A few months ago, President Biden outlined his plan for an initial “traditional” infrastructure package followed up with an additional “social” infrastructure package together, totaling close to $4 trillion in new spending. Immediately, both sides of Congress came out either with support for the ideas or condemned the new spending as irresponsible and unnecessary. As discussions unfolded, there seemed to be an agreement that an infrastructure deal is needed, but that is where the agreement stopped. Democrats called social infrastructure necessary and needed, while Republicans questioned the necessities and wondered how to pay for such a deal. Fortunately, before the conversations became too contentious, a bipartisan group of senators went to work to craft a bill that both parties could support.
On Wednesday, July 27th, the proposed legislation included $550 billion for transportation, broadband internet, and utilities. Out of $550 billion, $110 billion is for roads, and $65 billion is for broadband internet access. According to CNBC, this bill would be paid solely by “increased IRS enforcement of existing tax rates, redistribution of coronavirus relief funds, and other sources.” It is heading for a test vote in the Senate, where sixty votes are needed for approval and supported by the US Chamber of Commerce. This bill does not have any changes to taxes attached.
The bill, as it stands, is a positive for the economy overall. It is targeted towards traditional infrastructure, is financed without raising taxes, will create jobs and benefits businesses, and is efficient in using remaining coronavirus relief funds. Even with this being a general positive for the economy, there is a catch. Democrat leadership in the house has publicly stated that they will not move forward on this bill until a separate bipartisan bill, estimated at $3.5 trillion, is approved by the Senate, most likely through a process of budget reconciliation. This second social infrastructure bill is sizable in scope and aims to provide funding for education, investments in childcare, healthcare funding, and efforts to curb climate change. A partisan bill of that size is sure to be hotly debated and may come with higher taxes.
Just like with the previous bills, these two could change in size and scope. Passing a secondary bill would require each Democratic senator to vote for the bill, which could be unfeasible. Several Democrat senators have voiced concerns about the size of a secondary infrastructure bill, so it should not be a foregone conclusion that the budget process will work. Either way, there will likely be winners and losers from this legislation. As the process evolves, we will keep you updated and how any changes may benefit the economy and your portfolios.
Michael E. Scott | MBA, CFA
Senior Portfolio Analyst