Treasury releases fiscal year 2025 Green Book: Details on Biden Administration’s tax proposals

On March 11, 2024, the White House released President Biden’s fiscal year 2025 budget proposal and the U.S. Treasury released the accompanying General Explanations of the Administration's Fiscal Year 2025 Revenue Proposals, a document commonly referred to as the “Green Book.” As expected, the president’s plan calls for tax increases on corporations and high-income individuals (defined as those with annual incomes exceeding $400,000). The plan, if enacted, would reduce the federal budget deficit by an estimated $3.3 trillion over a decade.

The budget and Green Book provide details of the revenue proposals President Biden set out during his State of the Union address last week. Major revenue raisers include increasing the statutory corporate tax rate to 28% and minimum corporate tax rate to 21%, making global tax reforms, instituting a 25% minimum tax on taxpayers with wealth greater than $100 million and reforming other tax provisions for high-income taxpayers. Below we provide more details on the plan’s notable provisions.

Likelihood of enactment

The budget and associated Green Book detail President Biden’s recommendations for federal funding in accordance with the Administration’s policy priorities. Congress isn’t required to consider or enact anything included in the president’s budget; however, it often influences the congressional budget process.

There is limited opportunity for significant tax legislation during the remainder of the 118th Congress, as evidenced by its struggles to enact even bipartisan compromises. For almost six weeks, the Senate has been unable to pass a bipartisan, bicameral tax deal that sailed through the House of Representatives with an overwhelming vote of 357-70. Several prominent Senators have expressed a desire to delay any tax negotiations until 2025, when they believe they may have more negotiating power.

Ultimately, while the Republicans control the House and the Democrats retain only a simple majority in the Senate, one that cannot overcome a filibuster, there is no realistic possibility for any legislation resembling Biden’s proposed budget.

Looking ahead

All eyes are on the 2024 election, as control of the House, Senate and White House will be up for grabs. The outcome of the election is sure to influence the future of tax policy, which is particularly significant as we approach the Jan. 1, 2026, expiration of numerous Tax Cuts and Jobs Act (TCJA) provisions. Unless Congress takes action prior to the expiration date, many individuals and pass-through businesses will see considerable tax increases.

While President Biden’s budget proposals aren’t currently politically viable, the themes are likely to feature in his 2024 presidential campaign. We’ll be providing additional coverage of President Biden and former President Trump’s fiscal policy priorities, as well as details on the TCJA’s expiring provisions in the coming months.

Notable proposals

The following are some of the more notable provisions outlined in the president’s budget and Treasury’s Green Book:

Business tax proposals

Corporate tax proposals

• Increase in the statutory rate from 21% to 28%
• Increase in the corporate alternative minimum tax rate from 15% to 21%
• Increase in the corporate stock repurchase excise tax from 1% to 4%
• Expand the disallowance of a deduction for annual compensation paid in excess of $1 million for all employees (currently this provision is limited to CEOs, CFOs and other key positions) and make it applicable to all C corporations (currently only applies to publicly held)

Pass-through entity tax proposals (Partnership and S corporations)

• Expand the net investment income tax (NIIT) to apply to the pass-through business income of high-income taxpayers
• Prevent basis shifting through partnerships by limiting basis step-ups resulting from transactions between related parties
• Subject excess business losses (EBLs) to retesting in the subsequent year, rather than treating them as net operating losses (NOLs), and make the provision permanent
• Tax carried interests, a type of partnership profits interest received in exchange for services, as ordinary income rather than capital gains for partners with taxable income exceeding $400,000
• Amend the centralized partnership audit regime to permit the carryover of a reduction in tax that exceeds a partner’s tax liability

Other business tax proposals

• Eliminate fossil fuel tax preferences by repealing over a dozen deductions, credits or other special provisions targeted toward encouraging oil, gas and coal production
• Make the new markets tax credit (NMTC) permanent with an annual allocation of $5 billion per year, with the amount indexed for inflation after 2026
• Tighten rules for private jet travel, expanding the recovery period for private aircraft and substantially increasing the excise tax on kerosene

