President Joe Biden released his $6.8 trillion proposed budget for fiscal year 2024. The budget proposes several changes to tax policy to increase government revenue and reduce the federal deficit.
The budget proposal includes increasing the taxes companies pay on stock buybacks to 4%, from its current 1%. This aligns with a commitment Biden made during his State of the Union address on February 7. The tax is intended to encourage investment and to reduce the tax advantage of returning money to shareholders by way of stock buybacks rather than dividends, since buybacks are taxed as capital gains and dividends as income.
The proposal would also increase the corporate tax rate to 28% from its current 21% and move the top marginal personal income tax bracket up to 39.6% for people making more than $400,000 per year. Capital gains would also be taxed as wages for those making more than $1 million per year, meaning the plan proposes a marginal 39.6% capital gains tax for income over $400,000, up from the current 20% rate.
The proposal also commits to closing the carried interest loophole, which allows some asset managers to report compensation tied to an asset’s value as capital gains instead of as wages, which typically reduces the percentage of tax owed on that income.
Biden also seeks to end the “like-kind exchange loophole” (based on Internal Revenue Code Section 1031), which permits real estate investors to defer paying capital gains taxes by investing the money from a sale into another real estate asset.
The federal budget expires on October 1 each year, though last year’s budget was twice extended into late December with continuing resolutions to prevent a shutdown. Biden’s budget would have to pass a House of Representatives with a narrow Republican majority and a Senate with an even narrower Democrat majority. As a result of the contentious relationship between political parties, large parts of Biden’s budget are unlikely to be considered.
The budget is often considered more of a political document than one that is expected to be adopted. In this case, Biden’s federal spending plan comes as House Speaker Kevin McCarthy, R-California, has threatened to block an increase in the federal debt limit, which is necessary to pay for federal spending Congress has already approved.