Last week, the White House sent Congress its Fiscal Year (FY) 2025 budget plan, where it was received with expected praise and scorn from lawmakers in both parties. For tax junkies, what's more important is the Department of the Treasury's Greenbook, which tells us the details of the budget's tax proposals, why the change is needed, and the revenue estimate. Looking at the budget and the Greenbook, let's answer a few questions:

What's new in comparison to last year's Greenbook?

As anticipated, the FY 2025 Greenbook proposals are largely a repeat from last year. There are some new proposals on the margins – expanding the section 162(m) executive compensation deduction disallowance for salaries in excess of $1 million and increasing the depreciation recovery period and fuel excise taxes for corporate jets – but the core tax increases on businesses and the wealthy are carryovers from last year.

What will happen in the short term?

As is customary, top administration officials have already begun to fan out across Capitol Hill for hearings on the president's budget. Treasury Secretary Janet Yellen will defend the budget plan before the Senate Finance Committee on Thursday. She'll testify again in the House Ways and Means Committee in early April, if not sooner. 

After a marathon House hearing last month that focused in part on the budget, IRS Commissioner Danny Werfel will likely head to the Senate Finance and Appropriations committees this spring to rally support for the IRS's enhanced funding stream.

In addition to the war of press releases from taxwriters supporting or opposing the budget, Democrats have begun to show support by introducing parts of the budget as stand-alone legislation. Senator Sheldon Whitehouse (D-RI) just introduced a bill incorporating the president's new tax credit for first-time homebuyers. Others will surely follow.

What about later this year?

Looking further ahead, the president's budget proposals may struggle for attention since Congress is still working to resolve the current budget cycle. After the initial spate of congressional hearings this spring, the president's budget plans could fade as summer begins. But as voters' attention begins to shift to fall elections, we could see the budget mined for "messaging" tax amendments to introduce on the floor to get Senators to cast politically sensitive votes. 

Likewise, in the House, Republicans may hold votes on politically popular Tax Cuts and Jobs Act (TCJA) extensions to force Democrats to cast tough tax votes ahead of the November elections.

What are the long-term prospects for President Biden's budget plan?

No one, including the president, thinks this budget will advance in this Congress. But that's the point. This budget is not aimed at this Congress, but the next. In many ways, it's a partisan wish list that even a filibuster-proof Democratic majority would struggle to lift. (Recall that the last time Democrats held 60 Senate votes, the Affordable Care Act (ACA) had many near-death calls in the Senate.)

All presidents bank on winning the next election. Obviously, if President Biden loses, most of these proposals will recede to the memory banks at Treasury to await rebirth in another administration. 

If President Biden is reelected with a Congress that remains divided, the proposals will be in play as both parties would have leverage in the tax debate that everyone knows is coming. A Republican president with a divided Congress would face the same political crosswinds. A preview in miniature of this potential scenario can be seen with the struggles facing the bipartisan House-passed Tax Relief for American Families and Workers Act, a bill that marries Democrat priorities with several business tax extenders.

What about 2025?

It's clear that this year is really all about next year, when major provisions of the TCJA expire along with a number of tax provisions enacted in the interim. The next president and party control of Congress (and, almost more importantly, party ratios) are up for grabs this fall. In other words, the political playing field for next year's tax policy battles — and in broad terms, their outcomes — will be determined in November. #TaxTake

Upcoming Speaking Engagements and Events

Loren will speak on the panel "Transfer Pricing in a Post Pillar Two World" at the 24th Annual U.S. and Europe Tax Practice Trends conference on April 11, and Marc will moderate the session "Beyond SECURE 2.0: Retirement Policy Update From the Hill" at The ERISA Industry Committee 2024 Spring Policy Conference on April 18.

In the News

Marc discussed President Biden's FY 2025 budget proposal in the Tax Notes article "Realism, Deficit Concerns Top GOP's Complaints on Biden Budget." "It's very much more of a messaging document than a document of proposals that will be considered in the short term." 
 

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