June 17, 2022
What to expect in Washington (June 17)
President Biden is projecting confidence that Congress can pass a reconciliation bill addressing prescription drug pricing and clean energy tax credits, and there have been meetings this week suggesting movement toward a bill. "I believe I have the votes to do a number of things. One, prescription drugs. Reduce utility bills … I think we'll be able to get the ability to have a tax incentive for winterization," the President said in a June 16 AP interview. He also thinks "we're going to be able to have a fair tax system" and he will have the votes "to have a minimum tax on corporations of 15%" and "tax increases on [the] super wealthy."
Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) met with President Biden June 15 to discuss, according to the White House, "plans for fighting the global problem of inflation that is affecting every major economy, such as bringing down prescription drug and energy costs, and adding to the historic deficit reduction we have accomplished."
Asked during a news conference June 16 about the appearance "like you were meeting on reconciliation," Speaker Pelosi said, "there are certain concerns that we have about subsidies in the healthcare bill and the rest, which may or may not be in the negotiations, but we shall see. But whatever it is — everything that was in the reconciliation bill is great. So, if we just have some of it, that'll be very good and we look forward to that, but I just don't know. As I think you know from the dynamic around here, Senate negotiations: very closely held, as it is on the guns [legislation] right now, as they write the legislation to match the priorities that they put forth. We hope that the priorities will survive the legislative writing of the bill."
Senator Schumer also reportedly met with Senator Joe Manchin (D-WV) this week and a Wall Street Journal reporter tweeted about purported Democratic meetings with the Senate Parliamentarian over a possible reconciliation bill. So-called "Byrd bath" tests of reconciliation compliance with the Parliamentarian were being held in December, after House passage of the BBBA and before talks soured after a White House statement cited Senator Manchin for delaying the bill. The bill's scope has narrowed significantly since then.
Inflation — Inflation and what Democrats are doing to address it seem to be both playing a part in reigniting reconciliation talks and threatening to be an impediment, with Republicans continuing to suggest Democratic spending, particularly the American Rescue Plan Act, was a cause of current inflation.
House Ways & Means Committee Ranking Member Kevin Brady (R-TX) said on Fox Business News June 16, "So we have four or five now countries around the world lowering their business rates to fight inflation. We have a White House and Senate Democrats who want to drive tax hikes up, those are going to land on consumers, on workers … The $1 trillion-$1.3 trillion in tax hikes [Democrats] are looking at land on main street businesses, on American-made energy … So, they're going to make inflation worse at every turn. And it is not — I'm just telling you — [reconciliation] is not dead yet over there [in the Senate]."
For his part, President Biden is increasingly incredulous about the role of Democratic-authored spending in the inflation crisis. In the AP interview, he said of the 2021 ARPA COVID relief bill, "the idea that it caused inflation is bizarre." The President also said, "If it's my fault, why is it the case in every other major industrial country in the world that inflation is higher?"
COVID funding — Partisan differences are making any additional COVID-related funding, under discussion since the Omnibus funding bill earlier this year, appear unlikely. "A congressional deal for billions of dollars in additional coronavirus funding appeared all but dead Thursday after Senate Republicans accused the White House of being dishonest about the nation's pandemic funding needs," the Washington Post reported June 16. "Sen. Mitt Romney (R-Utah), who brought the Senate close to a bipartisan $10 billion covid funding deal in March, said the Biden administration had provided 'patently false' information about its inability to buy additional vaccines, treatments and supplies."
Competitiveness — In her news conference, Speaker Pelosi said, in the negotiations on the USICA-COMPETES competitiveness bill, "we are narrowing it down to where we have our agreement, that we can just proceed … and now just narrowing further those areas where further negotiation is necessary. And we put out the word that we wanted to have, from our chairs, what they see as the remaining issues to be negotiated."
