The Treasury Department detailed the tax provisions in the Biden administration's newly released budget plans for fiscal year 2024 on Thursday.
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Among the main proposals are implementing a global minimum tax to strengthen the taxation of corporations' foreign income by ensuring that all multinationals pay at least the minimum rate on their earnings in each jurisdiction, thereby stopping the race to the bottom on corporate tax rates and leveling the playing field for U.S. businesses.
The budget plan would also levy a billionaire minimum tax of 25% on the wealthiest taxpayers to ensure the top 0.01% pay taxes as they go, just like everyone else who earns a paycheck. In addition, the plan would raise the tax rate on corporate stock buybacks to help reduce the differential tax treatment between buybacks and dividends and encourage businesses to reinvest profits in their workers or in the company's growth.
Other provisions would aim to make the Medicare Trust Fund solvent for another 25 years by expanding the Net Investment Income Tax on income over $400,000 to cover all pass-through business income not otherwise covered by the Net Investment Income Tax or self-employment taxes, and by increasing the additional Medicare tax rate and the Net Investment Income tax rate by 1.2 percentage points above $400,000 for a total Medicare tax rate of 5% on high-income taxpayers.
"This budget builds on our economic progress by making smart, fiscally responsible investments, which would be more than fully paid for by requiring corporations and the wealthy to pay their fair share," said Treasury Secretary Janet Yellen in a statement Thursday. "The budget's growth-enhancing investments will continue the economic progress of the last two years and further boost the economy's productive capacity."
The budget aims to provide relief to workers and families, by expanding tax credits for health insurance premiums that were originally enacted under the American Rescue Plan and extended in the Inflation Reduction Act. The budget blueprint would also expand the Earned Income Tax Credit to cover more workers without children. It would restore for tax year 2023 and make permanent the increase in the EITC parameters for workers without children enacted in the ARP. The end of the phase-in and the end of the plateau would be indexed for inflation in the same manner as other EITC parameters by the Chained Consumer Price Index for All Urban Consumers. The proposal would also restore for taxable year 2023 and make permanent the ARP expansion of age-eligibility. As under ARP law, taxpayers who could be claimed as a qualifying child or a dependent would not be eligible for the EITC for childless workers. Thus, full-time students who are dependent on their parents would not be allowed to claim the EITC for workers without qualifying children, despite meeting the new age requirements, even if their parents did not claim a dependent exemption or an EITC on their behalf. Under the proposal, the taxpayer must be at least 19 years old or at least 24 if a full-time student. In the case of married taxpayers filing jointly, the credit may be claimed if at least one spouse is over age 19 (or at least 24 if a full-time student). Former foster children and qualified homeless individuals would be eligible at 18, regardless of student status. The proposal would eliminate the maximum age at which a taxpayer may claim the credit. The proposal would be effective for taxable years beginning after Dec. 31, 2022.
In addition, the plan would expand the Child Tax Credit and make it fully refundable and available in advance monthly, as the American Rescue Plan provided in 2021.That year, an expanded CTC lifted an estimated 2.1 million children out of poverty and helped bring about a historic low in child poverty. Democrats had hoped to extend the Child Tax Credit last year, but it fell by the wayside in negotiations over the Build Back Better Act that eventually morphed into the pared down Inflation Reduction Act. That and other tax extenders didn't get included in last December's omnibus spending bill either, and many more tax breaks are due to expire in 2025 from the Tax Cuts and Jobs Act of 2017.
"As we anticipate the Biden administration's 2024 budget proposal and corresponding Treasury "Greenbook," it will be interesting whether there is a position stated with respect to tax extenders," said Jen Acuna, a principal in the federal legislative and regulatory services group in the Washington national Tax office of KPMG, in a statement Thursday ahead of the Greenbook's release. "Especially the tax provisions that are set to expire in 2025, which will significantly impact individual and corporate taxpayers across the board. The expiring 2025 TCJA tax provisions are a hurricane that should be on everyone's radar. While they may be brewing a distance away, they'll come at taxpayers full force when they hit."
The proposal would establish a "presumptive eligibility" concept to determine when a taxpayer would be eligible to claim a monthly specified child allowance or receive a monthly advance child payment. Once a taxpayer establishes presumptive eligibility for a child, that child would be treated as a specified child of the taxpayer for each month during the period of the taxpayer's presumptive eligibility. Therefore, a taxpayer would be eligible to claim a monthly specified child allowance or receive a monthly advance child payment with regard to that child until the date on which the taxpayer's presumptive eligibility terminates. In addition, the proposal would prohibit that child from being treated as a specified child of any other taxpayer with respect to whom a period of presumptive eligibility has not been established.
The budget proposal would also expand and enhance the Low-Income Housing Tax Credit, the largest federal incentive for affordable housing construction and rehabilitation, to boost the supply of housing that's affordable for low-income renters.
Other proposed changes would aim to eliminate fossil fuel tax preferences in the Tax Code as part of the Biden administration's push to provide more incentives for renewable energy, as in the Inflation Reduction Act's tax credits for electric vehicles and incentives for solar and wind energy. Another provision would revive the perennial proposal to close the carried interest loophole that allows some investment fund managers to pay tax on their earnings as if they are investment gains rather than wages. Neither President Biden nor his predecessors, former Presidents Trump and Obama, have succeeded in altering this tax break in a meaningful way, despite campaign pledges, as the hedge fund and private equity industries always lobby to defeat or weaken such proposals.
Another proposal is often talked about too, but seldom makes its way into law, aiming to close estate and gift tax breaks that allow the wealthy to reduce their tax by using complicated trust arrangements to transfer assets to their heirs.
Most of the Biden proposals are unlikely to make it into law and many can be traced back to the Build Back Better Act plan that was pared back considerably and finally passed in part in the Inflation Reduction Act.
"While the tax proposals that will be put forth by the administration later today are unlikely to get much traction in a divided Congress, it is the job of the President to reinforce the current administration's view of the tax system for the American people and to keep these ideas alive in their minds as we head into the 2024 elections," said John Gimigliano, principal-in-charge of the federal tax legislative and regulatory services group in the Washington national tax office at KPMG, in a statement. "Even if the proposed tax policy changes have little-to-no shot at driving current tax policy or becoming law, they serve an important political purpose."
