Earlier today, the White House released its fiscal year (FY) 2024 budget request to Congress. Overall, it proposes $6.9 trillion in total spending, including a proposed $880 billion for defense and approximately $992 billion in non-defense discretionary spending. President Joe Biden unveiled the document at a public event at a Philadelphia union hall today.
As expected, the budget offers a range of proposals to increase taxes on businesses and high-income individuals. In recent weeks, Biden has frequently reiterated his promise that the budget proposal is not intended to raise taxes on individuals with annual incomes below $400,000. Many of the tax provisions in the FY 2024 budget were included in prior administration budget requests and have thus far failed to attract sufficient support from Congress.
Below are the corresponding documents for the FY 2024 budget:
- Fact Sheet. Top-line summary of various proposals in the budget.
Notably, the “appendix” and “analytical perspectives” documents, which are usually released in conjunction with the budget, will likely be delayed until March 15.
Separately, the Treasury Department released its General Explanations of the Administration’s Fiscal Year 2024 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 a summary and analysis of the tax provisions included in the administration’s FY 2024 budget, which will be published in the coming days. In the meantime, below are a few high-level takeaways concerning the tax-related funding proposals.
Tax Overview
The budget requests $14.1 billion for the Internal Revenue Service (IRS), a $1.8 billion or nearly 15% increase over its FY 2023 enacted level. The budget also proposes an extension of expanded IRS resources to provide the agency with above-baseline funding in 2032 and 2033, after the additional $80 billion provided by the Inflation Reduction Act (IRA) expires.
With respect to business taxation, Biden is reproposing that Congress increase the current corporate income tax rate from 21% to 28%, a change estimated to increase taxes by $1.3 trillion over the next decade. The budget also proposes an increase to the current 1% excise tax on corporate stock buybacks, increasing it to 4%. In addition, the budget includes a number of provisions that were included in the House’s Build Back Better reconciliation bill but were dropped from the final version that became the IRA. New provisions are also included to accelerate and tighten rules on excess employee remuneration and to reform excess business loss limitations for noncorporate taxpayers.
As previewed earlier this week, the budget includes several tax increases 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 in Biden’s recent State of the Union address. This proposal mirrors similar provisions in his FY 2023 budget that would impose a 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. The NIIT modification also would 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 currently set 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 adopt an Undertaxed Profits Rule to align the U.S. tax system with the 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 several 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 also would expand the Low-Income Housing Tax Credit and make permanent the New Markets Tax Credit, which is currently set to expire in 2025.
These proposals and others will be outlined in greater detail in Brownstein’s forthcoming summary and analysis.
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. Both parties’ positions will become clearer when the House Ways and Means and Senate Finance committees hold their hearings tomorrow and next Thursday, respectively, to review the budget request with Treasury Secretary Janet Yellen, who will appear at both hearings to answer lawmakers’ questions concerning the proposal.
In the coming weeks, Republicans will likely release their own fiscal year 2024 budget package. In contrast to Democrats’ reliance on tax increases to balance the budget, the GOP budget plan will likely include significant reductions in non-defense federal spending. However, House Speaker Kevin McCarthy (R-CA) has indicated that Social Security and Medicare cuts will be “completely off the table” in budget negotiations.
