Earlier today, the White House released its fiscal year (FY) 2025 budget request to Congress. Overall, it proposes $7.3 trillion in total spending, including a proposed $895 billion for defense and approximately $621 billion in non-defense base discretionary spending. The request is the fourth and final budget proposal that Biden will issue before the end of his term. Similar to last week’s State of the Union address, the budget request highlights the policy priorities that will continue to be central to the president’s reelection campaign.
As expected, the budget offers a range of proposals to increase taxes on businesses and high-income individuals. In recent weeks, Biden frequently reiterated his promise that the budget proposal will not raise taxes on individuals with annual incomes below $400,000. Many of the tax provisions in the FY 2025 budget are the same or similar to proposals included in previous Biden administration budgets or early versions of the Build Back Better package. These proposals have thus far failed to attract sufficient support from Congress, but they may be reconsidered next year, depending on the result of the upcoming elections. Below are the corresponding documents for the FY 2025 budget:
Separately, the Treasury Department released its General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals, also known as the “Green Book,” today. This document provides cost estimates and more-detailed descriptions of the tax proposals in the budget.
The Brownstein Tax Policy Team is preparing an analysis of the tax provisions included in the administration’s FY 2025 budget, which will be published in the coming days. In the meantime, below are a few high-level takeaways concerning the tax-related proposals.
Tax Overview
The budget requests $12.3 billion for the Internal Revenue Service (IRS), which is roughly equivalent to the agency’s FY 2023 enacted funding level and a decrease compared to previous Biden administration budget proposals. However, the budget also advocates for $104 billion in additional above-baseline mandatory funding for the agency over the next decade to offset cuts expected to be made through the upcoming appropriations process and extend the supplemental funding provided by the Inflation Reduction Act (IRA) through FY 2034.
With respect to business taxation, Biden is re-proposing that Congress increase the current corporate income tax rate from 21% to 28%, a change estimated to increase tax revenues by $1.3 trillion over the next decade. The budget also includes a proposal included in last year’s request to raise the current 1% excise tax on corporate stock buybacks to 4%, and it would tighten rules on excess employee remuneration and reform excess business loss limitations. A new proposal would increase the 15% Corporate Alternative Minimum Tax enacted as part of the IRA to 21%.
With respect to individual taxation, the budget proposes several tax hikes for high-income taxpayers, including an increase in the top marginal income tax rate to 39.6%. The budget also includes the “Billionaire’s Tax” previewed last week in Biden’s State of the Union address, which mirrors a similar provision in his FY 2024 budget that would impose a 25% minimum tax on all realized and unrealized gains of taxpayers with wealth that exceeds a certain threshold. Similarly, the budget includes a proposal to raise the current Net Investment Income Tax (NIIT) rate from 3.8% to 5% for individuals with over $400,000 in annual income and expand the scope of the NIIT to apply to active passthrough income. Biden said these changes will be used to support the Hospital Insurance Trust Fund, which is expected to be depleted before 2030.
Biden is proposing reforms concerning capital gains to align the taxation of investment gains more closely with income taxes. In addition, the budget proposes to modify rules related to retirement plans to limit the use of certain types of tax-favorable accounts. Similarly, the budget would modify estate, gift and generation-skipping transfer tax rules; revise rules applicable to certain trusts; and limit the use of valuation discounts for certain closely held property.
In the international tax space, Biden is once again pushing for Congress to align the Global Intangible Low-Taxed Income (GILTI) rules and adopt an Undertaxed Profits Rule consistent with the Pillar Two global minimum-tax regime negotiated through the Organisation for Economic Co-operation and Development. Additionally, the budget proposes to repeal the current tax deduction for Foreign-Derived Intangible Income and modify tax rules for certain dual-capacity taxpayers.
The budget includes myriad proposals, drawn from prior budgets, to repeal fossil fuel extraction and production tax provisions, including certain intangible drilling costs and percent depletion deductions. Biden also proposes to repeal certain superfund excise tax exemptions.
On the spending side, the budget would reform Social Security to provide national paid family and medical leave for workers at a cost of $325 billion over the next decade. Moreover, the proposal would expand the current Child Tax Credit with an option for permanent refundability and for eligible taxpayers to receive the credit as a monthly payment. The proposal would also create a new Mortgage Relief Credit, expand the existing Low-Income Housing Tax Credit, and make permanent the New Markets Tax Credit, which is currently set to expire in 2025.
The budget notes that several tax provisions enacted as part of Republicans’ 2017 Tax Cuts and Jobs Act are set to expire after 2025, characterizing the expirations as a deliberate decision to “conceal both the true increase in the deficit ... and the true size of their tax breaks for multi-millionaires and large corporations.” Nonetheless, Biden expresses support for working with Congress to address the expiration of these provisions so that individuals making under $400,000 per year will not be subject to tax increases. The budget itself does not appear to include any proposals to address the expiration of the business tax incentives.
Next Steps
Republicans are expected to oppose a majority of the tax and spending proposed in the Biden budget request, and the extent of congressional Democrats’ support for all of the tax provisions is uncertain. Nonetheless, the current Republican-controlled House ensures that none of these proposals will be enacted in the 118th Congress. House Ways and Means Committee Chairman Jason Smith (R-MO) issued a statement asserting that, if enacted, Biden’s tax proposals would “kill jobs, hurt families and small businesses, and put America at a disadvantage to Communist China.”
Both parties’ positions on the budget will become clearer when the House Ways and Means and Senate Finance committees hold their budget hearings in the coming weeks to review the request with Treasury Secretary Janet Yellen, who is currently slated to appear at both hearings to answer lawmakers’ questions concerning the budget and related legislative proposals. Last week, Republicans on the House Budget Committee unveiled their own high-level budget resolution for FY 2025 intended to serve as a contrast to the Biden administration’s budget proposal. The resolution proposes to reduce the deficit by $14 trillion over the next decade through cuts to discretionary spending and repeals of provisions like the IRA energy credits. On March 7, the resolution was reported favorably by the Budget Committee following a party-line vote. With Democrats controlling the Senate, it is unlikely that an FY 2025 budget resolution will be passed that can be reconciled with the House resolution.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING THE TAX ASPECTS OF PRESIDENT BIDEN'S FY25 BUDGET. 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.