Punchbowl reported June 16 that Democrats are aiming to streamline the scope of the conference to reach agreement before the July 4 break and complete a bill before the August recess, out of fear that, if not by then, it won't get done before the midterms. The talks "seem to be increasingly focused on billions of dollars in funding to boost chip manufacturing, the National Science Foundation and research security … [and] add provisions dealing with bolstering supply chains, which … the Senate bill was silent on," the report said.
There had already been the expectation that an agreement would follow the Senate bill to keep requisite Republican support, and now the Democratic priorities added to the House bill on trade, climate, and other issues appear likely to be dropped out of political necessity. The Senate will need the votes of 10 Republicans, and Bloomberg has reported the conference could be hampered by Republicans reluctant to give Democrats a win before the midterm elections and wary of "soft on China" perceptions.
The June 15 Senate Finance trade and competitiveness subcommittee supply chain hearing featured plenty of recognition of the problems facing US supply chains — 'just-in-time' manufacturing that prioritizes demand over surplus and relying on the manufacturing of crucial goods offshore, often in potentially adversarial nations — but no overwhelming consensus on solutions, besides hope for the USICA-COMPETES bill. An Alliance for American Manufacturing witness emphasized the need for the bill's CHIPS funding and supply chain provisions, as well as reducing dependence on adversaries for key goods like Lithium-ion batteries.
Full Committee Chairman Ron Wyden (D-OR) advocated for his Clean Energy for America bill, Senator Sherrod Brown (D-OH) promoted Level the Playing Field 2.0 Act, to strengthen US trade remedy laws, and Senator John Thune (R-SD) touted his Ocean Shipping Reform Act, which the President signed June 16 and which members say will lower costs for Americans by reining in shipping fees.
Senator John Cornyn (R-TX), a USICA-COMPETES conferee, said at the hearing, "Now, we need to come together — labor, business, government — as one nation and put aside past disagreements to find the right balance in preserving our critical supply chains, while maintaining strong trade relations. This includes providing incentives, in some cases, like the CHIPS for America Act … to bring our semiconductor production back home to America."
FTC regulations — In a June 16 letter to Treasury Secretary Janet Yellen, House Ways & Means Committee Republicans expressed concern about the short period of time between issuance of the foreign tax credit (FTC) regulations and their effective date and "Treasury's delay in providing necessary clarifying guidance," and suggested extending the implementation window for the entire final regulations package until January 1, 2023. It follows an earlier bipartisan letter and members raising the issue during the Yellen budget hearings.
Global tax — Poland dropped its opposition and supported the Pillar 2 minimum tax directive at today's European Union Economic and Financial Affairs Council (ECOFIN) meeting, but Hungary vetoed over the economic situation in Europe, with an official saying, "Interest rates and inflation are rapidly increasing, supply chains are also disrupted," Politico reported.
Interest rates - The Federal Reserve Board's rate-setting committee surprised markets and Fed-watchers on Wednesday (June 15) by raising its benchmark interest rates by three-quarters of a percentage point, the central bank's most aggressive hike since 1994. At a news conference afterward, Fed Chairman Jerome Powell said, "Clearly, today's 75-basis-point increase is an unusually large one, and I do not expect moves of this size to be common," saying next month's increase would be 50 or 75 basis points and decisions on rates would be made "meeting by meeting." "We want to see progress. Inflation can't go down until it flattens out," Powell said. "If we don't see progress … that could cause us to react. Soon enough, we will be seeing some progress."
Fed officials also significantly cut their outlook for 2022 economic growth, predicting only a 1.7% gain in GDP, a sharp drop from their 2.8% forecast in March. Some economists said the Fed's aggressive moves will complicate its plan for a "soft landing," in which inflation slows to 2% without derailing the economy, and raised the risk of a recession. At the press conference, Powell said "there's a path for us to get" to a soft landing, but "it's not getting easier. It's getting more challenging … We're not trying to induce a recession. Let's be clear about that." The U.S. stock markets initially rallied after the news on Wednesday, but when central banks in Britain and Switzerland followed suit by raising their own benchmark rates on Thursday, stocks resumed their slide.
Today, June 17 (12 p.m.), is the EY Webcast, "Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments." Register.