Key Dates
October 1, 2022 (Fiscal Year 2023 Begins): 43 days
November 8, 2022 (Election Day): 81 days
November 9, 2022 (Senate Returns for “Lame Duck” Session): 82 days
November 14, 2022 (House Returns for “Lame Duck” Session): 87 days
December 15, 2022 (Target Adjournment of 117th Congress): 116 days

For federal regulators at Executive Branch agencies, the moment Biden signed the Inflation Reduction Act (aka, the reconciliation bill) on Tuesday, the starting gun for a race to write new policies to implement its clean energy tax credits, climate programs, environmental mandates, and healthcare policies began. It’s a monumental task that will involve stakeholders at nearly every federal agency.

For instance:

• The Department of Transportation must fashion a new grant program to propel sustainable aviation fuel projects;
• The Department of Energy will need to vet applications for billions of dollars’ worth of federal loan guarantees;
• The Environmental Protection Agency (EPA) must create new programs to curb methane emissions and standardize how companies report on greenhouse gas releases. The EPA also has 180 days to steer $27 billion in a new Greenhouse Gas Reduction Fund to green banks that can catalyze critical emission-fighting technology. Recipients could include a yet-to-be established national green bank; and
• The Internal Revenue Service (IRS) needs to develop plans to spend the $80 billion allocated for enhanced tax enforcement to find the revenue to fund these programs and pursue deficit reduction.

The stakes are incredibly high as massive amounts of private investment hangs in the balance. Much of it is tethered to policies that will be written by the IRS, which must develop new guidance for dozens of new and expanded tax credits. Bloomberg has also reported that some companies lured by those tax incentives — but wary of mistakes that could forfeit them — will be waiting for the IRS documents before signing off on new renewable power ventures, manufacturing plants, and hydrogen projects. One thing companies will want clarity on is how they can satisfy prevailing wage and apprenticeship requirements to secure the full value of some clean energy tax credits. The law allows projects to get an exemption from those criteria as long as they begin construction within 60 days of the guidance being issued.

President Biden’s Medicare chief, Chiquita Brooks-LaSure, is pledging to meet critical deadlines for implementing the policies in Democrats’ spending package aimed at lowering seniors’ drug costs. Biden’s official green light lets hiring and contracting begin as the Centers for Medicare and Medicaid Services (CMS) is planning to bring on more staff, particularly to help out with efforts around letting Medicare negotiate the price of drugs for the first time and extending enhanced Obamacare subsidies for another three years. The CMS strategy is based lessons learned from ACA implementation.

The federal agencies are working on a tight timetable, seeking to propose and finalize new rules well before the end of Biden’s first term. If Biden isn’t reelected, regulations that don’t get finished under his watch will fall to his successor, who may not be eager to impose aggressive emissions and efficiency requirements. Even if work wraps up quickly, legal challenges are inevitable for most major environmental rules on the horizon, and a future administration may abandon defending them in court.

As we look to the rest of the year, a full list of upcoming Congressional fiscal policy deadlines can be found here.

Additional Summer Reading

• “Tech industry’s critical policy issues likely tabled as Congress heads for recess,” CNBC – Full Article
• “Republican Prospects for Midterm Pickups Dim Amid Democratic Wins,” US News and World Report – Full Article
• Forecasts for 2022 Elections:
  • FiveThirtyEight
  • Politico

Perspectives

• “What Republicans Should Do if They Win Big this Fall,” The New York Times – Full Article
• “As momentum shifts, can Democrats defy history?,” The Hill – Full Article

On Sunday, the Senate passed – by a 51-50 margin – the “Inflation Reduction Act,” with Vice President Kamala Harris serving as the tiebreaker. There were some crucial adjustments to the bill as the votes on various amendments occurred. Most notably, Sen. Kyrsten Sinema (D-AZ) was concerned that the 15% corporate minimum tax would impact subsidiaries owned by private equity. To pay for this change, Congressional Democrats instead extended the limitation on the amount of losses that businesses can deduct for another two years.

