Debt Ceiling Negotiation, FY2024 Budget Hearings, Lower Energy Costs Act, and More

General Updates

Programming Update: This newsletter will be taking a hiatus during the congressional recess. We will resume publishing on Friday, April 21.

Debt Ceiling Negotiation Update: Earlier this week, House Speaker Kevin McCarthy (R-CA) called for another meeting with President Biden on the debt limit. The White House echoed the president’s previous call for House Republicans to release their fiscal year (FY) 2024 budget plan before starting negotiations on a clean debt ceiling increase. The two leaders have not met on the issue since Feb. 1, and the summer deadline to raise the debt limit looms closer.

Amid reports of different budget priorities between the five House Republican ideological groups, Speaker McCarthy said Thursday the party is finalizing a bill to increase the debt ceiling while cutting federal spending to pre-pandemic levels, taking back unspent COVID-19 relief funds and easing energy regulations. Just two days prior, House Financial Services Chair Patrick McHenry (R-NC) said he has “never been more pessimistic about where we stand with the debt ceiling,” but Speaker McCarthy vowed that “If the president doesn’t act, [House Republicans] will.”

FY2024 Budget Request Hearings Continue: The agency budget request and appropriations process continued this week, with 28 FY2024 budget-related congressional hearings happening between the House and Senate. House and Senate Appropriations subcommittees held FY2024 request hearings for: nuclear forces and atomic energy defense activities; the Department of the Interior (DOI); the United States Air Force (USAF); the United States Space Force (USSF); the Department of Health and Human Services (HHS); the Cybersecurity and Infrastructure Security Agency (CISA); the Commodity Futures Trading Commission (CFTC); the Architect of the Capitol (AOC); the Transportation Security Administration (TSA); the Environmental Protection Agency (EPA); the Department of Justice (DOJ); the Department of Defense (DOD); the Department of Veterans Affairs (VA); the U.S. Army Corps of Engineers (USACE); the U.S. Bureau of Reclamation (USBR); the Food and Drug Administration (FDA); the Bureau of Land Management (BLM); the U.S. Fish and Wildlife Service (FWS); the National Park Service (NPS); the U.S. Department of Agriculture (USDA); the United States Navy (USN); the United States Marine Corps (USMC); and the Department of Homeland Security (DHS).

Additionally, today is the appropriations request deadline for a mixture of House and Senate Appropriations subcommittees and marks the end of the House appropriations request process. The full list of deadlines for members to submit appropriations requests is below. These do not include House community project funding requests or Senate congressionally directed spending requests.

Health Care

Texas Judge Strikes Down ACA Preventive Services Requirement: Yesterday, March 30, U.S. District Court for the Northern District of Texas Judge Reed O’Connor struck down the Affordable Care Act’s (ACA) requirement for free preventive service coverage, barring the Department of Health and Human Services (HHS) from enforcing the coverage mandate across the country. This follows Judge O’Connor’s previous decision that the ACA’s requirement for private health plans to cover without cost-sharing services recommended by the U.S. Preventive Services Task Force (USPSTF) was unconstitutional since USPSTF members are not presidential appointees or confirmed by the Senate. The ruling only applies to preventive services that were recommended on or after March 10, 2010, so screenings for breast cancer and colon cancer will not be impacted while newer screenings for skin cancer and lung cancer will be affected.

Judge O’Connor also ruled that the coverage requirement for the HIV prevention drug PrEP violated employers’ religious rights. The Biden administration is expected to appeal the decision in the 5th U.S. Circuit Court of Appeals.

HHS Secretary Becerra Continues FY2024 Budget Hearings: HHS Secretary Xavier Becerra appeared before three House committees this week to discuss the agency’s FY2024 budget request. Some of the discussion before the House Appropriations Labor, HHS, Education, and Related Agencies Subcommittee, House Ways and Means Committee and House Energy and Commerce Health Subcommittee focused on implementing the drug pricing provisions of the Inflation Reduction Act (IRA), pandemic preparedness, pharmacy benefit manager (PBM) transparency, 340B program oversight, maternal health, Medicare Advantage (MA), implementation of the No Surprises Act, Medicare solvency, permanently extending telehealth flexibilities, the health care workforce shortage and response to the fentanyl crisis.

Senate Passes Republican Resolution to End National COVID-19 Emergency: On Wednesday, March 29, the Senate passed H.J.Res. 7 in a 68-23 vote. The resolution ends the COVID-19 national emergency declaration, separate from the COVID-19 public health emergency, which the Biden administration previously announced would expire on May 11. The end of the national emergency will bring about the end of Centers for Medicare and Medicaid Services (CMS) waivers like allowing off-site COVID-19 screenings, requiring Medicare Advantage to cover services at out-of-network facilities and allowing hospices to halt physical or occupational therapy.

The resolution passed the House in February by 229-197 with 11 Democrats joining Republicans in voting for the measure. The resolution now heads to President Biden’s desk, and the White House stated that the president will sign it despite his strong opposition.

