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May 19, 2023

What to expect in Washington (May 19)

House Speaker Kevin McCarthy (R-CA) said May 18 that he wants a debt limit bill reflecting negotiations with the White House on the floor next week, Punchbowl reported. "We're not there, we haven't agreed to anything yet," Speaker McCarthy said in Politico. "I see the path that we can come to an agreement. And I think we have a structure now and everybody's working hard. And I mean we're working two or three times a day, then going back getting more numbers." Bloomberg Government reported Financial Services Chairman Patrick McHenry (R-NC), key McCarthy ally, as tempering expectations for a quick deal, saying the two sides are "not close to being done" with a deal. "We have a lot more work to do," he said.

The House is now out until next week. The Senate is scheduled to be in recess next week (the week of May 22). The House is set to be in recess the week of Memorial Day, May 29. President Biden is at the G7 Hiroshima Summit being held May 19-21 but returns Sunday, having scrapped the leg of the trip that included visits to Australia and Papua New Guinea — to attend to debt limit negotiations. The President said he will hold a press conference upon his return. Debt limit default looms as early as June 1, according to Treasury Secretary Janet Yellen.

As has been the case with leadership-driven negotiations on other issues, factions within the parties are expressing unease about the direction of the talks and speculating about the coalition of members necessary to get a bill enacted. The conservative House Freedom Caucus said May 18 that negotiations should cease until the Senate passes the House-passed Limit, Save, Grow Act that includes unspecified spending cuts and a rollback of most Inflation Reduction Act (IRA) clean energy credits. Progressive Democrats, meanwhile, are showing unease with President Biden's stated openness to some new work requirements for federal programs.

In his latest comments, President Biden said before leaving for the G7, "I'm not going to accept any work requirements that are going to impact on medical, health needs of people. I'm not going to accept any work requirements that go much beyond what I voted years ago, for the work requirements that exist. But it's possible there could be a few others, but not anything of any consequence."

The New York Times reported, "Talk of such a compromise has set off a wave of anger among liberals on Capitol Hill, who have begun openly fretting that the president might agree to a deal they cannot accept. 'I cannot in good conscience support a debt ceiling proposal that pushes people into poverty,' said Senator John Fetterman, Democrat of Pennsylvania. The pushback reflects the political crosscurrents at play in the talks between Mr. Biden and Mr. McCarthy, both of whom have to contend with slim majorities in Congress and uncompromising political bases that will find any agreement hard to swallow."

Citing Republican unwillingness to consider new revenue proposals on individuals and corporations, Senator Bernie Sanders (I-VT) and 10 Senate Democrats called on President Biden to "exercise your authority under the 14th Amendment of the Constitution, which clearly states: 'the validity of the public debt of the United States … shall not be questioned.'"

Rep. Alexandria Ocasio-Cortez (D-NY) wrote on Twitter: "McCarthy has nowhere near the votes for a deal and therefore cannot negotiate debt ceiling. You need 218 votes. GOP has maybe ~150. They will need anywhere from 50-100 House Dems to pass anything. Dems have 213 votes for a clean bill & just need to pick up 5."

Tax treaties — The Senate Foreign Relations Committee has noticed a June 1 (at 10:30 a.m.) business meeting on matters including the US-Chile tax treaty. The US-Chile tax treaty, which was cleared by the Foreign Relations Committee in the last Congress but not the full Senate, is poised to advance now that Republican concerns about potential double taxation relating to foreign tax credits have been addressed. The treaty must move through Foreign Relations again, and Chairman Robert Menendez (D-NJ) said he is taking the steps necessary to bring it up.

"Senate Finance and Foreign Relations Committee lawmakers and Treasury agreed late last week on language that addresses lingering concerns related to double taxation because of changes made under the 2017 tax law … [that] leaves the treaty and its reservations unchanged," Bloomberg Tax reported May 18. "A separate declaration will be added to the ratification resolution, saying the Senate and Treasury will continue conversations and remedy future tax treaties and conventions to reflect updated law … Because Senate lawmakers don't ratify treaties — they consent to ratification through approval of a resolution — the declaration reflects an agreement between the two branches and wouldn't create any new obligation or change the rights of Chile in any way."

