Biden's Tax Law Changes: What's In Store?

President Joe Biden has proposed major changes to US tax laws, including significant tax hikes on businesses and high-income earners. These proposals, part of the Build Back Better agenda, aim to fund new government investments in infrastructure, education, and family programs. Biden's plans have faced opposition and have been described as a threat to the competitiveness of US businesses and the health of the US economy. The outcome of the 2024 election will determine the fate of these proposals, with a Republican-controlled House likely to block them. Biden's executive actions have already cost taxpayers over $2 trillion, and his tax plans, if implemented, could significantly impact the nation's economic landscape.

Biden's proposed tax changes

President Joe Biden has proposed major tax changes as part of his Build Back Better program, funded by significant alterations to tax law. These changes include:

• Raising the corporate income tax rate from 21% to 28%.
• Raising the top individual federal income tax rate from 37% to 39.6%.
• Increasing taxes on high earners and businesses, including a 5% tax on capitals gains for high earners.
• Increasing the hospital insurance (HI) payroll tax for people earning more than $400,000 from 0.9% to 2.1%.
• Strengthening corporate tax law enforcement by the IRS.
• Increasing the IRS budget by $80 billion over 10 years.
• Reversing years of underfunding the IRS, which has reduced auditing and enforcement efforts.
• Expanding the child tax credit (CTC) and various other tax credits and incentives while exempting tips from income tax.
• Implementing an executive order that empowered the Centers for Medicare & Medicaid Services (CMS) to revoke state Medicaid waivers that allowed states to implement work requirements.
• Increasing the cost of federal contracts by requiring federal contractors to pay their employees $15 per hour, indexed to inflation for every year thereafter.
• Weakening Medicaid eligibility standards by limiting the time between eligibility reevaluations and eliminating the requirement for in-person interviews for some populations.
• Establishing one-size-fits-all minimum staffing requirements and standards for nursing homes.

The proposed tax changes are expected to increase taxes by about $4.4 trillion on a gross basis, with a net increase of about $3.4 trillion after accounting for various credits. These changes have been criticised for potentially putting the US in an uncompetitive international position and threatening the health of the US economy.

Tax law changes under the Inflation Reduction Act

President Biden signed the Inflation Reduction Act (IRA) into law on August 16, 2022. The Act brings about significant changes to tax laws, with a focus on economic growth, energy security, and climate action.

The IRA includes tax incentives for investments in clean energy and manufacturing, aiming to lower healthcare costs and reduce greenhouse gas emissions. It also seeks to improve tax filing processes by providing funds to upgrade services and technology, making it faster and easier for taxpayers.

The Act increases the IRS's budget by approximately $80 billion over 10 years, allowing for improved customer service and technology modernization. It also enhances economic fairness by ensuring that high-income individuals and large corporations pay their fair share of taxes.

The Inflation Reduction Act introduces various credits and deductions for individuals and businesses. These include the Advanced Manufacturing Investment Credit, credits for purchasing clean vehicles and making energy-efficient home improvements, and a research credit against payroll tax for small businesses.

The legislation also provides guidance on key tax provisions, such as the Clean Fuel Production Credit, the Credit for Qualified Commercial Clean Vehicles, and the Domestic Content Bonus Credit Amounts. It is worth noting that the IRA is a 10-year plan, so the changes will be implemented gradually.

Biden's FY 2025 budget and tax increases

President Joe Biden's FY 2025 budget proposal outlines a vision of higher taxes for American businesses and high earners, with an estimated gross tax hike of about $5.3 trillion from 2024 to 2034. The budget proposes a set of measures to ensure that the wealthiest Americans and corporations pay their fair share of taxes, with a focus on increasing taxes for corporations and individuals with incomes above $400,000. The proposed budget also includes plans to increase the corporate tax rate to 28% and impose a 25% minimum tax on certain high-income individuals, such as those with a net worth of over $100 million.

The budget's tax proposals are designed to raise revenue from wealthy individuals and profitable corporations to invest in people, communities, and the economy, while also addressing the nation's fiscal outlook. The budget also assumes an annual real GDP growth rate of 2.2% over the last five years of the budget window, which some believe to be an unrealistically high expectation, especially with the proposed large tax increases. These tax increases are expected to reduce economic output by 1.6%, wages by 1.1%, and employment by 666,000 full-time jobs.

President Biden's FY 2025 budget also includes proposals for individual tax increases, such as increasing the top individual ordinary income tax rate from 37% to 39.6% and taxing capital gains income for high earners at ordinary rates. Additionally, the budget proposes to deny business deductions for employee compensation above $1 million and increase the corporate alternative minimum tax rate from 15% to 21%. These proposals are in line with the President's policy initiatives and Build Back Better agenda, which aims to fund new government investments in infrastructure, education, and family programs.