Now, the bill heads to the House, which is expected to vote on it on Friday. Since the House is on recess, we expect many members to vote “by proxy,” which means that the vote may take a long time to complete. The bill cannot change in the House. A few notes from relevant constituencies:

• The “SALT” Caucus, which informally consists of Democrats from states like New Jersey, New York, and California, seem likely to support the bill, even though it does not fix the state and local tax (SALT) deduction
•  The Congressional Progressive Caucus (CPC) put out a press release lamenting that major progressive priorities did not make it into the final bill, but committed to supporting it nonetheless
• We expect zero Republicans to vote in favor of the bill

Finally, here are some statements from major players in the House:

• Speaker of the House Nancy Pelosi
• House Majority Leader Steny Hoyer
• House Minority Leader Kevin McCarthy

Key Dates
October 1, 2022 (Fiscal Year 2023 Begins): 57 days
November 8, 2022 (Election Day): 95 days
November 9, 2022 (Senate Returns for “Lame Duck” Session): 96 days
November 14, 2022 (House Returns for “Lame Duck” Session): 101 days
December 15, 2022 (Target Adjournment of 117th Congress): 130 days

The major, salient news of the week is that the Senate is planning to move on reconciliation. You can find WSW’s full write-up from Wednesday here. Last night, Sen. Kyrsten Sinema (D-AZ) struck a deal with Senate Majority Leader Chuck Schumer (D-NY) which “removes the carried interest tax provision, protects advanced manufacturing, and boosts our clean energy economy.” To raise revenue, it adds a provision taxing stock buy-backs. The Senate is expected to convene sometime Saturday to vote on the motion to proceed, kicking off a vote-a-rama that will spill into early next week. Timing on a House vote remains unclear.

On the FY23 Appropriations front, there are a few items to consider, courtesy of WSW Principal Nancy Fox:

• Appropriations Topline Funding Number Elusive: Democrats and Republicans can’t agree on a top-line number for the FY23 defense and nondefense funding levels for the annual appropriations bills. As we have previously reported, the Senate published their FY23 appropriations bills in July, bypassing the Committee review process. For its part in July, the House passed six of twelve FY23 Appropriations bills ahead of the August district work period. Without a bipartisan funding agreement, it is doubtful the bills as written will become law, but will instead serve as a starting point for future negotiations.
• Appropriations Continuing Resolution Outlook: Stop Gap Measure to Fund the Government Expected: When Congress returns from a month-long district work period in September, there will only be a handful of legislative days until the end of the fiscal year on September 30. With so few days to complete work on all twelve annual appropriations bills by the end of the fiscal year, a short-term Continuing Resolution (CR) to fund the government at current levels will be needed. There is speculation a CR could run through the November election.
• COVID Supplemental: In the last week of July, three top Senate Democrats, Senator Patrick Leahy, Senator Patty Murray, and Senator Chris Coons introduced a $21 billion emergency COVID supplemental bill. For months, the Biden Administration has asked Congress for additional COVID funds, but legislation continues to stall in Congress. The COVID emergency supplemental discussion will pick up again in September.
• Some Additional Summer Reading on the Appropriations Process:
  • Roll Call: “Senate Democrats make their move on fiscal 2023 appropriations” – Full Article
  • Military Times: “Nearly 9% boost for defense spending next year under new Senate plan” – Full Article
  • Washington Post: “Democrats seek $21 billion to fight coronavirus and other outbreaks” – Full Article

WSW Partner Carl Chidlow also provides this look at the current state of play outside of the Capitol, as campaigns across the country work aggressively to make sure their candidate of choice wins in November:

“What’s the Matter with Kansas?” is a social commentary written by journalist and historian Thomas Franks, first published in 2004. Franks is a native son of the Sunflower State and was drawn home to focus on the political evolution of his birthplace. It is a significant early analysis of the fragmentation of our national politics along social issues, such as abortion.

Events this week resulted in me taking another look at this book. On Tuesday, voters in deep-red Kansas voted against a ballot initiative which would have amended their state’s Constitution and allowed the Republican-controlled legislature to restrict abortion rights – and it wasn’t even close. Nearly 60% of voters rejected this effort. Since the U.S. Supreme Court overturned the historic Roe vs. Wade decision, it is now up to the individual states to determine access to reproductive health care. Kansas just happened to be the first state to put this issue before the voters.

So why is this vote important?

For the last several months, Democrats have been bracing for what, by all accounts, could be a very rough midterm election. President Biden has been suffering from low polling numbers, dragged down by several factors: inflationary pressures leading to fears of recession; the war in Ukraine; continued supply chain shortages; and other post-pandemic challenges. Under normal historic circumstances, Democratic candidates should be running scared – and they are.