Individual tax proposals

Individual tax increase proposals

• Impose a minimum tax rate of 25% on the total income of individuals with wealth of $100 million or more
• Increase the top marginal income tax rate from 37% to 39.6% and lower the top bracket from $731,200 for married taxpayers filing jointly and $609,350 for single taxpayers to $450,000 and $400,000, respectively
• Tax long-term capital gains and qualified dividends at ordinary income rates, rather than long-term capital gains rates, for taxpayers with taxable income of more than $1 million
• Increase the additional Medicare tax rate from 0.9% to 2.1% and the NIIT rate from 3.8% to 5%, for taxpayers with more than $400,000 of income
• Limit taxpayer’s deferral of gain in a Section 1031 like-kind exchange of real property to $500,000 ($1 million for taxpayers filing jointly) per year
• Require real property recaptured gain to be taxed as ordinary income, rather than at a preferential rate, for taxpayers whose adjusted gross income exceeds $400,000
• Limit the tax benefits of private placement life insurance by changing the ordering rules for distributions, subjecting some amounts paid after the insured’s death subject to ordinary income tax, and making other associated adjustments

Individual tax benefit proposals

• Expand the Child Tax Credit from $2,000 to $3,000 ($3,600 for children under age 6) for taxpayers with taxable income below certain thresholds, increase the qualification age from 16 to 17, and provide monthly advances of the credit
• Make permanent the current premium tax assistance levels for individuals who purchase health insurance through an exchange established by the Affordable Care Act, which are currently set to expire at the end of 2025
• Establish a first-time homebuyer credit and a home seller credit equal to 10% of the purchase price of a home up to $10,000 for taxpayers with taxable income below certain thresholds

Trust and estate tax proposals

• Modify grantor trust rules by addressing three common planning techniques that allow the grantor to remove significant value from their estate without federal tax consequences
• Prescribe rules for valuing partial interests in property for certain intrafamily transfers
• Treat certain transfers of appreciated property by gift or death as realization events, subjecting them to capital gain rates

International tax proposals

International business tax proposals

• Revise the global intangible low-taxed income (GILTI) rules with respect to controlled foreign corporations, including the removal of the qualified business asset investment (QBAI) exemption, the reduction of the Section 250 deduction and switching from a “global averaging” to a more restrictive “jurisdiction-by-jurisdiction” calculation
  These changes, in combination with the proposed corporate tax rate would raise the GILTI effective rate from 10.5% to 21%
  Offsetting relief allowing for the carry forward of GILTI related losses and excess foreign tax credits is also provided subject to limitations
• Revise application of the foreign tax credit limitation by changing to a “jurisdiction-by-jurisdiction” approach
• Repeal the high-tax exemption to subpart F and GILTI deemed inclusion amounts
• Limit inversions by broadening the definition of an inversion transaction
• Replace the Base Erosion and Anti-Abuse Tax (BEAT) regime with an undertaxed profits rule (UTPR) similar to that under the Organization for Economic Cooperation and Development’s (OECD’s) Pillar Two Model Rules
• Restrict deductions of excessive interest of members of financial reporting groups
• Limit deductions for dividends received by certain U.S. corporation shareholders from noncontrolled foreign corporations
• Repeal the deduction for foreign-derived intangible income (FDII)
• Create a new general business credit equal to 10% of expenses paid to onshore and disallow deductions for expenses paid to offshore a U.S. trade or business
• Introduce new measures to increase taxpayer compliance and facilitate IRS enforcement for the substantiation of foreign tax credit claims and the reporting of foreign tax redeterminations

International individual tax proposals

• Increase the foreign tax credit (FTC) threshold limitation exception from $300 ($600 in the case of taxpayers filing jointly) to $600 ($1,200 in the case of taxpayers filing jointly), and indexing the limit for inflation

Other tax proposals

Internal Revenue Service (IRS) Proposals

• Extend mandatory funding of the IRS, originally provided by the Inflation Reduction Act, through the 2034 fiscal year
• Require electronic filing of returns reporting a certain amount of income or that are complex business entities, including individuals with income of $400,000 or more and certain entities with more than 10 owners or more than $10 million in assets
• Require electronic filing of certain information returns
• Extend the statute of limitations on all Employee Retention Credit claims and paid sick and family leave tax credit to five years (currently the statute has been extended only for claims filed in certain 2021 quarters)
• Increase the statute of limitations from three years to six years for tax returns with omissions of over $100 million of income and for returns reporting benefits from listed transactions
• Make repeated willful failure to file tax returns a felony when three filings are missed over a five-year period and the tax underpayment is more than $250,000

Digital asset tax proposals

• Subject digital assets to wash sale rules
• Allow actively traded digital assets to be marked-to-market by dealers or traders
• Require taxpayers holding more than $50,000 in certain foreign digital assets to disclose their investments

Questions? Reach out to your Baker Tilly advisor if you have questions on how this may impact you.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments. Baker Tilly US, LLP does not practice law, nor does it give legal advice, and makes no representations regarding questions of legal interpretation.