5 Things You Need to Know About Biden’s $1.8 Trillion American Families Plan
Through a laundry list of proposals, the Biden administration’s $1.8 trillion American Families Plan would significantly grow federal bureaucrats’ control of some of the most personal aspects of family life.
By Marie Fishpaw / Lindsey Burke / Doug Badger / Matthew Dickerson / Leslie Ford / Rachel Greszler / Robert Rector / May 10, 2021
Strong families and hard work have formed the foundation for healthy development, meaningful relationships, and economic well-being ever since America’s inception. Now, President Joe Biden has a new vision: one in which progressive politicians and government bureaucrats sit at the helm of American families, financed through $1.8 trillion in new taxpayer spending.
Through a laundry list of proposals, the Biden administration’s so-called American Families Plan would significantly grow federal bureaucrats’ control of some of the most personal aspects of family life.
While asserting more government control over Americans, this proposal also fails to address the real child care, education, family leave, and health needs of families.
Here are five of the key features of the American Families Plan, and why lawmakers should reject them:
1. New Child Care Spending and Programs
Paid Family Leave—While private sector employers have already made enormous strides in providing employees with paid family leave—doubling the provisions of both maternity leave and paternity leave benefits since the 2017 tax cuts and reduced regulations—Biden’s plan would create a nationwide paid family leave program.
A one-size-fits-all government program would be restrictive, unresponsive, and less generous than existing employer-provided programs.
And despite Biden’s claim that a government paid family leave program will keep mothers in the workforce (a decision that should be made by families without the influence of politicians), a growing body of evidence shows that it can have a negative impact on women’s labor market outcomes and largely benefits middle-income and upper-income families (despite taxing workers of all income levels).
Government-Subsidized Child Care—At the same time, despite its emphasis on paid family leave, the proposal encourages parents not to stay home with their children by favoring center-based and government-run pre-kindergarten over family care. Such policies prioritize maximizing tax revenues and measured economic output by having all parents work full time while growing the government’s involvement in raising children.
Many policymakers claim that child care subsidies are an investment, yielding a positive return, but that argument focuses on government tax revenues and economic outputs, as opposed to children’s and families’ well-being.
The government’s role should be to protect environments in which families can pursue the choices that they desire instead of those that certain politicians desire. Taxpayer-subsidized child care would instead drive up child care costs, limit choices, and unfairly shift the burden to families who do not use child care.
2. Unprecedented Education Spending and Massive New Government Programs
Universal Preschool—The American Families Plan would spend an astounding $200 billion on “free” universal preschool for all 3-year-old and 4-year-old children, based on the premise that children benefit academically from preschool. However, the most rigorous research shows that government preschool programs consistently fail to produce any sustained benefits for children and actually have some negative effects.
We don’t have to imagine what Biden’s universal preschool plan would look like, as Americans already have half-a-century of evidence on the ineffective Head Start program. A 2021 study by the U.S. Department of Health and Human Services found that Head Start had little to no impact on the cognitive, social-emotional, and health outcomes of participants. The fact that Head Start is the closest existing analog to any new or expanded federal preschool program does not inspire confidence.
“Free” Community College—The American Families Plan includes an unprecedented $109 billion proposal to finance two years of “free” community college, available to first-time students and “workers wanting to reskill.” This is a questionable investment.
The completion rate stands at just 34% for community college students. To improve these statistics, the proposal aims to send an additional $62 billion to community colleges to increase retention and completion. After decades of lackluster outcomes, more federal spending is unlikely to improve performance.
3. Permanent Expansion of Obamacare Subsidy Increases
The American Families Plan would make permanent a $40 billion expansion of Obamacare that Biden signed into law in March 2021, which is set to expire in December 2022. This is a costly and unjustified government incursion that further subsidizes health insurance companies that neither appreciably reduces the number of uninsured nor boosts economic recovery.
It also does nothing to address the real problems behind Americans’ top concerns over rising health care costs—simply sending more money to health insurance companies to benefit them at the expense of taxpayers.
The subsidies could also threaten employer-sponsored coverage for millions of Americans, forcing them into Affordable Care Act plans that generally have narrower networks, higher cost-sharing, and higher deductibles than their job-based insurance.
