President Joe Biden’s administration unveiled its fiscal year 2022 budget proposal on Friday. The Treasury said the proposed $ 6 trillion budget focused on infrastructure, clean energy, and research and development. , and among its many provisions are a host of proposed tax changes affecting individuals and businesses.
A set of tax and tax proposals, called the American Families Plan, would raise taxes on high-income individuals, make various recent tax credit expansions permanent, further limit similar exchanges, and address various tax administration issues, including including the regulation of tax paid. return preparers.
Other proposals are grouped under the American Jobs Plan name, and they include a variety of corporate tax changes, including increasing the corporate tax rate and imposing a minimum tax on employees. companies, tax incentives to support housing and infrastructure, and clean energy incentives.
Along with the proposed budget, the Treasury published its General explanations of the revenue proposals for fiscal year 2022 of the administration (Green Paper), which explains the budget revenue proposals. In a prepared statement, Treasury Secretary Janet Yellen called the budget’s tax proposals “fair and effective tax reform.”
American Family Plan
The proposed budget would make three changes to the taxation of high income earners:
- Increase the top marginal tax rate for high incomes from 37% to 39.6% for taxpayers with taxable income above $ 509,300 for married taxpayers filing jointly and over $ 452,700 for single filers;
- Tax the capital gains of high income earners (with adjusted gross income greater than $ 1 million) at a rate of 37%;
- Impose a capital gains tax on property transferred by donation and on property owned at death; and
- Streamline Net Investment Income and Self-Employed Contribution Taxes (SECA) so that all business income passed on from high-income earners is subject to net investment income tax or SECA tax .
Other proposed changes include:
- perpetuate the extension by the American Rescue Plan Act (ARPA), PL 117-2, of tax credits for premium assistance;
- Make the extension of the Labor Income Tax Credit (EITC) permanent for eligible childless workers;
- Make ARPA’s permanent changes to the Child and Dependents Tax Credit;
- Extend the increase in the ARPA Child Tax Credit until 2025 and make its full refund permanent;
- Increase the employer-provided child care tax credit for businesses to 50% of the first million dollars of eligible child care expenses;
- Taxation of deferred interest as ordinary income for partners with taxable income greater than $ 400,000;
- Limit the deferral of the gain from exchanges of the same nature to $ 500,000 per taxpayer ($ 1 million for married taxpayers declaring jointly) per year;
- Make Sec. 461 (l) Limitation of Excess Business Losses for Unincorporated Taxpayers.
To improve compliance and tax administration, the budget proposes:
- Provide the IRS with multi-year credit to fight tax evasion;
- The introduction of comprehensive financial account reporting, which would apply to all business and personal accounts of financial institutions, including bank, loan and investment accounts above a threshold of $ 600;
- Increase oversight of tax preparers by giving the Consolidated Revenue Fund explicit authority to regulate paid federal tax preparers, including establishing minimum proficiency standards;
- Improving the accuracy of tax information by expanding the power of the Treasury to require electronic filing and improving reporting
- Expanding Broker Information Reporting Regarding Cryptoassets
- Fight against taxpayers’ non-compliance with listed transactions by extending the limitation period and imposing on shareholders the responsibility of collecting unpaid corporate taxes;
- Modify various tax administration rules; and
- Allow limited sharing of information on corporate tax returns to measure the economy more accurately.
American employment plan
The proposed budget includes the following corporate tax changes:
- Increase the corporate tax rate to 28% against the current 21%;
- Revise the overall minimum tax regime, prohibit deductions attributable to exempt income and limit reversals;
- repeal the global low-tax intangible income (GILTI) exemption for foreign income from oil and gas extraction;
- Repeal of the deduction for foreign source intangible income (FDII);
- Replacement of Sec. 59A Base Erosion and Anti-Abuse (BEAT) tax with a new rule “stop harmful reversals and put an end to low tax rate developments” (SHIELD);
- Limit foreign tax credits on sales of hybrid entities;
- Restrict excessive interest deductions from members of financial reporting groups for disproportionate borrowing in the United States;
- Impose a minimum tax of 15% on the accounting profits of large corporations; and
- Offer a 10% tax credit as an incentive to locate jobs and business activities in the United States and remove tax deductions for expenses incurred in moving jobs overseas.
To support housing and infrastructure, the budget proposes:
- The expansion of the housing tax credit for low-income people;
- Offer a tax credit for investment in new neighborhood homes;
- Make Sec. 45D new markets tax credit; and
- Provide federally subsidized state and local bonds for infrastructure.
In the area of clean energy, the budget proposes:
- Eliminate various tax preferences for fossil fuels;
- Extend and improve various incentives for renewable and alternative energies;
- Grant a tax credit for investments in electricity transmission;
- Granting of a credit allocated for the production of electricity from existing nuclear installations;
- Establish new tax credits for the manufacture of qualifying advanced energy;
- Introduce tax credits for zero-emission heavy and medium-duty vehicles;
- Provide tax incentives for sustainable aviation fuel;
- Offer a tax credit for the production of low carbon hydrogen;
- Extend and improve various incentives for energy efficiency and electrification;
- Provide a tax credit for disaster mitigation;
- Extend and improve the credit for carbon monoxide sequestration;
- The extension and improvement of the electric vehicle charging station credit; and
- Reinstate superfund excise taxes and modify the financing of the oil spill liability trust fund.
– Alistair M. Nevius, JD, (Alistair.Nevi[email protected]) is the JofAeditor-in-chief, taxation.