Biden's Budget Raises Taxes; Passage Unlikely
March 13, 2023
On March 9, the White House released its FY 2024 budget proposal, which outlines President Biden’s spending and tax priorities for Congress. The administration says the tax reforms in the budget will reduce the deficit by $3 trillion over 10 years while fully paying for the proposed spending increases.
Why it matters: A divided Congress will not pass the budget as-is, but the introduction kicks of appropriations season for lawmakers.
And while House Republicans are not likely to raise taxes, debt ceiling and spending negotiations could create an opportunity for tax changes. The 2017 Tax Cuts and Jobs Act (TCJA) also expires after 2025, so policymakers will eventually be tasked with making some tax changes permanent.
By the numbers: Some of the key tax hikes relevant to real estate include:
- Limiting 1031 like-kind exchange tax deferral,
- Doubling the capital gains rate to 40% for wealthy individuals,
- Increasing the net investment income tax to 5%
- Eliminating carried interest treatment, and
- A 25% minimum tax on billionaires, including on unrealized capital gains.
1031 is in the crosshairs: As we’ve covered previously, CREFC and other real estate trades successfully urged policymakers to preserve the 1031 like-kind treatment for real estate during the negotiations for the Inflation Reduction Act (IRA). While the limitation on 1031 never made it into legislative text, the White House continues to propose cutting the deferral treatment despite strong bipartisan support for the provision.
In terms of spending priorities, the budget lays out an aggressive policy agenda supported by billions of dollars. Spending priorities include:
- Housing Affordability gets $175 billion to increase affordable supply with low-income housing tax credits, a new tax credit to develop affordable single-family homes, and $10 billion to incentivize zoning reform among state and local governments.
- Climate and sustainability see a 26% increase to $52 billion, with the focus on resiliency, infrastructure, and technology. In particular, the budget proposes $24 billion to help build resilience to floods, wildfires, storms, extreme heat, and drought.
- Immigration and border security priorities are balanced with increased funding to border protection agencies and also funds to address the immigration backlog.
What’s next: Congress will begin crafting its own budget through the committee process, but the debt ceiling debate hangs over all of the conversations. While Democrats want a clean debt ceiling hike, the likely outcome will also cater to GOP priorities of reducing the debt via spending and revenue provisions.
Contact David McCarthy (firstname.lastname@example.org) for questions on the budget.