Monthly LRA Update

TAX DEVELOPMENTS

Biden Releases FY 2022 Budget Proposal

On May 28, President Biden released his Fiscal Year 2022 budget proposal, Budget of the U.S. Government. As expected, The American Jobs Plan and The American Families Plan were two primary elements of the budget proposal. We covered each of these plans separately when they were initially released.

In total, the budget calls for $6 trillion in outlays for fiscal year 2022 (a deficit of ~$1.8 trillion) and a 10-year total outlay of $69 trillion (and a respective deficit of ~$14.5 trillion). The budget looks to increase the receipts from corporate income taxes by $2.3 trillion over the 10-year horizon (an increase of 56% relative to the “Baseline”).

Two key elements of the Made in America Tax Plan we have highlighted previously were scored in this budget proposal:

1. Increase the domestic corporate tax rate to 28%: This was projected to reduce the budget deficit by $51 billion in 2022 and $858 billion over the 10-year horizon.
2. Impose a 15% minimum tax on book earnings of large corporations: This was projected to reduce the budget deficit by $11 billion in 2022 and $148 billion over the 10-year horizon.

Other large revenue items included revising the Global Minimum Tax regime ($534 billion over 10 years) and the SHIELD Rule, which is aimed at addressing inversions ($390 billion over 10 years).

Unlike the Obama Administration budget proposals, this year’s version does not identify any life insurance specific proposals.

Treasury Greenbook Released

Also on May 28, the Treasury Department released its “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals,” often referred to as the “Greenbook.” It provides explanations for the various tax initiatives addressed in the budget proposal.

The following is an excerpt from the Greenbook explaining the 15% minimum tax on book earnings:

The proposal would impose a 15 percent minimum tax on worldwide book income for corporations with such income in excess of $2 billion. In particular, taxpayers would calculate book tentative minimum tax (BTMT) equal to 15 percent of worldwide pre-tax book income (calculated after subtracting book net operating loss deductions from book income), less General Business Credits (including R&D, clean energy and housing tax credits) and foreign tax credits. The book income tax equals the excess, if any, of tentative minimum tax over regular tax. Additionally, taxpayers would be allowed to claim a book tax credit (generated by a positive book tax liability) against regular tax in future years but this credit could not reduce tax liability below book tentative minimum tax in that year.