What's in President Biden's American Families Plan?
This evening, President Joe Biden will unveil the third part of his ambitious “Build Back Better” agenda, the American Families Plan. According to the Administration, the plan will cost roughly $1.8 trillion and includes $1.5 trillion of offsets, resulting in a $300 billion net deficit impact over a decade.
While the first part of his agenda – the American Rescue Plan – was focused on COVID relief, and the second part – the American Jobs Plan – on rebuilding infrastructure and creating jobs, the American Families Plan is focused on making investments in areas important to families, such as education, childcare, health care, and paid family leave, as well as expanding certain tax credits.
Like the first two plans, the American Families Plan comes with a significant price tag, estimated to be approximately $1.8 trillion over ten years. To offset this cost, the plan includes several tax increases on households making $400,000 per year or more, as well as a boost in funding to the IRS meant to improve enforcement and close the tax gap. According to estimates provided by the White House, these offsets would not cover the entire cost of the bill over the ten-year window, resulting in an overall deficit increase of approximately $300 billion over ten years. In combination with the American Jobs Plan, the Administration says the plan will be fully offset over 15 years.
Below is a breakdown of the provisions in the bill, according to information published by the White House and our own estimates.
Provisions in the American Families Plan
| 10-Year Estimate | ||
|---|---|---|
| Education | $506 billion | |
| Free, universal pre-kindergarten for all three- and four-year-olds | $200 billion | |
| Tuition-free two-year community college | $109 billion | |
| Increase Pell Grants for low-income students | $80 billion | |
| Invest in evidence-based strategies to strengthen completion and retention rates at community colleges and institutions that serve students from our most disadvantaged communities | $62 billion | |
| Provide two years of subsidized tuition for students from families earning less than $125,000 enrolled in a four-year HBCU, TCU, or MSI | $39 billion | |
| Funding to train, equip, and diversify American teachers | $9 billion | |
| Expand existing institutional aid grants to HBCUs, TCUs, and MSIs | $5 billion | |
| Provide funds for building a pipeline of skilled health care workers with graduate degrees | $2 billion | |
| Families and Children | $495 billion | |
| Make child care affordable, invest in high-quality care, and fund training for child care providers | $225 billion | |
| Create a national comprehensive paid family and medical leave program | $225 billion | |
| Expand summer EBT to all eligible children nationwide | $25 billion | |
| Expand free meals for children in the highest poverty districts | $17 billion | |
| Launch a healthy foods incentive demonstration program | $1 billion | |
| Facilitate re-entry for formerly incarcerated individuals through SNAP eligibility | unknown | |
| Work with Congress to automatically adust length and size of unemployment benefits based on economic conditions | n/a | |
| Expanded Tax Credit Extensions | $855 billion | |
| Extend the Child Tax Credit expansions from the American Rescue Plan through 2025 and permanently make the Child Tax Credit fully refundable | $450 billion# | |
| Extend expanded ACA premiums tax credits from the American Rescue Plan | $200 billion | |
| Make the American Rescue Plan Earned Income Tax Credit (EITC) expansion for childless workers permanent | $125 billion# | |
| Make permanent the temporary Child and Dependent Care Tax Credit (CDCTC) expansion enacted in the American Rescue Plan | $80 billion# | |
| Possible Interactions and Estimating Differences | up to -$50 billion | |
| Sub-Total, Spending and Tax Credits | ~$1.8 trillion | |
| Reduce the Tax Gap | -$700 billion | |
| Increase funding for IRS enforcement | $80 billion | |
| Improve tax enforcement through audits, IT, information reporting for financial institutions, regulating paid preparers, and other measures | -$780 billion* | |
| Increase Taxes on High-Income Households | -$800 billion | |
| Increase capital gains and dividends taxes (tax as ordinary income above $1m, eliminate step-up basis above $1m, close carried interest and real estate loopholes) | -$400 billion^ | |
| Apply 3.8 percent Medicare tax to all income above $400,000 | -$200 billion^ | |
| Increase top individual tax rate from 37% to 39.6% | -$100 billion^ | |
| Permanently extend the current limitation in place that restricts large, excess business losses | -$100 billion^ | |
| Sub-Total, Tax Increases and Enforcement | -$1.5 trillion | |
| Ten-Year Deficit Impact | ~$300 billion | |
Sources: White House, CRFB calculations based on Congressional Budget Office data
* This represents an Administration estimate and has not been independently scored or estimates. CBO and JCT may conclude a substantially lower revenue amount.
