High-Level Overview of Certain Provisions Impacting Renewable Energy Incentives in “The One, Big, Beautiful Bill” Draft Legislation
Yesterday, the House Ways and Means Committee released a package of tax provisions (the “Bill”) (which may be found here) that includes claw backs of certain provisions of the Inflation Reduction Act. Note that this Bill is a draft only, has not been passed by the House or the Senate (or any committee thereof), or signed by the President, all of which would need to occur before the Bill becomes law. The provisions described below are therefore subject to change and may not become law at all. However, the Bill provides some insight on how House Republicans are thinking about amending current energy-related tax credits.
The Bill includes accelerated phaseouts for the clean electricity investment credit under Section 48E, the clean electricity production credit under Section 45Y, and the advanced manufacturing production tax credit under Section 45X. For the credits available under Sections 48E and 45Y (which this year replaced the old ITC and PTC, respectively), the phaseout would begin for otherwise eligible projects that are placed in service starting in 2029, which is at least a few years before these credits are set to phase out under current law. In the Bill, these credits would phase down to 80% of the current credit level for projects placed in service in 2029, 60% for those placed in service in 2030, 40% for those placed in service in 2031, and 0% for those placed in service in 2032 and beyond. For the Section 45X advanced manufacturing production tax credit, the phaseout in the draft Bill would begin one year earlier than under current law, except that the Bill would make ineligible any wind energy components sold after December 31, 2027. Separately, the Bill would terminate the Section 45V clean hydrogen production tax credit for facilities on which construction does not begin by December 31, 2025.
The Bill would also repeal transferability for the clean electricity investment credit under Section 48E, the clean electricity production credit under Section 45Y, and the advanced manufacturing production tax credit under Section 45X under Section 6418, as well as other credits, but that repeal would not take effect for several years.
Finally, the Bill contains new restrictions on energy tax credits apparently aimed at limiting certain foreign entities from taking advantage of the value of these credits.
Compelling Rationale for Producing Proprietary Products in U.S. Found in USTR’s Special 301 Report on IP Protection and Enforcement Abroad (Part I)
While the current Trump Administration has based its global trade war on trade imbalances stemming from unfair trade practices of foreign countries, its weapon of choice—increased tariffs—is designed to encourage businesses to relocate manufacturing operations to the U.S., thereby boosting American employment and industrial capacity. The U.S. Trade Representative’s 2025 Special 301 Report, issued on April 29, provides an independent justification for onshoring or reshoring manufacturing, namely the failure of certain trading partners to adequately protect and enforce intellectual property (IP) rights of U.S. IP holders within their borders.
The Special 301 Report is an annual report that evaluates the adequacy and effectiveness of IP protection and enforcement among U.S. trading partners. USTR requested written submissions from the public through a notice published in the Federal Register on December 6, 2024. USTR later conducted a public hearing that provided the opportunity for interested persons to testify before the interagency Special 301 Subcommittee of the Trade Policy Staff Committee (TPSC) about issues relevant to the review. The hearing featured testimony from many witnesses, including representatives of foreign governments, industry, and non-governmental organizations.
USTR reviewed more than 100 trading partners for this year’s Special 301 Report and placed 26 of them on the Priority Watch List or Watch List. The countries on these watch lists are the “countries that have the most onerous or egregious acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact (actual or potential) on relevant U.S. products.” In this year’s report, trading partners on the Priority Watch List present the most significant concerns regarding insufficient IP protection or enforcement or actions that otherwise limited market access for persons relying on intellectual property protection. Eight countries are on the Priority Watch List: Argentina, Chile, China, India, Indonesia, Mexico, Russia, and Venezuela. According to the report, these countries will be the subject of “particularly intense bilateral engagement during the coming year.” For those failing to address U.S. concerns, the report warns, “USTR will take appropriate actions, which may include enforcement actions under Section 301 of the Trade Act or pursuant to World Trade Organization (WTO) or other trade agreement dispute settlement procedures.”
The 2025 Special 301 report further notes that an important part of the mission of USTR is to support and implement the Administration’s commitment to protect American jobs and workers and to advance the economic interests of the United States. “Fostering innovation and creativity is essential to U.S. economic growth, competitiveness, and the estimated 63 million American jobs that directly or indirectly rely on intellectual property (IP)-intensive industries.” These include manufacturers, technology developers, apparel makers, software publishers, agricultural producers, and producers of creative and cultural works. “Together, these industries generate 41% of the U.S. gross domestic product (GDP). The 47.2 million workers that are directly employed in IP-intensive industries also enjoy pay that is, on average, 60% higher than workers in non-IP-intensive industries.”
According to the report, a common problem with those countries on the Priority Watch List is IP infringement:
IP infringement, including patent infringement, trademark counterfeiting, copyright piracy, and trade secret theft, causes significant financial losses for right holders and legitimate businesses. IP infringement can undermine U.S. competitive advantages in innovation and creativity, to the detriment of American workers and businesses. In its most pernicious forms, IP infringement endangers the public, including through exposure to health and safety risks from counterfeit products, such as semiconductors, automobile parts, apparel, footwear, toys, and medicines. In addition, trade in counterfeit and pirated products often fuels cross-border organized criminal networks, increases the vulnerability of workers to exploitative labor practices, and hinders sustainable economic development in many countries.
