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Fate still unknown on Inflation Reduction Act

Biden Inflation Act roundtable.jpg
BUSINESS ROUNDTABLE: President Joe Biden held a business roundtable on August 4 to hear on the impact of the proposed Inflation Reduction Act which invests in clean energy and climate mitigation.
Both sides continue to make their case on the need to pass or not pass scaled-down Build Back Better plan.

Political finger pointing is again surging on Capitol Hill as Senate Democrats and the White House scramble to approve the recently brokered Inflation Reduction Act between Senate Majority Leader Chuck Schumer, D-N.Y., and West Virginia Democrat Sen. Joe Manchin. Meanwhile, Republicans are trying their best to downplay any benefits of the bill, claiming it would increase, rather than reduce inflation.

For agriculture, it has $40 billion for climate-smart agricultural investments in specific conservation programs and renewable energy including establishing renewable diesel and sustainable aviation tax credits. It could create a major boost to conservation farm bill spending if it does cross the finish line.

If passed, the current Senate proposal would inject many of those new dollars into proven USDA programs over the next four years—most notably, $3.25 billion annually for the federal Conservation Stewardship Program and $1.3 billion annually for climate-focused technical assistance. The legislation would also give an annual boost of $8.45 billion to the Environmental Quality Incentives Program, with language clearly instructing the USDA to “prioritize projects and activities that mitigate or address climate change through the management of agricultural production, including by reducing or avoiding greenhouse gas emissions.”

The bill does remove for the new reconciliation funds the set-aside requirement established in the farm bill that at least 50% of the funds made available be targeted at practices relating to livestock production, including grazing management practices. Livestock will still be eligible, but not subject to the 50% requirement.

There is also a $5 million set aside for Conservation Innovation Grants, with a priority on projects related to enteric methane reduction/management for this pot of money.

Thursday the Senate parliamentarian was still determining whether provisions that would encourage the purchase of electric cars would be allowed to be included in the bill to pass under reconciliation rules, which allow for a straight majority vote to advance. The clock is ticking as the Senate was scheduled to recess beginning August 6 and not return until September 6. The House is already in recess until September 13.  

U.S. Senate Finance Committee Republicans, led by Ranking Member Mike Crapo, R-Idaho, held a news conference Wednesday to emphasize why the latest “tax-and-spend bill will do nothing to help Americans who are already experiencing the consequences of Democrats’ reckless economic policies,” according to a statement from the committee.

The future lies mostly in the hands of Sen. Kyrsten Sinema, D-Ariz., who has not publicly announced her support or full details on what changes she might seek. Crapo promised that Republicans would be using several avenues to stall action, including bringing up Byrd rule objections to many of the various objectionable portions. And Crapo says Republicans also plan to bring targeted amendments that may require the bill be sent back to the committee or require text changes.

“There are about 100 or more amendments that are under consideration,” Crapo says.

On the other side of the debate, President Joe Biden hosted a business roundtable Thursday afternoon reinforcing the need for action.  

According to the White House and cited by Biden during the roundtable, the nation’s top budget experts – including former Governor and Director of the Office of Management and Budget Mitch Daniel Daniels, former Senator Dan Coats, and former Senator Alan Simpson – are calling on Congress to reduce the federal deficit to relieve the inflationary pressures. In a letter to Congressional member, more than 50 former legislators, cabinet members, economists and policy members encourage the passage of deficit reducing legislation.

Bonus deprecation changes

Several Republicans during the news conference including Sen. Rob Portman, R-Ohio, discussed proposed changes to the handling of bonus depreciation which was allowed in the Trump tax cuts to encourage companies to make investments and write those off.

Bonus depreciation allows companies to deduct the cost of investments of new equipment in the year they are made. Bonus depreciation is something that you would get as a company if you were in the regular income tax system but not under the proposed book tax calculation. Under the book tax, companies spread that deduction over the lifetime of the investment. In both cases they are deducting the cost of it, but whether they can do it immediately under bonus depreciation, whether they have to do it over the course of many years, matters a lot for investment decisions, explains Portman during a floor speech.

“Being able to deduct the costs of these investments immediately provides a big incentive for people to invest and that's what happened. This is not a loophole,” says Portman. “This is a deliberate tax policy that we have put in place to help encourage companies to invest more in equipment and plants, and therefore help the workers, therefore make America more competitive. And actually over time increase the tax revenue that comes into our coffers.”

Every single developed country in the world offers a policy like bonus depreciation. The United Kingdom’s is far more generous than the U.S. And the United States now ranks 21st out of 38 for these types of incentives in the 40 highly developed countries.

Congress expanded bonus depreciation in the 2017 Tax Cut and Jobs Act and then in 2018. Portman explains the next year, in 2019, the next year after that, the U.S. had two of the best years ever for manufacturing investment, growing by 4.5% and then 5.7% respectively. 

The Association of Equipment Manufacturers notes they are still evaluating the current proposal as it relates to bonus depreciation and impact to those in agriculture.

TAGS: Farm Policy
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