September is lining up to be a busy month for lawmakers in Washington, D.C. After passing a bipartisan infrastructure bill in the Senate, the pressure moved House Democrats to come up with a plan to pass the legislation through their chamber. Many progressive Democrats did not want a vote on the bipartisan bill until an agreement on the budget reconciliation process to ensure an additional $3.5 trillion social infrastructure deal passed. In an attempt to accommodate both progressive and centrist Democrats, a compromise was reached to further the infrastructure discussion.
A budget reconciliation framework was passed through the House, which included a September 27th vote on the bipartisan infrastructure bill. This will allow a bill to head to President Biden for his signature and push into law spending that is badly needed to upgrade the country’s roads, bridges, rails, and ports. While this is seen as a positive to most analysts, corporations, and politicians, the harder work remains to be completed. The $3.5 trillion social infrastructure bill is up for fierce debate in Congress and across the country as a whole. So far, these are a few items being proposed:
- $726 billion for Education- Universal Pre-School, free community college, increased investments in schools and, expansion of grants to make education more affordable
- $385 billion for Clean Energy initiatives including, improving the electrical grid, investing in clean energy production and infrastructure, and electrifying the federal vehicle fleet
- $332 billion for Affordable Housing
- $135 billion for Agriculture conservation, climate concerns, and wildfires
- $107 billion for immigration reform and effective border security
Proponents of the bill believe social spending will spur economic growth and, overall, will be positive to the economy, even when financed by tax increases. Opponents think the price tag is too high and are concerned about raising taxes and overall spending levels. In the Senate, notably, a few key senators are voicing concerns and have spoken support for a smaller price tag between $1-2 trillion. Regardless of the final size of the bill, many are wondering how it will receive funding. Here is what is being proposed so far on how to pay for such a bill:
- Increase in the Corporate tax rate from 21% to 28%, with 25% being more likely
- Minimum global tax rate on corporations of 21%, with 15% being more likely
- Close tax loopholes for corporations
- Elimination of “Carried Interest” provision (a way for hedge funds to tax their income as capital gains)
- Increase the top marginal tax bracket back to 39.6%
- Increase top capital gains rate to 39.6% for earnings of $1 million or more
While these are the most notable ways to pay for the bill, a few other ideas are being proposed. Wealth taxes are one way of targeting the wealthy that have been proposed to generate tax revenue. Senator Warren has been a proponent of taxing the wealth of American households with assets over $50 million, and there has been another proposal to tax investments annually on their value, regardless of gain. The wealth tax and investment tax would be difficult to implement and have different shortcomings, but both are unlikely to be put into place.
It is still too early to tell how the final form of the bill will look. However, investors need to know that it is becoming increasingly likely that an infrastructure package will occur, and there will be tax consequences to go with it. If you have questions or concerns on how these changes might affect your personal or business situation, please reach out to us at CPS Investment Advisors.
Michael E. Scott | MBA, CFA
Senior Portfolio Analyst