May 3, 2021—What’s in a name? That which Democrats call infrastructure by any other name would prove as expensive without budgetary offsets. While Hunter Hammond and Grace Totman of our healthcare team expect Democrats will consider drug pricing and Medicare Advantage reforms to fund some of the smaller portions of any potential package, we expect Democrats will derive the majority of any offsets to their infrastructure package from individual and corporate tax reform.
The Biden administration’s Build Back Better agenda is comprised of three plans: the American Rescue Plan, a $1.9 trillion deficit-financed emergency relief package signed into law on March 11th; the American Jobs Plan, a $2.3 trillion infrastructure package paid for with an assortment of corporate tax increases; and the $1.8 trillion American Families Plan, paid for with a variety of non-corporate tax increases.
The professionalism of the Biden administration’s approach to its Build Back Better agenda is underappreciated. The steady, plodding strategy makes for less enthralling media coverage than the chaotic, but ultimately uninvolved approach of the Trump administration that never actually released a promised ACA repeal plan or COVID-19 stimulus plan.
Needless to say, this time is different. Take the structure of the American Jobs Plan, for instance. After netting corporate tax revenue against spending, the plan implies about $1 trillion in deficit spending over the next ten years, with the entire cost of the plan offset over the next fifteen years. In effect, the Biden administration plan is not just explicitly testing the popularity of its proposed spending agenda, but also testing how comfortable Democrat members of Congress—and to a lesser extent voters and other stakeholders—are with additional deficit spending over the short-term and long-term as well as corporate tax revenue offsets at-large.
If Democrats are uncomfortable with aggressive corporate tax increases, they can either cut spending over the next ten years, increase short-term deficit spending, and/or shift their messaging to claim that their plan is deficit-neutral over a 20 year or longer period of time. Regardless of what balance Democrats’ strike between deficits, spending, revenue increases, and messaging it is clear that corporate tax reform will be included in any final package. And given the professional and strategic work underpinning the Biden administration’s infrastructure push, we believe Democrats will find a compromise that works for both the progressive and moderate wings of the party.
As such, we believe there is an 80% chance Democrats pass an expansive infrastructure bill this year. However, with so many unknowns outstanding – from process to content – the coming months will prove critical for investors hoping to stay ahead of market expectations for a final package.
In preparation for Democrats’ push to pass as much as $4 trillion in new spending and revenue policies before the end of 2021, Capstone will be releasing a series of notes this week covering all aspects of the Biden administration’s infrastructure agenda from tax, housing, education, and healthcare policy to energy, transportation, and climate policy. Additionally, we plan to provide clients with the best-in-class coverage of developing and future infrastructure-related policy issues throughout 2021 that they have come to expect from Capstone, cutting through the noise to deliver actionable and accurate predictions on infrastructure and beyond, because if you can’t have a good map, you are going to need a great guide.
—Maxwell Reale, Managing Director, Healthcare and Tax Policy
Corporate Analysis By Ian Tang, Gabe Armstrong-Scott, and JB Ferguson