President Biden’s FY 2025 budget is ambitious, totaling $7.3 trillion and includes significant tax increases aimed at higher income taxpayers. One of the proposed tax increases is raising the top federal rate on ordinary income from 37% to 39.6%, a rate that was in place in 2017 before the Tax Cuts and Jobs Act cut it. This higher rate is intended to apply to taxpayers making $400,000 or more.
Another major tax increase proposed by Biden is on capital gains. Currently, long term capital gains are taxed at lower rates than ordinary income, with rates varying depending on income levels. Under Biden’s proposal, high-income taxpayers making at least one million dollars a year could see their long term capital gain tax nearly double to 39.6%. This increase could potentially go even higher, up to 44.6%, if multiple proposals are combined.
To help finance Medicare, President Biden is proposing a tax increase for individuals making more than $400,000 a year. This increase would raise the Medicare tax rate from 3.8% to 5%, providing additional funding for the healthcare program. Additionally, the Biden budget would repeal the provision for 1031 exchanges, a commonly known tax code section used in real estate transactions. This change would eliminate the ability to defer gains on exchanges of like-kind real estate.
Another tax change proposed by Biden’s budget is the elimination of the treatment of carried interests as long term capital gains for fund managers. Under the current law, these interests can be treated as long term capital gains, allowing for tax benefits. Biden’s proposal would treat these interests as ordinary income for federal income tax purposes, closing this perceived loophole.
One of the more controversial aspects of President Biden’s budget proposal is the imposition of a minimum tax on billionaires. This tax would essentially be a form of wealth tax, applying to households with a net worth exceeding $100 million and imposing a minimum tax rate of 25%. While referred to as a billionaire tax, it would also affect wealthy individuals who are not billionaires but have substantial assets.
Overall, President Biden’s FY 2025 budget includes significant tax increases aimed at higher income individuals to help fund various government programs and initiatives. These tax changes, if enacted, could have far-reaching effects on high-income taxpayers and the tax system as a whole. The proposal faces challenges and debates in Congress, and it remains to be seen how much of the budget and tax increases will ultimately be passed into law.
