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April 21, 2023

What to expect in Washington (April 21)

House Republican leaders plan to bring to a vote next week the Limit, Save, and Grow Act to suspend the debt limit until March 31, 2024, or until $1.5 trillion of debt over the current statutory limit is accrued, whichever occurs first. The measure is filled with Republican priorities like the Lower Energy Costs Act (H.R. 1), rescinding amounts provided to the Internal Revenue Service (IRS) in the Inflation Reduction Act (IRA), repealing some IRA energy tax credits and returning some green energy incentives to prior law, clawing back unspent COVID funds, and prohibiting the student loan debt forgiveness plan.

With a 222-213 majority, Speaker Kevin McCarthy (R-CA) can lose only four votes presuming Democratic opposition, and there is currently speculation about the number of Republican objectors among the fractious GOP caucus. Axios reported last night about "senior GOP sources worrying they're significantly short on votes now that members have read the 320-page bill," with skepticism coming from swing-district Republicans. Punchbowl said this morning that while there are a large number of undecided lawmakers and lifting the debt limit is politically dicey for Republicans, "GOP leaders feel as if they have a good chance of passing this measure because most Republicans have supported all of the spending-cut provisions in the past." CNN said there are no plans to change the bill, but leaders will better explain some provisions.

Multiple factions of the Republican House have long been pushing to roll back divisive Administration policies and reduce spending. McCarthy said the plan "would return discretionary spending to pre-inflationary, Fiscal Year 2022 levels and then limit the growth of spending to 1% per year." The bill doesn't prescribe the exact discretionary spending cuts, which in the hands of Republicans would likely tilt toward nondefense discretionary spending and leave Pentagon funds intact. Freedom Caucus members especially were insistent that the bill roll back the IRA, which also had the support of the Republican Study Committee. Republican leaders are looking toward House passage of the bill as putting political pressure on the Democratic-led Senate and President Biden, who continue to call for a clean debt limit bill, to negotiate an agreement.

"After trying and failing to coalesce lawmakers around a budget blueprint of their own, Republican leaders have instead framed the legislation as an opening offer to Democrats and a way to get the White House to come to the negotiating table … " the New York Times reported. "The bill … aims to assuage conservatives by proposing freezing spending to last year's levels. That would effectively force budget cuts. As costs of government programs rise with inflation over time, lawmakers would have to cut some programs to stay under the cap. That would require Republicans to identify spending cuts totaling $3.6 trillion over a decade, by their own calculations, and this bill does not outline them," leaving decisions to appropriators.

The plan also includes health care items, including recission of unobligated COVID funding, raising the age limit on work requirements to receive Supplemental Nutrition Assistance Program (SNAP) benefits from 50 to 56, recalibrating TANF funding, and applying work requirements to applicable individuals in Medicaid. As Speaker McCarthy promised, the plan does not include any changes to Medicare or Social Security.

Democrats aren't likely to accede to demands to roll back the IRA, which they say provides necessary funds to combat tax evasion and help reduce US emissions levels. Leaders have thus far been unmoved. Senate Majority Leader Chuck Schumer (D-NY) said the bill "has no chance of moving forward in the Senate, and it doesn't move us any closer than we were yesterday to avoiding default." President Biden said in a speech in Accokeek, MD, "Republicans in Congress are threatening to default on the national debt — the debt that took 230 years to accumulate overall — overall — unless we do what they say. They say they're going to default unless I agree to all these wacko notions they have. Default. It would be worse than totally irresponsible."

Tax — During the April 19 Senate Finance Committee hearing on "The President's Fiscal Year 2024 IRS Budget and the IRS's 2023 Filing Season," Chairman Ron Wyden (D-OR) asked how the IRA funding increase for the IRS would help crack down on the use of offshore accounts by wealthy individuals. Commissioner Daniel Werfel said the enforcement funds in the IRA will be focused on improving the capacity to review the taxes of high-wealth individuals, large corporations and complex partnerships, which the IRS has been "historically severely under-resourced to take on." He said, "Our plan is to build capacity, and that means subject-matter experts, specialized accountants, data scientists, lawyers, all of which who understand how these things are set up and can help us navigate them and figure out where the funds are that should have been paid back."

Senator John Cornyn (R-TX) expressed concern about the IRA's EV credits, especially supply chain issues and the potential to drive an increase in sales of batteries being made overseas.

Concerns about green energy credits incentivizing the sale of foreign-made components were also on display at the April 19 House Ways and Means Committee green energy hearing, which featured a relitigating of the IRA. Republicans asserted that the IRA green energy provisions incentivize the use of materials derived from other nations and that, based on calculations from analysts, the IRA will cost more than $1 trillion, far more than projected by the government at the time of its enactment. Democrats contended that the IRA's energy credits would push the US toward a green energy future while protecting workers with prevailing wage and apprenticeship requirements and sought to level the GOP's same criticisms of the IRA toward the 2017 TCJA, a signature Republican law. A WCEY Tax Alert has details.

Trade - Prior to the hearing, Ways and Means favorably reported by a 26-13 vote H.J. Res 39, Disapproving the Rule Submitted by the Department of Commerce Relating to "Procedures Covering Suspension of Liquidation, Duties and Estimated Duties in Accord with Presidential Proclamation 10414." The resolution addresses solar import tariffs from Asian nations. Rep. Terri Sewell (D-AL) was the lone Democrat to join Republicans in supporting the resolution.

Today, April 21 (12:00 p.m. ET) is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments." Register


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Washington Council Ernst & Young
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