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March 29, 2022

US President Biden releases FY2023 Budget

Executive summary

United States (US) President Joe Biden's FY2023 Budget released 28 March folds most of the House-passed Build Back Better Act (BBBA) into the baseline and assumes it has been enacted, a move likely intended to avoid upsetting any blossoming negotiations later this spring or summer on a post-BBBA reconciliation bill after the House measure stalled in the Senate. This means most tax-related spending and other BBBA provisions are omitted; other major tax increase proposals are included, even though Congress has little appetite for passing some of them or they face firm opposition from one or more key senators in the 50-50 Senate. Examples of these proposed tax increases include increases in the corporate and individual tax rates that were previously proposed by the Administration or congressional Democrats but were rejected as the BBBA was put together in the House,

The Budget includes some new starters, such as: (i) replacing the Base Erosion and Anti-avoidance Tax (BEAT) with part of the Organisation for Economic Co-operation and Development (OECD) Pillar Two rules, called the Undertaxed Payment Rule (UTPR), and (ii) imposing a new minimum tax on wealthy individuals, called the "billionaire's tax."

"The revenue proposals are estimated relative to a baseline that incorporates all revenue provisions of Title XIII of H.R. 5376 (as passed by the House of Representatives on 19 November 2021), except Sec. 137601" (i.e., relief from the state & local tax deduction cap), said Treasury in its General Explanations of the Administration's Fiscal Year 2023 Revenue Proposals.

Among the major new proposals in the Budget is a new "billionaire's tax," which would impose a 20% minimum tax on total income, inclusive of unrealized capital gains, for taxpayers with wealth of greater than US$100 million.1 The proposal would allow for spreading the first year of minimum tax liability in equal installments over nine years, and then five years for top-up payments on new income going forward. The proposal would raise about $360 billion over 10 years. Payments of the minimum tax would be treated as a prepayment that would be credited against subsequent tax on realized capital gains. The proposal also includes new annual reporting requirements that would, among other things, require tradable assets such as publicly traded stock to be valued using end-of-year market prices, with special valuation rules provided for non-tradable assets. Senators have proposed varying forms of wealth taxes and marking assets to market; this is the first such proposal from the Biden administration, and officials had previously expressed concern about implementation difficulties.

The Budget continues to call for tax provisions that fell out of the House-passed BBBA due to opposition in Congress, including:

  • Raising the corporate tax rate to 28%

  • Increasing the top marginal income tax rate (to 39. 6%) for high earners

  • Reforming the taxation of capital income to tax capital gains of high earners at ordinary income rates

  • Taxing carried interests as ordinary income

  • Repealing deferral of gain from like-kind exchanges

As in last year's budget, the proposal to reform the taxation of capital income would tax long-term capital gains and qualified dividends of taxpayers with taxable income of more than $1 million at ordinary rates, with 37% generally being the highest rate (40.8% including the net investment income tax).

Detailed discussion

Corporate & International Tax

Seven proposals focus on reforming business and international taxation, and are estimated to raise $1.628 trillion over 10 years.

Corporate rate and GILTI

The Budget proposes to increase the 21% corporate rate to 28%, which would consequently increase the Global Intangible Low-Taxed Income (GILTI) rate in tandem. The proposal is scored under the assumption of a BBBA baseline. Therefore, the new GILTI effective rate would be 20%, applied on a jurisdiction-by-jurisdiction basis.

The 20% GILTI rate seems to be the result of the 28% corporate rate reduced by the BBBA's 28.5% GILTI deduction, which results in a 20.02% rate (28 x 71.5%). The GILTI rate could increase to as high as 21.07%, with the 5% GILTI Foreign Tax Credit haircut (20.02/.95). It's not clear how this rate would conform to the Administration's agreement on Pillar Two for a 15% minimum tax rate.

The proposal would be effective for tax years beginning after 31 December 2022. For tax years beginning before 1 January 2023, and ending after 31 December 2022, the corporate income tax rate would equal 21% plus 7% times the portion of the tax year that occurs in 2023.

Revenue: $1.314 trillion (this a significant increase in the estimated revenue from the President's FY 2022 Budget, which estimated a 28% corporate rate would raise $857 billion.)

