White House Fact Sheet: Framework for the Build Back Better Plan
By Michael D’Addio, Principal, Tax & Business Services & Diane Giordano, Partner, Tax & Business Services
On October 28, President Biden met with Democratic members of Congress and then addressed the nation to discuss the framework for his proposed Build Back Better plan.
The spending provisions have been pared back to about $1.75 trillion. The provisions include several tax benefits, as follows:
- Continuation of the increased Child Tax Credit created under the American Rescue Plan (ARP), with advance payments for 2022 and making the credit fully refundable for the future.
- Enhancement and expansion of existing Home Energy and Efficiency Tax Credits. There will be a mechanism to reduce the cost of installing rooftop solar energy property for a home and an electric vehicle tax credit.
- Expansion of the increased Earned Income Tax Credit (EITC) past 2021 (the only year to which the new credit rules apply under ARP). It is not clear how many years will be covered by this provision.
The White House also issued a Fact Sheet which outlines the provisions of the framework. The Fact Sheet describes a number of methods by which the Administration plans to fully fund the spending portions of the bill. Taking into account the need to satisfy the objections of key senators, these tax changes are not as broad as those contained in the House’s bill or even the President’s Made in America Tax Plan or the American Families Plan. They include:
- A new corporation minimum tax of 15% imposed on corporate profits, which would cover large corporations, i.e., those with over $1 billion in profits reported to shareholders.
- A 1% surcharge on certain corporate stock buybacks.
- As part of a multinational agreement, create a 15% country-by-country minimum tax on foreign profits of U.S. corporations to minimize the tax benefits of shifting profits and jobs offshore. If a foreign country does not abide by this agreement, there would be a penalty rate imposed on a foreign corporation with U.S.-sourced income.
- Increases in individual tax rates, but at significantly higher thresholds than previously discussed by the Biden Administration or in the House bill. There would be a 5% increase to income in excess of $10 million. The surcharge would increase an additional 3% (to 8%) on income above $25 million. This would apparently apply to any type of taxable income (including capital gains) and could significantly impact asset and business sale transactions.
- Adjustment to the Net Investment Income Tax rules to cover the current “loopholes” that avoid imposition of the tax. This would lower the benefit of conducting business through an S-corporation for those who actively participate in the business. It is not clear whether there would be different thresholds for different filing statuses.
- Though not specifically discussed in the text, the summary of estimates of offsets discusses revenue from the “limitation of business losses for the wealthy.” Presumptively, this references making the limitation on excess business losses for individuals permanent (as proposed under the House bill and, previously, by the Administration).
- Increased resources provided to the IRS for the hiring of enforcement agents trained to pursue wealthy evaders and for modernizing outdated IRS technology. Enforcement would be focused on those with the highest incomes and not on those earning less than $400,000. There would also be funds to invest in IRS taxpayer services so that taxpayers can have their questions answered and be able to access the benefits to which they are entitled. This accepts the Department’s representations that these types of improvements will produce significant increases in tax revenue.
Notably, there is:
- No change to the corporate tax rate (threatened to increase to 26.5% under the House bill).
- No change to the long-term capital gain rate (proposed to increase to 25% under the House bill and to the highest ordinary income rate under prior Administration proposals).
- No changes to the estate and gift tax lifetime exemption or the rules affecting grantor trusts.
Also, many of the proposed changes to international tax rules are not included in the Fact Sheet. This does not mean that final legislation may not include some of these proposed changes, but they are not discussed in the White House summary.
The Fact Sheet’s investment section also reflects a category of Immigration with a $100 billion cost. It is not clear if the Senate parliamentarian will allow a provision dealing with immigration changes to be included in a bill that is intended to pass under the reconciliation procedure.
For questions, please contact your Marcum tax advisor.