Inflation Reduction Act Implementation, Oil Prices, and Clean Energy Credits
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Tax Policy/News:
October 5: IRS Makes Progress On Implementing Inflation Reduction Act
The Internal Revenue Service has been working hard to implement the dozens of tax provisions contained in last year's Inflation Reduction Act, according to a new report.
The report, released Thursday by the Treasury Inspector General for Tax Administration, noted that the legislation provides funding to the IRS to improve taxpayer services, update antiquated computer systems, and increase compliance and enforcement actions on segments of taxpayers with complex issues and complex tax returns, such as large partnerships, large corporations, and high-income individuals.
The law has 36 tax provisions affecting individual and business taxpayers, and two more provisions related to IRS funding.
The IRS needed to create or revise tax forms, instructions and publications, as well as update its computer programs to process tax returns affected by the provisions.
Some 20 of the 36 tax provisions affect the filing of tax returns this year, and as of May 12, 2023, the IRS had created or revised 71 tax products related to those provisions.
The tax provisions affecting this year required the IRS to create or modify 78 electronic filing business rules.
"As of June 16, 2023, the IRS has identified 68 tax products affected for future processing years on these provisions, including 25 tax forms, 41 instructions, and two publications," said the report.
October 5: Not having a House Speaker is threatening tax and other key areas
Work in Congress has ground to a halt as Republicans search for a new speaker, threatening Ukraine aid and delaying consequential business legislation.
Among the items now stalled are a measure to extend federal banking protections to marijuana companies operating in states where the drug is legal and negotiations to restore tax breaks for business spending on research and development.
Business tax breaks Business lobbying groups have set a high priority on extending a series of tax breaks.
Democrats have sought an expansion of the child tax credit and housing-related breaks for middle-income people as a condition for backing the business breaks.
The temporary funding package keeping the government operating through Nov. 17 dropped Ukraine aid to make it easier to pass muster with House Republicans.
Defense legislation House gridlock threatens to sidetrack a critical defense policy bill - the $866 billion National Defense Authorization Act.
McCarthy joined a slim majority of House Republicans in supporting an earlier version in 2021.
Economic News/Policy:
October 9: Markets whipsaw, oil prices rise as Israel declares war on Hamas
The surprise attack on Israel by Hamas over the weekend and the resulting declaration of war by Israeli Prime Minister Benjamin Netanyahu are weighing on financial markets and unsettling commodity prices as the global economy braces for military and diplomatic fallout.
A sharp increase in oil prices was a major force behind Monday's market movements.
The price of a barrel of West Texas Intermediate crude oil jumped 4.31 percent to hit $86.36 after falling in recent weeks.
"The crude oil market remains hyper-alert to any indication that the conflict between Israel and Hamas is poised to expand into the oil producing region in the Middle East," said Quincy Krosby, strategist for North Carolina-based LPL Financial, in a statement.
"Reports regarding Iran's support for the Hamas attack have been denied by Iran but concern is focused on a broader Iran-Israeli conflict, which would, in turn lead to a dramatic escalation of conflict in the region, and a dramatic climb in oil prices," Krosby said.
A 2022 report by the U.S. Energy Information Administration puts Iranian crude oil production capacity at 3.7 million barrels of oil per day.
Comex gold prices were up more than $31, or 1.7 percent, to $1,876 an ounce.
October 6: Economy Hits A Plot Twist As Jobs Report Joins Conflicting Signals
A gangbusters September jobs report is putting the efficacy of Federal Reserve interest rate hikes into question, just as falling crude oil prices spell further inflation relief at the gas pump.
The economy added 336,000 jobs in September, nearly doubling what economists had been expecting and extending a longer-term trend of upside surprises in the post-pandemic labor market.
"The economy has moved less in the direction the Fed is trying to get it than we've seen in the past, but that can easily be attributed to the context in which the Fed is working," Claudia Sahm, founder of Sahm Consulting and a former Federal Reserve economist, told The Hill.
"The Fed works through demand. Not only have we had a lot of fiscal support and relief during the pandemic, we have three major pieces of investment legislation that are rolling out. The fiscal is putting a lot of money into the economy while the Fed is trying to pull it out," she said, referring to the Biden administration's signature economic initiatives, comprising the Inflation Reduction Act, CHIPS and Science Act, and Bipartisan Infrastructure Law.
