President Biden’s FY 2024 budget renews call for 28% corporate rate, other tax increases

In brief

President Joe Biden on March 9 sent Congress an FY 2024 budget that proposes to increase taxes for corporations and for individuals with incomes above $400,000 as part of a plan intended to reduce federal budget deficits by $2.858 trillion over 10 years. The President’s budget also calls for higher Medicare health insurance taxes for individuals with incomes above $400,000 as part of a plan that seeks to avert the projected insolvency by 2028 of the Medicare hospital insurance trust fund. 

Key business tax provisions in the FY 2024 budget include a proposal to increase the US corporate income tax rate from 21% to 28%, and proposed reforms to US international tax rules that include raising the tax rate on the foreign earnings of US multinational corporations from 10.5% to 21% and adopting an undertaxed profits rule. The budget also proposes “additional support” for research and experimentation expenditures using revenue raised by repealing the deduction for foreign-derived intangible income (FDII). As previously announced, the President’s budget proposes to increase from 1% to 4% the corporate stock repurchase excise tax that was enacted as part of the 2022 Inflation Reduction Act. The budget also includes other tax proposals that would affect corporate and pass-through businesses. 

Key individual tax increase provisions include measures increasing the top individual ordinary income tax rate from 37% to 39.6%, taxing capital gains income for high earners at ordinary rates, and imposing a 25% “minimum income tax on the wealthiest taxpayers.” 

The release of the President’s FY 2024 budget comes at a time when President Biden and Congress are debating how to reach an agreement on legislation to increase the federal statutory debt limit. The current $31.4 trillion statutory debt limit was reached on January 19; the Congressional Budget Office recently projected that the Treasury Department by July or September would exhaust its ability to use ‘extraordinary measures’ to prevent the United States from defaulting on its obligations.

The House Ways and Means Committee will hold a March 10 hearing on the President's budget with Treasury Secretary Janet Yellen. The Senate Finance Committee has scheduled a March 16 hearing on the President's budget with Secretary Yellen.

Observation: Republican control of the House of Representatives will prevent action on President Biden’s tax increase proposals. House Republicans are expected to lay out their own budget proposals in coming weeks, and have called for reduced federal spending to be part of any debt limit increase legislation. Ultimately, action this year on tax legislation, FY 2024 appropriations, and debt limit increase legislation will require bipartisan support to clear both the Republican-controlled House and the Democratic-led Senate. 

Action item: Stakeholders should communicate with policy makers on the potential effects of President Biden’s tax proposals and other Administration economic policy proposals on their employees, job creation, and investments in the United States.

Business tax proposals

The President’s proposal to increase the top US corporate income tax rate to 28% is projected to raise $1.3 trillion over 10 years. 

The President’s proposal to increase the excise tax on certain corporate stock repurchases from 1% to 4% is projected to raise $237.9 billion over 10 years. 

In total, the budget’s proposed international reforms are projected to raise $1.16 trillion over 10 years. 

These proposed reforms to US international tax rules include: 

• Revising global intangible low-taxed income (GILTI) rules, limiting inversions, and making related reforms are projected to raise $493 billion over 10 years.
• Adopting an undertaxed profits rule and repealing the base erosion and anti-abuse tax (BEAT), estimated to raise $549.0 billion over 10 years.
• Repealing the deduction for foreign-derived intangible income, estimated to raise $115.6 billion over 10 years.
• Restricting deductions of excessive interest of members of financial reporting groups, estimated to raise $41.2 billion over 10 years.
• Revising rules that allocate Subpart F income and GILTI, estimated to raise $3.6 billion over 10 years.
• Eliminating exploited mismatch in calculation of earnings and profits of controlled foreign corporations, estimated to raise $3.5 billion over 10 years.
• Reforming the taxation of foreign fossil fuel income, including changing to the tax rule for dual capacity taxpayers, estimated to raise $66.1 billion over 10 years.

Additional business tax proposals in the President’s budget would:

• Tax corporate distributions as dividends
• Limit tax avoidance through inappropriate leveraging of parties to divisive reorganizations
• Limit losses recognized in liquidation transactions
• Prevent basis shifting by related parties through partnerships
• Conform definition of “control” with corporate affiliation test
• Strengthen limitation on losses for noncorporate taxpayers
• Accelerate and tighten rules on excess employee remuneration
• Remove tax deductions for shipping jobs overseas
• Repeal expensing of intangible drilling costs
• Repeal the use of percentage depletion with respect to oil and natural gas wells 
• Increase geological and geophysical amortization period for independent producers
• Expand pro rata interest expense disallowance for business-owned life insurance 
• Correct drafting errors in the taxation of insurance companies under the 2017 Act 
• Impose ownership diversification requirement for small insurance company election
• Repeal deferral of gain from real estate like-kind exchanges
• Modernize various rules related to digital assets, including the application of ‘wash sale’ rules to digital assets and addressing related-party transactions
• Require 100% recapture of depreciation deductions as ordinary income for certain depreciable real property
• Improve information reporting for reportable payments subject to backup withholding
• Extend statute of limitations for listed transactions
• Impose liability on shareholders to collect unpaid income taxes of applicable corporations
• Make permanent the New Markets tax credit.

For more information 

Biden Administration FY 2024 budget (including estimates of tax proposals)

White House budget factsheets

Treasury Green Book general explanations of the Administration's FY 2024 revenue proposals