The fiscal year 2023 budget was proposed to Congress on March 28, 2022.
This week President Joe Biden sent Congress a $5.8 trillion budget for fiscal year (FY) 2023. Included in the budget are significant tax proposals impacting both individuals and corporations. By way of explanation, the administration has emphasized its goal of reforming certain existing tax provisions, while generating the revenue needed to pay for improvements to the country’s infrastructure and to support other fiscal priorities of importance to this administration.
What key components of the budget will impact individuals?
The changes put forth in this budget set a tone that reflects the President’s perspective and priorities. A list of the key changes that are anticipated to have the most effect on individuals includes:
- Raising the top marginal tax rate to 39.6% which would be applicable for wealthy individuals with a taxable income of over $450,000 for married couples filing jointly; or taxable income of $400,000 for unmarried individuals; of $425,000 for head of household filers; or taxable income of $225,000 for married individuals filing separately.
Additionally, for those individuals with wealth over $100 million, the budget seeks to impose a minimum tax of 20% on the total income, generally inclusive of unrealized capital gain. - Taxing the long-term capital gains and qualified dividends as ordinary income tax rates for taxpayers with taxable income of more than $1 million ($500,000 for married individuals filing separately)
- Making the elimination of certain forgiven or discharged student loan debt from gross income permanent so that it will not be subject to taxation
- Aiding families with adoption expenses by making the adoption credit fully refundable.
- Modifying income, estate and gift tax rules for certain grantor trusts while also requiring the consistent valuation for promissory notes, limiting the duration of the generation skipping transfer tax exemption, and improving the protocol for the tax administration of trusts and estates
- Making the New Markets Tax Credit permanent with the expectation of building momentum for greater investment in low-income communities and offering selective, geographically grounded boosts for bond-financed low-income housing credit projects with the intention of increasing the diminishing supply of affordable rental housing
- Repeal of the deferral of gain from like kind exchanges, and taxing carried interest as ordinary income are back on the table again
How will corporations fare under the new budget?
One glaring change under the 2023 budget proposed by Biden is the 7% increase in the corporate income tax from 21% to 28%.
The proposed budget includes the acceptance of the Undertaxed Profit Rule (UPR) which would replace the Base Erosion Anti-Tax liability (BEAT) and in doing so would establish the minimum corporate tax rate of 15% for foreign parented multi-national corporations.
One of President Biden’s goals in presenting this budget is to create enticements to stimulate the U.S. job market. This would be achieved by offering corporate tax incentives as a reward for creating jobs and engaging in other business activities while at the same time removing some of the tax deductions that previously existed so as to discourage the shifting of jobs overseas.
Lastly, the budget will impact the nation’s energy policy. The 2023 budget will end preferential treatment for fossil fuel production by doing away with tax preferences that encourage the manufacture of oil, gas, and coal. The budget would also remove additional benefits, including the oil recovery credit, the practice of expensing intangible drilling costs, and the capital gains treatment for royalties and other provisions.
Conclusion
We hope this overview of the newly proposed budget will provide you with some food for thought. With a budget that focuses across a range of critical issues from increasing taxes on the wealthy to discouraging fossil fuel producers and from taxing corporations that send jobs overseas to aiding students buried by the high price of a college education, the Biden budget spells out a plan for raising revenue, decreasing the debt, and improving the quality of life for U.S. citizens.
For a more detailed explanation of the budget’s top priorities and the possible impact on you and your business, please contact me at Mariana.Moghadam@SobelCoLLC.com.
