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The latest update from our friends at the Hardwood Federation focuses on the “Inflation Reduction Act.”
On Sunday, Senate Democrats passed the newly named Inflation Reduction Act by a vote of 51-50, with Vice-President Harris serving as the tie-breaking vote. While numerous amendments were offered by Republican Senators in a process known as “vote a rama,” only a couple of amendments were approved. One that will affect small and medium-sized businesses extends for two years the non-corporate excess business loss limitation, which is a cap on losses a business owner is permitted to claim. A letter to Congressional leaders opposing this change was circulating this week in hopes of having this tax provision stricken from the final version that is considered by the House, but that outcome appears unlikely.
Democrats have traveled a twisty road to use their chance at reconciliation this year and, despite predictions by many political advisors, finally did so with a scaled-down version of Build Back Better that contains key provisions on climate, energy, and other social safety net issues. As for the next steps, the House is now scheduled to vote on the bill on Friday, which will most likely pass in a party-line vote, but Democrats have little room for error given their slim majority in the lower Chamber. The Hardwood Federation will review the final text for industry impacts not already reported.
The latest update from our friends at the Hardwood Federation focuses on the “Inflation Reduction Act”
While the House has been on recess this week, Democratic senators have been racing to pass the latest version of the “Build Back Better” agenda along party lines, this time in the form of $485 billion in new spending for climate, energy, and health care programs now named the “Inflation Reduction Act” (IRA). Using a parliamentary procedure known as “reconciliation” to bypass a GOP filibuster, Democrats must win support from all 50 members of their party, or the deal falls apart. See the below highlights:
The Good – Buried in the 725-page bill are some programs, as stand-alone measures, that could benefit the hardwood industry:
- Use of Low Carbon Materials – Creates a fund to be used by the federal government’s General Services Administration to purchase low carbon construction materials for new and reconstructed federal buildings.
- Low-Embodied Carbon Construction Materials – Creates EPA program to identify and label construction materials that have low-embodied carbon.
- Wood Stove Tax Credit – $2,000 per unit tax credit for consumer purchases and installation of wood and pellet stoves, the latter of which operate on fuel derived from sawmill residuals. This credit is extended for 10 years.
- Wood Innovation Grants – $100 million to provide grants under the Wood Innovation Grant program for constructing new facilities that deploy mass timber and other innovative wood products.
- Wildfire Prevention – $1.8 billion for hazardous fuel reduction projects on federal forest lands.
The Challenging – As always, the law of unintended consequences creates uncertainty, especially in large legislation that moves too quickly to undergo a thorough vetting process. Opinions about impact vary about the following:
- Corporate Taxes – The bill would impose a minimum corporate tax of 15% on large companies reporting income of $1 billion or more, according to Senate Democrats. Unfortunately, the scope of the corporate minimum tax remains uncertain. It also puts business taxes, including the 2.8% surtax on small business income proposed in July, on the table for discussion. During a meeting this morning, Sen. John Thune (R-SD) informed the Federation that Sen. Kyrsten Sinema (D-AZ), a crucial vote to pass the Democratic bill, is working to include “safeguards” for important business deductions.
- Inflation – Companies impacted by the 15% minimum tax may include industrial equipment makers and energy companies, who could pass their increased costs onto small business consumers.
- IRS Enforcement – The IRS would receive a substantial raise, far outpacing inflation, to the tune of $80 billion. The agency would devote the new resources to collecting more tax revenue through audits and other enforcement measures.
- Massive Green Energy Spending – The bill allocates $385 billion for climate and energy programs. This could have unforeseen impacts on markets for wood products and other manufactured goods, making cost and savings estimates difficult to predict at this time.
The Devil in the Details: There are also programs that can go either way, depending on how federal policymakers write the rules to implement them:
- Old Growth Forests – The bill allocates $50 million for the USFS to develop tactics to protect old-growth forests on National Forest System land and complete an inventory of the same within the NFS.
- Decarbonization – The bill earmarks $5.8 billion for the decarbonization of several industries, including pulp and paper.
- Environmental Product Declarations – EPA program to provide grants to industry for the development of environmental product declarations for construction materials.
- Grants for Forest Owners – $50 million for a competitive grant program for states to pay private landowners for implementing forestry practices on private forest land that provide measurable increases in carbon storage beyond customary practices on comparable land.