Inadequate and ineffective IP protection and enforcement is hardly a new complaint by the U.S. government regarding trading partners such as China—it is a chronic problem. Still, the USTR Special 301 Report should serve as a warning to U.S. IP holders that these IP threats are real and not going away, at least anytime soon. While sourcing innovative products from lower cost countries with less regulatory burdens supports short-term profitability objectives, it can come at a steep long-term cost as many companies have learned. The loss or diminution of IP rights due to substandard IP protection and enforcement regimes abroad can cause significant damage to enterprise value, including enabling competition by infringers to rise up. This constant threat in the new “America First” era in which higher tariffs are the norm, however, may cause IP-intensive businesses to rethink their sourcing strategy and decide to onshore or reshore the production of proprietary products or components. Though the U.S. IP laws are imperfect, they are still considered the gold standard by many, including the U.S. Chamber of Commerce, and thus provide a better support system for long-term protection and enforcement of IP and financial success.
House Proposes Updates to Qualified Opportunity Zones
The House Ways and Means Committee released its version of the proposed reconciliation bill, which will be “marked up” in the Committee on May 13, 2025. Included in this proposal are amendments regarding Qualified Opportunity Zone (QOZ) investments that would:
Extend the QOZ incentive by seven years, permitting investments in QOZs to be made until Dec. 31, 2033.
Provide for designations of new QOZs for investments made on or after Jan. 1, 2027, including a requirement that at least 33% be rural zones.
Add a 10% basis step-up for Opportunity Zone investments made after Dec. 31, 2026, that are held for at least five years through 2033.
Favor designation of rural QOZs over urban QOZs by:
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Increasing the five-year 10% basis step-up to a 30% basis step-up for qualified rural investments.
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Reducing the Substantial Improvement Requirement from 100% to 50% for rural projects (including data center projects).
Apply the new rules to QOZ investments made from Jan. 1, 2027, to Dec. 31, 2033. Investments made in 2026 would continue to use the existing rules (including deferral only until Dec. 31, 2026).
Deferral of capital gain taxes for investments made after Dec. 31, 2026, until Dec. 31, 2033.
Allow annual deferral until Dec. 31, 2033, of up to $10,000 of ordinary income invested in a Qualified Opportunity Fund after Dec. 31, 2026.
Add expansive reporting requirements for both Qualified Opportunity Funds and Qualified Opportunity Zone Businesses.
Impose non-reporting penalties on QOFs ($10,000 for smaller QOFs and $50,000 for larger QOFs up to maximum penalty limits).
Increase non-reporting penalties for intentional disregard of reporting requirements.
The tax provisions applicable for “The One, Big, Beautiful Bill” have been released by the Ways and Means Committee for mark-up on May 13 at 2:30 p.m. EDT. The industry may have opportunities to help with substantive suggestions if the bill passes the House and makes its way to the U.S. Senate. In the Senate, the chairs of the Senate Finance Committee and the House Banking Committee are both proponents of the impact of Qualified Opportunity Zones nationwide and support meaningful reform for the incentive.
Income Not Recognized on Jail Funds Invested in Ponzi Scheme
A former Sheriff of Morgan County, Alabama, purchased an 18-wheeler truck full of corn dogs for $500 and fed the corn dogs to inmates at each meal. He did so because in Alabama, the State provided each county sheriff with a monthly food allowance for each of their prisoners. The sheriff could keep any surplus but was responsible for any shortfall in feeding the prisoners.
The inmates filed a class action lawsuit alleging inhumane treatment. In 2008, the Court ordered the county to provide a nutritionally adequate diet to inmates and directed the Sheriff to maintain a separate account for jail food money.
When Ana Franklin was elected Sheriff of Morgan County, Alabama, in November 2011, she gained authority over the jail food money bank account. In 2015, the jail population doubled due to an increase in methamphetamine arrests, changes in Alabama sentencing law and the closure of municipal jails. Sheriff Franklin was concerned that because of the increase in the jail population, she would lack adequate funds to feed the inmates.
Sheriff Franklin’s boyfriend and county police officer, Steve Ziaja, told the her that she could lend $150,000 to Priceville Partners, LLC for 30 days and earn 17% interest. Mr. Ziaja offered to serve as guarantor for the loan. In June 2015, the Sheriff withdrew $155,000 from the jail food money bank account. She delivered $150,000 to Priceville Partners, LLC as a loan and retained $5,000 in the office safe as petty cash.
The loan to Priceville turned out to be part of a Ponzi scheme. Priceville Partners, LLC closed in November 2015 and filed bankruptcy in March 2016. In December 2016, Mr. Ziaja made good on his guarantee and repaid the $150,000 to the Sheriff who then returned the money to the jail food money bank account.
In January 2017, after learning that the Sheriff removed money from the jail food account, the class action members filed a motion for contempt. The Court found the Sheriff to be in civil contempt and sanctioned her $1,000. In December 2018, the Department of Justice filed charges against the Sheriff for willful failure to file her personal income tax return. The Sheriff pleaded guilty and was sentenced to 24 months’ probation. The IRS then issued a Notice of Deficiency asserting that the $155,000 removed from the jail food money bank account constituted taxable income as proceeds from embezzlement.
In Franklin v. Commissioner, T.C. Memo 2025-8, the Court ruled that the $155,000 was not taxable income. The Court reasoned that the withdrawal was an unauthorized loan since there was a consensual recognition of an obligation to repay the funds and not embezzlement. The Court relied on the facts that the loan was actually repaid; that the Sheriff was never charged criminally with embezzlement; that the Sheriff was only held in civil contempt and fined $1,000; and that the Sheriff was motivated to increase the jail food money bank account to properly feed the inmates. The Court declared that the Sheriff received no accession of wealth because she had a corresponding obligation to repay the funds back to the jail food money bank account.
