Reconciliation Package Goes to White House; Cabinet to Sell Provisions

U.S. to unveil new trade plan with Taiwan

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August 13, 2022 03:34 PM

U.S. to unveil new trade plan with Taiwan

Washington Focus

The House and Senate are both out for their long summer recess.

IRA/reconciliation measure on way to White House. House Democrats on Friday delivered the final votes needed to send President Joe Biden a slimmed-down version of his tax, climate and drug price agenda. The package, which similarly passed the Senate along party lines, was approved by the House via a vote of 220-207 — all Democrats voted in favor and all Republicans opposed it. Over half of the House voted by-proxy, which prolonged the bill’s passage by designating a certain member to cast in-person votes on behalf of absent lawmakers. President Biden tweeted his reaction to the House passage: “Today, the American people won. Special interests lost.”

Despite the legislation’s name of Inflation Reduction Act (IRA), Republicans have said it will have only a negligible effect on inflation in the short term, the nonpartisan Congressional Budget Office (CBO) found. But the CBO said it would reduce federal budget deficits by $102 billion over 10 years. House GOP leaders mocked the bill as the “Inflation, Recession, and IRS Army Act” in a message sent to all House Republicans’ offices.

Biden Cabinet road show. The Biden administration said there will be a “regular drumbeat” push to promote several initiatives. For example, USDA Secretary Tom Vilsack will travel to several states this coming week to note the IRA’s benefits for the ag sector.

The Democrats’ spin. During a press briefing on Friday, House Majority Whip James Clyburn (D-S.C.) seemed to preview a midterm message, arguing that voters need to keep Democrats in power so that the programs created by the law cannot be stripped down by Republicans if they regain control of Congress. “In November, it could very well be that you elect a group that will cut this bill off before we ever get started. So the question is very clear. Do you want to see this legislation in place in 2023? Or do you want to see it repealed in 2023?” Clyburn said.

