009, Congress passed a much larger package ( P.L. 111-5 ), which included spending and tax cuts. Among tax cuts the single largest provision was a two-year refundable earnings credit, the making-work-pay credit, with a dollar cap that was provided through a change in withholding rather than a rebate. Other tax components targeted lower-income individuals and businesses. The business provisions included a bonus depreciation extension and a carryback of net operating losses. The legislation also extended the Alternative Minimum Tax, which tends to go to higher-income individuals. In December of 2010, along with extending expiring tax cuts (which tended to benefit middle- and higher-income individuals) and unemployment benefits, P.L. 111-312 adopted a temporary two-percentage-point reduction in the payroll tax. As with the making-work-pay credit, its benefits were received in paychecks over time. Unlike the rebate or making-work-pay credit, the payroll tax reduction was not targeted to lower- and middle-income families. Many, but not all, tax cuts that were expiring after 2012 were extended permanently. The payroll tax reduction was not extended, and bonus depreciation was extended for a year. Tax Cuts In Response to the Coronavirus Congress has enacted four measures relating to the coronavirus. The first was an appropriations bill, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 ( P.L. 116-123 ), which provided $8.3 billion in emergency funding for federal agencies to respond to the coronavirus. This measure was followed by two relief measures that contained tax provisions. The Families First Coronavirus Response Act ( P.L. 116-127 ) provided refundable employer tax credits against payroll taxes to compensate for family and medical leave mandated in the bill. The estimated cost is $95 billion in revenue loss along with $10 billion in outlays because the credit is refundable. The bill also had spending provisions that increased the total cost to $191 billion. The Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136 ) had much larger revenue effects, including a refundable rebate, phased out at high-income levels, of $393 billion ($142 billion in revenue loss and $151 billion in outlays), $229 billion in business tax provisions (primarily increasing the use of net operating losses but including a tax credit for retaining employees costing $55 billion), and a number of minor individual tax provisions costing $11 billion. The bill also provided a delay in the payment of payroll taxes, increasing cash flow by $352 billion in the first two years, which were subsequently offset by later payments. The CARES Act also included another relief provision, the Paycheck Protection Program (PPP), which was structured as a loan for small business that could be forgiven if the business retained workers. The PPP was estimated to cost $377 billion, and it also contained a provision excluding the forgiven loan from being included in income (which the tax law otherwise would have counted as income). The exclusion may be negated by IRS guidance disallowing the deduction of expenses. Although structured as a loan forgiveness, such a program has a similar effect as the employee retention tax credit. The PPP can also be considered as an alternative to unemployment benefits because loan forgiveness is contingent on retaining and paying employees. The CARES Act also had direct spending, transfers, and other deferrals or loans that increased its overall cost to $1.7 trillion; the largest of these provisions in dollar terms was an expansion in unemployment benefits that cost $268 billion. The final bill, The Paycheck Protection Program and Health Care Enhancement Act ( P.L. 116-139 ) did not include tax provisions. It would add $321 billion to the PPP, $62 billion in additional small business loan authority, and $100 billion in health-related spending ($75 billion for health providers and $25 billion for COVID-19 testing). Additional stimulus legislation may be considered, which might include aid to state and local governments and additional funds for the PPP. The Effectiveness of Alternative Tax Cuts Effectiveness of a tax cut for short run stimulus purposes is judged by the extent to which the tax cut increases private demand (either consumption or investment spending). A tax cut that is saved will have no short term stimulative economic effect (or long term one, if the cut is financed by a deficit, since increased private saving would be offset by decreased government saving). Thus, in general, tax cuts received by individuals will not be successful as a short-run stimulus if they lead to additional saving, and tax cuts received by firms will not be successful unless they lead to spending on investment (or lead quickly to spending on consumption by shareholders). Because part of a tax cut is saved, no tax cut will be as stimulative as government spending. The following four propositions can generally be supported by economic theory and empirical evidence: (1) Individual income tax cuts directed at lower-income individuals will likely have a larger effect than cuts directed at higher income individuals, other things equal. This distributional effect suggests that the most effective tax cut would be a rebate which is not only a flat amount but specifically directed at lower-income individuals (who did not have tax liability). While payroll and sales taxes are more concentrated among lower-and moderate-income individuals than the normal income tax, they are largely proportional taxes and the bulk of them will still go to middle- and higher-income