Congress and the White House
The Senate heads towards a rare Saturday session. Senate Majority Leader Schumer announced the Senate will be in session Saturday beginning at noon and will begin consideration of the budget reconciliation bill, or the Inflation Reduction Act of 2022. He could make that announcement because Thursday night he secured the support of Sen. Kristen Sinema (D-AZ) for the package after she negotiated a few changes to the legislation. The provision repealing “carried interest” – a tax structure used by the private equity industry – was removed from the bill. She also secured some scaling back of the book minimum tax – preserving some accelerated depreciation for manufacturing. The lost revenue is replaced by a 1 percent excise tax on stock buy backs – which raises an estimated $70 billion. The Senate parliamentarian has still not completed the Byrd Rule scrub of the bill and the possibility that some provisions will get dropped remains real. Provisions, at the very least, will need to be modified to meet the rules of reconciliation. But the bottom line seems clear. The legislation is on track to pass the Senate by early to mid-week and the House of Representatives is aiming for a Thursday vote on final passage.
The White House and congressional Democrats secured last minute changes to advance the bill. But the changes were needed in part because the provisions were scrutinized in public and the flaws in the carried interest and book minimum tax were debated and discussed. In its place, they inserted the excise tax on stock buybacks. It has been a rhetorically attractive tax to consider – stopping companies from propping up their stock price. But as the Tax Foundation has written, it is a bit more complicated.
“When companies have more cash than they can use for their current investment opportunities, they can either hold on to that excess cash, or return it to shareholders. A large body of evidence supports the idea that companies generally only consider stock buybacks when they have exhausted their investment opportunities and met their other obligations, meaning it is residual cash flow that is used for buybacks. In fact, stock buybacks can supplement capital investments, as they can help reallocate capital from old, established firms to new and innovative firms.”
The legislative process has become less deliberative over time. Even after a 14-month roller coaster over the budget reconciliation bill – it has never gone through a single Senate committee. The Leadership driven negotiation achieved a likely legislative victory, but also guarantees the legislation includes technical errors and unintended policy outcomes.
Sinema signs onto Dems' party-line bill ahead of momentous Saturday vote.
It's a big, early win for Majority Leader Chuck Schumer and his party, even as some of the bill’s specifics are still clouded in uncertainty. Senate Democrats cleared a huge hurdle Thursday night by securing Kyrsten Sinema’s support for a modified signature climate, tax and health care proposal, and will move forward on the legislation on Saturday. The Arizona Democratic centrist announced that she’s signed off on the legislation after winning tweaks that include the removal of a narrowed loophole for taxation of certain investment income, a provision known as carried interest. In a statement, Sinema said she’s also won changes that would “protect advanced manufacturing, and boost our clean energy economy.” The new agreement with Sinema includes a new 1 percent excise tax on stock buybacks that will bring in $73 billion, far more than the $14 billion raised by the carried interest provision, according to a Democrat familiar with the deal.
Democrats Pursue Bills Pre-Empting Republican Policies.
On issues from same-sex marriage and contraception to job security for federal workers, Democrats want to cement protections now in case they lose control of Congress in the midterms. Democrats are seeking to pass legislation to block potential Republican policy efforts on a variety of issues ahead of an expected GOP takeover of at least one chamber in November’s midterm elections. Many of the bills relate to passing laws to enshrine rights the Democrats see as put at risk by Justice Clarence Thomas’s concurring opinion in the July ruling overturning Roe v. Wade that said the same logic the court used to reject the constitutional right to an abortion could be applied to ending other rights granted by the high court such as access to contraception and same-sex and interracial marriage. Some of the bills have attracted a measure of GOP support, though many Republicans accuse Democrats of seeking to distract voters from other pressing issues such as inflation. Nearly 50 House Republicans joined Democrats to pass a bill protecting same-sex marriage and interracial marriage, and some GOP senators have expressed openness to backing the measure. At least 10 Republicans would have to join with all Democrats for the bill to advance in the Senate. Only eight House Republicans have backed a measure in the House that would guarantee access to contraception, with many arguing the text was too broad. A Democratic-led effort in the Senate to pass a similar contraception bill by unanimous consent failed.
Pharma group leader says Dems who vote for reconciliation bill 'won't get a free pass'.
