President Biden’s 2023 Budget Includes Several Tax Increases

Each year the Administration issues a proposed budget to Congress which outlines policy objectives, funding allocation, and concurrent tax changes from the coming fiscal year. In late March, President Biden issued the Budget of the United States Government – Fiscal Year 2023. The specific details are included in a separate document, General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals, also known as the “Green Book”. Issued by the Department of Treasury, it provides details on how the budget will be funded, including details on tax changes and increases. Like other years, there are several proposed changes, but the most interesting are those targeting high-net-worth individuals and families. This includes an increase of the top tax bracket to 39.6%, and the introduction of a new billionaire’s tax. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Proposed Tax Changes

• Tax Rate Increase – The budget proposes an increase to the top tax bracket for the wealthiest taxpayers from 37% to 39.6%. This includes married filing jointly with taxable income above $425,000, single taxpayers with $400,000 in income, and married filing separately with more than $225,000 in income. The change will revert the reduction which was made in the Tax Cuts and Jobs Act (TCJA).  
• New Billionaires Tax – There is also the addition of a new 20% tax on the highest income-earning individuals. It would be imposed on those with an assessed net wealth of over $100M. It is important to note that when assessing net wealth, taxpayers will be required to recognize unrealized capital gains income as well.
• New Like-Kind Exchange Limitations – This popular tax deferral mechanism is facing new limitations building on the ones already added in the TCJA. There is a provision that limits the amount of tax that can be deferred on the gain from the sale of real estate to $500,000 for single taxpayers and $1M for married filers.
• Grantor Retained Annuity Trust (GRAT) Modifications – There is also a provision that calls for changes to certain grantor trust rules. The purpose is to reduce the use of these trusts to minimize estate, gift, and other tax obligations. Changes include creating a minimum value of the GRAT for gift tax purposes, and a prohibition on the acquisition of an asset held in the trust without recognizing a gain or loss. Although this provision has been included in past budget proposals, including during the Obama Administration, it has yet to be made permanent.  
• Long Term Capital Gains – There is a provision that calls for the long-term capital gains of an individual taxpayer with income over $1M to be taxed at ordinary income rates. The change would be applied only to gains recognized after the date of enactment.
• Generation-Skipping Transfer (GST) Tax Exemption – There would also be new limitations imposed on GST tax exemptions narrowing the savings opportunities to a few generations. The proposal calls for the GST exemption to apply to taxable distributions to those who are two generations below the donor. The exemption can also be applied to younger beneficiaries who were alive when the trust was created.

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While it is unlikely the proposed budget will be approved without Congressional changes, it does provide important insight into the Administration’s agenda. The publication of the budget, along with proposed tax changes, serves as an impetus for Atlanta high net worth individuals to revisit their estate plans. If you have questions about the information outlined above or need assistance with trust and estate tax planning, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.