On March 28, 2022, the Biden administration released its Fiscal Year 2023 Budget proposal (beginning October 1, 2022). Simultaneously, the U.S. Department of the Treasury released the General Explanations of the Administration’s FY2023 Revenue Proposals, (or “the Greenbook”) explaining the Administration’s revenue-raising proposals included in the budget.
The purpose of this article is to solely focus on the revenue proposals and the related Greenbook explanations. A broader discussion of the budget-related social policies is beyond the scope of this article.
The Greenbook includes over $2.5 trillion in tax increases on wealthier individuals and larger corporations over the next decade (2023-2032). The revenue proposals include what many in the media are referring to as the “Billionaire Tax”; this tax appears to kick in, however, at a net worth threshold of greater than $100 million and to which CBS News is estimating could include approximately 30,000 taxpayers.
Some of the current proposals are a repeat of proposals included in the Build Back Better legislation passed by the House in 2021 but which stalled in the Senate. Some highlights of the current proposals included in Greenbook include (but are not limited to):
Raises the corporate income tax rate to 28%
Repeals BEAT and proposes to replace it with an “undertaxed profits rule” (UTPR) consistent with OECD pillar two model rules for large international businesses
Increases the marginal individual income tax rate to 39.6% in 2023 (which would accelerate the return to that marginal rate called for under the sunset provisions of the TCJA for 2026)
Taxes capital gain income at ordinary tax rates for those making in excess of $1,000,000 with the highest rate capped at 37% (or 40.8% inclusive with the Net Investment Income tax)
Taxes “carried interests” as ordinary income
Reduces the ability to utilize like-kind exchange treatment on dispositions of real estate
Eliminates certain fossil fuel tax preferences
Creates incentive for locating jobs and business activity in the U.S.
Treats transfers of appreciated property by gift or upon death as a realization event triggering an income tax
Imposes a 20% minimum tax on “total income” (generally inclusive of unrealized capital gains for all taxpayers with net wealth (gross assets minus liabilities) greater than $100 million
Permanently excludes “certain” discharged student debt from income
Modifies income, estate, and gift tax rules for certain grantor trusts
The above are just some of the proposed provisions in the Greenbook. We will provide more details and information in future articles. However, it’s important to remember that this is just a vision of what future federal tax rules might look like.
As in 2021, these revenue-raising proposals have a long road to travel before being enacted, and they might break down before reaching the final destination. This is an election year, and we are still in an uncertain economic environment. These proposals must make it through both the House and Senate; Senator Joe Manchin of West Virginia has already come out against the “billionaire tax” for example. Many of these or similar items have been proposed in the past but did not make it into final enacted tax legislation. Accordingly, some of the above provisions will likely not find their way into future legislation.
It is far too early to make any significant decisions based on these initial proposals. Continue to monitor our Tax Reform blog site for updates and additional analysis.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.