The massive package would be an investment in education, child care and paid family leave
“These are generational investments in our future, in the future of our families and the future of our kids,” said a senior administration official of the latest proposal, which contains about $1 trillion in investments and $800 billion in enhanced tax credits. “They pay enormous dividends.”
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 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.
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’s what’s in the American Families Plan:
Helping families afford child care
Biden’s proposal calls for having low- and middle-income families pay no more than 7% of their income on child care for kids younger than age 5. Parents earning up to 1.5 times the median income in their state would qualify.
The President also wants to invest more in the child care workforce to bring their wages up to $15 an hour, from the typical $12.24 hourly rate they earned in 2020.
Making community college free
Biden is proposing a $109 billion plan to make two years of community college free.
The federal government would cover about 75% of the average tuition cost in each state when the program is fully implemented, with states picking up the rest, another senior administration official said. States would also be expected to maintain their current contributions to their higher education systems.
If all states, territories, and tribes participate, about 5.5 million students would pay nothing in tuition and fees, according to the White House.
But Biden’s free community college measure falls well short of plans from progressive Democrats, some of which also call for making four-year public colleges free for some students, as well as broadly canceling student loan debt.
In addition to his community college measure, Biden would create a $39 billion program that provides two years of subsidized tuition for students from families earning less than $125,000 who are enrolled in four-year historically Black colleges and universities or other minority-serving institutions.
Enhancing Pell Grants
The President would provide up to approximately $1,400 in additional assistance to low-income students by increasing the Pell Grant award.
Nearly 7 million students, including many people of color, rely on Pell Grants, but their value has not kept up with the rising cost of college.
Students can receive up to $6,495 for the 2021-22 school year. Biden has promised to double the maximum award.
Providing paid family and medical leave
The American Families Plan would provide workers with a total of 12 weeks of guaranteed paid parental, family and personal illness/safe leave by the 10th year of the program, according to a White House fact sheet. The partial wage replacement would apply to individuals who wanted “to take time to bond with a new child, care for a seriously ill loved one, deal with a loved one’s military deployment, find safety from sexual assault, stalking or domestic violence, heal from their own serious illness or take time to deal with the death of a loved one.”
The plan would also ensure three days of bereavement leave annually starting in the first year of the plan’s rollout.
Workers would receive up to $4,000 a month through the national leave program, with a minimum of two-thirds of their wages replaced. The White House estimates the program will cost $225 billion over 10 years.
Investing $200 billion in universal preschool
Biden is calling for the federal government to invest $200 billion in universal preschool for all 3- and 4-year-olds through a national partnership with states. The administration estimates it would benefit 5 million children and save the average family $13,000 when fully implemented.
The program would be accessible to families of all income levels, according to the White House. States would be required to foot about 50% of the cost when the measure is fully up and running. If a state were to opt out, the federal government would work with localities to implement the program, the second senior administration official said.
A key Democratic priority, funding universal pre-K aims to both prepare children for K-12 learning and provide some financial relief to families paying for child care.
The proposal will be constructed to prioritize high-need areas. It will carry the pledge to ensure publicly funded preschool would include low student-to-teacher ratios and “developmentally appropriate curriculum.”
While 44 states have some form of publicly funded pre-K, the National Institute for Early Education Research says that most spend too little per child to support high-quality, full-day pre-K. Only eight states enroll more than half of their 4-year-olds.
Recruiting more teachers and strengthening the educator workforce
The American Families Plan aims to address teacher shortages and meet an anticipated increase in demand for universal pre-K educators by increasing funding for educator scholarships and specialty training, as well as raising wages for certain groups in federal programs.
The plan calls on Congress to double its scholarships for prospective teachers from $4,000 to $8,000 per year and expand the program to early childhood educators. The plan would invest $2.8 billion in yearlong paid teacher residency programs, $900 million in special education teacher development and $400 million in teacher preparation programs at historically Black colleges and universities, tribal colleges and universities and minority serving institutions.
