After months of debate, the Senate passed a $1 trillion infrastructure bill. The House of Representatives is currently holding up the bill as a result of political gamesmanship, with Majority Leader Nancy Pelosi stating they will not take up the infrastructure bill until they pass the budget. Thus, it remains likely it will pass as it currently stands, just on a later timeline.
Before looking at where things are with the budget, what does the agreed-upon bill mean for investors? Some analysts believe that since it doesn’t differ all that much from what was originally proposed months ago, the positive impacts are already baked into prices, and unlikely to be a big market mover in the short term.
Of course, there is always room to grow, as a result of the cash infusion in the longer term, as spending will take years to ramp up on many of the projects anyways.
Looking at a Few Winners
Many companies operating in construction, engineering, industrials, materials, and heavy equipment manufacturers will be beneficiaries of the highway and bridge rehabilitation portions of the bill. Likewise, companies involved with mass transit, including bus and rail infrastructure, should see increased cash flows even if less than originally proposed. There is $7.5 billion specifically earmarked for replacing gas buses with electric or other low emission ones.
Companies providing and servicing water utilities should see some relief from the billions being provided toward safer drinking water. This should be especially true in older cities where lead pipes remain a large concern in needing expensive replacement.
Companies that make the equipment used to manufacture semiconductors remain a beneficiary, as the Biden administration continues the push to reduce the United States’ reliance on computer parts manufactured overseas.
Also in the tech realm, the proposal’s plan includes a focus on expanding both 5G cell reception and high speed broadband internet access throughout the United States, especially in rural areas where large tracks have internet access that is limited to very slow and expensive satellite connections, if available at all. Expect most telecommunications and internet providers, 5G radio manufacturers, and smartphone companies to see gains.
Now, Onto the Budget
We don’t know what is in the budget because it has not been written yet. Any of the articles you may read telling you what is in the budget will likely contain some apocalyptic language, but at this point, it is mere guesswork on what may be proposed. So, what has happened thus far? The Senate got the budget ball rolling by opening the budget reconciliation window, allowing the Democrat controlled Congress to potentially pass its $3.5 trillion budget wish list via a simple majority vote.
As part of opening the reconciliation process, both parties had opportunities to offer unlimited amendments. While non-binding, they would set parameters on what can and cannot pass into law when the actual legislation is drawn up. These debates were largely lost in the media coverage of the infrastructure bill and the events occurring in Afghanistan, but they occurred over the course of 15 hours and the proposal of 47 budget amendments.
We don’t currently know what the actual budget proposal will look like. These votes shed some light and offered some clues on what to expect, and they act as a blueprint of sorts for what the House will come up with.
One general interesting takeaway, since so many eyes are on West Virginia Senator Joe Manchin as a swing vote of sorts, is he cast his vote in favor to authorize spending of $3.5 trillion while putting out a statements that he does not support that amount of spending.
This mirrors his stance on the $2 trillion-dollar COVID-19 relief package that he stated to be against and ultimately voted to support. This questions if he is truly a swing vote or if he just makes statements to appease constituents in the increasingly conservative state he represents.
So What Was Agreed Upon?
As some possible interpretations of the amendments, there was some talk to limit like-kind exchanges in real estate transactions that would eliminate or reduce taxes owed. However, an amendment would make any such change to the Tax Code more difficult.
Support was given to allow Research and Development costs to be an added expense deduction that could soften the blow against possible corporate tax increases for some industries.
A proposal to continue the failed current SALT, the State and Local Tax, and deduction limits on the wealthy signaled the Democrats’ desire to roll back the current SALT limits put in place under the Trump administration.
There was near unanimous consent to protect family farms from federal estate taxes.
Republicans offered an amendment to limit the scope of the IRS over banking transactions that failed, signaling the Democrats’ desire to expand the IRS’s authority in that area.
An amendment passed against increasing taxes on small business. The Democrats stated they wished to include a new 3.8% tax on businesses with income greater than $400,000. Look for a fight over the definition of “small business” down the road.
An amendment was passed not to increase taxes on individual income of less than $400,000. It should be noted that with the original Biden tax increases the most that was proposed on individuals only applied to those making greater than $1 million dollars.
In reality, this is not a huge change from what was expected. So, do expect Republicans to use this amendment to argue against indirect taxes that could affect those making less than $400,000.
A tax subsidy amendment on electric vehicles eliminated subsidies for those making more than $100,000.
Interestingly, in our current highly partisan atmosphere, an amendment prohibiting renewable energy products from those who receive federal funds from purchasing materials or technology produced by China passed with 90 votes for and only 9 against.
This, along with other statements, signals it is likely that the current administration with the backing of their Democrat congressmen will continue the general hardline approach toward China that the Trump administration took.