BEAT repealed and replaced with UTPR

The proposal would repeal the BEAT as modified by the BBBA and replace it with a UTPR that is consistent with the UTPR described in the OECD Pillar Two Model Rules, including a global annual revenue threshold ($850 million), de minimis exclusions and allocation among jurisdictions. Further, a US domestic minimum top-up tax would be part of the rules to protect US revenues from the imposition of UTPR by other countries. The proposal expressly notes: "Separately, the proposal would provide a mechanism to ensure U.S. taxpayers would continue to benefit from U.S. tax credits and other tax incentives that promote U.S. jobs and investment." It's not clear, however, how those benefits would be preserved.

As explained, the UTPR would primarily apply to foreign-parented multinationals operating in low-tax jurisdictions and would not apply to income subject to the Pillar Two Income Inclusion Rule (IIR), including income subject to GILTI. Both domestic corporations that are part of a foreign-parented multinational group and domestic branches of foreign corporations would be disallowed US tax deductions in an amount determined by reference to the low-taxed income of foreign entities and foreign branches that are members of the same financial reporting group (including the common parent of the financial reporting group).

The proposal to repeal the BEAT and replace it with the UTPR would be effective for tax years beginning after 31 December 2023.

Revenue: $239.463 billion

Incentive to bring jobs home

A new general business credit would equal 10% of the eligible expenses paid or incurred in connection with onshoring a US trade or business that is linked to reducing or eliminating a trade or business or line of business currently conducted outside the United States or starting up, expanding, or otherwise moving the same trade or business within the United States, to the extent that this action results in an increase in US jobs. Deductions would be disallowed for expenses paid or incurred in connection with offshoring a US trade or business, including denying deductions against a US shareholder's GILTI or subpart F income inclusions for any expenses paid or incurred in connection with moving a US trade or business outside the United States.

The proposal, which was reprised from the FY2022 Budget but never really part of the public BBBA conversation, would be effective for expenses paid or incurred after the date of enactment.

Although the President's FY22 Budget proposed to repeal the deduction for foreign-derived intangible income on the grounds that it encourages offshoring of US businesses and jobs, that proposal is not included in the FY23 Budget, even though it is not part of the BBBA.

Revenue: $0 (the proposed credit and the denial of deductions offset at a cost of $149 million.)

Other business and international tax proposals

Other proposals to reform business and international taxation include:

  • Disallowing stepped-up basis of a partnership's non-distributed property to a related partner until the property is disposed. The proposal would be effective for partnership tax years beginning after 31 December 2022.

  • Conforming the definition of control to test the ownership of at least 80% of the total voting power and at least 80% of the total value of a corporation's stock. The proposal would be effective for transactions occurring after 31 December 2022.

  • Expanding the retroactive election for those having an interest in a passive foreign investment that is intended to reduce tax costs and increase tax compliance by removing, in certain cases, the need to seek consent. The proposal would be effective on the date of enactment. Forthcoming regulations or other guidance would permit taxpayers to amend previously filed returns for open years.

  • Amending reporting obligations of US persons to provide information on foreign operations that would align with the BBA changes, for example, that would focus on foreign operations conducted by tested units within a country as opposed to the current definition of a foreign business entity that could allow blending across jurisdictions that the BBBA would remove.

Revenue: $74.715 billion (aggregated)


The Budget includes insurance tax provisions, including proposing what are characterized as technical corrections to the TCJA provisions addressing the capitalization of deferred acquisition costs (DAC) and the discounting of certain unpaid claims and other incurred losses for short-tail and long-tail property and casualty insurance businesses. Regarding DAC, the Budget proposal would change the capitalization rate of net premiums for group life insurance contracts from 2.05% to 2.45%, and the capitalization rate for other non-annuity specified life insurance contracts from 7.70% to 9.20%. The proposal, which is characterized as a technical correction, would be effective as if it were part of the TCJA and be treated as a change of accounting method for the tax year beginning in 2022. Regarding the discounting proposal, the second technical correction would include international and nonproportional reinsurance lines of business in the list of long-tail lines of business that are explicitly identified in the statute. This proposal is effective for tax years after 31 December 2022. New loss payment patterns for international and nonproportional reinsurance lines of business would be determined as if promulgated for the 2022 determination year.

