Budget and Greenbook detail Biden’s tax proposals

By Alistair M. Nevius, J.D.

Editor: Paul Bonner

President Joe Biden's administration unveiled its proposed budget for fiscal year 2022 in late May. Treasury said 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 and 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 incenatives to support housing and infrastructure, and clean energy incentives.

Along with the proposed budget, Treasury released its General Explanations of the Administration's FY2022 Revenue Proposals (Greenbook), which explains the budget's revenue proposals.

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 (those with adjusted gross income over $1 million) at a 37% rate; and
  • Imposing capital gain tax on property transferred by gift and on property owned at death.

Other proposed changes include making permanent the 2021 expansions by the American Rescue Plan Act, P.L. 117-2, of premium assistance tax credits, the earned income tax credit for workers without qualifying children, the child tax credit, and the child and dependent care tax credit.

To improve tax compliance and administration, the budget proposes increasing oversight of return preparers by providing Treasury with explicit authority to regulate paid preparers of federal tax returns, including establishing minimum competency standards and providing additional funding for the IRS to address sophisticated tax evasion. It also proposes expanding the IRS's authority to require e-filing of returns, expanding information reporting for cryptoassets, and modifying certain tax administration rules.

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%;
  • Repealing the global intangible low-taxed income (GILTI) exemption for foreign oil and gas extraction income;
  • Repealing the deduction for foreign-derived intangible income (FDII);
  • Replacing the Sec. 59A base-erosion and anti-abuse tax (BEAT) with a new "stopping harmful inversions and ending low-tax developments" (SHIELD) rule;
  • Imposing a 15% minimum tax on book earnings of large corporations; and
  • 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.

The budget also proposes expanding the low-income housing credit, making the new markets tax credit permanent, establishing a neighborhood homes investment tax credit, and providing federally subsidized state and local infrastructure bonds.

In the area of clean energy, the budget proposes eliminating various fossil fuel tax preferences and expanding or establishing an array of energy-related credits and other tax incentives.

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