Explaining President Biden’s “American Family” taxing plan: advantages, disadvantages and loopholes

Updated: May 17, 2021


US President Joe Biden proposed the “American Family Plan” in his first Congressional address earlier this week, a novel tax scheme aiming to devote a roughly $1.5 trillion package to fund free kindergarten education and community college tuition. The program is said to extend the child tax credit and create a national paid leave program. The “key piece” of paying this federal program is that of a near doubling of the tax that the wealthy economic strata pay on their gains when selling stocks and other investments. Though the program seems to solve societal issues concerning infant care and education, experts have revealed several issues it entails as well as loopholes it does not cover.

In his speech, Biden announced a near doubling of levies on capital gains for people earning more than $1m while claiming that “It is time for corporate America and the wealthiest 1% of Americans to just begin to pay their fair share”. Currently, that income is taxed at a rate of 20% for most Americans, which is lower than the rate the majority of US citizens pay on their income from working and less than the 37% that top-earning Americans pay on their income. Under this temporary scheme, families receive a Child Tax Credit (CTC) of $3,6000 for children below the age of six and $3,000 for children between the ages of six and seventeen, monthly. Even the poorest families will be eligible for these benefits as they do not phase in based on earnings.


Based on the AGWEB, some benefits of the American Families plan include free preschool for all three and four-year old children as well as free communicate college education for the first two years, both in conjunction with the states. There will be direct assistance to historically black and tribal colleges and universities along with institutions serving Hispanics, Asian-Americans and Native American Pacific Islanders. Moreover, the scheme will provide direct support for families who need child care, meaning that child care services could be capped at 7% of gross income for some families under a certain income. Until 2025, there will be an extension of child tax credit and income tax credit. Teachers will be offered payments and incentives and healthy school meals will get ameliorated on a nationwide level. Not only will the government reform unemployment assurance through the plan but it could also make the increased child care credits permanent.

This new taxing proposal will ultimately reverse Donald Trump’s tax cuts embodied in the Tax Cuts and Jobs Act of 2017, which was proven beneficial for corporations and everyone across-the-board tax rate reductions.


Critics have characterised the scheme as being “unclear” and a “moral obscenity” towards the poor as it is understood that the poorest will mainly benefit from sliding-scale subsidies, something that could potentially create a number of horizontal asymmetries and bureaucracy. Moreover, it is said that the child care benefits don’t provide additional support to parents who proceed with child care at home, making them unable to enjoy the subsidies.


Joe Biden promised that the government is “going to get rid of the loopholes that allow Americans who make more than a million dollars a year and pay a lower tax rate on their capital gains than Americans who receive a paycheck”. However, according to a study published by the University of Pennsylvania’s Wharton Business School, wealthy Americans will avoid paying 90% of the estimated $1 trillion increase in investment taxes included in Biden’s proposal by taking advantage of the US taxation system. “There are a lot of games you can play to avoid paying this tax”, said John Ricco, director of policy analysis at the Penn Wharton Budget Model. As inspected by CBS journalists, the wealthy can do so by pairing gains in years when they have losses elsewhere in their economic activities and thus lower their taxable net gains for the year. They can also sell off investments gradually to minimize the amount of tax owed in a year. The Wharton researchers concluded that tax avoidance could cut nearly $900 billion of what the proposed increase on capital gains taxes could raise for the government. Finally, Mr. Bidens proposal presents additional loopholes for inherited incomes.

 

SOURCES:

https://www.cbsnews.com/news/biden-capital-gains-tax-wealthy/

https://nsjonline.com/article/2021/04/johnston-how-one-biden-tax-proposal-will-hit-the-middle-class-hard/

https://www.peoplespolicyproject.org/2021/04/28/problems-with-bidens-american-family-plan/


PICTURE: https://www.forbes.com/sites/taxnotes/2021/05/11/analyzing-the-tax-provisions-of-bidens-american-families-plan/?sh=6fbf433b4d88




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