individuals. Most income tax cuts actually exclude the bottom 44% of the population who do not pay income tax unless they are refundable (as with the February 2008 cut). Similarly, payroll tax cuts exclude 16% of the population who do not pay payroll taxes. Tax reductions enacted in 2001 were concentrated among the upper part of the income distribution as are dividend and capital gains tax reduction. A flat dollar reduction, if refundable, would be more concentrated on lower and middle incomes than tax cuts that reduce rates or allow deductions. (2) There is weak empirical evidence and even weaker theoretical basis that a lump sum tax cut is less likely to be spent than one received in small increments (e.g. through withholding). This effect could make a rebate less effective than alternative individual tax cuts if it were not for the distributional evidence. However, the distributional effect is more solidly grounded in economic theory, and is based on more concrete and extensive empirical evidence. (3) Certain types of temporary tax cuts are likely to be more effective than permanent ones while, in other cases, they are less effective. The most important illustration of this effect is a temporary investment subsidy, but it could also apply to a temporary sales tax holiday or any design where spending is required to obtain the subsidy and is for a limited duration. Otherwise, temporary cuts are likely to be less effective than permanent ones. (4) Corporate tax cuts that do not make new investments more profitable are unlikely to have much effect on investment or consumer spending, especially when the economy is in a recession, and the effect of corporate rate cuts is likely small. The remainder of this report provides a summary of the evidence and economic reasoning supporting these propositions, followed by a brief discussion of current policies. Before discussing these propositions, however, it is important to note the differences between a model where individuals consume based primarily on current income compared to those where individuals consume primarily out of permanent (lifetime) income, because much of the empirical analysis focuses on this issue. Optimal lifetime consumption models imply that consumption is based on permanent income and suggest very little will be spent out of transitory income (because it has little effect on permanent income). Thus, a temporary tax cut, which is the normal mode of a fiscal stimulus, would be ineffective. Extensive empirical investigation has rejected this permanent income model in its pure form and suggests that consumption responds to permanent and current income. Proposition 1: A tax cut directed at lower - income individuals should have a larger effect on spending than one directed at higher - income individuals. Data show that the fraction of income saved rises as income rises. One study found that the savings rate for the top 1% was at least 300 times the average. Arraying families by wealth, another study found that the top 1% saved 37%, the next 9% saved 15%, and the bottom 90% saved 0%. This pattern is far too pronounced to be accounted for by business cycle reasons and cannot be explained by life-cycle patterns and thus implies a departure from the permanent income model of consumption. A saving rate that rises across incomes could be expected even in a permanent income model if each individual has the same permanent saving rate. At any time, some individuals may be earning lower than average amounts and others higher than average amounts. Thus the transitory income would understate permanent income in some cases and overstate it in others. Since more individuals with unusually low incomes would fall into the lower groups (and more with higher incomes into the high groups), some pattern of rising saving rates is expected. But empirically the effect is far too large to be explained by this phenomenon (which can be examined by looking at variations over time for an individual). A rising saving share with income could also arise from life-cycle reasons. Typically income is low in the early years of life, rises during the working career and falls at retirement. If individuals want consumption to be smoother than income, they will save less when they are young and old and have lower incomes, and save more in the middle when they have higher incomes. However, when examining the data, age does very little to explain saving behavior and the patterns of rising saving rates with income persist within age groups. Aside from these empirical observations, there are theoretical reasons to expect that lower-income individuals are likely to spend more of an additional dollar of income than do higher-income individuals, especially in the case of a temporary tax cut, which is the kind of cut normally associated with fiscal stimulus. They may have a lower-lifetime saving rate because social welfare programs are likely to have a higher wage replacement rate during instances of bad luck (e.g., disability) or old age and because they are less likely to wish to leave bequests. Indeed, for some means-tested programs, assets can disqualify an individual from coverage. They may have less information with which to optimize over time and, if they save at all, simply have a target amount (at least in the short run), so that additional income is spent (including temporary income increases). Finally, they are more likely to be subject to liquidity constraints; that is, to prefer to spend more than their earnings and not be able to because they cannot borrow and have no assets. Indeed, permanent