The plan would also allocate $1.6 billion to help current teachers earn credentials for in-demand specialties, such as special education and bilingual education. An additional $2 billion in the plan would go toward educator leadership programs, like mentorships for new teachers and teachers of color.
All employees participating in pre-k programs and Head Start, a longstanding federal health and education program for low-income children, would earn at least $15 per hour as part of the proposal, “and those with comparable qualifications will receive compensation commensurate with that of kindergarten teachers,” according to a White House fact sheet.
Providing more nutrition assistance for children
The President would also expand the free meals program for children in the highest poverty districts so that an additional 9.3 million kids would qualify.
Here are the relief measures the plan would extend or make permanent
Keeping the expanded child tax credit through 2025
The American Families Plan would maintain the new enhanced child tax credit for another four years. And it would make it fully refundable permanently.
The enhanced portion of the credit is available for single parents with annual incomes up to $75,000, heads of households earning up to $112,500 and joint filers making up to $150,000 a year.
Researchers have found the benefit could reduce child poverty by nearly half — a statistic Biden repeatedly cited when advocating for the rescue package.
Beefing up Affordable Care Act subsidies permanently
The boost in aid is part of Biden’s effort to get more Americans covered by health insurance by making it more affordable, particularly for the middle class.
Under the rescue law, enrollees pay no more than 8.5% of their income toward coverage, down from nearly 10%. And lower-income policyholders receive subsidies that eliminate their premiums completely.
Providing more help to pay for child care permanently
The President is calling on Congress to make permanent the enhancements to the child and dependent care tax credit contained in the relief package.
Under that plan, families can receive a tax credit for as much as half of their spending on qualified child care for children under age 13, up to a total of $4,000 for one child or $8,000 for two or more children.
Parents making less than $125,000 annually are eligible for the full credit, while those earning between $125,000 and $400,000 will receive a partial credit.
Making the enhanced earned income tax credit permanent
The latest package would make permanent the expansion of the earned income tax credit for workers without children.
The relief law bolstered the credit by nearly tripling the maximum credit and extending eligibility to more childless workers. The minimum age to claim the credit will be reduced to 19, from 25, and the upper age limit will be eliminated.
This was the largest expansion to the earned income tax credit since 2009.
Here’s how Biden plans to pay for it
Raising income taxes on the rich
Raising the capital gains tax rate
The proposal would require households earning more than $1 million annually to pay higher taxes on capital gains, which typically make up the largest share of income for the wealthy.
The long-term capital gains of these taxpayers would be subject to the top marginal rate for income — currently 37%, but rising to 39.6% under Biden’s plan.
Right now, investments held for at least one year are subject to a top federal capital gains rate of 20%. Individuals earning $200,000 a year and married couples making $250,000 a year pay an additional 3.8% tax on their capital gains to help fund the Affordable Care Act.
Taxing unrealized capital gains at death
Currently, heirs of wealthy Americans enjoy a major tax break. Assets that pass directly to them receive a “step-up” in their cost basis, meaning they are valued as of the date of death. This can minimize the tax burden on the heirs when they eventually sell the assets. And it means the gains accrued during the lifetime of the parent who died are never taxed.
Biden would require estates to pay taxes on unrealized gains of more than $1 million, or $2.5 million per couple when combined with existing real estate exemptions. However, family-owned businesses and farms would not have to pay taxes when passed on to heirs who continue to run the business.
Ending breaks for hedge fund partners and real estate investors
Biden is asking Congress to close the carried interest loophole so that hedge fund partners would have to pay ordinary income rates on their income. Currently, the income is often treated as capital gains, which are subject to lower tax rates.
Also, he wants to end a tax break that allows real estate investors to defer taxation when they exchange property for gains greater than $500,000.
Enhancing IRS enforcement
His plan would also require financial institutions to report information on account flows so that earnings from investments and business activity are subject to the type of reporting that wages already are.
