President Biden will unveil the details of the American Families Plan during his first address to Congress tonight (April 28, 2021). The proposal is a $1.8 trillion investment in education, childcare, and family leave. To finance the American Families Plan, the Biden Administration proposes raising various taxes on wealthy Americans.
Related Read: Infrastructure and Taxes: A Look at What’s Ahead
Is passage likely?
The plan would need Congressional approval and Republicans have shown little interest in raising taxes to pay for President Biden’s proposals. Along with Republicans, some moderate Democrats have expressed their unease with the price tag. Without Republican support, the Democrats cannot lose even one vote in the Senate and their majority in the House of Representatives is razor thin. Spending on the American Families Plan would be in addition to the Biden Administration’s $2 trillion infrastructure plan.
The current Congressional makeup and dynamics make the prospects for the American Family Plan difficult. Biden’s speech tonight marks the beginning of the process and should be considered a first discussion draft. There will undoubtedly be months of negotiations and changes prior to any vote in Congress.
The lists below detail notable provisions and their financial impacts.
Provisions included in the American Families Plan:
- Universal preschool for all three- and four-year-old children.
- Two years of free community college.
- Additional Pell Grant assistance provided to low-income Americans.
- Free and reduced meals extended to low-income children.
- Funding for teacher and educator training.
- The federal child tax credit passed in the American Rescue Plan would be extended through 2025 and permanently make the tax credit fully refundable.
- Permanent expansion of the earned income tax credit for workers without children.
- Guarantee low- and middle-income families with children under the age of five did not pay more than seven percent of their incomes on childcare.
- Pay childcare workers $15 an hour.
- Establish a national paid leave program that would provide up to $4,000 a month for 12 weeks for paternal, family, or personal leave.
Proposed means to finance the American Families Plan:
- Repeal the step up in basis on gains of more than $1 million, or $2.5 million per couple when combined with existing real estate exemptions.
- Family-owned businesses and farms would be exempted from these taxes when passed on to heirs who continue to run the business.
- There are initial concerns that due to circumstances such as land prices, farmers may still end up paying some estate taxes.
- Return the top marginal income tax rate to 39.6% for those Americans earning more than $1 million.
- Higher capital gains taxes on households earning more than $1 million. The long-term capital gains taxes on these taxpayers would be 39.6%.
- Close a series of tax loopholes that would make hedge fund partners pay ordinary income rates on their income and end a tax break that allows real estate investors to defer taxation when they exchange property for gains greater than $500,000.
These various provisions could potentially create a monumental shift in the current income tax policies and have wide-ranging impacts on many families and businesses. We will keep abreast of these discussions as they move forward and will provide updates on any new developments, changes, and potential impacts as the details of the American Families Plan become more refined.
If you have any questions about these proposed provisions, please reach out to a K·Coe advisor.