Smoke Signals & Taxing Events
It was a busy week in the nation’s capital. The Constitution Partners team reviewed the major events driving American public policy and business interests, and have provided a summarized overview for your review.
Congress
Tax Reform Proposal
On Friday, June 9, Republican leadership on the House Ways & Means Committee unveiled a new tax package – a total of three separate pieces of legislation – aimed at helping families, growing jobs, and supporting a stronger economy. Republicans are eyeing a year-end tax deal, a Democratic goal too. The legislation passed out of markup on June 13 on a partisan vote. Constitution Partners provides a brief overview here:
Tax Cuts for Working Families Act: The bill renames the ‘standard deduction’ to ‘guaranteed deduction’ to remove confusing nomenclature. It also establishes a ‘Bonus Guaranteed Deduction’ to for tax years 2024 and 2025; this benefit would apply on top of the guaranteed deduction, currently called a ‘standard deduction.’
Section-by-Section Summary | Bill Text
Small Business Jobs Act: The bill increases the IRS reporting threshold for Form 1099; establishes rural-focused opportunity zones (a throwback from the 2017 Tax Cuts and Jobs Act); increases limitations on expensing depreciable business assets; and more.
Section-by-Section Summary | Bill Text
Build It In America Act: The bill revises the deduction process for businesses managing research and experimental expenditures; extends the valuable 100% bonus depreciation benefit for qualified property placed in service after December 31, 2022 and before January 1, 2026; terminates the superfund tax on crude oil and petroleum products; imposes a 60% excise tax on the purchase of American farmland by citizens of countries of concern; repeals several clean energy tax credits from the 2022 Inflation Reduction Act; and more.
Section-by-Section Summary | Bill Text
GOP Infighting in the House
On June 6, Eleven dissident Republicans used a procedural vote on a GOP-backed bill to blockade the House floor. By the following evening, Speaker McCarthy dismissed lawmakers for the week after he found himself unable to quell the internal rebellion. The floor fight is the result of brewing discontent within the Republican caucus after Speaker McCarthy brokered a deal with President Biden to avoid a default on the U.S. debt.
Rep. Matt Gaetz (R-FL-01) tweeted, “House Leadership couldn’t Hold the Line. Now we Hold the Floor.”
The House is set to return to work on June 12, but the parliamentary blockade raises concerns about the fate of future priority legislation: a supplemental Ukraine assistance package, federal appropriations bills, and the 2023 Farm Bill. The ongoing debate(s) within the Republican conference include a concern over how long this obstruction will continue, a consideration of if this process could emerge as a House-equivalent of the Senate’s filibuster, and a frustration over the reality that current legislative priorities will undoubtedly require additional bipartisan compromises.
Courts
Former President Trump Indicted (Again)
Donald J. Trump will appear in federal court on June 13 to be arraigned on 37 felony counts accusing the former president of removing a substantial amount of highly sensitive classified material – including intelligence about the “defense and weapons capabilities” of the United States and foreign countries – and even going so far as showing a military document outlining the plans of attack against an unnamed country to a staffer while acknowledging that the material was secret.
Read more from Politico | Read more from the New York Times | Read the Indictment
Supreme Court Ruling Tosses 2024 House Into Play
On June 8, the Supreme Court issued a surprise 5-4 decision tossing out Alabama’s congressional map and opening up the possibility for an additional minority majority district. The Supreme Court in Allen v. Milligan found that the state legislature-drawn map likely violated Section 2 of the Voting Rights Act, which bars racially discriminatory election rules. Notably, the ruling will affect pending litigation in other states where there are additional VRA Section 2 challenges against GOP-drawn districts.
Chief Justice John Roberts and Associate Justice Brett Kavanaugh surprised most SCOTUS reporters in siding with the three liberal justices in this decision.
Looking ahead to 2024, Democrats need a net gain of five seats to win control of the U.S. House. “The key states to watch are Alabama, Louisiana, Georgia and South Carolina,” said Dave Wasserman of the Cook Political Report, which immediately changed its race projections to move four seats to “toss up” status from “solid Republican.”
