NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Business Income and Business Taxation in the United States Since the 1950s

Conor Clarke, Wojciech Kopczuk

NBER Working Paper No. 22778
Issued in October 2016
NBER Program(s):Public Economics

In theory, the U.S. tax system aims to attribute and tax all business income to individuals. But the tax treatment of this income varies. Pass-through income is taxed when earned; capital-gains income is taxed when realized; dividends when distributed; other forms of business income may escape taxation entirely. Business owners often have control over the timing and character of their income: They can often choose, for example, between reporting business income or deducting it as wages or fringe benefits. And laws change, changing the incentive and ability to shift income between the individual and corporate sectors.

We integrate a wide variety of tax data to document the large long-run changes in the structure of business income and business taxation in the United States. These changes include the degree to which business incomes are taxed on a realization versus an accrual basis, the extent to which taxation is deferred, and the share of business income that is ultimately subject to taxation. We highlight the evolving relevance of retained earnings in the changing corporate sector and their relationship to equity values and unrealized capital gains. We also document the evolution of individual income components — profits of pass-through entities, dividends, and capital gains (both taxable gains and those escaping taxation through step-up). As a result of these changes, business incomes are increasingly taxed through personal income taxes instead of a combination of corporate and personal taxes. In particular, this implies that the observability of business incomes on personal income tax returns has improved over time, a fact that has implications for measuring and understanding the income distribution.

download in pdf format
   (403 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22778

Published: Business Income and Business Taxation in the United States since the 1950s, Conor Clarke, Wojciech Kopczuk. in Tax Policy and the Economy, Volume 31, Moffitt. 2017

Users who downloaded this paper also downloaded* these:
Saez w22798 Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase
Acemoglu, Akcigit, and Kerr w22783 Innovation Network
Kosar and Moffitt w22782 Trends in Cumulative Marginal Tax Rates Facing Low-Income Families, 1997-2007
Auerbach, Kotlikoff, Koehler, and Yu w22770 Is Uncle Sam Inducing the Elderly to Retire?
Olivetti and Petrongolo w23051 The Economic Consequences of Family Policies: Lessons from a Century of Legislation in High-Income Countries
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us