Article
American Families Plan includes several individual tax changes
April 29, 2021 · Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo, Pat Balthazor
On April 28, 2021, President Biden addressed a joint session of Congress, announcing the details of his administration’s latest legislative proposal, the American Families Plan (AFP). The AFP calls for approximately $1 trillion in spending and $800 billion in tax cuts geared toward providing universal preschool and two years of free community college, affordable child care, enhanced paid family and medical leave, unemployment insurance reform, and other priorities.
The AFP is the third component of the president’s “Build Back Better” agenda, including the American Rescue Plan (enacted in early March) and the American Jobs Plan (a $2 trillion infrastructure package unveiled in late March). While the infrastructure bill would be funded by corporate tax increases, the AFP would be paid for by tax increases on higher-income individuals.
Prospects for passage
Use of the budget reconciliation process is generally limited to one spending bill per federal fiscal year and was used already in the current fiscal year to pass the American Rescue Plan Act. However, earlier this month, the official advisor to the Senate on the chamber’s rules and procedures determined another bill could be passed using the filibuster-proof method by revising the 2021 fiscal year budget resolution. At this point, it is uncertain whether reconciliation would be used again on the AFP or the infrastructure package.
It should be noted that even achieving the 50 votes needed for passage via reconciliation in the Senate (with Vice President Harris casting the tie-breaking vote) may be difficult on account of apparent differences within the Democratic party over how much spending is necessary on the AFP’s provisions. As a result, we expect lengthy debate over the legislation, along with the introduction of several counterproposals before any legislation is put forth for a vote.
Key proposals
The following are some of the critical tax proposals in the plan:
- Increase the top individual rate to 39.6% from the current 37%. This rate was at 39.6% prior to passage of the Tax Cuts and Jobs Act (TCJA) in 2017.
