Working families would get new tax credits and help paying for child care and healthcare, while the wealthy would get a raft of new taxes under President Joe Biden’s budget plan.
The budget, a wish list of policy goals released Thursday, stands little chance of passing the Republican-held House of Representatives. The budget revives familiar Biden administration proposals: paid family and medical leave for workers, subsidies for child care, universal pre-school, and expanding the child tax credit. It would pay for these programs by raising taxes on the wealthy, including a new minimum income tax on billionaires and quadrupling last year’s new tax on stock buybacks.
Biden’s proposal lays the groundwork for high-stakes negotiations over the federal budget at a time when the U.S. has once again exceeded its congressionally-set borrowing limit and is barreling toward a debt default later in the year. The country risks economic catastrophe if the government runs out of cash and lawmakers fail to reach an agreement allowing the Treasury to resume borrowing money.
Many items in the tax proposal would directly impact household finances:
Expanding the Child Tax Credit
Biden’s plan would restore the temporary pandemic-era changes to the tax credit that boosted it from a maximum of $2,000 to $3,600 per child, and made its full value available to families whose income was previously too low to qualify for it. The credit would also change from a single tax-season payout to a monthly check worth up to $300 per child.
The expanded child tax credit was only in effect during 2021 and greatly reduced childhood poverty and hunger—both of which rose after the changes expired, research has shown.
The federal government would subsidize states that offer free pre-K classes for young children under Biden’s proposal. The version of the plan put forward in 2021 would have saved a typical family $13,000 a year, the White House estimated.
Paid Family and Medical Leave
A new family and medical leave program would guarantee workers up to 12 weeks of paid leave to receive medical care for serious illness or to care for children or sick family members, plus a week of paid sick leave.
Permanent Healthcare Subsidies
A pandemic-era expansion to Affordable Care Act coverage would be made permanent. The additional subsidies have reduced premiums for people with Obamacare plans by an average of $800 a year, the White House said in a fact sheet on the plan. The subsidies are currently set to expire in 2025.
Reduced Drug Costs
Medicare would be able to negotiate prices for more drugs, lowering out-of-pocket costs for beneficiaries. The commercial drug market would also be affected, with drugmakers banned from raising prices faster than inflation, and insulin costs capped at $35 a month, just like they are currently for Medicare recipients.
These and other programs would be paid for by a host of tax increases:
A New ‘Billionaire Tax’ on High Earners
Biden would impose a 25% minimum income tax on the top 0.01% of income earners—an effort to close loopholes that enable the extremely wealthy to pay a lower effective tax rate than middle-class workers. An earlier version of this proposal had called for a 20% minimum income tax for people with more than $100 million in assets.
Raise Corporate Taxes
A Trump-era tax cut would be partially reversed, raising the corporate income tax rate to 28% from 21%—still less than the 35% that corporations paid before 2017. On top of that, multinational companies would have to pay 21% on their overseas earnings, up from 10.5%.
- The 1% tax on stock buybacks, created by a Biden bill last year, would be raised to 4%.
- Trump tax cuts on capital gains would be repealed, raising the top capital gains tax rate back to 39.6% from 20%. The controversial carried interest loophole, which allows hedge fund managers to pay lower taxes, would also be eliminated.
- People making $400,000 a year or more would see their Medicare taxes raised to 5% from 3.8%,
- The 1031 “like-kind exchange” loophole, a tax break that benefits real estate investors, would be eliminated.
- People earning $400,000 a year or more would face new restrictions on how much they could contribute to tax-favored retirement accounts.
- Losses when trading cryptocurrency would be treated more like other investments, eliminating the ability for crypto traders to take advantage of losses.
Opposition Calls for Spending Cuts
Republicans, who have yet to counter with their own budget proposal, have said they won’t raise or suspend the debt ceiling without spending cuts. For its part, the White House has said it won’t negotiate over the debt ceiling, and that it should be raised unconditionally.
Both sides have ruled out cuts to Social Security and Medicare, and neither has shown any appetite for reducing military spending. Other social programs have been the battleground.
Republican proposals have been a stark contrast to Biden’s plan. Republicans have pushed for tax cuts, and said government programs, including aid to the poor, should be curtailed in the name of reducing deficits. They say their goal is to balance the budget, pointing to the growing national debt.
The new taxes in Biden’s plan would more than pay for the social program spending, reducing the deficit by nearly $3 trillion over the next 10 years, the White House said.
Correction - March 10, 2023: This article has been corrected after it misstated which program Republican and Democrat leaders have agreed not to cut: it is Medicare.