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1 Robert Carroll, The Effect of the Presidential Candidates' Tax Plans on Flow-through Businesses 1 (2008)

handle is hein.taxfoundation/ffbfcxz0001 and id is 1 raw text is: FISCAL FACT October 2008 No. 152 The Effect of the Presidential Candidates' Tax Plans on Flow-Through Businesses By Robert Carroll The Presidential candidates' tax plans would take the country in two very different directions. One aspect of their plans is how they would affect the entrepreneurial sector. This sector, which tends to be comprised of small businesses, is particularly important to the U.S. economy. It is an important source of innovation and risk-taking, it creates between 60 and 80 percent of net new jobs, it employs over half the labor force, and it generates more than one half of the nation's gross domestic product (GDP). Entrepreneurs and small business invent new products, try out new technologies and experiment with new internal forms of organization. Others often follow their example, leading to increases in productivity, or learn from their mistakes and failures. By one count, patents by small firms were cited in subsequent patent applications 28 percent more frequently than those held by larger firms. The entrepreneurial sector in the United States is proportionately larger than in the private sector economies of its major trading partners. This advantage allows new ideas in the U.S. to be developed and tested more rapidly in the marketplace and adds to the innovation and the dynamism of the U.S. economy. An often underappreciated feature of the U.S. tax system is that most small businesses are not required to pay the corporate income tax. Instead, small business income flows through to the owners who report it on their individual income tax returns and pay taxes due. Indeed, about 35 percent of business taxes are paid in this manner by the owners of flow-through businesses-sole proprietorships, partnerships and S corporations. U 1AX FOUNDATION