The administration released its fiscal year 2023 budget on March 28, 2022. This budget includes details of the administration’s priorities for tax policy in the coming year and beyond. The detailed plan, officially titled the “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals,” is often referred to as the “Green Book.” The plan contains various tax policies the administration would like to see adopted. Simply put, the plan is a wish list of policies.
Unfortunately, a wish list won’t realize the policies. Tax legislation must be formally introduced and work its way through Congress before it is sent to the president. So, the purpose of the Green Book is to provide information on what tax changes the administration wants implemented, as there will be members in Congress who either support these measures or oppose them. Some of the tax provisions included in the Green Book were pushed last year by the administration and congressional leaders but were eventually removed from the “Build Back Better” (BBB) bill. Even though the administration unsuccessfully tried to pass some of these changes last year, they are included in this year’s Green Book to show that the administration still views them as priority changes.
What’s in the Green Book
Similar to what the administration proposed last year, the Green Book seeks higher taxes on individuals and corporations. The latest proposal reintroduces some tax policies that failed to gain traction last year and adds new ideas that are designed to raise taxes on corporations and wealthy individuals. The administration would use the additional revenue as part of its new bold spending plans. Another key feature in last year’s BBB plan was that any tax increases would not fall on those making less than $400,000 a year. The plan released this week maintains this goal of exempting those individuals from any tax hikes – but for those above $400,000, the administration offers several new tax proposals.
Here are several tax proposals of importance that the administration released in its Green Book:
- There is a proposed minimum tax for individuals based on their actual taxable income and their unrealized gains. A variant of this was introduced last year, but it did not garner support in Congress. The administration reformulated this proposal and hopes to win over reluctant members of Congress.
This new tax is referred to as the “billionaire minimum income tax.” While it will apply to all billionaires, it will also kick in for those with worth of $100 million or more. This latest tax proposes that those with over $100 million in assets must pay at least 20% tax on their overall income, which includes unrealized gains. This tax is a complicated provision with many moving parts and payment options, so it is still likely to face an uphill battle in Congress if it is formally introduced.
- Another holdover from the BBB last year is to hike the top tax rate for individuals up to 39.6% (from the current max of 37%). Further, capital gains and qualified dividends would lose their favorable tax rate and would instead be taxed as ordinary income for higher income taxpayers (those with taxable income greater than $1,000,000).
- Transfers of appreciated property by gift or at death would be treated as realization events. Under the proposal, the decedent or donor of appreciated property would realize a capital gain at the time of the transfer. The gain realized would be measured as the difference between the property’s fair market value on the date of the death or gift over their basis in that property. This gain would be taxable to the donor/decedent on the gift/estate tax return, or on a new separate capital gains tax return.
- On the corporate side, there is a proposal to increase the corporate income tax rate to 28% from the current 21% (a 33% increase in the tax rate). This too was advocated by the administration last year, but support for this faded in the Senate and it was removed.
- Another corporate change relates to international tax. The proposal would repeal the “Base Erosion Anti-Abuse Tax” (BEAT) liability and instead adopt a new regime known as the “Undertaxed Profits Rule” (UTPR). The proposal would establish a provision to assure U.S. taxpayers could continue to take advantage of tax credits and other incentives that encourage U.S. investment and jobs. The Green Book indicates the UTPR proposal would apply mostly to multi-national corporations operating in low-tax countries. It would apply to companies with over $850 million in revenue in at least two of the prior four years. This UTPR is another complicated provision but something to monitor for those with international operations or activity.
- There are two key proposals impacting those in the real estate sector. First, “like-kind exchanges” (Section 1031) would limit deferral from an exchange to a total of $1,000,000 per year for married taxpayers filing jointly (and $500,000 for other filers). These exchanges or trades are popular among those in the real estate industry. Next, the gain on depreciation recapture for real estate would all be taxed as ordinary income instead of being capped at 25%. This change would apply to taxpayers with adjusted taxable income of more than $400,000.
- Similar to last year’s failed efforts with the BBB, the administration continues to look at modifying estate and gift tax issues, including new changes for certain grantor trusts.
- Next, there would be changes to increase the penalties for the late filing of certain tax forms. The Treasury Department would also be given authority to further regulate tax preparers.
- Other proposals include closing perceived loopholes with carried interests, fossil fuel tax preferences and donor advised funds (DAFs).
These are only a few of the many tax policies identified in the Green Book. Click here to review the full Green Book from the administration.
To reiterate, the items above are on the administration’s wish list of tax policies it would like to see adopted. The administration still needs to reach out and find members of Congress willing to support these provisions. In addition, there are talks of rekindling the BBB that stalled in the Senate last year, following Senator Joe Manchin’s decision to oppose the bill. Manchin has now expressed some indication that he is willing to revisit the bill. As of now, it is unknown what parts of the BBB would be adopted, or perhaps what items in the Green Book could be added to the bill. We will keep a close eye on this, so stay tuned.
Contact us if you have any questions, and we’ll be in touch.
About our authors
Jim Brandenburg
Jim Brandenburg, CPA, has extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.
Tom Bayer
Thomas Bayer, CPA, CExP, has 30 years of experience providing a broad range of accounting, tax and business advisory services to commercial clients across various industries. Tom has specialized expertise in the areas of tax planning and compliance, business advisory services and business succession planning.
