This tax policy alert includes an overview of the Budget, key takeaways on various revenue proposals, and a summary of the revenue proposals included in the Green Book. Click here for a summary of tax proposals in the Green Book.
Budget Overview
On Monday, March 28, the Biden administration released its $5.8 trillion fiscal year (FY) 2023 budget request (“Budget”) and various accompanying documents. This includes the Green Book, which provides cost estimates and descriptions for the revenue proposals in the Budget prepared by the Department of the Treasury.
The Budget includes new tax increases and other measures that are intended to reduce federal deficits by $1 trillion over 10 years. It also contains $813 billion in proposed defense discretionary spending and about $769 billion in non-defense discretionary spending.
Below is an overview of key numbers in the president’s Budget.
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Type
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FY 2022 Actual
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FY 2023 Proposed
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Total Receipts
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$4.431 trillion
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$4.509 trillion
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Total Spending
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$5.852 trillion
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$5.685 trillion
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Deficit
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$1.421 trillion
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$1.176 trillion
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Federal Debt
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$24.836 trillion
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$26.033 trillion
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Key Takeaways
- The Budget Assumes the Enactment of the House-Passed Version of the Build Back Better Act (BBBA). Despite the absence of a deal on budget reconciliation, the Budget assumes the enactment of BBBA by including a deficit-neutral reserve fund (DNRF) to account for the tax provisions in the House-passed BBBA. While the DNRF is separate from the current Budget request, it still incorporates the revenue effects of the tax and spending provisions into the baseline. Specifically, the Green Book states, “the revenue proposals are estimated relative to a baseline that incorporates all revenue provisions of Title XIII of H.R. 5376 (as passed by the House of Representatives on Nov. 19, 2021), except Sec. 137601 [SALT relief].” As a result, the Budget is assumed to include all revenue proposals that were included in the House-passed version of BBBA, such as the 15% book-profits minimum tax, the stock buyback excise tax, and the package of proposals reforming the international tax system. The absence from the Green Book of a provision that was included in the House-passed version of the BBBA should not be read as a lack of support from the administration. All proposals included in the House-passed BBBA are still viable, and with negotiations on reconciliation still expected to resume, a pathway to enactment remains for many of these provisions.
Additionally, the Budget document notes that the president supports the following legislative spending priorities:
[L]egislation that: cuts costs for prescription drugs, health care premiums, child care, long-term care, housing, and college, including tuition-free community college and expanded support for Historically Black Colleges and Universities (HBCUs), Tribally Controlled Colleges and Universities (TCCUs), and Minority-Serving Institutions (MSIs); reduces energy costs by combatting climate change and accelerating the transition to a clean energy economy while creating good-paying jobs for American workers; supports families with access to free, high-quality preschool and paid family and medical leave and by continuing the enhanced Child Tax Credit and earned Income Tax Credit; and provides health coverage to millions of uninsured Americans.
The administration has indicated that this approach is intended to ensure that the Budget does not interfere with congressional negotiations by choosing among House-passed BBBA proposals. In recent weeks, Sen. Joe Manchin (D-WV) has made clear that he is likely to support only a narrow deal that includes climate-change and energy provisions, various revenue raisers and drug-pricing reform. On the latter two priorities, Sen. Kyrsten Sinema (D-AZ) has noted her opposition to certain proposals Manchin has put back on the table. It is unclear if a deal will come together.
- The Budget Includes Proposals That Were Rejected in BBBA. In addition to support for all proposals that were included in the House-passed version of the BBBA, the Budget resurrects proposals that were unable to secure sufficient support from Democrats to be included in the bill last year. Examples include an increase in the corporate rate to 28%, an increase of the top marginal income tax rate for high-income earners, and an increase in the top capital gains tax rate. In a recent statement, Manchin has expressed an interest in proposals like the increased corporate income tax and a tax increase for high-income individuals. However, given Sinema’s previous vocal opposition, these provisions are not likely viable. The dynamics around proposals that were previously rejected during BBBA negotiations have not changed.
- The Budget Includes Several Proposals That Potentially Conflict with Provisions in the House-Passed Version of the BBBA. The Budget also includes new proposals, some of which build upon BBBA and others that seem to supplant ones included in BBBA. Examples include:
- Undertaxed profits rule (UTPR). The Budget proposes to repeal and replace the Base Erosion Anti-Abuse Tax (BEAT). The UTPR is intended to align with a similar concept in the OECD Pillar Two Model Rules. Additionally, this proposal contemplates a domestic minimum top-up tax—the Qualified Domestic Minimum Tax (QDMT)—that would apply when another jurisdiction adopts the UTPR. Both provisions suggest that the Budget is proposing to replace the BEAT modifications and the book-profits minimum tax in the House-passed version of the BBBA, even though they are assumed to have been enacted and included in the baseline for the Budget.
- Stock Buyback Provision. The Budget includes a proposal to prohibit executives from selling shares in their companies for an unspecified number of years following a stock buyback. The new provision is not included in the Green Book and is only referenced in the Budget documents, which is unusual for tax proposals. No additional details have been provided, and it is unclear if the proposal is intended to replace or supplement the 1% tax on corporate stock buybacks included in the House-passed version of the BBBA. Key Democrats have not yet weighed in on the proposal—it may not have sufficient support to be included in a reconciliation bill.
