The American Families Plan

On April 28^th the Biden Administration released details of the American Families Plan which he tagged as an investment in our kids, our families, and our economic future. President Biden believes it is not enough to restore where we were prior to the pandemic, but that we need to build a stronger economy that does not leave anyone behind –to build back better.

In March, the President signed into law the American Rescue Plan, which continues to provide relief to American families and communities. The Rescue Plan was followed by the American Jobs Plan and the American Families Plan which the Biden Administration is touting as once-in-a-generation investments in our nation’s future. 

The American Jobs Plan expects to create millions of jobs, rebuild our country’s physical infrastructure and workforce, and spark innovation and manufacturing here at home. The American Families Plan is an investment in our children and our families—helping families cover basic expenses, lowering health insurance premiums, and continuing the American Rescue Plan’s reductions in child poverty. The hope is that, together, these plans reinvest in the future of the American economy and American workers and will help us out-compete China and other countries around the world.

The President intends to finance the latest package by hiking taxes on the rich, saying he wants to reward work, not wealth. His new proposed measures would raise about $1.5 trillion over a decade.  The American Jobs Plan would be paid for by hiking corporate taxes. The tax increases contained in the two economic recovery packages would fully pay for the investments over the next 15 years, according to the White House.

While Biden's Covid relief plan moved swiftly through Congress, his ambitious infrastructure and families proposals are hitting more resistance. It's unclear whether lawmakers will consider Biden's two plans together or separately -- or whether Democrats will try to push it through without Republican support, as they did the rescue bill.

Here is a summary of the key points of the American Families Plan. 

Education (national partnership with states)

• Universal pre-school (2 years, ages 3 & 4) (estimated costs $200B)

• Free community college (first 2 years) (estimated costs $109B)

• Making college more affordable for low and middle income families (including minority serving institutions)

  • Increase funding for Pell Grants (estimated costs $80B)

  • Increase funding to improve college retention rates (estimated costs $62B)

  • Increase funding to improve minority serving institutions (estimated costs $46B)

• Investing in teachers, and improving teacher training (estimated costs $9B)

  • $15/hr. minimum wage for educators/employees for Head Start & Pre-K

Families & Children

• Capping high quality childcare costs for low and middle income households to 7% of income (estimated costs $225B)

  • If income is 1.5x the state median average or less, no costs for childcare (sliding scale)

  • $15/hr. minimum wage and benefits for childcare workers

• National comprehensive paid family leave & medical leave

  • $4,000/month (minimum 2/3^rd average weekly wages) for 12-weeks paid medical leave (estimated costs $225B)

  • Creation of the Health Families Act (allow employees to accrue 7 days of sick leave per year)

• Expansion of nutritional assistance programs

  • Expand summer benefit transfer (EBT) program (estimated cost $25B)

  • Expand school meal programs (estimated cost $17B)

  • Improve nutrition standards of school meals (estimated costs $1B)

  • Facilitate re-entry of formally incarnated individuals through food program eligibility

Tax Credit Extensions

• Extending the Child Tax Credit, Earned Income Credit, and Child & Dependent Care Tax Credit that are part of the American Rescue Plan (at least until 2025)

  • Make the Child Tax Credit permanently refundable

  • Make the Child & Dependent Care permanent

  • Make the Earned Income Tax Credit expansion for childless workers permanent

• Extend health insurance tax credits that are part of the American Rescue Plan

Affordable Care Act & Medicare Reform

• Affordable Care Act

  • Lowering prescription costs

  • Permanent extension of the American Rescue Plan insurance premium reduction ($200B)

• Medicare Reform

  • Medicare age eligibility (from 65 to 60)

  • Medicare negotiate prescription drug prices

  • Closing Medicaid coverage gap

The administration would pay for part of these benefits by making the following proposed changes to the tax code:

Tax Reform

• Providing additional resources to the IRS (regulate paid preparers and additional review of large corporations, businesses, estates, and high-income earners tax returns)

• Increase the top federal tax rate (from 37% to 39.6%)

• Households making $1M+ subject to ordinary income tax rates (ineligible for capital gain tax rates)

• End Step-up basis for gains in excess of $1M ($2.5M per couple)

• End Carried Interest (hedge fund managers pay ordinary income rates not capital gain rates)

• End 1031 (exchange of real estate property) for gains in excess of $500k

• Permanently extend limitations on excess business losses

• Medicare Surtax 3.8% consistent for those earning $400k or more

We believe the Biden administration will not be able to implement the above goals and changes to tax policy with its current narrow advantage in the House and Senate.  This plan will most likely be the basis for debate during the mid-terms.  We were surprised by the election results of the Georgia senate races and we would be equally surprised if the Democrats were able to meaningfully increase their advantage in congress during the 2022 mid-term elections. History tells us the party of most first-term Presidents lose seats during the first mid-term election.  We will continue to monitor legislation and the potential impact on our clients, but for now there is a long way to go for any of the above to become law.

The Bond&Devick Team