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Treasury report provides details on President Biden’s tax proposals

May 28, 2021

In brief

The US Treasury today released a 114-page “Green Book” general explanation of tax proposals included in President Joe Biden’s fiscal year (FY) 2022 budget submission to Congress, also released today. The Green Book provides new details on proposals to increase corporate and individual taxes to help offset the $4.1 trillion combined cost of President Biden’s previously proposed American Jobs Plan and American Families Plan. 

The President’s budget proposes $1.5 trillion in overall FY 2022 discretionary defense and domestic spending, and includes a proposal to increase IRS funding by $1.3 billion to $13.2 billion as part of efforts to collect $778 billion over 10 years from increased tax compliance measures. The President’s budget assumes a $1.8 trillion deficit for FY 2022 (equal to 7.8% of GDP), and federal deficits are projected to exceed $1.3 trillion (or more than 4.2% of GDP) annually over the budget’s 10-year period. Citing efforts to respond to the pandemic and related economic effects, the administration projects the federal deficit for the current fiscal year (FY 2021) will be $3.7 trillion (16.7% of GDP).

Corporate tax proposals include increasing the US corporate income tax rate from 21% to 28%, establishing a new 15% minimum tax on companies with worldwide book income exceeding $2 billion, increasing the global intangible low-taxed income (GILTI) tax rate to 21%, and repealing the deduction for foreign derived intangible income (FDII). Individual tax proposals include increasing the top individual ordinary income tax rate from 37% to 39.6%, taxing capital gain and qualified dividend income at ordinary rates for individuals with income above $1 million, and limiting the use of “step-up in basis” rules. 

The President’s budget generally assumes that most of the tax increase proposals would be effective for tax years beginning after December 31, 2021, while some would be effective for tax years beginning after the date of enactment. However, the President’s proposal to increase capital gains tax rates is proposed to be retroactively effective “for gains required to be recognized after the date of announcement.” Biden administration officials have indicated that “date of announcement” is meant to be April 28, 2021 -- the date President Biden announced his American Families Plan.

Observation: While the overall outlook for action on President Biden’s tax proposals is uncertain, Congress in recent history has approved tax rate increase proposals only on a prospective basis. It is unusual for an administration to propose a retroactive effective date for a tax increase based on the release of a document like the American Families Plan, particularly when the document lacks important details, such as effective dates.

Action item: Corporations and individuals should review the Treasury Green Book explanation of the President’s tax increase proposals as part of their efforts to evaluate and model the potential effect of these proposals on their employees, job creation, and investments in the United States. 

Additional PwC Insights will examine in greater detail the Treasury Department’s explanation of the President's business and individual tax proposals.

In detail

Overview

The US Treasury “Green Book” general explanation of tax proposals provides additional details on tax proposals included in President Biden’s FY 2022 budget submission to Congress. The President’s budget calls for action by Congress to increase corporate and individual taxes to help offset the cost of his previously proposed “American Jobs Plan” and American Families Plan.”  The President’s plans call for $4.1 trillion in increased spending and targeted tax relief measures for infrastructure, education, childcare, healthcare, and other programs. 

The Biden administration’s FY 2022 budget is being sent to Congress at a time when the President has been holding talks on a potential bipartisan infrastructure package with a group of Senate Republicans, who have ruled out any increase in tax rates. While those talks are underway, House and Senate Democratic leaders have not yet begun formal consideration of an FY 2022 budget resolution that would be needed to provide “budget reconciliation” instructions for consideration of President Biden’s tax increase proposals. 

Observation: The Biden administration is expected to seek action on the President’s broader tax and spending agenda even if a bipartisan agreement on infrastructure is reached. President Biden’s tax increase proposals will need the support of all 50 Democratic Senators and nearly all House Democrats to be enacted over the expected objections of Congressional Republicans. Moderate Democrats in the House and Senate may seek to scale back some of President Biden’s proposals and may seek to block others.

Key Biden tax proposals

Key corporate and individual tax increase proposals proposed by President Biden include: 

