Business Incomes at the Top

Abstract

Business income constitutes a large and increasing share of income and wealth at the top of the distribution. We discuss how tax policy treats and shapes how businesses are organized and how they distribute economic gains to owners, with the focus on closely-held and pass-through firms. These considerations influence whether and how labor and capital income is observed in economic data and feed into research controversies regarding the measurement of inequality and the progressivity of the tax code. We discuss the importance of these issues in the US, and highlight that limited evidence from other countries suggests that they are likely to be important elsewhere.

JEL Classification: D31,D33,E25,H24,H25,H32