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November 30, 2022

What to expect in Washington (November 30)

Treasury and the IRS November 29 announced significant initial guidance on the Inflation Reduction Act's (IRA) wage and apprenticeship requirements to qualify for the law's $270 billion in clean energy and climate tax incentives. Notice 2022-61 starts the clock for the applicability of the requirements for construction beginning 60 days or more after Treasury guidance, meaning they will apply to qualifying facilities, projects, property, or equipment for which construction begins on or after January 29, 2023. A Treasury press release said the prevailing wage and apprenticeship requirements apply to credits including the:

  • Advanced Energy Project Credit
  • Alternative Fuel Refueling Property Credit
  • Credit for Carbon Oxide Sequestration
  • Clean Fuel Production Credit
  • Credit for Production of Clean Hydrogen
  • Energy Efficient Commercial Buildings Deduction
  • Renewable Energy Production Tax Credit
  • Renewable Energy Property Investment Tax Credit

The wage requirements also apply to the New Energy Efficient Home Credit and Zero-Emission Nuclear Power Production Credit.

Meanwhile, a story in the November 29 Wall Street Journal said Republicans in control of the House in 2023 "are expected to support measures aimed at boosting domestic oil-and-gas production;" and, while not "expected to pass sweeping energy legislation" with a Democratic-led Senate, "they could make President Biden's rollout of green-energy policies more difficult, including by using committee chairs to subject federal agencies to scrutiny on energy policy." The story said, "The Biden administration's rollout of green-energy programs could slow as Republicans take over committee chairmanships and step up scrutiny of programs."

Government funding — The so-called "Big Four" congressional leaders — House Speaker Nancy Pelosi (D-CA), Republican Leader Kevin McCarthy (R-CA), Senate Majority Leader Chuck Schumer (D-NY), and Republican Leader Mitch McConnell (R-KY) — headed to the White House November 29 to discuss the lame-duck session amid stalled negotiations on an omnibus government funding bill with a December 16 deadline looming. Senator Schumer said the leaders agreed an omnibus is preferable to a continuing resolution (CR). He said there was "goodwill in the room and a desire to come together." Following the regular Tuesday party policy luncheons, Armed Services Committee Chairman Jack Reed (D-RI) expressed concern that a CR, rather than an omnibus, would delay necessary military investments.

Democrats and Republicans have historically disagreed over defense and non-defense discretionary spending in government funding bills. That issue remains, with an agreement on topline levels elusive. Speaker Pelosi — the only one of the four not intending to be in leadership in the next Congress — said "if we don't have an option, we may have to have a year-long C.R. We don't prefer that. We don't think it's a good idea, but nonetheless, we have to have a bipartisan agreement as to what the top line is — defense, domestic, discretionary, non-defense spending." (House Democratic leadership elections are today.)

Rep. McCarthy — who has been nominated as the next Speaker by Republicans but faces a potentially contentious full House vote for the post January 3, with conservatives' support uncertain — suggested that a short-term CR into early 2023 is a fallback option, saying, "if we can't get common sense in appropriation bills, then, yes, we'll support a CR and fix this come January."

Senator McConnell said following the regular Tuesday party policy luncheons, "If you were interested in reducing spending, probably the best way to do that would be a one-year CR. If, on the other hand, you're concerned about the defense of our country and the funding of the Ukraine war, you are somewhat hesitant to go in that direction. I have members in a variety of different positions on this." Politico this morning explained that Senator McConnell "is insisting that defense spending receive a bigger boost than nondefense spending."

Punchbowl reported November 29 that an omnibus would require "resolving dozens of policy disputes" and "take three to four weeks," bumping up "against the Christmas holiday and maybe even the new year." The report suggested that the impending December 6 Georgia Senate run-off election could be slowing down the process. "The Georgia runoff, leadership challenges and big changes in the House and Senate have distracted all relevant parties," the report said.

The approach taken to extend government funding — omnibus, long-term CR, short-term CR — could well influence what items can be appended to such a measure, including those on tax, health, and retirement.

Congress — President Biden November 28 called on Congress to adopt an agreement between railroad workers and operators "to avert a potentially crippling national rail shutdown." Speaker Pelosi said the House plans to vote today on measures to adopt the agreement and to add seven days of paid sick leave for railroaders. Rep. McCarthy said, "I think it will pass."

Leader Schumer said following the White House meeting, "Leader McConnell and I agreed we'd try to get it done ASAP. And while the actual deadline of the railroads being shut down is the 8th, our real deadline is sooner than that because as the speaker mentioned … many of the suppliers, if they believe there well may be a shutdown, [they] will then not send their goods."

The Senate November 29 approved, 61-36, the Respect for Marriage Act. Judicial nomination votes are on tap for today.

Both Leader Schumer and Speaker Pelosi noted the passing of Rep. Donald McEachin (D-VA) November 28, following an illness. President Biden issued a statement saying Rep. McEachin "fought for justice, for civil rights, and for communities that are often left behind."

Tax — Tax Notes reported: "With only a month left until it goes into effect in 2023, Treasury is not dismissing the possibility that some guidance on the corporate alternative minimum tax could come by year-end. '[It's] a fluid process, potentially changing as issues arise and needs come to the spotlight. … We appreciate that there is a need for some immediate guidance,' Timothy Powell of the Treasury Office of Tax Legislative Counsel said at a November 29 event sponsored by the USA branch of the International Fiscal Association."

Global tax — Bloomberg Tax reported that Mathias Cormann, secretary-general of the OECD, said Monday at a Tax Symposium organized by the European Commission that he remained "cautiously optimistic" that the two-pillar global tax agreement would be implemented. Additionally, "Marnix van Rij, Dutch state secretary for tax affairs, warned at the symposium that failure to agree on European Union implementation of the 15% global minimum tax at a finance ministers' meeting Dec. 6 could lead some countries to seek to sidestep the EU's tax unanimity rule," including through the EU's enhanced cooperation procedure for a group of countries to make binding decisions that only apply to the group.

Health — A WCEY Alert, "2022 Post-Midterm Election Report: What to Expect in Health Policy," is available here.

Tax Barometer - The November 2022 TTC-EY Business Tax Policy Barometer Report, tracking views on the business community's perceptions on a variety of tax and other policy issues, found:

  • High inflation is the top concern (by 46% of respondents), followed by weakening economic growth (by 27% of respondents), and labor shortages (10% of respondents).
  • 73% of respondents expect a US recession within the next 12 months.
  • 31% of respondents think it likely that relief from the TCJA provision requiring amortization of certain R&E expenses will be enacted, but only 10% think relief from the EBIT-based net interest limitation will be enacted (in 2022).
  • Respondents place a 16% (average) likelihood that Pillar One will be ratified by a sufficient number of countries, including the United States, by the Summer of 2023 to go into effect in 2024, while they place a 74% average likelihood that some countries would enact new digital service or other similar unilateral taxes.
  • Looking forward to the sunset of certain TCJA provisions in 2026 and 2027, 46% of respondents think it at least very likely that expensing will be extended. Respondents place a 38% likelihood for extension of the lower individual tax rates and a 33% likelihood for extension of the Section 199A 20% deduction for qualified business income.
  • Over 60% of respondents' companies, industries, or organization ESG programs are at advanced (driving business innovation and supply-chain sustainability) or mid-stage (achieving strategic gains and setting public ESG goals) levels of ESG maturity.
  • 83% of respondents think a US carbon pricing regime will not be enacted until after 2025 or not at all.

Thursday, December 1 (2:00 p.m.), is the EY Webcast, "New proposed foreign tax credit regulations: what changed, what didn't, and what could it all mean for your company?" Register.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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