Business in the United States: Who Owns it and How Much Tax Do They Pay?

41 Pages Posted: 26 Oct 2015

See all articles by Michael Cooper

Michael Cooper

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

John D McClelland

U.S. Department of the Treasury - Office of Tax Analysis (OTA); U.S. Department of the Treasury, Office of Tax Analysis (OTA)

James Pearce

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Richard Paul Prisinzano

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Joseph Sullivan

Government of the United States of America - Department of the Treasury

Danny Yagan

University of California, Berkeley - Department of Economics

Owen M. Zidar

University of Chicago - Booth School of Business

Eric Zwick

University of Chicago - Finance

Date Written: October 2015

Abstract

“Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980's low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher.

Suggested Citation

Cooper, Michael and McClelland, John D and Pearce, James and Prisinzano, Richard Paul and Sullivan, Joseph and Yagan, Danny and Zidar, Owen M. and Zwick, Eric, Business in the United States: Who Owns it and How Much Tax Do They Pay? (October 2015). NBER Working Paper No. w21651. Available at SSRN: https://ssrn.com/abstract=2679689

Michael Cooper (Contact Author)

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

John D McClelland

U.S. Department of the Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

James Pearce

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

Richard Paul Prisinzano

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

Joseph Sullivan

Government of the United States of America - Department of the Treasury ( email )

1500 Pennsylvania Avenue, NW
Washington, DC 20220
United States

Danny Yagan

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Owen M. Zidar

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://https://sites.google.com/site/omzidar/

Eric Zwick

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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