President Joe Biden’s Administration on Friday released a $6 trillion budget request for next year that includes the tax proposals from the recently released American Jobs Plan and American Families Plan. These are the only revenue proposals in the budget, and they are expected to raise $3.6 trillion over the next ten years.
Shortly after the budget was revealed, the Treasury Department released its “Green Book,” which details the tax provisions in the president’s budget. They include revenue increases on corporations, wealthy families and fossil fuels, as well as proposals to close the Tax Gap.
Here are some of the tax changes proposed in Biden’s first budget:
- Increase the top individual income tax rate from 37% to 39.6%. The effective date for this change would be the 2022 tax year. It would apply to taxable incomes of $452,650 for individuals, $509,300 for joint filers ($254,650 for married filing separately), and $481,000 for head of households. These thresholds would be indexed for inflation beginning in 2023;
- Raise the corporate income tax rate to 28%, which would be effective for taxable years beginning after December 31, 2021;
- Repeal tax provisions benefiting the fossil fuel industry, like the enhanced oil recovery credit for eligible costs attributable to a qualified enhanced oil recovery project; the credit for oil and gas produced from marginal wells; and the expensing of intangible drilling costs. In most cases the effective date for these changes would be for taxable years beginning after December 31, 2021;
- Provide a business tax credit for new medium- and heavy-duty zero-emission vehicles in tax years beginning after December 31, 2021;
- Tax long-term capital gains and qualified dividends at ordinary income tax rates for taxpayers with adjusted gross income of more than $1 million. “This proposal would be effective for gains required to be recognized after the date of announcement,” according to the Green Book. The proposal was announced on April 28, 2021.
Ensure that all trade or business income of taxpayers with adjusted gross income in excess of $400,000 is subject to the 3.8% Medicare tax. The effective date would be for taxable years beginning after December 31, 2021.
In addition, the budget includes a proposal to regulate professional tax preparers. It provides the Treasury Secretary with “explicit authority to regulate all paid preparers of Federal tax returns, including by establishing mandatory minimum competency standards,” according to the Green Book.
Biden's request also includes the family-oriented tax credits that are in the American Families Plan: They are:
- Making permanent the expanded premium tax credits enacted in the American Rescue Plan;
- Making permanent the expanded Earned Income Tax Credit for workers without qualifying children;
- Making permanent the Child and Dependent Care Tax Credit enacted in the American Rescue Plan;
- Extending through 2025 the increased Child Tax Credit and making permanent its refundability.
The effective dates for all proposals other than the premium tax credits is taxable years beginning after December 31, 2021. The effective date for the permanent extension of the premium tax credits is after December 31, 2022.
While some of these proposals can be concerning, it is important to note that the president’s budget is not a bill. Congress is also not bound to include any of these provisions in legislation. Budgets are a statement about a president’s legislative priorities. They are aspirational documents, and the one that was released today is just that.
Still, lawmakers who are in the president’s political party will likely use today’s budget as a guide for what to include in their own budgets. These provisions can also be included in tax or spending bills.
A fact sheet on Biden’s budget can be found here.