President Biden has released his proposed budget for the federal government for the 2024 fiscal year. The budget, which aims to cut the deficit by nearly $3 trillion over 10 years, includes numerous provisions that would affect the tax bills of both individuals and businesses. While most of these proposals stand little chance of enactment with a Republican majority in the U.S. House of Representatives, they shed light on the Democrats’ priorities as they prepare for the 2024 election season.
Individual tax provisions
The proposed budget includes tax provisions that would affect taxpayers of various income levels. In particular, it would make the following changes:
Tax rates. The proposal would reinstate the top individual tax rate of 39.6% for single filers earning more than $400,000 ($450,000 for married couples).
Net investment income tax (NIIT). The NIIT on income over $400,000 would include all pass-through business income not otherwise covered by the NIIT or self-employment taxes. The budget also would increase both the additional Medicare tax rate and the NIIT rate by 1.2 percentage points. Thus, the Medicare tax rate would be 5% for earnings above $400,000, and the NIIT rate would be 5% for investment income above $400,000.
Capital gains tax. The highest capital gains rate now is 20% (or 23.8% if the NIIT applies). For individuals with taxable income of more than $1 million, the budget proposes that capital gains be taxed at ordinary rates, with 37% (or 40.8% with the NIIT) generally being the highest rate — or 39.6% (or 43.4% with the NIIT) if the top tax rate is raised.
Child tax credit (CTC). This proposal would expand the CTC and make it fully refundable and payable in advance on a monthly basis. For eligible parents, the credit would increase from $2,000 to $3,000 for children age six and older and $3,600 for children under age six.
The proposal also would establish a “presumptive eligibility” for determining when a taxpayer is eligible to claim a monthly specified child allowance or receive a monthly advance child payment. After 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.
Premium tax credits (PTCs). The American Rescue Plan Act expanded eligibility for healthcare insurance subsidies to taxpayers with household incomes above 400% of the federal poverty line for 2021 and 2022. It also reduced the applicable contribution percentage (the percentage of household income a taxpayer must contribute toward a healthcare insurance premium). The Inflation Reduction Act (IRA) extended the expansion through 2025. The proposed budget would make this expansion permanent.
Cryptocurrency taxation. The proposal would amend the “wash-sale” rule to cover digital assets. The rule prohibits the deduction of a loss when the taxpayer acquires “substantially identical” investments within 30 days before or after the sale date.
Minimum wealth tax. The proposal would impose a minimum 25% tax on total income, generally inclusive of unrealized capital gains, for all taxpayers whose assets exceed liabilities by more than $100 million. According to the White House, the tax would apply to only the top 0.01% of taxpayers.
Gift and estate taxes. The proposal would close loopholes related to certain trust arrangements. Specifically, the changes would affect grantor-retained annuity trusts and charitable lead annuity trusts.
Business tax provisions
The proposed budget’s tax provisions target numerous issues of interest to businesses, including:
Corporate tax rates. The proposal would trim back the large cut made to the corporate tax rate in the Tax Cuts and Jobs Act (TCJA). It would hike the tax rate for C corporations from 21% to 28% — still significantly less than the pre-TCJA rate of 35%. In addition, the effective global intangible low-taxed income (GILTI) rate would increase to 14%. Overall, with other proposed changes, the effective GILTI rate would rise to 21%.
Global minimum tax. The proposal would repeal Base Erosion and Anti-Abuse Tax (BEAT) liability, replacing it with an “undertaxed profits rule.” In conjunction with the GILTI regime, the rule would ensure that income earned by a multinational company, whether parented in the United States or elsewhere, is subject to a minimum rate of taxation regardless of where the income is earned.
Stock buyback excise tax. The IRA created a 1% excise tax on the fair market value when corporations buy back their stock, with the goal of reducing the difference in the tax treatment of buybacks and dividends. The proposal would quadruple the tax to 4%.
Carried interest loophole. A “carried interest” is a hedge fund manager’s contractual right to a share of a partnership’s profits. Currently, it’s taxable at the capital gains rate if certain conditions are satisfied. The budget proposes to close this loophole.
