President Biden has released his proposed budget for the 2025 fiscal year, which includes numerous tax provisions affecting businesses and individual taxpayers. While most of these provisions have little chance of coming to fruition while the U.S. House of Representatives remains controlled by the Republican Party, they might gain new life depending on the outcome of the November elections. Here’s an overview of the major tax proposals included in the budget.
Business Tax Provisions
The budget proposal includes many changes that could affect businesses’ tax outlook, several of which Biden has previously endorsed. Among the most notable:
Corporate tax rates. Under this proposal, the tax rate for C corporations would increase from 21% to 28%—still below the 35% rate that was in effect before the Tax Cuts and Jobs Act (TCJA). The influential global intangible low-taxed income (GILTI) rate would increase to 14%, and additional proposed changes would increase the effective GILTI rate to 21%. The corporate alternative minimum tax rate would also increase to 21% from 15%.
Executive compensation. Biden proposes extending the current limitation on the deductibility of compensation over $1 million for certain executives in publicly owned C corporations to privately held C corporations. A new aggregation rule would treat all controlled group members as a single employer to determine covered executives.
Excess business loss (EBL) limitation. Under the TCJA, noncorporate taxpayers can apply their business losses to offset only business-related income or gain. There’s also an inflation-adjusted threshold (for 2024, $305,000 or $610,000 if filing jointly). The proposal would make this limitation permanent and treat EBLs carried forward from the prior year as current-year business losses rather than as net operating loss deductions.
Stock buyback excise tax. The Inflation Reduction Act (IRA) created a 1% excise tax on the fair market value of stock when corporations repurchase their stock to reduce the difference in the tax treatment of buybacks and dividends. The proposal would quadruple the tax to 4% and extend it to the acquisition of an applicable foreign corporation by certain affiliates of the corporation.
Like-kind exchanges. Owners of particular real property can defer the taxable gain on exchanging the property for real property of a “like-kind.” The proposal would allow the deferral of gains up to $500,000 for each taxpayer ($1 million for joint filers) each year for real property like-kind exchanges. (Other types of assets wouldn’t be eligible.) Excess like-kind gains would be recognized when the taxpayer transfers the real property.
Individual Tax Provisions
Biden continues to promise that he won’t raise taxes on filers earning less than $400,000 annually but opposes extending tax cuts for those making more than that amount. Among other things, his budget proposal would affect:
Tax rates. The proposal would return the top individual marginal income tax rate for single filers earning more than $400,000 ($450,000 for joint filers) to the pre-TCJA rate of 39.6%.
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 tax. The budget would also increase the additional Medicare tax rate (on earnings above $400,000) and the NIIT rate (on investment income above $400,000) to 5%.
Capital gains taxes. Individuals with taxable income exceeding $1 million would see capital gains taxed at ordinary income rates, up from the current highest rate of 20%. Unrealized gains at death would also be taxed, subject to a $5 million exemption ($10 million for married couples).
Child Tax Credit (CTC). The proposal would boost the maximum per-child credit to $3,600 for qualifying children under age six and $3,000 for all other qualifying children through 2025 and increase the maximum age to 17. It also would implement an advance monthly payment program, establish a “presumptive eligibility” concept, and permanently make the CTC fully refundable.
Premium tax credits (PTCs). Biden would make permanent the IRA’s expansion of health insurance subsidies to taxpayers with household income above 400% of the federal poverty line and reduce the amount of household income that must be contributed to qualify for PTCs.
Gift and estate taxes. The proposal would close several gift and estate tax loopholes that help the wealthy reduce taxes. For example, certain transfers would be subject to a new annual gift tax exclusion, whereby a donor’s transfers exceeding $50,000 in a year would be taxable regardless of whether the total gifts to each individual recipient didn’t exceed the annual gift exclusion amount ($18,000 per recipient in 2024).
Tax Changes Are Coming One Way or Another
Even if none of these provisions are enacted as proposed, new legislation addressing taxes is likely in the next year or two. Indeed, absent congressional action, many significant TCJA provisions are scheduled to expire after 2025. Extensive tax debates and negotiations will likely soon take center stage.
