[REN #878] COVID-19: Stimulus Package #4 for Infrastructure Development

COVID-19: Stimulus Package #4 for Infrastructure Development, Real Estate News for Investors Podcast Episode #878

Just days after the largest stimulus package in history was signed, talks have begun on what could be “phase four” of the coronavirus stimulus plan. A few of the ideas being discussed include major infrastructure spending and a rollback on the cap for SALT deductions.

President Trump signed phase one of the virus rescue plan in early March. It authorized $8.3 billion for the initial response including money for state and local governments, virus research, testing, and vaccine development. Phase two was signed on March 18th for $100 billion that expands unemployment benefits and provides tax credits to employers for paid sick leave.

Phase 3 is the big one so far. The $2.1 trillion dollar package went into effect on March 27th and includes major relief for consumers in the form of direct bank deposits or checks, tax deferrals, state aid, loans to small and large businesses, and some grants for several impacted businesses like airlines.

Coronavirus Rescue Phase Four

Now on to phase four. As reported by the Wall Street Journal, there’s fear that we could be headed for a 21st-century depression because much of our economy is shut down. (1) It’s not a complete shutdown, however. I have to say that many companies are able to operate remotely as we do at RealWealth. Real estate in general has been moving in that direction, and this shutdown will expand the use of virtual transactions in real estate and in other industries. But many economists are predicting the need for more stimulus.

Stephen Moore, of the Heritage Foundation, told the Journal, “There’s talk of a multi-trillion-dollar program, given the size of the shutdown. There’s a general recognition that we need something big to get some juice into the economy.”

A metaphor used in that article compares emergency funding as economic life support and the next funding package as physical therapy. House Speaker Nancy Pelosi has been talking about what might be in the bill. She says, “We’ll go from emergency mitigation to recovery… to grow the economy and create more jobs.” Pelosi says, Democrats are in favor of major infrastructure spending, and so is President Trump.

Support for Infrastructure Spending

The President promoted the idea in a tweet on March 31st, saying, “With interest rates for the United States at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our County!” (2)

The devil is always in the details for what an infrastructure bill would look like. Pelosi has said it should expand broadband access. That’s especially important for a world with more people tapping into the internet as they work or go to school from home. Telemedicine also needs better broadband access. In a New York Times interview, Pelosi said that Democrats also want increased protection and equipment for workers on the front lines of the coronavirus, more money for paid sick leave, and more funding for state and local governments. (3)

SALT Cap Rollback?

She also mentioned, she wants a retroactive rollback of the SALT cap deductions. As you may remember, that was a very controversial part of the 2017 tax reform package. It limits the state and local tax deductions to just $10,000 on federal income tax returns, and hurts people in high tax states like California and New York. House Democrats also tried to eliminate it with legislation that was shot down in the Senate.

Pelosi says, the rollback would be a quick way of putting some cash into households that won’t get the $1,200 direct payments because they are over the income limit. Most people affected by the SALT cap earn more than $100,000, but in some states, that’s barely enough to buy and maintain a home. Her spokesman says, it would fall short of a complete rollback. He says, it would apply to middle-class workers with limitations at the higher end. By making it retroactive, people could refile their 2018 and 2019 taxes to get some of that money back.

Republicans say, Pelosi is getting ahead of herself with talk of that now. As the Wall Street Journal reports, the next debate might venture more into partisan politics. Moore says, “The left is going to want to do infrastructure, welfare payments and food stamps. Our side will want to do tax cuts and deregulation.”

Senate Majority Leader Mitch McConnell expressed opposition to what he calls a Democratic wish list, saying, “Let’s see how things are going and respond accordingly.” (4) But Pelosi says, infrastructure improvements like broadband access are directly related to the coronavirus. That not only helps people work from home, but could expand telemedicine and distance learning when students can’t go to school. The Republican commander in chief is also showing interest in a big infrastructure bill.

Congress is expected to take up this issue toward the end of April. By then, we’ll know more about the damage this virus will cause and the effect of the rescue plans that have already been approved.

Links:

(1) Phase 4 of COVID-19 Stimulus Package: NYT Article

(2) $2 Trillion Infrastructure Bill: Wall Street Journal

(3) Economic Stimulus Taxes: NYT Article

(4) The Hill Article

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