The administration of President Joe Biden released its $6 trillion budget Monday for the federal government’s 2023 fiscal year, which begins in October 2022.
Also on Monday, the Treasury published its general explanations of budget revenue proposalsknown as the Green Book.
The revenue provisions in the proposed budget prominently include what is a administrative sheet calls for a new billionaire minimum income tax of 20% on realized and unrealized gains and other income of the nation’s wealthiest individuals. The budget would also raise the corporate tax rate from the current 21% to 28% and institute measures supporting U.S. participation in a global minimum tax.
Billionaire tax would apply on a net worth basis: Households worth more than $100 million would pay 20% on their “full income”, which consists of “standard taxable income plus unrealized income”. , according to the fact sheet. Those who already pay more under this measure should not pay additional tax. An initial “top-up payment” on unrealized income could be spread over nine tax years, and any top-up required thereafter over five years.
The fact sheet calls the proposal an “advance payment of tax liability”, which apparently means that taxpayers would not pay tax on the gains a second time when they realize them.
According to the fact sheet, the billionaire minimum tax would only be imposed on 0.01% of U.S. households, and more than half of the income it would generate would come from households with a net worth of more than $1 billion. dollars. According to a table of projected revenue effects, this would reduce projected federal budget deficits by $1.4 trillion accumulated in fiscal years 2023 to 2032.
As the fact sheet indicated, under current law, all unrealized taxpayer income generally remains untaxed until a recognition event occurs, such as when an asset whose value has appreciated is sold or otherwise disposed of (or, if depreciated, results in a loss).
The green paper also proposes taxing long-term capital income and qualified dividends at ordinary income rates for taxpayers with taxable income over $1 million, rather than the current rates capped at 20%. It would also treat transfers of assets appreciated by gift or upon death as realization events, as opposed to the current increase in basis to fair market value that most assets receive on the death of a deceased.
Currently, the fact sheet says that in a typical year, billionaires pay 8% of their total realized and unrealized income in taxes. The initial “President’s Message” of the budget states that, according to the budget, no one earning less than $400,000 would pay more taxes than they do today.
In addition, the budget proposes to restore the top marginal personal income tax rates to 39.6%, as they were before it was reduced in 2018 to the current 37%, through legislation known as name of Tax Cuts and Jobs Act (TCJA), PL 115-97.
The green paper outlines a proposal to tax interest earned as ordinary income. Another provision would prevent rebasing by related parties through partnerships, and yet another would limit a partner’s deduction in certain syndicated conservation easement transactions.
Inheritance and gift tax
The budget would change the taxation of estates and gifts by requiring that the residual interest in a settlor-retained annuity trust (GRAT) at the time the interest is created have a minimum value for income tax purposes. donations equal to the greater of 25% of the value of the assets transferred to GRAT or $500,000. Another provision would limit the number of generations to which a skip-generation transfer exemption can apply. Yet another provision would limit the use of donor-advised funds to avoid the payment requirement of a private foundation.
Funding of the IRS
The budget would provide total funding of $14.1 billion for the IRS, an increase of $2.2 billion, or 18% above the level enacted in 2021, with funding specifically earmarked for the initiative. Taxpayer Experience of the Service and the improvement of its services to taxpayers. It would provide $310 million for the IRS’ enterprise systems modernization effort, 39% above the level enacted in 2021, to “accelerate the development of new digital tools to enable better communication among taxpayers.” and the IRS”.
Other IRS funding priorities include strong tax enforcement, particularly of high income and corporate filings. The green paper outlines expanding the IRS’ authority to require electronic filing of information returns filed by taxpayers reporting large amounts or by “complex business entities.”
A number of budget lines relate to energy, primarily by reducing preferential provisions for fossil fuels, including:
- Repeal the credit for enhanced oil recovery;
- Repeal the deduction of costs paid or incurred for any tertiary injector used as part of a tertiary recovery method;
- Repeal the credit for oil and gas produced from marginal wells;
- Repealing the expensing of intangible drilling costs;
- The repeal of the expensing of mining exploration and development costs; and
- Repealing the corporate tax exemption for listed fossil fuel partnerships.
The budget and the green paper would also:
- Make the adoption tax credit refundable and allow certain guardianship arrangements to qualify;
- Adopt an “Undertaxed Profits Rule, which would replace the current Sec. 59A Base Erosion Anti-Abuse Tax (BEAT) to better align U.S. tax policy with international tax policy and the Organization for Economic Co-operation and Development/G20 Framework on Base Erosion and Profit Shifting”;
- Provide a tax credit that would create a new general business credit equal to 10% of qualifying expenses paid or incurred in connection with the reduction or elimination of a trade or business or branch business currently conducted outside the United States and starting, expanding, or otherwise moving it to the United States, to the extent that it increases American jobs;
- Eliminate tax deductions for transferring jobs abroad;
- Comply with the definition of “control” in Sec. 368(c) with the corporate affiliation test under Sec. 1504(a)(2);
- Expanding retroactive election access to qualifying elective funds under the Passive Foreign Investment Company (PFIC) rules of Sec. 1295(b)(2); and
- Expand the definition of a foreign business entity for information reporting purposes under s. 6038 to include taxable units.
The budget would also support housing and urban development by making the New Markets Tax Credit permanent and allowing a selective base increase for bond-funded low-income housing credit products.
The tax provisions, like the entire budget and green paper, would require enactment by Congress to become law.
— To comment on this article or suggest an idea for another article, contact Paul Bonner at [email protected].