OVERVIEW
On Wednesday, April 26, the House of Representatives voted to pass the GOP proposal to avert the impending government default—the Limit, Save, Grow (LSG) Act. The measure was advanced by a margin of 217-215, with four Republican lawmakers—Reps. Tim Burchett (R-TN), Matt Gaetz (R-FL), Ken Buck (R-CO) and Andy Biggs (R-AZ)—siding with all present members of the Democratic caucus to oppose the legislation. GOP resistance to the bill stemmed from some members’ beliefs that the proposal did not go far enough to curb federal spending.
In a press conference following the vote, House Speaker Kevin McCarthy (R-CA) told reporters that the House had “lifted the debt limit; sent it to the Senate; [and] done their job.” The LSG Act is not expected to gain the support of any Democrats in its present form and is unlikely to receive consideration in the Democratic-controlled Senate. However, the proposal provides House Republicans an opening stance in debt-ceiling negotiations, which are expected to continue in the lead-up to “x date”—after which point the Treasury Department may not be able to fulfill all of the government’s obligations. Estimates on when the x date will occur are dependent on incoming 2022 and first quarter 2023 tax receipts, which could put the date as soon as early June or extend it into July. The Treasury Department has not released any updated outlook.
Before the vote, President Joe Biden addressed the proposal during a public appearance at a union hall in Maryland. In his speech, Biden dismissed the LSG Act as an unrealistic offer that threatens a default “unless [he] agree[s] to all these wacko notions [Republicans] have” to cut the federal budget in exchange for preventing a default. Notwithstanding current partisan divisions, McCarthy and Biden are expected to initiate negotiations in the coming weeks in an effort to reach a compromise deal. Last week, Senate Minority Leader Mitch McConnell (R-KY) advocated for good-faith negotiations on the debt ceiling, stressing that the only solution was for Biden and McCarthy “to come together and solve the problem.”
AMENDMENTS TO ENERGY PROPOSALS
In order to secure passage of the LSG Act, GOP leadership made several last-minute amendments to the legislation late on Tuesday night. These modifications were requested by members of the Republican Conference who threatened to oppose the bill without significant changes.
The first amendment eliminated three provisions from the bill’s proposed repeal of the Inflation Reduction Act (IRA) green-energy provisions. The underlying bill would have effectively reset the energy-incentive landscape to the pre-IRA regime. However, the amendment eliminated the provisions that would have repealed: the revisions to the section 45Q carbon-oxide sequestration credit; extensions of the biodiesel, renewable diesel and alternative fuel tax credits; and continuation of the second-generation biodiesel incentives. The changes were reportedly made at the request of several midwestern Republicans from Iowa, Missouri and Minnesota—all of whom ultimately supported the amended legislation on the House floor.
Additionally, the amendment package implemented a transition rule, allowing taxpayers to claim the sustainable aviation fuel (SAF) and section 45Z tech-neutral clean-fuels tax credits if they entered into certain written contracts or made investments in qualifying projects between Aug. 26, 2022, and April 19, 2023. However, outside of these circumstances, the proposal would still repeal the SAF and clean-fuels tax credits.
To make up for the loss in revenue resulting from these modifications, the amendment rescinded additional unobligated funding provided to programs enacted in the IRA, including a $1 billion grant fund to expand the adoption of building codes for energy-efficient construction and $5 billion allocated for energy-infrastructure loans.
Outside of energy provisions, the amendment bars states from accumulating unused exemptions under the SNAP food-assistance program.
REVENUE SCORES
On Tuesday, the Congressional Budget Office (CBO) released preliminary budget projections concerning the LSG Act. The CBO report provided topline estimates that the legislation would decrease the deficit by approximately $4.8 trillion over the coming decade. Most of the savings resulted from the proposal to reduce federal appropriations to fiscal year 2022 levels and impose a 1% cap on future federal spending for the next decade.
Before the vote, the Joint Committee on Taxation (JCT) also provided its estimated revenue effects of the bill’s proposed repeal of the current green-energy tax incentives. The estimate indicates that the modifications would reduce the deficit by $515 billion by 2033. The estimate does not include the LSG Act’s proposed repeal of the sections 30D, 45W and 25E clean-vehicle tax credits, which JCT indicates are presently unavailable. Notably, the projected revenue effects of the energy-credit repeals are more than double the August 2022 estimated cost of their enactment. These revised estimates support the arguments of Republican lawmakers, including House Ways and Means Committee Chairman Jason Smith (R-MO), that the cost of the IRA energy-tax incentives is significantly higher than the initial projections.
The table below compares the August 2022 and April 2023 revenue projections for the major energy incentives included in the IRA, as well as the associated percentage increase in the estimates.
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IRA Cost Estimate (August 2022)
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LSG Cost Estimate (April 2023)
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Percent Increase
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Sec. 45 Electricity Production Tax Credit
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$51 billion
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$86 billion
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68%
|
|
Sec. 48 Energy Investment Tax Credit
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$14 billion
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$51 billion
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264%
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|
Sec. 45U Nuclear Production Tax Credit
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$30 billion
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$30 billion
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No Change
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|
Sec. 45V Hydrogen Production Tax Credit
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$13 billion
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$35 billion
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169%
|
|
Energy-Efficiency Tax Credits (Secs. 25C, 25D, 179D and 45L)
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$37 billion
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$49 billion
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32%
|
|
Manufacturing Tax Credits (Secs. 48C and 45X)
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$37 billion
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$142 billion
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284%
|
|
Sec. 45Y Electricity Production Tax Credit
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$11 billion
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$25 billion
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127%
|
|
Sec. 48E Electricity Investment Tax Credit
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$51 billion
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$91 billion
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78%
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|
Sec. 45Z Fuels Production Tax Credit
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$3 billion
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$4 billion
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33%
|
|
Miscellaneous Energy Tax Credits
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$2 billion
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$2 billion
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No Change
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Total
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$249 billion
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$515 billion
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107%
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THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING TAX CHANGES RELATED TO THE GOP BUDGET PLAN. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.