IRS Workforce Reductions: Delays and Increased Legal Challenges
A May 2 report from the US Treasury Inspector General for Tax Administration (TIGTA) found that as of March, the Internal Revenue Service (IRS) workforce had fallen by 11,443 employees, or 11%, due to probationary employee terminations and deferred resignations. This drastic reduction in the IRS workforce came amid cuts from the Trump Administration’s Department of Government Efficiency (DOGE).
According to the TIGTA report, the IRS lost 3,623 revenue agents, or 31%, representing almost one-third of its tax auditors. The TIGTA report notes that further IRS workforce reductions are in progress. The TIGTA report was released the same day as President Donald Trump’s Fiscal Year 2026 Discretionary Budget Request, which called for a nearly $2.5 billion cut to the IRS budget for FY2026.
On May 6, while appearing before the US House of Representatives Appropriations subcommittee, Treasury Secretary Scott Bessent defended the president’s budget request for FY2026 and stated that “collections” remains a priority for the agency. Bessent stated that the IRS intends to “enhance collections” and meet its revenue goals via “smarter IT” and the “AI boom.”
For taxpayers, the impact of IRS budget cuts and mass reductions in the IRS workforce could lead to longer wait times for assistance, delays in audits and responses to taxpayer filings, and increased legal challenges. Further, a staffing shortage could lead the IRS to issue more Notices of Deficiency rather than allowing disputes to be resolved through the IRS Independent Office of Appeals. This would compel more taxpayers to challenge assessments in US Tax Court.
At the American Bar Association Tax Section’s 2025 May Tax Meeting, former Acting Commissioner of the IRS Douglas O’Donnell noted that the reduction in IRS personnel is unprecedented and will result in diminished capabilities in return processing, the processing of refunds, telephone assistance, taxpayer assistance centers, and the Taxpayer Advocate Service as well as lengthier examination time frames.
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Appeals Court Rejects AstraZeneca’s Challenge to Medicare Drug Price Negotiation Program
A federal appellate court has handed down the first appellate-level decision addressing the merits of drug manufacturers’ challenges to the Inflation Reduction Act of 2022’s (IRA) Medicare Drug Negotiation Program (Negotiation Program). On Thursday, May 8, 2025, a three-judge panel of the Third Circuit affirmed the district court’s rejection of AstraZeneca’s constitutional and regulatory challenge to the Negotiation Program. The Third Circuit’s decision is significant because that court has appellate jurisdiction over five of the nine cases challenging the Negotiation Program. The three-judge panel in AstraZeneca has also been assigned to each of the four remaining cases in that circuit. Although AstraZeneca’s case was the narrowest of the five Third Circuit cases, the court’s opinion could shed light on what is to come in the remaining cases.
Constitutional Violation
The Third Circuit rejected AstraZeneca’s sole constitutional claim arguing that the Negotiation Program violates AstraZeneca’s procedural-due-process rights under the Fifth Amendment. AstraZeneca had argued that the Negotiation Program unconstitutionally deprived AstraZeneca of its property right to sell its drugs at a market rate. The Third Circuit, in line with the district courts that have addressed the issue, disagreed, holding that AstraZeneca has no property right to sell its products nor demand government reimbursement at specific prices. The court also dismissed AstraZeneca’s argument that the Negotiation Program does not allow sufficient judicial review of the government’s price-setting decisions. The court was unpersuaded by AstraZeneca’s analogy to a Supreme Court case analyzing the scope of judicial review for a World War II-era rent-control law. The fact that Part D plans, which are private parties, are the recipients of the drugs, the Third Circuit said, does not mean that the government is setting prices for private-market transactions here.
APA Violations
The court of appeals also dismissed AstraZeneca’s Administrative Procedures Act (APA) challenges to CMS’s Negotiation Program Guidance. AstraZeneca argued that CMS guidance outlining the bona fide marketing standard and choosing to aggregate different products approved under different NDAs and BLAs is unlawful. The Third Circuit agreed with the district court that it lacked jurisdiction over AstraZeneca’s claims because AstraZeneca had not adequately shown that it has or will imminently suffer a cognizable Article III injury in fact as a result of CMS’s guidance. Unlike Novo Nordisk, who had multiple products grouped together for negotiation based on the same active moiety, AstraZeneca faced only an alleged risk that its products would similar be grouped together. Further, the Third Circuit said that AstraZeneca failed to submit concrete evidence that CMS’s guidance has or is currently causing AstraZeneca to change anything about how it is operating its company. The court therefore did not address the merits of the alleged APA violations.
What Comes Next?
Five other challenges are pending before appeals courts in the Third and Second Circuits. AstraZeneca was argued on the same day, and before the same three-judge panel, as Bristol Myers Squibb’s and Johnson & Johnson’s appeals. The same panel earlier this spring also heard appeals from Novo Nordisk’s and Novartis’s challenges, which were also both rejected by the district courts on similar grounds to those in AstraZeneca. The opinions in those cases may follow shortly. Once those rulings are issued, the Third Circuit will have weighed in on nearly all the arguments manufacturers have lobbed at the Negotiation Program. The Second Circuit heard arguments in Boehringer Ingelheim’s challenge in April and will likely issue a ruling the coming months.
