Schumer-Manchin Reconciliation Deal
On July 27, Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) released a relatively “slim” Build Back Better reconciliation bill. The Inflation Reduction Act of 2022 would extend Affordable Care Act subsidies from the American Rescue Plan and allow Medicare to negotiate certain prescription drug prices. It would fund green energy/climate change/decarbonization programs with many for “environmental justice,” and parts of the bill could help fossil fuels if genuinely implemented by the Biden Administration. The bill would also extend more robust building energy-efficiency tax incentives such as the Energy-Efficiency Home Improvement Credit (25C, which no longer includes roofing with Energy Star ended); the Energy Efficient New Home Credit (45L); and the Energy Efficient Commercial Buildings Tax Deduction (179D). Revenue raisers in the bill include a 15% minimum corporate tax for companies making over $1 billion annually; changing the tax rules for carried interest; and $80 billion more for the IRS which House Ways and Means Republicans say will translate to 87,000 new IRS agents and an additional 1.2 million IRS audits per year.
Ten-year budget estimates have the bill’s revenue at $739 billion, spending at $433 billion, and deficit reduction at $306 billion. All 50 Senate Republicans oppose the bill but Democrats can use budget reconciliation to pass it with just their votes and Vice President Harris as the tie-breaker. The Senate Parliamentarian is now reviewing the bill to determine whether sections comply with reconciliation rules and Sen. Kyrsten Sinema (D-AZ) is studying the bill while waiting for the Parliamentarian’s rulings.
Meanwhile, business organizations including the AZ Chamber of Commerce, U.S. Chamber and National Association of Manufacturers have launched ads in Arizona opposing the bill’s tax increases with local business leaders calling Sinema directly. Americans for Prosperity also launched ads urging Sinema to block this “massive spending-and-tax package” and plans to expand the map with ads aimed at Sens. Raphael Warnock (D-GA), Catherine Cortez Masto (D-NV) and Maggie Hassan (D-NH) who are up for reelection in November.
S-Corp Coalition Letter to Congress
A coalition letter to House and Senate leaders was coordinated by the S-Corp Association to oppose small business tax hikes being considered for the Schumer-Manchin bill. Briefly, they would have applied Obamacare’s 3.8% investment tax to all business income above $400,000 per year, hitting sole proprietors, partnerships and S corps (pass-through entities), and further restricted “excess loss limitation” rules for “noncorporate taxpayers.” Getting hit with a 3.8% federal tax surcharge would be brutal for these entities and limiting their ability to deduct losses with a looming recession would only add to their problems. As such, TRIA is one of 192 organizations that signed the letter which helped to stop these tax proposals before they got in the final bill.
Supply Chain Issues
The Ocean Shipping Reform Act signed on June 16 is a major step towards fixing supply chain problems involving ocean carrier practices, but other issues portend more supply chain concerns:
- The contract between the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) expired July 1 while talks continue for a new contract for more than 22,000 workers at 29 West Coast ports.
- On July 16, talks between a railroad union representing 115,000 workers and railroad companies stalled so President Biden named arbitrators which delays a potential strike for 60 days.
- California’s independent contractor law, AB 5, which finds most workers to be employees became effective July 13 disrupting the business model of some 70,000 truck-owner operators and causing protests at the ports (article attached).