The Impact of State Taxes on Pass-Through Businesses: Evidence from the 2012 Kansas Income Tax Reform

44 Pages Posted: 26 Apr 2017  

Jason Matthew DeBacker

University of South Carolina - Darla Moore School of Business

Bradley Heim

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Shanthi Ramnath

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

Justin M. Ross

Indiana University - School of Public & Environmental Affairs

Date Written: July 2016

Abstract

In 2012, Kansas undertook a large-scale tax reform that excluded certain forms of business income from individual taxation. In theory, these changes enhance the incentives to undertake more real economic activity such as new business formation or increases in employment or investment. But, the reform also shifted the incentives to avoid taxation by recharacterizing income sources. This paper provides evidence of these effects using federal administrative taxpayer data. Drawing on these data from 2010 to 2014, we find evidence suggesting that, at both extensive and intensive margins, the behavioral responses were overwhelmingly tax avoidance rather than real supply side responses.

Keywords: Taxable Income Elasticity, Pass-Through Income, Business Taxation, State Income Taxation, Kansas

JEL Classification: H24, I38

Suggested Citation

DeBacker, Jason Matthew and Heim, Bradley and Ramnath, Shanthi and Ross, Justin M., The Impact of State Taxes on Pass-Through Businesses: Evidence from the 2012 Kansas Income Tax Reform (July 2016). Available at SSRN: https://ssrn.com/abstract=2958353

Jason Matthew DeBacker

University of South Carolina - Darla Moore School of Business ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
United States

Bradley Heim

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Shanthi Ramnath

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

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Justin M. Ross (Contact Author)

Indiana University - School of Public & Environmental Affairs ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

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