President Joe Biden’s Fiscal Year 2022 budget proposal calls for 30 tax increases on American individuals and businesses totaling $2.975 trillion over the next decade.
The budget also calls for new IRS “enforcement” measures carried about by 87,000 new IRS agents that Biden claims will squeeze taxpayers for an additional $787 billion. 87,000 IRS agents could fill Nationals Park twice.
Combined, these proposals would increase federal revenues by $3.76 trillion over the next decade.
The list of 30 tax increases is below:
1. Raise the corporate income tax rate to 28 percent: $857 billion tax increase
After accounting for state corporate taxes, Biden will give the U.S. a 32 percent corporate rate, a tax rate significantly higher than Communist China’s 25 percent tax rate.
This tax increase will harm working families, as a significant portion of this tax is borne by workers in the form of wages and jobs. This is not a point of contention. In a 2017 report, Stephen Entin of the Tax Foundation argued that 70% of corporate taxes are borne by labor. Other economists argue that anywhere from 20% to 50%, to even 100% of the tax hits workers.
It will also harm families by increasing the costs of household goods and services. A 2020 study by the National Bureau of Economic Research found that 31% of the corporate tax falls on consumers.
This tax increase won’t just hit large businesses. One million C-corporations are classified as small employers, defined by the Small Business Administration as any independent business with fewer than 500 employees.
A corporate tax increase will also threaten the life savings of families by reducing the value of publicly traded stocks in brokerage accounts or in 401(k)s. Individual investors opened 10 million new brokerage accounts in 2020 and at least 53% of households own stock. In addition, 80 million to 100 million people have a 401(k), and 46.4 million households have an individual retirement account.
2. Double the capital gains tax to 40.8 percent and the imposition of a second death tax by imposing capital gains taxes on unrealized assets at death: $322 billion tax increase
The U.S. currently has a combined capital gains rate of over 29 percent, inclusive of the 3.8 percent Obamacare tax and the 5.4 percent state average capital gains rate. Under Biden, this rate would approach 50 percent. This would give the U.S. a capital gains tax that is significantly higher than foreign competitors.
Under Biden’s plan, Californians will pay a top capital gains tax rate of 54.1 percent (37% + 3.8% + 13.3% California state rate = 54.1%).
The budget will also impose the 40 percent capital gains tax on the unrealized gains of every asset owned by a taxpayer when they die. This will be imposed in addition to the existing 40 percent Death Tax and will disproportionately fall on family-owned businesses, many of which are asset rich, but cash poor.
These businesses are already forced to liquidate structures, equipment, land, and other assets because of the Death Tax. Repealing step-up in basis will compound this problem and force family-owned businesses to sell a significant portion of their business or go into significant debt to pay their tax liability.
Taking away step-up in basis has already been tried and failed. In 1976 congress eliminated stepped-up basis but it was so complicated and unworkable it was restored in 1980.
As noted in a July 3, 1979 New York Times article, it was “impossibly unworkable”:
“Almost immediately, however, the new law touched off a flood of complaints as unfair and impossibly unworkable. So many, in fact, that last year Congress retroactively delayed the law’s effective date until 1980 while it struggled again with the issue.”
3. Increase the top income tax rate to 39.6 percent: $132 billion tax increase
This tax increase will hit small business that are organized as sole proprietorships, LLCs, partnerships and S-corporations. These “pass-through” entities don’t pay taxes themselves but pay taxes through the individual side of the tax code.
A significant portion of business income is paid through the individual side of the tax code. As noted in a Senate Finance Committee report, “in 2016, only 42 percent of net business income in the United States was earned by corporations, down from 78.3 percent in 1980.”
4. Impose a 15 percent minimum tax on “book income”: $148 billion tax increase
This tax increase will create a new minimum tax on American businesses and disallow important, bipartisan credits and deductions that help promote job creation and economic growth.
The Left routinely disparages businesses that lower their federal income tax liability through the use of credits and deductions, falsely arguing that these businesses are using tax loopholes. In reality, these businesses are using a number important, bipartisan tax provisions, like research and development tax credits, full business expensing, and the deduction for net operating losses.
For instance, in 2009, Speaker Pelosi hailed legislation expanding NOLs, arguing the provision helps businesses “succeed” and “hire new people.” Similarly, President Obama pushed to expand full business expensing, arguing it would be a “strong incentive to increase investment.”
5. Create a 21 percent global minimum tax: $533 billion tax increase
This would modify existing international tax rules to create a 21 percent global minimum tax on American businesses operating overseas.
This will impose double taxation on American businesses and make it difficult for them to compete against foreign companies. Under Biden’s plan, an American business operating in the United Kingdom will face British taxes and then American taxes. By comparison, a British business operating in the U.S. will only pay U.S. taxes because the UK has a territorial system that only taxes income earned in that country.
