The U.S. Treasury Department released President Biden’s administration’s fiscal year 2025 revenue proposals on March 11, 2024.
The annual “Greenbook” (available here https://home.treasury.gov/system/files/131/General-Explanations-FY2025.pdf ) explains revenue proposals contained in the fiscal year 2025 budget recommendation. Although there are noteworthy changes in this year’s proposal compared to last year’s proposal, many of the items should be familiar to taxpayers—since they’ve been proposed in prior years in similar fashion (see last year’s article here https://www.schneiderdowns.com/our-thoughts-on/biden-administration-releases-proposed-fiscal-20232024-budget) It’s also likely we’ll continue to see a number of these proposals included in some format in future (2-4 years) budget proposals if the Presidency remains in control of the Democratic Party after the 2024 November election.
These proposals might be incorporated into the 2024 Democratic party platform, but how many end up in enacted legislation is pure conjecture. Note that the Greenbook proposals are priorities of Democrats; Republicans have yet to be heard from in any detail. Some of these proposals will be competing with proposals to either let expire or extend certain tax provisions enacted as part of 2017’s Tax Cuts and Jobs Act and set to expire at the end of 2025. With it being an election year, the chasm between Republican and Democratic parties on many issues, including taxes, appears to be quite wide; and coupled with the current split control in the House versus the Senate, the likelihood of major changes to existing federal tax law seems unlikely at this time.
However, it is important to stay abreast of proposals because these often become the foundation of future legislation. The current Greenbook proposes the following changes (many of which would impact states’ income taxes, which piggyback federal tax law):
- Raise the corporate income tax rate from 21% to 28%.
- Increase the corporate book income alternative minimum tax from 15% to 21%.
- Increase excise on stock repurchase from 1% to 4%
- Deny a compensation deduction exceeding $1 million for all “C” corporations (including privately held corporations).
- Increase the highest individual marginal tax bracket rate from 37% to 39.6% while also reducing the floor on which that income is taxed (from $731,200 to $450,000 for couples married filing jointly for example).
- Increase the additional tax on net investment income from 3.8% to 5% for taxpayers with income exceeding $400,000.
- Increase the capital gain and qualified dividend income tax rates to the highest marginal tax rate for individuals with adjusted gross income exceeding $1,000,000 (meaning capital gains could be taxed at a rate as high as 44.6%)
- Tax carried interests as ordinary income for those making more than $400,000.
- Repeal like-kind exchange treatment for real estate for gains exceeding $500,000 (or $1,000,000 for married individuals filing a joint return).
- Treat all depreciation recapture on sale of Section 1250 property (real property) as ordinary income for individuals with adjusted gross income of $400,000 or more ($200,000 for married individuals filing separate returns)
- Permanently extend the excess business loss limitation past its current expiration date of December 31, 2028, while simultaneously limiting the use of excess disallowed losses to only business income (as opposed to treating the loss limitation as a net operating loss in the following year available to offset other types of income).
- Tax transfers of appreciated property by gift or death as a realization event.
- Impose a 25% minimum tax on total income (including unrealized capital gains) on taxpayers with wealth exceeding $100 million.
- Expand the child tax credit.
- Restore the expanded earned income tax credit for workers without qualifying children.
- Permanently exclude cancellation of student debt from income.
- Provides tax credits up to $10,000 for both first-time home buyers and home sellers with credit phased-out between $100,000 and $200,000 of modified adjusted gross income.
The Greenbook also proposes other changes including the elimination of tax incentives on fossil fuels and would also align the U.S. Global Intangible Low-taxed Income (GILTI) minimum tax with the income inclusion rules under the OECD Pillar Two model rules.
As we have noted in the past, it is important to remember that the above items are only proposals; many of these items have been floated in the past but sank before making it into any final tax legislation. It is much too early to act on any of these proposals, but it is important to remain informed about any legislative bills arising from the Greenbook proposals and the possible implications on your tax situation.
If you have any questions, please do not hesitate to reach out to your Schneider Downs tax consultant.
About Schneider Downs Tax Services
Schneider Downs’ tax advisors have experience and expertise in a wide range of industries, including Automotive, Construction, Real Estate, Manufacturing, Energy & Resources, Higher Education, Not-for-profits, Transportation and others. Our industry knowledge and focus ensure the delivery of technical tax strategies that can be implemented as practical business initiatives.
To learn more, visit our dedicated Tax Services page.