income theories suggest that temporary tax cuts for non-liquidity constrained individuals may have virtually no effect, while tax cuts for liquidity constrained individuals will be largely spent. Proposition 2. A tax cut provided through a lump sum payment may be less likely to be spent than one which shows up in withholding, but the evidence is weak. This differential effect (which would not occur in a permanent income model) was pointed out by the Congressional Budget Office (CBO) in its studies of the effectiveness of alternative tax cuts. CBO referred to a comparison of results from two studies that examined the effect of income tax refunds, and of expected rate cuts from pre-announced tax cuts of the early 1980s. Both studies rejected the permanent income model (suggesting some spending effects from a transitory tax cut), but larger effects were found for the rate reductions. There are, however, two reservations about comparing these two events to gain insight into the effects of lump-sum tax cuts versus tax cuts reflected in paychecks over time. First, to the extent that individuals use over-withholding as a means of forcing themselves to save, one would not expect spending to rise when the refund is received, even though it might rise when an unplanned rebate is received. Thus, finding a smaller amount of spending out of a refund than out of tax cuts reflected in paychecks may not be very meaningful. Secondly, the model assumes that individuals were certain that the later phases of the Reagan tax cuts would be received. If there was some uncertainty, however, the fact that spending did not increase until the tax cut was actually received may partially reflect not the failure of the permanent income model, but the lack of certainty about receipt of the cut. If a differential does indeed exist, this effect could make the payroll tax cut (and sales tax holidays) more effective than a rebate. However, these "lump sum" effects would have to be offset by the distributional effects discussed in proposition I and supported by considerable empirical evidence. For that reason, it would be difficult to conclude that a payroll tax holiday would be more effective than a rebate directed at low-income individuals. In addition, some evidence on the 2001 and 2008 tax rebates suggested that a large fraction of that rebate was spent. Evidence on the payroll tax cut in 2011 found a smaller share of that tax cut spent than the rebate, but that difference may reflect methodological and distributional differences or differences in economic conditions. Proposition 3. Certain types of temporary tax cuts may be more effective than permanentÂ ones. In general, the permanent income modeling of consumption, even when it does not hold in a pure form, suggests that temporary tax cuts will be less effective than permanent ones, presenting something of a dilemma because tax cuts motivated for fiscal policy reasons need to be temporary (if they are not to hamper long-term growth). However, temporary tax cuts that depend on spending (rather than receiving income) are likely to be more effective in the short run than permanent ones. During a period of slack employment, a payroll or individual income tax cut is simply a temporary windfall which can be spent at any time without any further consequence for the size of the tax cut. But if the tax benefit is triggered by spending, a temporary tax cut will be more effective (just as a temporary sale tends to induce a large response). The most common example is the investment tax credit or a similar subsidy, such as temporary partial expensing of investment, but the same would be true of a temporary sales tax holiday. Although expensing of equipment is no longer an option (as 100% is currently allowed following the 2017 tax cut), investment credits would still be a possible investment incentive. Note that while this feature may make a temporary tax cut more effective than a permanent one, it does not mean that the stimulus is more effective than other alternatives when all factors are considered. Most evidence suggests that investment subsidies have a small effect on investment and that the temporary investment subsidy enacted in 2006 was not very effective. And, it may be particularly difficult to induce investment (even with a temporary subsidy) when excess capacity exists. While firms benefit from the temporary subsidy, they lose the benefit of delaying cash outlays. If investment is insensitive to these cost effects, a subsidy directed at increasing consumption may be more effective even if the latter is not the type where the temporary nature provides a benefit. In the case of the sales tax holiday versus other individual cuts, there may be a substantial implementation lag in arranging the sales tax holiday since sales taxes are imposed by the states, and fiscal stimulus may be applied at the wrong time. Moreover, the anticipation of the holiday should be contractionary. That is, a pre-announced future temporary spending subsidy is initially contractionary. Proposition 4. Corporate tax cuts that do not make new investments more profitable would not have much effect; corporate rate cuts are less effective than investment subsidies. One proposal considered in the past was a repeal of the corporate alternative minimum tax with a refund of existing credits. Such a change does not necessarily make new investment more profitable; indeed, it is possible that new investment may be subject to higher tax burdens under the regular rates than under the lower rates in the AMT. The corporate AMT was permanently repealed