We now have a general outline of what President Joe Biden will be talking about in his largely virtual “non-State-of-the-Union” speech today. If you guessed tons of additional new federal spending and massive tax hikes, give yourself a cookie. Dubbed the “American Families Plan,” this package would set an additional nearly two trillion dollars of magical money on fire and fulfill a number of Democratic wishlist items. The key word involved with all of this spending is “free,” as you might expect. Free universal preschool, free community college, free childcare, and other free stuff as far as the eye can see. And how does Uncle Joe plan on paying for all of this “free stuff?” By hiking taxes on the most successful Americans, in some cases driving the total tax burden on high earners north of 50%.Amazingly, Biden’s team is already preparing for a significant backlash from the left-wing of his own party because no amount of free stuff is ever enough. There’s also a poison pill buried in this proposal that may sink it with members of his own party before the ink is even dry on it. (NY Post)
President Biden on Wednesday rolled out the blueprint for another massive tax-and-spend bill, dubbed the American Families Plan, which would boost federal spending by $1.8 trillion through tax hikes on high-income Americans and investors.
The package includes $511 billion for education, including universal preschool for 3- and 4-year olds and free community college, and $225 for childcare, including a subsidy that would cap expenses for most workers at 7 percent of income. The plan calls for $225 billion to subsidize 12 weeks of paid parental and sick leave and $45 billion more for food stamps and school food programs.
About $800 billion would go toward tax credits, including $200 billion for Obamacare users.
Before getting to what’s in the bill, we should make note of what’s not in it. Despite repeated demands from Democrats in highly-taxed blue states, Biden’s proposal doesn’t repeal the $10,000 cap on state and local tax (SALT) deductions put in place during Donald Trump’s presidency. This has led several Democratic members of Congress from New York and New Jersey to declare that the proposal is a non-starter for them unless that limit is removed.
We’ve talked about the SALT deduction cap here in the past and it remains a curious hill for the Democrats to die on. As any tax consultant will tell you, that limit doesn’t affect anyone in New York who earns less than roughly $160K for individual filers and nearly a quarter-million for joint returns. So we’re only talking about less than ten percent of the population. But those are also some of the people who are frequently maximum donors to political campaigns and money still talks.
In addition to increasing the top income tax rate, this proposal would nearly double the current capital gains tax for higher earners. For people in New York State, after you add in all of the new state taxes being rolled out, those people will be facing a total tax burden of 52.2%. Think about that for a moment. The government will literally be taking more than half of what you earn.
As to the spending in the bill, it’s really all over the map. Some of the money would supposedly reimburse employers after the government forces them to offer both parents of newborn children up to three months of paid leave. How parents receive and pay for childcare would also be “reimagined,” though that’s going to be a complicated trick to pull off, considering how much childcare is provided by private tutors and domestic workers.
Some of the spending is more understandable and justified. There’s money in there for food stamps and school meal programs. Both of those are perpetually underfunded and there are a lot more people relying on such assistance because of the pandemic. Also, the price tag on that part of the proposal isn’t terribly high.
All of this remains entirely hypothetic, however, at least for now. We’ve already heard King Joseph weigh in and say that he probably couldn’t support any new spending packages that include huge tax hikes. And as I already mentioned, the lack of a repeal of the SALT deduction limit would cost Nancy Pelosi some votes when she’s already operating with almost no room for defections from her own ranks. It’s a safe bet that this plan will wind up bogging down in negotiations just like the current massive tax-and-spend package under discussion has become. But if nothing else, it should make for some good liberal applause lines during the speech today.