6. Repeal the deduction for foreign-derived intangible income: $123 billion tax increase
This will impose a steep tax increase on American businesses that house their intellectual property in America.
7. Replace the Base Erosion Anti-Abuse Tax (BEAT) with the Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) Rule: $390 billion tax increase
This would replace the BEAT with a new minimum tax set at either 21 percent or a rate agreed to by the Organisation for Economic Co-operation and Development.
Treasury Secretary Janet Yellen wants to surrender U.S. sovereignty to the OECD and the G20, a group that includes China and Russia. She has previously stated she wants to “end the pressures of tax competition” and “make all citizens fairly share the burden of financing government.”
8. Raise taxes on 1031 Like-kind exchanges: $19.5 billion tax increase
The budget proposes disallowing taxpayers from utilizing 1031s if they have gains exceeding $500,000. 1031s are not a tax loophole as some claim but are important tax provisions promoting reinvestment and liquidity. Repealing this provision would harm smaller real estate investors by forcing them to forego new investments or go into debt to finance transactions.
1031s are typically used for smaller real estate transactions. According to the National Association of Realtors, 1031s were used in about 12 percent of real estate sales. Almost 85 percent of these transactions were from smaller investors such as sole proprietorships or S corporations.
Repealing 1031s would harm investment in property. It would increase holding periods as taxpayers would be encouraged to retain assets longer to avoid paying capital gains taxes. In fact, due to the added complexities of financing projects and taking on debt, an estimated 40 percent of real estate transactions would not have occurred without 1031s.
9. Limit foreign tax credits from sales of hybrid entities: $436 million tax increase
This proposal would prohibit American businesses from claiming foreign tax credits on certain foreign acquisitions.
10. Deny businesses tax deductions related to certain international investment: $112 million tax increase
11. Restrict interest deductions for certain financial reporting groups: $18.6 billion tax increase
12. Makes permanent the cap on passthroughs deducting net operating losses: $42.9 billion tax increase
The provision makes the $500,000 cap on passthrough businesses deducting excess business permanent. This could impact a restaurant, retailer, or other capital-intensive business that sees significant business losses in any year due to the cost of wages, rent, new equipment, inventory, and interest payments.
The cap was originally created by the Tax Cuts and Jobs Act passed by Congressional Republicans. It was used to offset the creation of the 20 percent deduction for passthrough businesses, which resulted in a net tax cut for taxpayers. The budget proposes making the cap permanent, but not the 20 percent deduction, resulting in a significant tax increase.
13. Increase taxes on carried interest capital gains: $1.5 billion tax increase
In addition to raising the capital gains tax, Biden would increase taxes on carried interest capital gains. Not only would this have the same negative impact as the capital gains tax increase, but it will also threaten the retirement savings of Americans across the country.
Carried interest is the tax treatment for investment made by private equity investors. Private equity is an investment class structured as a partnership agreement between an expert investor and individuals with capital.
Private equity seeks to invest in companies with growth potential and, as a result, has the potential to deliver strong returns. In fact, according to a recent study, private equity returned gains exceeding 15 percent over 10 years.
Because of these strong gains, private equity is a popular and reliable investment strategy for Americans across the country. The largest investor in private equity is public pension funds, which have collectively invested an estimated $150 billion in private equity. As noted by one study, 165 funds representing 20 million public sector workers have invested an average of 9 percent of their portfolios in private equity.
The financial security these returns provide to American savers, including firefighters, teachers, and police officers, will be threatened if lawmakers raise taxes on carried interest capital gains.
14. Close the “Biden” loophole on Medicare Payroll Taxes: $236 billion tax increase
The budget proposes disallowing taxpayers from using passthrough entities like S-corporations to avoid the 3.8 percent Obamacare net investment income tax.
Biden has repeatedly utilized this loophole in a practice that left-leaning tax experts described as “aggressive.” Specifically, he avoided paying $500,000 in payroll taxes including $121,000 in Obamacare taxes by sheltering $13 million of income in several S-corporations.
It is clear hypocrisy that Biden used the same loophole that he now wants to close. Moreover, Biden supports expanding Obamacare and routinely says “the rich” need to pay their fair share.
15. Repeal expensing of intangible drilling costs (IDCs): $10.5 billion tax increase
The expensing of IDCs allows companies to recover costs such as labor, site preparation, equipment rentals, and other expenditures for which there is no salvage value. IDCs often represent 60 to 80 percent of total production costs. This tax hike could result in the loss of over a quarter million good-paying jobs by 2023. As a recent letter by Rep. Jodey Arrington (R-Texas) and over 50 members of Congress explains, IDCs are neither unique nor lavish tax breaks for the oil and gas industry:
“IDCs are not credits, loopholes, or subsidies. They are ordinary and necessary deductions, and a far cry from the lavish tax credits flowing to wealthy green energy investors and electric vehicle owners. Our tax code is designed to levy taxes on net profits, not on dollars used for operational costs or capital expenditures. Every business since the inception of the tax code, has used cost recovery provisions.”
