President’s Budget Contains Many Tax Proposals

President Joe Biden’s administration unveiled its proposed budget for fiscal year 2022 recently. Treasury says the $6 trillion proposed budget focuses on infrastructure, clean energy, and research and development, and among its many provisions are a host of proposed tax changes affecting individuals and corporations.

One set of tax and revenue proposals, named the American Families Plan, would increase taxes on high-income individuals, make permanent various recent tax credit expansions, further limit like-kind exchanges, and address various tax administration issues, including regulation of paid tax return preparers.

Other proposals are grouped under the name American Jobs Plan, and they include a variety of corporate tax changes, including raising the corporate tax rate and imposing a minimum tax on corporations, tax incentives to support housing and infrastructure, and clean energy incentives.

American Families Plan

The proposed budget would make three changes to the taxation of high-income individuals:

• Increasing the top marginal income tax rate for high earners from 37% to 39.6% for taxpayers with taxable income over $509,300 for married taxpayers filing jointly and over $452,700 for single filers;
• Taxing capital gains of high-income individuals (with adjusted gross income over $1 million) at a 37% rate;
• Imposing capital gain tax on property transferred by gift and on property owned at death;
• Rationalizing the net investment income and Self-Employment Contributions Act (SECA) taxes so that all passthrough business income of high-income individuals is subject to either the net investment income tax or SECA tax.
• Taxing carried interests as ordinary income for partners with taxable income over $400,000;
• Limiting the deferral of gain from like-kind exchanges to $500,000 per taxpayer ($1 million for married taxpayers filing jointly) per year;

American Jobs Plan

The proposed budget calls for the following corporate tax changes:

• Raising the corporate income tax rate to 28% from its current 21%;
• Revising the global minimum tax regime, disallowing deductions attributable to exempt income, and limiting inversions;
• Repealing the global intangible low-taxed income (GILTI) exemption for foreign oil and gas extraction income;
• Imposing a 15% minimum tax on book earnings of large corporations;
• Providing a 10% tax credit as an incentive for locating jobs and business activity in the United States and removing tax deductions for expenses incurred in connection with moving jobs overseas.

How much of this will be passed remains to be seen.