"Pass-through{\textquotedblright} businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1\% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20\% of the income goes to unclassifiable partners, and 15\% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19\%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980{\textquoteright}s low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28\% rather than 24\%, and tax revenue would have been approximately $100 billion higher.
Links:~Video of Presentation.~Discussion with Jim Poterba.~NBER Interview on Tax Policy and the Economy.
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