Joe Biden’s Tax Plan: The 2024 Election

Even though he has dropped out of the race, it’s important to review what was in President Biden’s tax plan.

If a Democrat wins the U.S. Presidential Election in November, you can expect them to include many provisions in Biden’s tax plan in their own tax reforms.

We built a tax plan tracker that compares candidates’ tax policy promises

Biden’s tax plan aims to close loopholes and increase taxes on wealthy individuals and businesses. His plan also increases tax credits available to low-income earners while paying for it with an expanded tax base.

Biden’s Tax Plan to Raise the Corporate Tax Rate

Modify Excess Business Loss Rules

Excess business losses (Section 461(l)) came into play with the 2017 Tax Cuts and Jobs Act. It limits excess business losses for noncorporate taxpayers from 2021 to 2028.

Excess business losses are defined as the amount by which current-year net business losses exceed certain thresholds, which in 2024 are $610,000 for married couples filing jointly and $305,000 for other taxpayers. These thresholds are adjusted for inflation annually.

If a taxpayer’s business losses exceed these thresholds, the excess can be carried forward as a net operating loss (NOL) to subsequent years.

Biden’s tax plan proposes making the excess business loss limitation permanent. It would also change the treatment of carried-forward losses, treating them as current-year business losses instead of NOL deductions.

No Deduction for Employees Earning More than $1,000,000

Section 162(m) of the Internal Revenue Code limits the tax deduction that publicly held corporations can take for employee compensation over $1 million for certain top employees.

This includes the CEO, CFO, the next three highest-paid officers, and anyone who met these criteria in previous years.

From 2027, it will also include the next five highest-paid employees. The law covers all forms of compensation except for certain grandfathered payments, retirement plan contributions, and some other benefits.

The current law only applies to publicly held corporations and a limited number of employees.

Biden’s tax plan proposes to broaden the scope of Section 162(m) to include all C corporations, both public and private, and apply the $1 million deduction limit to compensation paid to any employee. It would introduce an aggregation rule to treat related entities as a single employer and ensure that all compensation, regardless of payment method, is subject to the deduction limit.

A New Neighborhood Homes Credit

There are no specific federal tax provisions supporting the construction or renovation of affordable owner-occupied housing. Existing measures like the low-income housing credit, mortgage interest deduction, tax-exempt housing bonds, and mortgage credit certificates help homeowners but do not address the development cost gaps for affordable housing.

In some neighborhoods, property values are too low to justify new construction or significant renovation, as costs often exceed the market value of the homes.

A subsidy could encourage development and improvement in these areas, especially for owner-occupants who tend to have a long-term interest in their communities.

Biden’s tax plan proposes a new tax credit called the Neighborhood Homes Credit (NHC) to support new construction, substantial rehabilitation for sale, and rehabilitation by existing homeowners. States would manage the allocation of these credits through designated agencies, ensuring compliance and setting standards. The credits would be available for single-family homes, condominiums, or cooperative housing in designated low-income areas.

Eligibility criteria for NHC residences

Sponsors would be eligible for NHCs only if the residences they are constructing or rehabilitating meet all the following criteria:

1. The project must be a single-family home (including homes with up to four dwelling units), a condominium, or a residence in a housing cooperative.
2. The project must be in an NHC neighborhood (defined below).
3. The project must be sold, or in the case of owner-rehabilitation projects completed, within five years of the NHCA allocation of the potential NHC.
4. After construction or rehabilitation, the home must be owned by an occupant who is an NHC-qualified owner (defined below).

Eligibility criteria for NHC neighborhoods

An NHC neighborhood is a census tract that meets at least one of the following criteria:

1. Has all of these characteristics: (1a) median family income not exceeding 80 percent of the area/State median income, (1b) a poverty rate not less than 130 percent of the area/State poverty rate, and (1c) a median value for owner-occupied homes not exceeding the area/State median value;
2. Has all of these characteristics: (2a) median family income not exceeding area/State median income, (2b) is located in a city with a poverty rate of at least 150 percent of the area/State poverty rate and a population of at least 50,000, and (2c) a median value for owner-occupied homes not exceeding 80 percent of the area/State median value;
3. Has all of these characteristics: (3a) median family income not exceeding area/State median income, (3b) is located in a non-metropolitan county, and (3c) has been designated as an NHC neighborhood by an NHCA; or
4. Is located in a disaster area.

