10 Big Tax Fights Lurking in Biden-GOP Budget Faceoff

4. How to treat carried interest for tax purposes.

Biden’s budget would eliminate the carried-interest tax break used by private equity fund managers to lower their tax bills. Under current law, investment fund managers can pay the 20% capital-gains rate on a portion of their incomes that would otherwise be subject to the 37% top individual-income rate. The Republican budget rejects such reforms.

5. How to reform the estate tax and related rules.

The Republican budget calls for an outright repeal of the estate tax, and for indexing capital gains and extending the pass-through tax deduction of the 2017 tax overhaul.

Biden’s budget, conversely, calls for strengthening the tax rules governing estates and gifts, making the system more difficult for wealthy individuals and trusts to avoid taxes. Imposing more estate tax rules would mean that wealthy individuals would face additional taxes when they die before assets are passed onto their heirs.

6. How to treat Medicare’s funding problems.

Biden is proposing to increase the 3.8% Medicare tax to 5% for those earning at least $400,000 to shore up the program’s trust fund. That would mean the richest taxpayers would pay a 44.6% federal rate on investment income and other earnings.

Rather than raising taxes, the Republican proposal focuses instead on “reducing costs without cutting benefits.”

“This common-sense pathway is achievable without resorting to President Biden’s combination of destructive tax increases and rationing of care,” the document states. “Further, RSC policies would result in savings — not cuts — for seniors through lower premiums, reduced costs and greater choice.”

7. How to address Social Security’s funding.

Biden’s budget states that he’d extend Social Security’s solvency by asking the highest-income Americans to “pay their fair share” through a payroll tax increase. The document does not call for benefit reductions, however, even for the wealthy.

The new Republican budget instead calls for the Social Security eligibility age to be tied to life expectancy, and it also advocates for reducing benefits for top earners who aren’t near retirement — including a phase-out of auxiliary benefits for the highest earners.

8. Altering tax incentives and relief for the oil and gas industry.

In his proposal, Biden renews his call for Congress to end tax incentives “cherished” by the oil and gas industry, including a deduction for some drilling costs, a write-off for production from marginal wells and a tax break under which mineral rights owners can claim some of the value of the reserves removed from their property.

The Republican budget would allow energy producers to deduct costs, including labor and safety, associated with oil and gas exploration. While tax deductions for energy exploration (known as intangible drilling costs) have long been included in the U.S. tax code, the Inflation Reduction Act limited the ability of energy companies to deduct intangible costs and depreciating assets.

9. Whether to offer or remove renewable energy tax incentives.

The Biden budget proposal includes a variety of proposed investments in renewable energy projects and related technologies, and it also seeks to establish tax incentives to encourage private development in these areas.

The Republican budget, conversely, broadly seeks to eliminate tax breaks for “inefficient and unreliable producers of so-called green energy,” many of which are extended periodically through “tax extender” packages.

10. Whether to provide greater funding for IRS auditors.

The president’s budget would continue to support funding meant to allow for the hiring of nearly 90,000 new IRS agents tasked with “making sure that wealthy Americans and big corporations pay the taxes they owe.”

The Republican budget would repeal these provisions of the Inflation Reduction Act and enact a variety of new restrictions on the data gathering and monitoring activities of IRS agents.

Photo: Bloomberg