Coming on the coattails of the now stagnant Build Back Better Act (BBBA), President Biden has proposed a fiscal year 2023 budget to Congress. Totaling $5.8 trillion overall, many of last year's budget proposals and BBBA provisions have been reintroduced. New proposals in the budget include—perhaps most notably—a 20 percent minimum tax on a high-wealth taxpayer's income. With an interesting mix of revenue positive and revenue negative proposals, only time will tell what Congress will consider acceptable. Here are what could be some of the most impactful proposals in the budget:
20 Percent Minimum Tax: Taxpayers would have a 20 percent minimum tax imposed on their income if their wealth is more than $100 million. Wealth would be determined by taking a taxpayer's total assets and subtracting their total liabilities. Importantly, income for this purpose would include unrealized capital gains—which at this time is not a tax generating item.
Increase in Tax Rates: Under the budget proposal, corporate tax rates would increase from 21 percent to 28 percent. The resulting global intangible low-taxed income effective rate would be 20 percent. The top marginal individual tax rate would rise from 37 percent to 39.6 percent. The long-term capital gain and qualified dividend rate would rise from the current 20 percent to ordinary rates for income in excess of $1 million. Gains on the sale of Section 1250 real property would also be subject to ordinary tax rates for depreciation claimed after the change if passed.
Capital Gain Recognition at Death or Gift: Gain would be recognized upon the transfer of an appreciated asset due to death or gift. Certain exclusions would apply.
Tax Incentives: The proposed budget would implement a variety of tax incentives to either encourage or deter certain activity. Included in these incentives are credits for onshoring U.S. trades or businesses, expanding benefits for low-income housing credits, repealing multiple oil and gas incentive credits and other favorable tax treatment of certain items and extending adoption credits. The generation-skipping tax exemption would be restricted. Additionally, conservation easements would be made less available to partnerships in certain situations.
Repeal of Like-Kind Exchange Benefits: Over certain thresholds, real property like-kind exchanges would no longer result in gain deferrals.
For taxpayers with international activity, it should also be noted that the Base Erosion Anti-Abuse Tax would be replaced with another mechanism (the Undertaxed Profits Rule (UTPR)).
The U.S. Department of Treasury's "Green Book" provides further commentary on the reasoning for these proposals. What portion, if any, of this budget will become law is uncertain. We will continue to keep you informed of updates as they arise.