On Wednesday, April 28, on his 99th day in office, President Biden gave his first joint address to Congress. In addition to recounting the policy successes of his first three months in office, President Biden used his bully pulpit to introduce and call for the passage of the American Families Plan. The American Families Plan is a $1.8 trillion package that will reshape multiple elements of the economy. In combination with the $2 trillion American Jobs Plan introduced a few weeks ago, President Biden is asking Congress to provide $4 trillion in new spending and tax code changes he argues will make the United States a more globally competitive economy and a more equitable society.

Congress will spend much of the spring and summer attempting to move the American Families Plan and the American Jobs Plan, either together or separately. Democratic leadership and the White House will have to quickly determine if they wish to compromise on these policy priorities and move the packages in regular order via various committees, to secure Republican support for the package and pass it on a bipartisan basis. If President Biden and Democratic leaders in Congress do not feel a compromise is appropriate, they will attempt to pass the packages through the reconciliation process, which would require only 50 votes in the Senate (plus the Vice President's tie-breaking vote). The reconciliation process would give 3-5 moderate Democratic Senators extraordinary influence over the final details of the legislative package. Senate procedural rules for reconciliation would prevent some policy proposals in the President's plans from being part of the reconciliation bill, but use of the process would substantially increase the chances for some version of the American Jobs Plan and the American Families Plan becoming law later this year.

Congressional leaders hope to move this legislation through both chambers between now and August. Below we cover some of the critical details about the various major elements of the American Families Plan.

Education and Child Care

Free Community College and Other Postsecondary Education Investments

  • Invests $217 billion in institutions of higher education and an additional $80 billion for the Pell Grant program to address college affordability.
  • Increases the maximum Pell Grant by approximately $1,400 per student as a down payment on the Biden Administration's commitment to double the Pell award. It is an increase of more than $80 billion to the program and would allow DREAMers to have access to Pell Grants and potentially include coverage to short-term programs, as well.
  • Invests $109 billion to offer two years of free community college to all Americans, including DREAMers. The plan would allow students to use this benefit over a three or four-year period.
  • Invests $62 billion in a grant program for completion and retention activities at institutions of higher education that serve low-income students. The grant program is targeted at community colleges and would provide funding to institutions that adopt innovative and proven solutions for student success, including wraparound services.
  • Provides $39 billion for two years of subsidized tuition for students whose families earn less than $125,000 and are enrolled in four-year Historically Black Colleges and Universities (HBCUs), Tribal Colleges and Universities (TCUs), or Minority Serving Institutions (MSIs).
  • Increases existing institutional aid grants to HBCUs, TCUs, and MSIs by $5 billion and provides an additional $2 billion to help these institutions build a pipeline of skilled healthcare workers with graduate degrees. These funds are in addition to the $45 billion HBCU, TCU, and MSI investment called for under the American Jobs Plan.
  • Various legislation recently introduced would make similar investments in college affordability, including:
    • The College for All Act (H.R. 2730/S. 1288), introduced by Rep. Pramila Jayapal (D-WA) and Sen. Bernie Sanders (I-VT), includes similar provisions. The bill would make community college free to all and make tuition free at other public institutions of higher education for families making up to $125,000.
    • The Debt-Free College Act of 2021 (H.R. 2804/S.1263), introduced by Rep. Mark Pocan (D-WI) and Sen. Brian Schatz (D-HI), would establish state-federal partnerships to provide students the opportunity to attain an education at an in-state public institution of higher education without debt and would provide Pell Grant eligibility to DREAMers.
    • The America's College Promise Act (H.R. 2861/S. 1396), introduced by Reps. Bobby Scott (D-VA) and Andy Levin (D-MI) and Sens. Patty Murray (D-WA) and Tammy Baldwin (D-WI), would create new federal-state partnerships that provide two years of tuition-free access to community or technical college programs and tuition and fee grant aid for two years at an eligible four-year HBCU or MSI.

