On March 28, the Biden administration issued its second set of proposals to raise the desired revenue. General explanation of the administration’s revenue proposals for the financial year 2023, (Tea 2023 green book.) These proposals represent the administration’s first comprehensive tax proposals since Build Back Better failed to move forward in Congress late last year. For tax consultants, green book Proposals are always interesting—both for what’s included and what isn’t. While these proposals may not go ahead, especially given the current Congress, it is useful to see what topics are being considered and to be able to address customer concerns with regard to the proposals. In two upcoming pieces, we’ll tackle some of the proposed changes to popular high-net-worth planning techniques and some under the radar, but potentially hugely impactful changes to trust and asset governance. In this piece, however, we’ll address the elephant in the room: the so-called billionaire tax.
Definitely, the headliner of 2023 Green Books Billionaire tax. It is a tax based on wealth, but not a wealth tax as traditionally understood (that is, a tax calculated as a percentage of the taxpayer’s net worth). Conversely, the Biden proposal, while only applicable to individuals meeting a threshold asset, would impose a minimum tax rate on income, profits. And Unrealized profit instead of net worth.
Under the Biden proposal, a taxpayer with a net worth of more than $200 million would have an annual income tax liability of at least 20% of all taxable income and unrealized gains. The tax liability for the initial year can be paid in nine annual installments, while the liabilities for the future year can be paid over five years. The amount of minimum tax paid as a result of unrealized profit can be used as a credit on the future disposition of that asset. The tax has phased provisions for those over $100 million but less than $200 million.
Like Senator Warren’s proposed estate tax, a practical question physicians have is how net asset value will be determined and reported. The Biden proposal requires those who have total basis and estimated value to be filed by December 31, reporting annual returns by asset class. For actively traded assets, the value will be the December 31st price. Assets that are not regularly traded shall be assessed “on a principal or adjusted cost basis, investment, borrowing or last valuation event from the financial statements, or using other methods approved by the Secretary … Traditional property appraisals will not be required. Annual and instead appraisals will grow between a conservative temporary annual return (five-year Treasury rate plus two percentage points). The IRS may provide opportunities for taxpayers to appeal the appraisal through such as through evaluation.
From the perspective of HNW individuals, the offer is likely to attract attention due to its catchy name and major new additions this year. However, heading into an election year in a Congress that couldn’t push Build Back Better, it’s unclear whether this tax will gain much traction given Sen’s likeness. Last year’s proposal to Ron Wyden (R-Ore.), which Speaker Nancy Pelosi reportedly referred to as a publicity stunt. Sen. Joe Manchin (DW Va.) has already said Biden’s proposal was a “difficult one” because you can’t tax people “on things you don’t have.”
Other notable rate increases for HNW individuals brought back from 2022 green book Raising the top marginal rate for ordinary income to 39.6% for single taxpayers with income over $400,000 and married taxpayers filing jointly with income over $450,000 and long-term capital gains and qualified for taxpayers with higher incomes Including increasing the rate of dividend to 37%. $1 million (40.8 percent including net investment income tax).
