![]() ![]() Accountants, lawyers, doctors in private practice, and other people with partnership income typically have advanced degrees and earn well over the median, even if they consider themselves middle class. Even if your business is small, you need to be reasonably successful and have some capital to get it going. The 0.27 percent of partnerships with more than $50 million in receipts accounted for 68.2 percent of all partnership income.Īnd the overwhelming majority of pass-through income goes to the top 1 percent - about 70 percent, per U Chicago economist Owen Zidar. ![]() Only 0.37 percent of S corporations, for instance, had gross receipts above $50 million in 2012, but according to the Joint Committee on Taxation, those companies accounted for 40 percent of all S-corp profits that year. Importantly for federal tax policy, a tiny handful of super-successful pass-throughs account for the outsized share of profits taxed. That’s not a small business in any sense of the word. “Most hedge funds, private equity funds, law, consulting, and accounting firms are partnerships these businesses can be large, global enterprises,” Brookings’ Aaron Krupkin and Adam Looney write.įor instance, Renaissance Technologies, which is arguably the most successful hedge fund in history, having minted four billionaires or near-billionaires among its employees (including Trump mega-donor Robert Mercer), is a partnership and therefore a pass-through. The Trump Organization’s companies are pass-throughs, for instance, and no one would confuse it with a small business. Large family-owned businesses are a great example. A bodega or corner shop is likelier to be organized as a pass-through (like a sole proprietorship or LLC) than as a C corporation, the legal designation for companies that pay corporate income taxes.īut there are a lot of large high-profit companies that are organized as pass-throughs as well. The pass-through lobby likes to act as though “pass-through” is synonymous with “small business,” and by some definitions that’s true. Pass-through income overwhelmingly goes to rich people But there’s basically no economic rationale for giving them an extra leg up. There are political reasons why people are pushing for pass-throughs to benefit still more. And President Donald Trump has a strong incentive to push for more breaks for pass-throughs as well: The Trump Organization is organized as a collection of pass-through entities, so he and his family would benefit enormously from additional tax breaks for pass-throughs.Īll the more remarkable: Most economists agree that pass-through businesses already get preferential tax treatment relative to other companies. Steve Daines of Montana and Ron Johnson of Wisconsin have said that they won’t support the Senate tax bill unless it cuts taxes more on pass-throughs. ![]() Many Republican senators seem to agree that merely exempting the companies from corporate tax and adding a new special deduction isn’t enough. But the debate over taxation on pass-through businesses - which account for more than 95 percent of all of America’s businesses in 2012 - is increasingly crucial to the Republican efforts to pass a tax bill. Trade groups send those kinds of letters all the time. Sure, the bill still shields those companies from the corporate tax, and adds a new 17.4 percent deduction on pass-through income for people who own the companies.īut it’s not enough, the interest groups stressed: The deduction, they complain, is “temporary and too low,” and efforts to restrain the deduction’s cost go too far. The bill, they argued, did too little for “pass-through businesses”: companies organized as sole proprietorships, partnerships, LLCs, or S corporations that don’t pay the corporate income tax. On Monday evening, trade groups representing a host of industry workers (architects, real estate agents, community bankers, air conditioner repairmen, beer wholesalers, door inspectors) released a statement expressing grave concerns with Senate Republicans’ tax bill. ![]()
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