About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


1 Scott Hodge & Alex Raut, Individual Tax Rates Also Impact Business Activity Due to High Number of Pass-Throughs 1 (2012)

handle is hein.taxfoundation/ffdbexz0001 and id is 1 raw text is: FOUNDATION iscal I act June 6, 2012 No. 314 Individual Tax Rates Also Impact Business Activity Due to High Number of Pass- Throughs By Scott Hodge andAlex Raut Introduction Both President Barack Obama and Republican candidate Mitt Romney have expressed support for lowering the U.S. corporate tax rate-now the highest in the OECD-in order to improve the competitiveness of American businesses.1 However, their plans for individual income tax rates could not be more different.2 President Obama would increase the current top rate on individual income from 35 percent to 39.6 percent, while Romney would cut all individual rates by 20 percent-which would lower the top rate of 35 percent by 7 percentage points to 28 percent. The implications of these policy differences are considerable because of the tremendous growth in non- corporate business forms over the past thirty years. Today, there are vastly more non-corporate businesses than traditional corporations and they now earn more net income than traditional corporations. Thus, an increase in the top individual tax rates could mean a substantial tax hike on a broad swath of private, or non- corporate, business income. Trend To understand the impact of higher tax rates on business income, it is instructive to look at the tremendous growth in taxpayers reporting business income over the past three decades as sole proprietors, S corporations, limited liability corporations (LLCs), and partnerships. These non-corporate firm types are often referred to as pass-through entities because the firm's profits are passed directly through to the owners and taxed on the owner's individual tax return. By contrast, the profits 1 Jackie Galmes & John Gushman, Obama Unveils Proposal to Cut Corporate Tax Rate, THE NEW YORK TIMES, Feb. 22, 2012, ht tp:/iwww.nxtinescom!20 1 2/02i23ibusiness/economyiobanma-introduces plan- to-cut-corporate- tax-rate.html. 2 Richard Rubin, Romney's Conflicting Tax Goals Make Burden Shift Likely, BLOOMBERG, May 2, 2012, httL:i/wvwv bloo-mberg.coin/news/2012-05-02/romney-s-conflictiia-ntax-L-oals-make-burden-shift-likely.htmil.