Changes to the alternative tax regime that may be elected by certain small non-life insurance companies are proposed to address perceived abuses in the use of the alternative regime. Generally, the proposal would require certain insurance companies electing the alternative regime to establish Untaxed Income Accounts (UIA). Certain amounts, referred to as deemed distributions, would be deemed paid from the UIA to the extent the UIA has a positive balance and would be subject to corporate income tax and a penalty. This proposal would be effective for distributions, sales, and other transactions occurring in the tax years of a covered insurance company beginning after 31 December 2022.

A business-owned life insurance proposal would repeal the pro-rata interest-expense-disallowance rule for contracts covering employees, officers, or directors, while the exception for policies covering a 20% owner would be retained. The proposal would apply to contracts issued after 31 December 2021, and certain material changes to an existing contract would be treated as an issuance of a new contract.


Also reproposed from the prior budget is a similar set of provisions to cut benefits for fossil fuel producers. These provisions, which were not included in the BBBA, include repeal of expensing of intangible drilling costs, repeal of percentage depletion with respect to oil and natural gas wells, and increasing the geological and geophysical amortization period for independent producers. These proposals generally would be effective for tax years beginning after 2022.


Charity-related provisions would:

  • Provide that a contribution by a partnership (whether directly or as a distributive share of a contribution of another partnership) is not treated as a qualified conservation contribution (and thus, the deduction for the contribution would be disallowed) if the contribution exceeds two and a half times the sum of each partner's relevant basis in such partnership

  • Clarify that a distribution by a private foundation to a donor advised fund (DAF) is not a qualifying distribution unless funds are expended as a qualifying distribution by the end of the following tax year and the private foundation maintains adequate records or other evidence showing that the DAF has made a qualifying distribution within the required timeframe

Estate & Gift

Newly added are estate and gift provisions, including those on grantor trusts. These provisions would:

  • Require the remainder interest in a GRAT to have, at the time the interest is created, a minimum value for gift tax purposes equal to the greater of 25% of the value of the assets transferred to the GRAT or $500,000

  • Prohibit any decrease in the annuity during the GRAT term and the grantor from acquiring in an exchange an asset held in the trust without recognizing gain or loss for income tax purposes

  • Require a GRAT to have a minimum term of 10 years and a maximum term of the grantor's life

Another proposal would provide that generation-skipping transfer (GST) tax, which is imposed on gifts and bequests by an individual transferor to transferees who are two or more generations younger than the transferor, would apply only to: (a) direct skips and taxable distributions to beneficiaries no more than two generations below the transferor, and to younger generation beneficiaries who were alive at the creation of the trust; and (b) taxable terminations occurring while any person described in (a) is a beneficiary of the trust.

Information reporting, including cryptocurrency

The Budget would expand existing rules on financial account reporting to include reporting on the account balance (including the cash value or surrender value of cash-value insurance and annuity contracts) for all US office accounts of foreign persons and includes new reporting for other financial accounts held by foreign persons.

In addition, the Budget seeks to modernize rules for reporting on digital assets, including cryptocurrency, primarily by adding these types of assets to the scope of existing reporting requirements. These provisions include amending the nonrecognition rules for securities loans to apply to loans of actively traded digital assets; increasing information reporting by certain financial institutions and digital asset brokers for purposes of exchanging information with other jurisdictions; requiring reporting by taxpayers of foreign digital asset accounts under Internal Revenue Code Section 6038D; and amending the mark-to-market rules for dealers and traders to include digital assets.

Another tax administration/compliance proposal would require employers to withhold the 20% additional tax and additional interest tax on nonqualified deferred compensation (NQDC) included in an employee's income due to the NQDC arrangement failing to comply with the tax requirements.

Funding for post-retirement medical and life insurance benefits

The Budget would require post-retirement benefits to be funded over the longer of the working lives of the covered employees on a level basis or 10 years, unless the employer commits to maintain those benefits over a period of at least 10 years, effective for tax years beginning after 31 December 2022.

The Treasury General Explanations of the Administration's Revenue Proposals document is available here.


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  1. Currency references in this Alert are to the US$.

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