But a lot has happened over the last few days of July and early August. Democrats have revived their hopes for another major legislative victory, as West Virginia Sen. Joe Manchin (D-WV) has finally agreed to a historic package which could strengthen the Affordable Care Act, allow the government to negotiate the cost of prescription drugs, and make major strides on environmental tax credits and investments in energy efficiency and renewable energy production. We shared a dispatch on the so-called “Inflation Reduction Act” on Wednesday, which you can find .

Biden was even able to talk tough, although sequestered by a COVID relapse, and take credit for the elimination of one of the world’s most wanted terrorists. Gas prices have been falling in recent weeks and fears of a full-blown recession appear to be fading.

But midterm elections are always driven by voter enthusiasm. Democrats (and like-minded moderates) may have some reason for optimism. I wouldn’t have thought so two weeks ago. But this recent vote in Kansas is an eye opener.

Having recently re-read “What’s the Matter with Kansas?,” it is probably the last place I would have thought of, as being a harbinger of Democratic national outcomes. But they have soundly sent a message, and the normal rules may not apply this November. WSW’s most recent political report, looking at what the 118th Congress might hold, can be found here.

What to know before the end of the week

While the corporate tax, carried interest, IRS funding, green energy tax credits, ACA premium support, and prescription drug pricing negotiation provisions have garnered most of the media attention related to the Inflation Reduction Act, there are several other provisions that were included in the original agreement that have not garnered as much attention but that we thought might also be of interest to you. The full repository of documents produced by Senate Democrats to date can be found here.

Timing remains slightly less clear. We know that the text of the bill has been submitted to the Parliamentarian for what is known as a “Byrd bath.” The Parliamentarian is now assessing whether each provision meets the requirements for reconciliation. We expect that as each section of the bill passes the “Byrd bath,” it will head to the Senate floor, where it faces a “vote-a-rama.” During a “vote-a-rama,” Senators can offer as many amendments as they’d like in a 72 hour window. The minority party typically does this to slow down the process and to force the majority party to take tough votes. Senate Democrats are optimistic that this process can begin as soon as Friday. If the measure passes the Senate (we still have yet to hear from Sen. Kyrsten Sinema, who is a perpetual swing vote for Democrats), the House will likely take up the bill next week.

A high-level rundown of them follows, and we are standing by to answer any questions or provide additional information as it becomes available.

Changes to Business Operations

• 15% minimum tax on book income on corporations with at least $1 billion or more in annual average income over three years. Corporations would pay the larger of the minimum tax or 21%, whichever is larger.
• Requires investment funds to hold assets for five years instead of three years to receive carried interest. It effectively eliminates the tax break that allows for the share of a manager’s earnings to be taxed as a capital gain, with a maximum 23.8% rate for long-term gains, instead of as ordinary income, with a maximum 37% rate.
• Joint Committee on Taxation estimates it will yield $13 billion over a decade

IRS Funding

• Appropriates nearly $80 billion to the IRS to increase tax enforcement. It specifies that the IRS boost isn’t intend to increase taxes on anyone making less than $400,000.
• CBO expects it to yield $203 billion over a decade.

Tax Credits

• Green Energy: Some examples of green energy tax credits include:
• Production Tax Credit for electricity generated from renewable energy sources (and would be increased for facilities located in “energy communities”).
• Investment Tax Credit for investments in renewable energy property, which includes investments in energy storage and microgrid controllers. There would be an added bonus for wind and solar in low-income communities.
• A new credit for the production of clean hydrogen.
• Production and investment credits related to clean electricity, based on carbon emissions.
• Credits for advanced energy projects (including support for a program to award certifications for qualified investments in energy manufacturing facilities)
• Some tax credits that would be extended include:
• Credits for carbon capture facilities
• Credits for qualified energy efficiency improvements for residential energy property
• A deduction for energy efficiency commercial buildings
• Electric Vehicles: Provides $7,500 to individuals for purchases of qualifying electric vehicles (must have battery components extracted or recycled in North America or a country with which the U.S. has a free trade agreement). Phases out at $300,000 for joint filers and $150,000 for single filers. It also creates a credit for used clean vehicle and for commercial-sized clean vehicles.

ACA Premium Tax Credit

• Extends through 2025 the temporary expansion of the Affordable Care Act (ACA) health insurance premium credits.