4. Permanent Expansion of the Welfare State
Biden is proposing that two major means-tested welfare programs be permanently expanded. First, the administration would extend the expansion of the refundable child tax credit program until 2025. This change is depicted by the Biden administration as providing tax relief to families; in reality, most of the proposed cost would send unconditional monthly welfare checks to families who owe no income tax.
Second, the administration would increase the refundable earned income tax credit, also a cash welfare check, for childless workers.
These proposed changes would make existing problems in the welfare state worse by undermining work and marriage.
We’ve been down this road before. For example, before the bipartisan welfare reforms of 1996, government benefits discouraged work among low-income parents: nearly 9 in 10 families on welfare were workless. Most of these families were stuck in long-term poverty. Two-thirds of families received welfare benefits for more than eight years. Unwed births rose year over year for decades. And all of this made intergenerational child poverty worse: 1 in 7 children were dependent on welfare benefits.
The 1996 welfare reforms broke this cycle of despair. It required recipients to work or prepare for work, and it was dramatically successful in reducing child poverty to an historic low. Policymakers should reject Biden’s plan to overturn the fundamental principles of this reform and to lay the groundwork to replace it with the second-largest increase in welfare in American history. Otherwise, we will see fewer low-income Americans rise and flourish.
5. Tax Increases That Hurt Families
To finance this plan, Biden proposes tax hikes that would harm the economy. The fact sheet announcing the American Families Plan misleadingly claims that the president’s new welfare spending proposals amount to “tax cuts for America’s families and workers.” In reality, the plan includes significant increases in the taxes paid by America’s families.
Discouraging Investment by Increasing Taxes on Capital Gains and Dividends—The Biden plan would increases the tax burden on capital gains and dividends to 43.4% (including the Obamacare net investment tax) for households with incomes of more than $1 million.
Analysis from the Tax Foundation shows that this tax increase would actually reduce federal revenue by $133 billion over the next decade because the high taxes would disincentivize people from realizing gains and paying the tax. This policy would reduce the size of the economy, reduce wages, and cost jobs.
Elimination of Stepped-Up Basis: A “Second Death Tax.”—The plan would increase the tax burden on property left by deceased relatives to the next generation.
Under current law, when the owner of a piece of property dies and transfers it to an heir, the cost basis of the property is stepped up to its current fair market value for the purposes of capital gains taxation. The president’s proposal would eliminate the stepped-up basis for assets that are asserted to have a gain of $1 million or more.
A major problem with repealing stepped-up basis is its actual implementation. It could be difficult or even impossible to go back in time and correctly assess the original value of an old asset. A similar policy was in law for a short period in the 1970s but was quickly repealed. Even The New York Times called it “unfair and impossibly unworkable.”
The proposal has been decried as a “second death tax.” Instead of burdening families when a loved one dies, Congress should repeal the death tax. Repealing stepped-up basis would harm American families attempting to live the American dream by leaving their next generation better off.
A Better Way Is Needed
The president suggests that his plan is intended to help American families. In reality, it will undermine them.
Under the plan, the federal government would take more of Americans’ incomes and then redistribute the money in the form of benefits that politicians—not families—create, approve, and control. Such an approach would create new problems for families, leaving them with fewer opportunities.
A better, different approach is needed. Lawmakers should pursue reforms that will empower, not cripple, American families. The Heritage Foundation has a full report that outlines how Congress can implement a truly pro-family plan—read it here.
True policy reforms should support family formation and stability. Eliminating marriage penalties in our welfare system, encouraging flexibility in work and child care, offering more education options, and increasing access to better private health plans are promising starts.
Marie Fishpaw is director of domestic policy studies at The Heritage Foundation’s Institute for Family, Community, and Opportunity.
Lindsey M. Burke is director of The Heritage Foundation’s Center for Education Policy and Mark A. Kolokotrones fellow in education. Read her research.
Doug Badger is a former White House and Senate policy adviser and is currently a senior fellow at the Galen Institute and a visiting fellow at The Heritage Foundation
Matthew Dickerson is the director of the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation.
Leslie Ford is a visiting fellow in Domestic Policy Studies at The Heritage Foundation. Read her research.
Rachel Greszler is research fellow in economics, budget, and entitlements in the Grover M. Hermann Center for the Federal Budget, of the Institute for Economic Freedom, at The Heritage Foundation. Read her research.
Robert Rector, a leading authority on poverty, welfare programs and immigration in America for three decades, is The Heritage Foundation’s senior research fellow in domestic policy.