Biden Administration Spotlights Tax Priorities in FY 2024 Budget Proposal

For those of us in the tax world residing in the D.C. area, the last several days have been a non-stop party. The theme? The Biden Administration’s fiscal year 2024 budget proposal, which would increase taxes by over $4.5 trillion over the next decade. If you’re not on Capitol Hill or a tax pro elsewhere who also gets a little amped up about these things, I’ll tell you a bit about what you’ve missed. Don’t worry, getting excited isn’t mandatory; professional interest will suffice.

Tax Policy Proposals Tend to Stick Around a While

Before we take a first look, it’s important to note from the start that much of the tax provisions included in the budget proposal are more akin to a wish list given the currently divided Congress both in seats and policy. That doesn’t mean, however, that these policy proposals don’t give us some insight into what may be in store down the road. And it’s always better to have some knowledge to pull from when your clients ask you about these issues, rather than trying to play catch up.

You see, the thing about tax policy is that proposals tend to stick around a while, whether they eventually get enacted or resurface among lawmakers and administrations in years to come. You know how it goes with in-laws who show up year after year and always hang around a little longer than you thought they would? It’s kind of like that. Of course, opinions on the various policy proposals (and in-laws) are relative.

Tax Proposals in Biden Administration’s FY 2024 Budget

Although the White House released the Biden administration’s FY 2024 budget proposal on March 9th, 2023, Treasury’s accompanying Greenbook is where all the tax fun is. Within the Greenbook, Treasury details the administration’s new and recycled tax proposals, many of which we’ve seen in prior budgets and legislative attempts.

Generally, some of the new policy proposals include:

  • Creation of a digital asset mining energy excise tax;
  • Expanding the net investment income tax (NIIT) to applicable pass-through business income;
  • Increasing to 5%, up from 3.8, the NIIT on all investment and business income for taxpayers with more than $400,000 in earnings, while also increasing to 5% the Medicare tax on wages and salaries;
  • Creation of the Neighborhood Homes Credit (to support building/renovating affordable owner-occupied housing); and
  • Modifying rules related to retirement plans to prevent excessive accumulations by high-income taxpayers in tax-favored retirement accounts.

Additionally, some key highlights of other and perhaps more familiar proposals include:

  • Increasing the top individual income tax rate to 39.6%;
  • Increasing the statutory corporate rate to 28%;
  • Making permanent the expansions to the Earned Income Tax Credit for childless workers;
  • Making permanent the New Markets Tax Credit (NMTC);
  • Extending the expansion of the Child Tax Credit to certain children through 2025 and making the credit fully refundable;
  • Repealing the deduction for “foreign-derived intangible income” (FDII);
  • Taxing carried (profits) interest income as ordinary income;
  • Repealing deferral of gain from like-kind exchanges completed in tax years beginning after December 31, 2023, when greater than $500,000;
  • Repealing certain fossil fuel subsidies;
  • Increasing the excise tax rate on repurchase of corporate stock to 4%;
  • Imposing a 25% minimum tax on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth greater than $100 million; and
  • Making permanent the excess business loss limitation, treating excess business losses carried forward from the prior year as current-year business losses instead of as NOL deductions beginning in 2024.

Notably, the president’s budget dances around the notion of continuing for those making less than $400,000 some of the tax provisions expiring in 2025 under the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) but provides no substantive details on such.  

IRS Funding

Additionally, the administration proposes adding another $29 billion in 2032 and 2033 for IRS funding on top of the $80 billion Congress provided it under the Inflation Reduction Act (P.L. 117-169) through 2031. Treasury Secretary Janet Yellen felt the heat on that one from House Republicans during a March 10 hearing on the president’s budget during which they criticized the IRS for missing its February 17 deadline for submitting a spending plan for the $80 billion.  

This week, Yellen is slated to again testify on the administration’s FY 2024 budget proposal but this time before the Senate Finance Committee on March 16. If things get exciting, we’ll let you know how it goes.

New IRS Commissioner Takes the Reins

Sound the trumpets – new IRS Commissioner Danny Werfel was sworn in on March 13 for a term that is set to run through November 12, 2027. He is the 50th commissioner of the IRS. 

“Following the passage of the Inflation Reduction Act, we have a unique opportunity to make improvements for the IRS and the nation,” Werfel wrote internally to IRS employees yesterday. “I am excited by this opportunity as well as the chance to work with you again.” Werfel briefly served as acting IRS commissioner in 2013 under President Obama.

FY 2024 Budget Proposal Resources

We will, of course, continue to keep our eye on these tax policy proposals, but seeing as though we took just a peek here today, I’ve included a few relevant resources below for your reading pleasure if the mood strikes.

As Western CPE’s VP of Tax Policy and Strategic Partnerships, Jessica keeps her finger on the pulse of Congress and the IRS. She has an extensive background in analyzing and writing on issues related to federal tax policy and IRS administration and has regularly attended congressional hearings and markups on Capitol Hill, as well as public hearings at IRS headquarters. Jessica’s legislative and regulatory procedural knowledge, coupled with her tax law expertise, make her well-versed in the complex worlds of tax policy and administration.

Before her years analyzing tax law with Wolters Kluwer Tax & Accounting (CCH) and Bloomberg BNA, Jessica represented taxpayers in a wide range of matters before the IRS. Immediately prior to joining Western CPE, Jessica was the acting CEO and managing director of public policy of a national organization for accountants where she was instrumental in leading the organization’s nonpartisan policy agendas, education, and advocacy efforts.

Jessica holds a J.D., cum laude, from the University of the District of Columbia David A. Clarke School of Law and a B.S. from the University of Maryland, College Park.

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How The $3.5 Trillion Budget Blueprint Could Impact Your Clients

The new reporting requirements on brokers are addressed in Section 80603 of the bill. “Broker,” by definition in Sec. 6045 (c)(1), is expanded to include “any other person who (for a consideration) regularly acts as a middleman with respect to property or services…A person shall not be treated as a broker with respect to activities consisting of managing a farm on behalf of another person.” In turn, the bill defines a “digital asset” as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.