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The Senate has been occupied with the slimmed-down, semiconductor chips-focused competitiveness bill and hasn't begun to take up the anticipated pared-back reconciliation bill that lowers the cost of prescription drugs under Medicare and extends expanded Affordable Care Act subsidies, though the expectation is that Congress will act before members leave for the August recess (which is July 29 for the House, August 5 for the Senate). Punchbowl reported this morning, "The legislation is still being vetted by the Senate parliamentarian, and there's not even draft text available yet. Once it's out and ready for floor action, it will take at least four or five days to get through the Senate. We expect this to be the last thing the Senate does before leaving town for the recess." The House, of course, could be brought back to vote beyond July 29.

Climate/energy — There continue to be rumblings about a follow-on climate-based bill using a fresh set of reconciliation instructions, though it is widely recognized that processing an FY2023 budget that could pave the way for tax increases and that would likely require members to take votes on tax and other controversial issues during the open-ended vote-a-rama would be politically challenging for Democrats. As broader reconciliation talks faltered, President Biden said he would look to executive action on climate change, and he has been under pressure from some Democrats to declare a national climate emergency, which the New York Times said, "would give him the ability to halt new federal oil drilling and ramp up wind, solar and other clean energy projects."

Returning from delivering a climate speech outlining more modest steps July 20 — and before testing positive for COVID the following day — President Biden said he has not declared such a national climate emergency "because I'm running into traps on the totality of the authority I have. I will make that decision soon." Asked whether doing so would allow him to do more on the issue, he said, "Well, I think I can do more, unless the Congress acts. In the meantime, I can do more, because not enough is being done now. And so, there's still discussions going on about whether or not there will be some action on my climate plan. And that's — I'm told that's in play. And we'll see." The President refused to comment on any potential deal with Senator Manchin, and it's unclear if he was referring to the potential for a follow-on reconciliation bill, after Congress addresses the drug negotiation-premium tax credits package.

Meanwhile, there is no shortage of emerging energy proposals in Congress, even as the ability to act on a major package remains stalled. Senators Richard Burr (R-NC) and Mark Warner (D-VA) July 20 introduced the Renewable Natural Gas Incentive Act (S.4568), to provide a tax credit for heavy-duty vehicles that use renewable natural gas.

Competitiveness — The Senate is heading toward final passage next week of the stripped-down competitiveness bill, the Chips Act for America, anchored by more than $52 billion in grants and incentives for companies building semiconductor fabrication plants in the US, and a multi-year 25% investment tax credit for semiconductor plants (estimated to cost $24 billion), and including "science and commerce" provisions drawn from the Senate-passed USICA bill. Upon reconvening at 3 p.m. on Monday, July 25, the Senate will vote at 5:30 p.m. on the motion to invoke cloture on the motion to concur in the House amendment, to the Senate amendment, to H.R. 4346, the legislative vehicle for the CHIPS Act, with further amendment (Senate Amendment 5135). Final passage could come Tuesday or Wednesday.

In a July 20 letter, House Speaker Nancy Pelosi (D-CA) continued prepping her members to accept what the Senate can pass and highlighting the compromise legislation's "numerous victories in science and technology for American consumers and workers, including: strengthening research and development through the National Science Foundation" and "advancing regional technology hubs to ensure that communities across the country can participate in research and development." She said, "The Chips Act for America is a major victory for American families and the American economy. As the Senate undergoes its legislative process, we are optimistic that the House will be able to take this bill up as early as next week."

A Wall Street Journal editorial critical of the bill said: "Republicans on the House Ways and Means Committee point out that for the same money Congress could double the research and development tax credit for all companies through 2025. It could also throw in 100% expensing for companies and allow immediate R&D deductions through 2025. But that would mean the politicians aren't picking favorites, which is what they prefer to do."

Global tax — The UK July 20 released draft Pillar Two legislation for an IIR (effective for accounting periods commencing on or after December 31, 2023).

An EY Alert, "UK Government releases documents for consultation prior to Finance Bill 2022/23," is available here.

Bloomberg Tax reported a senior official saying July 21 that the OECD will hold an in-person public consultation on new Pillar 1 international tax rules. "We will do a public consultation in person on Pillar One, in September — the exact date we will advise you on soon," Achim Pross, head of the International Cooperation and Tax Administration Division of the OECD's Center for Tax Policy and Administration, said.

Housing — The July 20 Senate Finance hearing, "The Role of Tax Incentives in Affordable Housing," primarily focused on the many housing-related bills put forward by Committee members, including:

• Chairman Ron Wyden's (D-OR) Decent, Affordable and Safe Housing for All Act (S. 2820) to create a credit for more affordable rental units, boost the Low-Income Housing Tax Credit (LIHTC), and encourage the construction of more middle-income housing; and
• Senator Maria Cantwell's (D-WA) Affordable Housing Credit Improvement Act (S. 1136), cosponsored by Chairman Wyden and Senators Todd Young (R-IN) and Rob Portman (R-OH), that would revise provisions of LIHTC, rename it the Affordable Housing Credit, and increase the per capita dollar amount of the credit and its minimum ceiling amount.

It's unclear how any such proposals could move in Congress soon given that LIHTC and other housing proposals in the House-passed BBBA were not included in the latest round of reconciliation negotiations which, as mentioned, have stalled.

Unlike last week's House Ways & Means Committee housing hearing held July 13 as the latest 9.1% year-over-year inflation increase was announced, the Finance hearing wasn't focused on past and future causes of inflation, though Ranking Member Mike Crapo (R-ID) addressed the issue in an opener: "Foremost in the current economy is the need to reduce inflation. Unfortunately, it has been allowed to run rampant, and necessary Federal Reserve actions will raise the cost of housing. Builders are also feeling inflation's effect through more expensive building materials."

The OECD July 21 released a report, "Housing Taxation in OECD Countries," which provides an assessment of the wide range of taxes governments levy on residential property.

Education — Ways and Means Committee Member Greg Murphy, M.D. (R-NC) and others July 20 introduced the Protecting Endowments from Our Adversaries Act (H.R. 8447) to impose an excise tax on certain investments of private colleges and universities. The bill is intended to pressure large university endowments to purge their investment portfolios of entities deemed a threat to U.S. national security.

Trade — The Finance Committee has set a Hearing to Consider the Nomination of Douglas J. McKalip to be Chief Agricultural Negotiator, Office of the United States Trade Representative, with the Rank of Ambassador for July 28 (10:15 a.m.).

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