The Biden administration this week released its $7.3 trillion FY2025 budget request, which includes $4.9 trillion in tax increases and several tax proposals impacting capital gains. The Treasury Department also released its "Green Book," which provides detailed descriptions of the budget’s tax proposals and associated revenue estimates. (White House budget and Treasury news release, March 11)

Capital Gains Focus

• The White House’s annual budget represents the economic policy agenda of the Biden administration. While it is a wish list with no immediate impact, it sets a marker for upcoming debates on spending and fiscal priorities in Congress and throughout the upcoming election. This week’s budget document includes many of the same tax proposals in President Biden’s previous budgets and policies outlined during his State of the Union address last week. (Roundtable Weekly, March 8 and White House Fact Sheet on the Budget, March 11)

• The FY2025 Green Book repeats the administration’s proposal to tax capital gains at ordinary income rates—nearly doubling the capital gains rate from 20% to 39.6%.  The budget would also increase the net investment income tax from 3.8% to 5% and extend the tax to all pass-through business income, effectively ending the exception for real estate professionals active in the business. As a result, the top combined tax rate on real estate capital gains and rental income would rise to 44.6%.

• Other tax proposals in the budget would create a 25% minimum tax on the unrealized gains and income of individuals with more than $100 million in wealth, recapture depreciation deductions at ordinary income rates when real estate is sold, and raise the top personal income tax rate from 37% to 39.6% for those making more than $400,000. The president also proposes to raise the corporate tax rate from 21% to 28%. (The Hill, March 13)

• Biden’s 2025 budget would largely eliminate the deferral of capital gain through like-kind exchanges (section 1031) and tax all carried interest as ordinary income. (White House Fact Sheet, March 11)

Tax Debates Begin

• Treasury Secretary Janet Yellen will testify on the administration’s budget and tax proposals before the Senate Finance Committee March 21 and during an upcoming House Ways and Means Committee hearing.

• The Green Book will serve as a reference for congressional Democrats who develop large-scale tax legislation for the next Congress in anticipation of the expiration of 2017 Tax Cuts and Jobs Act provisions at the end of 2025.

• As the FY2025 budget proposals spark a wide-ranging tax debate, a current $79 billion tax package—passed by the House and supported by The Roundtable—is pending in the Senate. (CQ News | Politico Pro | Tax Notes, March 15). Additional proposals in the budget impact housing policy—see story below.

Joint Employer Rule Struck

• Separately, a federal court on March 8 blocked the National Labor Relations Board’s (NLRB) final joint-employment standard rule. The decision from the U.S. District Court for the Eastern District of Texas addressed whether the expansive definition has the potential to expose broad swaths of employers to liability for labor law violations committed by contractors or franchisees. The court vacated the NLRB rule, stating the joint-employment standard interpretation is too broad. (Politico Weekly Shift, March 11, 2024 and Roundtable Weekly, Jan. 17, 2020)

As an appeal from NLRB is expected, employers should continue to comply with the current joint-employer rule adopted in 2020. (JD Supra, March 14)

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