after the 2017 tax cut, but other measures of a similar nature might be considered. An extension of net operating loss (NOL) carrybacks was proposed in the 2009 stimulus package and would likely not make investments more profitable although a temporary restoration of NOL carrybacks (which were eliminated in the 2017 tax cut), as well as additional measures to allow benefits of losses was included in proposals to aid businesses severely affected by COVID-19. Economic theory suggests that the investment decision should be driven by its expected profitability. A tax decrease not associated with that profitability should have no effect on investment. Rather, a tax decrease (which increases a firm's cash flow) is more likely to be spent on reducing debt, or paying out dividends. Both choices would not expand aggregate demand. Similarly, a corporate rate reduction, which largely benefits existing capital, would have modest effect compared to a stimulus directed at new investment. There is a potential constraint, however: if the firm does not have access to outside capital or finds outside capital excessively costly, cash flow might have an effect on investment. This effect would be likely, however, to be focused on small firms. There is some empirical evidence of a positive relationship between firm investment and cash flow. However, interpreting this evidence with respect to the effectiveness of a corporate cash flow as a stimulus to investment spending during an economic contraction is hampered by two important reservations. First, in most cases, cash flow is correlated with the productivity of investment and investment growth, and investment may be responding not to cash flow but to investment outlook. Secondly, even if there is some independent effect of cash flow in normal circumstances, then whether an increase in cash flow would induce a firm to make new investments during periods of excess capacity is doubtful. In any case, a choice that is more focused on investment (such as an investment subsidy) would have a more pronounced effect than one that is not. During the period of tight credit now being experienced a net operating loss carryback may have more effect because distressed firms are finding it more difficult to borrow. General corporate rate cuts are less likely to be effective than investment subsidies because they have a smaller "bang-for-the-buck" because much of their cost is a windfall that only affects cash flow and not the return to new investment. Since even temporary investment subsidies do not appear to have worked effectively, a corporate rate cut or other provision that primarily affects cash flow would be expected to have a small effect. Multipliers and the Effectiveness of Stimulus Proposals This evidence on the effectiveness of alternative stimulus methods is reflected in multipliers. A multiplier indicates how much additional output is produced by a given amount of revenue loss or spending increases. For example, a multiplier of 0.5 estimates that a dollar of revenue loss produces $0.50 of additional output, whereas a multiplier of 1.5 indicates that a dollar of revenue loss will produce $1.50 of additional output. Multipliers differ among policies and also depend on how close the economy is to full employment. During the Great Recession, multipliers for a refundable rebate (constituting most of the individual tax relief in the CARES Act) were estimated in a range of 0.4 to 1.22 by the Congressional Budget Office (CBO) and at 1.22 by a private forecaster (Moody's). Net operating loss benefits (constituting most of the business provisions in the CARES Act) were estimated at 0 to 0.4 by CBO and 0.25 by Moody's. Non-tax options, such as direct transfers to individuals and aid to state and local governments had multipliers similar to, or larger than, refundable rebates. CBO estimated multipliers of between 0.4 and 2.1 for direct transfers (such as unemployment) whereas Moody's estimated multipliers between 1.55 and 1.71. Aid to state and local governments has multipliers estimated at 0.4 to 1.8 by CBO and 1.34 by Moody's. The larger multipliers for these options reflected the greater share of the benefit spent. It is possible that standard multipliers do not apply in this recession when consumers face supply constraints that inhibit spending due to the closure of businesses. By contrast, employment has declined very rapidly since March. Some families receiving tax rebates include workers who have lost their jobs or otherwise seen their incomes diminish due to COVID-19. Although only a subset of the population, their rate of spending may be higher than the standard multiplier would suggest. Penn-Wharton Budget Model researchers estimate that the effects of the CARES Act implies a multiplier of 0.4 for the rebates and 0.2 for business provisions. This study assigned similar multipliers of around 0.4 to the PPP and most other provisions but estimated higher multipliers for spending on health and disaster (0.8) and aid to state and local governments (0.7). Even if the CARES Act and other measures enacted to address the effects of the coronavirus are not very effective as stimulus measures, the measures could also be thought of as relief measures more than stimulus measures. For example, if individuals and businesses use payments to pay debt, these payments do not increase spending, but they may help individuals to avoid credit problems and businesses to survive. They may also make it easier for individual and businesses to comply with social distancing measures to help prevent the spread of the coronavirus.