  • Increasing the corporate tax rate from 21% to 28%;
  • Increasing the GILTI tax rate by reducing the Section 250 deduction from 50% to 25% (to achieve a 21% GILTI rate assuming a 28% corporate income tax rate), applying GILTI on a per-country basis, and eliminating the 10% deduction for qualified business asset investment (QBAI);
  • Replacing the Base Erosion and Anti-Abuse Tax (BEAT) with a Stopping Harmful Inversions and Ending Low-tax Developments (SHIELD) provision, which would deny tax deductions to domestic corporations when certain payments are subject to a low tax rate;
  • Repealing the deduction for foreign derived intangible income (FDII) and using the resulting revenue to expand R&D investment incentives;
  • Imposing a 15% minimum tax on corporations with book income above $2 billion;
  • Limiting foreign tax credits from sales of hybrid entities;
  • Restricting deductions of excessive interest of members of financial reporting groups for disproportionate borrowing in the United States;
  • Disallow deductions attributable to foreign gross income that is exempt income from US tax or taxed at preferential rates;
  • Further limit the ability of domestic corporations to expatriate;
  • Eliminating tax preferences for fossil fuels (including the enhanced oil recovery credit, expensing for intangible drilling costs, and percentage depletion for oil and natural gas wells) and reinstating Superfund taxes; 
  • Increasing the current top individual income tax rate from 37% to 39.6%;
  • Taxing capital gain and qualified dividend income at ordinary rates for individuals with adjusted gross income above $1 million;
  • Limiting the current step-up in basis rule by treating transfers of certain appreciated property by gift or on death as realization events, with exclusions provided for certain transfers, a general $1 million exclusion (per spouse) indexed for inflation, and special rules provided for certain family-owned and -operated businesses;
  • Broadening application of the 3.8% net investment tax;
  • Ending “carried interest” capital gains treatment of certain partnership investment income;
  • Extending permanently the current limitation on certain excess business losses, and
  • Eliminating like-kind exchange tax treatment for real estate gains greater than $500,000 ($1 million for joint returns).

Observation: Key moderate Democrats in Congress have stated that they will not support increasing the US corporate tax rate above 25%. While reinstating the top individual income tax rate to the 39.6% level appears to have broad support among Congressional Democrats, a number of moderate Democrats in the House and Senate have expressed objections or concerns about President Biden’s proposals to sharply increase taxes on investment income and make changes to step-up in basis tax rules. 

Proposed effective dates

The President’s budget generally assumes that most of the tax increase proposals would be effective for tax years beginning after December 31, 2021, while some would be effective for tax years beginning after the date of enactment. Other effective dates are proposed for some provisions.

The Administration proposal to increase the corporate tax rate from 21% to 28% is proposed to be effective for taxable years beginning after December 31, 2021. For taxable years beginning after January 1, 2021 and before January 1, 2022, the tax rate would be equal to 21 percent plus 7 percent times the portion of the taxable year that occurs in 2022.

Most of the international tax reform provisions are proposed to be effective for taxable years beginning after December 31, 2021. However, the administration proposal to repeal BEAT and replace it with SHIELD is proposed to be effective for taxable years beginning after December 31, 2022. In addition, the administration proposal to tighten existing anti-corporate inversion rules is proposed to be effective for transactions completed after the date of enactment.

In contrast to other individual tax provisions that would be generally effective for tax years beginning after December 31, 2021, the President’s proposal to increase capital gains tax rates is proposed to be retroactively effective “for gains required to be recognized after the date of announcement.” Biden administration officials have indicated that “date of announcement” is meant to be April 28, 2021 -- the date President Biden announced his American Families Plan.

The President’s proposal to treat transfers of appreciated property by gift or on death as realization events is proposed to be effective for gains on property transferred by gift, and on property owned at death by decedents dying, after December 31, 2021, and on certain property owned by trusts, partnerships, and other non-corporate entities on January 1, 2022.

Observation: President Biden’s proposal to impose a retroactive effective date prior to the date of enactment for his capital gains rate increase proposal is unusual. Congress in recent history has approved tax increase proposals only on a prospective basis; for example, an income tax rate increase proposed in 2021 generally would become effective for tax years beginning after December 31, 2021. The only exception to this practice in recent decades was in 1993, when individual and corporate rate increases proposed by President Bill Clinton were made effective retroactive to January 1, 1993. Reductions in capital gains tax rates in recent decades have been effective on the date first proposed -- for example, the date such a proposal is first offered by the chairman of the House Ways and Means Committee. Neither the tax increase on capital gains included in the Tax Reform Act of 1986 nor the tax increase resulting from the enactment of the net investment income tax in 2010 were effective prior to the enactment date of the respective legislation.

Note: The President’s proposal to extend the current excess business loss limitation, which under current law is set to expire in 2027, is proposed to be effective for tax years beginning after December 31, 2026

The takeaway

Corporations and individuals should review the Treasury Green Book explanation of the President’s tax increase proposals as part of their efforts to evaluate and model the potential effect of these proposals. In addition to communicating with policy makers on the potential effects of the President’s proposals on job creation and investment in the United States, companies and individuals should consider actions they may want to take in advance of the potential enactment of legislation. 

For more information 

For the Treasury Department’s Green Book general explanation of the President’s FY 2022 tax proposals, click here and for revenue tables only click here

For a PwC Insight on the President’s corporate tax increase proposals included in his American Jobs Plan and Made in American Tax Plan, click here

For a PwC Insight on the President’s individual tax increase proposals included in his American Families Plan, click here.

Contact us

Pat Brown

Washington National Tax Services Co-Leader, PwC US

Rohit Kumar

Washington National Tax Services Co-Leader, PwC US

Kevin Levingston

Tax Policy Services Leader, PwC US

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