Expand the Low Income Housing Credit

The Low-Income Housing Tax Credits (LIHTCs) incentivize the construction and rehabilitation of affordable rental housing for low-income tenants. Building owners earn these credits over ten years by adhering to specific requirements, including limits on tenant income and rent.

There are two main credit rates, 4% and 9%, which are determined based on the building’s financing.

States allocate credits annually, and developers compete for these allocations through state housing credit agencies. Buildings must maintain affordability for at least 30 years, and owners can exit these requirements through a “qualified contract” or a “right of first refusal” (ROFR).

The U.S. faces a housing supply gap, and increasing affordable housing supply can lower rents and improve homeownership access. Current provisions, like the qualified contract and ROFR, are not functioning as intended, sometimes resulting in buildings being converted to market-rate housing, reducing the availability of affordable housing.

Biden’s tax plan proposes increasing the annual LIHTC allocations for states, reducing the requirement for private activity bond (PAB) financing from 50% to 25%, and repealing the qualified contract provision to prevent early termination of affordability commitments.

Additionally, the proposal suggests replacing the ROFR safe harbor with an option safe harbor, allowing qualified entities to purchase buildings without the owner’s approval, thus preserving affordability requirements.

These changes aim to expand affordable housing availability and maintain long-term affordability.

Increase Taxes on High-Income Earners

Biden’s tax plan includes many provisions to increase taxes on high-income earners.

He proposes expanding the Net Investment Income Tax (NIIT) to include all business income. Currently, the NIIT is a 3.8% surtax on investment income and passive income. Biden’s tax plan would also increase the NIIT by 1.2% to 5% for any taxpayer earning more than $400,00.

Biden’s tax plan calls for increasing the top marginal rate from 37% to 39.6% for taxable income over $450,000 ($400,000 if single).

Of the most interesting proposals in Biden’s tax plan is the changes to capital gain taxation. For high-income earners (those earning more than $1,000,000), capital gain income and dividends would be taxed at ordinary rates as high as 39.6%. The NIIT of 5% would then stack on top of this making it quite expensive to make investments in the U.S.

Biden’s tax plan would also call for a wealth tax by imposing a minimum 25% tax on taxpayers with a net worth in excess of $100,000,000. The wealth tax would tax “income” but included in that definition are unrealized gains on assets.

Individual Tax Credits

Biden’s tax plan includes a proposal to increase the maximum child tax credit to $3,600 per child under the age of 6 and $3,000 for all other qualifying children. He also plans to increase the maximum age to qualify for the credit from 16 to 17.

He also plans to implement a new first-time home buyer credit equal to 10%, with a maximum of $10,000, of the price of a home.

A qualifying home buyer is one who is purchasing the home as a primary residence in the U.S. and has not previously owned an interest in a primary residence in the prior three years.

Close Tax Loopholes

Biden’s tax plan includes provisions to close many tax loopholes.

He would tax carried interest as ordinary rates, thereby eliminating the tax advantages provided to GPs of hedge funds.

Biden’s tax plan also calls for changes to the 1031 exchange by capping the gain a real estate investor can roll over at $500,000 per year ($1,000,000 if married).

He also proposed to tax depreciation recapture at ordinary rates. Real estate investors benefit from a tax deduction called depreciation. When real estate investors sell a property, they must recapture depreciation but they can do so at preferential rates. Biden would eliminate this arbitrage.

Lastly, Biden’s tax plan would make changes to the aviation business by moving plane depreciation to a longer schedule and increasing surtaxes on jet fuel.

Conclusion

The provisions listed in this article come from Biden’s Greenbook proposal earlier in 2024.

Though he has dropped out of the 2024 Presidential Race, you can expect Democratic candidates to adopt some of these proposals.

We have built a tracker that is updated as presidential candidates make tax promises. Bookmark it for the future.