FDA Approves OTC Naloxone: The Food and Drug Administration (FDA) approved Narcan, the naloxone nasal spray to reverse opioid overdose, for over-the-counter (OTC) use on Wednesday, March 29. This is the first naloxone product to be approved for use without a prescription. Narcan manufacturer Emergent BioSolutions said it will start commercializing OTC Narcan by the end of the summer. Generic versions of the overdose reversal drug will have to submit supplemental applications to switch to OTC approval and will have to go through labeling changes to align with the new status. The FDA will decide on a case-by-case basis how Narcan OTC approval might affect other brand-name naloxone products.

Poll Shows 72% of Physicians Believe COVID-19 Misinformation Harmed Patient Health: On Wednesday, March 29, a new de Beaumont Foundation and Morning Consult poll found 72% of physicians said COVID-19 misinformation had a negative impact on patient outcomes and made it more difficult to treat COVID-19 patients. Over 80% said misinformation is a problem for both COVID-19 vaccines and treatments as well. Beyond COVID-19, the poll also found 80% of physicians believe misinformation is a problem around weight loss and dietary supplements; 82% think misinformation concerning mental health is an issue; and 67% said other vaccines face a misinformation problem.

E&C Health Subcommittee Holds Transparency and Competition Hearing: On Tuesday, March 28, the House Energy and Commerce Health Subcommittee held a hearing titled “Lowering Unaffordable Costs: Examining Transparency and Competition in Health Care.” The discussion focused on hospital compliance with price transparency regulation, which Subcommittee Chair Brett Guthrie (R-KY), Subcommittee Ranking Member Anna Eshoo (D-CA), full Committee Chair Cathy McMorris Rodgers (R-WA) and full Committee Ranking Member Frank Pallone (D-NJ) all touched on in their opening statements. The hearing also highlighted the importance of pharmacy benefit manager (PBM) and 340B transparency efforts, health care consolidation and various policy recommendations.

House E&C Republicans Request Drug Shortage Information: On Monday, March 27, House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-WA), Health Subcommittee Chair Brett Guthrie (R-KY) and Oversight and Investigations Subcommittee Chair Morgan Griffith (R-VA) sent a letter to the FDA requesting information on how the administration is working to address drug shortages. The members ask for an update on shortages of albuterol, amoxicillin, acetaminophen, ibuprofen and other drugs. They also request aggregated country of origin data, how collected data is used to mitigate potential shortages, and how many manufacturers have failed to report data by April 10.

Tax

Treasury Department and IRS Release Preliminary Guidance on Semiconductor Tax Credit: On March 23, the Treasury Department and IRS published proposed regulations for implementing the new section 48D advanced manufacturing investment tax credit (ITC) enacted through the Chips and Science Act. This ITC is equal to 25% of a taxpayer’s investment in qualified tangible property designed to produce semiconductors or semiconductor tooling equipment. The credit is available for facilities placed in service after Dec. 31, 2022, provided the construction of the facility begins before Jan. 1, 2027.

The proposed regulations offer additional guidelines for calculating the amount of a taxpayer’s qualified investment under section 48D(b)(1) for both corporate and passthrough entities. The rules generally align the credit calculation for partnerships with determinations used in established regulations for solar and wind tax credits under section 48. The regulations further clarify that the tax credit will not apply to any capital expenditures qualifying for the rehabilitation tax credit under section 47.

The proposed regulations provide definitions for several specific terms associated with the tax credit, which signal the approach that the Treasury Department and IRS may take in expected guidance used with other energy credits under the Inflation Reduction Act (IRA). This includes clarity that the term “qualified property” encompasses all items of property or advanced manufacturing facilities operated as part of a single project. This broad definition of included property may provide insight into the future treatment of multiple technologies operated as one project in other credits, such as the modified sections 48, 48C and 48X credits.

Taxpayers can elect to monetize the section 48D ITC as an overpayment against their taxes, allowing eligible entities to receive a direct cash payment equal to the full credit amount regardless of tax liability. Direct pay options are also provided for certain taxpayers monetizing green-energy credits implemented through the IRA.

Last week, Treasury Assistant Secretary for Tax Policy Lily Batchelder confirmed that the IRS had begun work on an electronic pre-filing registration process for eligible companies and organizations to monetize new direct pay and transferable tax incentives. The development of the registry is expected to be completed in late 2023 and will aim to limit tax fraud and ensure eligible taxpayers can more readily access the value of the applicable credits. Before the official launch of the registry, the Treasury Department and IRS will conduct user experience research to ensure the process works as intended.

Republicans Urge House Appropriators to Eliminate OECD Funding: On March 24, Rep. Adrian Smith (R-NE), chairman of the House Ways and Means Subcommittee on Trade, sent a letter urging lawmakers to end U.S. support for the Organisation for Economic Co-Operation and Development (OECD) in fiscal year 2024. The letter was specifically addressed to the chairman and ranking member of the House Appropriations Subcommittee on State, Foreign Operations and Related Programs and was signed by nine other GOP members of the House tax-writing committee.

