President Biden released the provisions of his American Family Plan last week, and just like with his American Jobs Plan, the details are scant and the price tag is high.
Even given the limited details, the plans ought to give everyone pause — and by “everyone” I don’t just mean conservatives who oppose massive welfare state expansions, but also those who agree with the objective of an increase in the social insurance system in America. There are some serious flaws worth looking at, even with the few details we have of the plan.
Proposal 1: Free Daycare
Biden splits out his childcare proposals into two pieces, “free preschool” and “affordable childcare.” The proposal claims families will be able to “choose the settings that work best for them,” but the proposal is very specific about what this program will look like, with teachers with “job-embedded coaching, professional development, and wages that reflect the importance of their work.”
What’s more, the proposal states that “All employees in participating pre-K programs and Head Start will earn at least $15 per hour, and those with comparable qualifications will receive compensation commensurate with that of kindergarten teachers.” This means only some preschool programs will be eligible, rather than providing working parents real choice for their child care.
Biden’s “affordable child care” promises “low and middle-income families [will] pay no more than 7 percent of their income on high-quality child care, saving the average family $14,800 per year on child care expenses.” The plan doesn’t specify whether families that earn more will be included at a lower benefit level or not.
It promises more family choice, be it child care centers or family child care providers, or Early Head Start, but similar proposals generally use the phrase “high quality” to exclude family child care centers, to require a college education, and, in practice, despite the phrase “developmentally appropriate,” to create a very academic curriculum focused on early reading and math.
Unlike childcare subsidies in other Western countries, there is no benefit for stay-at-home parents, and certainly no option for families for whom a nanny or nanny-share is the most appropriate choice.
In addition to this promise of a 7 percent maximum, the plan also proposes a boost in the tax credit for child care expenses, with a 50 percent reimbursement, up to $4,000 for one child or $8,000 for two or more children, for families earning up to $125,000, and a phase-out afterward.
Proposal 2: Free Community College
The proposal promises socialized community college for three or even four years, for “first-time students and workers wanting to reskill.” There is no information on how they would differentiate between deserving and undeserving students or whether any community college class, whether for career training or personal enjoyment, would be free to the consumer.
The proposal also spends money in other ways, including $62 billion in grants for “completion and retention activities,” and two years of unspecified “subsidized tuition” for students from families earning less than $125,000, at Historically Black Colleges and Universities, Minority Institutions, and Tribal Colleges and Universities.
Proposal 3: Paid Leave
Biden’s proposal is not just a “maternity leave” or even a “parental leave” proposal. Here are all the circumstances in which workers would qualify for leave under his plan:
- To bond with a new child
- Care for a seriously ill loved one
- Deal with a loved one’s military deployment
- Find safety from sexual assault, stalking, or domestic violence
- Heal from their own serious illness
Under these circumstances, a worker would be eligible for 12 weeks of paid leave, with two-thirds of pay covered up to $4,000 per month, or 80 percent of pay for “the lowest wage workers.” Workers would also get three days of bereavement leave per year.
The proposal is estimated to cost $225 billion “over a decade,” but here’s the catch: the program would not provide its full benefit until year 10, meaning that it engages in a deceptive bait-and-switch, substantially understating its costs so as to appear to be “fully funded” over 10 years based on the proposal’s tax increases.
Proposal 4: Food Benefits
The proposal would expand summer Electronic Benefit Transfer (EBT) to “all eligible children nationwide.” The benefit would give families a voucher equivalent to the amount that schools spend, per student — as if families were purchasing prepared meals rather than cooking at home, and disregarding the fact that families in need are already receiving SNAP benefits meant to cover their food needs.
The proposal would also expand the number of schools eligible for fully free school meals, meaning that even middle-class families, if their school has a 25 percent SNAP participation rate, will be getting free meals during the year and food vouchers during the summer.