Clean energy — The Senate Finance Committee's May 18 hearing on "Tax Incentives in the Inflation Reduction Act: Jobs and Investment in Energy Communities," was a response to House Republicans proposing to repeal nearly all of the clean energy policies in the Inflation Reduction Act (IRA). Democrats sought to expose what is at stake if those incentives are forgone, while Republican members asserted that facilitating energy permitting, which House GOP negotiators are pushing in debt limit negotiations, trumps tax credits for expanding domestic energy production.

Chairman Ron Wyden (D-OR) said, "It would be a major act of economic self-sabotage, because a majority of the investments announced since the IRA became law are going to states represented by Republican Senators." Ranking Member Mike Crapo (R-ID) said there are nontax impediments to emissions reductions, some of which will be lost without a significant expansion of transmission lines, which gets into the issue of permitting reform. Senator John Thune (R-SD) similarly said permitting reform, which is provided for under the House debt limit bill, has always been the impediment to energy investment. Senator Bob Menendez (D-NJ) said the IRA is a driver of good-paying clean energy jobs, and if Republicans have their way, progress resulting from the bill would be lost.

Tax - The May 17 Senate Budget Committee hearing, "The Rich Get Richer, Deficits Get Bigger: How Tax Cuts for the Wealthy and Corporations Drive the National Debt" focused on whether to continue or change the tax policies in the 2017 Tax Cuts & Jobs Act (TCJA); whether tax cuts or spending are responsible for the federal deficit and therefore should be changed to cut the deficit; and whether the green energy tax incentives were beneficial. Chairman Sheldon Whitehouse (D-RI) asked Samantha Jacoby from the Center for Budget and Policy Priorities about her testimony regarding profit shifting and how it poses a disadvantage to small businesses who are not able to make use of a tax haven. Jacoby said the TCJA changed the way multinational corporations are taxed and large corporations with big foreign profit centers pay less on those profits than domestic profits. (Her testimony said, "The 2017 law exempted certain foreign income of U.S. multinationals from U.S. tax and added several provisions, including the global intangible low tax income (GILTI) minimum tax, to try to limit incentives for foreign profit shifting. These provisions have serious design flaws, however, and leave significant room for multinationals to avoid taxes by shifting their profits to low-tax countries.")

Ranking Member Chuck Grassley (R-IA) suggested that transferability and other features for green energy credits in the IRA result in wealthy taxpayers and businesses paying less tax, and that extending R&D expensing and 100% expensing would be more beneficial than the green energy incentives in the IRA. Senator Chris Van Hollen (D-MD) asserted that the TCJA did not pay for itself. Bobby Kogan, senior director of federal budget policy at the Center for American Progress; Bruce Bartlett, former deputy assistant secretary for economic policy at the US Department of Treasury; and Samantha Jacoby, senior tax analyst at the Center on Budget and Policy Priorities, agreed; Adam Michel, director of tax policy studies at the Cato Institute said the tax cuts were a one-time cost, not a long-term hit to the deficit; Scott Hodge, president emeritus and senior policy advisory at the Tax Foundation, said elements of the TCJA improved the economy. "It's a myth that the Trump tax cut paid for itself," Van Hollen said.

Health — On May 17, the Senate Health, Education, Labor and Pensions (HELP) Subcommittee on Primary Health and Retirement Security held a hearing entitled, "A Crisis in Mental Health and Substance Use Disorder Care: Closing Gaps in Access by Bringing Care and Prevention to Communities." The hearing centered on the escalating mental health crisis, with a particular focus on opioid use disorder (OUD), which lawmakers and witnesses noted is exacerbating increased workforce shortages. Flexible health services, including telehealth and mobile health services, were among some of the proposed solutions.

Today, May 19 at 12:00 p.m. is the EY Webcast, "Tax in a time of transition: Legislative, economic, regulatory and IRS developments." Register.


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