Biden is proposing to repeal many oil and gas tax provisions even though the cost of gasoline and energy is increasing, with the cost of gas at a seven-year high.
Not only would these tax increases further increase the cost of energy, they will also threaten millions of high-paying manufacturing jobs that the oil and gas sector supports. Biden routinely claims he is a champion of high-paying manufacturing jobs, yet these tax increases undermine this claim.
16. Modify foreign oil and gas extraction income and foreign oil related income rules: $84.8 billion tax increase
This proposal would increase taxes on foreign oil and gas extraction income for American businesses operating overseas.
17. Repeal enhanced oil recovery credit: $7.8 billion tax increase
This provision would repeal the 15 percent credit for eligible costs attributable to enhanced oil recovery (EOR) projects like the costs of depreciable or amortizable tangible property or intangible drilling and development costs (IDCs). This credit is a bipartisan provision to incentivize carbon capture and sequestration, ultimately leading to less greenhouse gas emissions.
18. Repeal credit for oil and natural gas produced from marginal wells: $516 million tax increase
This repeals a credit for oil and natural gas produced from marginal wells, which is limited to 1,095 barrels of oil or barrel-of-oil equivalents per year.
19. Repeal capital gains tax treatment for royalties: $455 million tax increase
Royalties received on the disposition of coal or lignite currently qualify as a long-term capital gain. The budget repeals this, requiring this income to be taxed at the higher ordinary income rate.
20. Repeal exception to passive loss limitations provided to working interests in oil and natural gas properties: $86 million tax increase
21. Repeal percentage depletion with respect to oil and natural gas wells: $9.2 billion tax increase
Percentage Depletion allows taxpayers to deduct the cost of oil and gas wells as a statutory percentage of the gross income of such property. This provision is used by small, independent, and family-owned oil and gas companies, and royalty owners like farmers and ranchers.
22. Modify tax rule for dual capacity taxpayers: $1.4 billion tax increase
23. Increase geological and geophysical amortization period for independent producers: $2 billion tax increase
The amortization period for geological and geophysical expenditures incurred in connection with oil and natural gas exploration in the United States is two years for independent producers and seven years for integrated oil and natural gas producers. This proposal would require these expenses to be amortized over a seven-year period.
24. Repeal expensing of exploration and development costs: $911 million tax increase
Producers of oil, gas, coal, and minerals can fully immediately deduct 70 percent of the costs associated with exploration and development of a domestic ore or mineral deposit. The remaining 30 percent can be deducted over 60 months. This proposal would repeal this provision, requiring these costs to be depreciated over many years.
25. Repeal percentage depletion for hard mineral fossil fuels: $1.3 billion tax increase
Repeals a provision of the tax code that allows companies to deduct 10 percent of their sales revenue to reflect the declining value of their investment.
26. Repeal the exemption from the corporate income tax for fossil fuel publicly traded partnerships: $1 billion tax increase
Partnerships that derive at least 90 percent of their gross income from depletable natural resources, real estate, or commodities are exempt from the corporate income tax. Instead, they are taxed as partnerships. This proposal would repeal this provision for publicly traded fossil fuel partnerships, requiring them to be taxed as corporations.
27. Repeal the Oil Spill Liability Trust Fund (OSTLF) excise tax exemption for crude oil derived from bitumen and kerogen-rich rock: $395 million tax increase
Because crude oil derived from bitumen and kerogen-rich rock are not treated as crude oil or petroleum products, it is exempt from the Oil Spill Liability Trust Fund tax of $0.09 per barrel of crude oil. This proposal would repeal this exemption.
28. Repeal amortization of air pollution control facilities: $901 million tax increase
Under current law, expenses related to certain pollution control facilities can be amortized over 60 months or 84 months. The budget would repeal this provision, requiring these expenses to be depreciated over 39 years.
29. Reinstate Superfund excise taxes: $25 billion tax increase
The proposal would reinstate the three Superfund excise taxes at double the previous rates: (1) crude oil received at a U.S. refinery; (2) imported petroleum products (including crude oil) entered into the United States for consumption, use, or warehousing; and (3) any domestically produced crude oil that is used in or exported from the United States if, before such use or exportation, no taxes were imposed on the crude oil.
30. Modify Oil Spill Liability Trust Fund financing: $513 million tax increase
This proposal would extend the Superfund excise tax to other crudes such as those produced from bituminous deposits as well as kerogen- rich rock. It would also extend the Oil Spill Liability Trust Fund (OSLTF) tax to include these crudes as well. It would also eliminate the eligibility of the OSLTF for drawback.