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American Families Plan: What’s In It and How It Affects You

Biden administration aims to lift the lower and middle classes with a new $1.8 trillion plan.

Author Justin Cupler
Contributing Writer at Tally
May 3, 2021

President Joe Biden, empowered by the Democrat majority in Congress, continues introducing new programs that may have been otherwise impossible. Most recently, he unveiled his $1.8 trillion American Families Plan

From free college to a federal paid leave program, here’s what’s in the American Families Plan, how it will impact you and with what costs it could come. 

What’s in the American Families Plan?

The American Families Plan is a new initiative spearheaded by President Biden and Democrats in Congress that keeps the federal government’s focus on building the economy from the bottom up. 

Here’s what it includes. 

Free community college

A big chunk of the $1.8 trillion will be the $109 billion earmarked for higher education. 

The American Families Plan would make all two-year community colleges tuition-free. The plan would have the federal government pay about 75% of all tuition, while the state the college is in would pick up the rest. 

The plan would also include another $39 billion to offer two-year subsidized tuition for four-year college students from households earning less than $125,000 per year. However, this would only go to students attending an HBCU (Historically Black College and University), TCU (Tribal College and University) or HSI (Hispanic-Serving Institution).

This isn’t Biden’s first attempt at free college, as he helped former-President Barack Obama unveil his free-tuition plan in 2015. That plan, of course, died in the then-Republican-held Congress. 

Boost for the Pell Grant

Pell Grants are funds low-income students can use for college that don’t require repayment. Currently, the Pell Grant gives students up to $6,495 per year toward their college education, and Biden’s plan would add $1,400 to that. 

This falls short of the president’s earlier promises to double the Pell Grant award. 

Funds for universal preschool

The American Families Plan aims to inject $200 billion into preschools nationwide for 3-and 4-year-olds. This would require partnership with the states, requiring them to help pay tuition. 

The goal would be to provide preschools with lower student-to-teacher ratios so they can learn more effectively and to create “developmentally appropriate curriculum.”

Funds for recruiting teachers

Teacher shortages are already a problem, and with a focus on getting more kids into classes, this will only worsen. Biden’s plan heads this off by injecting money into recruiting and training teachers. 

The plan includes: 

  • Doubling congressional scholarships to prospective teaches, bringing it to $8,000
  • Investing $2.8 billion in paid teacher residency programs
  • Investing $900 million in special education teacher development
  • Funneling $400 million into teacher preparation programs
  • Putting $1.6 billion toward earning credentials in in-demand specialties
  • Setting the pre-K and Head Start employee minimum wage at $15 per hour 

Reduction of child care costs

The American Families Plan aims to bring child care costs down to no more than 7% of a family’s income for low-and-middle-income earners—those earning no more than 1.5 times the state’s median income. 

Nutrition assistance for kids

Biden’s plan also calls to extend the Pandemic-EBT program that gives kids learning remotely free food indefinitely. It would cost an estimated $25 billion to make the plan a permanent offering. The plan would also expand free meals in areas of extreme poverty, making another 9.3 million children eligible. 

Extension of current relief programs

The American Families Plan would also expand or make permanent a handful of existing initiatives: 

  • The all-new child tax credit, which was part of March’s COVID-19 stimulus bill, would continue to offer $3,600 per year per child under the age of 6 and $3,000 per year per child between the ages of 6 and 17 through 2025.  
  • The enhanced Affordable Care Act subsidies brought in by the latest COVID-19 stimulus bill would become permanent. This ensures enrollees pay no more than 8.5% of their income on insurance premiums. 
  • The plan would permanently boost the tax credit for qualified child care expenses to $4,000 for one child or $8,000 for two or more kids. 
  • The COVID-19 stimulus bill nearly tripled the maximum earned income tax credit, and the American Families Plan would make this permanent. 

How does the president plan to pay for it all?

A $1.8 trillion bill is nothing to sneeze at, and some fear this will send everyone’s taxes sky-high. President Biden has committed multiple times to not raising the taxes one penny on families earning less than $400,000 per year. 

The American Families Plan appears to follow this guideline with its funding outline. 

Taxing the 1% 

Biden’s plan to fund the program starts with raising the highest tax bracket from 37% back to the pre-Trump 39.6%. This would impact only the top 1% of earners in the U.S. There are no plans to raise taxes on the middle class.

Increasing the capital gains tax

Also targeting the wealthy would be an increase in the capital gains tax on families earning $1 million or more per year. Their long-term capital gains income taxes would rise from 37% to 39.6%.

Biden’s plan would also eliminate the step-up process when wealthy Americans inherit property, which establishes their value at the time of death as opposed to basing it on the gains during the deceased’s lifetime. This could save the benefactor significantly on taxes. 

With this eliminated, the president’s new plan would tax any unrealized gains of over $1 million per individual or $2.5 million per couple. However, if the inheritance is a family business or farm, and the benefactor continues running the business or farm, the taxes are waived. 

Ending investor tax breaks

The American Families Plan would also end the carried interest loophole that allows hedge fund partners to treat their interest income as capital gains, which allows them to pay a lower tax rate. Instead, the IRS would calculate this as normal income. 

Cracking down on tax evasion

Finally, the American Families Plan would inject $80 billion into the IRS to help it better enforce policies on high-income earners. According to the Biden administration, cracking down on tax evasion alone could add $700 billion per year to the tax coffers. 

In addition to the American Families Plan, President Biden has also introduced a large-scale infrastructure proposal that hopes to improve everything from bridges and roads to elderly community care. Both plans have been introduced to Congress, but only time will tell whether all or some of the comprehensive policies will be enacted.