Is the 2024 Biden budget proposal dead on arrival?

The recently released FY2024 Budget proposal by President Biden calls for $3 trillion in deficit reduction through tax increases on corporations and wealthy individuals. The proposed tax increases include a quadrupling of the Inflation Reduction Act (IRA) stock buyback excise tax from 1% to 4% and a billionaire’s tax that imposes a 25% minimum tax on total income, including unrealized capital gains, for taxpayers with wealth over $100 million.

However, it is unlikely that these proposals will be passed by Congress. The Budget is a blueprint for the President’s preferred policies, irrespective of their chances of being enacted. It is intended to contrast with spending cuts called for by House Republicans, which may not be detailed until their budget resolution is released in May.

The proposed tax provisions that fell out of the Build Back Better negotiations include raising the corporate tax rate to 28%, increasing the top marginal income tax rate for high earners, reforming the taxation of capital income to tax capital gains of high earners at ordinary income rates, taxing carried interests as ordinary income, and repealing deferral of gain from like-kind exchanges.

The proposal to reform the taxation of capital income would tax long-term capital gains and qualified dividends of taxpayers with taxable income of more than $1 million at ordinary rates, with 39.6% generally being the highest rate. President Biden’s budget also proposes to prolong the Medicare Trust Fund through provisions that include increasing the Medicare tax rate on earned and unearned income above $400,000 from 3.8% to 5%, similarly increasing the Net Investment Income Tax (NIIT) rate to 5% for those above that income threshold, and expanding the tax to include business income, as well as income from investments, wages, and self-employment.

While the application of the NIIT to business income and increase in the rate would raise $650 billion in additional revenue, and the quadrupling of the stock buyback excise tax would bring in $238 billion in additional revenue, it is highly unlikely that Congress will pass these proposals, given the current political climate. The proposed tax increases, which total $4 trillion in net tax increases, are significantly higher than the $2.5 trillion proposed in the FY2023 Budget, but that baseline assumed passage of House-passed BBBA.

In summary, while President Biden’s FY2024 Budget proposals include significant tax increases on corporations and wealthy individuals, they are unlikely to be passed by Congress, given the current political climate.