Like-kind exchanges. Owners of certain appreciated real property can defer the taxable gain on the exchange of the property for real property of a “like-kind.” The proposal would allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million for married couples filing a joint return) each year for like-kind exchanges. Under this proposal, any like-kind gains in excess of $500,000 (or $1 million for married couples) in a year would be recognized in the year the taxpayer transfers the real property.
Low-income housing tax credit. The budget proposes to expand and enhance the largest federal incentive for affordable housing construction and rehabilitation.
Stay tuned
The budget proposal doesn’t address many of the temporary tax provisions of the TCJA that have expired or are set to expire in the next few years. The increased standard deduction, reduced individual tax rates, qualified business income deduction for pass-through businesses, and limit on the state and local tax deduction are among the numerous provisions scheduled to expire at the end of 2025 — potentially affecting the tax liability of a wide swath of taxpayers. We’ll keep you informed if there’s significant movement on this front.
© 2023
Related Insights
Featured Post
Featured Client Testimonials
BW is a true partner to us. Their knowledge, expertise, and service are a valuable resource to us and play an important role in our success!
John Allen - Vice President of Finance, Kaufman Container
Featured Client Testimonials
I appreciate the exceptional tax advice we received over the years. The (BW team) has a good grasp of our business needs. Thank you for your excellent service.
John Griffiths - Owner, Rae Ann, Inc.
Featured Client Testimonials
The BW team has been fantastic to work with; both the team member at our office as well as at the partner level. Any issues or concerns are handled very efficiently and effectively.
Kelley Needham - Chief Executive Officer, Epilepsy Association
Featured Client Testimonials
Barnes Wendling has been our company accountants for over seven years. Their knowledge has been instrumental in helping us grow strategically during this time. And although we’ve seen many changes in our economy that we cannot control, we’ve always been able to trust the Barnes team to be by our side. The Barnes team feels like family. We can’t thank them enough for their support!
Christine Kloss - Controller, AT&F
Featured Client Testimonials
Barnes Wendling has been our company accountants for over 15 years. During this time, the business has grown exceptionally, and Barnes has kept pace, providing accurate, quality advice. Our finances are more efficient than ever, and the expense of hiring Barnes has been a definite positive add to our bottom line. I give my highest recommendation to their firm.
David Miller, MD - President, Retina Associates of Cleveland
Featured Client Testimonials
Barnes Wendling has provided us guidance and recommendations that have strategically helped strengthen our business and position ourselves for growth. We needed to hire a new VP of Finance and Controller this past year, and they were instrumental in helping us find the best candidates for our company.
Sara Blankenship - President, Kaufman Container
Featured Client Testimonials
We value the trust, accuracy of information, and reliability of Barnes Wendling and Mike Essenmacher personally. Mike has been instrumental as a trusted advisor on accounting, tax, and personnel issues. His advice is always accurate, and he is very reliable. His associates are also very talented.
Dominic Ozanne - President and CEO, Ozanne Construction Company
Featured Client Testimonials
We value Barnes Wendling’s expertise with all things accounting so we can operate our business using our strengths and allowing them to be our experts. They have also brought me a few business sale opportunities to allow me to grow my assets.
John Gaydosh - President and Metallurgical Engineer, Ohio Metallurgical Service
Featured Client Testimonials
Barnes Wendling (especially Lena) did a great job with our financials. Everything. It is extremely refreshing and comforting to know that all of our numbers are not only correct, but they are in the right place(s). Your diligence and reporting truly does make me (personally) feel better.
Thomas Adomaitis - Controller, Bialosky Cleveland
Featured Client Testimonials
I can wholeheartedly tell you that I have yet to work with an audit or tax team that have been more helpful, easy to work with, and committed than the team at Barnes Wendling- I have been through three different firms in the last few years.
Michelle Saylor, Former Controller, Aero Mag
Featured Client Testimonials
Floyd Trouten at Barnes Wendling CPAs is an “expert’s expert” when it comes to M & A accounting. Not only does he understand the evolving details of the Tax Code but he also sees the fine points of their application for owners, managers, investors, and financiers.
Mark A. Filippell, Western Reserve Partners
Featured Client Testimonials
The service is amazing at Barnes Wendling CPAs. The benefit is worth more than the cost. Sometimes it’s true that you get what you pay for.
Mark Boucher - Former Owner, Castle Heating & Air