The American Families Plan – the Good, the Bad, and a lot of Debt

By June 4, 20212021, Money Moxie, Newsletter

The U.S. middle class is shrinking. There has been growing polarization as the rich become richer and the poor become poorer. The Biden administration is proposing the American Families Plan to be a “once in a generation investment to rebuild the middle class and invest in America’s future.”1 Here are some of the key points and their potential impact if the plan is enacted.

Making Education Affordable
The Biden administration plans to make education more affordable and expand opportunity. It is proposing two free years of community college and lower costs for minorities to attend college or a university. The amount of Pell Grants may increase. There could also be universal access to free pre-kindergarten (preschool).

Providing Economic Security for Families
The goal is to make it easier for everyone to have “the opportunity to join the workforce and contribute to the economy.” The plan does this by ensuring that no one earning under 150% of the state median income pays more than 7% of their income on high-quality care for children. The plan also provides paid family and medical leave to care for a new child or for a serious illness.

Expanding Tax Credits to Help Workers and Families
The plan uses tax credits to transfer wealth to those with lower income. It proposes tax credits of up to $8,000 to cover childcare expenses for a family with children under age 13 who make under $125,000. The income phase-out moves from $125,000 to $438,000. The plan also increases child tax credits for the next 5 years from $2,000 per child to $3,600 for children under age 6 and $3,000 if over age 6. It also makes permanent the earned income tax credit for low-income childless workers.

As with all legislation, there would be good, bad, and unintended consequences. We do need a workforce educated for our modern economy. Education is a key to opening opportunities.

Families with children stand to benefit, especially low-income families who would gain access to childcare.

There is some concern that the administration “strongly prefers getting kids out of the home and parents into the workforce.” There is also a concern that “too much focus on federal mandates might be detrimental to the effects on children who otherwise might be raised with the involvement and investment of a parent.”2

Taxes are another concern. Right now, the administration is only planning tax hikes for high-income earners, investors, and corporations. Additionally, the administration is planning an infrastructure spending bill. We are facing a massive national debt that is at $28 trillion and may reach $89 trillion by 2029.3

Social Security and Medicare also have to be fixed. There isn’t a way to tax the “wealthy” enough to account for all of the government spending. As taxes go up, the economy may slow. This could be the unintended consequence that we fear.

Most people agree with the stated goals of this plan: providing education and opportunity. We want to help families have financial security. The challenge is paying for these programs. It will remain to be seen what the final impact is on the economy, the lower and middle classes, and the family as the fabric of society.


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