PASS-THROUGH ENTITY RESPONSES TO PREFERENTIAL TAX RATES

We consider the question of how pass-through businesses respond to differentials in tax treatment across sources of income. In particular, we use federal tax return data from partnerships and S corporations and a synthetic control methodology (SCM) to analyze the 2012 income tax reforms in Kansas to...

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Bibliographic Details
Published in:National tax journal 2018-12, Vol.71 (4), p.687-706
Main Authors: DeBacker, Jason, Goodman, Lucas, Heim, Bradley T., Ramnath, Shanthi P., Ross, Justin M.
Format: Article
Language:English
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Summary:We consider the question of how pass-through businesses respond to differentials in tax treatment across sources of income. In particular, we use federal tax return data from partnerships and S corporations and a synthetic control methodology (SCM) to analyze the 2012 income tax reforms in Kansas to see how pass-through businesses respond to preferential rates on pass-through business income. We find no effect on economic activity proxies such as gross receipts, capital investment, or employment. We do find that partnerships, but not S corporations, reduced the amount of guaranteed payments to partners when the preferential rate on such payments was repealed.
ISSN:0028-0283
1944-7477
DOI:10.17310/ntj.2018.4.05