Taxes Are Not High Enough: The Biden Administration’s 2024 Green Book Tax Proposals

By: Randall A. Denha, J.D., LL.M.

In a landmark move, the Biden Administration has released its highly anticipated 2024 Green Book, detailing an array of tax proposals aimed at reshaping the fiscal landscape of the United States. The Green Book is, in effect, the wish list of changes the Administration wants to see in how taxes take shape. What is of greater importance for this year’s Green Book is not what it means for 2024, but what it potentially tells us about 2025. These proposals will likely serve as the basis of the Biden Campaign tax plan, giving us insight into the coming tax agenda should President Biden win reelection.

The proposal primarily recycles or tweaks previously defeated proposals to increase taxes on corporations and wealthy individuals and ensure large multinational companies pay a minimum tax in the jurisdictions in which they operate. This document, integral to understanding the administration’s approach to taxation, outlines significant changes designed to promote economic equity, environmental sustainability, and bolster the nation’s infrastructure. The proposals would increase and reform corporate taxation, as well as increase individual taxes on those with annual earnings exceeding $400,000.

At the heart of the 2024 Green Book is a commitment to ensuring that the wealthiest individuals and large corporations contribute a fairer share to the nation’s tax revenues. One of the standout proposals includes an increase in the top marginal income tax rate, signaling a return to pre-2017 levels. Here is a high-level summary for Individuals:

• For individuals with income over $400,000:
  • Increase the marginal tax rate to 39.6%;
  • Increase the net investment income tax rate and additional Medicare tax rate to 5.0% (unlike prior Green Books);
  • Ensure that all passthrough business income is subject to either the net investment income tax or the self-employment tax; and
  • Tax carried interest as ordinary income.
• Tax long-term capital gains and qualified dividends at ordinary rates for taxpayers’ income over $1 million.
• For taxpayers worth more than $100 million, impose a 25% minimum income tax on total income, generally including unrealized capital gains. This is a tax on wealth!
• Accelerate distribution requirements for taxpayers with tax-favored retirement arrangements that exceed $10 million.
• Any transfer of property (including gifts and at death) will be treated as a sale of the property and the capital gains will be taxed, with gains over $1 million being taxed at the new 39.6% rate (plus the 3.8% net investment income tax).
• Any transfer of property (including gifts and at death) will be treated as a sale of the property and the capital gains will be taxed, with gains over $1 million being taxed at the new 39.6% rate (plus the 3.8% net investment income tax).
• Minimize estate tax planning opportunities by modifying rules regarding grantor retained annuity trusts and the generation skipping transfer tax.
• Tax long-term capital gains and qualified dividends at ordinary income tax rates, which, when taken together with other changes, would result in a tax rate of 44.6 percent for taxpayers with more than $1 million of income.

But wait, there is more:

• Prevent basis shifting between related parties through partnerships.
• Limit the annual deferral of gain on like-kind exchanges of real property.
• Require 100% recapture of the cumulative depreciation deductions as ordinary income on certain depreciable real property.
• Apply certain tax rules regarding securities to digital assets and expand reporting requirements.
• Transfers to trusts and partnerships triggers the capital gains tax.
• Trusts that have been in existence for more than 90 years will be taxed,
• There will be no discounts for fractional interests in an asset.

In the Trust and Estate space, the following are being floated:

Trust and estate tax proposals

• Modify grantor trust rules by addressing three common planning techniques that allow the grantor to remove significant value from their estate without federal tax consequences.
• Prescribe rules for valuing partial interests in property for certain intrafamily transfers.
• Treat certain transfers of appreciated property by gift or death as realization events, subjecting them to capital gain rates.
• Using loans for estate planning can be advantageous, especially when interest rates are low. The Green Book targets loans to beneficiaries used to avoid the income and GST tax consequences of distribution. It suggests the loans are often forgiven or otherwise not paid back, which is difficult for the IRS to track. The 2024 Green Book proposes to treat loans to and use of trust property by a trust beneficiary as a distribution for income tax purposes, resulting in distributable net income carrying out to the borrowing beneficiary.

The Green Book also addresses the digital economy, proposing new tax rules to adapt to the evolving nature of digital goods and services. This includes measures to close loopholes that have allowed digital giants to minimize their tax obligations, thereby ensuring a level playing field for all businesses. In conclusion, a Republican control of the House of Representatives will preclude action on President Biden’s tax increase proposals in the near term. The President’s budget generally leaves open the question of how to address most of the “Tax Cuts and Jobs Act” individual tax provisions that are set to expire at the end of 2025. The fate of those provisions is expected to depend largely on which party controls the White House and Congress after the 2024 elections. The proposals in the fiscal year 2024 Budget could arise again in the context of that 2025 debate.