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1 Scott Greenberg, Pass-through Businesses: Data and Policy 1 (2017)

handle is hein.taxfoundation/psthrobd0001 and id is 1 raw text is: TA JI[Pass-Through Businesses: FOUNDATION Data and Policy FISCAL FACT By Scott Greenberg No. 536 Analyst Jan. 2017 Key Findings The majority of companies in the United States are pass-through businesses. These businesses are not subject to the corporate income tax; instead, their income is reported on their owners' tax returns and subject to the individual income tax. Over the past thirty years, the pass-through business sector has expanded significantly. Pass-through businesses now earn more net income than traditional C corporations and employ the majority of the private-sector workforce. On the federal level, pass-through businesses are subject to a top marginal tax rate of 44.6 percent. This means that, in most U.S. states, pass-through businesses can face marginal tax rates that exceed 47 percent. Some policymakers have expressed interest in taxing some large pass-through businesses as C corporations. However, there are strong theoretical and economic arguments for the current tax treatment of pass-through businesses, which are not subject to the problematic double tax regime faced by C corporations. On the flip side, some lawmakers have proposed creating a new, lower tax rate for pass-through business income. Aside from concerns that this approach would create opportunities for tax avoidance, it is also difficult to justify why income from pass-through businesses should be subject to lower tax rates than income from wages and salaries. The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non profit organization. ©2017 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org