The substance and process moving forward for the Democrats’ latest plan remain fluid. The Federation will keep you posted on developments as they unfold.
U.S. Representatives and Senators will be in their home states for the traditional August recess break, starting next week through Labor Day. If you see your federal officials at a public or private event, here are four key messages you can deliver to support the Hardwood Federation’s efforts at the federal level:
Grow Markets for Hardwood Products. We seek opportunities to build markets and add value to hardwood products.
- Wood Products are Part of the Climate Solution. With the federal government putting a climate twist on almost every policy that takes shape, tell your lawmakers to keep wood products in their toolbox. Hardwood floors, lumber, and other products store carbon and prevent its release into the atmosphere. Lawmakers cannot hear this message often enough. Delivering it repeatedly will make sure that the industry gets credited, instead of penalized, by climate policies moving at the federal level.
- Protect and Expand International Markets. The hardwood sector is a powerful exporter of products “Made in the USA” and relies on foreign customers to support high-quality jobs at home. To that end, remind your lawmakers of the importance of increased funding for the U.S. Department of Agriculture’s Market Access Program (MAP) and the Foreign Market Development (FMD) Program, which support U.S. hardwood exports.
Oppose Tax Hikes that Harm American Hardwood Companies! It’s important to communicate the benefits of the small business tax deduction and the flexible estate tax provisions included within the tax reform law of 2017 and oppose any efforts to roll them back. Also, lawmakers must reject the idea of imposing a surtax on small businesses, a proposal that has recently been floated in the halls of Congress.
Fix the Driver Shortage. Fortunately, the “Infrastructure Investment and Jobs Act” enacted last year addressed some of the challenges related to the driver shortage. Despite this progress, federal policymakers can do more. This includes passage of the LICENSE Act—HR 6567 and S. 3556 – which would help expedite the issuing of commercial driver’s licenses. Ask your lawmakers to cosponsor these important bills to help the industry.
Help Wanted! Fix the Worker Shortage. Rep. Elise Stefanik (R-NY) has introduced the “Employer Directed Skills Act” (H.R. 6255) to alleviate the worker shortage. The bill seeks to fill the gap between employer needs and employee skills by making existing workforce development programs more employer-friendly and flexible. Urge your House lawmaker to join as a cosponsor!
Our friends at the Hardwood Federation have an update for us on Spending Bills for 2023. The legislative “sausage making” process kicks into high gear when Congress exercises its “powers of the purse.” During the annual “appropriations” process, federal lawmakers carry out their most basic duty, which is to fund the annual budgets of the agencies that make up the federal government. On Wednesday, the House passed a Fiscal Year (FY) 2023 spending bill that will fund USDA, Interior, and other agencies that oversee key programs that have a major impact on the industry:
Export Promotion – The USDA spending bill will fund the agency’s Market Access Program (MAP) and the Foreign Market Development (FMD) Program, which support the American Hardwood Export Council’s (AHEC) promotion of U.S. hardwood exports. The Federation has met with the House and Senate Ag Committee chairs and panel members to advocate for maintaining … or increasing funding for these key programs.
Biomass – Although spending bills are mainly known as the vehicles that deliver dollars to the agencies, they also present an opportunity for creative lawmakers and lobbyists to push priorities unrelated to dollar amounts going to federal programs. Nowhere is this more evident than the industry’s efforts to enshrine “the carbon neutrality of biomass” into federal law. Since the enactment of a spending bill in 2017, there has been a statutory directive renewed each year instructing federal agencies to recognize the carbon-neutral nature of forest-based biomass in any federal energy or environmental policymaking. The House-passed FY 2023 Interior appropriations measure includes watered-down language that acknowledges the “carbon benefits” of biomass energy but stops short of declaring this type of energy that we deploy in our mills as carbon neutral. The Hardwood Federation worked last year to defeat identical language and preserve the carbon neutrality directive through FY 2022. We are working with our champions in the Senate to secure a similar outcome for FY 2023.
Forest Inventory – The hardwood sector relies on USDA’s Forest Inventory Analysis (FIA) to inform sound forestry management practices. This information is critical for decisions regarding carbon stocks, sustainability, and existing and expanding markets. The bill includes a significant funding boost for the FIA, a $15.5 million increase over FY22 levels.