February 15, 2023
What to expect in Washington (February 15)
The must-act date for lawmakers to address the Federal debt limit could come in early June, with the timing largely dependent on tax receipts received in April, according to a February 13 Huffington Post report citing multiple economists. "The government borrows money from Wall Street in the form of debt, to pay tax rebates to income tax filers from January through March," the report said. "But the cash flow reverses sharply with the arrival of April and tax payment dates for individual and corporate taxpayers. That April shower of revenue often determines whether an annual budget deficit will be larger or smaller than expected. In this case, it could determine whether Treasury will be able to make it through June without a debt limit hike."
The focus is still on debt limit talks between House Speaker Kevin McCarthy (R-CA) and President Biden, which began February 1. House Republicans are seeking unspecified spending cuts as a condition of a debt limit bill. The President has asked to see their plan for spending cuts and said his FY2024 Budget to be released March 9 would call for $2 trillion in deficit reduction including from tax increases on corporations and the wealthy like a quadrupling of the stock buyback excise tax and a billionaire's tax.
There has been talk of how moderate Republicans could force action on the debt limit if Speaker McCarthy and conservatives can't win requisite concessions from Democrats, including through a discharge petition by which a majority of members can bring a bill to the floor. Politico reported February 14 that while such talk is viewed by leadership as weakening Republicans' hand, discussions continue. "[W]hile these conversations might have gone underground, we can report that they are very much still alive. Multiple people involved told us last night that a core group of bipartisan lawmakers have been texting, emailing and meeting about a potential backup plan should the McCarthy-Biden debt talks falter," the report said.
Senate Majority Leader Chuck Schumer (D-NY) has questioned whether Republicans can agree on an approach to spending cuts even among themselves. Punchbowl this morning reported, "Senate Republicans are warning their House GOP counterparts to stay away from the Pentagon's budget as part of any proposed spending cuts tied to upcoming debt-limit talks. Republican senators are generally supportive of Speaker Kevin McCarthy in negotiations with President Joe Biden over cutting spending in exchange for raising the nation's borrowing limit. But they say recent suggestions by top House Republicans that defense spending would be on the chopping block is unacceptable."
The New York Times reported that internal disputes among House Republicans have stifled action on issues including immigration. "Six weeks into their majority, Republican leaders have found themselves paralyzed on some of the biggest issues they promised to address as they pressed to win control of the House last year, amid internal policy disputes that have made it difficult to unify their tiny yet ideologically diverse majority," the report said. It said "some of the dissent has sprung from lingering resentment from Mr. McCarthy's struggle to become speaker and the confidential deal he struck with the hard right to win" that some mainstream members believe included a fast-track vote on the Fair Tax Act to abolish the IRS and replace the federal income tax with a 30% sales tax, though that bill is expected to go through committee.
Tax legislation — Senate Finance Committee member Sherrod Brown (D-OH) and Chairman Ron Wyden (D-OR) introduced the Stock Buyback Accountability Act of 2023, which would increase the recently enacted tax on what a publicly traded company spends to buy back its own stock from 1% to 4%. In the February 7 State of the Union Address, President Biden called for quadrupling the buyback excise tax included in the Inflation Reduction Act (IRA).
On February 13, Senators James Lankford (R-OK) and Cory Booker (D-NJ) introduced the No Tax Subsidies for Stadiums Act to prevent professional sports teams from financing new stadiums with municipal bonds that are exempt from Federal taxes.
Tax regulation — The IRS has announced (IR-2023-27) new guidance (Notice 2023-18) that establishes a program under IRC Section 48C(e) to allocate $10 billion in tax credits for qualified investments in eligible qualifying advanced energy projects; $4 billion must be allocated to projects located in certain energy communities census tracts. The new program was authorized under the Inflation Reduction Act. The IRS will issue more detailed guidance by May 31, 2023.
IRS said the goal of the 48C(e) program is to expand US manufacturing capacity and quality jobs for clean energy technologies, to reduce greenhouse gas emissions in the US industrial sector, and to secure domestic supply chains for critical materials that serve as inputs for clean energy technology production. At least some of the $4 billion allocation is for communities formerly involved in the coal industry.
IRS also announced (IR-2023-26) guidance (Notice 2023-17) establishing the Low-Income Communities Bonus Credit Program to provide solar and wind power to certain low-income areas. This guidance applies to owners of certain solar and wind facilities placed in service in connection with low-income communities that are eligible for the IRC Section 48 energy investment credit.
A proposed rule on the Superfund Chemical Tax and Superfund Imported Substance Tax is under review at the Office of Information and Regulatory Affairs (OIRA), indicating it is in the pipeline for near-term release.
White House — The White House announced Tuesday (February 14) the reshuffling of President Biden's top economic team, bringing Federal Reserve Vice Chair Lael Brainard over to serve as director of the National Economic Council, replacing Brian Deese. Jared Bernstein, a longtime Biden aide who currently serves on the Council of Economic Advisers, was named chair of the CEA, replacing Cecilia Rouse. The White House also announced that: 1) CEA member Heather Boushey will also become chief economist to the president's "Invest in America Cabinet," a sub-group of Cabinet secretaries focused on domestic investment and development; 2) Bharat Ramamurti will stay on as deputy NEC director while taking on the additional role of adviser for strategic economic communications; and 3) Labor Department chief economist Joelle Gamble will serve as a second deputy NEC director, focusing on manufacturing and industrial strategy.
Brainard has been Fed vice chair since May 2022, and her nomination at that time attracted support from seven Republicans. She served in Bill Clinton's White House and at President Obama's Treasury Department before Obama named her to the Fed Board as a governor in 2014. Brainard's move to the White House creates an opening at the senior levels of the Fed that will have to be confirmed by the Senate.
Congress — Senator Dianne Feinstein (D-CA) February 14 announced she will not run for reelection in 2024. Senator Feinstein has been in the Senate for 30 years and is the longest-serving woman senator.
Global tax — The 3rd edition of the OECD Tax and Development Days is today and tomorrow, February 15-16.
Friday, February 17 (12 p.m.) is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."