My message to the American people is this:
Passage of the Build Back Better Act would have far greater tax implications than the infrastructure bill itself.
On November 15, 2021, President Biden sent a message to Americans: “America is moving again and your life is going to change for the better.” The bit about “moving again” is purposeful in that it’s designed to fix roads, bridges, railways, and ports.
The original goal was to “grow the economy, enhance our competitiveness, create good jobs, and make our economy more sustainable, resilient, and just.” Of course, those lofty dreams were slowly whittled down, but the bill still represents measures that could still significantly impact your business in a positive way.
So, here’s what you’ll need to know about the $1T Infrastructure Bill. While other laws may yet becoming, you should know how this bill will affect your investments and tax strategies.
What Could Happen Next?
Though important, the infrastructure bill is only one of a pair of Biden’s key legislative items. The other, a larger social spending bill dubbed the Build Back Better Act, has been passed by the House but is still locked up in tight Senate negotiations.
Passage of the Build Back Better Act would have far greater tax implications than the infrastructure bill itself. The Act’s ability to pass the evenly divided Senate, however, remains uncertain.
What Is In the Infrastructure Bill?
$110 Billion for Roads and Bridges
Biden’s infrastructure bill allocates $110 billion to improving basic transportation infrastructure, such as roads and bridges. This sum includes both repairs to existing infrastructure and the funding of new projects. A new Alaskan highway project, for example, will receive funding under this section of the bill.
$66 Billion for Railroads
The bill also allocates $66 billion to improving America’s Amtrak rail networks. Amtrak will use the funds to modernize existing infrastructure, update safety systems, and make new investments in high-speed railroads.
$65 Billion for the Power Grid
Clean energy was a major focus of the infrastructure bill from its inception, and a final amount of $65 billion is allocated to updating the power grid. This includes funding for new transmission lines and green energy technologies. It will also fund investments in smart grid technologies that more efficiently distribute power where needed.
$65 Billion for Broadband Internet
Under Biden’s infrastructure bill, major investments will be made in America’s high-speed internet systems. This funding will allow rural areas to access fast, modern internet services. The bill also includes a subsidy of $30 per month to help lower-income Americans pay for internet in their homes.
$55 Billion for Water Infrastructure
The bill earmarks $55 billion for improving access to clean drinking water. This includes a $15 billion fund for replacing lead pipes nationwide. The remainder of the funds will be used to address other contaminants, improve infrastructure in low-income communities, and invest in wastewater management.
$50 Billion+ for Cybersecurity
The bill also addresses the emerging national security issues surrounding cybersecurity and climate change. $2 billion in grant money for cybersecurity for states, territories, and tribes is set aside in the bill. A further $47 billion will improve resilience to fires, floods, and other extreme weather events. Combined and added to other parts of the measures, the bill includes more than $50 billion for these emerging concerns.
$39 Billion for Public Transit
Public transit receives $39 billion under the infrastructure package to repair or replace buses and railcars. The bill also includes funding to make public transit systems more accessible to those with disabilities.
$25 Billion for Airports
Airports will get $25 billion in funding for improving and modernizing aviation infrastructure. A program to help attract workers into the transportation industry will also help airports and airlines meet their labor needs.
$21 Billion for the Environment
In addition to preventing future environmental damage, the bill seeks to undo alleged damage that has already been done with $21 billion in environmental remediation funding. This money goes toward cleaning up abandoned mine and well sites, as well as resolving issues at EPA Superfund sites.
$17 Billion for Ports
The majority of the bill’s $17 billion allocation for ports will be used by the Army Corps of Engineers to build new infrastructure. This amount also includes investments in operations and maintenance, as well as funds for dredging out existing ports to accommodate more and larger ships.
$11 Billion for Safety
$11 billion of the bill’s spending is set aside for road safety programs to reduce accidents. A key aim of the safety measures is to make roadways safer for cyclists and walkers.
$8 Billion for Western Water Infrastructure
Beyond general water infrastructure, the bill provides $8 billion for water projects in Western states increasingly affected by droughts. These projects include new water storage sites, water recycling facilities, and desalination projects aimed at increasing the available water supply in the West.
$7.5 Billion for Electric Vehicle Charging Stations
A key initiative of Biden’s infrastructure bill is increasing the availability of charging stations for electric vehicles. To that end, the bill includes $7.5 billion in funding to build stations along major highways.
$7.5 Billion for Electric School Buses
As part of the general effort to reduce emissions, the bill provides $7.5 billion to electrify the country’s approximately 50,000 school buses. This provision would dovetail with investments in charging stations and green energy technology.
Tax Changes in the Build Back Better Act
If passed, the Build Back Better Act would enact a large series of tax changes on high-earning individuals and businesses. A key part of this is an expansion of the 3.8 percent net investment income tax to all income sources that exceed $400,000. This would include pass-through business entities, such as LLCs and S-corps. Taxable income in excess of $10 million would also be subject to a 5 percent surcharge, with an additional 3 percent charge kicking in for taxable income above $25 million.
The Build Back Better Act would also institute changes to high-value IRAs. Under the bill, contributions would be limited once an account reached $10 million. Required minimum distributions would also occur on an accelerated schedule for these accounts.
The act would also introduce a 15% minimum tax on corporations that report profits of $1 billion or more. This tax would be levied on corporations’ book income and constitutes part of the enactment of a proposed global minimum tax that G-20 leaders agreed to earlier in 2021.
Estate Tax Changes
As for estate taxes, a variety of changes had been proposed as the bill was negotiated. One such proposal was a reduction of federal estate exemptions to an inflation-indexed $6.2 million, far below the current $11.7 million level. Another proposal involved applying a capital gains tax at death for assets above $1 million. Neither of these changes, however, made it into the version of the bill that passed in the House of Representatives.
Social Security COLA and Proposed Social Security 2100 Bill
In 2021, social security saw its largest cost-of-living adjustment in nearly 40 years, with benefits increasing by 5.9% as inflation rose sharply. At the same time, full funding for social security is only projected to last until 2034.
In response to these challenges, a separate bill known as Social Security 2100 was proposed. While not part of the infrastructure bill or the Build Back Better Act, Social Security 2100 would also be used to expand the American social safety net while introducing new changes to the tax code. Originally, the bill called for a higher contribution toward social security on the part of employers. That provision, however, was dropped in favor of a funding mechanism that would apply social security taxes to income over $400,000. Income between the current cutoff point and $400,000 would remain exempt.
Items That Have Been Cut From the Build Back Better Act
Although the Build Back Better Act contains several proposed tax changes, many other proposals didn’t make it into the bill’s final version. As already noted, changes to the estate tax were cut before House passage. Other items that didn’t make the final version include removal of the stepped-up basis for inherited assets, a proposal to increase taxes on dividends, and the creation of a special tax bracket for incomes over $1 million. A proposed gas tax increase was also removed.
The final version of the bill also largely preserved backdoor Roth strategies that were previously slated for elimination. Though the bill does call for an end to Roth conversions, it would only end them for those earning over $400,000 or $450,000 if married and filing jointly. Even for high earners, backdoor Roth conversions would be allowed until 2032.
While it’s still unclear whether the Build Back Better Act will follow Joe Biden’s infrastructure bill through Congress, the tax changes it could usher in make it essential to plan for the possibility. Talk to a professional about the investment options available to you and how you can best structure your portfolio.
Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.