President Biden on Wednesday will present his third $1 trillion+ package to Congress since taking office, asking for $1.8 trillion in new spending to expand the American education system, provide more help for childcare and create millions more jobs.
The big picture: Biden is also proposing a series of tax hikes on the rich, which his administration vows will not hit Americans who make less than $400,000 and households with less than $1 million in capital gains.
- Administration officials insist that Biden’s American Families Plan — with $1 trillion in new spending and $800 billion in tax breaks — will be entirely offset by new revenue.
- Most of the $1.8 trillion cost will be covered by increasing personal taxes on individuals, but officials will also need to draw some revenue from the corporate tax increases that Biden proposed earlier this month.
- The White House is calculating additional revenue over 15 years, while the spending proposals mostly cover eight years, an accounting method questioned by Republican lawmakers — and privately, by some Democrats.
Driving the news: The bulk of Biden’s proposals have been telegraphed for several days and largely reflect the promises he made during the campaign. Those "Build Back Better" proposals sought to use the COVID-19 crisis to reimagine the American economy.
- But several campaign promises are missing from this proposal, including efforts to lower the cost of prescription drugs and expand Medicare eligibility — omissions that will aggravate his party's progressive base.
- Biden didn’t include a campaign promise to increase the estate tax rate from 40% to 45% and lower the exemption from $11 million to $3.5 million in this package.
- Wednesday's proposal comes after the $2.25 trillion American Jobs Plan the president proposed earlier this month. That focuses on physical infrastructure, like bridges and broadband, and what White House officials call human infrastructure, like caregivers and health care.
Zoom in: A centerpiece of this latest proposal is $310 billion to offer four more years of free education for all Americans, with two years of universal preschool and two years of free community college, regardless of income levels.
- Biden is also building on a popular feature of the $1.9 trillion relief package he signed last month by proposing to extend child tax credits by up to $3,600 a year through 2025.
- And Biden wants $225 billion to improve childcare and ensure that low and middle-income families don’t spend more than 7% of their income on childcare.
- Biden also wants to make permanent tax credits for health insurance in Obamacare exchanges that were passed in last month's American Rescue Plan.
Between the lines: To pay for his plans, Biden is essentially relying on five new lines of revenue.
- Raise the top marginal tax rate from 37% to 39.6% for Americans who make more than $400,000.
- Treat capital gains as regular income, and tax it at the highest rate plus a 3.8% Obamacare surcharge for a total of 43.4% on households with more than $1 million in investment income.
- Tax capital gains at death and eliminate the so-called “stepped-up” basis that allows estates to revalue assets after their original owner dies.
- Inject some $80 billion into the IRS to audit high-income earners and collect an additional $700 billion by increased tax compliance over 10 years.
- Draw on any leftover revenue from increasing the corporate tax rate, as Biden previously proposed in the American Jobs Plan, including a global minimum tax and raising the rate from 21% to 28%.
What we are asking: Will the proposed tax increases, especially on capital gains, be retroactive and capture all the massive equities’ gains in 2021?
- Is the cutoff for married couples, filing as one household, $800,000 or $400,000?
The bottom line: After rushing a $1.9 trillion stimulus package through Congress on partisan lines, Biden is now signaling he wants to work with Republicans and Democrats to spend an additional $4 trillion on specific programs.
- His speech Wednesday night will be an opening bid, but officials suspect that any final legislation, if there is a final legislation, will look different.