The FY 2025 budget also addresses the projected financial shortfall in Medicare's Hospital Insurance trust fund, aiming to remove the threat of across-the-board benefit cuts. It proposes to strengthen the estate tax by closing loopholes that allow wealthy households to pass substantial assets to heirs tax-free. However, the budget does not specify how it will offset the cost of preserving certain tax provisions for taxpayers with incomes below $400,000. Instead, it reiterates its support for extending tax cuts for this income group while ensuring that the wealthy and large corporations pay more.

Biden's executive actions and their impact on taxpayers

President Joe Biden has issued an average of 41 executive orders per year in office, the third-lowest average among the seven presidents who held office since 1981. These executive orders have cost taxpayers over $2 trillion.

Some of Biden's executive actions and their impact on taxpayers include:

• Ending Medicaid Work Requirements: Implemented an executive order that empowered the Centers for Medicare & Medicaid Services (CMS) to revoke state Medicaid waivers that allowed states to implement work requirements. This action cost $3 billion.
• Thrifty Food Plan Overhaul: Overhauled the Thrifty Food Plan, increasing Supplemental Nutrition Assistance Program (SNAP) benefits by 23%. This action cost $300 billion.
• Government Contractor Rule: Requires federal contractors to pay their employees $15 per hour beginning in 2022, indexed to inflation for every year thereafter. This action cost $3 billion.
• Student Loan Repayment Pause: Extended the COVID-19 pandemic student loan repayment pause six times, even after declaring the "pandemic was over." This action cost $165 billion.
• So-Called "SAVE Plan": Transformed the targeted income-driven repayment (IDR) program, making 91% of new student debt eligible for reduced payment and eventual transfer to taxpayers. This action cost $260 billion.
• Illegal Obamacare Expansion: Rewrote a provision in the Affordable Care Act to transition over 600,000 Americans already enrolled in employer coverage onto Obamacare. This action cost $34 billion.
• DACA Obamacare Eligibility: Extended eligibility for taxpayer-funded Obamacare premium tax credits to Deferred Action for Childhood Arrivals (DACA) recipients. This action cost $7 billion.

In addition to these executive actions, Biden has also proposed major tax changes as part of his policy initiatives, including tax hikes on businesses and high earners to fund new government investments in infrastructure, education, and family programs.

Biden's tax plan and its implications for the IRS

President Biden's tax plan includes a range of proposals aimed at funding new government investments in infrastructure, education, and family programs as part of the Build Back Better agenda. The plan has significant implications for the IRS in terms of both funding and enforcement.

Firstly, the Biden administration has proposed tax increases on businesses and high earners, including raising the corporate tax rate from 21% to 28% and imposing new minimum taxes to prevent profitable US companies from avoiding taxes through aggressive tax planning. These changes are expected to increase tax revenue by $2.3 trillion over ten years, which will help pay for the American Jobs Plan's investments in infrastructure, transportation, roads, broadband, water resources, healthcare facilities, and education.

Secondly, the Biden administration has proposed expanding tax credits for various taxpayers and activities, such as the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC). The expanded CTC would increase the credit value from $2,000 to a maximum of $3,600 per child, providing additional financial support to families. The EITC expansion would benefit low-income individuals and families, as seen through temporary enhancements during the COVID-19 pandemic.

Thirdly, the Biden administration aims to strengthen tax law enforcement by increasing funding for the IRS. The Inflation Reduction Act allocated $80 billion in new funding for the IRS over ten years, later reduced to $60 billion by Congress. This funding aims to boost enforcement efforts, improve taxpayer services, and modernize outdated systems. The additional funding has already shown results, with the IRS tripling audit rates on large corporations and increasing audits on partnerships with over $10 million in assets, leading to a significant reduction in the "tax gap."

However, some critics argue that Biden's tax plan could negatively impact the US economy and its competitiveness. The proposed tax increases on businesses and high earners may put the US at a disadvantage globally, potentially threatening economic growth. Additionally, the plan's complexity could move the tax code further away from simplicity, transparency, and neutrality.

In conclusion, President Biden's tax plan has far-reaching implications for the IRS, including increased funding for enforcement and taxpayer services, as well as changes to tax rates and credits. While the plan aims to address underfunding issues and improve tax compliance, particularly among corporations and high-income individuals, there are concerns about its potential impact on the US economy and its global competitiveness.

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