- Billionaire Tax. Despite the rejection of a wealth tax and the mark-to-market regime in the House-passed BBBA by moderate House and Senate Democrats, the Budget includes a new proposal for a 20% minimum tax on high-income individuals. Projected to raise about $360 billion over 10 years, the tax would apply on total income, including unrealized capital gains income for taxpayers with a net worth over $100 million. Within hours of the Budget’s release, Sen. Joe Manchin (D-WV) signaled his lack of support for the proposal.
- New Proposals May Be Here to Stay and Offer Insight into the Administration’s Regulatory Priorities. With budget reconciliation stalled and midterm elections looming, the administration is getting ready to pivot to its regulatory agenda. The new proposals in the Budget offer insight into areas that the administration may seek to address through regulation. For example, while legislative attempts to modify income, estate and gift tax rules for certain high-income and high-net-wealth individuals have failed, the administration may seek to change rules governing estate-planning tools like grantor trusts through the regulatory process. The IRS released an update to its Priority Guidance Plan (PGP) on Feb. 22, 2022, which set forth guidance priorities from July 2021 through June 2022. The new PGP, generally released in September, may offer insight into which Budget priorities have found their way into the regulatory agenda as well as other targets of the administration’s regulatory agenda.
Click here for a full breakdown of the Biden administration’s FY 2023 Budget request.
Internal Revenue Service
The Budget requests $14.1 billion for the Internal Revenue Service (IRS), a $1.5 billion or a nearly 12% increase over its FY 2022 enacted level. It specifically requests additional resources to improve taxpayer experience, expand customer service outreach to underserved communities, accelerate the development of new digital tools to enable better communication between taxpayers and the IRS, and facilitate more effective oversight of high-income and corporate tax returns.
The Budget is intended to support the IRS’ key strategic priorities, which include:
- Taxpayer Service Account. The proposed Taxpayer Services funds would allow the IRS to provide services to taxpayers through in-person, telephone and web-based methods that will help them understand their tax obligations, correctly file their returns and pay taxes in a timely manner.
- Enforcement Account. The proposed Enforcement funds would help the IRS identify fraud, address offshore tax evasion, strengthen examination and collection programs and address compliance issues in the tax-exempt sector.
- Operations Support Account. The proposed Operations Support funds would aid the IRS in its overall planning, operations and critical infrastructure activities. These include the agency’s IT and cybersecurity systems that safeguard taxpayer data and the agency’s physical facilities.
- Business Systems Modernization Account. The proposed Business System Modernization funds would help the IRS implement advanced IT systems. They also would support updated online tools through which taxpayers can check their account balance, set up payment plans and connect with IRS officials.
Next Steps
The Budget kicks off congressional negotiations over FY 2023 spending legislation. The first step in that process will begin this week when the congressional budget committees hear testimony from Office of Management and Budget (OMB) Director Shalanda Young. Below is the full list of Budget-related hearings that have been announced to date:
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Committee
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Title
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Date
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House Budget Committee
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President Biden’s FY 2023 Budget
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March 29
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Senate Budget Committee
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The President’s FY 2023 Budget Proposal
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March 30
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House Appropriations Committee
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FY 2023 Budget Request for the U.S. Capitol Police
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March 30
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House Appropriations Committee
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FY 2023 Budget Request for the Department of Health and Human Services
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March 31
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House Appropriations Committee
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FY 2023 Budget Request for the Government Accountability Office
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April 5
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Senate Finance Committee
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The President’s FY 2023 Health and Human Services Budget
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April 5
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House Appropriations Committee
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FY 2023 Budget Request for the Congressional Budget Office
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April 5
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House Ways and Means Committee
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Proposed FY 2023 Budget for the Health and Human Services Department
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April 5
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House Appropriations Committee
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FY 2023 Budget Request for the Office of Congressional Workplace Rights
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April 5
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House Armed Services Committee
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Department of Defense’s Budget Request for FY 2023
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April 5
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Senate Environment and Public Works Committee
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The President’s Proposed Budget Request for FY 2023 for the Environmental Protection Agency
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April 6
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House Appropriations Committee
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FY 2023 Budget Request for the House of Representatives
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April 6
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House Appropriations Committee
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U.S. Citizenship and Immigration Service FY 2023 Budget Request
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April 6
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Senate Appropriations Committee
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FY 2023 Budget for the Army Corps of Engineers and the Bureau of Reclamation
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April 6
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House Appropriations Committee
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FY 2023 Department of Veterans Affairs Budget
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April 6
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House Appropriations Committee
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DHS Office of Inspector General FY 2023 Budget Request
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April 6
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House Armed Services Committee
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FY 2023 Strategic Forces National Security Space Programs
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April 6
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House Budget Committee
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Department of Health and Human Services FY 2023 Budget
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April 6
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Senate Finance Committee
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The IRS, the President’s Fiscal Year 2023 Budget and the 2022 Filing Season
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April 7
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Click here for a full breakdown of the Biden administration’s FY 2023 Budget request.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING THE EFFECTS OF PRESIDENT JOE BIDEN'S BUDGET ON TAX POLICY. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS