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Overview and Perspective on the President's budget request

This week the Biden Administration released the budget proposal for Fiscal Year 2025, which outlines key Administration policy priorities for revenue and spending.  Budget proposals are non-binding, but they traditionally signal the start of the budget and appropriation process with Congress.  As with most Administration budget submissions, President Biden’s budget for 2025 is a mixed bag – he proposes some problematic tax code changes, notably a significant increase in the corporate rate, while at the same time asking for relatively strong investments in many key infrastructure programs.  With the closely divided Congress and the fact that we’re in an election year, lawmakers are unlikely to come to agreement on budget priorities and spending bills before Election Day.  The fact that Congress has still not completed work on the appropriations process for Fiscal Year 2024 reinforces this point.  Congress has passed only six spending bills which we outlined for you last week (including transportation, water, environment, and energy programs), but defense, homeland security, health and education bills are still pending. 

This budget submission not only illustrates President Biden’s priorities for 2025, it also gives us a window into his positions on the major tax and infrastructure initiatives that the next Congress will take up, assuming he wins another term.  First out of the gate will be debate over the future of the 2017 tax law and provisions critical to the engineering industry, such as the 20% deduction for S-corps and other passthrough businesses and R&D deductibility.  On the infrastructure side, Congress must decide on the future of IIJA, which will expire at the end of 2026.  These represent very strategic priorities for ACEC going forward and will figure prominently in our lobbying effort during the Annual Convention.

Highlights from the Administration’s FY’25 budget proposal: 

The budget proposes several tax increases that could affect engineering firms:

  • Raising the corporate tax rate from 21% to 28%

  • Raising the corporate minimum tax for publicly traded companies with more than $1 billion in revenues from 15% to 21%

  • Raising the 1% stock buyback tax to 4%

  • Denying corporate compensation deductions for any employee earning more than $1 million

  • Increasing the top individual income tax rate -- which applies to passthrough businesses -- from 37% to 39.6% for individuals earning more than $400,000 and married filing jointly more than $450,000

  • Increasing the Net Investment Income Tax from 3.8% to 5% and applying it to passthrough owners' business profits

  • Taxing capital gains at income tax rates for those earning more than $1 million

  • Ending $35.3 billion in tax incentives for oil and gas 

On the spending side, the budget includes full funding for transportation programs under the IIJA:

  • $62.8 billion requested for highways, up from $60.8 billion in the recently enacted package.

  • $14.3 billion requested for transit formula grants, a $300 million increase above the 2024 enacted level.  

  • $2.4 billion for major capital projects through Capital Investment Grants (CIG) program. 

  • $800.0 million requested for the Mega Grant Program and Re-building American Infrastructure with Sustainability and Equity (RAISE) grants from repurposed FHWA Transportation Infrastructure Finance and Innovation Act (TIFIA) program balances. 

  • A new $8 billion, five-year FAA capital program for facility replacement and radar modernization, of which $1 billion is to be provided in fiscal 2025.

  • $1.2 billion authorized by the IIJA for Amtrak Northeast Corridor, a 5.2 percent increase over FY 2024, and $1.3 billion for Amtrak National Network grants, a 1.2 percent increase. 

For water infrastructure, the budget proposes:

  • $1.239 billion for Clean Water SRF capitalization grants, a decrease of $400 million below FY’24.

  • $1.126 billion for Drinking Water SRF capitalization grants, the same as FY’24. 

Key energy programs:

  • Defense environmental cleanup would be funded at $7 billion, a decrease below the 2024 level.

  • Transmission planning and permitting at $1 billion.

  • $242 million to grow the offshore wind market.

  • $151 million to help facilitate advanced nuclear reactors.

The budget also includes over $1 billion to support environmental review and permitting processes, divvied up among several federal agencies.

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