The Biden Administration’s budget proposal for fiscal 2023 does not propose any changes in federal excise taxes on alcoholic beverages, but it does propose major changes in corporate, personal and estate taxes.
The proposal essentially seeks to repeal the corporate tax rate reform passed by Republicans in 2017 which established a flat 21% tax rate for C Corporations. Under the Biden proposal, C Corporations — generally large businesses — would have their income taxed at 28%. The budget describes the increase as “an administratively simple way to raise revenue to pay for the Administration’s infrastructure proposals and other longstanding fiscal priorities.
“A significant share of the effects of the corporate tax increase would be borne by foreign investors,” the budget document says.
The budget also proposes to increase the top marginal income tax rate for high earners — those married individuals filing a joint return of $450,000 or more — to 39.6%, effective Jan. 1, 2023. The top rate is currently 37% and is scheduled to go to 39.6% in 2026. So the Biden proposal moves that increase up by three years.
The proposal also would tax capital gains and qualified dividends of taxpayers with taxable income of more than $1 million at 37%, or 40.8% including the next investment income tax.
It also would end the “stepped up basis” rule for transfers of appreciated property by death or gift. Currently, when someone dies their property is subject to an estate tax, but a tax is not imposed on the increase in value between the time the asset was acquired and the time the owner dies.
The Biden Administration’s assault of the wealthiest taxpayers continues with a proposal to impose a minimum tax of 20% on total income, including unrealized capital gains on an amount greater than $100 million. This would be treated as a prepayment of future capital gains.
The tax proposals also take aim at techniques to reduce estate taxes. The first is a Grantor Retained Aunuity Trust and the second is the sale of an appreciating asset to a grant trust by the deemed owner of the trust.
Another proposal in the budget is to repeal section 1031 “like-kind” exchanges, which usually defers tax on the gain until a later recognition event.