Tax provisions: The bill will impose a 15% corporate minimum tax on large corporations — some of which report significant profits but pay little or nothing in income taxes due to credits and deductions — such as Amazon, Nike and FedEx. The tax is expected to raise $222 billion over the next decade, the largest chunk of the funding raised by the legislation. It applies to companies reporting $1 billion in annual earnings and would impact only around 150 large firms, according to the Joint Committee on Taxation. At Sen. Kyrsten Sinema’s (D-Ariz.) request, the tax would exempt companies taking advantage of accelerated depreciation, a popular deduction that helps pay for capital investments such as new equipment and small businesses that are subsidiaries of private equity firms. It would also impose a new 1% tax on corporate stock buybacks. Democrats expect the provision to raise $74 million over a decade, primarily from large companies such as Apple, Nike and ExxonMobil. Plans to tax the wealthy were removed, as well as taxing “carried interest” payments of private equity fund managers. Around $80 billion of funding was earmarked to the Internal Revenue Service, with the aim at improving customer service, increasing the number of audits and modernizing technology. The Treasury Department and IRS have assured that wealthy individuals and corporations, whose audit rates have decreased more sharply in recent years relative to regular Americans, are the intended targets. The bill also extends a set of limitations on losses that businesses can deduct from their taxes. The limits, which are expected to raise $52 billion, prevent wealthy individuals from significantly bringing down or even wiping out their income tax liability. The new 15% minimum tax on impacted corporations will take effect in the tax year beginning in January 2023, as will the 1% excise tax on stock buybacks.
Climate change investments: Incentives like a $4,000 tax credit for the purchase of used EVs, and $7,500 for new ones that are assembling vehicles in the U.S. The new credits would apply to trucks, vans and SUVs priced under $80,000 and cars up to $55,000 (only families with adjusted gross incomes of up to $300,000 would be eligible). This credit comes with stipulations that may make it difficult for vehicles to actually qualify, including a requirement that some of the minerals used in their batteries come from countries that have free-trade deals with the U.S. Minerals from China, a major supplier, wouldn’t meet that requirement. The vast majority of EVs on the market won’t actually qualify for it. The Alliance for Automotive Innovation, an influential trade group, estimates that 70% of the 72 EV and plug-in hybrid vehicles currently available in the U.S. market will not be eligible for the credit. If you’re in the market for an EV. Consumer Reports has the breakdown of which models will qualify (link) for the credit under the law. It’s terribly difficult to get a new electric car these days. In a recent survey of thousands of EV owners for Bloomberg Green’s Electric Car Ratings, respondents said they waited almost seven months, on average, for their battery-powered vehicle. In Australia, the delivery delay on a new Tesla is so long — up to nine months — that used models are selling for hefty premiums. There are also energy rebates for heat pumps, rooftop solar, electric HVAC and water heaters, as the U.S. aims to lower carbon emissions by around 40% by 2030.
A new program aims to reduce emissions of the planet-warming gas methane from oil and gas by both providing grants and loans to help companies reign in their emissions and levying fees on producers with excess methane emissions. $27 billion would go to a green bank that would provide more incentives for clean energy technology.
An excise tax on imported petroleum and crude oil products to fund the cleanup of industrial disaster sites increases from 9.7 cents to 16.4 cents per barrel. The reinstatement of the tax is projected to raise $11 billion.
For other climate provisions, see ag sector/renewable energy below.
Healthcare provisions: The measure will cap Medicare recipients’ out-of-pocket prescription-drug costs at $2,000 a year (starting in 2025), while ObamaCare subsidies will reduce 13 million Americans’ annual medical-insurance premiums by $800. Medicare in 2026 for the first time can negotiate some bulk discounts with drug companies for pharmaceuticals. There is a steep penalty if a drug company doesn’t come to the table: a tax of up to 95% of the sales of the drug. Of note: only older drugs are subject to negotiation after a period of nine years for most drugs and 13 years for more complex “biologic” drugs. That means the negotiations are more limited than many Democrats wanted. Meanwhile, the $35 insulin cap for Medicare beneficiaries remains in place, but GOP lawmakers were successful in removing the provision from the private market. The provisions are estimated to save the federal government more than $200 billion over 10 years.
Ag sector provisions including renewable energy
Sen. Sinema’s last-minute efforts added $4 billion to address the water crisis
