Biden's 2023 Budget​

By BK​

What do you need to know this week?

On Monday, the Biden administration announced its 2023 budget. In his statement, US President Joe Biden told White House reporters that the budget ”sends a clear message to the American people (about) what we value: first, fiscal responsibility, second, safety and security, and thirdly ... the investments needed to build a better America.”

Among some of the most notable plans in Biden’s proposal, the Biden administration submitted a $5.79 trillion peacetime military budget plan to Congress to aid Ukraine and a record $14.8 trillion budget for social security. One of the ways Biden proposes to fund these budgets is through raising the taxes for billionaires and companies in order to lower government fiscal deficits.

Why is this important for your interviews?

Biden's 'billionaire minimum tax’ would introduce a 20% minimum tax on households worth more than $100 million, making sure that “the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.” The tax would apply to 0.01% of American households - with more than half of the new revenue coming from households over $1 billion, which, when implemented, would reduce government deficits by $360 billion over the next 10 years. Billionaire wealth has grown significantly during the pandemic, with the World Inequality Report estimating that billionaires in 2021 collectively own 3.5% of global household wealth.

The budget also raises corporate tax to 28% while making changes to the corporate tax code to incentivise job creation and investment. For example, the budget targets US corporate buybacks by preventing company executives from selling their shares for three years after a buyback is announced. Company share repurchases, which reduce the number of shares in the market, tend to boost a company’s stock price. This benefits executives who receive compensation in the form of stock awards and options who profit when share repurchases cause a stock price to go up. In recent years, cash-rich companies such as Apple, Alphabet, Meta and Microsoft, have used their funds to buy back huge quantities of their own shares, consequently boosting their share price. In 2021, S&P 500 purchased a record $882 billion of their own shares and Goldman Sachs estimates that this will rise to $1 trillion in 2022.

How is this topic relevant to law firms?

Tighter tax budgets will drive major US clients to seek their team of lawyers. High net worth individuals or corporations may seek legal advice on how to operate in a more tax efficient manner should Biden’s proposals pass.

In addition, should Biden’s proposals pass, law firms will also be called by major clients to advise on stock repurchases. Any corporate strategy based on raising finance indirectly through successive stock repurchases will require major revisions.


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