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May 31, 2023

What to expect in Washington (May 31)

The House is set to vote on, and likely pass, today the Fiscal Responsibility Act of 2023 agreed to by President Biden and House Speaker Kevin McCarthy (R-CA), to suspend the statutory debt ceiling through early 2025 along with (among other things) curbs on government spending and claw-backs of IRS and COVID-related funding. The spending curbs have been framed as meeting the ideological views of each party — the White House noted discretionary programs would be funded at the same levels as FY 2023, while Republicans claim a cut from planned spending — and, with neither side getting everything they want, the necessary ingredients are baked into the deal to put it on a glidepath to enactment with bipartisan support.

The Washington Post reported: "As the House Rules Committee convened Tuesday afternoon, most speakers acknowledged that the deal left both Democrats and Republicans unsatisfied. Rep. Brendan Boyle (D-Pa.) said he had yet to meet a single person who loved it. 'Perhaps that is a sign that it is a fair compromise between a narrowly Republican House and a narrowly Democratic Senate — and, of course, a Democratic White House,' he said." The article cited members of the conservative Freedom Caucus as raising objections.

But an earlier report cited one such Freedom Caucus member as lauding the bill. "'We're kicking way beyond our weight,' Rep. Mark Green (R-Tenn.) … told reporters Monday. 'We barely control half of a third of the government, and here we get the Democrats and Biden to negotiate — took him long enough, of course — but got him off a clean debt ceiling, and actually they're cutting spending year over year. It's amazing.'"

PBS Newshour reported Rep. Ralph Norman (R-SC), a Freedom Caucus member who expressed opposition to the bill, as saying it is foregone conclusion that it has the requisite support because Democrats have at least 100 votes in favor. Rep. Patrick McHenry (R-NC), a chief negotiator, said last night the bill will pass.

Speaker McCarthy hailed the streamlined, less-complicated nature of the deal, tweeting May 29: "-Historic $2.1 Trillion spending cut - 72 hours to read the bill - Only 99 pages Republicans are changing the culture and trajectory of Washington — and we're just getting started." It cleared the Rules Committee 7-6 last night and the final House passage vote today should take place around 8:30 p.m. Huffington Post reported Rep. Matt Gaetz (R-FL), a central figure in the Speakership election suspense in January, as saying it's "quite possible" House Republicans will provide the 150 votes Democratic Leader Hakeem Jeffries (D-NY) has said Speaker McCarthy promised for the debt limit deal.

The bill would establish caps on discretionary spending for each of FY 2024 and FY 2025: an FY 2024 defense limit of $868.349 billion and nondefense limit of $703.651 billion, growing by 1% in FY 2025 to $895.212 billion for defense and $710.688 billion for nondefense. The Washington Post explained that nondefense discretionary cuts will be "mitigated by redirecting funds from other areas, such as the money clawed back from IRS expansion. Spending on these domestic programs will fall by $1 billion from this year to next and rise by 1 percent in 2025 … "

"Legislative text suggests nondefense discretionary outside of veterans' programs would shrink in 2024 to about last year's spending levels. But White House officials say a series of side deals with Republicans, including one related to funding for the Internal Revenue Service, will allow actual funding to be closer to this year's levels," the New York Times reported. "Although Republicans had initially called for 10 years of spending caps, this legislation includes just 2 years of caps and then switches to spending targets that are not bound by law — essentially, just suggestions."

The $20 billion-plus claw-back of expanded IRS funding was seen as trying to win support for the deal from conservatives, who have long made the Inflation Reduction Act (IRA) $80 billion boost a top target. White House officials signaled to the press that the change wouldn't significantly hamper the agency's near-term plans to boost audits and compliance. The bill also includes a mechanism to discourage continuing resolutions, providing that if all 12 appropriations bills are not enacted by January 1 of the following year, discretionary spending will temporarily operate at a maximum of 99% of current levels.

The Congressional Budget Office said May 30, "if H.R. 3746 was enacted and appropriations that are subject to caps on discretionary funding for 2024 and 2025 were constrained by the limits specified in section 101(a) of the bill, the agency's projections of budget deficits would be reduced by about $1.5 trillion over the 2023—2033 period relative to its May 2023 baseline projections."

Members of the Virginia delegation expressed objections to the bill's language to expedite the completion of the Mountain Valley Pipeline, though it isn't clear if they will oppose the bill. A spokesman for Senator Mark Warner (D-VA), for one, was cited by NBC News as saying, while the Senator opposes that language, he does not support defaulting on the nation's debt and plans to vote for the bill.

Some conservatives have been threatening to derail or stall the bill as a June 5 Treasury-dictated deadline for potential default looms, including in the Senate, where rules generally require the consent of all members to bypass procedural hurdles. However, Politico reported that while the process may bump up against that deadline, Republican Senators downplayed the risk of default.

Treaties — The Senate Foreign Relations Committee is holding a business meeting on matters including the US-Chile tax treaty on June 1 (at 10:30 a.m.). Leader Schumer said on the floor yesterday, "At stake in this treaty is access to critical minerals like lithium that make everything from iPhones to EVs function. The world is racing to source these materials, and this U.S.-Chile treaty would give America an important edge. Thursday's markup represents a crucial step toward ratifying this treaty."

Congress — Senator Schumer additionally said, "Also during this work period, I look forward to working with colleagues on both sides to begin the process of advancing bipartisan legislation to, one, outcompete the Chinese Government; two, prepare for a future defined by artificial intelligence; three, to lower the costs of prescription drugs, including insulin; four, to strengthen rail safety regulations; and, five, to build on our work from the past 2 years to make the United States more competitive and more prosperous in the 21st century."

Energy tax — Treasury and the IRS today issued proposed regulations for applicants investing in certain solar and wind powered electricity generation facilities, regarding the Low-Income Communities Bonus Credit Program.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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