Airport Alert: Schumer and Manchin Reach Agreement on Reconciliation; SAF Tax Credit Included

In an unexpected turn of events on July 27, Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) announced that they have reached an agreement on a revived, partisan reconciliation bill. While this new, $740 billion bill, titled the Inflation Reduction Act (IRA), is less than half of the $1.7 trillion Build Back Better (BBB) package that passed the House in November, it still contains key provisions, including: funding to address climate change and increase clean domestic energy output; prescription drug reform; subsidies for Affordable Care Act premiums; increases in the corporate minimum tax; and increased funding for IRS enforcement. 

On the aviation front, the IRA provides tax credits for five years to increase the production of sustainable aviation fuels (SAF). Specifically, the legislation would enact a SAF blender's tax credit from January 2023 through December 2024, with a transition to a Clean Fuel Production Credit beginning in 2025 through 2027, applicable to all transportation fuel and providing an enhanced value for SAF relative to ground transportation. This differs from the House-passed BBB, which provided tax credits indefinitely until transportation emissions declined to 25 percent of 2021 emissions. The IRA also provides $300 million for an Alternative Fuel and Low Emission Aviation Technology grant program for projects that produce, transport, blend, or store SAF.

The road ahead for the IRA is unclear at this point. The other key swing vote in the Senate Democratic Caucus, Senator Kyrsten Sinema (D-AZ), is still reviewing the legislative text and has not indicated whether she will vote favorably for the bill. During negotiations for BBB, Sinema was opposed to closing the carried interest tax loophole, which the IRA does. Her support is key given that every Senate Democrat will be required to pass the IRA out of the 50-50 Senate.

If Sinema gets on board, which is still a big if, the next issue is timing. So far, the Senate Parliamentarian has only reviewed the healthcare section of the bill, and still has to scrub the rest of the bill to ensure it aligns with special budgetary rules that apply to reconciliation bills. This process will likely take some time and could push back the Senate's August recess, which was slated to start at the end of next week. The other variable is COVID, which has affected a slew of lawmakers recently. All 50 Senate Democrats will be required to vote in person to pass the IRA, so the absence of one Democratic lawmaker would put final passage of the bill on hold. 

Assuming that the IRA eventually gets through the Senate, attention will then turn to the House. House Speaker Nancy Pelosi (D-CA) only has a slim, four-seat majority to contend with, meaning she will yet again have to her hold her caucus together to get the legislation over the finish line. Given that the IRA includes a number of Democratic priorities that were thought to be off the negotiation table, and that House Democrats are desperate for another legislative win before the November midterms, we believe she will likely be successful if this makes it to the House. Still, this process has had countless twists and turns over the last year, so as the saying goes, 'It Ain't Over Till It's Over.'