Meanwhile, we expect that AstraZeneca will seek the Supreme Court’s review. Even if the high court agrees to take up the case, it will likely not hear arguments and issue a decision until late in 2025 or even in 2026 because it will soon enter its summer recess. That timing may also allow the justices to consolidate AstraZeneca with the remaining cases, offering them the opportunity to address all the various challenges at once. Because the Supreme Court has discretion to review only parts of a case, we may also see the manufacturers begin to whittle down their claims to home in on only those arguments that manufacturers believe are most likely to persuade the justices.
Belgian DPA Finds Broad Tax Information Transfers to IRS Unlawful
The Belgian Data Protection Authority recently ruled that a Belgian government entity, FPS Finance, cannot transfer the personal data of “accidental Americans” to the IRS. According to the decision, the transfers needed to cease for several reasons.
The case was brought by a dual US-Belgian citizen, who, while a US citizen by birth, did not reside in the US or otherwise have any significant connections to the US (i.e., an “accidental American”). He argued that his personal information should not be transferred to the US, even though the US’s Foreign Account Tax Compliance Act requires all US citizens to report their tax information to the US to combat terrorism and prevent tax evasion. That law is enforced in Belgium through a 2014 bilateral treaty, which was entered into before the GDPR’s effective date. The Belgian tax authority argued that it could make the transfer under a GDPR exception (Article 96), which allows pre-GDPR international agreements, such as this one, to remain in place if they comply with the law in effect at the time. Thus, the Belgian DPA examined not only whether the transfer violated GDPR (as the individual argued) but also whether it violated the laws in existence at the time the treaty was signed.
The Belgian DPA found that the transfers did not comply with pre-GDPR law because the amount of information being transferred exceeded what was necessary to meet the specified purposes. Further, the FATCA was not compliant with current GDPR standards. The Belgian DPA also emphasized that FATCA, as implemented, lacked sufficient safeguards to protect the personal data of EU residents, especially those with tenuous or accidental ties to the US. The Belgian DPA gave FPS Finance a year to modify its transfer process. This included minimizing the amount of data transferred, conducting a data transfer impact assessment, and giving individuals more information about its data processing activities.
Putting it Into Practice: This decision is a reminder that there may an increase in scrutiny of data transfers to the US. While the facts in this case were narrow, we expect that there may be other, similar, decisions in the future.
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YA Global Heads to Appeals Court Over Tax Court Ruling on Offshore Fund’s U.S. Activities
Last month, YA Global Investments, LP (the “Fund”) filed a notice of appeal to the U.S. Court of Appeals for the Third Circuit, seeking review of the U.S. Tax Court holding in YA Global Investments, LP v. Commissioner.[1] In November 2023, the Tax Court held that this Cayman Islands fund was engaged in a U.S. trade or business through an agency relationship with its U.S. investment manager, Yorkville Advisors (YA), and failed to withhold tax on income that was effectively connected with its U.S. trade or business (ECI) and allocable to its non-U.S. partners. Further, the Tax Court determined that the Fund was a dealer in securities subject to the Section 475 mark-to-market rules.[2] Our prior summary of the case is available here.
This appeal reopens the discussion on agency principles, the characterization of a U.S. trade or business, and the Section 475 dealer definition. The Tax Court found YA to be the Fund’s agent primarily because the investment management agreements designated YA as such. In determining that the Fund was engaged in a U.S. trade or business through YA’s activities, the Tax Court emphasized that YA’s fees tied to convertible debt and standby equity distribution agreement transactions from portfolio companies were compensation for services and exceeded returns on invested capital. The Tax Court also classified the Fund as a Section 475 dealer and its gains as ordinary income and ECI. It rejected the Fund’s claim that it had no customers and invested for its own account. Sponsors to credit funds with non-U.S. investors and their tax advisors continue to follow the case closely, as it could has significant implications on such credit funds.
[1] 161 T.C. 11 (2023). [https://www.foley.com/wp-content/uploads/2023/11/161-tc-no-11-YA-Global.pdf]
[2] All Section references are to the U.S. Internal Revenue Code of 1986, as amended.
Germany: Bureaucracy Out, Digital In? The New Government’s Plans for Labour and Employment
After long negotiations between the Christian Democrats and the Social Democrats, the parties agreed to establish a coalition to form the new government and Friedrich Merz was eventually elected on 6 May 2025 as new Chancelor of Germany. The coalition agreement published by the parties offers insight into their agenda. While not the primary focus of the agreement, there are several initiatives that aim to address certain labour and employment issues of relevance to the German market.
Streamlining the future of work
The coalition agreement outlines several key initiatives designed to enhance Germany’s competitiveness as a business hub, particularly by furthering digitalisation and streamlining bureaucracy. This commitment is also reflected in their plans for addressing L&E-related issues:
Promoting qualified immigration, particularly by digitalising processes in an effort to accelerate the recognition of professional qualifications from other countries
Further reducing the written form requirements in employment law, e.g. for contracts under the Part-Time and Limited Term Employment Act (Teilzeit- und Befristungsgesetz). For further details on the previous changes that took effect in January 2025, please refer to our recent blog post on the Bureaucracy Relief Act.
Digitalisation of collective labour rights
Collective labour law is particularly impacted by the effort to digitalise employment processes:
Enabling the use of online works council meetings (Betriebsratssitzung) and works meetings (Betriebsversammlung) as an alternative to in-person meetings
Implementing an optional digital voting process for the works council elections in 2026
Right to digital access, i.e. the right to use existing digital communication channels as an alternative to the notice board for advertising among others collective labour events and opportunities
Improving Flexibility
The new government is also seeking to implement a change to the Working Hours Act (Arbeitszeitgesetz) that would allow for maximum weekly instead of daily working hours. The current position is a daily maximum of eight (or in exceptions, ten) working hours.
