The corporate tax rate reduction from 35% to 21% is one of the few TCJA provisions that does not expire in 2026. Most key provisions, such as the individual tax cuts, the QBI passthrough deduction and bonus depreciation, are set to expire at the end of 2025. Both the Democratic and Republican parties are staking out their positions on extension of the law, with President Biden unveiling his latest tax plan as part of the Administration’s FY 2025 budget.
Biden’s plan would extend the individual tax cuts and the increased child tax credit by increasing the individual tax rate and setting a 25% minimum tax on high-income taxpayers. The corporate rate also would increase to 28% beginning in 2024 under his proposal. The Republican plan would make most of the TCJA’s individual and business provisions permanent with revenue raised primarily from eliminating green energy tax incentives and changing Medicare and Social Security benefits.
At this point, few of Biden’s proposals have a chance of passage, but it is important to understand what is on the table. Below is a summary of the Administration’s major tax proposals as revealed in the State of the Union address and Treasury’s “Green Book.”
Business and International Taxation
- Raise corporate tax rate to 28%
- 21% minimum tax rate on multinational corporations
- Adopt the undertaxed profits rule and modify the GILTI, FDII and BEAT provisions to conform with the OECD’s Global Anti-Base Erosion Model Rules
- Increase the excise tax on stock buybacks to 4%
- Expand the corporate deduction limitation for employee compensation to include private companies and extend it to all employees with over $1 million in compensation
- Create a new 10% general business credit for expenses incurred in connection with onshoring a U.S. trade or business and disallow deductions for expenses of moving a U.S. business offshore
- Apply the wash sales rules to digital assets
- Change the rules for redemptions, reorganizations and liquidations to limit tax avoidance transactions
- Eliminate fossil fuels tax preferences, including special credits and expensing of intangible drilling costs
- Reduce the ability of related parties to shift partnership basis amongst themselves
- Make permanent the New Markets Tax Credit
- Create a new allocated tax credit, the neighborhood homes credit (NHC), to encourage (a) new construction for sale, (b) substantial rehabilitation for sale and (c) substantial rehabilitation by existing homeowners who will remain in their communities
- Eliminate REIT benefits of for-profit prisons
Individual Tax Rates and Capital Income
- Individual rate increase to 39.6% for taxpayers with taxable incomes over $450,000 for married individuals filing a joint return and $400,000 for unmarried individuals
- Tax capital gains and dividends as ordinary income for taxpayers with taxable incomes over $1 million.
- New 25% minimum tax on total income, including unrealized capital gains, for all taxpayers with net wealth of greater than $100 million
- Eliminate favorable treatment of carried interests and like-kind exchanges for high-wealth taxpayers
- Tax gain on transfers of appreciated property through an estate or by gift but exclude from recognition any gain on tangible personal property such as household furnishings and personal effects (excluding collectibles). Also, a $5 million exclusion would be allowed under certain circumstances
- Apply the net investment tax to the pass-through business income of high-income taxpayers with AGIs over $400,000 and increase the NIIT rate to 5%.
- Increase the Medicare tax rate to 5% for taxpayers with AGIs over $400,000
- Make permanent the excess business loss limitation and treat loss carryovers as excess losses instead of NOLs
- Disallow excessive accumulations by high-income taxpayers in tax-favored retirement accounts by requiring distributions for accounts exceeding $10 million
- The child tax credit would be increased and made permanent
- Expand earned income tax credit to cover more workers without children
- Make permanent the health insurance premium tax credit
Follow the Debate
The tax policy implications of extending the TCJA tax provisions are being explored by many groups, with less than two years until the “fiscal cliff” hits the U.S. One of those groups is the Committee for a Responsible Federal Budget that recently held a policy summit with experts from both sides of the debate. Representatives from the conservative Tax Foundation and the American Enterprise Institute along with economists from the UCLA School of Law and the Progressive Policy Institute presented their own solutions. You can view their proposals and design your own plan using their “Build Your Own Tax Extension” tool. The tool shows you how much your plan will cost in federal revenues.
Frazier & Deeter will provide continuing coverage and analysis of the upcoming TCJA extension debate. For the most up-to-date insight, subscribe to our monthly newsletter here.