Here’s What’s in the Proposed American Families Plan
President Joe Biden proposed a series of ambitious reforms this week, attempting to profoundly affect family finances and the affordability of childcare and education.
Under the proposal outlined Wednesday, the government would provide free universal preschool and community college, establish a national paid family and medical leave program, create new subsidies for childcare, extend pandemic-era healthcare subsidies and tax credits, and reform the unemployment safety net. This $1.8 trillion package of reforms, named the American Families Plan, would be funded by raising taxes on high earners and closing various tax loopholes.
Of course, it would all have to be approved by both chambers of Congress, including a Senate where the Democrats hold the narrowest possible advantage. The Biden administration hopes to build on the success of the $1.9 trillion American Rescue Plan, Biden's signature achievement and one of the primary reasons forecasters predicted the economic boom evidenced in the 6.4% annualized first-quarter GDP growth reported Thursday. The American Rescue Plan passed by just one vote in the Senate, with no support from the Republican side of the aisle.
In a speech to a joint session of Congress Wednesday night, Biden said the U.S. and its Democratic traditions were in competition with the authoritarian rulers of the world.
“To win that competition for the future, in my view, we also need to make a once-in-a-generation investment in our families and our children,” Biden said. “That’s why I’ve introduced the American Families Plan tonight, which addresses four of the biggest challenges facing American families and, in turn, America.”
Here is what's being proposed in the sprawling reform package:
- Provide free universal preschool for 3- and 4-year-olds, regardless of family income. The government currently provides free preschool through the Head Start program, but it is only for low-income families.
- Subsidize child care by capping the amount that families have to pay for child care at a certain percentage of their income, on a sliding scale. While the proposal was short on details, it said child care would be free for many working families, and that those making up to 1.5 times the median income in their state would have to pay no more than 7% of their income.
- Create a national paid family and medical leave program that would provide workers with at least two-thirds of their usual pay (up to 80% for lower-income workers) for 12 weeks of leave, up to $4,000 per month. The current law only requires employers to give unpaid family and medical leave, although certain states have paid leave laws.
- Extend increases in tax credits and subsidies created by the American Rescue Plan. This includes extending the higher 2021 child tax credit through 2025 (it’s as much as $3,600 per child rather than $2,000) and making several expansions permanent: increased subsidies and eligibility for Obamacare insurance premiums, a bigger child and dependent care tax credit and an expanded earned income tax credit for childless low-income workers (the maximum credit was almost tripled to $1,502 and the age and income eligibility requirements loosened.)
- Provide free community college for two years, again, regardless of family income.
- Increase the maximum amount of Pell grants for college students, adding $1,400 to the current cap of $6,495.
- Offer two years of free tuition at historically black universities, tribal colleges and universities, and other institutions serving minorities. This would apply to students from families making less than $125,000 annually.
- Reform the unemployment insurance system so that extensions of the time that workers can claim unemployment benefits—and adjustments to the amount of those benefits—are automatic when economic conditions warrant. This would help those without jobs avoid the delays and uncertainty of the last year, when arbitrary expiration dates for special pandemic programs repeatedly created cliffhangers in Congress, which was the only body that could renew the programs.
- Tax the rich to pay for the proposal. Biden says he would pay for $1.5 trillion of the $1.8 trillion 10-year price tag with tax reforms aimed at “rewarding work not wealth.” That includes increasing the top tax rate for the top 1% of income earners to 39.6% from 37% (undoing a Trump-era tax cut); raising the capital gains tax that high earners pay on investment income; closing the carried interest loophole that serves as a tax break for hedge fund partners; and ending or closing several other loopholes for real estate investors and high-income earners. It also includes adding $80 billion to the IRS budget to help enforcement against wealthy tax cheats.