On Tuesday, August 24, the US House of Representatives moved President Biden’s $1 billion infrastructure package and proposed $3.5 billion budget closer to passage. While the infrastructure bill has bipartisan support, the budget remains highly divisive, with some centrist Democrats, including Senators Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) and about a dozen House members expressing concern at the scope of the bill. Though full text of the budget is not available, the Democrats released an outline that includes significant detail about what will be included and addressed.
KJK breaks down what’s included in both the infrastructure package and budget resolution, including free community college, massive increases to the capital gains tax and more.
Tax Increases and Uncapping the SALT Deduction
- Tax Rate Hikes
- Those with Incomes over $400,000: It isn’t clear whether this rate increase would apply to individuals making more than $400,000 a year or families.
- Capital Gains: President Biden has proposed raising the top capital gains tax rate to 43.4% from 23.8% for people who make more than $1 million. This tax rate change could have massively detrimental effects on the highly popular Opportunity Zone program, which allows deferral of capital gains taxes.
- Corporate Tax Rates: The corporate tax rate dropped to 21% from 35% under the Trump tax cuts. Democrats propose moving the rate up to 28%, however Senator Manchin wants a 25% cap.
- Uncapping the SALT Deduction: The proposed budget would return the state and local tax (known as “SALT”) deduction to pre-2017 levels. The SALT deduction was capped at $10,000 under the 2017 Tax Cuts and Jobs Act, in what was broadly seen as a jab against liberal, high-tax states like California, New York, and New Jersey, but has impacted many Ohioans as well. Progressives within the Democrat caucus see the SALT deduction as a n a “gift to billionaires,” however, several centrist Democrats say they won’t support legislation that doesn’t include it.
- Increased funding for IRS Enforcement: The budget proposal includes an increase in funding for tax enforcement activities by the IRS. The $80 million in funding could result in almost $700 million in additional federal tax revenues, with the benefit mostly coming from increased reporting of information to the IRS from banks and financial institutions, helping auditors decide who to target.
“Human Infrastructure”
- Child Tax Credit Expansion: The Child Tax Credit was expanded significantly, though temporarily in the coronavirus relief package passed in March. Under the new structure, parents making less than $75,000 (for single filers. $150,000 for married filing jointly) dollars receive a $300/month/per child 5 and under plus $250/month/child between 6 and 17. Half of the benefits are being paid monthly from July-December and the balance will come as a tax refund. The proposed budget would make this credit permanent at a cost between $650 billion and $1.5 trillion over the next10 years.
- Paid Sick and Parental Leave: The budget proposal includes a provision for up to $225 billion in subsidies for 12 weeks of paid sick and parental leave, up to $4,000 per month.
Health, Education & Immigration
- At Home Health Care: The bill would provide for up to $400 billion for at-home care for older adults and people with disabilities. It also includes provisions relating to reducing drug prices,
- Extension of Insurance Subsidies: The resolution includes extending healthcare subsidies for private health insurance sold in the Affordable Care Act marketplaces. First enacted under the American Rescue Plan passed in March 2021, these subsidies are set to expire in two years. The expected cost is $163 billion.
- Medicare Expansion: The proposal would also add dental, hearing, and vision services to Medicare and to lower the eligibility age below to the current age of 65 to an unknown threshold. The estimated cost would be almost $300 billion.
- Daycare Subsidies: President Biden has proposed capping daycare expenses for most workers at 7% of income, which would cost the federal government between $140 and $225 billion. Manchin is skeptical about the federal government creating universal pre-K with states like West Virginia having already launched their own programs without federal assistance.
- Two Years of Community College: Not going as far as many progressives want and providing free four-year public college, the Biden administration proposes government funding for 2 years of community college at an estimated cost of $300 billion.
- Immigration reform: Senate Democrats propose including $107 billion for “smart and effective border security measures” as well as the “lawful permanent status for qualified immigrants.” However, because the budget will almost certainly be passed under Senate reconciliation rules, provisions for the “Dreamers” may not be included as it would not be a policy that directly and substantially affects the federal budget.
Climate Taxes and Spending
- Expansion of Alternative Energy Credits: The planned budget will would increase tax credits for wind and solar-powered companies and for electric cars.
- Clean Energy Standard: President Biden has pledged to create a clean-energy standard with a goal of zero carbon emissions by 2035. The proposed budget would kick that off, by setting a new clean energy standard where companies that meet emissions goals are rewarded and those who don’t are fined.
- Funding: The Senate proposal included $198 billion to the Energy Committee, $135 billion to the Agriculture Committee, and $67 billion to the Environment and Public Works Committee, to be distributed into various projects from research to hard rock mining.
Infrastructure Investments
- Funding for Roads and Bridges: The Infrastructure plan calls for investing $110 billion in traditional road, bridge and major infrastructure projects that “would be too large or complex for traditional funding programs.” $40 billion is specifically set aside for bridge repair, replacement and rehabilitation.
- Freight and Passenger Rail: In the largest federal investment in public transit in history and in passenger rail since the creation of Amtrak 50 years ago, the package provides $39 billion to modernize public transit, including repairing and upgrading existing infrastructure, making stations more accessible, establishing new transit service, and modernizing rail and bus fleets by replacing thousands of vehicles with zero-emission models. The Infrastructure bill also includes $66 billion specifically for passenger and freight rail, with $12 billion dedicated to partnership grants for intercity rail service, including high-speed rail.
- Broadband Service: $65 billion is dedicated to improving the nation’s broadband infrastructure, down from the initial $100 billion that the President first asked for. It also requires providers receiving federal funds to offer a low-cost affordable plan and creates a permanent federal program to help more low-income households access the internet.
- Airports and Ports: To modernize port infrastructure and clear repair and maintenance backlogs, reduce congestion and emissions near ports and airports and promote electrification and other low-carbon technologies, the bill provides $32 billion.
- Environmental remediation: For cleaning up Superfund and brownfield sites, reclaiming abandoned mine land and capping orphaned gas wells, the bill provides $21 billion in funding.
- Electric Vehicles: The bill provides $7.5 billion for zero- and low-emission buses and ferries, including for thousands of electric school buses with another $7.5 billion to build a nationwide network of plug-in electric vehicle chargers.
The Infrastructure bill has limited bipartisan support and already passed the Senate. House Speaker Nancy Pelosi (D-CA) has tied the fate of the infrastructure bill to the budget bill to try to hold her coalition together and keep both bills moving forward. She has targeted a September 27, deadline to vote on the Infrastructure package.
KJK will continue to monitor developments with the Infrastructure and Budget Bills. If you have any questions about either bill, contact Jennifer Hart at jmh@kjk.com or 216.310.4917.