How Proposed Tax Reforms Could Impact Your Finances
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The President’s Budget proposes changing the tax code by eliminating deductions and credits that disproportionately benefit the wealthy, as well as adding new taxes and closing loopholes in its proposed changes to it.
These policies, combined with the planned expiration of Tax Cuts and Jobs Act provisions in 2025, would create a fairer system and require more from households and profitable corporations alike.
1. The President’s Budget
The President’s Budget provides an outline of the Administration’s fiscal policy proposals for the coming decade, aimed at reducing deficits and debt held by the public compared to CBO’s current-law baseline while strengthening programs such as Medicare, Social Security and Medicaid.
The Budget would close loopholes that allow wealthy Americans to avoid paying taxes at rates lower than what middle-class families are subjected to on their wages, while also calling upon Congress to establish a new minimum tax on billionaires and close other unfair loopholes that benefit these elite few. It also presents an ambitious vision for expanding Child Tax Credit as a way to assist families afford daily expenses more easily.
The federal budget process can be confusing and complex. To help make sense of it all, we offer this one-volume glossary as a resource to understand all its parts. In addition, see CRS Report RS20752 by Taylor N. Riccard for additional resources regarding budgeting.
2. The Billionaire Minimum Tax
Since taking office, President Obama has advocated for a fairer tax code that rewards work rather than wealth; requires large corporations and high-net-worth individuals to pay their fair share; and equipping the IRS with tools needed to identify any wealthy tax cheats. His latest effort in this fight involves creating the Billionaire Minimum Tax as another tool to ensure those within the wealthiest 0.1% contribute their fair share.
Mark-to-market billionaire minimum taxes would ensure that ultra-high net-worth households pay taxes on all their income – including tax-free gains accumulated without incurring tax liability – including unrealized gains that remain tax-free until realized. Together with reforms addressing capital gains tax breaks for wealthy Americans, such a Billionaire Minimum Tax could raise as much as $361 billion over 10 years.
ProPublica recently conducted an investigation showing that many of the 400 wealthiest American families pay federal income taxes at rates lower than 8.2%, thanks in large part to holding large quantities of stock which can easily be converted to cash through selling.
3. The Tax Cuts and Jobs Act
President Donald Trump and his economic advisors claimed in the run up to passing of this bill that corporate tax cuts would deliver substantial benefits for households nationwide, yet evidence indicates otherwise. Instead, these costly policies mainly benefit wealthier people and businesses; further extending them will only magnify these results further.
As well as offering deep and permanent corporate tax cuts, the 2017 law also included changes that lowered individual income tax rates and eliminated personal exemptions – changes which disproportionately benefit higher-income households, while decreasing the number of families itemizing or claiming deductions such as medical expenses, mortgage interest payments, charitable donations or unreimbursed employee expenses.
The 2017 law also reduced the maximum tax rate on pass-through business income to 21 percent and changed its base from global revenues to domestic. These changes will provide significant windfall benefits to high-income households while diminishing national priorities by diminishing revenue necessary to address them. Unfortunately, almost all the expiring individual and estate tax provisions of 2017 law are regressive in this way.
4. The Tax Cuts for Business
The 2017 Republican tax cuts provided windfalls to multinational companies and big Pharma while ballooning budget deficits. President Biden wants to extend family tax cuts while making the system fairer by asking billionaires and large corporations to pay their fair share; in addition, he intends to reduce deficits with a “billionaire minimum tax,” while cracking down on multinationals that move jobs and profits overseas.
Business tax cuts increase demand by increasing firms’ after-tax cash flow, which they can then use to pay dividends or expand activities – in turn helping lower unemployment and raise wages.
The Tax Cuts and Jobs Act (TCJA) reduced the corporate income tax rate from 35% to 21%, shifting towards a territorial system by eliminating or curtailing many deductions and credits, as well as offering incentives for high-income households to move to states with lower tax burdens by restricting state and local tax deductions; however, these provisions will become inactive by 2025.
