March 31, 2023
What to expect in Washington (March 31)
Treasury/IRS released proposed regulations (REG-120080-22) on domestic sourcing requirements for the Inflation Reduction Act's (IRA) Section 30D electric vehicle (EV) tax credit this morning. Under the IRA, for the $3,750 critical minerals portion of the EV credit, the vehicle's battery must contain a threshold percentage (40% initially, growing to 80%) of critical minerals extracted or processed in the United States or in a country with which the US has a free trade agreement (or recycled in North America). To receive the $3,750 battery components portion, the percentage of the battery's components manufactured or assembled in North America would have to meet threshold amounts (50% initially, growing to 100%).
In the regulations, Treasury/IRS said sources of a single applicable critical mineral may have multiple procurement chains if one source of the applicable critical mineral undergoes the same extraction, processing, or recycling process in different locations. An applicable critical mineral would be treated as recycled in North America if 50% or more of the value added to the applicable critical mineral by recycling is derived from recycling that occurred in North America, which IRS said would be a transition rule to be followed by a more stringent test and requested comments on the issue.
A main issue regarding the requirements is the Administration seeking trade agreements with other nations (Japan and the EU) that won't require congressional approval, given that the IRA doesn't define "free trade agreement." The regulations propose to identify the countries with which the United States has free trade agreements in effect for purposes of Section 30D consistent with the statute's purposes of promoting reliance on such supply chains and of providing eligible consumers with access to tax credits for the purchase of new clean vehicles, and criteria to be considered in identifying these countries. These include whether an agreement between the US and another country, as to the critical minerals contained in EV batteries or more generally: reduces or eliminates trade barriers on a preferential basis; commits the parties to refrain from imposing new trade barriers; establishes labor and environmental protections; and/or reduces or eliminates restrictions on exports or includes commitments to do so.
Fact Sheet 2023-08 updates FAQs related to new, previously owned and qualified commercial clean vehicles.
Senator Joe Manchin (D-WV), who previously suggested the credit should be paused until the guidance is released, was on Wednesday already anticipating an overly flexible interpretation of the rules. Reuters March 29 reported Senator Manchin as saying of the forthcoming EV guidance, "If it goes off the rails" and violates the intent of the climate legislation approved in August, "I will do whatever I can - if that means going to court and I can do it, I'd do it."
Senator Manchin released a statement today saying the EV credit guidance "completely ignores the intent of the [IRA]." He said, "It is horrific that the administration continues to ignore the purpose of the law, which is to bring manufacturing back to America and ensure we have reliable and secure supply chains."
In a March 29 Wall Street Journal op-ed, Senator Manchin more generally called on President Biden "to instruct his administration to implement the Inflation Reduction Act as written and stop redefining its credits and other subsidies." Manchin, who is up for re-election in 2024 in a state won by President Trump in 2020, also continued to be an outlier among Democrats in calling for negotiations with Republicans over the debt limit. He said in the op-ed the president should "sit down with fiscally minded Republicans and Democrats to negotiate common-sense reforms to out-of-control fiscal policy. While we can all acknowledge that raising the debt limit is an absolute necessity and Republicans shouldn't threaten otherwise, are we seriously to believe there is no room to negotiate?"
Energy — The House March 30 approved 225-204 the Lower Energy Costs Act (H.R. 1), which addresses critical minerals processing and streamlining the permitting process, among many other issues. Bloomberg Government reported that the bill, which "combines about 20 different measures approved by the House Energy and Commerce, Natural Resources, and Transportation and Infrastructure committees — would also:
The White House said in a Statement of Administration Policy that the bill would draw a veto from the President. House Speaker Kevin McCarthy (R-CA) tweeted, "The President has threatened to veto H.R. 1 — the Lower Energy Costs Act. He should ask himself: does he side with lower energy prices for American families OR does he side with" other nations who are rooting against the bill.
