{
  "id": "R42451",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "R42451",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 403900,
      "date": "2012-03-30",
      "retrieved": "2016-04-07T00:10:44.729076",
      "title": "Taxing Large Pass-Throughs As Corporations: How Many Firms Would Be Affected?",
      "summary": "Several lawmakers and the Obama Administration have expressed interest in taxing large partnerships and S corporations, also known as pass-throughs, as corporations. Part of this interest appears to be related to deficit and debt concerns. Pass-throughs may be a source of revenue since they currently account for over half of all business income but generally pay no corporate tax. Additionally, there is a growing concern that the current business tax environment may be inequitable and inefficient. Today, two business that are otherwise identical except that one is a corporation and the other is a pass-through are taxed differently. This disparity could be viewed as inequitable since the companies are similarly positioned to pay taxes. Additionally, the lack of tax uniformity across business types may cause an inefficient allocation of resources if business decisions are made for tax reasons and not economic reasons. \nThis report uses aggregate and industry-level tax data to analyze how many partnerships and S corporations could be subject to the corporate tax. It is estimated that if a receipt-based measure of size is used, then between 0.3% and 1.5% of S corporations and partnerships could be taxed as corporations depending on if a \u201clarge\u201d pass-through is defined as one with receipts exceeding $50 million or exceeding $10 million. Using an asset-based measure of size produces similar estimates. It is estimated that between 0.3% and 1.0% of pass-throughs could pay the corporate tax depending on whether a $100 million or $25 million asset threshold is used to define a \u201clarge\u201d firm.\nAlthough estimates suggest that only a small percentage of pass-throughs could be considered large for corporate tax purposes, this report also finds that those firms are responsible for a significant amount of economic activity, indicating that the proposed policy change could raise substantial revenue. For example, 30% of S corporation receipts are generated by the largest 0.3% of S corporations, and 41% of partnership receipts are generated by the largest 0.2% of partnerships. Similarly, the largest 0.2% of S corporations hold 43% of S corporation assets, while the largest 1.1% of partnerships hold 78% of partnership assets. \nTaxing large pass-throughs as corporations would also allow for lower tax rates as it would broaden the corporate tax base. Lower tax rates combined with a reduction in the tax disparity between the corporate and non-corporate sectors could improve business tax equity and the allocation of resources relative to current policy. At the same time, an alternative policy prescription that is generally more appealing to economists\u2014integration of the corporate and individual tax systems\u2014could also achieve these objectives. If integration is not possible, however, then reducing the tax discrepancy between large pass-throughs and corporations may be another viable alternative, depending on its design. \nThe focus on businesses is not the only perspective when it comes to changing the tax treatment of pass-throughs. CRS Report R42359, Who Earns Pass-Through Business Income? An Analysis of Individual Tax Return Data, by Mark P. Keightley, examined the issue of pass-through taxation from the perspective of individual taxpayers. That report concluded that although the corporate tax would be levied on pass-throughs, individuals would bear the full burden of the tax since businesses are legal, not physical entities. In addition, the analysis in that report suggests that higher-income taxpayers would generally bear most of the burden from increased pass-through taxes because they earn the majority of pass-through income and are limited in their ability to shift the burden to lower-income taxpayers.",
      "type": "CRS Report",
      "typeId": "REPORTS",
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}