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Pass-Through Entity Responses to Preferential Tax Rates: Evidence on Economic Activity and Owner Compensation in Kansas

Jason DeBacker, Lucas Goodman, Bradley T. Heim, Shanthi P. Ramnath, and Justin M. Ross

Abstract:

We consider the question of how pass-through businesses respond to differentials in tax treatment across sources of income. In particular, we use federal tax return data from partnerships and S corporations and a synthetic control methodology (SCM) to analyze the 2012 income tax reforms in Kansas to see how pass-through businesses respond to preferential rates on pass-through business income. We find no effect on economic activity proxies such as gross receipts, capital investment, or employment. We do find that partnerships, but not S corporations, reduced the amount of guaranteed payments to partners when the preferential rate on such payments was repealed.

Citation

Jason DeBacker, Lucas Goodman, Bradley T. Heim, Shanthi P. Ramnath, and Justin M. Ross (2018), Pass-Through Entity Responses to Preferential Tax Rates: Evidence on Economic Activity and Owner Compensation in Kansas , National Tax Journal, 71:4, pp. 687-706

DOI: doi.org/10.17310/ntj.2018.4.05