"Wholesale gasoline prices imply a 12-percent decline in retail gasoline prices in coming days and weeks," Joseph Brusuelas, chief economist with RSM management consulting, commented online Thursday.
Energy prices in the consumer price index have been trending up since May, while the core CPI, which exempts food and energy prices, have been falling fairly steadily over the past year.
"A paradox of the current trade dispute between the world's two largest economies is that total imports of goods to the United States from China have returned to their pre-COVID-19 peak," U.N. economists wrote in their 2023 trade and development report.
October 4: Shutdown fears loom over Wall Street after McCarthy ouster
The political upheaval within the House GOP, particularly the ouster of former Speaker Kevin McCarthy, has added to the uncertainties in financial markets at a time when there are already concerns about inflation and potential economic downturns.
Wall Street experts are particularly concerned about the rising bond yields and instability in the oil markets, which are seen as indicators of a possible recession. The political discord is making investors more nervous, even if its direct economic implications might be limited.
Despite this, stock markets showed some gains after recent declines, with the Dow Jones, S&P 500, and Nasdaq all rising. However, the threat of a government shutdown remains, as Congress only passed a short-term funding solution that lasts until Nov. 17. The process of electing a new Speaker for the House could further delay decisions on government funding, raising the risk of another shutdown.
The U.S. economy has shown resilience despite challenges like high inflation and the Federal Reserve's rate hikes. However, declining consumer confidence and rising gasoline prices are putting pressure on U.S. households.
A potential shutdown could also impact the availability of vital economic data, which the Federal Reserve relies on to make informed decisions about interest rates and other economic policies. The Fed, while funded independently and operational during a shutdown, would be without this essential data.
The uncertainty surrounding the election of a new House Speaker adds to the market's anxieties, though some believe that keeping Rep. Patrick McHenry, familiar to Wall Street, in a leadership role could offer some stability.
Energy and Environmental Policy/News:
October 4: IRA lets investors transfer clean energy credits
The Inflation Reduction Act is providing mechanisms for transferring tax credits for clean energy projects, incentivizing developers and investors to get involved, along with their tax advisors.
Prior to passage of the IRA, it was possible to use a tax equity structure or transaction to transfer clean energy tax credits, but the law makes it easier to accomplish.
"We need to get to a world that has thousands of corporate buyers,” said Crux Climate CEO Alfred Johnson. “It is less common that individual corporations are seeking the market on their own. In many cases, they're talking to their tax advisor as the first stop and thinking about the ways that they can be most efficient in managing their effective tax rate while investing in sustainability. As a result of that, tax advisors are in an extremely important position in the transaction, and many are increasingly talking to their clients about these renewable energy tax credits and need tools to be able to process transactions for their clients and also source supply," Johnson continued.
Tax professionals can advise different types of clients to consider the clean energy tax credits now available.
Johnson elaborated further on the role of tax professionals and the clean energy tax credits, stating that, for tax professionals, “this is going to be a very widely distributed product in a large market. Companies need advice. They need to lean on their tax professionals to understand what is a viable strategy here. They will look for tax advisors for support on the diligence of credits that they may be buying in some cases. And so the tax advisors are really fundamental to companies of all sizes participating in this market."
He is seeing more interest from tax advisors in the market for clean energy tax credits.
Technology:
October 10: ‘Overhyped’ generative AI will get a ‘cold shower’ in 2024, analysts predict
The buzzy generative artificial intelligence space is due something of a reality check next year, an analyst firm predicted Tuesday, pointing to fading hype around the technology, the rising costs needed to run it, and growing calls for regulation as signs that the technology faces an impending slowdown.
The main forecast CCS Insight has for 2024 is that generative AI "Gets a cold shower in 2024" as the reality of the cost, risk and complexity involved "Replaces the hype" surrounding the technology.
"Just the cost of deploying and sustaining generative AI is immense," Wood told CNBC. "And it's all very well for these massive companies to be doing it. But for many organizations, many developers, it's just going to become too expensive." CCS Insight's analysts also predict that AI regulation in the European Union - often the trendsetter when it comes to legislation on technology - will face obstacles.
