Spring in our nation's capital can always be marked by three telltale signs: cherry blossoms blooming, 8th graders descending from across the country, and a presidential budget request.
The president issues a budget request each year detailing his tax and spending priorities. The request is always an aspirational document, a kind of political wish list. It is not a binding agreement in any way. For any of the included provisions to become law, they must be introduced by a lawmaker, reviewed and marked up in committee, and then proceed with the rest of the bill. I'm just a bill sound.
To that end, on March 11, President Joe Biden released his budget request for fiscal year 2025, which begins on October 1. This year's budget request is presented as a continuation of the president's efforts to build the economy from the bottom up. and in the middle outside.
Sometimes, when the same party as the White House securely controls Congress, budget requirements it can serve as a blueprint for lawmakers to carry out the president's agenda. But usually, especially during a government as divided as we are now, a proud legislative branch pays little attention to demand before determining its course on taxes and spending. However, these budget requests are invaluable in discerning the president's priorities. And in an election year, the budget request could provide a first look at the president's campaign agenda.
This year's plan calls for trillions in tax increases on the wealthy and corporations to fund new social programs. Although these new programs and proposed tax increases have little or no chance of advancing this year in a divided government, they illuminate what Biden plans to focus on this fall and potentially a second term. It is more than likely that Democrats in Congress will also look to this document as they crystallize their campaign plans ahead of a hotly contested election season.
Expanding social programs and taxing the rich
The central theme of the tax components of the president's budget can only be characterized as “tax the rich.” The request proposes $4.9 trillion in tax increases, targeting mostly corporations and the wealthy through increased corporate rates, a new billionaire income tax on those with more than $100 million in wealth, and other provisions that target wages. seniority and capital gains.
As you may know, most of the individual tax cuts enacted in the Tax Cuts and Jobs Act (TCJA) of 2017 expire at the end of next year, and members of both parties have expressed interest in renewing them. provisions, especially those that benefit the middle class. In Washington DC, that means an opportunity to modify the Tax Code is imminent. To pay for extending the tax cuts, which both parties have prioritized amid growing debt and deficits in recent years, lawmakers will need to generate trillions in new revenue, either through tax increases or spending cuts. . This makes what the key players in this election say about taxes crucial to understanding for organizations and individuals with an interest in tax reform.
If the Democratic Party and President Biden are reforming the Tax Code, it is unlikely that they will pass up the opportunity to try to pass or expand social programs. That's the exact plan they pursued, with little ultimate success compared to their original goals, with the Build Better Better Act during the early days of the Biden presidency. And from the looks of the spending provisions in the budget, they are continuing down that path. But this is not the only possible scenario.
The Republican fiscal agenda
While it's still early days, current political polls and a favorable Senate map with few Republicans facing complex re-election bids this fall suggest the GOP may have more power in Washington, or at least in the upper chamber, this year. times next year. when work on tax reform will be well underway in the halls of Congress.
On top of that, former president and presumptive GOP nominee Donald Trump has laid out some concrete tax plans. However, he has said he would make permanent the expired individual provisions of his most important legislative achievements (CLA) if given another term. However, he has offered few details on how he would do this and has yet to hint at a direct economic platform. We'll likely see more of this in the coming months.
In Congress, there is broad support for extending expiring provisions and paying for that extension, as the party has completely abandoned the 2017 talking point that tax cuts pay for themselves. However, there may be some disagreement about how far to go. Leadership members on tax-writing committees have said lawmakers should evaluate the Tax Code as a whole, rather than working only with expiring provisions, to consider what works, what doesn't and what levers they can pull to increase income to pay. for cuts.
With the entire Tax Code on the table for reform, a willingness to pay to extend expiring cuts and significant turnover on the Republican side of the aisle over the past seven years, even a GOP-led effort similar to the 2017 bill It might look different this time.
Revealing the Opening for Tax Reform
While it may have little short-term impact, President Biden's budget request illuminates a possible starting point for Democrats when Washington undertakes tax reform efforts next year. If we had a divided government on this effort, the budget also clarifies the type of proposals — both on the revenue and spending side — Democrats would want to include to secure their support.
The Republican view is still a bit murky. But we know the party will not offer a clean extension of the expiring provisions without payment.
With all of this in mind, it's essential to stay informed about how the Tax Code may change in the coming years and what that means for estate planning. If Biden's request drives home anything, the contours of tax reform will be broad. Get ready.
For more information on tax policy in 2024 and 2025, see “Setting the table for tax policy this year and next.”