Universal Preschool for Three- and Four-Year Olds

  • Provides $200 billion for a national partnership with states to offer free preschool to children three- and four-years old, with a prioritization of programs in high-need areas. The Child Care for Working Families Act (CCWFA) (H.R. 2817/S. 1360) also proposes to create formula grants to support preschool programs for children ages 3 to 5 whose families qualify as low-income.
  • Invests in tuition-free community college and teacher scholarships for those seeking a degree in education or early childhood education.
  • Sets a $15 minimum wage for Head Start program employees and staff of pre-K programs that receive funding under this plan. Employees with comparable qualifications would receive compensation equivalent to kindergarten teachers.

Child Care

  • Invests $225 billion into child care in addition to universal pre-K.
  • Ensures families earning 1.5 times their state median income (SMI) will pay no more than 7 percent of their income on child care for children under age 5. Payment for families would be based on a sliding scale and those with the lowest incomes would be fully covered. Under the plan, families would have a range of child care options to choose from, including child care centers, families child care providers, Early Head Start programs, and public schools.
    • This proposal is similar to provisions in the CCWFA and the Universal Child Care and Early Learning Act (S. 1398). Both bills include a sliding scale for copayments and proposes that no family receiving assistance pays more than 7 percent.
  • Provides funds for providers to invest in curriculum, small class sizes, and environments inclusive for children with disabilities and are culturally and linguistically responsive. The CCWFA also includes language requiring providers to prioritize children with disabilities in child care programs.
  • Requires a $15 minimum wage for early child care staff employed by providers receiving federal funds under the plan. Employees with comparable qualifications would receive compensation and benefits equivalent to kindergarten teachers. Section 105 of the CCWFA includes a provision that cost estimation models must set payment rates that ensure child care workers receive comparable wages to elementary educators with similar credentials and experience.
  • Includes funding for professional development programs for child care employees such as job-embedded coaching and training opportunities. Title I Section 107 of the CCWFA includes language for states to use quality care funds for training and professional development for child care workers.
  • Expands eligibility of the Teacher Education Assistance for College and Higher Education (TEACH) Grant to early childhood educators.

Teacher Preparation

  • Calls for Congress to invest $9 billion in teacher education and preparation.
  • Doubles TEACH Grant scholarships from $4,000 to $8,000 per year for future teachers who are committed to teaching in high-need fields in low-income areas for at least four academic years. Eligibility would expand to early childhood educators.
  • Invests $2.8 billion in "Grow Your Own" programs, which proactively recruit teacher candidates from local communities to join the teaching profession and teach in their communities' schools. This funding also would support year-long, paid teacher residency programs to increase teacher retention and diversify the teaching workforce.
  • Provides $400 million for teacher preparation programs at HBCUs, TCUs, and MSIs. <
  • Provides $900 million for the development of special education teachers.
  • Invests $1.6 billion to provide educators with additional certifications in high-demand areas, including special education and bilingual education, as well as certifications to improve teacher performance. The funding would flow through the states and prioritize teachers with at least two years of experience at schools with a significant percentage of low-income students or schools with significant teacher shortages.
  • Provides $2 billion to support educator leadership programs, including high-quality mentorship programs for new teachers and teachers of color.

Nutrition

  • Calls for $45 billion for federal nutrition programs.
  • Invests $25 billion in the Summer EBT program, which provides funding for summer meals to families with children eligible for free and reduced-price meals during the school year. The proposal aims to make the Summer Pandemic-EBT program permanent and available to all children receiving free and reduced-price meals.
  • Provides $17 billion to expand free meals for children in high-poverty schools through the Community Eligibility Provision (CEP), which allows qualifying schools and school districts to provide meals free of charge to all students in the school or district. This funding would reimburse a higher percentage of meals eligible for the free reimbursement rate through CEP and lower the threshold for CEP eligibility for elementary schools. Currently, school districts, groups of schools, or individual schools are eligible for CEP if they have at least 40 percent of students participating in the Supplemental Nutrition Assistance Program (SNAP) or other means-tested programs, but the plan would lower the SNAP threshold to 25 percent.
  • Supports a $1 billion healthy foods incentive demonstration program to incentivize schools to expand their healthy food options through enhanced reimbursements if they adopt specific measures that exceed current school meal standards.
  • Ensures formerly incarcerated individuals, including individuals convicted of a drug-related felony, are eligible for SNAP benefits.

