The Republican Study Committee, which includes about 80% of the party’s caucus in the U.S. House of Representatives, introduced a fiscal 2025 budget proposal this week, following on the publication earlier in March of President Joe Biden’s 2025 budget.
The dueling proposals differ in a multitude of ways, in particular in their treatment of of Social Security and Medicare. More differences emerge in the area of taxes, from the proposed treatment of capital gains to the establishment of a billionaire tax.
Here ‘s a breakdown of several major differences in the parties’ tax proposals:
1. How to treat capital gains.
The president’s budget proposal would increase the capital gains tax rate to equalize the taxation of investment and wage income. That would mean capital gains for those earning at least $1 million would be taxed at a base rate of 39.6%, up from 20%. The plan also calls for taxing assets when an owner dies, ending a benefit that allowed the unrealized appreciation to go untaxed when transferred to an heir.
The GOP budget, on the other hand, seeks to block any attempt to tax unrealized gains on assets and to “guard against [such] dangerous proposals.”
(A case the Supreme Court has agreed to hear could limit the ability to tax unrealized gains.)
Additionally, the Republican budget would adjust the second long-term capital gains bracket to start at $75,000 for single filers. It would also seek to ensure that taxpayers are not forced to pay for “artificial gains” caused by inflation by applying capital gains taxes only to the real growth in the value of investments.
2. Whether and how to adjust current tax rates.
Biden is proposing to raise the top personal-income tax rate to 39.6%, from 37%, for those making more than $400,000. That higher rate would reverse a cut signed into law by former President Donald Trump.
The Republican budget would make the individual tax code provisions of the Tax Cuts and Jobs Act, enacted in 2017, permanent.
Biden’s budget would also significantly roll back the 2017 legislation’s corporate tax cut, bringing the top rate to 28% from 21%. The proposal also calls for increasing the taxes that U.S. companies owe on foreign earnings to 21%, doubling the 10.5% rate in Trump’s tax law.
Biden would also impose a 21% corporate minimum tax on domestic companies, up from the current 15%, which means that some businesses are restricted from using all their tax breaks.
3. How to address taxes owed and paid by global companies.
Biden’s budget proposes immediately adopting the undertaxed profits rule included in the Organization for Economic Cooperation and Development’s global minimum tax, which would allow the United States to tax a company if it is paying below a 15% rate and the country where it’s headquartered also isn’t applying a 15% minimum.
The Republican proposal counters that the current international treaty network has worked well over the past century to promote bilateral trade, investment and prosperity.
“Progress on new global tax agreements is important, but Congress must approve any commitments that might erode the U.S. revenue base or significantly impact bilateral trade and investment flows,” the Republican proposal argues.
The Republican budget calls on the Treasury to provide Pillar One tax revenue modeling data and reports estimating the direct and indirect impact of the OECD agreement.