Last week, we reported that as part of President Biden’s Fiscal Year 2024 budget proposal, he was proposing increases and expansion of the Net Investment Income Tax (NIIT) to include active income of pass through businesses. On further review of the U.S. Department of Treasury’s General Explanations of the Administration’s FY2024 Revenue Proposals, colloquially known as “The Greenbook,” (a document to explain the revenue proposals included in the President’s Budget) there are other proposed revenue raisers that are worth flagging.
While there is no proposed elimination of the “stepped up in basis” that was floated during the Build Back Better legislative exercise, the Administration is proposing basically the equivalent. Under the President’s budget, any transfer of wealth or assets at death would be characterized as an income recognition event, meaning that the assets would be considered income and be taxed at fair market value. Under current law, tax payers may transfer wealth at death without triggering income taxes.
The proposal would also impact flow of wealth into or out of a grantor trust. Under the President’s budget, any deposits or withdrawals from a grantor trust would be considered a “sale” for income tax purposes and trigger a capital gains tax. Currently, these transactions are tax free.
On the corporate side, the proposal would increase the corporate tax rate to 28 percent from the current 21 percent rate.
As we noted, Administration budget proposals are generally messaging documents to signal to appropriators the President’s policy priorities. We will, however, be tracking these proposals closely for any traction they may find in the 118th Congress.
In a related development, Rep. Tracey Mann (R-KS) is leading a resolution in the House to highlight the importance of maintaining stepped up basis for preserving small businesses. The resolution notes that eliminating stepped up basis would threaten the ability of small business owners to make generational transfers of their operations. Rep. Adrian Smith (R-NE), a member of the House Ways & Means Committee, has also lent his name to the resolution.
Late last week, Rep. Bobby Scott (D-VA), Ranking Member of the House Education and Workforce Committee, introduced the Jobs to Compete Act. The bill would expand Pell Grant eligibility to students in high-quality, short-term training programs that address local economic needs. This expansion will help alleviate financial barriers many students face in accessing and completing short-term training programs. The bill was referred to the House Education and Workforce Committee. Also introduced was the Freedom to Invest in Tomorrow’s Workforce Act, legislation sponsored by Representatives Rob Wittman (R-VA) and Abigail Spanberger (D-VA) which would permit the use of 529 account funds to pay for postsecondary credential program expenses. The bipartisan bill would give students and workers across the country the ability to use their 529 accounts to cover costs of tuition as well as items like books, and testing costs related to key training programs.