FiveThirtyEight has a comprehensive breakdown of several states to watch in 2024 given the new ruling from the Supreme Court.
Biden Administration
Progressives Press President Biden for Climate Emergency
Progressive lawmakers and activists are again imploring President Joe Biden to declare a climate emergency, citing the thick blanket of smoke from Canadian wildfires now shrouding the US Capitol and swaths of the Eastern seaboard.
“As much of the Northeast and our nation’s capital experience the suffocating conditions that have become a regular occurrence in the West, we are faced with yet another stark reminder that the climate crisis is here,” said Representative Earl Blumenauer, an Oregon Democrat.
“We ought to treat it like the emergency it is.” Those sentiments were echoed by Representative Ro Khanna, a California Democrat, who urged Biden on Twitter to “declare a climate emergency.”
An emergency declaration by President Joe Biden would unlock sweeping executive powers, including blocking crude oil exports and placing other limits on fossil fuels. Biden considered the move — which would also enable him to shift funds to propel clean energy construction — last summer, when it appeared his massive climate law was going to falter in the Senate. Ultimately, he decided against it.
But with more than 100 million people under air quality alerts Thursday as toxic smoke from record-setting wildfires pours into the eastern US, threatening flights and leading people to mask up or stay inside, progressives are renewing their call for Biden to marshal those sweeping powers to fight global warming.
Interagency Collaboration on Hydrogen Tax Matters as Biden Administration Publishes First Strategic Roadmap
Technical experts from the Department of Energy are weighing in on how the Treasury Department should devise a production tax credit for hydrogen. Energy Secretary Jennifer Granholm and her team of senior officials are working with the Treasury and the White House to address the various options. On Monday, June 5, David Turk, Deputy Secretary of Energy noted, “There are different opinions on this, different perspectives on this, and we’re taking all that in, “we certainly appreciate how important this tax credit is, how important it is to work with a sense of urgency here and get that clarification out there so everybody can make business decisions based on that tax credit.”
The 45V hydrogen production tax credit, established by the Inflation Reduction Act of 2022, promises up to $3 per kilogram for hydrogen that meets certain emissions standards. A new debate has cropped up in recent weeks over whether the Treasury Department should require hydrogen producers to source energy from new renewable power plants in order to qualify for the tax credit.
The Energy Department, also on Monday, finalized its first-ever hydrogen roadmap, which describes how the US could scale-up use of the clean-burning fuel. The U.S. National Clean Hydrogen Strategy and Roadmap estimates hydrogen has the potential to add 100,000 net new direct and indirect jobs by 2030. US demand for hydrogen could reach 50 million metric tons by 2050, it estimates, spurred in part by the $7 billion regional hydrogen hub program it launched last year. It examines future demand scenarios—with strategic opportunities for the domestic production of 10 million metric tons (MMT) of clean hydrogen annually by 2030, 20 MMT annually by 2040, and 50 MMT annually by 2050. The report does not directly weigh in on the tax credit debate. But it acknowledges both sides.
Get the specifics from Lulu Geller with Constitution Partners
IRS to Clarify Monetization of Energy Credits for Mixed Partnerships
The Internal Revenue Service (IRS) will provide clarity on how mixed partnerships will be able to monetize the clean energy credits included in the Inflation Reduction Act, an agency official said Wednesday.
The new law is unique because it allows tax-exempt entities—which normally do not have tax bills to use credits—to invest in clean energy and take advantage of these incentives through the direct pay process. The direct pay provision would function as a refundable payment. For-profit entities are allowed to sell credits through a process called transferability.
The IRS is specifically aiming to address what to do when a partnership contains both a tax-exempt entity partner and non-tax-exempt entity partner, and it is looking to take advantage of these energy credits. The agency is also looking to address whether individuals can purchase these energy credits and how this behavior might interact with passive activity rules.
