White House Budget Plan Targets Wealthy With Tax Increases

White House Budget Plan Targets Wealthy With Tax Increases

The Biden administration is aiming to reduce the federal deficit by nearly $3 trillion over 10 years, primarily by raising taxes on wealthy individuals and large corporations.

With the release of its fiscal 2024 budget proposal March 9, the White House emphasized its goal of ending what it calls a “two-tiered” tax system that rewards wealth and not work. In its green book released alongside the budget plan, Treasury provided explanations and detailed estimates for President Biden’s revenue proposals.

Among those proposals are a minimum 25 percent tax for billionaires and a near doubling of the capital gains tax rate from 20 percent to 39.6 percent. The plan also revives an attempt to make it more difficult for hedge fund managers to claim long-term capital gains treatment on carried interest income.

As with last year’s budget proposal, the Biden administration is calling for about $14.1 billion in funding for the IRS, which would represent a 15 percent increase over the amount allocated to the agency for fiscal 2023.

Overall, the White House is asking Congress to approve $6.9 trillion in outlays and is projecting $5 trillion in receipts.

‘Reward Work, Not Wealth’

A senior Treasury official said on a press call that the proposals would end the two-tiered tax system that puts ordinary Americans at a disadvantage and allows high-income earners to pay “indefensibly low rates.”

As part of that effort, the administration is calling on Congress to crack down on the use of “mega IRAs” by high-income individuals. The proposal includes language that would prohibit an IRA from holding an interest in a domestic international sales corporation or foreign sales corporation that receives a payment from an entity owned by the IRA owner. That change would raise $22.7 billion over 10 years.

Biden also wants to expand the net investment income tax base to ensure that all passthrough business income of high-income taxpayers is subject to either the NII tax or self-employment taxes. Individuals earning more than $400,000 per year would also see the NII tax or additional Medicare tax rate rise from 3.8 percent to 5 percent. The two changes together would raise an estimated $650 billion over 10 years, with the administration claiming that the proposal would help save Medicare.

The White House is also proposing the elimination of “excessive tax-free monetization of divisive reorganizations” by modifying two safe harbors for the tax-free transfer of controlled boot and securities to distributing creditors. The change would raise an estimated $39.2 billion.

Under the budget plan, virtual currencies and other digital assets would become subject to wash sale rules, raising $23.5 billion.

The budget plan also details other proposals Biden laid out in his State of the Union address. For example, $237.9 billion in new revenue would be raised by increasing the 1 percent excise tax on stock buybacks for large corporations to 4 percent.

The budget would also permanently restore full refundability of the child tax credit and raise the subsidy from $2,000 per child to up to $3,600 per child under the age of 6 and $3000 per child over 6.

In an effort to bring the United States into compliance with the OECD’s global corporate tax agreement, the proposal calls for the adoption of the so-called undertaxed profits rule, which would allow the government to raise taxes on companies not subject to the 15 percent global minimum tax rate. The White House estimated that that provision would fetch about $500 billion.

Contrasting Reactions

Democratic Senate leadership praised the president’s push for expansion of the child tax credit and his promise not to raise taxes on those making less than $400,000 per year.

“It’s clear this budget was shaped with American families as its North Star,” Majority Leader Charles E. Schumer, D-N.Y., said at a March 9 press conference on the budget release.

Republicans, meanwhile, lambasted the administration’s budget proposal, asserting that the tax increases would end up hurting ordinary Americans and balloon the deficit.

“President Biden’s FY2024 budget proposal is a roadmap to fiscal ruin. From its delayed rollout to its reckless taxes and out-of-control spending, this budget sends a clear message: President Biden doesn’t seem to give a rip about keeping his promises or securing the fiscal health of our nation,” Senate Finance Committee member Chuck Grassley, R-Iowa, said in a statement, pointing out that Biden’s budget projects over $17 trillion in cumulative deficits over 10 years.

Concerns over federal spending were shared by Maya MacGuineas of the Committee for a Responsible Federal Budget.

“There is nothing wrong with having a spending wish list, but we should wait to implement major new spending or tax cuts until the nation’s fiscal situation is stabilized. A plan that still requires $19 trillion of borrowing is nowhere near under control,” MacGuineas said in a statement.

Kyle Pomerleau of the American Enterprise Institute said that while “credit is due” to the administration for attempting to reduce the deficit, the larger issue of the national debt remains. “Biden is slowing the trajectory of debt somewhat, but it’s still growing,” Pomerleau told Tax Notes.

However, Jean Ross of the Center for American Progress said the budget proposal proves that the president is conscious of the deficit. “It’s a fiscally responsible plan that reduces the deficit and at the same time provides a top-line suite of changes that will begin to equalize the tax treatment of wealth and work,” Ross said.

In a speech in Philadelphia coinciding with the release of his budget, Biden reiterated his call for Republicans to release their own budget, claiming that in contrast to his own plan, previous GOP budget proposals would add $3 trillion to the deficit over 10 years.

“If I’m wrong, show me,” Biden said. “If they say they want to cut the deficit, but their plans would explode the deficit, how are they going to make the math work?”

The release of the budget comes amid ongoing tensions over the debt ceiling, with House Republicans seeking significant spending cuts in order to agree to an increase in the debt limit.

Treasury Secretary Janet Yellen is scheduled to give testimony on the budget before the House Ways and Means Committee March 10.

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White House Budget Plan Targets Wealthy With Tax Increaseshttps://www.cbiz.com/Portals/0/Images/Hero-WhiteHouseBudgetPlanTargets.jpg?ver=Ujw23tJHmG6izSto0LWTkg%3d%3dhttps://www.cbiz.com/Portals/0/Images/Thumbnail-WhiteHouseBudgetPlanTargets.jpg?ver=sEaNIZUDfb-NWl5eUjnhsQ%3d%3dThe Biden administration is aiming to reduce the federal deficit by nearly $3 trillion over 10 years, primarily by raising taxes on wealthy individuals and large corporations.2023-03-14T17:00:00-05:00

The Biden administration is aiming to reduce the federal deficit by nearly $3 trillion over 10 years, primarily by raising taxes on wealthy individuals and large corporations.

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