To comply with the EU Working Time Directive, a maximum of 48 weekly working hours would generally be permitted. Exceptions would have to be made for certain workers, e.g., for those working nightshift. Additionally, a new concept is required to allow for the increase in flexibility while still ensuring the workers’ health, safety and adequate rest time. The coalition agreement does not provide any specifics as to how this will be achieved.
According to coalition parties, the adjustment is intended to enhance the compatibility of family and work. However, while the new regulations would not constitute an increase in weekly working hours, they are likely to benefit employers by allowing for more flexible schedules due to the decreased regulations. Examples could be agreeing on a permanent 4-day week with no reduction in pay or the option to offset short-term spikes in workload by ordering work for more than 10 hours a day. Once these changes are implemented, employee handbooks or works agreements referencing maximum working hours may require changes to comply with the new regulations.
The parties also plan to implement an obligation to digitally record working hours for employers. Following the implementation, a transition period will be established during which small and mid-size companies will be exempt from the new requirements. However, the obligation does not extend to trust-based working hours. Therefore, the decision to pursue this option remains at the discretion of employers.
A further initiative aimed squarely at increasing productivity is exempting overtime income of full-time employees from income tax. The definition of overtime in this context is any working time that exceeds 34 hours in the case of employees with a CBA, or 40 hours in the case of employees without a CBA.
If employers offer bonuses to part-time employees for increasing their working hours, these bonuses remain tax-free according to the parties’ plans. It remains to be seen how the coalition will deal with attempts to exploit such bonuses.
Allowing for a smooth transition after reaching retirement age
Many employers and employees are interested in maintaining their existing employment relationship after the employee reaches the standard retirement age. However, given the restrictions in the Part-Time and Limited Term Employment Act, most flexible solutions are not viable. In most cases, employers are currently only able to establish long-term employment relationships that do not adequately address the challenges associated with such employment.
The coalition agreement now includes a plan to lift the ban on pre-employment after reaching the standard retirement age in the Part-Time and Limited Term Employment Act. This would allow employees to remain in a familiar work environment while transitioning to a reduced or limited role within their organisation. Lifting the ban would be a welcome change for both parties to an employment relationship as it would provide reliable planning and legal certainty.
The effort to encourage individuals to remain in the workforce after reaching the standard retirement age also includes plans to exempt up to EUR 2,000 of such employees’ income from income taxes.
Strengthening unions
The coalition parties plan to make compliance with collective bargaining agreements a prerequisite for the awarding of federal contracts worth EUR 50,000 or more and for start-ups with “innovative services” in the first four years after their establishment for projects worth EUR 100,000 or more.
The parties also aim to enhance the appeal of trade union memberships by offering tax incentives for their members.
Other initiatives
While these initiatives are also part of the coalition agreement, how or even if they will be implemented is less certain for some than others:
Raising the minimum wage to EUR 15 per hour by 2026, which is explicitly labeled as something that may be feasible
Implementing a legal framework for AI at the workplace
Summary
The agreement encompasses a combination of measures that are favourable to employers and those that are principally intended to strengthen employee rights. However, none of them legally binding. Thus, the agreement is, in essence, a mere collection of potential initiatives. It is not feasible for it to be realised in its entirety within the next four years. Immediate action is therefore not required. Nevertheless, it provides the most comprehensive insight into the incoming government’s plans and as a result, what employers may expect in upcoming legislative periods.
Onshoring Pharma Ops: Reading Recent EO and Policy Tea Leaves
This week, underscoring a commitment to national security, the White House and the Food and Drug Administration (FDA) issued separate communications that aim to bolster domestic drug manufacturing while tightening oversight of foreign facilities. But they also raise questions about implementation, industry impact, and long-term effects. This is another step from the Department of Commerce Bureau of Industry and Security’s (BIS) Section 232 investigation into pharmaceuticals initiated on April 1, 2025. These developments, while unsurprising, should be viewed within the constellation of broader administration policy, and could make real progress on furthering the manufacturing onshoring agenda for the critical life sciences industry.
The Executive Order: Streamlining Domestic Manufacturing
Signed on May 5, 2025, the Executive Order titled “Regulatory Relief to Promote Domestic Production of Critical Medicines” aims to reduce barriers to building and expanding pharmaceutical manufacturing capacity in the United States.[1] The White House frames this as a national security imperative, citing estimates that new facilities can take 5 to 10 years to construct due to regulatory hurdles—a timeline deemed “unacceptable.” The order directs the FDA and the Environmental Protection Agency (EPA) to review and streamline regulations related to the approval of new and expanded manufacturing sites, eliminate “duplicative or unnecessary requirements,” and maximize “timeliness and predictability” in reviews.
The order also emphasizes early collaboration between the FDA and domestic manufacturers to support facilities before they come online. This could mean more pre-approval guidance or technical assistance, potentially reducing delays in licensure inspections. Additionally, the order calls for increased fees and inspections for foreign manufacturing plants, alongside stricter enforcement of active pharmaceutical ingredient (API) source reporting. The FDA is tasked with publicly disclosing the number of foreign inspections conducted, broken down by country and manufacturer, and considering a public list of non-compliant facilities.
This push for domestic production builds on Trump’s first-term efforts, such as Executive Order 13944 (August 6, 2020), which aimed to reshore essential medicines. The current order reflects a broader “America First” agenda, with the administration arguing that domestic facilities face more frequent and rigorous inspections than their foreign counterparts—a disparity they seek to address.