This upcoming guidance is separate from the May 31 guidance issued by the IRS for advanced energy projects.
USDA Launches Procurement Forecast Tool for Small Businesses
On June 9, the U.S. Department of Agriculture announced a new tool to assist industry and small disadvantaged entities in identifying potential opportunities for selling their products and services to USDA.
The Procurement Forecast lists the types of anticipated solicitations that small businesses, small disadvantaged businesses, women-owned businesses, HUBZone businesses, service-disabled veterans, and other businesses may be able to participate in contracts with USDA, or through subcontracting opportunities. USDA's Office of Contracting and Procurement (OCP) and Office of Small and Disadvantaged Business Utilization (OSDBU) collaborated in the development of the tool.
To learn more about the Forecast of Business Opportunities and search for anticipated procurements, learn more here.
Tensions Rise at West Coast Ports as Workers, Employers Struggle on Wage Agreement
A backlog of cargo ships and storage containers is growing at several West Coast ports as a labor dispute between port operators and workers continues. Commercial shipping prices are also spiking due to interruptions. According to The Hill, the “median delay times have bee trending upward this week in several key West Coast ports including Los Angeles, Long Beach, and Seattle. Wait times at the port of Seattle are now more than a week.” Last week, the port of Oakland shut down due to a lack of sufficient labor; more ports are expected to shut down along the West Coast as protests around the lack of progress with port management intensify. The ports and unions have been involved in contract negotiations over the past year, adding tension to port operations.
While the stoppages are not a formal strike, the situation remains fluid, with truck drivers being turned away at Los Angeles sites. The Pacific Maritime Association (PMA), which represents employers, and the International Longshore and Warehouse Union (ILWU), which represents more than 22,000 dockworkers at 29 ports from California to Washington state, had reported progress recently, including an agreement on terms for using automation at the ports. In an ILWU press release on June 2, the union noted that “the ILWU and PMA continue to negotiate the collective bargaining agreement and are committed to reaching an agreement.”
The stoppages came when activity at West Coast ports had picked up again after losing volume to the East Coast ports due to concerns about the volatile labor situation. At the Port of Oakland, total container volume increased for two consecutive months, with port officials optimistic about the upswing. It is the eighth-largest port in the country, importing a wide range of items, from Australian wine and meat to aluminum from South Korea and clothing, electronics, and furniture from China. While previous disputes during negotiations have been localized to specific ports and union chapters, Friday's events spread to many of the coast's largest maritime gateways.
Union workers issued the following statement explaining their position "Ocean carriers and terminal operators have thumbed their noses at the workforce's basic requests, insinuating that the health risks and loss of lives these working people endured during the pandemic did not matter to them and they were expendable in the name of profits. The work forces' requests are not outlandish: they are basic requests to ensure that the workforce is treated with dignity and respect that they have fought hard to earn."
Paul Brashier, vice president of drayage and intermodal at ITS Logistics, said about the work stoppage, "Navigating the ports on the entire West Coast over the last four days has been extremely frustrating for our clients and us," if it were not for updates from our drivers and our visibility software applications, we would not have even known about terminal closures Friday, throughout the weekend, and into today. Terminal announcements were severely lagging at best if they were issued at all, and statements from the ILWU were misleading," he said about the International Longshore and Warehouse Union, which has been engaged in a protracted battle over a new contract with port management.
Some trade groups have urged the Biden administration to get involved, but the White House on June 5 said it's just monitoring the situation. According to a source familiar with the administration's workings, Julie Su, acting secretary of labor, has been urging both sides to come to terms. Su, the administration's nominee to lead the department, helped resolve a labor dispute at the ports in 2019 when she was California's labor secretary. While the economic impact of a daylong work stoppage is negligible, the drawn-out labor negotiations are tarnishing the West Coast ports' reputation as a reliable gateway of international trade, says Jock O'Connell, international trade adviser at Beacon Economics
Constitution Partners will continue providing updates as they materialize, but please do not hesitate reach out with any questions.
