You may have seen over the past couple of weeks that a historic $1T infrastructure bill has made its through and passed the Senate via a bipartisan vote. The next stop for the bill is in the House of Representative’s where changes will be made and compromises will happen to get a final approval. As an investment committee, what we are closely watching are the finer details of the bill, how it is being paid for, and what is to come next assuming that this bill passes in some form close to what it is now.
This first round of infrastructure spending (yes, I say first – we will get to that later) for the most part is truly for infrastructure. With the largest portion of the bill - $110 billion - going towards roads and bridges. The following is also what is included in the bill.
- $73 billion for electric grid and power infrastructure
- $66 billion for passenger and freight rail
- $65 billion for broadband investments
- $55 billion for water systems and infrastructure
- $50 billion for Western water storage
- $39 billion for public transit
- $25 billion for airports
- $21 billion for environmental remediation projects
- $17 billion for ports and waterways
- $15 billion for electric vehicles
- $11 billion for road safety
The more important details on this first round, are how is it being paid for. About half of the bill - $519 billion - is being paid for through offsets, with the majority of these being from COVID- 19 relief spending that was never used. The remaining half will most likely be paid for through deficit spending, but this will not have any impact on taxes, which have been a big topic of conversation in the early round of negotiations.
But, that isn’t to say that the tax hikes have been done away with. We believe that a second bill is most likely already in its early stages of being created and it will hold much more weight, probably in the range of $3 trillion to $4 trillion in spending. What exactly is in the second bill is still to be sorted out. But it will most likely contain more infrastructure spending along with social programs ranging from caregiving for the elderly, to childcare. This is in our opinion where the tax increases will come into play. However, not in the range originally discussed and will be muted from what Biden had originally said he would go after.
We always stress to never let politics affect your investing principals and that continues to hold true. You are far better off to be always invested, rather than timing things based upon policies that you like or only being in the market when your party affiliation has control. Unless something has changed in your overall situation, sticking with your financial plan is the best plan you can have and changing that plan based upon politics has never worked when looking back historically. How this round of stimulus affects that economy is still to be seen and until we have complete confirmation it is important to not rush to judgement, but rather stick to the sound investing principals we coach all our clients to lead with.
As always if you have questions for us never hesitate to reach out!