Business in the United States: Who Owns it and How Much Tax They Pay, September 20, 2015

“Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for over half 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) The average federal income tax rate on U.S. pass-through business income is 19%|much lower than the average rate on traditional corporations. (3) Thirty percent of the income earned by partnerships|the largest pass-through form|cannot be traced unambiguously to identi able, ultimate owners. 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 at least $100 billion higher.”