Highlights of the American Families Plan
The White House released details on President Joe Biden’s new $1.8 trillion American Families Plan. The proposal includes many provisions that promise to make good on the President’s campaign promises. It combines $1 trillion in spending with $800 billion in tax cuts and credits for middle- and lower-income families.
National Paid Family and Medical Leave
Biden’s proposal would guarantee 12 weeks of paid parental, family and personal illness/safe leave. The pay would be equal to two-thirds of the worker’s average weekly wages, up to $4,000 per month. Workers in the lowest wage cohort would have 80% of their average weekly wages replaced.
Expanded Child Tax Credit
The Child Tax Credit was temporarily expanded by the American Rescue Plan Act of 2021 to $3,000 per child ages 6 to 17, and $3,600 for children under 6. The plan also gives the option of receiving the credit through monthly payments starting in July. The American Families Plan would keep these changes to the Child Tax Credit through 2025.
Child and Dependent Care Tax Credit
The American Rescue Plan Act expanded the Child and Dependent Care Tax Credit to as much as 50% (for families making less than $125,000 per year) of spending on qualified child care costs for children under the age of 13, (up to a total of $4,000 for one child or $8,000 to two or more children) and changed the credit from nonrefundable to refundable. The American Families Plan would make these changes permanent.
Federal Income Tax Rate
The top income tax rate would return to 39.6% (up from 37%) for those with income greater than $400,000.
Capital Gains Tax Rate
Households earning more than $1 million would pay a higher taxes on capital gains. The taxpayers would be subject to the top marginal rate for income of 39.6% for long-term capital gains.
The step-up in basis of inherited assets would be repealed. Estates would be required to pay taxes on unrealized gains of more than $1 million ($2.5 million per couple) when combined with existing real estate exemptions. Though, family-owned businesses and farms would not have to pay taxes when passed on to heirs who continue to run the business.
Hedge fund and private equity partners would be required to pay ordinary income rates on their carried interest instead of being treated as capital gains.
The 1031 like-kind exchange rule, a tax break that permits real estate investors to defer taxation when they exchange property for gains greater than $500,000, would also end.
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