The Biden administration has released its 2025 Budget Proposal, outlining the president’s policy priorities and tax proposals in the next fiscal year from Apr 1, 2024, to Mar 31, 2025. U.S. Department of the Treasury also released the “Green book,” as an additional 256 pages for General Explanations providing further detail on the proposals.
The proposed budget continues to target taxes for corporations and high-net worth individuals, and in line with Biden’s prior statements, it does not raise taxes for individuals earnings less than $400,000 annually. While the proposals may not gain the necessary support from a Republican-controlled Congress, it is a pivotal time for tax policy, as many provisions of the 2017 Tax Cuts and Jobs Act will expire after 2025.
Follow the link for a brief review of the provisions of Tax Cuts and Jobs Act 2017.
Budget Proposal Main Contents
• Reform Business Taxation
• Reform International Taxation
• Strengthen Taxation of High-Income Taxpayers
• Support Workers, Families, and Economic Security
• Modify Estate and Gift Taxation
• Improve Tax Administration & Compliance
At a high-level, the Revenue and Tax Proposals have a primary focus on (1) Corporation Income and Globalization, (2) Improving the Tax Administration and Compliance, and (3) Closing Loop / Improving the current policies. Reform for Business Income Tax and International Business has been a recurring theme for several years, while additional priorities have included Clean Energy, Small Business, Growth & Job Creation, Infrastructure, etc.
Corporations
Proposals for US Corporations
• Raise Corporate Income Tax from 21% to 28%
• Increase Corporate AMT tax to 21%
• Raise excise tax on corporate stock buyback from 1% to 4%
• Limit employee compensation deduction for employees earning greater than $1 million
Proposals for International Tax
• Review of GILTI (combined taxation of non-US low-tax intangible income) and increase the GILTI tax rate from 10.5 to 21%
• Adopt Undertaxed Profits Rule (UTPR) and abolish BEAT (Base Erosion Abuse Tax), consistent with OECD Organisation of Economic Cooperation and Development minimum-tax regime
• Replace FDII (Foreign Earned Intangible Income) Tax Deduction with other tax system to promote R&D
• Reduce Section 245A dividend with respect to dividends from non-CFC foreign corporations
Individual Taxpayers
Proposals for High-Income Earners
• Increase the tax rate from 37% to 39.6% for the highest bracket
• Increase NIIT up to 5% and apply additional Medicare tax and NIIT for nonpassive business income
• Minimum tax for all gains for wealthy exceeding threshold
• Reform capital gain for high-income individuals to be taxed at ordinary income tax rate and unrealized capital gains at death above $5 million
• “Billionaire minimum tax” 25% to tax unrealized capital gains of high-net-worth taxpayers
• Retirement Plan to limit the use of certain tax-favorable accounts, ie. in excess of $10 million. Additional reforms such as limiting backdoor Roth IRA conversions for higher earners.
Proposals that Support Workers, Families, and Economic Security
• Expand Child Tax Credit, Earned Income Tax Credit, and Adoption Tax Credit, by extending American Rescue Plan Act (ARPA) through 2025
• Make permanent for the Health Insurance Premium Tax Credit
• First-Time home-buyer/seller Tax Credit
• Income exclusion for forgiven student debt
• Protect Medicare and reduce prescription drug costs
Closing Loop / Improvement on Current Tax Policies
• Tax carried interests tax as ordinary income rather than lower capital gain rate
• Limit 1031 like-kind exchange to $500,000 in gains
• Reform to Partnerships including preventing basis shifting and tax administration of partnerships
• Eliminate Fossil Fuel tax preferences, drawbacks on petroleum taxes
• Additional policies for Digital Assets to include — Excise tax on Digital Asset mining, apply wash sale rules, reporting of digital assets by certain financial institutions and foreign digital assets, include mark-to-market rules for digital assets
• Tax Credit for areas of higher distress, low-income housing, neighborhood homes credit
• Reform for Unemployment Insurance
Tax Administration & Compliance
• Additional $104 billion IRS funding through 2034 in hope to collect on the $700 billion tax gap. Note that the IRS funding $80 billion from Inflation Reduction Act but was later reduced by $20 billion.
• Increase penalties for inaccurate or fraudulent tax returns with possibility of criminal charge, increase penalties and oversight of noncompliant preparers
• Require employers tax withholding on nonqualified deferred compensation plans
• Increase compliance such as with listed transactions, expatriates, etc.
