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May 5, 2023

What to expect in Washington (May 5)

The focus for any next developments on plans to address the debt limit is on the bipartisan "Big Four" meeting of congressional leaders including Speaker Kevin McCarthy (R-CA) and President Biden May 9, with the two sides still in their corners: House Republicans satisfied with their debt limit bill to also cut spending and green energy tax incentives, and Democrats, while agreeing to meet, calling for a clean debt limit bill and stoking concerns about repercussions of the House bill. Behind the scenes, "Biden administration officials and lawmakers have started to weigh potential alternatives to their negotiating position, including a short-term increase in the borrowing limit that would buy them time to find a compromise," as well as workarounds, today's Wall Street Journal said.

Some of the Democratic concerns with the House bill were aired during a May 4 Senate Budget Committee hearing, with Chairman Sheldon Whitehouse (D-RI), a strong proponent of fighting climate change, hosting witnesses who focused on the negative effects of Republican proposals to repeal green energy incentives, particularly for solar investment and methane emissions reduction. Other witnesses were economists who described the urgency of addressing the debt limit, options for doing so, past positions taken by both parties, and the risks of doing nothing to address the escalating federal debt.

Mark Zandi of Moody's Analytics predicted the "X date" when the government risks default without additional action on the debt limit could occur on June 8 or, as Treasury Secretary Janet Yellen has warned, as early as June 1. He said early August is the latest the deadline could arrive. Zandi suggested suspending the debt limit until September 30 and, longer-term, taking the issue to the other side of the 2024 elections. Senator Whitehouse said, "Dr. Zandi estimates that a default of even just a few days would lead to a recession, cost close to a million jobs, and raise unemployment from 3.4% to 5%. A longer default would cost over 7 million jobs and push the unemployment rate over 8%." Looking at the long term if debt isn't addressed, Brian Riedl, former economist for former Senator Rob Portman (R-OH), said "we're on pace by the CBO to borrow $114 trillion over the next 30 years … Who's going to lend us $114 trillion?"

Republican members bemoaned the lack of action thus far and the hearing's lack of utility for achieving progress. Ranking Member Chuck Grassley (R-IA) said the nearly 100 days since President Biden and Speaker McCarthy last met had been wasted and the Big Four meeting at the White House is where progress could be made, not the hearing. Senator Mitt Romney (R-UT) said he is embarrassed that the two parties haven't agreed on an approach and that Democrats could have acted on the debt limit on their own, in a budget reconciliation bill. "This is a committee that could be talking about what things we could do to restrain the amount of spending we have, the debt that we're seeing increase … " he said. "But we're not doing that. We're coming here saying the obvious, which is, of course, we can't default on our debt."

As Senator Grassley suggested, the Senate is largely on the sidelines of a House-Biden debate. "With as few as four weeks until the U.S. government could experience an unprecedented, catastrophic default, the world's greatest deliberative body simply isn't deliberating … " the Washington Post reported. "House Republicans largely see themselves as having already completed their task of passing a proposal, putting the onus on Biden and the Senate to lead negotiations. Senate Democrats and Republicans, meanwhile, are united in saying there is no role for them to play in averting the crisis at this stage."

Separately, the Senate Budget Committee scheduled a hearing, "Lessons Learned: Leadership Perspectives and Experience on the National Costs of Climate Change," for Wednesday, May 10 at 10:30 a.m.

Tax — On Thursday, May 11 at 10 a.m., the Senate Finance Committee will hold a hearing, "Cross-border Rx: Pharmaceutical Manufacturers and U.S. International Tax Policy." The hearing, which is expected to have a dual focus on pharmaceutical companies specifically and international tax more broadly (including the OECD BEPS Pillar 2 agreement), features a panel of witnesses from the Council on Foreign Relations, academia, accounting, and the Tax Foundation.

In Notice 2023-36, Treasury and IRS invited public recommendations for items to be included on the 2023—2024 Priority Guidance Plan, by Friday, June 9.

The American Bar Association May Tax Meeting continues today, including a panel on "Clean Energy Credits & Incentives in the Inflation Reduction Act-Updates and Recent Guidance" with government speakers.

Trade — In a rare issue with cross-party support, the Senate voted 56-41 May 3 to approve a joint resolution disapproving of the Commerce Department rule that lifted US tariffs on solar panels from four Asian nations. (Only a simple majority is needed for Congressional Review Act resolutions of disapproval, as opposed to the 60-vote threshold for most other bills in the Senate.) The resolution, to disapprove of the Administration lifting the tariffs in the interest of climate goals, was backed by nine Democrats — Senators Baldwin, Brown, Casey, Fetterman, Manchin, Peters, Stabenow, Tester, and Wyden — concerned about protecting US solar manufacturers from foreign competition. Senator Rand Paul (R-KY) was the lone Republican to vote against the resolution.

The resolution has drawn a White House veto threat and neither the Senate vote nor the House approval by a 221-202 vote April 28 represent the two-thirds majority in each chamber necessary to override a veto.

Also on May 3, Senate Majority Leader Chuck Schumer (D-NY) previewed a new initiative to task committee chairs to begin working with their ranking Members on a bipartisan bill targeting foreign competition to follow on legislation approved in the last Congress, including the CHIPS and Science Act.

Health — The House Ways and Means Health Subcommittee has set a hearing on "Examining Policies that Inhibit Innovation and Patient Access" for Wednesday, May 10 at 2:00 p.m.


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Washington Council Ernst & Young
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