Brownstein Client Alert, April 29, 2021
On April 28, President Joe Biden delivered his first address to Congress, touting the passage of the $1.9 trillion American Rescue Act Plan, highlighting progress on vaccinations and outlining a path forward on rebuilding the economy. Central to the president’s efforts to revitalize the economy are two expansive and expensive proposals—the American Jobs Plan and the American Families Plan. The American Jobs Plan is a $2 trillion proposal that focuses on traditional infrastructure priorities such as roads, bridges and tunnels, as well as investments in green energy and affordable housing. It is partially paid for by tax increases on corporations and a complete overhaul of the international tax system. The American Families Plan, released just ahead of the president’s speech, proposes $1 trillion in spending proposals and $800 billion in tax cuts for low- and middle-income families. It focuses on expanding educational opportunities and child care for families and a national paid leave program, paid for in part by tax increases on wealthy Americans.
This alert summarizes the American Families Plan and includes key takeaways on the plan and the president’s speech.
Three Key Takeaways
- Still All About Jobs. “Jobs” was potentially the most-used word in the president’s speech. While the American Jobs Plan focuses on creating millions of jobs, the American Families Plan focuses on creating a workforce infrastructure support system that maintains labor force participation and productivity.
Nearly every segment of the American Jobs Plan translated into good-paying union jobs. While the president boasted that the economy has gained some 1.3 million new jobs in the first few months of his administration, according to the last jobs report from the U.S. Labor Department, 9.97 million Americans are unemployed, and 17.4 million Americans continue to receive weekly unemployment benefits. The Biden administration hopes that a summer infrastructure bill will create a job boom, the effects of which would be felt before the November 2022 midterm elections. In addition to construction jobs, each segment of the infrastructure package from energy to the home-based care economy, is intended to boost job creation—both from government jobs through a new Civilian Climate Corps, to private sector jobs in the elder care space.
Similarly, the American Families Plan focuses on shoring up essential support systems that help maintain the workforce. A lack of child care is now the third most reported reason for not working, after pandemic-related layoffs and furloughs due to reduced business. During the pandemic, 25% of women reported taking a step back in their career or leaving the workforce due to child care issues. Similarly, businesses report billions in lost revenue because of lost productivity due to a lack of high-quality and affordable child care. The president’s proposal makes $625 billion in investments in child care and paid leave to support the workforce and hundreds of billions in tax breaks to help families pay for these benefits as well.
- A Robinhood Approach—Revenue Raisers Point to Reconciliation. During the president’s speech, he continued to push for corporations and high-net-worth individuals to “pay their fair share” in order to create programs that help low- and middle-income Americans. He criticized the Tax Cuts and Jobs Act (TCJA, P.L.115-97), promising to correct inequities he believes that law created.
Both the American Jobs Plan and the American Families Plan include tax proposals that overturn portions of the TCJA. Specifically, the American Jobs Plan includes the Made in America Tax Plan, which would increase the corporate tax rate from 21% to 28%, double the tax on Global Intangible Low-Taxed Income (GILTI) from 10.5% to 21%, impose a 15% minimum tax on corporate book income, repeal the Foreign-Derived Intangible Income (FDII) deduction, eliminate tax benefits for the fossil fuel industry, increase corporate tax enforcement, and more. The international tax provisions partially dismantle the tax system put in place by the TCJA, drawing criticism from its Republican authors. Republicans have also noted that the spending proposals in the plan are spread out over eight years, while the revenue raisers provide a cost estimate over 15 years. While some spending priorities, particularly around traditional infrastructure projects, share bipartisan support, for the American Jobs Plan to have any chance at bipartisanship, it would have to drastically change the proposed pay-fors. Otherwise, reconciliation with a straight party vote will be the only path forward for this infrastructure proposal.
The American Families Plan would increase Internal Revenue Service (IRS) funding for enforcement actions against high-income individuals, including increased reporting from financial institutions to ensure wealthy Americans pay what they owe. It also includes an increase in the top tax rate to 39.6% up from 37%, increasing the capital gains tax rate for households making more than $1 million from 20% to 39.6%, ending the step-up in basis after death for gains above $1 million, eliminating the preferential rate for carried interest, preserving excess loss limitations and limitations on like-kind exchange benefits. While Republicans are already unlikely to support the massive spending priorities in the American Families Plan, the tax proposals have drawn even more criticism from Republicans who believe these measures will decrease investments and result in increased costs of doing business being passed on to low- and middle-income workers.
Republican lawmakers are not the only ones who have criticized proposed tax increases. After the release of the American Jobs Plan, several moderate Democratic senators, including Sen. Joe Manchin (D-WV), and members of the House, including Rep. Scott Peters (D-CA), pushed for a lower rate of 25%‒26%. After the release of the American Families Plan, both Sens. Manchin and Bob Menendez (D-NJ) expressed concern with certain proposals, such as the taxation of capital gains at the top proposed ordinary income tax rate. Democrats have a tough road ahead to convince moderates to pass trillions of dollars in spending increases and achieve consensus on palatable pay-fors.
- $6 Trillion in Spending. In a pre-pandemic world, $6 trillion in proposed spending would be unfathomable. Yet, Democrats are pushing forward on:
- The American Rescue Plan Act (ARPA, enacted March 11 as P.L. 117-2), $1.9 trillion
- The American Jobs Plan (proposed March 31), $2.3 trillion
- The American Families Plan (proposed April 28), $1.8 trillion
While the administration has started to make overtures to Republicans, no significant progress has been made on bipartisan negotiations. Late last week, two counterproposals to the American Jobs Plan were released—one from Senate Republicans and another from the bipartisan House Problem Solvers Caucus (PSC). The American Jobs Plan and both counter-infrastructure proposals take very different approaches. The PSC does not propose topline funding numbers, instead focusing on policy priorities, while the Senate GOP’s proposal includes no details on policy, instead proposing only topline funding numbers. The Senate GOP proposal totals $568 billion over five years for traditional infrastructure priorities, as compared to $621 billion in the American Jobs Plan for traditional infrastructure priorities. It is unclear if Democrats and Republicans can reach an agreement on a narrow bill and proposed pay-fors. If an agreement comes together, as the president signaled in his speech, there is a limited window for bipartisan action.
Absent bipartisan consensus, Democrats will move forward and advance their priorities through reconciliation. The administration is aiming to release its budget at the end of May, along with the Green Book. To accompany the administration’s budget, the Treasury Department releases the “General Explanations of the Administration’s Revenue Proposals,” which provides an explanation of the administration’s revenue proposals (i.e., the Green Book). House committees will likely mark up legislation in July, with the goal of passing something in the House before the August work period. Democrats hope to pass a final bill in the fall.
Click here for a full summary of the American Families Plan.
This document is intended to provide you with general information regarding the American Families Plan. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.