• Expand the limit on deducting employee compensation in excess of $1 million: $272 billion. Under current law, publicly held businesses are prohibited from deducting compensation in excess of $1 million for covered employees including CEOs, CFOs, and the three other highest paid employees. The proposal would expand that limitation to all employees making more than $1 million for all publicly and privately held C corporations.
• Increase the excise tax rate on stock buybacks to 4 percent: $166 billion. The Inflation Reduction Act of 2022 imposed an excise tax of 1 percent on corporate stock buybacks. The Administration’s proposal would increase that tax rate to 4 percent. It would also extend the excise tax for stock repurchases to affiliated controlled foreign corporations.
• Increase the corporate alternative minimum tax (CAMT) to 21 percent: $137 billion. Corporations use different methods of accounting for federal tax returns and financial statements reported to shareholders, which can result in differences in reported profits. As such, corporations are required to pay a minimum tax based on their profits reported to shareholders. Under current law, the CAMT is set to 15 percent of financial statement income. It would be increased to 21 percent under the President’s budget.

Biden’s Proposal to Tax High-Income Taxpayers

The President’s budget includes various provisions to reform the taxation of high-income taxpayers, in total raising $2.0 trillion over 10 years. By the Administration’s calculations, only taxpayers making more than $400,000 would be affected by the provisions — roughly the top 5 percent of earners. Revenues would be raised by increasing taxes on high-income earners, reforming capital income taxes, and modifying the taxation of estates and gifts. The most significant revenue raising provisions would:

• Reform additional Medicare taxes on high-income taxpayers: $797 billion. All wages and self-employment earnings are subject to the Medicare payroll tax at a rate of 2.9 percent, which is split equally between workers and employers or paid in full by the self-employed. High-income taxpayers — individuals with income over $200,000 and married couples over $250,000 — face an additional 0.9 percent Medicare tax, bringing their total Medicare tax rate to 3.8 percent. Those same high-income taxpayers are also subject to the net investment income tax (NIIT), which subjects most passive business income (such as interest, dividends, and certain rents) to an additional 3.8 percent Medicare contribution tax. The Administration proposed two reforms to those taxes. The first would increase the additional Medicare tax rate and the NIIT rate by 1.2 percentage points for taxpayers with income over $400,000, thereby increasing both the Medicare tax and NIIT rates to 5 percent for those taxpayers. The second would expand the tax base of the NIIT by expanding it to pass-through businesses — including S corporations and partnerships.
• Impose a minimum income tax on the wealthy: $503 billion. Currently, the federal government only imposes taxes on income, which includes wages, pass-through income from businesses, and gains from the sale of property; unrealized capital gains are not considered income under the present tax code. Applicable only to taxpayers with wealth greater than $100 million, the proposal would impose a minimum tax equal to 25 percent of a taxpayer’s taxable income and unrealized capital gains less the sum of their regular tax. The minimum tax payments would be treated as prepayments to be credited against future realized gains.
• Reform taxation of capital income: $289 billion. The Biden Administration proposed two reforms related to capital gains. The first would make the capital gains of taxpayers with income over $1 million taxable as ordinary income, increasing the tax rate from 20 to 37 percent. The second would largely eliminate the stepped-up basis. Currently, capital gains are not considered realized when transferred at death or by gift, and the recipient of the property receives a “stepped-up” tax basis, meaning the capital gains of the decedent or donor are never taxed. The proposal would reclassify transfers at death or by gift as a realization event for the decedent or donor. Such transfers would then be taxable, save for certain exceptions such as transfers to spouses or charitable organizations.
• Increase the top marginal income tax rate: $246 billion. The TCJA set the top marginal income tax rate to 37 percent, effective from 2018 through 2025. The proposal would return the top marginal rate to 39.6 percent starting in 2024.

Biden’s Proposed Changes to International Taxation

The Biden Administration proposed a series of reforms to the taxation of income derived from business overseas, in total raising $632 billion over 10 years. The most significant reforms would center on the global minimum tax regime, which governs how income from controlled foreign corporations (CFCs) are taxed. Among other reforms to the tax regime, the minimum effective tax rate for CFCs would increase from 10.5 percent to 21 percent. In total, the package of reforms to the global minimum tax regime would raise $374 billion.

Extend Internal Revenue Service Funding

In 2022, lawmakers provided about $80 billion in additional funding to the Internal Revenue Service through the Inflation Reduction Act, which remains available from 2022 to 2031. Initial estimates from the Congressional Budget Office indicated that the additional funding would yield $186 billion in new revenues from 2022–2032, mostly through enhanced operations support and enforcement activities aimed at closing the tax gap. The proposal would provide an additional $104 billion in funding from 2026 through 2034, $83 billion of which would be dedicated to operations support and enforcement. The Department of the Treasury estimated that the additional funding would generate $341 billion in revenues over 10 years.