“Human sacrifice, dogs and cats living together … mass hysteria!” —Dr. Peter Venkman
In a surreal turn of events, Senate Minority Leader Mitch McConnell (R–KY) praised President Biden (D) for his role in getting the Senate to pass the $1.2 trillion infrastructure bill. The legislation is called the Infrastructure Investment and Jobs Act (aka The Act).
Keep in mind, McConnell had previously been vocal about stopping the Biden administration’s agenda. But infrastructure spending is typically favored by both sides of the political aisle. Talk of a bipartisan infrastructure deal has been occurring for years. It’s closer to law than it’s ever been before.
(I’m not taking political sides here; I’m just hoping this part is fun reading. Politicians are good at spinning things back to themselves. McConnell said, “I think the president deserves a lot of credit for getting the Democrats open to reaching a bipartisan agreement on this bill.” Whether you’re a leftie or a righty, let’s give Senator McConnell dual credit. First, he praised the other side, showing that he’s willing to work with them. Second, he spun it to give Republicans credit. And maybe the Republicans deserve the credit. Whatever. I don’t care. Let’s just appreciate how smooth that was!)
It’s my (paid) job to pay attention to things that could happen to consider how they affect investment portfolios. It’s my writing job to shield you from reading every iteration of bills that may, or may not, make it to law. Typically, I avoid sharing too many details of a possible law because by the time it gets signed, it could look vastly different from what the Senate or the House originally proposed. Or it could have been delayed so long that new and unknown variables have come into play. But I believe The Act (or some iteration) has a shot at becoming law.
The infrastructure bill passed in the Senate 69–30. Nineteen Republicans voted alongside all 50 Democratic Senators. The bill now goes to the House of Representatives, where it could be killed. However, its form and support are at a level that it could later be advanced without much modification or time. If I had to put a date on it, I’d say there’s a chance that a similar version of the bill will pass by early winter 2021.
There is one significant obstacle. Some Democrats claim they’ll kill the deal if it isn’t attached to or preceded by a much larger, less traditional infrastructure bill. Specifically, Speaker of the House Nancy Pelosi (D–CA) wants the separate $3.5 trillion package passed (likely without a single Republican yes vote) under the reconciliation process. That package includes things like education, healthcare, childcare, and climate change.
I recognize that I might be too aggressive in my timing estimate. If the $3.5 trillion package weren’t thrown into the mix, my job would be super easy. And it’s not just a 69–30 vote in the Senate that would indicate a smooth passage of The Act. It’s also who in the Senate voted for it. Sure, you had Susan Collins of Maine vote for it. She’s relatively moderate. Other decidedly conservative senators like South Carolina’s Lindsay Graham and Iowa’s Chuck Grassley voted for it, as did other hardcore right-wingers. As McConnell said, President Biden did a great job building a coalition around this. I suspect that he did some good old-fashioned back-slapping politics and made sure the Republican Senators’ states will receive some serious windfall if this bill becomes law.
Last week, Democrats officially voted to advance a budget resolution that formally launches the reconciliation process. The budget will now go to Senate committees. Possibly by September 2021, modified legislation will emerge to be reconciled with the House of Representatives’ version. I expect one of two things will happen. Perhaps the Republicans will step back and let reconciliation occur on the $3.5 trillion plan and then vote in favor of The Act. Or The Act will be passed into law, and then the Democrats will move forward with reconciliation and throw in a lot of carrots to get folks like right-leaning West Virginia Democratic Senator Joe Manchin to vote in favor.
Either way, I think a version of the Infrastructure Investment and Jobs Act gets signed into law. The Act would include $550 billion in new federal spending over five years. That spending includes:
- $110 billion for roads and bridges
- $66 billion for passenger and freight rail
- $65 billion to rebuild the electric grid
- $65 billion to expand internet access
- $55 billion for water infrastructure ($15 billion of which is to replace lead pipes)
- $39 billion to improve transit systems
- $7.5 billion to build charging stations for electric vehicles
The Congressional Budget Office estimates that through 2021–2031, on net, the legislation would add $256 billion to projected net deficits. In other words, over a decade, the bill is projected to pay for nearly 80% of itself.
If this were a minor deal, it wouldn’t be worth writing about until the Act was signed into law. But the two packages combined are $4.7 trillion — more than 20% of U.S. Gross Domestic Product. I cannot understate how huge that is.
Roosevelt’s New Deal changed the world. That spending was 40% of GDP. The amount of COVID-19 relief spending has already been about 20%. Another 20% gets us to the size of the New Deal, which was radically transformative. Other than size, I am not comparing recent spending to the New Deal. The New Deal changed the economy. It created Social Security, unemployment benefits, the first minimum wage, and a federal jobs program that employed millions.
These more recent packages don’t transform; they plug up some holes. This spending will create intermediate-term winners (infrastructure companies, broadly speaking) and long-term losers (stock market investors and small business owners who won’t be able to afford to sell their companies because of massive hikes in the capital gains rates).
It’s difficult for me to put a timeline on “intermediate” and “long-term.” The next decade may be a boom to the stock market, but I worry the stock market will be listless for decades after that. I know that’s a long way off. And I know it’s a radical hypothesis. However, the possibility of a go-nowhere stock market that lasts a generation is worth paying attention to. For now, let’s make hay while the sun shines.
This article originally appeared in The Berkshire Edge on August 23, 2021.