Capitol Hill Recap: Biden Delivers Budget to Congress

President Biden this week sent to Congress his budget proposal including trillions in tax increases that are unlikely to become law over the short term.

What Went Down:

• President Biden sent his budget to Congress this week that includes tax increases, which are unlikely to become law this year.
• Senate tax-writers discuss manufacturing and the stalled tax bill.

Let’s Get To It:

Prez’s Budget

The White House this week delivered to Congress President Joe Biden’s budget request for fiscal year 2025, which begins October 1st.

Overall, the budget proposes to raise more than $4.3 trillion in new revenue over the next ten years, according to the Treasury Department. Of that amount, over $245 billion will come from upping the top income tax rates.

Treasury Department:

The proposal would increase the top marginal tax rate to 39.6 percent. The top marginal tax rate would apply to taxable income over $450,000 for married individuals filing a joint return and surviving spouses, $400,000 for unmarried individuals (other than surviving spouses and head of household filers), $425,000 for head of household filers, and $225,000 for married individuals filing a separate return. After 2024, the thresholds would be indexed for inflation using the CCPI-U, which is used for all current thresholds in the tax rate tables.

The proposal would be effective for taxable years beginning after December 31, 2023.

The budget includes several provisions to “improve” IRS operations. The measures are expected to raise $4.5 billion over the next ten years, according to the Treasury Department.

It also included prior tax proposals from past budgets, like:

• Raising the corporate tax rate to 28% and the corporate minimum tax to 21%. 
• Quadrupling the stock buyback tax. 
• Requiring billionaires to pay a minimum tax based upon net worth.

Legislative outlook: Budgets do not become law. However, the proposals in budgets can become law. The proposals in the President’s budget are not expected to become law in the current Congress.

Congress is politically divided. Members from the other party are highly unlikely to support Biden’s budget proposals, especially tax increases. Some members in the president’s own party also oppose some of the tax increases included in his budget.

That being said, next year, 2025, lawmakers and the president are expected to debate extending the tax provisions in the 2017 tax reform bill that are set to expire at the end of 2025.  The tax proposals in the president’s budget could be included in that debate.

The outcome of the 2024 elections will drive the ultimate results. Still, no matter which political party gets the upper hand after the elections, there is bipartisan, bicameral support to extend tax reform provisions that benefit taxpayers earning less than $400,000 a year.

Tax Bill Debate

The Senate Finance Committee held a hearing this week on helping the U.S. manufacturing industry and also discussed current tax legislation.

In opening remarks, Senate Finance Chairman Ron Wyden said if the current tax bill does not pass the Senate, then the measures in the bill will not be a part of the tax discussion in 2025.

“This set of policies isn’t going to be on the table in 2025 if this bill stalls out,” Wyden said.

Witnesses at the Finance hearing said that failure to pass the legislation would be a tremendous hit to their bottom lines and could force them to close.

The tax bill that is currently stalled in the Senate includes R&D expensing for domestic firms, expanding the 163(j)-interest deduction, upping Bonus Depreciation to 100%, modifying the Child Tax Credit, and other provisions. This bill passed the House with resounding, bipartisan support in January by a 357 to 70 vote.

Currently, certain Senators have withheld support for the bill, largely because they feel the proposed changes to the Child Tax Credit should be modified.  

Regarding the business tax relief in the bill, there is widespread, bipartisan support for it in the Senate.

Legislative outlook: Senate passage of the tax bill remains unclear. The Senate has been wrestling with the tax bill for roughly six weeks. The Senate must approve the House-passed bill (as is) or it will not become law.

If the Senate modifies the House passed legislation (for instance, by altering the proposed changes to Child Tax Credit), then the House must approve those changes, and certain House members have indicated they might not support these modifications.  This means the tax bill may not become law if the Senate modifies the legislation.

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!