A Comparison of Recent Tax Proposals

This chart compares the Biden Administration’s Fiscal Year 2022 Revenue Proposals (the Greenbook), which we discuss here, to the tax proposals in the Build Back Better Act (BBBA) approved by the House Ways and Means Committee on September 15, 2021, which we discuss here.

 
Greenbook
BBBA
Corporate Tax Proposals
Raise the corporate income tax rate Raise the corporate income tax rate from 21% to 28%. Reintroduce graduated corporate income tax rates and apply a 26.5% marginal rate to income in excess of $5 million.
Impose a 15% minimum tax on corporate book earnings Impose a 15% minimum tax on book earnings for domestic corporations with worldwide book income over $2 billion. N/A
Expand the anti-inversion rules Treat any expatriated corporation as a domestic corporation for U.S. tax purposes if, immediately after the expatriation, the pre-transaction shareholders own at least 50% of the expatriated entity (as opposed to 80% under current law). N/A
Curtail tax-free spinoff monetization N/A Require a corporate parent to recognize gain in certain distributions of spinco debt securities to its creditors in redemption of its own debt.
Increase the tax on GILTI (global intangible low-taxed income) Eliminate the 10% imputed return on depreciable tangible property (thereby increasing the income on which the tax is imposed). Reduce the imputed return to 5%.
  Increase the GILTI tax rate from 10.5% (13.125% beginning in 2026) to 21%. Increase the GILTI tax rate to 16.5625%.
Modify the deduction for FDII (foreign-derived intangible income) Repeal the FDII deduction. Reduce the deduction from 37.5% to 21.875% for tax years beginning after 2021 instead of after 2025.
Modify the BEAT (base erosion and anti-abuse tax) Repeal the BEAT and replace it with SHIELD (stopping harmful inversions and ending low-tax developments), which would deny certain deductions to U.S. corporate members and branches of financial reporting groups with more than $500 million in global annual revenues (determined based on their consolidated financial statements) for payments made to financial reporting group members whose income is subject to an effective tax rate that is below a designated minimum tax rate. Increase the BEAT rate from 10% to 12.5% beginning in 2024 (instead of 2026) and to 15% beginning in 2026.
Limit deductions for disproportionate U.S. leverage Limit interest deductions of U.S. members of multinational groups that prepare consolidated financial statements if their net interest expense for financial reporting purposes exceeds their proportionate share (determined based on their share of the group’s EBITDA) of the net interest expense reported on those financial statements. Same, except that the limitation applies only if:
(1) a U.S. member’s net interest expense for financial reporting purposes exceeds 110% of its proportionate share of the net interest expense reported on the group’s financial statements; and
(2) the U.S. members’ aggregate average annual net interest expense (determined on a three-year rolling basis) exceeds $12 million.
Defer worthless stock deductions on subsidiary liquidations N/A Defer a corporate parent’s worthless stock loss on the liquidation of an insolvent subsidiary.
Repeal CFC downward attribution N/A Repeal downward attribution.
Limit participation exemption to dividends from controlled foreign corporations (CFCs) N/A No dividends-received deduction for dividends paid by foreign subsidiaries unless they are CFCs.
Modify the portfolio interest exemption N/A Prevent foreign holders of 10% or more of a domestic corporation’s shares, by value, from avoiding withholding tax by holding low-vote stock.
Individual and Partnership Tax Proposals
Increase the individual tax rate Increase the top marginal individual income tax rate from 37% to 39.6% beginning in 2022 instead of 2026. Same.
Increase the maximum long-term capital gains rate Tax long-term capital gains and qualified dividends as ordinary income for individuals with adjusted gross income of more than $1 million. Increase the top rate from 20% to 25%.
Impose a 3% surtax on high-income earners N/A Impose a 3% tax on a taxpayer’s modified adjusted gross income in excess of $5,000,000.
Force income recognition to donors, decedents, and non-corporate entities Require donors and decedents to recognize gain on transfers of appreciated property to donees or heirs, with certain exclusions. N/A
Expand the 3.8% Medicare tax Subject all trade or business income of individuals earning over $400,000 to the 3.8% Medicare tax, either through the self-employment tax or the net investment income tax. Subject the distributive share of materially participating high-income partners to the self-employment tax. Subject all trade or business income of individuals earning over $400,000 (in the case of single filers) or $500,000 (in the case of joint filers) to the 3.8% net investment income tax, unless that income is subject to the self-employment tax.
Modify the taxation of carried interests Tax carried interests at ordinary rates for investment professional whose adjusted gross income exceeds $400,000. Extend from three to five years the holding period required for gain on carried interests to qualify as long-term capital gains, and toll the beginning of the holding period.
Limit gain deferral on like-kind exchanges Limit a taxpayer’s ability to defer gain recognition in excess of $500,000 on any putative section 1031 exchange. N/A
Tax transfers between grantor trusts and owners N/A Treat transfers between grantor trusts and their deemed owners as taxable exchanges.
Expand the wash sale rules N/A Expand the scope of the wash sale rules to:   (1) include foreign currencies, commodities, digital assets such as cryptocurrencies, and contracts to buy or sell these assets; and   (2) introduce “related party” rules.  
Limit gain exclusion on sales of qualified small business stock N/A Eliminate the 100% exclusion rate for individuals with adjusted gross income of at least $400,000 and for all trusts and estates.
Withhold on partnership derivatives N/A Impose withholding tax on income equivalent payments under repos and high-delta swaps on publicly traded partnerships and “any other partnership as the Secretary by regulation may prescribe.”
Modify the rules for worthless partnership interests N/A Treat all partnership equity worthlessness deductions as capital losses unless attributable to inventory or other “hot assets,” and treat all partnership debt worthlessness deductions as capital losses.
Expand the constructive sale rules N/A Expand the scope of the rules to cover digital assets.
Apply section 163(j) at the partner level N/A Apply section 163(j) only at the partner level, instead of at both the partnership and partner levels.
 

Key Contacts

 
 
 
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