Biden Administration Tax Proposals

By Meghan Andersson

On March 9, 2023, the Biden Administration released a $6.8 trillion budget proposal for fiscal year 2024.

The proposed budget includes almost $5 trillion in tax increases on high-income individuals and large corporations. Some of these tax proposals were included in President Biden’s 2021 Build Back Better plan.

According to multiple news sources, the budget proposal (including the tax increases) is highly unlikely to be adopted by Congress in its current form. However, it does set the stage for negotiations.

The following is a summary of the major tax proposals contained in the budget:

Corporate and International Tax

• Increase the tax rate for C corporations from 21% to 28%.
• Revise the global minimum tax regime and limit inversions, including the following:
  • Increase the global intangible low-taxed income (“GILTI”) rate from 10.5% to 14% (or 21% considering the proposed corporate income tax rate increase) and calculate the tax on a jurisdiction-by-jurisdiction basis.
  • Repeal the base erosion and profit shifting (“BEAT”) regime and replace it with an “undertaxed profits rule,” which would disallow deductions to domestic members of large foreign-parented multinational groups that are not subject to a 15% global minimum tax rate.
  • Repeal the 37.5% deduction for foreign-derived intangible income (“FDII”).
• Increase the stock repurchase excise tax (enacted last year) to 4% from 1%.

Individual and Pass-Through Business Tax

• Increase the top individual income tax rate from 37% to 39.6% for taxpayers whose taxable income exceeds $400,000 (or $450,000 for joint filers).
• Increase both the net investment income tax (“NIIT”) rate and the additional Medicare tax rate from 3.8% to 5% for taxpayers whose income exceeds $400,000.
• Expand the NIIT base to ensure that all pass-through business income (not just investment income) of taxpayers whose income exceeds $400,000 is subject to either the NIIT or the self-employment tax.
• Tax capital gains at ordinary income tax rates to the extent that taxable income exceeds $1 million.
• Impose a new 25% minimum tax on total income (including unrealized capital gains) for all taxpayers with wealth (assets minus liabilities) that exceeds $100 million.
• Require mandatory distributions from retirement account balances that exceed $10 million by taxpayers with adjusted gross income that exceeds $400,000 (or $450,000 for joint filers).
• Impose ordinary income tax on a service partner’s share of income from an “investment partnership” if their income (from all sources) exceeds $400,000, to prevent investment managers from claiming long-term capital gains treatment on carried interest income.
• Repeal gain deferral for like-kind real property exchanges to the extent that the gain exceeds $500,000 per taxpayer (or $1 million for married couples).
• Make permanent the excess business loss limitation (IRC Sec. 461(l)) and treat excess business losses carried forward from a prior year as current-year business losses instead of as net operating loss deductions.

Other Tax Proposals

• For trusts and estates, impose a capital gains tax on donors who transfer appreciated property by gift or on death (with certain exclusions), as well as other modifications to the estate and gift tax rules.
• Expand (and make permanent) the child tax credit; make permanent the expanded Earned Income Tax Credit for workers without children and certain health care premium tax credits; and create, extend, and expand various credits to support housing and urban development.
• Increase energy taxes, including the repeal of expensing for intangible drilling costs, the repeal of percentage depletion for oil and gas wells, and the imposition of a new 30% excise tax on electricity used for digital asset mining.
• Subject digital assets (including virtual currencies) to the wash-sale rule, which disallows losses if the same or substantially identical stock or securities are purchased within 30 days before or after the sale.
• Increase IRS funding by 15% to $14.1 billion in 2032 and 2033, which includes $642 million more for improving taxpayer services and $290 million for business systems modernization.

EisnerAmper will continue to keep you informed of the budget process as developments warrant.