March 20, 2024

The Biden administration has recently released its fiscal year (FY) 2025 budget proposal. This budget request, which outlines the president's policy priorities, is expected to play a pivotal role in his reelection campaign. As the last budget proposal of his term, it brings to light several tax proposals aimed at businesses and high-income individuals.

The FY 2025 budget proposal, accompanied by the Treasury Department’s General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals, colloquially known as the “Green Book,” suggests total spending of $7.3 trillion. The budget includes $895 billion for defense and $621 billion in non-defense base discretionary spending. 

The proposed budget aims to increase taxes on corporations and high-net-worth individuals, with the promise of not raising taxes on individuals earning less than $400,000 annually. This is in line with previous Biden administration budgets and early versions of the Build Back Better package.

Key Tax Proposals in the FY 2025 Budget

The budget proposal advocates a significant increase in the corporate income tax rate from the current 21% to 28%, which is expected to raise tax revenues by $1.3 trillion over the next decade. It also suggests raising the current 1% excise tax on corporate stock buybacks to 4% and tightening rules concerning employee remuneration and business loss limitations. 

Regarding individual taxation, the budget proposes tax hikes for high-income taxpayers, including an increase in the top marginal income tax rate to 39.6%. Furthermore, it introduces the "Billionaire's Tax," which imposes a 25% minimum tax on all gains for taxpayers whose wealth exceeds a certain threshold. 

The budget also proposes reforms to capital gains taxation, aiming to align it more closely with income taxes. It also seeks to modify rules related to retirement plans and to limit the use of certain types of tax-favorable accounts.

Internationally, the budget reiterates the need for Congress to align the Global Intangible Low-Taxed Income (GILTI) rules and adopt an Undertaxed Profits Rule consistent with the Organisation for Economic Co-operation and Development (OECD) agreed minimum-tax regime.

Implications and Reception

While the budget request outlines the administration's policy priorities, it is currently unclear whether these proposals will gain the necessary support from Congress. The Republican-controlled House is expected to oppose the majority of the proposed tax and spending increases, and the extent of support from congressional Democrats remains uncertain.

Despite the uncertainty around the proposals' passage, they play a crucial role in shaping the discussion on tax policy. The budget proposal comes at a pivotal time, with several tax provisions of the 2017 Tax Cuts and Jobs Act set to expire after 2025. 

In conclusion, while the Biden administration's FY 2025 budget proposal promises to be a central feature in tax policy discussions leading up to the 2025 elections, businesses and individuals alike continue to grapple with uncertainty around certain tax issues. It remains to be seen how the final budget will shape the U.S. fiscal landscape in the years to come.