Prescription Drugs

• The reconciliation bill contains a provision that would enable the Medicare agency to negotiate the prices for certain costly medications under Medicare Part D) or Part B. Price negotiation would begin in 2026, with the number of negotiated drugs limited to 10 to 15 drugs each year, then 20 in 2029 and beyond. It would require the department to negotiate the maximum number of drugs eligible each year.
• The measure would specify that the maximum price wouldn’t apply until nine years after a drug has been on the market and 13 years for biologics, reflecting additional time that would be included for negotiations.
• A percentage of the average price determined by years on the market — 75% for those 9 to 12 years old, 65% for those 12 to 15 years old, and 40% for those more than 16 years old or more.
• A plan-specific enrollment weighted price for Part D drugs or average price for Part B drugs.
• Drugmakers would have to repay the government the difference in profits above the cost of inflation on Part B and Part D drugs if they raise the price of a drug above inflation, beginning 2023.
• The measure would also cap the out-of-pocket cost of prescription drugs under Medicare Part D for beneficiaries at $2,000 a year starting in 2025. That amount would increase with the annual percentage increase in average per capita expenditures for covered Part D drugs in the US. The measure also would allow enrollees to pay in monthly amounts. The bill would cap the coinsurance rate for beneficiaries under the out-of-pocket cap beginning in 2025 and reduce the coinsurance rate that beneficiaries pay in the initial coverage phase to zero starting in 2024.
• The bill would also reduce the amount the government pays in reinsurance rates beginning in 2025 after an individual meets their out-of-pocket cap to between 20% and 40%, from 80%, of the allowable portion of gross covered prescription costs. Those costs would be subject to the new drug pricing provisions implemented by the bill.
• The measure would also direct HHS to enter agreements with drug manufacturers to provide discounts on certain drugs beginning 2025.
• The measure would permanently block the drug rebate rule published under former President Donald Trump in November 2020.
• The legislation would require coverage of vaccines with no cost-sharing under Medicare Part D. It also would retroactively reimburse Medicare Advantage plans the lost cost-sharing for 2023.

Energy Spending & Greenhouse Gas Emissions

• The bill would generally increase the royalty rate for new offshore oil and gas leases from 12.5% to a range from 16 2/3% and 18 3/4%.
• The measure would provide $4.3 billion for fiscal 2022 for the Energy Department to implement a “Home Owner Managing Energy Savings” or HOMES rebate program.
• The measure would provide $4.28 billion for fiscal 2022 for grants for states to implement a high-efficiency electric home rebate program. It would provide an additional $225 million for tribes to implement a similar program.
• The bill would provide $5 billion for fiscal 2022 for DOE to make as much as $250 billion in loans or refinancing guarantees.
• The measures would allow DOE to make as much as $40 billion in loan guarantees for projects to reduce, avoid or sequester GHG emissions and air pollutants through fiscal 2026. It would provide $3.6 billion for the costs of making guarantees.
• The bill would provide $12 billion for fiscal 2022 for the Environmental Protection Agency to provide financial and technical assistance on projects to reduce greenhouse gas emissions. An additional $8 billion for fiscal 2022 would be provided for grants to offer assistance on GHG reduction projects in low-income and disadvantaged communities.
• It would provide $7 billion for fiscal 2022, for EPA to make grants to states, municipalities, tribes, and nonprofits to enable low-income and disadvantaged communities to adopt and benefit from zero-emission technologies. The bill would also provide $250 million for fiscal 2022 for grants to states, air pollution control agencies, municipalities, and tribes to establish plans to reduce GHG pollution. A further $4.75 billion would be provided to award grants to implement those plans.
• Other energy funding includes:
• $2 billion for National Labs.
• $760 million for grants to state, local, or tribal governments to facilitate interstate electricity transmission lines.

Manufacturing & Ports

• The measure would provide $5.8 billion for fiscal 2022 for DOE to provide financial assistance for domestic, nonfederal, nonpower industrial or manufacturing facilities engaged in energy intensive industrial processes to purchase, install, retrofit or upgrade advanced industrial technology to reach net-zero GHG emissions.
• The bill would provide $2.25 billion for fiscal 2022 for grants and rebates for port authorities, air pollution control agencies, private entities, and governments with jurisdiction over ports to install zero-emission port equipment or technology. Awards could also be used to develop climate action plans to reduce GHGs and other air pollutants. An additional $750 million would be provided for ports in areas that don’t meet national ambient air quality standards.