# CRFB estimate
^ CRFB estimate, rounded to nearest $100 billion
The plan includes more than $500 billion in education funding, including $200 billion for universal pre-kindergarten for all three- and four-year-olds; approximately $110 billion for making two-year community college tuition free; $80 billion for increasing Pell Grants; more than $60 billion for improving community colleges that serve disadvantaged students; $46 billion for HBCUs, TCUs, and MSIs; and $9 billion for training and equipping teachers. The plan also includes $225 billion for establishing a national childcare program, $225 billion for providing 12 weeks of paid family and medical leave for all workers, and $45 billion for nutritional assistance.
The plan also includes extensions of four temporary tax credit expansions from the American Rescue Plan. First is an extension of the current Child Tax Credit (CTC), which was increased from $2,000 to $3,000 ($3,600 for children under 6 years old) and made fully refundable for 2021 under the American Rescue Plan, at an estimated cost of $450 billion over ten years. The increase in the credit amount would be extended for four years while full refundability would be made permanent. Second is a permanent extension of expanded Affordable Care Act premium subsidies included in the American Rescue Plan, at a cost of $200 billion over ten years. Third is a permanent extension of the current Earned Income Tax Credit, which was expanded to benefit childless workers under the American Rescue Plan, at an estimated cost of $125 billion over ten years. Finally, the current Child and Dependent Care Tax Credit (CDCTC), which was temporarily increased under the American Rescue Plan, would also be made permanent at an estimated cost of $80 billion over ten years. In total, we estimate these extensions will cost $855 billion over the coming decade.
For offsets, the plan includes several tax increases on households earning $400,000 or more per year. The plan would make several changes to taxation of capital gains and dividends, including taxing capital gains as ordinary income above $1 million and unrealized gains above $1 million at death, eliminating the "carried interest" loophole, and closing other real estate-related loopholes, which we estimate would save approximately $400 billion over ten years. The existing 3.8 percent Medicare tax would be applied to all income above $400,000, eliminating existing loopholes and generating roughly $200 billion over ten years, by our estimates. The top individual income tax rate would be increased from 37 percent to 39.6 percent, saving $100 billion over ten years. Finally, the plan would permanently extend the current limitation on deducting large business losses, saving another $100 billion over ten years.
The plan also includes a bold effort to improve tax compliance and reduce the tax gap – the difference between taxes paid and taxes owed. The plan provides roughly $80 billion in additional funding for the IRS, which would be spent out over the next decade in order to increase the number of audits on high-earners and corporations, update IT systems, and otherwise improve tax enforcement. It also creates a new information reporting regime, requiring financial institutions to report account inflows and outflows. The plan would also give the IRS authority to regulate paid tax preparers. The White House believes this plan will generate $700 billion of net revenue over the next decade.
In combination with the $800 billion of tax increases, these $1.5 trillion in offsets would cover most but not all of the $1.8 trillion cost of the American Families Plan.
Over the next decade, the plan would add roughly $300 billion to the deficit, before interest. In combination with the American Jobs Plan, the President's proposals would add roughly $1.2 trillion to the deficit over the decade, again without including interest effects. According to the Administration, the plans would be deficit neutral over 15 years and would reduce the deficit over the long-term. For this to occur, policymakers would have to allow temporary policies to expire as scheduled and permanent tax increases to take effect and remain in place.
