In a rare bipartisan breakthrough, the U.S. Senate approved the $1 trillion Infrastructure Investment and Jobs Act in early August, the first significant legislation in decades that seeks to improve the nation’s infrastructure. Here we answer the most common questions about the bill from our clients.
But first, some takeaways:
- $550 billion of the $1 trillion is new spending on a broad variety of areas, with the balance being a renewal of existing commitments.
- The Congressional Budget Office estimates the bill will increase the deficit by $256 billion over the next 10 years.
- The most significant revenue generator is proposed tax reporting for cryptocurrency brokers.
- The bill is a precursor to the anticipated $3.5 trillion initiative focused on “human infrastructure” such as health care, education, family services and environmental programs.
How will the funds be spent?
Below are the key spending Highlights of the Infrastructure Bill:1
Where will the money come from?
The upgrades to the nation’s infrastructure will be paid for through a variety of measures. The following have been identified as sources of funds:
- $210 billion in unspent COVID-19 relief funds
- $53 billion from the unemployment insurance fund
- $28 billion from tax enforcement on cryptocurrency transactions
The cryptocurrency provisions clarify that virtual currencies are capital assets and as such, all transactions (including transfers between brokers, as well as sales) are subject to cost basis reporting to the IRS. Net gains are taxable as short-term or long-term capital gains. It also requires any person receiving more than $10,000 in cryptocurrency to file a Suspicious Activity Report (SAR) with the Financial Crimes Enforcement Network (FinCEN).
Of course, these sources add up to far less than the proposed spending. Additional proposed sources of revenue, such as increased funding for IRS enforcement on tax evasion, were opposed and subsequently dropped to get bipartisan support.
Analysts predict the government will likely borrow to finance infrastructure programs that fall short of funding. The Congressional Budget Office estimates that this legislation will add $256 billion to the deficit over 10 years.2
What is the Future for this Bill?
While praised for its success as a bipartisan project, the bill faces an uncertain future as it moves through the House of Representatives. Leaders in the House have stated repeatedly that they want to tie this to a much more expansive (and expensive) $3.5 trillion bill for social programs and to combat climate change.
The cryptocurrency industry is also vehemently opposed to the provisions as they stand, claiming they unfairly impose obligations on software developers and cryptocurrency “miners” who are the foundation of the industry. While it appears crypto miners (like traditional stockbrokers) would be required to report transactions to the IRS, they might find it next to impossible to comply, as they don’t possess the required customer data. The crypto industry has the backing of some key Senators, but last-minute efforts to change these provisions failed. This is expected to resurface as the House deliberates on the bill. As the crypto market approaches some $2 trillion in size, the proposed tax reporting is estimated to generate $28 billion in revenue over the next 10 years.
How Does This Affect Me?
Most people will only be affected indirectly. That's because:
- There are no new taxes tied to the infrastructure bill. (Even so, we continue to watch the tax changes proposed as part of the $3.5 trillion “human infrastructure” bill, due to the strong stance by some legislators that the two bills be passed together.)
- Infrastructure spending is generally positive for growth, but with spending spread over five-to-10 years, the benefits to the economy and local communities are likely to be longer-term rather than immediate, as we saw with COVID-related fiscal stimulus.
- The passage of a bipartisan infrastructure bill has largely been priced into financial markets, although the news did initially push both economically sensitive stocks and intermediate Treasury note yields higher. That’s because the package is expected to support the next leg of the recovery. There will likely be specific bottom-up opportunities created across the Material and Industrial sectors as well as the municipal bond market, depending on the final details of the plan.
- Overall, the new proposed fiscal spending continues to support our positioning within client portfolios for a cyclical, global recovery with a U.S.-centric bias.
What Should Investors Do?
Investors should see how the $3.5 trillion human infrastructure initiative affects the terms and timing of the $1 trillion bill. The $3.5 trillion bill will depend on major tax increases for funding, but there are few specifics on what they will be.
People who own cryptocurrencies are advised to keep detailed records of all transactions, and preferably work with a broker who provides accurate and timely cost basis reporting.
When filing income tax returns, investors should include gains and losses on cryptocurrencies alongside the capital gains and losses from their other investments. Regardless of what the final regulations turn out to be, this tax treatment for cryptocurrencies will very likely remain.
Crypto investors should also be aware of the requirement to file a Suspicious Activity Report for receipt of more than $10,000 in a cryptocurrency transaction.
For all investors, our advice is to stay committed to your investment plan.
Given the infrastructure package still needs to pass the House and the final details are unknown, this is not the time to alter your investment strategy in any meaningful way. However, it will be important for investors to be able to adapt their investment and planning strategies for any potential tax changes related to the new legislation.