Starting with The Coronavirus Preparedness and Response Supplemental Appropriations Act signed into law on March 6, 2020, the past year has seen a tremendous amount of funding directed at dealing with the COVID 19 pandemic and the resulting economic distress in our country.
American Rescue Plan
The most recent legislation passed, the American Rescue Plan Act of 2021, included substantial additional fiscal stimulus to the economy and some new financial assistance measures for households and businesses. Instead of stopping there, an ambitious federal infrastructure spending bill is in the works, which also may have significant impact on the economy. So, what is in these plans for us and how might the impact be felt by investors? (By the way, wouldn’t it be a nice change to have a string of years with no need for any economic relief plans?)
The American Rescue Plan Act has already been felt by many in the form of $1,400 economic stimulus payments to most households. The plan also included an increase to the Child Tax Credit, Earned-Income Tax Credit (for those without children by almost $1,000), and the Child and Dependent Care Tax Credit (maximum raised to $4,000 for one kid and $8,000 for two or more).
Changes to Child Tax Credit
The big change here is in the Child Tax Credit. According to Investopedia’s summary1, the recent legislation raised the maximum credit from $2,000 per child (under 17) to $3,000 per child (under 18) or $3,600 (per child under age 6). The 2021 credit is fully refundable, whereas the old credit was only partially. The 2021 child tax credit may also be sent to eligible taxpayers in advance payments, possibly beginning as early as July 2021. Refundable means that eligible tax payers would receive this credit even if their tax liability is reduced to zero. In effect, this is like a stipend that parents would receive on a monthly basis to help provide for their children. According to the Center for American Progess2, it is estimated to potentially reduce childhood poverty by 45%.
An extension of unemployment benefits to September 6, 2021 was included in the plan with a supplemental benefit and a provision to allow the first $10,200 of benefits to be tax-free.
The plan also created a Small Business Opportunity Fund to provide funding to small businesses in economically distressed areas and to minority business owners.
Lastly, there are provisions to increase Affordable Care Act subsidies for health insurance premiums and to continue 100% subsidy of COBRA health insurance premiums for those that have lost jobs and their employer based health insurance.
On the heels of this $1.9 trillion economic rescue plan, the Biden Administration has proposed a massive infrastructure spending plan with a $2 trillion price tag. Undoubtedly, this spending plan will go through the congressional meat grinder and who knows what will turn into actual law. We’ll leave the details for an upcoming blog and for now give you a rough idea of what included. It is intended to fix highways, rebuild bridges, upgrade ports, airports and transit systems. Also, the plan claims it will deliver clean drinking water, a renewed electric grid, and high-speed broadband to all Americans. Additionally, provisions are included to build, preserve, and retrofit more than two million homes and commercial buildings, modernize our nation’s schools and child care facilities, and upgrade veterans’ hospitals and federal buildings. As if that’s not enough, it aims to solidify the infrastructure of our care economy by creating jobs and raising wages and benefits for essential home care workers. They didn’t want to leave out the prospect of revitalizing manufacturing, securing U.S. supply chains, investing in R&D, and training Americans for the jobs of the future. Lastly, the plan hopes to create good-quality jobs that pay prevailing wages in safe and healthy workplaces while ensuring workers have a free and fair choice to organize, join a union, and bargain collectively with their employers.3
I think it’s fair to say this is not just an attempt to “throw the kitchen sink” at the economy and its infrastructure, but more like the whole kitchen and dining room, too.
Impact on U.S. Economy and Markets
All this federal fiscal stimulus is intended to resurrect the economy from the economic shock of the COVID pandemic. Major injections of money into the economy have some risk. Inflation may rise more quickly which the Federal Reserve says is OK with them. However, if it rises too quickly, will interest rates be next. That could impact the bond market, the stock market and housing market and the economy in the long-run. In the short run, there could be many companies or industries that stand to gain from infrastructure spending (construction equipment, raw materials/commodities, internet providers, electric bus manufacturers, etc.) We will keep an eye on the news as this all develops and be thinking about how this might impact your investment portfolios.
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