PhRMA CEO Steve Ubl says the group is still fighting hard against the drug pricing provisions but is making contingency plans — and promises — should reconciliation become law. Steve Ubl, who leads the nation’s top industry group for drugmakers, is offering a final salvo to Congress as Democratic lawmakers inch closer to passing their sweeping reconciliation package that includes drug pricing measures — and threatening swift retaliation if they don’t listen, he told POLITICO. Ubl’s group, the Pharmaceutical Research and Manufacturers of America, or PhRMA, and its 31 board members sent a letter to every member of Congress on Thursday afternoon, urging them to vote against the package. PhRMA, not accustomed to losing legislative fights, has waged a multimillion-dollar advocacy campaign against the drug pricing measures, and is crafting contingency plans if they fail. In addition to hinting at running campaign ads against Democrats in tough races this fall, the industry is assessing its legal options and pondering future regulatory or legislative fixes.
The Economy
Fed's Powell pummeled from all sides over rate hikes.
Summers and others are skeptical the Fed can cut inflation meaningfully without a jump in unemployment. A debate over whether the U.S. is in a recession is consuming Washington. But some in the nation’s capital are asking a more complicated question: Does the U.S. need a recession? Federal Reserve Chair Jerome Powell said last week the central bank isn’t trying to cause a recession by raising interest rates and doesn’t think it needs to as the Fed aggressively moves to get decades-high inflation under control. Some economists — including former Treasury Secretary Larry Summers — say Powell is being much too optimistic about the Fed’s ability to tame prices without pushing unemployment much higher. The implication: The Fed chief, who has sought to elevate the central bank’s focus on boosting the labor market, may be forced to accept millions of job losses and a significant recession to curb inflation.
Proposed Tax Break for Buying Electric Vehicles Is Too Hard to Get, Auto Makers Say.
Draft rules in Senate climate package mean few current vehicles would be eligible, say lobbyists. Major auto makers are pressing lawmakers to ease a proposed battery-sourcing requirement for electric-vehicle tax breaks, saying that few, if any, plug-in models on sale today would qualify. The Senate climate package proposed last week would extend until 2032 a current $7,500 tax credit for electric-vehicle purchases, a consumer incentive that has been in place for more than a decade. The legislation, a deal struck between Sen. Joe Manchin (D., W.Va.) and Senate Majority Leader Chuck Schumer (D., N.Y.), could get a Senate vote by this weekend. The bill would enhance the electric-vehicle tax credit in some ways, including making vehicles produced by General Motors Co., Tesla Inc. and Toyota Motor Corp. eligible for the subsidy again. But the proposal would stiffen the requirements for an electric vehicle to qualify. Only U.S.-built vehicles would be eligible. It also pushes car companies to bring more manufacturing to North America, including setting minimum thresholds for the value of battery components that must be manufactured or assembled in the region. Essentially any EVs with battery components made or processed in China would be ineligible for the subsidy.
Home Sellers Cut Prices as Housing Market Cools.
How higher mortgage rates—and frustration—are changing the playbook for sellers. There are a lot of unhappy people in the housing market right now. Among the most miserable are sellers realizing they have listed their properties too late. For much of the country, real estate had been on a tear since the start of the pandemic. Home prices are up about 44% over the past two years, according to Redfin. But prices have cooled lately and many homeowners are coming to grips with the reality that they may not get the same prices their neighbors did. Roughly one in seven homes on the market had a price reduction in June, according to Realtor.com. That is nearly double the rate of one in 13 homes a year ago. Overall, the housing market remains solid. While there have been price reductions, the amount is still far less than was typical from 2017 to 2019, when the rate was one home out of every four or five. But there have been weakening signs as mortgage rates have risen and inventory stays on the market longer. Homes that have been on the market for three months or longer are reducing prices by around 11% from the list price, according to the National Association of Realtors.
Pacific rim economies in doldrums, sapped by inflation, war.
Economies in the Asia-Pacific are forecast to hit the doldrums this year as decades-high inflation and the war in Ukraine compound geopolitical uncertainties and the aftereffects of the pandemic. A report on Pacific Rim economies by the Asia Pacific Economic Cooperation forum said Friday that growth in the region will likely fall by more than half this year to 2.5% from 5.9% last year, when many countries were recovering from the worst of their COVID-19 outbreaks. Weaker growth in the U.S. and China is a big factor behind the regional malaise, though other economies are also slowing. Russia’s economy is expected to contract due to the implications of its war in Ukraine, and the three economies account for nearly 70% of the APEC region’s GDP, the report said. The report forecast that regional growth would only pick up slightly in 2023, to 2.6%. Most economies in the region are just beginning to fully emerge from border closures and other pandemic-related precautions. Tourists have reappeared on the streets of Bangkok, but many businesses remain shuttered, casualties of the many months when travel was virtually paralyzed.