April 16, 2024

Overview of Biden’s FY 2025 Tax Proposals

On March 11, President Biden presented a budget proposal that seeks to enact nearly $5 trillion in tax adjustments over the next decade. Key facets of this proposal focus on modifying the tax obligations of corporations and individuals earning above $400,000 annually. Notably, the initiative revisits and expands upon elements from previous budgets, incorporating both established and new measures aimed at tax reform. While inclusion in the presidential budget does not guarantee that the provisions will be enacted, it does provide important insight into the administration’s priorities. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.

Key Tax Provisions for Corporations

The proposed budget aims to adjust the corporate tax rate to 28%, an increase that signals a partial reversal from the reductions seen in 2017. Additionally, it seeks to elevate the corporate minimum tax rate from 15% to 21%. Another noteworthy aspect is the proposal to modify the deductibility of employee compensation, specifically targeting packages that exceed $1 million.

The White House contends that implementing a stricter baseline for corporations will lead to a more equitable distribution of corporate resources. However, opponents argue that such a policy could stifle innovation and economic growth. Considerations within the proposal include:

• Increased Tax Rates for Large Corporations: The corporate tax rate will be raised to 28% from the 21% established by the TCJA of 2017 (previously set at 35%), and the corporate minimum tax rate will be raised from 15% to 21%.
• Multinational Tax Reform: Reduce the ability of large multinational corporations to allocate profits to jurisdictions with lower rates and increase taxes on foreign earnings from 10.5% to 21%.
• Executive Compensation: Limit tax deductions for executive compensation, specifically targeting compensation amounts exceeding $1 million.
• Stock Buybacks Tax: Increase the tax on corporate stock buybacks from 1% to 4%.
• Tax Subsidies: Remove some federal tax subsidies available to oil and gas companies, the real estate sector, and cryptocurrency transactions.

Tax Reforms for Individuals

The budget outlines several targeted reforms for individuals with incomes surpassing $400,000. These include introducing a 25% minimum tax rate for those individuals with a wealth of over $100 million. Also highlighted is a focus on aligning the tax obligations of capital gains with those levied on wage income.

While the White House asserts these policies will create a fairer tax system by distributing the tax burden evenly, opponents argue that such measures could deter investment and hinder economic growth. They contend that heavier taxes on capital gains can disincentivize entrepreneurship and innovation, potentially leading to negative repercussions for the overall economy.

Adjustments to Tax Rates and Policies

• Minimum Tax Rate for High-Net-Worth Individuals: Introduce a 25% minimum tax rate applicable to individuals with a net worth of more than $1 billion.
• Increase Top Tax Rate: Restore the top marginal income tax rate to 39.6% for individuals earning over $400,000 and couples over $450,000.
• Capital Gains Tax Reform: Align the tax rates for capital gains and dividends with the rates of wage-based income for households with incomes above $1 million.
• Address Certain Tax Advantages: Implement measures to modify the tax treatment of carried interest, retirement savings vehicles, and life insurance policies.
• Medicare Tax Increase: Increase the Medicare tax rates from 3.8% to 5% for high-income individuals.

Expanded Tax Credits

• Child Tax Credit: Restore the American Rescue Plan’s expansion of the Child Tax Credit, impacting 66 million children.
• Earned Income Tax Credit: Strengthen the credit for low-paid workers without children, assisting 19 million households.
• Health Insurance Premium Reductions: Permanently expand the premium tax credit under the Affordable Care Act.

Support for Tax Compliance and Enforcement

• Increased Funding for the IRS: Provide funding for the IRS to improve tax compliance and services, focusing on wealthy individuals and large corporations.

Political Landscape and Legislative Outlook

The current political configuration, with the House under Republican control, suggests a challenging path forward for the proposal. However, these proposals serve as a foundational statement of President Biden’s tax policy priorities, particularly in anticipation of the scheduled expiration of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025. The eventual fate of these proposals, especially if considered in a potential second term for President Biden, will depend significantly on the future balance of power in Congress.

Implications for Taxpayers and Businesses

Understanding the nuances of the FY 2025 budget proposal is crucial for taxpayers and businesses as they navigate their financial planning and tax strategies. For corporations, the proposed adjustments necessitate a reassessment of future tax liabilities and investment plans. Individuals with higher earnings must consider the potential for increased tax obligations and the impact on investment income.

Contact Us

Several tax changes would impact individuals, families, and businesses if passed. Time will tell if the proposals are included in changes for the current or coming years. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information, call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.