May 3, 2023
What to expect in Washington (May 3)
The drop-dead date on the debt limit could be less than a month away — Treasury Secretary Janet Yellen said the so-called "X date" for default without congressional action could come as soon as June 1 — and President Biden reached out to Speaker Kevin McCarthy (R-CA) to set up a meeting with congressional leaders for May 9. The developments represent a softening of Democratic intransigence over even meeting on the issue — arguing that the debt limit is non-negotiable, but budget talks could follow — and a more focused deadline from the government as opposed to speculation from third parties about the timeframe for action. But Democrats appear no more receptive to the deficit reduction ideas of Republicans, and Senate Majority Leader Chuck Schumer (D-NY) said his chamber would hold hearings to examine the negative repercussions of the House-passed Limit, Save, Grow Act of 2023 (H.R. 2811).
"This bill was hastily drafted and forced through the House at a break-neck speed. Not a single Committee of jurisdiction held a hearing or a mark-up on a bill that would fundamentally remake American society. The Senate will show the public what this bill truly is," Senator Schumer said. "Beginning this week, our committees will begin to hold hearings to expose the true impact of this reckless legislation on everyday Americans. On Thursday, the Budget Committee will hold a hearing on the Default on America Act." He took the procedural step of completing the Rule 14 process — which obviates the referral of bills to committee — to place on the Legislative Calendar of Business S. 1395, a bill to suspend the debt limit through December 31, 2024, and the House-passed H.R. 2811, the Limit, Save, Grow Act.
Politico reported Senate Minority Whip John Thune (R-SD) as saying Schumer and Republican leader Mitch McConnell (R-KY) may have limited utility in the talks at this point because the Senate GOP stance remains, "The only thing that can get 60 votes in the Senate is something negotiated between the President and the House Republican leadership."
Expectations of a breakthrough at the Tuesday meeting are being set low. "If you need to hear again that it's your responsibility to address the debt ceiling without conditions and a ransom, then he can say that again," a senior Biden administration official told Politico about the upcoming meeting. Speaker McCarthy suggested it is up to the other side to act, saying in a statement, "After three months of the Biden administration's inaction, the House acted, and there is a bill sitting in the Senate as we speak that would put the risk of default to rest. The Senate and the President need to get to work — and soon."
More optimistically, the Washington Post reported, "White House officials are leaving the door open to a compromise with House Republicans on government spending that also resolves the impasse over the federal debt ceiling — a strategy that could allow both parties to claim victory while averting a national economic catastrophe … One way out of this logjam — widely discussed on both ends of Pennsylvania Avenue — would be reaching an agreement that each party then defines differently, with Biden claiming he gave up nothing for the debt limit hike and McCarthy claiming he won concessions on spending. The potential for this 'two-track' negotiation is coming into greater focus … "
With the X date near, other avenues will be explored. The New York Times reported May 2, "With a possible default now projected as soon as June 1, Democrats on Tuesday began taking steps to deploy the secret weapon they have been holding in reserve. They started the process of trying to force a debt-limit increase bill to the [House] floor through a so-called discharge petition that could bypass Republican leaders who have refused to raise the ceiling unless President Biden agrees to spending cuts and policy changes." Another story said under another option being discussed by the Administration, "the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date."
Congress — Senator Ben Cardin (D-MD), first elected to the Senate in 2006 after serving 20 years in the House, announced he will not run for re-election. Senator Cardin is known for retirement policy by way of his partnership with former member Rob Portman (R-OH). They crafted the retirement section of EGTRRA more than 20 years ago as House members and capped their partnership with significant contributions to the SECURE 2.0 legislation enacted at the end of 2022. Both Cardin and Portman, who retired at the end of the last Congress, are rare examples of members who served on both the House Ways & Means Committee and Senate Finance Committee during their careers.
Maryland is a blue state and hasn't had a Republican senator in decades, though the state's gubernatorial races have split. The most recent former governor, Republican Larry Hogan, ruled out a Senate bid. Others mentioned as possible candidates come from the state's House delegation and county executives. Democrats are widely described as having an uphill battle to retain control of the Senate in the 2024 elections given that 20 Democrats and two Independents that caucus with the Democrats are up for re-election plus Democrat-turned-Independent Kyrsten Sinema (I-AZ), compared to 11 Republicans up for re-election.
The Senate is scheduled to vote today on nominations as well as H.J. Res. 39, a Congressional Review Act resolution addressing solar import tariffs from Asian nations, which doesn't have a veto-proof margin of support in the House and has drawn a White House veto threat. Punchbowl reported the resolution "is expected to pass the Senate with a number of Democrats likely to vote with Republicans."
House Ways and Means Committee Chairman Jason Smith (R-MO) announced that the Committee will hold a field hearing titled "Trade in America: Securing Supply Chains and Protecting the American Worker-Staten Island" on Tuesday, May 9, at 10 a.m., at Global Container Terminals New York in Staten Island, New York.
Tax - Yesterday, the IRS issued proposed regulations (REG-124064-19) under IRC Section 367(d) addressing situations in which intangible property that had been transferred to a foreign corporation is repatriated to certain US persons. The proposed regulations would terminate, in some situations, the continued application of certain tax provisions arising from the initial transfer. The IRS invites comments to be submitted within 60 days of May 3, 2023, when the rules will be published in the Federal Register. An EY Tax Alert has details.