May 1, 2023
What to expect in Washington (May 1)
The House is out this week after Republicans last week passed the Limit, Save, Grow Act of 2023 (H.R. 2811) to suspend the statutory debt ceiling until March 31, 2024, or until $1.5 trillion of debt over the current statutory limit is incurred (whichever happens first), cut spending in many federal programs, and repeal many green-energy tax incentives from last year's Inflation Reduction Act (IRA). The bill is not expected to be taken up by Senate Democrats and the two sides remain at odds, or perhaps even more so, as the nation gets perilously near default. House Republicans led by Speaker Kevin McCarthy (R-CA) argue that their ability to pass the bill compels Democrats to negotiate, a position Senate Republicans are more vocally backing. Democrats led by President Biden won't even begin to negotiate on the debt limit because they say it rewards the GOP approach of seeking to extract political concessions to pay the nation's bills.
An analysis in the Sunday Washington Post said, "Senate Democrats view even a modest concession, such as a relatively powerless debt commission, as a reward … 'The problem with that approach is that it signals to the rest of the world that America's commitment to paying its debts is contingent on some underlying political negotiation over spending that is otherwise too damn contentious to get through on its own,' [Senator Elizabeth Warren (D-MA)] told reporters Thursday. But this Democratic approach seems to assure that little will happen until the deadline draws perilously close and then, at that momentous hour, assumes House Republicans will cave out of fear for getting blamed for tanking the economy." Rep. Garret Graves (R-LA), who was put in charge of assembling a debt limit approach, said, "I'm not sure what else we can do, other than do our job, send them a bill, and now it's 100 percent in their lap."
The analysis noted the absence of a deadline — the "X date" beyond which Treasury extraordinary measures are exhausted — which may be identified soon by Treasury Secretary Janet Yellen and is likely necessary for Congress to get serious, meaning it's "possible that cooler heads will prevail when countdown clocks start to appear."
The Wall Street Journal (WSJ) reported, "While the two parties are at an impasse now, the U.S. Treasury is expected to provide new guidance soon on when the U.S. could default on payments to bondholders and other obligations, a deadline that could stir the White House and lawmakers to action."
Another WSJ story, "Republicans Effectively Voted to Raise Taxes. They're Fine with That," said "Top Republicans see such clean-energy subsidies as more like spending rather than tax reductions, and they say their debt-ceiling bill would end such inefficient, expensive programs created by Democrats. They also promised that any final bill wouldn't include net tax increases. Republicans continue to oppose tax hikes President Biden has proposed for high-income households and corporations, and they are proposing further tax cuts for businesses and individuals. Still, their willingness to advance a bill that the nonpartisan Congressional Budget Office says would raise tax revenue shows Republicans are less focused on official tax tallies and more determined to reverse Mr. Biden's agenda."
Sunday shows — On ABC's "This Week," House Majority Leader Steve Scalise (R-LA) made the case for the Republican approach, saying, "President Biden maxed out America's credit card by spending trillions of dollars over the last two years. What Republicans said is, 'We're willing to work with the president on addressing that, but let's also address the spending that got us here, too.' And what we put in the bill are very basic common-sense things like let's have some work requirements for able-bodied people who want to get welfare benefits. … We put some really good items in this bill, by the way, that cut red tape so we can promote American energy production. … The White House needs to ultimately get into this negotiation."
Democrats, meanwhile, fanned out across the Sunday political talk shows to make the case that the President has already laid out his preferred method of deficit reduction — through tax increases in the FY 2024 Budget — rather than spending cuts and a conversation on that effort can follow a clean debt limit bill.
On "Face the Nation," Rep. Ro Khanna (D-CA) said, "I think we should pay the bills and then negotiate. And we should negotiate on deficit reduction. The last person to leave a surplus was Bill Clinton. I will tell you how we lower the debt. Let's repeal the Trump tax cuts. Let's repeal some of the Bush tax cuts for the very wealthy. Let's not have all these overseas wars. I mean, the Democrats have a plan. And let's raise taxes on the top wealthy. But, before we get there, we pay our bills."
On "Fox News Sunday," Senator Chris Van Hollen (D-MD) said the House bill addresses the debt ceiling, "but then it says in order to raise the ceiling, we're going to cut veterans. We're going to cut law enforcement. We're going to cut border security. We're going to cut all sorts of things. We're going to put [other nations] back in the driver's seat when it comes to clean energy. So, what the president is saying, he's not going to negotiate with someone who's actually threatening the economy … He will sit down with Speaker McCarthy to talk about these issues in the framework of the budget and the appropriations process." He continued, "President Biden has put a plan on the table, quite a detailed budget, much more detailed than what Speaker McCarthy and the House just passed, that has $3 trillion in deficit reduction over the next 10 years, primarily by asking very, very wealthy people, billionaires and big corporations, to pay more."
On "This Week," Senator Chris Coons (D-DE) said, "President Biden has said he will meet with Speaker McCarthy about the things we should be discussing — the annual spending, the appropriations process … " Asked whether he would let the US default on our debt, Coons said, "No, I would not let us default … I'd be happy to negotiate, what's the mix of revenue increases and spending cuts that make sense going forward? Look at President Biden's real record the last two years. We have reduced the deficit."
