3 Business in the United States Who Owns It, and How Much Tax Do They Pay?

• Published in: Tax policy and the economy Vol. 30; pp. 91 - 128
• Main Authors: Cooper, Michael, McClelland, John, Pearce, James, Prisinzano, Richard, Sullivan, Joseph, Yagan, Danny, Zidar, Owen, Zwick, Eric
• Format: Journal Article
• Language: English
• Published: The University of Chicago Press 01.01.2016
• ISSN: 0892-8649; 1537-2650

“Pass-through” businesses like partnerships and S-corporations now generate over half of US 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; and (3) the average federal income tax rate on US pass-through business income is 19%—much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980’s low level, strong but straightforward assumptions imply that the 2011 average US tax rate on total US business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher.