President Biden’s FY 2024 budget, released in March, proposes several tax changes aimed at wealthier taxpayers. Among the tax proposals, which will likely stall in a divided Congress, are notable tax rate increases for Medicare, and capital gains. Biden is also proposing a minimum tax on billionaires. The White House says that the President's budget reduces deficits by nearly $3 trillion over ten years.
Biden Capital Gains Tax Rate
Capital gains are essentially the profit you make from selling or trading a "capital asset." The tax rates that apply to a particular capital gain (i.e., capital gains tax rates) depend on the type of asset involved, your taxable income, and how long you held the property before it was sold.
Currently, the capital gains tax rate for long term capital gains (assets held for more than one year) is at most 20%. Biden’s budget proposal would nearly double that rate to 39.6%. That proposed capital gains tax rate increase would, under Biden’s proposal, apply to investors who make at least one million dollars a year.
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Carried Interest Loophole: Biden Budget
The Biden budget proposal also revives the debate over the so-called carried interest loophole. Currently, asset managers are able to treat certain compensation they receive as capital gains, which means that a significant portion of their income is taxed at a much lower rate than if it were treated as wages. Under Biden’s budget proposal, that compensation would be treated as ordinary income for federal income tax purposes to end the carried interest loophole.
The joint committee on taxation estimated in 2021 that ending the carried interest loophole could raise $15 billion in revenue over a ten year period.
Medicare Tax Rate Proposed Increase
To help shore up Medicare, President Biden is proposing a tax increase for people making more than $400,000 a year. That income threshold would be based on wages, salary, and capital gains.
In a New York Times op-ed published just ahead of the administration’s budget proposal release, President Biden described Medicare as a “rock-solid guarantee that Americans have counted on to be there for them when they retire.”
According to federal data, more than 60 million people use Medicare, which provides health insurance for people over age 65. The number of people using Medicare is expected to grow, which has caused concern over the long-term viability of Medicare and other programs like Social Security.
Biden proposes to increase the Medicare tax rate to 5% from the current 3.8%. The goal of the increased tax rate would be to extend the solvency for the Medicare program. Tax Policy Center data suggest that Biden's proposed Medicare tax rate increase could bring in $117 billion in tax revenues to bolster the program. However, like the capital gains tax proposal, the Medicare tax rate increase is not likely to find enough support to pass, given Congressional divides.
Top Income Tax Rate Increase: Biden Budget
In addition to proposed increases for capital gains and Medicare tax rates, President Biden wants to increase the top income tax rate for wealthier taxpayers. Under Biden’s budget proposal, taxpayers making $400,000 would be taxed at a top rate of 39.6%. The current top tax rate, which is tied to inflation adjusted tax brackets, is 37%. The proposed tax rate change would be a reversal of the so-called Trump tax cuts.
Note: The Biden budget is merely a proposal that given the state of play on the Hill is not likely to gain sufficient Congressional support to pass. So, the seven tax rates that you are familiar with for the 2022 tax year, i.e., 10%, 12%, 22%, 24%, 32%, 35% and 37%, apply for 2023. (The income tax brackets associated with those rates are adjusted yearly for inflation).
Biden Budget: Billionaire Minimum Tax Proposal
President Biden also wants to impose a minimum tax on billionaires. Some of the rationale behind this “wealth tax” is that wealthier taxpayers are often able to shield a good portion of their income from tax. That’s partly because the wealthy usually grow their wealth through investments, which are taxed at lower rates than earned income. Earned income (which includes wages and salaries) is typically the main source of money for lower-and-middle-income taxpayers.
The billionaire tax in Biden’s budget proposal would be a minimum of 25% for households with net worth exceeding $100 million. For comparison, the wealthiest taxpayers in America reportedly pay an average 8% tax rate, so President Biden is essentially proposing about a 17% tax increase for the wealthiest taxpayers.
Note: Several states have proposed so-called "wealth taxes" and Massachusetts enacted a "millionaires tax" this year.
Biden’s budget also proposes restoring the corporate tax rate to 28%, which is currently 21% because of the 2017 Tax Cuts and Jobs Act.
Alright, let's dive into this fiscal whirlpool! The FY 2024 budget proposed by President Biden is a financial tapestry with threads of tax changes and wealth distribution. As an enthusiast well-versed in the intricacies of fiscal policies, let me break it down.
First off, the capital gains tax. It's the toll you pay when profiting from selling or trading a "capital asset." Currently capped at 20% for long-term gains, Biden's budget is eyeing a hike to 39.6% for those raking in over a million annually. Now, that's a seismic shift, especially for investors with a penchant for high returns.
Then, there's the resurrected debate over the carried interest loophole. Asset managers have been enjoying a lower tax rate by categorizing certain compensation as capital gains. Biden's proposal throws a wrench into this, suggesting that such compensation be treated as ordinary income, potentially filling federal coffers by $15 billion over a decade.
Medicare gets a spotlight too. To fortify it, Biden proposes a 5% tax (up from 3.8%) on incomes above $400,000. This move aims to secure the program's future amidst concerns about its long-term viability, given the ballooning number of beneficiaries.
Income taxes aren't spared either. The top income tax rate for those making $400,000 or more is in line for a hike to 39.6%, up from the current 37%. This would mark a reversal of the Trump-era tax cuts.
Biden's budget also features a blockbuster proposal: a minimum tax on billionaires. Targeting households with a net worth exceeding $100 million, this so-called "wealth tax" seeks to ensure that the wealthiest contribute their fair share. With the average tax rate for the wealthiest currently at 8%, Biden is proposing a substantial 17% increase.
Corporate taxes aren't off the hook either. The budget pitches a restoration of the corporate tax rate to 28%, up from the current 21% established by the 2017 Tax Cuts and Jobs Act.
In the grand scheme, this budget is a high-stakes chess game, seeking to redistribute wealth, close tax loopholes, and fortify social programs. Whether it navigates the intricate labyrinth of Congressional approval remains to be seen, but it's undeniably a fiscal tale worth following.
