President Biden has released a $6.8 trillion budget proposal to fund the government for fiscal year (FY) 2024. Given Republican control of the House, it’s highly unlikely that the final FY 2024 budget will look anything like what the White House is proposing. Still, it’s a first step in negotiations, and it’s rife with proposed tax changes, so it’s worth a good look.
Tax-related changes in the President’s budget include:
- Increasing the corporate tax rate from 21% to 28%.
- Increasing the top marginal tax rate from 37% to 39.6%, which is taxable income exceeding $450,000 for married individuals filing a joint return, $400,000 for unmarried individuals (other than surviving spouses), $425,000 for head of household filers, and $225,000 for married individuals filing a separate return.
- Increasing the net investment income tax (NIIT) rate on income above $400,000 from 3.8% to 5%.
- Expanding the NIIT to apply to more types of income from pass-through entities.
- Implementing a billionaire minimum tax of 25% on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth.
- Increasing the tax rate on corporate stock repurchases to 4% (currently 1%).
- Modifying the two safe harbors for tax-free transfers of a controlled corporation’s boot and securities to a parent corporation’s creditors and preventing tax avoidance through the transfer of contingent liabilities to a controlled corporation.
- Reducing the ability of related parties to use a partnership to shift partnership basis among themselves.
- Making permanent the excess business loss limitation and treating excess business losses carried forward from the prior year as current-year business losses instead of as net operating loss deductions.
- Eliminating the tax benefits associated with “like-kind exchanges”.
- Requiring the donor or deceased owner of an appreciated asset to realize a capital gain at the time of the transfer.
- Taxing long-term capital gains and qualified dividends of taxpayers with taxable income of more than $1 million at ordinary rates (maximum rate of 40.8%, including NIIT).
- Eliminating the ability for cryptocurrency investors to conduct a “wash sale” – selling assets at a loss, which results in certain tax benefits, and then immediately repurchasing the currencies.
- Expanding the child tax credit to $3,600 for children under 6 and $3,000 for older children -- up from $2,000.
- Supporting the 15% global minimum tax.
Again, these are just proposals, and the likelihood they’ll all pass is low. Republicans plan to release their proposed budget soon. Hopefully then, we’ll see some action on the debt ceiling.
We’re watching these issues closely and will inform you of changes as they occur.