President Biden finally brought the long-anticipated infrastructure bill into law by signing it yesterday afternoon. This bipartisan feat will effectively inject billions of dollars, $550 to be exact, into the U.S.’ infrastructure in a variety of ways, from ports to power lines. While this bill marks a victory for Biden, it is also the product of expansive compromises that inevitably had to take place in order to appease Senate Republicans. As such, the bill will somewhat falter in delivering its initial promise of investing in “human infrastructure” ticket items such as home health care and climate change provisions that could have been possible if the initial $2.3 trillion proposal had been approved.
Package Details and Spending Plan
Nevertheless, the $550 billion package still represents an increase over current spending levels, according to the Brookings Institution. According to researchers’ data, the money will reportedly “increase federal infrastructure spending as a share of the economy by half over the next 5 years” – thereby “putting it nearly on par with the infrastructure provisions of the New Deal under President Franklin D. Roosevelt.” The bottom line is that the government will be able to more effectively allocate time and money thanks to this increase. This is particularly important given the time-sensitivity of several central issues currently at play. For example, the first areas to receive spending will be those identified and prioritized by Biden during his negotiations with lawmakers. Notably, these will include access to broadband internet, replacing lead drinking pipes, and clearing shipping backlogs at ports across the country amongst others – all of which must be addressed as soon as possible.
What the public must keep in mind is that this spending will not be injected like a traditional economic stimulus plan. It will, instead, be equally directed towards what the Biden administration has dubbed “shovel-worthy” projects – or those projects that make the most federal dollars – and “shovel-ready projects” – or those that will generate the most amount of money in the least amount of time for the economy. While the spending will, of course, deliver money immediately to affected sectors, the package was largely designed to allocate money over a period of several years; this will quell price increases from arising during a time when the country is experiencing one of the highest inflation rates in decades. Those more long-term projects will include rebuilding roads and bridges, renovating both freight and passenger rail systems, and cleaning environmental pollution – all of which will be allocated tens of billions of dollars each. In New York, for example, Governor Kathy Hochul has already announced that its allocated funds will go towards “avoiding price and service changes to New York City’s subway, buses and two regional commuter rails.”
In the White House Council of Economic Advisers Chair Cecilia Rouse’s words, the bill ‘is not designed to be a stimulus. It’s designed to be the most strategic, effective investment so that we can continue to compete against China and other countries that are making bigger investments in their infrastructure;” as such, she adds that “we will see investments starting next year beginning with our ports, and beginning with other areas where we know we are far behind.”
General Significance
In the face of compromise, the bill remains notable not only for its scope of relief, which will allow for necessary updates to critical infrastructure to finally be made, but also for its bipartisan nature. According to Biden, who labeled the bill as “evidence that lawmakers could work across party lines to solve problems in Washington,” it will also “better position the United States to compete against China and other nations vying for dominance of 21st century emerging industries.”
Hospitality Industry Significance
With this being said, this bill is more of a so-called “mixed bag” for those in the hospitality industry.
What many may have forgotten is that the Employee Retention Tax Credit (ERTC), which was created to essentially encourage businesses to retain employees on their payroll throughout the pandemic, was up for termination in the bill. And thus, with its passing, the ERTC has effectively been terminated.
ERTC Background
Recall: the ERTC was passed as part of the original CARES Act in March of 2020. It was created in order to allocate up to $5,000 per employee to businesses, via their tax refund, as long as they could prove that they experienced a revenue reduction in 2020. When the second stimulus round came to fruition, ERTC requirements were further expanded in order to reach more affected businesses. This took the form of:
- Increased gross receipts reduction – from 20% up to 50%;
- Increased tax credit – from 50% of $10,000 to (up to) 70% of $10,000 per quarter;
- And increased “small business” qualification – from 100 to 500 employees
What Happens Now?
Now, however, businesses will need “pay back the payroll taxes retained to monetize their anticipated credit,” according to the National Law Review. Additionally, a “10% penalty [will be enforced] if companies fail to deposit payroll taxes previously withheld from employees.” However, according to a statement given by Clarus CEO and co-founder, Bret Johnson, in an interview with Restaurant Hospitality “while the program will end on September 30, employers actually have up to 3 years from the date of filing their employment tax return to actually make their claim.”
National Restaurant Association executive vice president of public affairs, Sean Kennedy, has spoken out about this termination, stating “we’re disappointed that Congress was short-sighted in ending the Employee Retention Tax Credit, which continues to be one of the only remaining rebuilding tool for restaurant operators. The ERTC has been an invaluable lifeline for restaurants struggling to retain workers. We hope that Congress will reconsider and find a way to reinstate it until the end of the year.” In addition, the National Restaurant Association also sent a letter to U.S. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig calling for more help for restaurants during this time. The letter specifically calls for ERTC payments to be sped up and for federal income tax payments to be deferred from January 15th to July 15th, 2022.
Ending on a Positive Note?
Although the termination of the ERTC is undoubtedly bad news for operators, the infrastructure bill still holds good news for the industry as its spending will immediately go towards addressing pandemic-related supply chain challenges, as stated prior. Amongst other areas, billions will be invested in the “electricity grid, electric vehicles and transportation projects in underserved rural areas,” according to the New York Times. Given supply chain shortages are one of the main driving forces behind the industry’s continued instability during the pandemic, this spending will serve as a sigh of relief for many operators still struggling to stay afloat.
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