On CNN's "State of the Union," Senator Bernie Sanders (I-VT) said, "What we need is a clean debt ceiling bill. You pay your bills, and then you can sit down and negotiate what a sensible budget is. What the Republicans are saying in their budget proposal is that, at a time of massive income and wealth inequality, when the richest people are becoming much richer, while working-class people are struggling, what they want to do is to cut programs for nutrition, for education, for health care, throw hundreds and hundreds of thousands of people off the health care they need. Our health care system today is dysfunctional enough. It is expensive enough. You don't throw people off of health care."
Asked whether the time to negotiate is now, Sanders said not with an ultimatum from Republicans on the debt limit. "What the Republicans have got to say is, absolutely, we are going to make sure that we pay our debts. Let's sit down and negotiate a budget," he said. On whether he is open to any spending cuts as part of a budget deal, he cited cutting military spending and "demanding that the largest corporations in this country and the wealthiest people start paying their fair share of taxes."
Health care — Senator Sanders was also asked about the bipartisan deal with Republican Senator Bill Cassidy (R-LA) on a plan to help lower prescription drug prices by increasing access to generic drugs and transparency for pharmacy management, which the HELP Committee will consider on May 2. He said he is confident it will get the 60 votes needed to pass the Senate.
The House Energy and Commerce Health Subcommittee held a hearing last week on bills addressing topics including pharmacy benefit managers (PBMs). A Roll Call story, "House, Senate craft separate health care packages," said, "House lawmakers are kick-starting the legislative process for a number of health care bills at the same time their Senate counterparts are shaping their own package on drug pricing, and members appear to be finding common ground on pharmacy benefit managers." An EY Tax Alert has details.
Congress — The House is out, but the Senate is in session. The Senate will convene at 3:00 p.m. on Monday, May 1, 2023. At 5:30 p.m., the Senate will vote on confirmation of Executive Calendar #22 Anthony Devos Johnstone, of Montana, to be United States Circuit Judge for the Ninth Circuit. The Finance Committee has no tax hearings scheduled, but will be holding a hearing on "Barriers to Mental Health Care: Improving Provider Directory Accuracy to Reduce the Prevalence of Ghost Networks" on Wednesday, May 3 at 10 a.m.
Bloomberg Government reported, "Legislation that would reinstate solar tariffs on US imports of panels from Southeast Asia is expected to get a Senate vote next week, a spokesman for Republican Senator Rick Scott, the bill's author, says in an email." The disapproval resolution addressing solar import tariffs from Asian nations — 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" — was approved by the House April 28 221-202, with 12 Democrats voting in favor, which the BGOV story said is not "enough support that would be needed to overcome a veto." The White House issued a strongly worded Statement of Administration Policy (SAP) against the resolution.
The American Bar Association 2023 May Tax Meeting is May 4-6 in Washington. Sessions include "Clean Energy Credits & Incentives in the Inflation Reduction Act — Updates and Recent Guidance" with government panelists.
Banking — In a report released on April 28 examining the collapse of Silicon Valley Bank in March, the Federal Reserve found fault with its own supervision practices as well as the bank's management, while laying out serious potential changes to capital and liquidity rules for "mid-size" banks with more than $100 billion in assets. In a letter accompanying the report, Vice Chair of Supervision Michael Barr said the Fed will reevaluate how it supervises and regulates a bank's management of interest rate liquidity risks, given the risks posed by uninsured deposits. Barr said the Fed should consider restoring the Dodd-Frank Act's liquidity rules to a broader set of firms, as well as changes in capital rules, including broadening the group of banks that must take into account unrealized gains or losses on certain securities they hold. Barr also proposed restoring stress-testing requirements that the Fed eased in 2019, after Congress passed a 2018 law, known as "S. 1125," easing Dodd-Frank regulation of smaller and mid-size banks.
The report also faulted the incentive compensation practices at SVB, saying the Fed should consider revising incentive comp rules to refocus bank managers on risk. For banks that have inadequate capital planning, liquidity risk management or governance and controls, Barr said, "limits on capital distributions or incentive compensation could be appropriate and effective in some cases." The Fed will seek comment on the capital, liquidity and stress testing proposals, which would not require any legislation, though Barr said any rules changes would not take effect for several years. Federal Reserve Chair Jerome Powell said he agreed with and supported Barr's recommendations.
The report also called for changes to improve "the speed, force and agility of supervision," and developing a culture that "empowers supervisors." Notably, the report suggests that a change in culture under Randal Quarles, the previous vice chair for supervision appointed by President Trump, took place after Congress passed S. 1125 in 2018. "Staff repeatedly mentioned changes in expectations and practices, including pressure to reduce burden on firms, meet a higher burden of proof for a supervisory conclusion, and demonstrate due process when considering supervisory actions," the report said. In a statement Friday, House Financial Services Committee Chairman Patrick McHenry (R-NC) expressed disappointment in many of the report's conclusions, calling the report "self-serving … While there are areas identified by Vice Chair Barr on which we agree — including enhancing attention to liquidity issues, especially when a firm is rapidly growing — the bulk of the report appears to be a justification of Democrats' long-held priorities." In a separate report later Friday, the Federal Deposit Insurance Corp. (FDIC) said it was too slow to respond to problems at Signature Bank, which also collapsed in March, because of staffing shortages in its New York office.