On April 28, 2021, President Biden introduced the American Families Plan during a joint session of Congress. The proposal outlines substantial tax increases on high-income households, while expanding benefits and tax breaks for low- and middle-income families.
The $1.8 trillion plan includes:
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$1 trillion in investments
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$800 billion in tax cuts
Key Investments in the Plan
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Free universal preschool
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Two years of free community college
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Programs to address teacher shortages
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Expanded childcare assistance
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School-based nutrition programs
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A national paid family and medical leave program
Proposed Tax Breaks for Low- and Middle-Income Families
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Extend the expanded Child Tax Credit (from the American Rescue Plan Act) through 2025 and make it permanently refundable
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Permanently extend the Child and Dependent Care Credit and make it refundable
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Permanently extend the Earned Income Tax Credit (EITC) for childless workers
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Extend the Affordable Care Act (ACA) premium tax credits introduced in the American Rescue Plan
Proposed Tax Increases to Fund the Plan
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Increase the top individual income tax rate to 39.6% for households earning over $400,000
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Raise the long-term capital gains and qualified dividends tax rate to 39.6% for those earning over $1 million
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Reduce the step-up in basis at death for gains over $1 million (or $2.5 million per couple, with real estate exemptions), taxing gains on inherited assets not donated to charity
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Eliminate carried interest treatment, taxing it as ordinary income
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Limit like-kind exchanges on real estate to $500,000 in gain deferral
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Make the excess business loss limitation permanent
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Apply the 3.8% Net Investment Income Tax (NIIT) consistently to individuals earning over $400,000
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Increase IRS enforcement and audits focused on higher-income taxpayers
The administration estimates these tax changes could raise approximately $1.5 trillion over 10 years.
What’s Missing?
Notably absent from the plan:
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Estate tax exemption reduction
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Estate tax rate increase to 45%
Although these were part of Biden’s campaign platform, they may still be introduced in future legislation. While the estate tax represents a small portion of federal revenue, its potential reduction remains a priority for many Democratic lawmakers.
Outlook and Planning Considerations
While ambitious, the American Families Plan is unlikely to be enacted exactly as proposed. Retroactive application is also unlikely. However, some level of tax increase is probable.
What Taxpayers Should Do Now:
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Review current estate plans
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Discuss wealth transfer strategies
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Consider timing of income and deductions
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Evaluate options for capital gains realization and deferral
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Stay informed on legislative developments
How We Can Help
Our Private Client Services team offers comprehensive planning for individuals and families, including:
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Tax and estate planning
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Charitable giving strategies
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Retirement and compensation planning
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Cross-border consulting
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IRS audit assistance
We’ll help you stay informed, model “what-if” scenarios, and prepare a proactive plan tailored to your goals.
Contact your Private Client Services advisor today to review your options and prepare for what’s ahead.