(Bloomberg) — President Joe Biden's budget proposal — which calls for sweeping tax increases on corporations and the wealthy — is the opening round of a looming tax war that will consume Washington next year.
Congress will be forced into tough negotiations over the future of the tax code, with a large portion of former President Donald Trump's 2017 cuts set to expire at the end of 2025. Many low-income and The middle class will see a tax increase if lawmakers do not act, providing motivation for both Democrats and Republicans.
Trump has vowed to push for “the biggest tax cuts“sometimes if he returns to power. Biden, meanwhile, is pushing for higher tariffs on big businesses and investors, while maintaining some of his rival's cuts.
Here are the details on the tax proposals in Biden's budget request released Monday:
Capital gains
The budget proposal will raise the capital gains tax rate to equalize the taxation of investment income and wages. This means that capital gains for those earning at least $1 million will be taxed at a basic rate of 39.6%, up from 20%.
Biden is proposing raising the 3.8% Medicare tax to 5% for those earning at least $400,000 to support the program's trust fund. That means the wealthiest taxpayers will pay a federal rate of 44.6% on investment income and other gains.
The plan also calls for an estate tax when an owner dies, ending a benefit that allowed unrealized appreciation not to be met when it passed to an heir.
Billionaires tax
Biden is proposing a 25% minimum tax rate for households worth at least $100 million, hitting many of the wealthiest Americans — who currently pay an 8% rate on their income because of tax preferences that were allow them to lower their bills – with significant tax increases. .
Income tax
Biden is proposing to raise the top personal income tax rate to 39.6%, from 37%, for those earning more than $400,000. That higher rate would reverse a cut signed into law by Trump.
Corporate Taxes
Trump's 2017 corporate tax cut would be rolled back significantly, bringing the top rate to 28% from 21%. The proposal also calls for raising the tax that US companies owe on their foreign earnings to 21%, doubling the 10.5% rate in Trump's tax law.
The president also proposed enacting the untaxed profits rule included in the Organization for Economic Co-operation and Development's global minimum tax, which would allow the US to tax a company if it pays below a 15% rate and the country where has headquarters also is not 15% minimum rules do not apply.
Biden would also impose a 21% minimum corporate tax on domestic companies, an increase from the current 15%, meaning some businesses are restricted from using all of their tax breaks.
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Interest paid
The carried interest tax break used by private equity fund managers to lower their tax bills would be eliminated under the Biden plan. Under current law, investment fund managers can pay the 20% capital gains rate on a portion of their income that would otherwise be subject to the top 37% rate on individual income.
Stock return tax
The plan would quadruple a tax on stock returns that was added to the tax code in Biden's Inflation Reduction Act. The proposal, to raise the rate to 4% from 1%, would reduce the differential tax treatment between share buybacks and dividends and encourage companies to spend that money on salaries or equipment.
Executive compensation, private jets
The proposal would deny corporate tax breaks for compensation paid to any employee that exceeds $1 million. It expands a provision in Trump's law that denied payroll tax cuts to a narrow group of executives.
Biden's plan also eliminates tax breaks for private jet travel. Last month, the Internal Revenue Service announced it would increase controls on the use of private jets by large companies and high-income taxpayers.
Property taxes, gifts
Biden calls for strengthening tax rules governing estates and gifts, making it harder for wealthy individuals and trusts to avoid taxes. Imposing more estate tax rules would mean wealthy individuals would face additional taxes on their estates when they die before that money passes to their heirs.
Real estate
The budget proposal would eliminate a tax break known as “like-kind exchanges” that allows wealthy investors to avoid paying taxes on the proceeds of a property sale if they reinvest those gains in real estate.
Oil and gas
Biden is renewing his call for Congress to end tax incentives beloved by the oil and gas industry, including a deduction for some drilling costs, a write-off for production from marginal wells and a tax break under which owners of Mineral rights holders can claim some of the value of oil and gas reserves removed from their property.
Child tax credit
Biden would expand the child tax credit to $3,600 for children under six and $3,000 for older children, up from $2,000 — reverting to a more generous version that Democrats passed in 2021 during the height of the Covid-19 pandemic . The plan would also extend the Earned Income Tax Credit, a benefit for low-income workers, to individuals who do not have children.