Young kids at school

By Anna Learned

On Wednesday night, President Biden unveiled his $1.8 trillion American Families Plan, which comes just one month after he released the nearly $2 trillion American Jobs Plan. The American Jobs Plan was designed to address infrastructure issues and provide new job opportunities to Americans. The American Families Plan is designed to work in conjunction with the American Jobs Plan, but is focused on aiding economic recovery and development through additional investment in children and families.

During Biden’s first address to a joint session of Congress, he urged Congress to pass the plan that he referred to as “a once-in-a-generation investment in our nation’s future.” A senior official from the Biden Administration said that the American Families Plan will invest in American families by helping “families cover the expenses that so many struggle with now, lowering health insurance premiums, cutting child poverty and producing a larger, more productive, and healthier workforce in the years ahead.” 

Biden’s new proposal includes $1 trillion in new spending and $800 billion in tax credits. President Biden has said that this legislation will be fully paid over a 10-year period. To pay for the plan, Biden outlined a series of tax increases for high-income Americans. The plan would increase the top individual tax rate from 37% to 39.6%, and would raise the capital gains tax rate from 20% to 39.6% for taxpayers making over $1 million.

The American Families Plan includes:

$302 Billion to Higher Education

  • $109 billion to offer two years of free community college to all Americans, including DREAMers.
  • $85 billion to provide up to approximately $1,400 in additional assistance to low-income students by increasing the Pell Grant award, including DREAMers.
  • $62 billion to strengthen completion and retention rates at community colleges and institutions that serve students from disadvantaged communities.
  • $46 billion to provide two years of subsidized tuition and expand programs in high-demand fields at HBCUs, TCUs, and MSIs.

$225 Billion to National Paid Family and Medical Leave

  • Biden’s proposal would guarantee 12 weeks of paid parental, family, and personal illness/safe leave:
    • Pay would be equal to two-thirds of the worker’s average weekly wages, up to $4,000 per month.
    • Workers in the lowest wage cohort would have 80% of their average weekly wages replaced.
  • Biden’s plan for paid family and medical leave would cost $225 billion over 10 years.

$225 Billion to Child Care

  • Make child care more affordable by creating a system in which families pay a portion of the costs of child care on a sliding scale based on their income.
  • Establish a $15 minimum wage for early childhood staff and ensure that those with similar qualifications as kindergarten teachers receive comparable compensation and benefits.

$200 Billion for Permanent Affordable Care Act Tax Credits

  • The American Rescue Plan Act (ARPA) provided premium tax credits to lower insurance premiums bought through the health insurance marketplace and the American Families Plan would make these tax credits permanent.

$200 Billion for Universal Free Pre-School

  • Create free preschool for all three-and four-year-olds, citing an estimated savings of $13,000 for the average family.

$80 Billion for the Internal Revenue Service (over 10 years)

  • Invest in increased personnel and technology for the I.R.S. to implement the new tax measures included in the plan.
  • Investment would be designed to help the I.R.S. net an additional $700 billion in revenues from high earners, wealthy individuals, and corporations that evade taxes.

$45 Billion to Improve Childhood Nutrition

  • $25 billion to make the Summer Pandemic-EBT that was created in the American Rescue Plan permanently available to all 29 million children receiving free and reduced-price meals.
  • $17 billion to expand free meals for children in the highest poverty districts by reimbursing a higher percentage of meals at the free reimbursement rate through CEP.
  • $1 billion to launch a healthy foods incentive demonstration.

$9 Billion for Education and Preparation of Teachers

  • $2.8 billion for Grow Your Own programs and year-long, paid teacher residency programs.
  • $1.6 billion to provide educators with opportunities to obtain additional certifications in high-demand areas like special education, bilingual education, and certifications that improve teacher performance.
  • $2 billion to support programs that leverage teachers as leaders, such as high-quality mentorship programs for new teachers and teachers of color.

$2 Billion to Unemployment Insurance System

  • Funding to modernize the Unemployment Insurance system to ensure equitable access and bolster fraud prevention measures.

Extension of the Child Tax Credit Through 2025

  • The proposal would extend the beefed-up Child Tax Credit (CTC) that Democrats included in the American Rescue Plan that passed in March, which did the following:
    • Increased the $2,000 per-child CTC to $3,000.
    • Set the credit at $3,600 for parents of children under age 6 and made parents of 17-year-olds eligible.
    • The American Families Plan would make the Child Tax Credit permanently fully refundable.

Makes the Earned Income Tax Credit (EITC) Expansion Permanent

  • The EITC is a refundable tax credit that helps low- to moderate-income workers and families by reducing how much families owe or making them eligible for a refund. The American Rescue Plan Act nearly tripled the tax credit for working class families and benefitted 17 million low-wage workers, and the American Families Plan would make this tax credit permanent.

American Families Plan Tax Changes

  • Increase the marginal income tax rate from 37% to 39.6%, for the top 1% of American income earners.
    • This would restore the top tax bracket to where it was before the 2017 law that lowered it.
  • Increase the capital gains tax rate from 20% to 39.6% for taxpayers making over $1 million.
  • Biden also plans to ensure that the 3.8% Medicare tax is applied more consistently to high-income earners. The 3.8% Medicare tax combined with this increase means the wealthiest Americans would pay a 43.4% federal rate on realized investment returns.
  • Eliminate the long-standing capital gains tax break on inheritances “step-up in basis”:
    • The tax break allows heirs to use the market value of assets at the time of inheritance rather than the actual purchase price as the cost basis for capital gains when the holdings are sold.
    • Closing this loophole would end the practice of “stepping-up” the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions).
    • No tax is applied if the gains are used for charitable donations.
    • Protections are included in the plan so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business.
  • Eliminate the carried interest tax break—allows for a share of income to be classed as a capital gain, with an associated lower tax rate.
  • Eliminate the special real estate tax break—allows real estate investors to defer taxation when they exchange property—for gains greater than $500,000
  • Permanently extend the current limitation in place that restricts large, excess business losses, 80% of which benefits those making over $1 million.

In the rollout of this plan, Biden maintained his previous statements that nobody earning less than “$400,000” would face increased taxes.

Next Steps

Following the rollout of President Biden’s new plan, many aspects of the plan have already generated backlash amongst Republicans and even some Democrats have raised concerns.

On Wednesday, President Biden presented his plan and stated that he wanted GOP support and input on the plan. However, it is not yet known if Democrats in Congress will look to pass this plan with Republican support or try to pass the bill through budget reconciliation, like they did for the COVID relief bill. Given the significant tax increases on wealthy Americans included in the plan, it is unlikely that the American Families Plan will garner substantial support amongst Republicans.

Additionally, it is possible that Biden will face opposition from Democrats as many have called on Biden to go further on many of the measures included in the American Families Plan, such as making the CTC expansion permanent instead of only running it through 2025, or providing double the funding for expanded child care. However, the plan does have the support of Speaker Nancy Pelosi, as she called the plan “transformative” and was quick to defend the tax increases included in the plan. Following Biden’s announcement of the American Families Plan, the United States House of Representatives will soon begin the process of drafting and negotiating this legislation before it can be voted upon.

Michael Best Strategies
Michael Best Strategies (Strategies) helps companies accelerate their success through a combination of strategic business consulting, lobbying, government relations, public affairs, and communications. The firm has thrived by providing a diverse team of professionals with the experience, skills, and relationships necessary to help each client achieve their goals more quickly and fully.

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