President's budget contains many tax proposals

May 28, 2021

By Alistair M. Nevius, J.D., Journal of Accountancy

President Joe Biden’s administration unveiled its proposed budget for fiscal year 2022 on Friday. Treasury says the $6 trillion proposed budget focuses on infrastructure, clean energy, and research and development, and among its many provisions are a host of proposed tax changes affecting individuals and corporations.

One set of tax and revenue proposals, named the American Families Plan, would increase taxes on high-income individuals, make permanent various recent tax credit expansions, further limit like-kind exchanges, and address various tax administration issues, including regulation of paid tax return preparers.

Other proposals are grouped under the name American Jobs Plan, and they include a variety of corporate tax changes, including raising the corporate tax rate and imposing a minimum tax on corporations, tax incentives to support housing and infrastructure, and clean energy incentives.

Along with the proposed budget, Treasury released its General Explanations of the Administration’s FY2022 Revenue Proposals (Greenbook), which explains the budget’s revenue proposals. In a prepared statement, Treasury Secretary Janet Yellen described the budget’s tax proposals as “fair and efficient tax reform.”

American Families Plan

The proposed budget would make three changes to the taxation of high-income individuals:

  • Increasing the top marginal income tax rate for high earners from 37% to 39.6% for taxpayers with taxable income over $509,300 for married taxpayers filing jointly and over $452,700 for single filers;
  • Taxing capital gains of high-income individuals (with adjusted gross income over $1 million) at a 37% rate;
  • Imposing capital gain tax on property transferred by gift and on property owned at death; and
  • Rationalizing the net investment income and Self-Employment Contributions Act (SECA) taxes so that all passthrough business income of high-income individuals is subject to either the net investment income tax or SECA tax.

Other proposed changes include:

  • Making permanent the expansion by the American Rescue Plan Act (ARPA), P.L. 117-2, of premium assistance tax credits;
  • Making permanent the expansion of the earned income tax credit (EITC) for workers without qualifying children;
  • Making permanent ARPA’s changes to the child and dependent care tax credit;
  • Extending ARPA’s child tax credit increase through 2025 and making permanent its full refundability;
  • Increasing the employer-provided child care tax credit for businesses to 50% of the first $1 million of qualified care expenses;
  • Taxing carried interests as ordinary income for partners with taxable income over $400,000;
  • Limiting the deferral of gain from like-kind exchanges to $500,000 per taxpayer ($1 million for married taxpayers filing jointly) per year;
  • Making permanent the Sec. 461(l) excess business loss limitation for noncorporate taxpayers.
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