FDA’s Expanded Unannounced Inspections: Leveling the Playing Field?
On May 6, 2025, the FDA announced plans to expand unannounced inspections at foreign manufacturing facilities producing drugs, food, and medical products for the U.S. market. This builds on a pilot program launched under the Biden administration in India and China, which had stalled due to recent staff cuts. The agency’s goal is to ensure foreign facilities face the same level of scrutiny as domestic ones, addressing long-standing concerns about inconsistent oversight. The FDA emphasized that it can take enforcement actions—such as warning letters or import bans—against facilities that delay, block, or refuse these inspections.
FDA Commissioner Marty Makary, appointed under the Trump administration, underscored that these surprise inspections aim to align foreign oversight with domestic standards. The agency also plans to optimize inspector resources by reducing time spent in-country, allowing for more inspections without additional staffing. This is particularly significant given recent reports of layoffs and budget constraints at the FDA, which have strained its inspection capacity.
Context and Analysis: Opportunities and Challenges
These actions don’t exist in a vacuum. Since the inauguration, the FDA has undergone significant changes, reflecting the administration’s broader push to reduce bureaucracy, roll back regulations, and prioritize domestic interests. The appointment of Marty Makary as FDA Commissioner and Robert F. Kennedy Jr. as Health and Human Services Secretary has set a tone of aggressive reform. These changes suggest a dual focus: easing regulatory burdens for U.S. manufacturers while intensifying scrutiny of foreign ones. However, the FDA’s ability to execute these policies amidst staffing shortages and budget cuts remains a critical question.
Opportunities naturally reveal themselves. First, the Executive Order’s emphasis on streamlining regulations could significantly reduce the time and cost of building or expanding U.S. manufacturing facilities. The news cycle has been full of recent announcements—totaling in the multiple billions—by both large and small pharma companies making commitments to invest in U.S. manufacturing and research and development. Second, expanded unannounced inspections may deter foreign manufacturers from cutting corners, potentially reducing the competitive advantage of lower-cost production in countries like India and China. This could benefit U.S. contract manufacturing and development companies by narrowing the cost gap, but to be sure, could result in at least a short-term cost increase for manufacturers looking to move operations back home. Finally, the promise of pre-approval collaboration could help companies navigate complex—and sometimes confusing—regulatory requirements, reducing the risk of delays or rejections during licensure inspections.
But challenges are also plentiful. First, the FDA’s recent layoffs and budget constraints raise concerns about its capacity to conduct more foreign inspections or provide robust support for domestic manufacturers. The agency’s Office of Inspections and Investigations was already struggling with a 16% vacancy rate among investigators before these changes. It was reported that, as of September 2024, 42% of the 4,700 plants that manufacture drugs for the U.S. were overdue for inspection.[2] Second, higher inspection fees and stricter API source reporting could raise operating costs for foreign facilities, potentially leading to supply chain disruptions or price increases for U.S. consumers. Companies reliant on foreign APIs may need to reassess their sourcing strategies. Third, the White House’s foreshadowed tariffs on imported drugs could complicate the economics of foreign manufacturing, forcing companies to weigh the costs of relocating production to the U.S. against potential trade barriers. Finally, while streamlining domestic approvals is appealing, eliminating “duplicative or unnecessary” requirements risks weakening oversight. The opioid crisis, partly fueled by lax FDA standards in the past, serves as a cautionary tale.
Tariffs: Potential Impact and Twists
Further, tariffs continue to place economic pressure on foreign manufacturing. Large U.S. manufacturers have estimated tariff impacts of “a few hundred million dollars,” primarily due to tariffs on Chinese products (e.g., the International Emergency Economic Powers Act (IEEPA) 20% fentanyl tariff, the IEEPA 125% reciprocal tariff, Section 301 tariffs) as well as China’s retaliatory tariffs. As a result, manufacturers have begun to implement mitigation strategies. For example, companies are now beginning to invest more heavily in domestic R&D and manufacturing in order to meet U.S. product demand, while maintaining manufacturing facilities abroad to serve global demand.
In addition to the tariffs imposed by the statutory authorities listed above, on April 1, 2025, BIS initiated a Section 232 investigation under the Trade Expansion Act of 1962 into pharmaceuticals. This investigation focuses on the national security implications of importing pharmaceuticals and pharmaceutical ingredients, including finished generic and non-generic drug products, medical countermeasures, critical inputs like active pharmaceutical ingredients and key starting materials, and derivative products of these items. The investigation must conclude within 270 days. Following the investigation, the President has the authority to impose various trade restrictions, including tariffs on the investigated products.
Generally, these tariffs are typically additive. However, in a twist, the relationship between Section 232 tariffs and the 125% reciprocal tariff are exclusive of each other. For example, if a Chinese product is subject to a Section 232 tariff, it will not be subject to the 125% reciprocal tariff. This exclusivity might offer some relief to the pharmaceutical industry if Section 232 tariffs are imposed on certain Chinese pharmaceutical products and are set at a rate lower than 125%.
These developments may demand strategic adjustments, including but not limited to:
Reevaluate Supply Chains: this one is debatable, but it is as good a time as ever to assess reliance on foreign manufacturing and consider investing in U.S. facilities to capitalize on regulatory relief and mitigate tariff risks.
Strengthen Compliance Programs: prepare for unannounced inspections by enhancing quality control systems and ensuring accurate API source reporting. Non-compliance of course could lead to public shaming or import restrictions.
