What does President Biden’s proposed budget for the new 2024 tax plan look like?
Biden’s plan for the government’s 2024 fiscal year has several provisions affecting tax bills for both businesses and individuals. Of course, it also aggressively aims to cut the deficit by a substantial $3 trillion over the next decade.
While the new 2024 tax plan proposed by President Biden is unlikely to pass since the Republicans own the majority in the House of Representatives, it still provides insight on what the Democrats’ priorities are. As we’re heading towards what is likely a heated election year in 2024, this tax plan may also be the foundation of the president’s policy platform on which he will run for re-election.
Without further ado, let’s see what President Biden’s budget for the new 2024 tax plan looks like!
We think it’s best to start with what most taxpayers are interested in, and that’s the individual tax provisions. The proposed plan includes tax provisions that would affect Americans of various income levels. Read on to see what the changes would look like.
Tax rates
The new 2024 tax plan calls for a top individual tax rate of 39.6%, up from 37%, for single filers earning more than $400,000 (for married couples, the threshold is $450,000). The marginal income tax rate was previously reduced as part of former President Trump’s signature tax legislation.
Capital gains tax
The new 2024 tax plan would make some changes here as well. The highest capital gains rate is currently 20% (or 23.8% if the NIIT applies—we’ll talk about this later). For individuals who earn a taxable income of more than $1 million, the budget would tax the capital gains at ordinary rates, with 37% usually being the highest rate, or 39.6% if the top tax rate is raised.
Net investment income tax (NIIT)
The NIIT on income over $400,000 would include all flow-through business income not otherwise covered by self-employment taxes or the NIIT. The new 2024 tax plan would also increase both the NIIT rate and the additional Medicare tax rate by 1.2%.
Therefore, the NIIT rate would be 5% for investment income over $400,000, and the Medicare tax rate would be 5% for earnings over $400,000.
Child tax credit (CTC)
This new tax plan would expand the child tax credit and make it fully refundable, so it can be paid in advance on a monthly basis. For qualifying parents, the CTC would go up from $2,000 to $3,000 for kids age six and above and $3,600 for kids under age six.
The proposal would also establish “presumptive eligibility” for deciding when a taxpayer is eligible to receive a monthly advance child payment or claim a monthly specified child allowance.
Once a taxpayer proves presumptive eligibility for a child, that child would be treated as the taxpayer’s specified child for each month that that taxpayer is presumptively eligible.
Premium tax credits (PTCs)
The American Rescue Plan Act expanded eligibility for health insurance subsidies to taxpayers with household incomes that are 400% above the federal poverty line established for 2011 and 2022.
It also lowered the applicable contribution percentage, which is the percentage of household income a taxpayer is required to contribute toward a healthcare insurance premium.
The Inflation Reduction Act of 2022 extended the expansion through 2025. The new 2024 tax plan would make this expansion permanent.
Minimum wealth tax
Biden’s plan would also impose a minimum 25% tax on total income, typically inclusive of unrealized capital gains, for all taxpayers with wealth exceeding $100 million. This is meant to ensure that no billionaire pays a lower tax rate than a firefighter or teacher.
According to the White House, the proposed tax would apply to only the top 0.01% of taxpayers.
Cryptocurrency taxation
The new 2024 tax plan would amend the “wash-sale” rule to cover digital assets. A wash-sale is a transaction in which an investor trades or sells a security at a loss and buys a “substantially similar one” 30 days before or after the sale date.
Gift and estate taxes
Biden’s plan would also close loopholes concerning certain trust arrangements. Specifically, the modifications would affect charitable lead annuity trusts and grantor-retained annuity trusts.
The new 2024 tax plan also targets several issues of interest to businesses. Read on to find out more about how President Biden’s budget proposal would affect your business.
Corporate tax rates
The proposal would modify the large cut made in 2017 to the corporate tax rate in the Tax Cuts and Jobs Act (TCJA). Specifically, it would increase the tax rate for C corporations up to 28% from 21%—still substantially less than the pre-TCJA rate of 35%.
Moreover, the effective global intangible low-taxed income, also known as GILTI, rate would go up to 14%. Overall, with other proposed modifications, the effective GILTI rate would increase to 21%.
Stock buyback excise tax
The IRA established a 1% excise tax on the fair market value when corporations purchase back their stock. This was meant to reduce the difference in the tax treatment of dividends and buybacks.
The new 2024 tax plan would quadruple the tax to 4%.
Global minimum tax
The proposal would revoke Base Erosion and Anti-Abuse Tax liability, replacing them with an “undertaxed profits rule”. In combination with the GILTI regime, the rule would guarantee that income earned by a multination company, whether parented in the US or elsewhere in the world, is subject to a minimum rate of taxation regardless of the place where the income is earned.
Carried interest loophole
A “carried interest” is the contractual right of a hedge fund manager to a share of a partnership’s profits. At the present, it’s taxable at the capital gains rate if certain conditions are met.
The new 2024 tax plan proposes to close this loophole.
Low-income housing tax credit
The budget proposes to expand and boost the largest federal incentive for engaging the private sector in the construction and rehabilitation of affordable housing.
Like-kind exchanges
Owners of certain appreciated real property can postpone the taxable gain on the exchange of the property for a real asset of a “like kind.” The new 2024 tax plan would allow the deferral of as much as an aggregate amount of $500,000 for each taxpayer (for married couples filing a joint return, the amount is $1 million) each year for like-kind exchanges.
Under this scheme, any like-kind gains over $500,000 (or $1 million for married couples) would be recognized in the year the taxpayer transfers the asset.
What’s not included or mentioned in the new 2024 tax plan
With the above providing some specifics, there are significant provisions that are not addressed (some of which expire in 2025). Most of them come from 2018’s Tax Cuts and Jobs Act:
- Reduced individual tax rates
- Limits on the local and state tax deduction
- The increased standard deduction
- Qualified business income deduction for pass-through businesses
While President Biden’s new 2024 tax plan offers insight into where the head of state’s thinking currently is, there will be a lot of debate both publicly and within the Senate and House chambers before anything is finalized.
We’ll continue to watch for the subject and other important changes and offer updates when we learn more.
If you want to eliminate tax rate risk from your retirement picture, here’s a book with plenty of information and tips on the matter.
If you liked our article on the new 2024 tax plan proposed by President Biden, you may also want to read You’re Free! These 5 States Won’t Tax Your Social Security.
