Washington Snapshot Special Edition: President Biden's FY2022 Budget Request
Don't Miss Leading Together: Don't forget to register for Leading Together 2021, including Pushing the Policy Envelope: Foundations Acting in a Pivotal Time, one of our three preconference sessions. Join us to hear from thought leaders, foundation executives, and advocates who are working at the forefront of social change and challenging existing policies that maintain the status quo.
On Friday, May 28, the Biden administration released its full $6 trillion budget request for the fiscal year 2022, as well as the Department of the Treasury’s “Green Book” detailing the Administration’s tax-related proposals. The Administration had previously released an overview of its discretionary spending request as part of its initial budget request in April, which Council staff summarized. The Administration has also released two infrastructure proposals, the American Jobs Plan and the American Families Plan, both summarized in previous editions of Snapshot.
While a summary of key provisions is below, more information on the budget request for the Department of the Treasury, including the Internal Revenue Service (IRS), and the “Green Book” can be found on the Treasury and White House webpages. For more detail on the president’s budget, see the New York Times and USAToday.
The Administration is requesting Congress appropriate $15 billion in discretionary funding for Treasury's domestic programs, including more than $13 billion for the IRS. Included in the request is additional money for the IRS to strengthen oversight of the tax-exempt sector, such as addressing unrelated business income tax (UBIT) and fraud prevention within the sector.
Notably, the Administration did not propose a cap on itemized deductions, which could have negatively affected charitable giving. It did, however, include a series of changes to corporate and individual taxes. Corporate tax changes include increasing the top corporate income tax rate to 28 percent and a series of incentives meant to keep manufacturing in the U.S. and encourage the use of green energy, as well as a 15 percent minimum tax in line with the Organization of Economic Cooperation and Development’s talks to create a global minimum tax for corporations. Many of the proposals affecting corporate taxes were already released in the American Jobs Plan.
Among other provisions, increases to individual taxation include the following:
- Increasing top marginal income tax rate: The proposal would increase the top marginal income tax rate to 39.6% for taxable income over $452,700 for individuals and $509,300 for joint filers.
- Increasing capital gains tax: The proposal would tax capital gains for taxpayers with an adjusted gross income of more than $1 million the same as ordinary income.
- Treating death as a “realization event”: Currently, the tax code allows heirs to reduce tax liability on inherited appreciated assets, paying tax only on the original value of the asset instead of its appreciated value upon inheritance. This change in policy would instead tax the gain, the difference between the asset’s fair market value on the date of the transfer and the original value of the asset (its “basis”). If the asset appreciated, this would generate taxable capital gains.
- Treating transfers of appreciated assets, including donations to trusts, as “realization events”: Under current law, recipients of transfers of appreciated assets are not liable for tax on that appreciation at the time of the transfer. The Biden administration’s proposal would increase tax liability for recipients of transfers of appreciated assets. The capital gain realized would be the difference between the asset’s fair market value on the date of the transfer and the original value of the asset (its “basis”). If the asset appreciated over its basis, this would be treated as taxable capital gain unless transferred to a charity.
- Taxing carried interest as ordinary income: Carried interest is the share of some financial institutions’ profits, including hedge funds and private equity firms, used to compensate fund managers. Currently, it is taxed at the capital gains rate instead of the ordinary income rate.
In addition to those proposed in the American Families Plan and American Jobs Plan, tax credits and investments meant to spur domestic economic growth include:
- Expanding the low-income housing credit.
- Creating the Neighborhood Homes Investment Tax Credit, which would support the construction and rehabilitation of homes in distressed neighborhoods.
- Making permanent the New Markets Tax Credit.
- Increasing the employer-provided childcare tax credit for businesses.
While the budget request is just that, a request to Congress for federal spending levels for the upcoming fiscal year as well as estimates on federal revenue, Congress must still pass legislation appropriating funding for the federal government. In addition, changes in tax policy must be passed by Congress before they can become law.
Congress has already begun the appropriations process for fiscal year 2022, which begins October 1, 2021. While all the appropriations bills are supposed to be passed before the start of the fiscal year, in recent years Congress has needed additional time to finalize a deal. Instead, Congress has passed one or more short-term funding bills, known as a continuing resolution, to keep the government open while members continue to negotiate.
Meanwhile, a bipartisan deal on infrastructure looks increasingly unlikely, with Democrats and Republicans still far apart even as President Biden holds conversations with Senate Republicans. Senate Majority Leader Chuck Schumer (D-NY) has suggested that if talks with Republicans are not productive, the Senate will instead pass an infrastructure package through budget reconciliation, which requires a simple majority and can pass with only Democratic votes. Snapshot will continue to include major developments in budget and infrastructure talks as they move forward.