By Caroline Nutter, tax policy analyst

On May 28th, the Biden-Harris administration released their Fiscal Year 2022 budget proposal, and the Treasury Department released its “green book,” which provides additional details and guidelines about the provisions in the proposal. The budget proposal includes the American Families Plan and the American Jobs Plan, two major tax and infrastructure overhauls presented by the White House earlier this year.

The President’s proposal includes tax increases for corporations and high-wealth individuals and families, many of which undo changes made to the tax code by the Trump-era Tax Cuts and Jobs Act. The proposal also includes tax credit increases for people who earn low incomes and parents. 

Biden Tax Plan Changes

Changes to individual income taxes include:

• Increasing the top individual tax rate from 37% to 39.6%
• Raising the capital gains tax rate from 20% to 39.6% for people making over $1 million
• Ending “stepped-up basis,” which allows people to pass investments down to heirs without the investments being taxed at the time of their death
• Expanding tax credits for people who earn low incomes
• Making permanent the Affordable Care Act premium tax credits, the expansion of the Earned Income Tax Credit, and the expansion of the  Child and Dependent Care Tax Credit from the American Rescue Plan
• Extending the Child Tax Credit changes from the American Rescue Plan to 2025

Changes to corporate income tax include:

• Increasing the top corporate tax rate from 21% to 28%
• Raising the tax on Global Intangible Low Tax Income—income earned by foreign affiliates of US companies from intangible assets such as patents, trademarks, and copyrights—from 10.5% to 21%, calculating it on a country-by-country basis, and eliminating the exemption of a 10% return on tangible investment abroad.
• Imposing a 15% minimum tax on corporate book income, which is levied on a firm’s financial profits instead of taxable income for firms with revenue over $100 million
• Repealing the Foreign-Derived Intangible Income deduction, which incentivizes firms to move intellectual property into the U.S.
• Providing a tax credit for certain activity around moving jobs from other countries to the US and denies expense deductions on jobs that were moved from the US to other countries, a business practice known as offshoring.
• Increasing corporate tax enforcement
• Eliminating certain deductions and credits for the fossil fuel industry

Biden Tax Plan IRS Funding & Enforcement

The plans also increase IRS funding and enforcement, with particular attention to wealthy corporate and individual taxpayers. This comes in the wake of reporting from ProPublica that showed low-income taxpayers were more likely to be audited than those with the highest incomes, and that many of the country’s richest people avoid paying any income taxes.

Biden Tax Plan & Tax Fairness

Passage of the American Families Plan and the American Jobs Act would be significant shifts in the federal tax code. The plans move millions of dollars in tax liability from low-income households to high earners by increasing top marginal rates and expanding tax credits for working families. The plans also undo many of the harmful changes made in 2017.

Tax Fairness Wins In Colorado

While the White House is hopeful they can pass this ambitious plan, states like Colorado are moving forward with tax changes of their own. Gov. Jared Polis recently signed HB21-1311 and HB21-1312, which expanded state-level tax credits for workers and families who earn low incomes. Those tax credits were funded by closing tax loopholes used by the wealthy and corporations to avoid paying their fair share. The new Colorado laws shifted hundreds of millions of dollars from high-income households to low-income households through the tax code.

Coloradans are thrilled to see a fairer state tax code (be sure to join us on July 13 to celebrate the passage of the Tax Fairness for Coloradans Package) we’re grateful to our state legislators for putting tax policy front and center in economic equity debates, and to our members of Congress who supported improvements to the tax code in COVID relief legislation, we hope Congress will continue the momentum by passing the federal tax changes outlined in the White House’s budget proposal.