Business Incomes at the Top
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.
We benefited from helpful comments from Timothy Taylor, Enrico Moretti, Gordon Hanson, Alan Auerbach, Jerry Auten, Roger Gordon, Daniel Reck, John Sabelhaus, David Splinter, and Owen Zidar. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Parts of the paper draw on Zwick's testimony before the Joint Economic Committee of Congress on October 11, 2019.