along the Colorado River as the region endures its most intense drought in centuries, a 23-year run of extreme dryness compounded by the effects of climate change. Much of the $4 billion is expected to go toward addressing the Colorado River’s historic shortfall, including paying farmers and others to voluntarily use less water. It will also fund conservation efforts and environmental restoration projects, such as controlling dust and restoring aquatic habitat around the shrinking Salton Sea, which is fed by Colorado River water. The legislation includes funds to help Native American tribes respond to drought, adapt to climate change, and build water infrastructure projects. How the $4 billion will be divided and spent will be up to the Bureau of Reclamation and states, tribes and public entities. Growers in the Imperial Valley and in neighboring Yuma, Ariz., have been discussing proposals for taking less water. Under one proposal released by Arizona farmers, participating growers would forgo one acre-foot of water for each acre of farmland, generating roughly 925,000 acre-feet of water savings. Growers would not leave land fallow but rather would “decide what and how much to plant,” according to the proposal, enabling them to make crop decisions based on how much they need to cut irrigation. Farmers in Yuma have proposed being paid $1,500 per acre-foot of water each year they temporarily forgo, while some growers in the Imperial Valley have proposed a higher amount. At those prices, however, $4 billion over the next four years wouldn’t be nearly enough to meet the federal government’s reduction goal.
The package includes nearly $38 billion for agricultural conservation, credit, renewable energy, and forestry. Funding would remain available only through FY 2031.
Ag conservation: The IRA provides $19.5 billion for agricultural conservation. It would add over $18 billion in additional funding for existing farm bill conservation programs, including the Environmental Quality Incentives Program (EQIP; $8.45 billion), Regional Conservation Partnership Program (RCPP; $4.95 billion), Conservation Stewardship Program (CSP; $3.25 billion), and Agricultural Conservation Easement Program (ACEP; $1.40 billion). These programs provide financial and technical assistance to private landowners to voluntarily implement conservation practices on agricultural land. Program funds would be directed to climate change-related goals and would prioritize mitigation activities. The measure also extends some of these programs’ authorities beyond their current expiration in fiscal year (FY) 2023, to FY 2031. Some program authorities would not be extended, such as payment and income limits. Additional funding would also be provided for conservation technical assistance ($1.0 billion), a carbon sequestration and greenhouse gas emissions quantification program ($300 million), and administrative expenses ($100 million).
Ag credit: The IRA provides debt relief for distressed farm borrowers and assistance for underserved farmers and ranchers. These provisions would replace similar provisions from the American Rescue Plan Act that were blocked by the courts because the relief was found to be race-based and not narrowly tailored to meet a compelling state interest. It would use budgetary offsets of about $6 billion rescinded or repurposed from the ARPA funding. The new debt relief program would provide $3.1 billion for debt modifications, including debt forgiveness, for “distressed borrowers” of USDA Farm Service Agency direct or guaranteed farm loans “whose agricultural operations are at financial risk.” USDA is expected to develop the criteria for eligibility.
The measure also includes nearly $2.9 billion to help underserved farmers, ranchers, and forest landowners, defined to include those living in high poverty areas, veterans, limited resource producers, and beginning farmers and ranchers. Most of this assistance is $2.2 billion of financial assistance for those who experienced discrimination before 2021 in USDA farm lending programs. Individual payments for discrimination would be limited to $500,000 and are to be administered by nongovernmental entities selected and overseen by USDA.
The bill also would provide $125 million for technical assistance, outreach, and mediation; $250 million for land loss assistance, such as heirs’ property and fractionated land; $250 million for agricultural education emphasizing scholarships and career development at historically Black, tribal, and Hispanic colleges; and $10 million for equity commissions at USDA.
Renewable energy. The IRA provides $13.3 billion for farm bill energy title programs. It would provide $1 billion for electric loans for renewable energy under the Rural Electrification Act. USDA may use the funding to make loans for electric generation from renewable energy resources, including for projects that store electricity. The bill would provide approximately $1.7 billion for eligible projects under the Rural Energy for America Program (REAP) and approximately $304 million for grants and loans for underutilized renewable energy technologies and technical assistance with REAP applications. The bill provides $500 million for grants to increase the sale and use of agricultural commodity-based fuels through infrastructure improvements for blending, storing, supplying, or distributing biofuels.
For rural cooperatives, it would provide $9.7 billion — for financial assistance (e.g., loans) to eligible entities for the long-term resiliency, reliability, and affordability of rural electric systems through the purchase of renewable energy, renewable energy systems, zero-emission systems, carbon capture and storage systems, and more.
The package provides $5 million to the Environmental Protection Agency to carry out the Renewable Fuel Standard program, in part, for data collection and analyses for lifecycle greenhouse gas emissions of a fuel and would provide $10 million for new grants to support investment in advanced biofuels.
The IRA establishes a sustainable aviation fuel (SAF) tax credit that would, after 2024, be absorbed into a new clean fuel production tax credit.
The plan extends tax incentives for biofuels, including for biodiesel and renewable diesel, through 2024.