Banking crisis - The Biden Administration was busy on the financial regulatory front Thursday. First Treasury Secretary Janet Yellen gave a major speech about addressing persistent sources of system risk in the financial system, then in the afternoon the White House issued a series of supervisory recommendations to banking regulators that are assessing how to respond to the collapse of Silicon Valley Bank and Signature Bank.
Yellen's speech revisited the Dodd-Frank postcrisis reforms she and others had implemented, but she cautioned, "recent events show that, clearly, our work is not done. During the COVID pandemic and again this month, the proverbial fire department had to be called — in the form of interventions by the Fed, FDIC and Treasury. These events remind us of the urgent need to complete unfinished business: to finalize post-crisis reforms, consider whether deregulation may have gone too far, and repair the cracks in the regulatory perimeter that the recent shocks have revealed." Yellen took aim at a 2018 law enacted under the Trump administration that eased some Dodd-Frank prudential rules for mid-sized banks: " … Any time a bank fails, it is cause for serious concern. Regulatory requirements have been loosened in recent years. I believe it is appropriate to assess the impact of these deregulatory decisions and take any necessary actions in response." She added that it is "important that we reexamine whether our current supervisory and regulatory regimes are adequate for the risks that banks face today. We must act to address these risks if necessary." Yellen also highlighted risks posed by the nonbank "shadow banking" sector, such as money market funds and open-end funds, and again urged Congress to pass legislation establishing "a comprehensive prudential regulatory framework for stablecoin issuers."
The fact sheet released by the White House later Tuesday also took aim at the 2018 regulatory relief law, saying, "The President believes that the weakening of common-sense bank safeguards and supervision during the Trump Administration for large regional banks should be reversed in order to strengthen the banking system." That law, however, also gave the Federal Reserve authority to reimpose "enhanced prudential standards" on banks with assets of $100 billion if deemed necessary. Accordingly, the administration urged the Fed and other regulators to "reinstate rules that were rolled back in the previous administration for banks with assets between $100 billion and $250 billion," including annual capital stress tests; liquidity requirements and stress testing; and comprehensive resolution plans ("living wills"). Legislation would not be necessary to make such a change.
The White House said stronger capital requirements for the 20 banks in that "regional" category should be imposed "at an appropriate time after a considerable transition period." Regulators "should consider shortening the transition periods for … stress testing" and should ensure that fast-growing banks prepare for these safeguards as they approach the $100 billion threshold. The administration also recommended expanding long-term debt requirements to a broader range of banks and excluding community banks from having to pay a surcharge to replenish the Deposit Insurance Fund after costly interventions to rescue depositors of SVB and Signature Bank.
Health — This week, the House Ways and Means Subcommittee on Health; the House Appropriations Subcommittee on Labor, Health and Human Services, Education; and the House Energy and Commerce Committee held separate hearings to discuss President Biden's fiscal year (FY) 2024 budget proposal for the Department of Health and Human Services (HHS). Each committee heard testimony from HHS Secretary Xavier Becerra who defended the president's budget request and highlighted what he characterized as department successes, including record health coverage under the Affordable Care Act (ACA), investments in behavioral health services, and reducing out-of-pocket costs for Medicare beneficiaries. Overall, Becerra said Biden's budget represents a move toward wellness care and away from illness care. During the hearings, Becerra responded to wide-ranging questions from committee members, including those related to the public health emergency (PHE) unwinding, HHS' handling of migrant children, HHS telework policies, proposed changes to the Medicare Advantage (MA) program, and more.
The Washington Post reported: "At the end of this week, states will begin to sever an anticipated 15 million low-income Americans from Medicaid rolls that ballooned to record heights because of a pandemic-era promise that people with the health insurance could keep it — a federal promise that is going away. The end to the temporary guarantee that preserved the safety-net health coverage for the past three years saddles every state with an immense undertaking: sorting out which Medicaid beneficiaries actually belong. Around the country, officials have been preparing for months, but the result is a bumpy landscape consisting of states that vary in how ready they are for this daunting work."
The House and Senate are both now out of session for more than two weeks, returning April 17. What to Expect in Washington won't be published while Congress is away.