President Biden’s State of the Union Address on February 7, 2023 included calls for tax reform and for “responsible” action by Congress to increase the $31.4 trillion federal debt limit, which is coming to a head in about four months. Separately, he indicated a willingness to work with Republicans on deficit reduction outside of the debt limit discussions.
The President’s tax proposals in the SOTU include two significant changes, neither of which is likely to become law given that there is a divided Congress and Democrats can no longer pass legislation on their own using budget reconciliation procedures. The first proposal is a four-fold increase (from 1% to 4%) in the corporate stock buyback tax that was enacted last year as part of the Inflation Reduction Act. That tax applies to stock buybacks as of January 1, 2023.
Second, the President reiterated his call for a billionaire minimum income tax that would apply to the “total income” of individual taxpayers with net wealth in excess of $100 million. Significantly, the concept of total income would include unrealized capital gain because it is based on an annual mark-to-market regime. This regime, which allows for loss carryovers and includes features to spread the imposition of tax over a five-year period, has been criticized by some as unnecessarily complex because it requires annual asset valuations. When this new tax was proposed by the President in March 2022, it was projected to raise about $360 billion over a 10-year period.
These proposals will be submitted to Congress as part of the President’s fiscal year 2024 budget, and a detailed explanation of them is expected to be released on March 9, 2023. The President’s budget also is expected to renew many of the tax proposals that were included in his FY 2023 budget, including an increase in the corporate income tax rate from 21% to 28%.
If you have questions regarding these or other tax proposals, please contact a member of Withum’s Business Tax Services Team.