The Biden Administration recently unveiled the American Rescue Plan, a package of payments, tax credits, benefit increases and extensions, grants, loans, and other support aimed at countering the impact of the COVID-19 pandemic on the U.S. economy. Many of these programs are intended to run through this summer, which should hopefully buy enough time for widespread vaccinations to take place.
At a cost of $1.9 trillion, the American Rescue Plan would be the second-largest stimulus package in U.S. history (the first was the CARES Act of 2020). In total, the Rescue Plan would appropriate more than $1 trillion for direct financial relief to Americans.
American Rescue Plan Details
Direct payments: $1,400 payments to qualifying American adults and dependents based on income thresholds.
Unemployment benefits: Increase federal supplemental compensation to state-level payments from $300 per week to $400; extend benefits through September 2021 from the current mid-March expiration date.
Housing relief: $30 billion in funding for rent, energy and water assistance; extend a moratorium on evictions and foreclosures, as well as forbearance for government-backed mortgages, through September 2021 (currently set to expire in March).
Child tax credit: Increase to a maximum $3,600 for children up to age 5, $3,000 for children ages 6 through 17, and fully refundable even if an American’s tax burden is less than the credit. This is higher than the existing $2,000 per child dependent through age 16, and up to $1,400 refundable.
Earned income tax credit: Raise maximum credit for adults without children to $1,500 and with a higher income limit of roughly $21,000. This is up from $530 and $16,000, respectively.
Child and dependent care tax credit: Expand to cover as much as 50% of childcare expenses up to $4,000 per child, with a maximum credit of $8,000 that’s fully accessible and refundable for families earning up to $125,000, and fully phased out at $400,000. This is up from 35% of expenses up to $3,000 per child, with a maximum credit of $6,000.
Small business funding: $15 billion in grants; $35 billion as leverage toward $175 billion in community-sponsored small business loans.
State and local funding: $350 billion for state and local governments; $20 billion for tribal governments; $20 billion for public transportation.
Healthcare funding: $160 billion for COVID-19 vaccine distribution, testing and supplies; extends subsidized health coverage through September 2021 for Americans that have lost employer-based coverage; increase the premium tax credit for health insurance exchanges to limit costs to a maximum 8.5% of income.
Education funding: $170 billion toward the re-opening of schools and funding for post-high school education; $25 billion directed toward childcare providers.
Paid leave: Those impacted by COVID-19—either unable to work due to a quarantine requirement, caring for family members, or caring for children in the event of a daycare or school closure—would be eligible for a weekly benefit of up to $1,400 through September 2021. This benefit would be coupled with a 100% refundable tax credit to offset the cost of paid leave for businesses with less than 500 employees.
Nutrition support: A 15% increase in the Supplemental Nutrition Assistance Program would be extended through September 2021; $3 billion in funding for the Special Supplemental Nutrition Program for Women, Infants, and Children program; $1 billion in funding for the Temporary Assistance for Needy Families program.
Sources: BuildBackBetter.gov and Tax Foundation
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The package is the new administration’s top priority, and Biden has emphasized that he intends to seek bi-partisan buy-in to the Rescue Plan.
In order to pass the U.S. Senate, ten Republican senators would need to approve it (assuming the entire Democratic caucus also votes in its favor). If 60 votes are unattainable, Democrats can use the reconciliation process in the Senate to pass legislation with a simple majority. Reconciliation measures are limited to budget-related legislation, meaning they must change the level of spending, revenues or the debt limit. Furthermore, each of these three budget categories may only be considered via reconciliation once per fiscal year.
The reconciliation path is complex, so it may run up against the March-end expiration of several of the underlying programs. A reconciliation would permit the Senate up to 20 hours to debate the package. It also restricts the types of amendments that can be introduced.
If no Republicans vote in favor of the legislation, Democrats would need to vote as a bloc, and Vice President Harris’s vote would determine the outcome in the event of a tie.
Looking into the long-term
The initial details of the Biden Administration’s Economic Recovery Plan should be made available later this month, coinciding with the President’s address to a joint session of Congress. The plan is expected to prioritize U.S. manufacturing and supply chains, along with the innovative roles played by small businesses and technology; infrastructure modernization, with a dedicated focus on clean energy investments; and caregiving and education, particularly to ease burdens on working parents.
Of course, these plans all come with a price. And, while they are expected to pay off in the long term, they will leave a large fiscal hole in the shorter term. So, high earners can expect their federal tax bills to increase. While there have not yet been any announcements about how the tax code may be amended, the Biden campaign listed several key points that hint at what may come.
- Repealing the $10,000 cap on state and local (SALT) tax deductions
- Tax credits will prioritize “retirement savings, child care and first-time home purchases”
- Program funding will come from higher taxes for corporations and households with annual income above $400,000
- Capital-gains taxes would increase for households with income over $1 million
What does this mean for you?
Now is the best time to review your financial situation and make any adjustments to aspects of your plan that may be affected by higher taxes, especially your investment portfolio and your estate plan.
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