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Overview of American Rescue Plan Act of 2021

Background

In February 2021 the U.S. Senate, The House of Representatives and the Executive Branch led by the White House took a series of actions designed to address the pandemic recession by allowing a huge proposed economic stimulus bill to move through to approval without relying on Republican party votes. The Democratic Party members of the House of Representatives had already passed a bill called the Heros Act in May 2020 that was blocked by the Republican Party members of the Senate. That unsuccessful bill is summarized in this blog here. Many of the same topics are repackaged and included in the new bill. By the third week of this month of February 2021, the public support for the bill was reportedly so high that passage of a bill seems certain. The questions that remain are the details.

A caution:

Much of what has been published before this week, even by tax and finacial professionals and major financial magazines is based on conjecture and informal proposals, not on actual proposed federal legislation. This has caused much confusion. I covered the impact of making the distinction in earlier posts here and in social media. While some reputable publishers (like Tax Foundation here) comment on the earlier proposals that are not introduced as legislation, it remains my policy to only consider proposed legislation, and its probability of passage, in my own published work on topics of tax and financial planning. It is worth noting that the consensus of government action advisers I hear, including those closest to NJCPA, gave little chance of passage of many of the possible changes discussed in those earlier articles.

What’s in it?

Details are likely to change before passage. A draft of the bill is available now. Third part sources like Wikipedia summarize the bill’s major contents. There is not need or intent to rehash that overview here.

My attention, as always, will focus on the tax and financial planning aspects for individuals and small businesses. To be clear: I read the section listing (table of contents) and specific portions of the bill related to my field of work but have not even scanned the whole 591 page document. Decades of past experience covering many rounds of proposed federal legislation leads me to focus on the probability of passage of any provisions before getting involved in thinking about planning. Much more commentary will follow. I’ll be immediately focused on what members of #taxtwitter (that includes writers for Forbes and others) have to say.

Tax and financial planning for individuals

One watched detail is whether the bill passes with a tax exemption for some unemployment compensation benefits under Section 9663. That could mean a $2,000 savings for many people receiving unemployment benefits. This is especially important in areas of high unemployment like our local South Jersey region.

Fears that the Act will trigger inflation are not warranted at this time, according to the consensus of economic advisers who most strongly influence New Jersey CPAs through our professional association’s periodic market and economic forecasts. Deflation is actually more of a risk right now.

Risk of real estate market price collapse is high after an unusually sharp rise in prices over the past year. The Act’s effect on the real estate market will be closely watched. The Act may temporarily boost prices and delay any corrective action in real estate values.

Tax and financial planning for small businesses

Small businesses are hit harder than other sectors of the economy. The government knows that helping small businesses is difficult.

Small business opportunities for expansion

I serve as controller/adviser to America’s Gleaned Seafood, a New Jersey charity, that seems poised to benefit from the Act. Our programs just launched about a year ago but lack the funding to grow more quickly. Also, Baysave, another New Jersey charity serving the seafood industry, may also benefit under Section 1001 of the Act meant to boost agricultural and seafood distribution systems with up to $4 Billion. These will be high priority efforts for me.

The ability of government to deliver aid to small businesses remains under close examination.

Small businesses are likely to benefit as a side effect of asset class diversification and realignment; the growing national trend to diversify investment holdings away from high capitalization growth stocks that have led the nation’s investors to record national wealth over recent years but may lag the economy in the years ahead.