White House readies $1.8 trillion family aid plan, tax increases

Proposal would raise revenue from wealthier households to pay for child care, preschool, paid leave and other initiatives

Sen. Sherrod Brown, D-Ohio, is among those pushing for a permanent child tax credit expansion. (Tom Williams/CQ Roll Call file photo)
Sen. Sherrod Brown, D-Ohio, is among those pushing for a permanent child tax credit expansion. (Tom Williams/CQ Roll Call file photo)
Posted April 28, 2021 at 5:00am

The Biden administration will unveil a sweeping initiative Wednesday designed to reduce child poverty, help women return to the workforce, and accelerate an economic recovery from the COVID-19 pandemic.

The proposal, estimated to cost $1.8 trillion over a decade, would provide for universal pre-kindergarten, two years of tuition-free community college, more affordable child care, paid family and medical leave for workers, and an extension of an expanded child tax credit, among other things.

Financing for the plan would come from tax increases on upper-income households and increased IRS enforcement of tax compliance. The top marginal income tax rate would increase from 37 percent to 39.6 percent — the rate that existed before the Republican tax cuts of 2017. The capital gains tax rate paid by millionaires would increase from 20 percent to 39.6 percent, matching the rate to be paid on ordinary income.

And while the White House isn't yet dusting off a campaign plan to expand the estate tax, the administration is proposing a radical change that would nonetheless hit wealthy heirs hard.

The proposal would require a capital gains tax on the increase in value of inherited assets since the decedent first purchased them, in some cases decades earlier. Farms and family-owned businesses would get an exemption as long as the heirs continue to run the business, and there'd a general exclusion from the tax for up to $2.5 million per married couple if a primary residence is passed down.

The administration is betting that an infusion of money into IRS enforcement and new income reporting requirements for financial institutions would yield about $700 billion in new revenue over the coming decade. 

The plan, which comes on the heels of a $2 trillion-plus infrastructure initiative and more than $5 trillion in pandemic relief, underscores a conviction among Democrats that they need to go big on spending to avoid a painfully slow recovery. Democratic economists have said the roughly $800 billion economic stimulus package in 2009 was too small and led to years of tepid growth.

While the economy is beginning to recover, “the president knows that we need to do more,” the White House said in a 15-page document outlining the plan. “It is not enough to restore where we were prior to the pandemic. We need to build a stronger economy that does not leave anyone behind.”

But given signs of rising inflation, the White House is sensitive to the concerns of deficit hawks —particularly after so much new debt was added over the past year. The new enforcement mechanisms and tax increases are projected to cover $1.5 trillion of the new proposal's costs, which combined with higher taxes on corporations in the previously released infrastructure package, would be enough to pay for both packages over 15 years.

Passing the plan in a bitterly divided Congress promises to be a Herculean task. There has been no sign of bipartisan support for the kind of massive spending Biden wants, outside of a more limited measure addressing traditional infrastructure projects.

Acknowledging that difficulty, Democrats have begun planning to use the budget reconciliation process that would skirt the risk of a Republican filibuster in the Senate.

Universal preschool, free community college

The latest plan borrows from many of the proposals Biden made as a candidate last year.

To help narrow the achievement gap and get parents into the workforce, the plan calls for offering preschool to all 3 and 4-year-old children. The $200 billion investment, in a “national partnership with states,” would benefit 5 million children and save the average family $13,000 when fully implemented, the plan said.

Biden would also provide two years of community college at no cost to all students, including those who were brought to the U.S. illegally as children. That effort, which would cost $109 billion, is designed to combat a “steep college enrollment decline” since the pandemic hit, the plan said.

To help workers — particularly women — balance professional and family obligations, the plan calls for giving employees up to 12 weeks of paid leave if they have a serious illness or need to care for an immediate family member.

The plan calls for spending $225 billion over a decade to create what would be the country’s first comprehensive paid family and medical leave program. It would provide workers up to $4,000 a month to replace a minimum of two-thirds of average weekly wages.

The program is slow to build up to full implementation, however, taking the full decade to get to 12 weeks. By contrast, a plan introduced by Ways and Means Chairman Richard E. Neal, D-Mass., on Tuesday, would be fully in place starting in 2023 and would contain more generous wage replacement for lower-income workers.

To help stay-at-home parents return to the workforce, the plan calls for a $225 billion investment aimed at making child care more affordable and accessible. Parents would pay only a portion of their income, based on a sliding scale, while child care providers would be paid at least a minimum wage of $15 an hour. Progressive Democrats like Massachusetts Sen. Elizabeth Warren are backing similar proposals but want the price tag beefed up, to $700 billion.

Other new spending in the plan includes:

  • $85 billion to expand Pell Grants that help lower-income students attend college.
  • $62 billion to help bolster graduation rates at community colleges and others that serve disadvantaged students.
  • $46 billion for tuition assistance at historically black colleges and universities, tribal colleges and universities and other minority-serving institutions.
  • $9 billion for teacher training programs.
  • $45 billion for expanded nutrition programs, mainly free- and reduced-price school meals.

Health insurance, child tax credit

Democrats in both chambers lobbied Biden in recent days to include a major expansion of Medicare. Their proposal calls for reducing the eligibility age, capping out-of-pocket spending, and expanding the program to include dental, vision and hearing benefits. They would pay for the expansion by letting the federal government negotiate with manufacturers on prescription drug costs.

Biden’s plan stops short of offering such a sweeping health care push. Instead, it calls for making permanent a reduction in health insurance premiums for those who buy coverage on their own. The March pandemic relief law offered two years of lowered premiums. Making those reductions permanent, at a cost of $200 billion, would help 4 million uninsured people gain coverage and reduce insurance costs for 9 million others by hundreds of dollars annually, the plan said.

And in what Democrats describe as a major poverty fighter, an expanded child tax credit that is slated to expire in a year would be extended until 2025. The expanded credit, enacted as part of the pandemic relief law in March, boosted the tax break from $2,000 per child to $3,000, and to $3,600 for a child under the age of 6. It came with a one-year cost of $110 billion.

While Democrats welcomed the extension of the expanded child tax credit, they made clear they intend to outdo Biden by making the credit permanent.

“The House will be writing the bill and we will be making the child tax credit permanent,” said House Appropriations Chair Rosa DeLauro, D-Conn.

Democrats in both chambers pushed for a permanent credit at a news conference Tuesday, saying an extension until 2025 would be inadequate. “The problems for working families don’t go away in five years,” said Sen. Sherrod Brown, D-Ohio.

Brown said that sunsetting the child tax credit expansion at the end of 2025, which is the same time that many tax provisions from the 2017 overhaul expire, will put a target on the credit. “They will want huge corporate tax cuts, which they always do,” Brown said of Republicans. “This is the most important thing we can do in this bill.”

Niels Lesniewski and Doug Sword contributed to this report.