Tax changes proposed in 2023 budget

In the 2023 budget there were a number of tax proposals including:

• Raising the top marginal individual income tax rate to 39.6% from 37%
   
• Higher rates may apply to:
  • married couples filing jointly with taxable income over $450,000
  • head of household above $425,000
  • single filers making more than $400,000
  • $225,000 for married taxpayers filing separately
     
• Reforming the taxation on capital gains
   
• Modifying estate and gift taxation:
  • Modifying income, estate, and gift tax rules for certain grantor trusts;
  • Requiring consistent valuation of promissory notes;
  • Improving tax administration for trusts and decedents’ estates;
  • Limiting duration of generation-skipping transfer tax exemption;
     
• Closing loopholes:
  • Taxing carried (profits) interests as ordinary income;
  • Repealing deferral of gain from like-kind exchanges;
  • Requiring 100 percent recapture of depreciation deductions as ordinary income for certain depreciable real property;
  • Limiting a partner’s deduction in certain syndicated conservation easement transactions;
  • Extending the period for assessment of tax for certain Qualified Opportunity Fund investors;
  • Establishing an untaxed income account regime for certain small insurance companies;
  • Expanding pro rata interest expense disallowance for business-owned life insurance;
  • Correcting drafting errors in the taxation of insurance companies under the TCJA; and
  • Defining the term “ultimate purchaser” for purposes of diesel fuel exportation.
     

Three major reforms were proposed in the budget in an effort to, in Joe Biden’s words, “create a fairer tax system.” These are:

• a new minimum tax on billionaires. Currently, tax codes offer special treatment for the types of income enjoyed by the mega wealthy, and this loophole allows many to pay a lower tax rate on their full income than many middle-class households. The budget proposes a 20% minimum tax on multi-millionaires.
   
• To increase the rate that corporations pay in taxes on their profits. The budget would raise the corporate tax rate to 28%. This, along with other changes to the corporate tax code has the aim of incentivizing job creation and investment.
   
• Preventing multinational corporations from using tax havens. There has long been a goal to roll out a global minimum tax that would ensure that profitable corporations pay their fair share and invest in the US. The budget contained additional measures to stop multinationals from using tax havens to undercut the global minimum.

If enacted, the changes may hit higher earners beginning after December 31 2022.

Last updated: 22nd July 2022