As the letter notes, the United States currently provides nearly $45 million or approximately 20% of the OECD’s Part I budget—more than double the contribution of any other country. The Part I budget is calculated based on the relative size of the member countries’ economies and accounts for a majority of the total OECD funding. Other significant contributors include Japan and Germany, each providing approximately 10% of the OECD’s Part I budget. Notably, China, the world’s second-largest economy, is not a member of the OECD and does not help finance the organization.

Despite significant U.S. contributions, the letter’s authors assert that the OECD has recently acted against the interests of U.S. taxpayers and has generally “evolved into a venue that advocates against the economic interests of the United States.” The letter explicitly references the preliminary global agreement on digital services taxes (DSTs) [Pillar One] and the international minimum-tax regime [Pillar Two] negotiated through the OECD by the Biden administration in 2021. Smith asserts that these agreements do not have sufficient congressional support to be enacted in the United States, but they will still have significant tax ramifications for U.S. multinational companies if enforced by foreign countries.

At a pair of hearings last week with U.S. Trade Representative Katherine Tai, GOP lawmakers raised similar concerns surrounding the ongoing implementation of DSTs by foreign countries. Senate Finance Committee Ranking Member Mike Crapo (R-ID) specifically addressed Canada’s pursuit of a new DST, which he perceived to be a violation of the United States-Mexico-Canada Agreement (USMCA) and the country’s commitment not to enact unliteral DSTs during ongoing Pillar One negotiations.

Regarding Pillar Two, Smith’s call to limit U.S. support for the OECD comes as several governments have already begun to enact policies to implement the global minimum-tax regime. Notably, the European Union reached a preliminary agreement in December for each member country to adopt the changes to their domestic tax laws by the end of 2023. Other countries, such as the United Kingdom, Australia and Japan, have also taken initial steps to adopt the global minimum-tax regime.

Bipartisan Group Rebuffs Biden’s Calls to Limit Step-Up Basis: Last Tuesday, a bipartisan group of lawmakers introduced H.Res.237 to recognize the importance of stepped-up basis in preserving family-owned farms and small businesses.

The resolution reacts to a provision in President Joe Biden’s FY2024 budget, which would treat any transfer of appreciated property during a taxpayer’s life, or after death, as a taxable event. The proposal would provide individuals with a lifetime exemption of $5 million in property value (indexed for inflation). Lifetime transfers and a decedent’s estate would be subject to exceptions for transfers to a surviving spouse and for certain interests in closely held businesses.

In effect, the proposal would eliminate stepped-up basis for taxpayers seeking to pass property that exceeds the established threshold to their beneficiaries. The proposal is not Biden’s first time offering changes to stepped-up-basis rules. Similar proposals were included in prior budget submissions. Early versions of the Build Back Better legislation also included a similar provision to limit the use of stepped-up basis for transfers by individuals with over $1 million in assets.

However, in opposition to Biden’s proposal, the House resolution expressed formal support for stepped-up basis at death and voiced resistance to any efforts to impose additional taxes on multigenerational enterprises. Introduced by Rep. Tracey Mann (R-KS), the resolution has already garnered 66 co-sponsors, including three Democrats: Reps. Jim Costa (D-CA), Angie Craig (D-MN) and Jimmy Panetta (D-CA).

Treasury Releases Fiscal Year 2023 and 2024 Spending Plans: On March 24, the IRS published its annual budget in brief analysis, containing a high-level overview of the agency’s planned expenditures in the coming years. According to the document, the IRS plans to use an additional $8.6 billion in fiscal years 2023 and 2024 above-baseline mandatory Inflation Reduction Act (IRA) appropriations to hire approximately 20,000 new full-time equivalent workers. The IRS provided more information on the Biden administration’s recent request for a 15% increase in fiscal year 2024 discretionary funding. The agency said that these new funds would support taxpayer services and assist in the reduction of the paper return backlog. The agency plan also notes that the IRS intends to commence audits on 3,817 high-income taxpayers in fiscal year 2023 and an additional 4,830 the following year.

IRS Watchdog Suggests Improvements for Tax Gap Estimates: On March 23, the Treasury Inspector General for Tax Administration (TIGTA) released an audit report responding to lawmakers’ ongoing concerns over the process that the IRS uses to determine the value of total uncollected tax revenue. TIGTA determined that the IRS office responsible for estimating the tax gap, the Office of Research, Applied Analytics and Statistics (RAAS), did not have a formal strategy for its estimates and had not developed estimates for several sources of noncompliance that should have been reflected in IRS figures. Furthermore, TIGTA asserted that RAAS lacked formalized external or internal review processes and any written policies, procedures or guidance to govern the program’s adherence to specified milestones. To remedy these issues and improve tax-gap estimations, TIGTA offered several procedural recommendations to the IRS.

Policy and Taxation Group is the Voice for Family Offices and Successful Individuals in Washington, DC focused exclusively on the critical tax and economic policies that impact them.

Since 1995, Policy and Taxation Group has been the leading advocacy group working to reduce and eliminate estate tax, gift tax, and generation skipping transfer tax while blocking increased income tax and capital gains taxes, the creation of a wealth tax, and other hostile tax policies that punish hardworking taxpayers and success.

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