Week in Review

IN THE NEWS

• The Biden Administration announced an initiative that aims to diminish the exploitation of the so-called “de minimis exemption,” which excludes the application of tariffs and regular oversight on imports valued at $800 or less. The initiative pairs agency rulemaking and future congressional action to respond to the actions of Chinese e-commerce companies, such as Shein and Temu, that have relied upon the exemption exponentially more in recent years. The actions would limit the products that fall under the exemption and require better identification of shipments using the exemption to protect consumers more fully from potentially dangerous products. Gina M. Raimondo, the U.S. Secretary of Commerce, stated that the Biden Administration is “standing up for American consumers and cracking down on Chinese companies’ efforts to undercut American workers and businesses.”
• The U.S. Securities and Exchange Commission (SEC) adopted amended rules allowing exchanges to quote stocks at half-penny increments, lowering the previous one-penny minimum for certain stocks. SEC Chair Gary Gensler said the one-penny minimum, first adopted in 2005, has become outdated. In 2023, approximately 74 percent of the share volume was quoted at or below 1.5 pennies. The half-penny minimum will allow stocks to be priced more competitively and lower costs to investors. The new rule will also help exchanges, such as the New York Stock Exchange, compete with off-exchange “dark markets” quoting in smaller increments. The changes will become effective in November 2025.
• The Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking proposing to require banks to keep detailed records of fintech apps that open accounts with them in order to protect customers of the bank. Fintech apps often open accounts at banks where the funds of multiple customers are pooled into a single account. This practice makes it difficult to determine who should receive payouts in the case of bank failure absent records of bank transactions and ownership.
• The U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued a notice of proposed rulemaking that would create a tax exemption for general welfare benefits paid to tribal members. Typically, tribal members are subject to the same federal income taxes as non-tribal members. The Tribal General Welfare Exclusion Act of 2014 amended the Internal Revenue Code so that general welfare benefits for tribal members do not count as taxable gross income. The proposed rule would implement this tax exemption while requiring that the benefits are made for the promotion of general welfare and are not “lavish or extravagant.” The proposed rule would defer to tribal governments for some determinations involving a tribe’s culture, history, and traditions. The Treasury Department stated the proposed rule is a result of a “historic level of pre-regulation consultation,” with tribes and the Treasury Tribal Advisory Committee among others.
• The Treasury Department and IRS issued a notice of proposed rulemaking to expand the tax credits available in the Inflation Reduction Act of 2022 for installing electric vehicle chargers and other clean fuel infrastructure. Under the proposed tax credit, individuals would qualify for up to $1,000 in tax credit and businesses up to $100,000 in tax credit for each single item of equipment installed. The tax credit would be available in “eligible” census tracts, including non-urban and low-income communities, that cover about two-thirds of the country. Advocates claim the proposed tax incentive would be particularly valuable for businesses that “install EV chargers for thousands of commercial delivery trucks” throughout the United States.
• The U.S. District Court for the District of North Dakota sided with five states and issued a preliminary injunction that blocks a Biden Administration conservation rule. The rule aimed to prevent waste due to “venting, flaring, or leaks” during oil and gas drilling on public lands and required natural gas drillers who produce waste to compensate owners through royalty payments. The plaintiff states of North Dakota, Montana, Texas, Wyoming, and Utah argued that the rule was arbitrary and capricious, and that the federal government assumed regulatory power reserved for the states. U.S. District Judge Daniel Mack Traynor agreed with the plaintiffs, finding that the states were likely to succeed on the merits and that the rule “is a significant impingement on the Plaintiffs’ sovereign rights.”
• California Governor Gavin Newson signed two bills into law preventing digital replicas from replacing actors without their consent. AB1836 requires obtaining permission from a deceased person’s estate before distributing or making their digital replica, and AB2602 mandates that contracts created after January 1, 2025 are unenforceable if digital replicas of actors are used when real actors were available to perform the work. The laws are part of an effort to protect performers and workers in all industries from the threat of artificial intelligence (AI).
• The Supreme Court of Pennsylvania vacated a lower court decision holding that timely but incorrectly or undated ballots must be counted in the upcoming election. In a four-sentence per curiam order, the court did not consider arguments about the operation of the Pennsylvania Election Code and how its strict application might be unconstitutional, but instead determined that the lower court did not have subject matter jurisdiction. Three justices dissented, arguing that this important matter should have been decided on the merits. Even though Republican Party leaders celebrated the decision, the ACLU of Pennsylvania’s Supervising Attorney, Stephen Loney, stated that the ruling “is a setback for Pennsylvania voters” and “eligible voters who got their ballots in on time should have their votes counted and voices heard.”

WHAT WE’RE READING THIS WEEK

• In a report published by the Brookings Institution, Wendy Edelberg, a senior fellow at the Institute, and Ben Harris, a director at the Institute, argued that because reforms to the tax code enacted in the past decade have had minor effects on gross domestic product (GDP), tax reforms should primarily consider the effects on federal tax revenues, incentives affecting economic efficiency, and income redistribution. Edelberg and Harris analyzed data on Congress’s eight significant changes to the tax code in the past four decades, finding that the reforms have only had between a 0.5 increase or decrease on long term GDP levels. Edelberg and Harris argued that other considerations, such as tax policy that provides incentive to work and save, can leave households better off than policy that focuses solely on GDP growth and leaves households with less financial resources. The authors concluded that focusing on the small negative effects of tax reform on GDP prevents well designed tax policy that would benefit the economy in other ways.
• In an article in the Yale Journal on Regulation, Amelia Fletcher, professor at the University of East Anglia, and several coauthors, discussed the absence of a contemporary consumer protection regime to address the “explosive growth of e-commerce.” Congress enacted new regulatory regimes to address significant changes in the past, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed in 2010 in response to banking practices that led to the Great Recession. Fletcher and her coauthors proposed requirements for online traders such as offering “no fault” right of return, stating criteria for higher product rankings clearly, and requiring that prices include all unavoidable fees. Fletcher and her coauthors suggested an enhanced role for regulators as well, including providing templates that clearly label advertisements and banning fake reviews—among other things. The Fletcher team concluded that a successful regulatory regime requires “regulators with sufficient expertise” to “remedy the myriad ways that online firms can disadvantage consumers.”
• In an article in the Southern California Law Review, Stephen Cody, an associate professor of law at Suffolk University Law School, argued that in order to protect the Earth’s oceans and the organisms living in them, international law should focus more on criminalization than regulatory policing, which has been inadequate. Cody analyzed how the current “jigsaw puzzle of enforcement regimes” allows groups to profit from actions that have disastrous effects on the environment, such as seabed destruction. He advocated two mechanisms that may deter further destruction through criminal accountability: creating suppression conventions that criminalize ecologically harmful conduct and empowering international criminal courts to investigate and prosecute these crimes. Although “targeted criminalization” is a necessary starting point, Cody contended that “combatting oceanic impunity and ecological disaster requires deeper commitments to international cooperation.”

EDITOR’S CHOICE

• In an essay in The Regulatory Review, Jennifer E. Rothman, a professor at the University of Pennsylvania Carey Law School, discussed potential issues with the NO FAKES ACT, a discussion draft aimed at preventing unauthorized AI replicas of performers. The draft Act raised the problem of potentially encouraging the use of deceased actors through creating a federal right in the work of dead performers. Rothman argued that because state and federal trademark, unfair competition, and copyright laws already exist, the standard to add new laws attempting to prevent problematic digital replicas should be high—in order to protect living performers.