Justice Grants

• An additional $2.8 billion would be provided for fiscal 2022 for EPA to provide environmental and climate justice grants for community-led projects to reduce GHG emissions and mitigate climate and health risks.
• The measure would provide $1.89 billion for fiscal 2022 for the Federal Highway Administration to provide grants to states, local governments, territories, or transportation authorities to increase neighborhood access and transportation equity, or reduce the negative effects of infrastructure projects in disadvantaged or underserved communities. A further $1.11 billion for fiscal 2022 would be provided for additional grants to economically disadvantaged or underserved communities that adopt anti-displacement policies or community land trusts.

Construction Materials

• The bill would provide $2 billion for fiscal 2022 for the Federal Highway Administration to reimburse or provide incentives to states, local governments, metropolitan planning organizations, and public authorities to use materials produced with lower-carbon emissions.

Vehicle Manufacturing

• $2 billion would be provided for fiscal 2022 to provide grants for domestic production of efficient hybrid, plug-in electric hybrid, plug-in electric drive, and hydrogen fuel cell electric vehicles.
• The measure would provide $600 million for fiscal 2022 to establish a clean heavy duty vehicle program providing grants and rebates to states, municipalities, tribes, and nonprofit school transportation associations to replace certain heavy duty vehicles with zero-emission vehicles. Another $400 million would be provided for similar grants specifically for projects in communities that don’t meet national ambient air quality standards.
• The Postal Service would receive $3 billion for purchasing electric delivery vehicles and installing the necessary infrastructure to support the vehicles at USPS facilities.

Key Dates

August 5, 2022 (Senate Begins Summer Recess): 7 days

October 1, 2022 (Fiscal Year 2023 Begins): 64 days

November 8, 2022 (Election Day): 102 days

November 9, 2022 (Senate Returns for “Lame Duck” Session): 103 days

November 14, 2022 (House Returns for “Lame Duck” Session): 108 days

December 15, 2022 (Target Adjournment of 117^th Congress): 137 days

This week in Washington was one for the record books, with what was expected to be a sleepy week turning into a one of the most consequential this year yet. Between reconciliation, FY23 appropriations, and the “CHIPS and Science Act,” there was no shortage of items to keep an eye on. Here’s what you might have missed:

Reconciliation Revived. Immediately following a successful vote on the “CHIPS and Science Act” in the Senate (more on that below), Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) announced that they had struck a deal on reconciliation. The bill, entitled the “Inflation Reduction Act of 2022,” aims to raise $739 billion while spending $433 billion. The one-pager can be found here. In terms of raising revenue, the legislation increases funding for IRS enforcement, places a 15% corporate minimum tax, allows for the federal government to negotiate the cost of prescription drugs for the first time, and closes the carried interest loophole. In terms of spending, the bill extends the Affordable Care Act for three years, and provides for several climate provisions. Some of these provisions include funding for consumer home energy rebate programs, tax credits for electric vehicles, facilitates domestic manufacturing of solar panels and batteries, and funding for environmental justice provisions.

Now, the process really kicks off. Majority Leader Schumer submitted the legislation to the parliamentarian for her review, and hopes to hold a vote as soon as next week – though observers consider that timeline somewhat ambitious. We still have yet to hear whether Sen. Kyrsten Sinema (D-AZ) supports the legislation, which could impact the bill’s passage. This is a live ball and something we will continue to monitor on behalf of your organization.

Senate Releases FY23 Appropriations Bills. As you may have heard directly from your WSW team, the Senate Appropriations Committee forewent the subcommittee process and instead posted all 12 bills. You can find them here. It is likely, however, that a continuing resolution (CR) will need to be instituted by September 30 to keep the government open, as it is unlikely Congress will pass spending bills before the election.

House & Senate Pass Newly-Renamed “CHIPS and Science Act.” This week, both the House and Senate passed the China competition legislation, now known as the “CHIPS and Science Act.” Full details can be found here. The bill passed along bipartisan lines in both houses, though many House Republicans who intended to vote for the bill changed their votes after Senate Democrats introduced a reconciliation measure. The $280 billion bill authorizes $52.7 billion for domestic chips manufacturing and about $200 billion for scientific research. This is a major win for Senate Majority Leader Schumer.

House Minority Leader McCarthy Previews GOP Agenda. Speaking on a panel with former Speaker Newt Gingrich, House Minority Leader Kevin McCarthy (R-CA) said his conference would start to unveil its agenda before November in a move reminiscent of Gingrich’s “Contract with America.” It will focus on energy prices, inflation, and crime. In an interesting note, the House Freedom Caucus released a list of proposals to change rules in the GOP conference and in the House as a whole in the event that Republicans take back the House.