Worker Benefits

  • Invests $229 billion for paid and medical leave and unemployment insurance reforms.
  • Creates a national paid leave program to provide workers with up to 12 weeks of paid family and medical leave by the tenth year of the program and three days of bereavement leave per year of employment, starting in year one. The benefit would replace 80 percent of average weekly wages for the lowest wage workers and two-thirds of average weekly wages replaced for all other workers up to $4,000 a month.
  • Includes $4 billion for unemployment insurance program reforms, built off American Rescue Plan provisions aimed at system modernization, fraud prevention, and equitable access. The proposal also would automatically adjust the length and amount of unemployment benefits available to workers depending on economic conditions.

Healthcare

  • Invests $200 billion to make permanent a provision of the American Rescue Plan Act to reduce premiums for individuals enrolling in qualified health plans under the Affordable Care Act (ACA). Per the fact sheet, this investment will lower premiums for 9 million people, and allow 4 million uninsured people to afford coverage.
  • Invests in maternal health and support the families of veterans receiving health care services.
  • Invests $2 billion in graduate education to expand the skilled health care workforce.
  • Calls on Congress to pass the Health Families Act, allowing workers to accrue seven days of paid sick leave annually to be used for preventive care.
  • Extends the increased Child Tax Credit through 2025 while making it permanently refundable, permanently increases the Child and Dependent Care Tax Credit, and makes permanent the expansion in the Earned Income Tax Credit provided earlier this year under the American Rescue Plan.

Tax

A substantial portion of the American Families Plan's proposed spending is in the form of tax benefits. The plan would:

  • Make permanent the expanded Affordable Care Act health care premium tax credits provided under the American Rescue Plan (H.R. 1319, Pub. L. 117-2) ensuring that no qualifying family paid more than 8.5% of its income for healthcare coverage.
  • Extend through 2025 the increased Child Tax Credit, which the American Rescue Plan increased to $3,000 per child age six and older, $3,600 per child under age six, and made eligible 17-year-olds, and make the credit permanently refundable and advanceable.
  • Permanently increase the Child and Dependent Care Tax Credit, which the American Rescue Plan expanded to 50% of qualified child care costs for children under age 13, up to a total of $4,000 for one child or $8,000 for two or more children for those families earning less than $125,000 per year (those earning between $125,000 and $400,000 receive a partial credit).
  • Make permanent the expansion of the Earned Income Tax Credit provided earlier this year under the American Rescue Plan, which allowed childless workers as young as age 19 to claim the credit, removed the upper age limitation, and increased various income thresholds that otherwise limited the number of potential qualifying beneficiaries.

The plan also calls on Congress to offset the cost of these policies. Specifically, the plan would:

  • Increase the top marginal tax rate for individual taxpayers from 37% to 39.6%.
  • Increase the tax rate on capital gains for individual taxpayers from 20% to 39.6% for those households earning more than $1 million (effectively ending the preferential tax treatment of capital gains for very-high earners), while at the same time repealing the "stepped-up" basis rules for inherited property with capital gains in excess of $1 million. Detail is limited, but the plan suggests that at death an heir would pay capital gains on inherited property in excess of the threshold. (The plan suggests that farms and family-owned businesses would get an exemption as long as the heirs run the business, and rules would provide an exclusion for up to $2.5 million per married couple if a primary residence is passed down).
  • Tax "carried interest" as ordinary income rather than capital gains, limit capital gains tax deferral on exchanges of like-kind property under IRC 1031 to $500,000, and make permanent the existing disallowance of excess business losses.
  • Impose the 3.8% Medicare tax across all individual taxpayers earning more than $400,000.
  • Invest in the IRS to close the "tax gap"—the difference between reported tax liability and true tax liability—by increasing the IRS' budget by more than 60% over ten years to improve staffing at the IRS, modernize computer systems, increase audit rates on high net worth individuals, and regulate paid tax preparers, as well as expand information reporting requirements by financial institutions.

*Lauren Hoepfner contributed to this Advisory. Ms. is a graduate of Boston University School of Law and is employed at Arnold & Porter's New York office. Ms. Hoepfner is admitted only in Massachusetts. She is not admitted to the practice of law in New York.

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