The White House has released President Joe Biden’s proposed budget for fiscal year 2025. It includes a number of tax hikes for people and companies in various demographics, including scenarios that would reverse past tax cuts or take away existing tax breaks.
It’s important to note only Congress can pass a budget, and proposals like this are generally unlikely to make it through Congress untouched. So proposed budgets should be viewed more as policy goals of the president. Pieces of this budget could happen, but that’s far from guaranteed, and the budget process takes months even when it goes smoothly.
Nonetheless, following are several groups that could see tax increases in the coming year if Biden’s budget passes as proposed.
Mega-millionaires
A fact sheet released by the White House to promote the president’s proposed budget claims many billionaires manage to pay an average income tax rate of 8%, “a lower rate than many firefighters or teachers.”
If passed as proposed, the budget would ensure “a 25 percent minimum tax on the wealthiest 0.01 percent, those with wealth of more than $100 million.” Only about 10,000 people in the U.S. meet that definition, as we noted in “8 Universities With the Most Mega-Millionaire Alumni.”
People earning more than $400,000
The budget would also partially reverse tax cuts passed under President Donald Trump, “restoring the top tax rate of 39.6% for those making more than $400,000 a year.” (Currently — meaning as of the 2024 tax year — the top tax rate for individuals is 37%, and it applies only to those with a taxable income of more than $731,200.)
People in the $400,000-or-more income bracket would also see their Medicare tax rates rise from 3.8% to 5%.
Medicare is the federal health insurance program primarily for people age 65 or older, and includes a number of significant benefits. Increased Medicare taxes would help fund the program. Currently, one of the two Medicare trust funds is projected to be depleted in 2036, as we reported in “Here’s What Will Happen When Social Security and Medicare Funds Run Dry.”
Investors with more than $1 million in income
Another area where certain wealthy people could see higher taxes on their investments. The proposed budget “reforms” capital gains taxes by taxing such gains at the same rates as ordinary income — but only for those with more than $1 million in income
The White House says this proposal would close a “capital gains loophole that allows the wealthy to avoid ever paying tax on their appreciated investments.”
Currently, the tax rates for long-term capital gains are 0%, 15% or 20%, depending on a taxpayer’s income and tax-filing status. (See “Tax Breaks for Gifts, Estates and Capital Gains Are Bigger in 2024” to learn more about these rates.)
Many real estate investors
The proposed budget would eliminate the “like-kind exchange,” also known as a “1031 exchange,” a tax break that generally allows investors to avoid taxes on real estate profits if they reinvest those profits in another real estate purchase.
“This amounts to an indefinite interest free loan from the government,” says the White House. “Real estate is the only asset that gets this sweetheart deal.”
“Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss under Internal Revenue Code Section 1031,” the IRS explains.
Crypto investors
Currently, federal law doesn’t treat cryptocurrency exactly the same as stocks and bonds, which amounts to special tax treatment. The proposed budget would change that.
TurboTax explains the current rules simply:
“Crypto follows the same rules as stocks and bonds — you pay tax if you sell, exchange, spend, or convert crypto for more than it costs you, and deduct losses if you receive less than what you paid.
But unlike stocks and bonds, crypto is largely unregulated, so cryptocurrency isn’t a ‘security.’ Securities are regulated financial instruments with rules to protect investors. This means crypto has the same trading rules as precious metals including gold and silver or ‘real’ currencies, such as the British pound or euro.”
“A crypto investor – unlike an investor in stocks or bonds – can sell a cryptocurrency at a loss, take a substantial tax loss to reduce their tax burden, and then buy back that same cryptocurrency the very next day,” the White House says.
Tax cheaters
Biden’s proposed budget would funnel more money to the IRS to conduct audits and crack down on tax evasion “by making sure that wealthy Americans and big corporations pay the taxes they owe.” This would in effect be a tax increase on people who were illegally paying nothing or paying less than they legally owed.
This funding isn’t strictly for auditing the wealthy. It would also be used “to continue improving service for taxpayers who are just trying to pay what they owe,” the White House says.
Big business
The proposed budget would raise the corporate tax rate to 28%. The White House notes this is still below the 35% rate that was in effect prior to the tax cuts enacted in 2017, but it is higher than the current top rate of 21%. In other words, the 28% rate would effectively split the difference.
Multinational companies
The White House specifically called out “Big Pharma” — meaning major pharmaceutical companies — as an example of multinational companies that avoid taxes by operating abroad. The proposed budget would increase taxes on foreign earnings for these companies from 10.5% today to 21% in the future.
“These reforms would ensure that profitable multinational corporations, including Big Pharma, pay their fair share,” the White House says.
CEOs
The budget would curb tax deductions for people who work for a C corporation (whose profits are taxed differently than those of other types of companies) and receive more than $1 million in compensation. The White House says this change is intended to target excessive executive pay packages.
“Executive pay has skyrocketed in recent decades, with CEO pay averaging more than 300 times that of a typical worker in 2022,” the White House says.
Oil and gas companies
The president’s budget would strip oil and gas companies of special tax treatment that amounts to “tens of billions of dollars” in tax breaks. The White House argues these tax breaks aren’t producing the intended effect of improving production — which would lower prices for consumers.
“For the last two years, they have realized record profits, but instead of lowering prices for consumers or investing these funds, they have undertaken record stock buybacks, mergers, and acquisitions that benefited executives and wealthy shareholders,” the White House says.
