26 MiMfg Magazine July 2021
Premium Associate Member
Treasury Green Book Offers Look into Biden ’ s Tax Proposals
By Sarah Russell • Clayton & McKervey
Right before the Memorial Day weekend , the U . S . Treasury released its Fiscal Year 2022 explanation of the various proposals included in President Joe Biden ’ s “ Made in America ” tax plan . Legislation has yet to be drafted and the proposal and details of the provisions included in what ’ s known as the Green Book are likely to change during the legislative negotiations . With so many questions resulting from the release , here is an overview of some of the tax proposals .
Corporate Taxation
• Increase the corporate tax rate : There are proposed changes for C Corporations from 21 to 28 percent . The new tax rate would be effective for taxable years beginning after 12 / 31 / 21 .
• Impose a 15 % minimum tax : A minimum tax would be issued on worldwide book income for corporations with such income in excess of $ 2 billion ; called a book tentative minimum tax ( BTMT ). The minimum tax would be equal to 15 percent of world-wide pretax book income less General Business Credits and Foreign Tax Credits . A book tax credit would be allowed against regular tax in future years but could not reduce tax liability below the BTMT in that year . BTMT would be effective for taxable years beginning after 12 / 31 / 21 .
• New general business credit : The proposed plan creates a new general business credit equal to 10 percent of eligible expenses paid or incurred in connection with onshoring a U . S . trade or business . In addition , the proposal will reduce tax benefits associated with U . S . companies moving jobs outside of the United States by disallowing deductions for expenses paid or incurred in connection with offshoring a U . S trade or business .
Individual Taxation
• Increase the top marginal individual tax : The newly proposed rate for top earners is 39.6 percent . This rate would be applicable for taxable years beginning after 12 / 31 / 21 . In taxable year 2022 , the top marginal rate would apply to income over $ 509,300 for married individuals filing jointly and $ 452,700 for single taxpayers .
• Long-term capital gains : Long-term capital gains and qualified dividends of taxpayers with adjusted gross income of more than $ 1 million would be taxed using ordinary income tax rates , plus 3.8 percent net investment income tax ( total 43.4 percent ). This change may be effective to the “ date of announcement .” It is unclear whether such date would be the date of the 5 / 28 / 21 budget reveal or when President Biden unveiled the American Families Plan on 4 / 28 / 21 .
• Pass-through income : All pass-through income of high-income taxpayers ( those with adjusted gross income over $ 400,000 ) will be subject to 3.8 percent Medicare tax , either through the net investment income tax or Self-Employment Contributions . This includes income earned by limited partners in a partnership or LLC and S Corporation shareholders .
• Excess business loss : The proposal makes permanent the excess business loss limitation which was enacted under the Tax Cuts and Jobs Act of 2017 and is set to expire for tax years beginning 1 / 1 / 27 .
• Earned Income Tax Credit : This also makes permanent the expanded Earned Income Tax Credit , changes to the Child and Dependent Care Tax Credit and extends the Child Tax Credit increase through 2025 and makes permanent full refundability . These are items enacted with COVID-19 related stimulus .
Interestingly , the current proposal does not eliminate the qualified business deduction as expected .
Estate & Gift Tax
• Capital gain income : The proposal addresses a change in the overall taxation of capital gain type income and includes various implications in the area related to transfers of appreciated property by gift or on death .
These proposals when combined with the bills already introduced by Senators Sanders and Van Hollen would result in a major overhaul to the transfer tax regime and planning tools that have been used for decades .
Other
In addition to the above , the proposal taxes carried interest as ordinary income , repeals deferral of gain in excess of $ 500,000 on like-kind exchanges and establishes various clean energy credits . 6
Sarah Russell leads Clayton & McKervey ’ s tax department and is a leading international tax expert . She may be reached at srussell @ claytonmckervey . com or 248-208-8860 .
Clayton & McKervey , P . C . is an MMA Premium Associate Member and has been an MMA member company since February 2018 . Visit online : claytonmckervey . com .