Generative AI has generated huge amounts of buzz this year from technology enthusiasts, venture capitalists and boardrooms alike as people became captivated by its ability to produce new material in a humanlike way in response to text-based prompts.
The companies behind several major foundational AI models have come out saying that they welcome regulation, and that the technology should be open to scrutiny and guardrails.
The company says that police will make their first arrest of a person who uses AI to impersonate someone - either through voice synthesis technology or some other kind of "Deepfakes" - as early as 2024.
ICYMI:
October 6: McCarthy Ousted As Speaker: What Comes Next?
Immediately after McCarthy's ouster Tuesday, North Carolina GOP Rep. Patrick McHenry was declared the House's acting Speaker, formally known as the House Speaker pro tempore.
After being elected to the Speakership in January in a dramatic 15-ballot election, McCarthy created a list of members who could serve as acting Speaker in the case the role was left vacant.
McHenry, a close McCarthy ally, was picked from that list and will serve as Speaker pro tempore until the House elects a new Speaker.
The House rules for a Speaker pro tem state the member in the role "May exercise such authorities of the Office of Speaker as may be necessary and appropriate pending the election of a Speaker or Speaker pro tempore."
Some argue the temporary Speaker is only able to preside over an election for the next Speaker.
Others believe the acting Speaker has the same powers as an elected Speaker.
Regardless of McHenry's powers, it is unlikely the House will work to pass the critical appropriations bills until a new House Speaker is elected.
October 3: Republicans Press IRS On ERC Backlog And Fraud
GOP members of Congress are demanding answers from the Internal Revenue Service about the backlog in processing claims for the Employee Retention Credit, only weeks after the IRS imposed a moratorium on new claims for the tax credit amid a surge of fraudulent claims.
In mid-September, IRS Commissioner Daniel Werfel announced an immediate stop to processing of new claims for the ERC through the end of the year after the IRS was hit by a flood of hundreds of thousands of claims this year.
On Tuesday, House Ways and Means Committee chairman Jason Smith, R-Missouri, and Ways and Means Oversight Subcommittee chairman David Schweikert, R-Arizona, sent a letter to Werfel asking how the IRS will deal with the level of fraud within the program during its current moratorium on the processing of new claims, and what legislative proposals it would like Congress to take to address fraud within the program generally.
They also asked about the speed at which the IRS expects to process its existing claims for the ERC under the current moratorium and how the IRS will ensure that's done in a timely manner.
They also want to know what data led the agency to impose a moratorium, the total amount of refunds processed to date, and when the IRS anticipates it will eliminate the ERC claims backlog.
"While we appreciate efforts to protect taxpayers from scams, the announced moratorium will exacerbate wait times, worsen the existing backlog of claims, and prevent taxpayers with legitimate claims from receiving payments," Smith and Schweikert wrote.
They noted that on July 26, the day before the Oversight Subcommittee held a hearing on the ERC, the IRS issued a press release claiming that the backlog of valid claims had been cleared, even though the IRS's own website said that as of late July, there were still nearly 500,000 Forms 941-X that needed to be processed, and as of Aug. 16, 2023, the figure increased to approximately 521,000.
For Fun:
New research has confirmed that fossil human footprints found at White Sands National Park in New Mexico are between 21,000 and 23,000 years old.
This discovery challenges the previously accepted timeline for the earliest human arrivals in North America. These footprints, which provide evidence of ancient human presence during the Last Glacial Maximum, were initially dated back to 23,000 years by the U.S. Geological Survey in 2021.
The implications of these findings suggest that humans coexisted with several North American megafauna species for thousands of years before their mass extinction at the end of the Pleistocene era.
For many years, the prevailing belief was that humans first arrived in the Americas no earlier than around 13,000 years ago. This belief stemmed from archaeological discoveries made in the late 1920s in New Mexico. However, subsequent discoveries over the years have pushed this timeline further back.
The initial dating of the footprints, based on radiocarbon dating of ditchgrass seeds, faced skepticism due to concerns about aquatic plants absorbing older carbon. However, recent studies using radiocarbon dating from conifer pollen and optically stimulated luminescence (OSI) techniques confirmed the footprints' age range of 21,000 to 23,000 years.
The recent confirmation of the White Sands footprints' age, which is based on two independent research methods, indicates that humans might have been present in North America up to 10,000 years earlier than previously believed.