President Joe Biden on March 9 sent Congress an FY 2024 budget that proposes to increase taxes for corporations and for individuals with incomes above $400,000 as part of a plan intended to reduce federal budget deficits by $2.858 trillion over 10 years. The President’s budget also calls for higher Medicare health insurance taxes for individuals with incomes above $400,000 as part of a plan that seeks to avert the projected insolvency by 2028 of the Medicare hospital insurance trust fund.
Key business tax provisions in the FY 2024 budget include a proposal to increase the US corporate income tax rate from 21% to 28%, and proposed reforms to US international tax rules that include raising the tax rate on the foreign earnings of US multinational corporations from 10.5% to 21% and adopting an undertaxed profits rule. The budget also proposes “additional support” for research and experimentation expenditures using revenue raised by repealing the deduction for foreign-derived intangible income (FDII). As previously announced, the President’s budget proposes to increase from 1% to 4% the corporate stock repurchase excise tax that was enacted as part of the 2022 Inflation Reduction Act. The budget also includes other tax proposals that would affect corporate and pass-through businesses.
Key individual tax increase provisions include measures increasing the top individual ordinary income tax rate from 37% to 39.6%, taxing capital gains income for high earners at ordinary rates, and imposing a 25% “minimum income tax on the wealthiest taxpayers.”
The release of the President’s FY 2024 budget comes at a time when President Biden and Congress are debating how to reach an agreement on legislation to increase the federal statutory debt limit. The current $31.4 trillion statutory debt limit was reached on January 19; the Congressional Budget Office recently projected that the Treasury Department by July or September would exhaust its ability to use ‘extraordinary measures’ to prevent the United States from defaulting on its obligations.
The House Ways and Means Committee will hold a March 10 hearing on the President's budget with Treasury Secretary Janet Yellen. The Senate Finance Committee has scheduled a March 16 hearing on the President's budget with Secretary Yellen.
Observation: Republican control of the House of Representatives will prevent action on President Biden’s tax increase proposals. House Republicans are expected to lay out their own budget proposals in coming weeks, and have called for reduced federal spending to be part of any debt limit increase legislation. Ultimately, action this year on tax legislation, FY 2024 appropriations, and debt limit increase legislation will require bipartisan support to clear both the Republican-controlled House and the Democratic-led Senate.
Action item: Stakeholders should communicate with policy makers on the potential effects of President Biden’s tax proposals and other Administration economic policy proposals on their employees, job creation, and investments in the United States.
Proposals in President Biden’s FY 2024 budget are intended to reduce federal deficits by $2.858 trillion over 10 years, according to projections issued by the White House Office of Management and Budget (OMB). At the same time, the President’s budget proposes a number of targeted tax relief measures for individuals and families. The budget also proposes to increase overall spending on defense and non-defense discretionary programs.
Observation: The President’s budget cites specific provisions that are intended to repeal certain tax provisions enacted as part of the 2017 Tax Cuts and Jobs Act, but does not address all of TCJA individual tax provisions that are set to expire after 2025, including the current $10,000 cap on federal individual itemized deductions for state and local taxes. The budget states that the President “will work with Congress to address the 2025 expirations, and focus tax policy on rewarding work not wealth,” by applying principles that include opposing tax increases on individuals earning less than $400,000.
Treasury also has released a ‘Green Book’ general explanation of the budget’s tax proposals.
The President’s proposal to increase the top US corporate income tax rate to 28% is projected to raise $1.3 trillion over 10 years.
The President’s proposal to increase the excise tax on certain corporate stock repurchases from 1% to 4% is projected to raise $237.9 billion over 10 years.
In total, the budget’s proposed international reforms are projected to raise $1.16 trillion over 10 years.
These proposed reforms to US international tax rules include:
Additional business tax proposals in the President’s budget would:
President Biden’s proposal to increase the top individual ordinary income tax rate to 39.6% is projected to raise $235.2 billion over 10 years. The proposal to tax capital gain income for high earners at ordinary rates is projected to raise $213.8 billion over the same period.
The proposed 25% “minimum income tax on the wealthiest taxpayers” is projected to raise $436.6 billion over 10 years. The Treasury Green Book explanation of this provision states that the proposed minimum tax on certain high-income taxpayers would apply on total income, including unrealized capital gain income, for all taxpayers with net wealth greater than $100 million. Payments of the minimum tax would be treated as a prepayment available to be credited against subsequent taxes on realized capital gains to avoid taxing the same amount of gain more than once.
The proposal to increase from 3.8% to 5% the net investment tax rate and the additional Medicare tax rate for high-income taxpayers is estimated to raise $344.3 billion over 10 years. The proposal to apply the net investment income tax to pass-through business income of high-income taxpayers is estimated to raise $305.9 billion over 10 years.
Additional individual tax proposals in the President’s budget would:
Biden Administration FY 2024 budget (including estimates of tax proposals)
White House budget factsheets
Treasury Green Book general explanations of the Administration's FY 2024 revenue proposals