The Joe Biden administration released its fiscal year 2022 budget on May 28, along with the U.S Department of the Treasury's much-anticipated "General Explanations of the Administration's Fiscal Year 2022 Revenue Proposals" (Green Book). The Green Book provides details on the tax provisions included in the administration's American Jobs Plan and American Families Plan legislative proposals as well as some new provisions. Proposals include:
- Raise the corporate tax rate. This proposal would increase the income tax rate for C corporations from 21% to 28%. The proposal would be effective for taxable years beginning after Dec. 31, 2021. For taxable years beginning after Jan. 1, 2021, and before Jan. 1, 2022, the tax rate would be equal to 21% plus 7% times the portion of the taxable year that occurs in 2022.
- Change the current international tax regime. The Green Book includes several proposals to change to the existing international tax regime, including provisions enacted by the Tax Cuts and Jobs Act of 2017 (TCJA). Specifically, the proposals would revise the global intangible low-taxed income (GILTI) regime and the IRC Section 250 deduction, strengthen the anti-inversion rules, and repeal foreign-derived intangible income (FDII). The Green Book also provides the first details about the proposed stopping harmful inversions and ending low-tax developments (SHIELD) rule that would replace the base erosion anti-abuse tax (BEAT) rule enacted by the TCJA. Generally, these proposals would be effective for taxable years beginning after Dec. 31, 2021. However, the anti-inversion proposal would be effective for transactions completed after date of enactment, and the proposal to repeal BEAT and replace it with SHIELD would be effective for taxable years beginning after Dec. 31, 2022.
- Impose a corporate minimum tax on book income. This proposal would impose a 15% minimum tax on worldwide book income for corporations with such income in excess of $2 billion. It would be effective for taxable years beginning after Dec. 31, 2021.
- Encourage onshoring of U.S. jobs. This proposal would create a new general business credit equal to 10% of the eligible expenses paid or incurred in connection with onshoring a U.S. trade or business. The proposal would disallow deductions for expenses paid or incurred in connection with offshoring a U.S. trade or business. It would be effective for expenses paid or incurred after the date of enactment.
- Support clean energy. This proposal would provide an array of incentives for clean energy and remove preferences for fossil fuels.
- Increase the individual tax rate. This proposal would increase the top marginal individual income tax rate to 39.6%. It also would change the top marginal rate so it would not affect individuals whose income is less than $400,000. For instance, the new top marginal rate would apply to joint filers with income of more than $509,300. The proposal would be effective for taxable years beginning after Dec. 31, 2021.
- Remove capital gains tax preferences. This proposal would tax long-term capital gains and qualified dividends of individuals with adjusted gross income of more than $1 million at ordinary income tax rates. This proposal would be effective for gains required to be recognized after the date of announcement, which is understood to be the April 28, 2021, release date of the American Families Plan. Additionally, a proposal to tax carried interests of wealthy individuals at ordinary rates generally would be effective for taxable years beginning after Dec. 31, 2021.
- Tax currently untaxed transfers of wealth. This proposal would tax certain transfers of wealth by gift or at death that are currently untaxed, including wealth held in certain trusts, partnerships, and other noncorporate entities. It would be effective for gains on property transferred by gift and on property owned at death by decedents dying after Dec. 31, 2021, and on certain property owned by trusts, partnerships, and other noncorporate entities on Jan. 1, 2022.
- Eliminate deferral for gains from some like-kind exchanges. This proposal would eliminate deferral for gains from like-kind exchanges in excess of $500,000 (or $1 million in the case of married individuals filing a joint return).
- Increase coverage of taxes on self-employment and net investment income. This proposal would remove certain exceptions to self-employment tax and net investment income tax for high-income taxpayers and taxpayers with certain pass-through income. The proposal would be effective for taxable years beginning after Dec. 31, 2021.
- Make IRC Section 461(l) permanent. This proposal would make permanent the Section 461(l) excess business loss limitation on noncorporate taxpayers that is set to expire after 2026.
- Make compliance-related changes. Proposals would increase the IRS' ability to enforce the tax laws, including increasing IRS funding outside the normal, annual appropriations process; requiring financial institutions to annually report account inflows and outflows; and requiring specific reporting directed at crypto assets and transactions involving crypto assets. The information reporting proposals would be effective for tax years beginning after Dec. 31, 2022.
