Biden Sets Aim on Specific Taxpayers

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Stacks of books create a window through which we can see a specific human.The Tax Foundation recently published the article “Details and Analysis of President Biden’s Fiscal Year 2025 Budget Proposal ” alongside a The Deduction podcast episode called “Biden’s Budget Blueprint .”

In the article, the six Tax Foundation co-authors explain the major provisions of Biden’s tax proposal and strive to calculate the effect of those policy changes.

It appears that Biden has remained committed to targeting businesses, income earners making over $400,000, and those with millions in savings with higher taxes.

You can review the details of this via the Tax Foundations summary of his major tax provisions discussed:

Major business provisions modeled:

  • Increase the corporate income tax rate from 21 percent to 28 percent (effective 2024)
  • Increase the corporate alternative minimum tax introduced in the Inflation Reduction Act from 15 percent to 21 percent (effective 2024)
  • Quadruple the stock buyback tax implemented in the Inflation Reduction Act from 1 percent to 4 percent (effective 2024)
  • Make permanent the excess business loss limitation for pass-through businesses
  • Further limit the deductibility of employee compensation under Section 162(m)
  • Increase the global intangible low-taxed income (GILTI) tax rate from 10.5 percent to 21 percent, calculate the tax on a jurisdiction-by-jurisdiction basis, and revise related rules (some provisions effective 2024)
  • Repeal the reduced tax rate on foreign-derived intangible income (FDII)

Major individual, capital gains, and estate tax provisions modeled:

  • Expand the base of the net investment income tax (NIIT) to include nonpassive business income and increase the rates for the NIIT and the additional Medicare tax to reach 5 percent on income above $400,000 (effective 2024)
  • Increase top individual income tax rate to 39.6 percent on income above $400,000 for single filers and $450,000 for joint filers (effective 2024)
  • Tax long-term capital gains and qualified dividends at ordinary income tax rates for taxable income above $1 million and tax unrealized capital gains at death above a $5 million exemption ($10 million for joint filers)
  • Limit retirement account contributions for high-income taxpayers with large individual retirement account (IRA) balances
  • Tighten rules related to the estate tax
  • Tax carried interest as ordinary income for people earning more than $400,000
  • Limit 1031 like-kind exchanges to $500,000 in gains

Major tax credit provisions modeled:

  • Extend the American Rescue Plan Act (ARPA) child tax credit (CTC) through 2025 and make the CTC fully refundable on a permanent basis (effective 2024)
  • Permanently extend the ARPA earned income tax credit (EITC) expansion for workers without qualifying children (effective 2024)

We also modeled various miscellaneous provisions for corporations, pass-through businesses, and individuals, including several energy-related tax hikes largely pertaining to fossil fuel production. While the budget improperly characterizes fossil fuel provisions as subsidies, many are deductions for costs (or approximations of costs) incurred.

Major provisions not modeled:

  • Repeal the base erosion and anti-abuse tax (BEAT) and replace it with an undertaxed profits rule (UTPR) consistent with the OECD/G20 global minimum tax model rules
  • Replace FDII with unspecified R&D incentives
  • Create a 25 percent “billionaire minimum tax” to tax unrealized capital gains of high-net-worth taxpayers
  • Permanently extend the ARPA premium tax credits (PTCs) expansion (we do include PTCs in our distributional analysis)
  • Expand federal rules on drug pricing provisions
  • Spending program changes
  • Provide additional Internal Revenue Service (IRS) funding

The Tax Foundation also notes that Biden proposed “extending tax changes from the Tax Cuts and Jobs Act (TCJA) for people making below $400,000 after 2025 when they otherwise expire,” but did not model the affects in his budget.

In the podcast, Kyle Hulehan and Garrett Watson talk at length about how these proposals would introduce a lot of complexity into an already complicated tax system. They repeat some of the Tax Foundations goals of transparency and simplicity as being better solutions to a tax system. The article summarizes this same sentiment as:

The president’s tax policy proposals as outlined in the State of the Union address would make the tax code more complicated, unstable, and anti-growth, while also expanding the amount of spending in the tax code for a variety of policy goals not related to revenue collection.

The Tax Foundation describes the net effect as:

After-tax income for the bottom quintile would increase by 16.1 percent, largely from expanded tax credits. In contrast, the top 1 percent of earners would experience a 8.7 percent decrease in after-tax income.

The Tax Foundation estimates that if these taxes were to come into place, the combined federal, state, and local tax burden on those in Virginia would increase to 45.4%  while the combined average individual, corporate, and capital gain rates would all far surpass OECD world averages .

Politicians often propose ideas that they never implement, and maybe these ideas fall into that category.

However, Biden seems to have remained committed to targeting businesses, income earners making over $400,000, and those with millions in savings. He has taken aim. We’ll see if Congress will let him implement any of these ideas.

Photo by Dev Asangbam on Unsplash. Image has been cropped.

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Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.