Engage with FDA Early: leverage the FDA’s offer of pre-approval support to streamline facility approvals. This could involve early consultations on emerging technologies or production line modifications. The FDA is not always the easiest to correspond with—especially recently—but the administration’s commitment to domestic manufacturing could yield a critical advantage over foreign entities when it comes to dealing with FDA.
Monitor Tariff Developments: With the administration promising more details on tariffs within weeks, companies should model the financial impact of potential trade policies and explore diversification strategies.
Looking Ahead: Balancing Speed, Safety, and Security
The administration’s FDA is charting a course that prioritizes domestic manufacturing and robust foreign oversight, but the path is fraught with challenges. Streamlining regulations could unleash innovation and strengthen the U.S. drug supply chain, but only if the FDA retains the expertise and resources to maintain safety standards. Expanded unannounced inspections are a step toward domestic parity, but their success hinges on adequate staffing and international cooperation. Meanwhile, the specter of tariffs looms large, potentially reshaping the economics of the global pharmaceutical industry.
As with everything recently, it is too early to say whether and to what extent these actions will have a meaningful impact, but the number of policy moves is growing to a critical mass. The coming months will reveal whether the FDA can deliver on these ambitious goals or if resource constraints and policy trade-offs undermine their impact. For now, manufacturers should stay proactive, aligning their strategies to the extent possible with the administration’s priorities while safeguarding compliance in an increasingly complex and uncertain regulatory environment.
FOOTNOTES
[1] Executive Order available here: Regulatory Relief to Promote Domestic Production of Critical Medicines – The White House
[2] Nearly 2,000 drug plants are overdue for FDA checks after COVID delays, AP finds | The Associated Press
Julian Klein also contributed to this article.
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Beltway Buzz, May 9, 2025
The Beltway Buzz™ is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what’s happening in Washington, D.C., could impact your business.
DOL to Rescind 2024 Independent Contractor Regulation? The U.S. Department of Labor (DOL) is backing away from the Biden-era independent contractor regulation finalized in January 2024. More specifically, the DOL’s Wage and Hour Division (WHD) has issued guidance (Field Assistance Bulletin No. 2025-1, “FLSA Independent Contractor Misclassification Enforcement Guidance”) instructing its field staff to “no longer apply the 2024 Rule’s analysis when determining employee versus independent contractor status in FLSA investigations.” The DOL will be taking this position while it reconsiders the 2024 Rule, “including whether to rescind the regulation.” In the meantime, DOL investigators are instructed to rely on Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act (FLSA). Finally, the guidance notes that “the 2024 Rule remains in effect for purposes of private litigation.” The first Regulatory Agenda of the second Trump administration—expected sometime in June or July of this year—should provide stakeholders with a clearer picture of the DOL’s intentions regarding a potential rescission of the 2024 independent contractor rule.
Bipartisan Paid Family Leave Bill Introduced in House. In January 2024, the Buzz discussed the U.S. House of Representatives’ bipartisan Paid Family Leave Working Group’s four-pillar paid leave framework. This week, Representatives Chrissy Houlahan (D-PA) and Stephanie Bice (R-OK), who co-chair the working group, introduced the More Paid Leave for More Americans Act. The legislation combines two pillars of their framework, the Paid Family Leave Public Partnerships Act and the Interstate Paid Leave Action Network Act. Here is how it would work:
Paid Family Leave Public Partnerships Act. This portion of the bill would offer DOL grants to states that establish paid family leave programs. To be eligible for such grants, states would be required to:
provide eligible employees with at least six weeks of paid leave for the birth or adoption of a child;
provide wage replacement between 50 percent and 67 percent based on employees’ income, with a cap equal to 150 percent of the state’s average weekly wage;
enter into a partnership with a private entity—such as an insurance carrier—to administer the benefits; and
participate in the to-be-created Interstate Paid Leave Action Network (I-PLAN).
Interstate Paid Leave Action Network Act (I-PLAN Act). This aspect of the More Paid Leave for More Americans Act would help states reduce the variances between the programs that have led to the current “patchwork” of paid leave compliance requirements. The I-PLAN would be tasked with establishing an agreement that will “[c]reate a single policy standard with respect to all participating States to facilitate easier compliance with and understanding of paid leave programs across States[.]” In other words, the I-PLAN aspect of the bill will strive to seek uniformity between states on key paid family leave terms such as employee eligibility, family member, intermittent leave, etc.
The More Paid Leave for More Americans Act still has a long way to go before becoming law. But the bipartisan nature of the bill is an optimistic sign for its supporters.
EEOC Personnel News. Recent nominations and hiring decisions shed some light on where the U.S. Equal Employment Opportunity Commission (EEOC) is heading from a policy perspective:
Commissioner Appointment. President Donald Trump nominated Brittany Bull Panuccio to serve on the Commission. Panuccio is currently an assistant U.S. attorney in Florida and previously served as an attorney at the U.S. Department of Education. If confirmed, Panuccio would join Acting Chair Andrea Lucas to form a Republican majority on the Commission. Current Commissioner Kalpana Kotagal is the only Democrat on the Commission. Further, Panuccio’s confirmation would return a functioning quorum to the Commission and would likely allow Acting Chair Lucas to move forward with her regulatory—and subregulatory—agendas. D’Ontae D. Sylvertooth and Sean J. Oliveira have the details.
Chief of Staff. Acting Chair Lucas has selected Shannon Royce as her chief of staff. Royce is an attorney and former president of the Christian Employers Alliance. Lucas has announced that one of her top priorities is “protecting workers from religious bias and harassment.”
