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Biden's Budget Would Impose Trillions in New Taxes

by Demian Brady, Joe Bishop-Henchman March 11, 2024

President Biden unveiled his new budget for Fiscal Year 2025 this afternoon. The budget proposes $5.485 trillion in revenue (+7.9% over 2024) and $7.266 trillion in expenses (+4.7% over 2024), with a deficit of $1.781 trillion. In the 10-year period from 2025 to 2034, the Biden Administration projects $70.3 trillion in revenue, $86.6 trillion in expenses, and $16.3 trillion in deficits. The national debt would be well above $40 trillion by the end of the projection period.

Included in the budget proposal is an onslaught of over $4 trillion in new taxes framed as having business and wealthy individuals pay their "fair share."

Tax Proposal

Revenue Estimate (over 10 years)

Minimum Income Tax on the Wealthiest Taxpayers. A third income tax, on top of the regular income tax and the Alternative Minimum Tax (AMT), at a rate of 25 percent and including unrealized gains for taxpayers with wealth exceeding $100 million.

$503 billion

Increase the Top Marginal Income Tax Rate for High-income Earners. Raise the top income tax rate from 37 percent to 39.6 percent, and apply it at a lower income level ($400,000 single and $450,000 married filing jointly).

$246 billion

Higher Taxes on Capital Income. Would end lower tax rate on long-term capital gains, taxing them as ordinary income, for taxpayers with income over $1 million.

$289 billion

Estate and Gift Tax Increases. This intends to modify the role of an "executor", set limits on the reduction of the valuation of certain properties, and most significantly, remove the current $18,000 exclusion from gift taxes.

$97 billion

Expand Limitation on Deductibility of Excessive Employee Remuneration. Publicly held corporations currently cannot deduct as a business expense any pay over $1 million to top executives. This proposal would apply the rule to privately held corporations and any employee.

$272 billion

Raise the Corporate Income Tax Rate to 28 Percent. The corporate income tax has stood at 21 percent since 2017.

$1,350 billion

Increase the Corporate Alternative Minimum Tax Rate to 21 Percent. The minimum tax is currently 15 percent.

$137 billion

Revise the Global Minimum Tax Regime, Limit Inversions, and Make Related Reforms. Would apply foreign tax credits for multinational businesses country-by-country rather than globally, and eliminate the qualified business asset investment (QBAI) exemption.

$374 billion

Adopt the Undertaxed Profits Rule. Repeal the Base Erosion and Anti-Abuse Tax (BEAT) and replace it with the Pillar Two international minimum tax proposal. 

$136 billion

Increase the Excise Tax Rate on Repurchase of Corporate Stock and Close Loopholes. The new “stock buyback” tax took effect in 2023 at a rate of 1 percent; this proposal would increase it to 4 percent.

$166 billion

Close Medicare Tax Loopholes and Increase Medicare Tax for People Making Over $400,000. Increase the “net investment income tax” (NIIT) from 3.8 percent to 5 percent for high-earners.

$797 billion

Increase Energy Taxes. This would target deductions and credits for costs related to drilling and mining of fuels. 

$35 billion

Total

$4,402 billion


In addition to these direct taxes, the budget also includes regulatory proposals that taxpayers should be wary of. The Biden budget would expand prescription drug negotiation by increasing the number of drugs included in what is really a price-setting scheme, and also increasing the drug price rebates mandated in the Inflation Reduction Act. The Congressional Budget Office has warned that these policies will reduce the number of new pharmaceuticals brought to market, and those that are released will have a higher price than otherwise.

The President's budget also waters down statutory protections for taxpayers from overzealous Internal Revenue Service agents. The proposal would weaken the law known as 6751(b) requiring that an immediate supervisor's signature is required before a taxpayer can be assessed a penalty. The reason for 6751(b) is so that taxpayers know why a penalty is being imposed and to prevent the IRS from using the penalty as a “bargaining chip.” The administration estimates that modifying the statutory definition of an "immediate supervisor" and changes to when the approval must be obtained will increase the amount of tax penalties assessed by $1.6 billion.

The budget would also extend the higher level of funding that was provided to the IRS in the Inflation Reduction Act (IRA) for additional years. IRA gave the IRS an $80 billion funding stream over ten years, with more than half of that earmarked for tax enforcement. Biden's budget would provide the IRS with an additional $104 billion, maintaining the emphasis on enforcement. This is doubly concerning given the attempts to weaken taxpayer rights through the supervisor's signature proposal above. 

Despite Biden's rhetoric that the rich are not paying their "fair share" the tax code is very progressive. In Tax Year 2021, recently released by the IRS, the top 1 percent of earners paid nearly 46 percent of all income taxes, the highest level reported in the data that NTUF has gathered since 1980. In that year, the top earners paid 19 percent of all taxes. Even as tax reforms since then lowered the top marginal tax rates, the wealthy have borne a larger share of the income tax burden.

Even with all of these major new taxes (and there may be other tax hikes included in the fine print of the sprawling budget documents), Biden's budget still projects annual deficits averaging $1.6 trillion, adding another $16 trillion to the national debt. However, if implemented, Biden's new tax hikes will ultimately collect less revenue than expected using the administration's rosy projections. Moreover, these tax increases are likely to inflict significant economic damage, diminishing business investment, and constraining job growth and wages.