Proposal 5: Child Benefits
Biden’s proposal would keep the “American Rescue Plan” child benefit boosts (from $2,000 to $3,000 per year) up to 2025, then make the “tax credit” fully refundable permanently. So far, so good. While there are open questions about whether these benefits are successful in supporting families without decreasing recipients’ willingness to work, there are a significant number of right-of-center folk on board with the principle of child benefits.
But, again, the spending boost lasts only until 2025, while the revenue forecasted to fund it is a 10-year projection. What’s more, when benefits are paid out on a monthly basis and on a “fully refundable” basis, they are not “tax relief.” They are child benefits, plain and simple.
Proposal 6: Unemployment Modernization and ACA Premium Subsidy Expansion
Depending on the particulars, unemployment insurance reform might be entirely reasonable.
The proposal related to health-care subsidies, however, is more complex. It would extend benefits that had been temporarily put in place in the American Rescue Plan, which itself a mixed bag.
One key problem with the Obamacare subsidies was a “cliff” at 400 percent of the poverty level; earn a dollar more and large sums of health insurance subsidy are lost. This proposal would permanently end that cliff with a gradual phase-out.
However, the Biden proposal would make several substantial boosts in benefits permanent. It would reduce the premium required, as a percent of income, fairly substantially. For example, from 6.52 percent of income to 2 percent of income for a person with 200 percent of poverty-level income, and it would change the “benchmark” plan that subsidies are based on, from a “bronze” to a “silver” plan.
Proposal 7: The Pay-Fors
Biden’s proposal claims to fund this plan through tax increases on “high-income Americans.” Part of this would be funded through increased IRS enforcement to prevent the wealthy from cheating on their taxes, but the majority would be funded through tax hikes: increasing the highest marginal tax rate to 39.6 percent, applying this same rate to capital gains for households with over $1 million in income, and ending the “step-up” adjustment that saves heirs from paying capital gains at the time of inheritance, above $1 million.
The Committee for a Responsible Federal Budget estimates these tax hikes would generate $800 billion in new revenue over 10 years. For the revenue from increased IRS enforcement, they have no independent forecast and rely only on the Biden administration’s claim that it will generate $700 billion net of the cost of increasing enforcement.
What’s Wrong With This Social Insurance Expansion?
Even if one is on board with substantial expansions in government provision of benefits, there are two big red flags to these proposals.
First, they play fast and loose with the spending. The new taxes are funded in a level manner over the next 10 years, but the benefits phase in. The Washington Post reports there are even more programs, and requirements of federal and state cost-sharing that would throw a monkey wrench into the whole proposal.
“States participating in the pre-K program would be expected to cover 10 percent of the costs at first, increasing their share to 50 percent. For community college education, the federal share ultimately would be 75 percent of the cost,” the Post reports.
C. Nicole Mason, the president and chief executive at the Institute for Women’s Policy Research, told the Post that to ensure 12 weeks of paid leave for all new parents, “the Biden administration would have to set aside more than double” the $225 billion Biden has budgeted. “The full cost of the plan from 2024 to 2033 is $460 billion, according to IWPR’s simulation model.” True social insurance programs do not rely on deficit spending, or on budget trickery.
Second, none of these programs are true “social insurance” programs. Social insurance programs operate by means of broad-based taxes and under the premise that if we all collectively benefit, we should all collectively fund the benefit. Even for benefits that are funded by general revenues rather than FICA-like taxes or “social charges,” true social insurance programs do not promise “something for nothing.”
None of the Western European social welfare democracies that progressives would have us emulate fund their government spending by taxes targeted at the rich. Their highest tax rate’s income level is far lower than in the United States, let alone in the version of U.S. tax rates that progressives would like to see.
Lastly, according to the CRFB’s projections, even the tax-the-rich hikes aren’t enough to fund these promises, producing a $300 billion deficit even after taking into account those hikes. Considering that Biden still has a considerable number of promises due for yet more “American Spending Plan” proposals, if they can’t even get the spending right despite their tax hikes, this is bad news indeed.