The FBI found “top secret” documents at Mar-a-Lago. A judge unsealed the FBI’s warrant to search former President Donald Trump’s Florida home, revealing that the agency was looking for evidence of possible violations of the Espionage Act, as well as signs of removing or destroying evidence and obstruction of justice. A newly public property receipt shows that the agency seized 11 sets of classified documents, including some marked as “top secret.” Trump, meanwhile, maintains he declassified all the material before leaving office. A Wall Street Journal commentary (link) says: “Charging Mr. Trump under the Espionage Act merely for keeping at his residence classified documents that he claims were declassified would be a gross prosecutorial overreach.”

Meanwhile, the New York Times reported (link) a Trump lawyer signed a statement in June that all documents marked as classified and held in boxes in storage at Mar-a-Lago had been given back. The search at the former president’s home on Monday turned up more.

The U.S. will unveil a new trade plan with Taiwan in the coming days, the White House said, intended to deepen ties with the island. Tensions between America, China and Taiwan have been high since House Speaker Nancy Pelosi (D-Calif.) visited Taiwan earlier this month. A trip by China’s president, Xi Jinping, reportedly being planned for November, may include a first face-to-face meeting with President Joe Biden since he became president.

A new trade plan will be unveiled within days, while U.S. forces will transit the Taiwan Strait in the next few weeks, said Kurt Campbell, White House coordinator for Asia-Pacific issues and an adviser to President Joe Biden. Campbell said the administration would continue to “deepen our ties with Taiwan, including through continuing to advance our economic and trade relationship. For example, we’re developing an ambitious roadmap for trade negotiations which we intend to announce in the coming days,” he said. Campbell said that the U.S. would also reassert its right to use international air and sea space between Taiwan and China.

The current pause on collections of student debt is scheduled to end on Aug. 31, but many expect the Biden administration to issue another extension — its fifth — to avoid riling voters in the run-up to Nov. 8 midterm elections for control of Congress. Unknown is what additional measures President Biden may unveil.

Democratic lawmakers have called for cancelling student debt of up to $50,000 per borrower. President Biden reportedly favors forgiving around $10,000 each for people making under $125,000. Republicans oppose debt cancellation, with the party’s Senate leader Mitch McConnell (R-Ky.) calling it “a giant slap in the face to every family who sacrificed to save for college.”

U.S. student loan debt stood at $1.6 trillion in the second quarter, or $700 billion more than Americans borrowed on their credit cards, according to the Federal Reserve Bank of New York. Most of the money is owed to the federal government.

On the ag business front, on Friday, John Deere reports third-quarter fiscal 2022 results.

Key Economic Reports for the Week

Wednesday morning brings the important retail sales report for July. Analysts note that gasoline prices fell sharply last month. That could leave headline sales relatively weak but also indicate some resilience in underlying demand alongside slower but still substantial price increases in categories outside gasoline. Other key releases: U.S. housing starts for July on Tuesday, Federal Reserve minutes on Wednesday and existing home sales for July on Thursday.

Monday, Aug. 15

National Association of Home Builders releases its Housing Market Index for August. Consensus estimate is for a 53 reading, slightly less than July’s 55. Not only has the index declined every month this year, but July’s 12-point drop also was the second steepest in the index’s history. Home builders say that affordability, production bottlenecks, and rising inflation are market headwinds.
Federal Reserve Bank of New York releases its Empire State Manufacturing Survey for August. Expectations are for a five reading, six points fewer than in July.

Tuesday, Aug. 16

Census Bureau reports new residential data for July. Economists forecast a seasonally adjusted annual rate of 1.53 million new housing starts, about 30,000 fewer than in June. Housing starts have dropped about 10% from the beginning of the year.

Wednesday, Aug. 17

MBA Mortgage Applications
Federal Open Market Committee (FOMC) releases minutes from its late July monetary-policy meeting. The FOMC raised the federal-funds rate by 75 basis points, to 2.25%-2.5%, at that meeting.
Census Bureau reports retail sales data for July. Consumer spending is expected to increase 0.2% month over month. Excluding autos, retail sales are seen as being flat. This compares with a 1% jump for both measures in June. The consumer has proved resilient despite four-decade-high inflation, bolstered by a historically strong jobs market.
Europe: Data on British inflation rate for July; data on eurozone gross domestic product growth rate for second quarter of 2022.

Thursday, Aug. 18

Jobless Claims
Conference Board releases its Leading Economic Index for July. Consensus estimate is for a 0.3% month-over-month decline, after a 0.8% drop in June. “The US LEI declined for a fourth consecutive month, suggesting economic growth is likely to slow further in the near term as recession risks grow,” according to Ataman Ozyildirim, senior director of economic research at The Conference Board.
National Association of Realtors reports existing-home sales for July. Expectations are for a seasonally adjusted annual rate of 4.85 million homes sold, 270,000 fewer than in June. Existing-home sales have declined for five consecutive months.
Fed Balance Sheet
Money Supply
Europe: Data on eurozone inflation rate for July.
Turkey’s central bank to announce interest rate decision, which is widely expected to stay unchanged despite 80% inflation.

Key USDA & international Ag & Energy Reports and Events

With USDA’s monthly reports released Friday, focus is on weather and crop developments in the U.S. and other key producing countries.

Monday, Aug. 15

Ag reports and events:

Export Inspections
Crop Progress
Feed Grains Database
Dairy Monthly Tables and Dairy Quarterly Data
Season Average Price Forecasts
Wheat Data
Malaysia’s Aug. 1-15 palm oil export data
Holidays: Argentina, France, India, Italy, Bangladesh, South Korea