President Joe Biden’s proposed fiscal year 2025 budget as it relates to tax policy would reshape the corporate tax landscape.  As policymakers deliberate on the budget proposal, businesses should closely monitor developments to get ahead of any implications for their operations and long-term tax planning strategies.

By Lindsay Haskell

President Joe Biden’s proposed fiscal year 2025 budget as it relates to tax policy is a mixed bag. One of the central tenets of Biden’s plan is to fund tax breaks for millions of families and low-income workers by increasing taxes on U.S. businesses and high earners. This shift would enable more tax credits for various taxpayers and activities.

The implications of Biden’s budget proposal on U.S. businesses would reshape the corporate tax landscape in the following ways.

  • Raise the corporate tax rate to 28%, effective 2024, compared with its current rate of 21% set by the 2017 Tax Cuts and Jobs Act (TCJA). Prior to the TCJA, the corporate tax rate was 35%. 
  • Increase the corporate alternative minimum tax introduced in the Inflation Reduction Act from 15% to 21%, effective 2024. This change aims to make sure profitable corporations pay a minimum level of tax, regardless of deductions and credits.
  • Quadruple the stock buyback tax implemented in the Inflation Reduction Act from 1% to 4%, effective 2024.

Other Provisions Affecting Businesses

President Biden’s budget proposal contains several other provisions that directly impact businesses. These include the following.

  • Excess Business Loss Limitation. The budget seeks to make permanent the excess business loss limitation for pass-through businesses. This provision limits the ability of businesses to deduct losses exceeding certain thresholds, thereby preventing high-income individuals from using business losses to offset income from other sources.
  • Deductibility of Employee Compensation. The proposal aims to further limit the deductibility of employee compensation under Section 162(m) of the Internal Revenue Code. This provision restricts the amount of executive compensation that corporations can deduct from their taxable income with the objective of addressing excessive executive pay practices.
  • Global and Tangible Low-Taxed Income (GILTI) Tax. President Biden intends to increase the GILTI tax rate from 10.5% to 21% and revise related rules. Additionally, the proposal suggests calculating the GILTI tax on a jurisdiction-by-jurisdiction basis. These changes aim to prevent multinational corporations from shifting profits to low-tax jurisdictions and ensure a more equitable taxation of global income. Some provisions would become effective in 2024.
  • Repeal the Reduced Tax Rate on Foreign-Derived Intangible Income (FDII). The budget proposal includes the repeal of the reduced tax rate on FDII as part of broader efforts to overhaul international tax policy and prevent profit shifting.

In all, the proposed fiscal year 2025 budget would put in motion tax changes that both shift to and away from various taxpayers the burdens of funding administration initiatives. As policymakers deliberate on the budget proposal, businesses should closely monitor developments to get ahead of any implications for their operations and long-term tax planning strategies. Reach out to your TaxOps Advisor with any questions or concerns.

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