July 29, 2022
What to expect in Washington (July 29)
Senator Joe Manchin (D-WV) is expressing confidence in the Inflation Reduction Act (IRA) unveiled July 27 in a surprise announcement with Senate Majority Leader Chuck Schumer (D-NY) and President Biden. "I'm excited about this bill that myself and my staff put together. This is our bill," he said July 28. The bill would fund climate and energy provisions and a three-year extension of enhanced Affordable Care Act (ACA) subsidies with a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with profits over $1 billion, increased IRS enforcement funding, a carried interest holding period for capital gains treatment of five years (up from three) and allow Medicare to negotiate prescription drug prices. The package also achieves $300 billion in deficit reduction, which, combined with its inflation-busting focus, helped meet the objectives Manchin has long espoused. Both Senator Manchin and President Biden said the climate and health policies were the right combination to fight inflation.
CAMT — Senator Manchin said on WV radio July 28 that he insisted the bill be scrubbed down to revenue sources that cannot be argued are inflationary. "Tell me why a corporation that is $1 billion of book value — that means the largest corporations in America — aren't paying a minimum of 15% taxes?" he asked, adding that some very large corporations could "take advantage of the tax code and pay nothing. I didn't think that was fair and I think most Americans don't think that's fair." He said he welcomes attacks on him for backing the 15% corporate minimum tax: "I'm anxious to get hit hard on that one … If the minimum tax — corporate tax that people are paying in America is 21%, why is anybody or any corporation upset by not paying 15? So yes, I'm anxious to find out who they are. Come forward."
Senate Finance Committee Republicans posted a Joint Committee on Taxation analysis they said shows the CAMT "would overwhelmingly hit U.S. manufacturers at a time when they can least afford it."
Carried interest — A major question mark in the wake of the surprise Manchin-Schumer-Biden announcement is Senator Kyrsten Sinema (D-AZ), who was said to be unaware of the burgeoning deal and whose office said she would need to review details before opining. She has previously opposed the carried interest tax increase included in the bill. The Hill reported Senator Manchin as saying July 28 he was "not prepared to lose" the provision and, "I think the people that have benefited from carried interest for years and years and years knew that they had a good run, it was long overdue to get rid of it and you can't justify it anymore." Roll Call said he told reporters, "The only thing I was adamant about is the carried interest."
SALT — The IRA doesn't include relief from the $10,000 state and local tax deduction cap, and while some members have long insisted it be in any reconciliation bill, the position may be softening. Vox reported July 29, "On Thursday, some members who previously pushed for the SALT deduction, including Reps. Tom Suozzi and Tom Malinowski, signaled that they would still support the legislation despite this omission."
Process — The revised bill is now before the Senate Parliamentarian because Congress is using the budget reconciliation process, which under specific parameters allows passage in the Senate with the votes of 50 Democrats plus the VP. The aim is to bring it up in the Senate next week culminating with the vote-a-rama rapid-fire series of amendment votes backed up against the start of the August recess. All 50 Democratic senators must be present in a time when positive COVID tests are posing attendance challenges.
Roll Call reported: "Schumer said at an afternoon press conference that he's hoping the Senate parliamentarian review and 'Byrd bath' process, in which the bill is vetted for compliance with the reconciliation rules, will be complete 'in the coming days' and the Senate can vote on the bill next week. But, he acknowledged, 'It's going to be hard to do that because it's a shortened timeline with a large bill.'" Punchbowl reported July 28, "Schumer hopes to consider this package on the floor next week, but we are a bit skeptical on their timing given how long it takes the parliamentarian to complete the Byrd Rule process. So if the Senate finishes work on this bill next week, we'd be surprised." Speaker Nancy Pelosi (D-CA) announced support for the proposal and the expectation is the House, which is scheduled to leave for the August recess at the end of the week, would reconvene to approve a Senate-passed bill. Punchbowl said, "The House will probably have to come back in the second or third week of August for their opportunity."
Climate — Climate provisions were welcomed by members who wanted to act on the issue, and whose hopes previously appeared dashed as Senator Manchin was seen as walking away from a broader bill two weeks ago amid inflation concerns. Senator Schumer tweeted July 28, "The Inflation Reduction Act of 2022 will be the largest package on climate change ever passed by Congress. Period." The Inflation Reduction Act would extend the Section 45(d) production tax credit for electricity from renewable resources, Section 48 investment tax credit, and biodiesel and alternative fuels credits through 2024, then transition to technology-neutral emissions-based credits. It includes extensions of the 45Q carbon oxide sequestration credit, 48C advanced energy property credit, and credits for energy efficient homes, plus new credits for nuclear power, hydrogen, and sustainable aviation fuel. EV credits would be offered for new, used, and commercial vehicles with income and MSRP limitations.
Competitiveness — The House July 28 passed, by a vote of 243-187, the CHIPS and Science Act (H.R. 4346), a $280 billion bill that aims to build a domestic US supply chain for semiconductor chips in the face of foreign competition, while also spending billions on scientific and technological research to keep U.S. industries competitive. Twenty-four Republicans joined all but one Democrat in voting for the measure. Rep. Sara Jacobs (D-CA), whose family is involved in the semiconductor industry, voted "present" to prevent a conflict of interest. On July 27, the Senate had passed the bill by a vote of 64-33, with 17 Republicans voting in support. The bill now heads to President Biden for his signature.
The CHIPS and Science Act — CHIPS stands for Creating Helpful Incentives to Produce Semiconductors — includes $52.7 billion in funding for semiconductor manufacturing subsidies, grants and loans and an "advanced manufacturing investment credit" of 25% for investments in semiconductor manufacturing and includes incentives for the manufacturing of semiconductors, as well as for manufacturing of specialized tooling equipment required in the semiconductor manufacturing process, with taxpayers allowed to treat the credit as a payment against tax ("direct pay").
The bill authorizes $102 billion over five years for the National Science Foundation (NSF), the Commerce Department and the National Institutes of Standards and Technology to increase investments in R&D. Within that, the bill authorizes $20 billion for a technology, innovation and partnerships directorate at the NSF, including a series of new university technology centers.
Today, July 29 (12:00 p.m.), is the EY Webcast, "Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments." Register.