Most importantly for independent agents, the president’s plan does not call for any changes to the 20% tax deduction for small businesses. The plan is, however, expected to see several changes.
Yesterday, President Biden unveiled the details of his American Families Plan. The proposal follows President Biden's sweeping $2 trillion infrastructure proposal (the American Jobs Plan), which will mostly be paid for with tax increases on corporations. The new American Families Plan includes an additional $1.8 trillion in spending which is largely offset by tax increases for individuals and pass-through businesses.
In terms of spending, the American Families Plan calls for $225 billion for childcare, $225 billion to create a national comprehensive paid family and medical leave program, $200 billion for free universal preschool and $45 billion toward meeting child nutritional needs.
Additionally, the plan calls for $109 billion toward ensuring two years of free community college for all students, about $85 billion for Pell Grants, a $62 billion grant program to increase college retention and completion rates, and a $39 billion program that gives two years of subsidized tuition for certain students enrolled in a four-year historically Black college or university, tribal college or university, or minority-serving institution.
Importantly for the healthcare marketplace, the American Families Plan also includes $200 billion to make the provision from President Biden's COVID-19 relief package, which expands Affordable Care Act premium tax credits, permanent. President Biden's plan would also extend the child tax credit increases from his COVID-19 relief package through 2025 and make the Child Tax Credit fully refundable on a permanent basis. Additionally, the plan would make the earned income tax credit for childless workers permanent.
In terms of tax increases, the American Families Plan would increase the top marginal tax rate for individuals to 39.6% from the current 37%. Additionally, for all households making more than $1 million, the plan would tax capital gains as ordinary income at a rate of 39.6%, up from the current rate of 20%. When added to the existing 3.8% Medicare tax on investment income, the new top-level rate for wealthy individuals would be as high as 43.4%.
The president's plan also calls for making sure that the 3.8% tax applies more consistently to those making more than $400,000, including pass-throughs, but does not yet go into specifics on how. Furthermore, Biden's plan calls for ending a tax preference known as "stepped-up basis" that allows people to pass investments to heirs tax free at the time of their death. In all, the Biden administration estimates their plan would raise about $1.5 trillion across the next decade.
Notably, for independent agents, the president's plan does not currently call for any changes to the 20% tax deduction for small businesses that was created in former President Trump's Tax Cuts and Jobs Act. However, it is important to note that President Biden's plan is expected to see several changes as Congress, and especially congressional Democrats, negotiate with the White House. With that in mind, the Big “I" remains vigilant and continues to strongly advocate against Congress making any negative changes to the small business pass-through deduction.
Soon after President Biden's joint address to Congress, Sen. Tim Scott (R-South Carolina), a former insurance agent and 2018 Big “I" Legislator of the Year, gave the Republican response. In his remarks, Sen. Scott pushed back on President Biden's big spending proposals including his COVID-19 relief package which was enacted earlier in the year and his American Jobs Plan and American Families Plan which are being considered now. Sen. Scott noted, “We should be expanding options and opportunities for all families—not throwing money at certain issues because Democrats think they know best." As for President Biden's proposed plans to pay for the spending, he called them, “the biggest job killing tax hikes in a generation."
As the American Families Plan makes its way through Congress, we will continue to provide members with updates in the weekly News & Views e-newsletter.
Wyatt Stewart is Big “I" assistant vice president of federal government affairs.