Bill Would Provide Tax Break on Overtime Pay. The Buzz has discussed President Trump’s desire to limit the taxes that workers pay on tips and overtime earnings. Bills have already been introduced in the U.S. Congress to address the “no tax on tips” issue. This week, Republican legislators turned to the overtime issue by introducing the Overtime Wages Tax Relief Act. The bill would allow workers to deduct up to $10,000 ($20,000 for those filing jointly) of income derived from working overtime for each taxable year. The deduction begins to phase out when income reaches $100,000 for individuals or $200,000 for married couples. Republicans may try to include this bill in their larger reconciliation tax reform package.
OFCCP Layoffs Arrive. President Trump’s rescission of Executive Order 11246 eliminated the affirmative action requirements for federal contractors, and, in turn, most of the operations of the Office of Federal Contract Compliance Programs (OFCCP). Many OFCCP employees were subsequently offered a deferred resignation option or placed on administrative leave. This week, most of OFCCP’s remaining employees received notice that they would be laid off, effective June 6, 2025. According to reports, this is more than 300 employees (according to its fiscal year 2025 budget justification, OFCCP has about 490 employees). OFCCP will reportedly maintain one regional office in Dallas, Texas.
A Pope-ular Guest. At the Buzz, no news is more significant than labor and employment policy developments. But for the rest of the world—particularly for Catholics—the selection of Chicago-born Cardinal Robert Prevost as Pope Leo XIV was the news of the week. Some American politicians, such as Senators Mark Kelly (D-AZ) and John Hoeven (R-ND), expressed excitement and optimism about the selection of an American-born Pope. But at this early hour, there aren’t any plans to invite the new pontiff to address Congress. Indeed, it is a rare event. On September 24, 2015, Pope Francis delivered an address to a joint session of Congress, the only Pope to ever do so. It was probably no coincidence that three of the most powerful politicians at the time—Vice President Joe Biden, Speaker of the House John Boehner, and House Democratic Leader Nancy Pelosi—were all Catholic.
What’s At Stake When it Comes to Medicaid Cuts?
As we are well into the 2nd quarter of 2025, Medicaid policymakers face a significant challenge: staring down the 800-pound gorilla in the room. The proposed budget released by President Trump focuses on areas of discretionary funding, rather than the mandatory spending in programs like Medicare and Medicaid.
The recently passed House budget resolution proposes federal Medicaid cuts of up to $880 billion over the next decade. The Healthcare Budget Reconciliation mark-up will likely take place the second week of May, with Speaker Johnson suggesting he would like to take a vote before Memorial Day.
To put that number into perspective, $880 billion represents 6% of state taxes per resident and nearly one-fifth (19%) of what states spend per student on education. For states, which must balance their budgets, this would be a substantial fiscal burden.
Two key proposals still in play to address spending levels in Medicaid include:
1. Reducing or eliminating supplemental Medicaid payments, and
2. Placing caps on the federal share of funding for the 40 states that expanded Medicaid under the Affordable Care Act (ACA).
This analysis focuses on the first issue—supplemental payments—because Florida did not expand Medicaid under the ACA and is therefore more directly affected by potential changes to supplemental funding.
All states except Alaska use provider taxes to help fund Medicaid. Ambulances, health plans, hospitals, intermediate care facilities for people with developmental disabilities (ICF/DDs), and nursing homes are the common beneficiaries. Florida uses provider taxes in numerous categories, including nursing homes and hospitals. The state also uses local government tax bases to support specific programs to draw down additional federal dollars for hospital funding, including for the Low-Income Pool (LIP), which supports hospital uncompensated care, and the Hospital Directed Payment Program (DPP), which helps offset some of the unfunded costs of caring for more than four million Florida Medicaid enrollees. The state benefit to use these types of funding mechanisms is to reduce the Medicaid burden on state revenue and shift that to local government or the providers themselves instead.
As more states transition to managed care and reliance on supplemental payments increased, the Centers for Medicare and Medicaid Services (CMS) updated its rules. CMS required directed payments be tied to the use and delivery of services under the managed care contract, be equally distributed to specified providers under the managed care contract, advance at least one goal in the state’s managed care quality strategy, and not be conditioned on provider participation in intergovernmental transfer (IGT) agreements.
However, even with these changes to the supplemental payment programs, Federal concerns over whether “states are covering their fair share of Medicaid” remain. Drastically altering or removing these programs all together could drastically impact the State.
If the Federal government cuts or removes these programs, Florida could lose up to $6 Billion in its healthcare economy. However, the increasing difficulty in accessing care is a growing concern, leading to higher costs. Access to care is already getting harder in many areas. Just this year, 15 hospitals have closed across the country. In 38 states, people are on waitlists for Medicaid home and community-based services.
There is undoubtedly waste in the Medicaid program nationwide. US healthcare spending increased by 7%, the overall inflation rate is 3.8%, and the pace is unsustainable. Practical considerations for the legislature will be complex if there is a drastic cut, as the state did not expand Medicaid, leaving options like eliminating optional benefits (e.g., pharmacy benefits) or reducing provider payment rates.
Over the 15 years since the ACA passed, healthcare costs have continued to rise while access to care remains problematic. One important lesson from the past decade should be that access to insurance does not equate to access to care. Instead, we need to examine where costs have ballooned over the past decade and explore systematic change, rather than simply cutting provider funding in an entitlement program to deliver care at lower costs.