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Treasury Green Book Offers Look into Biden’s Tax Proposals

Right before the Memorial Day weekend, the U.S. Treasury released its Fiscal Year 2022 explanation of the various proposals included in President Joe Biden’s “Made in America” tax plan. Legislation has yet to be drafted and the proposal and details of the provisions included in what’s known as the Green Book are likely to change during the legislative negotiations. With so many questions resulting from the release, here is an overview of some of the tax proposals.

Corporate Taxation
  • Increase the corporate tax rate: There are proposed changes for C Corporations from 21 to 28 percent. The new tax rate would be effective for taxable years beginning after 12/31/21.
  • Impose a 15% minimum tax: A minimum tax would be issued on worldwide book income for corporations with such income in excess of $2 billion; called a book tentative minimum tax (BTMT). The minimum tax would be equal to 15 percent of world-wide pre-
    tax book income less General Business Credits and Foreign Tax Credits. A book tax credit would be allowed against regular tax in future years but could not reduce tax liability below the BTMT in that year. BTMT would be effective for taxable years beginning after 12/31/21.
  • New general business credit: The proposed plan creates a new general business credit equal to 10 percent of eligible expenses paid or incurred in connection with onshoring a U.S. trade or business. In addition, the proposal will reduce tax benefits associated with U.S. companies moving jobs outside of the United States by disallowing deductions for expenses paid or incurred in connection with offshoring a U.S trade or business.
Individual Taxation
  • Increase the top marginal individual tax: The newly proposed rate for top earners is 39.6 percent. This rate would be applicable for taxable years beginning after 12/31/21. In taxable year 2022, the top marginal rate would apply to income over $509,300 for married individuals filing jointly and $452,700 for single taxpayers.
  • Long-term capital gains: Long-term capital gains and qualified dividends of taxpayers with adjusted gross income of more than $1 million would be taxed using ordinary income tax rates, plus 3.8 percent net investment income tax (total 43.4 percent). This change may be effective to the “date of announcement.” It is unclear whether such date would be the date of the 5/28/21 budget reveal or when President Biden unveiled the American Families Plan on 4/28/21.
  • Pass-through income: All pass-through income of high-income taxpayers (those with adjusted gross income over $400,000) will be subject to 3.8 percent Medicare tax, either through the net investment income tax or Self-Employment Contributions. This includes income earned by limited partners in a partnership or LLC and S Corporation shareholders.
  • Excess business loss: The proposal makes permanent the excess business loss limitation which was enacted under the Tax Cuts and Jobs Act of 2017 and is set to expire for tax years beginning 1/1/27.
  • Earned Income Tax Credit: This also makes permanent the expanded Earned Income Tax Credit, changes to the Child and Dependent Care Tax Credit and extends the Child Tax Credit increase through 2025 and makes permanent full refundability. These are items enacted with COVID-19 related stimulus.

Interestingly, the current proposal does not eliminate the qualified business deduction as expected.

Estate & Gift Tax
  • Capital gain income: The proposal addresses a change in the overall taxation of capital gain type income and includes various implications in the area related to transfers of appreciated property by gift or on death.

These proposals when combined with the bills already introduced by Senators Sanders and Van Hollen would result in a major overhaul to the transfer tax regime and planning tools that have been used for decades.

Other

In addition to the above, the proposal taxes carried interest as ordinary income, repeals deferral of gain in excess of $500,000 on like-kind exchanges and establishes various clean energy credits.


Premium Associate MemberClayton & McKervey, P.C. is an MMA Premium Associate Member and has been an MMA member company since February 2018. Visit online: www.claytonmckervey.com.

About the Author

Sarah E. RussellSarah E. Russell, CPA, MBA is a shareholder with Clayton & McKervey, P.C. She may be reached at srussell@claytonmckervey.com.