Pass-Throughs and Income Inequality?

I haven’t parsed through the original report, but this all seems a bit misleading. The point about how corporate tax reform is tricky without including pass-throughs is well-taken and is definitely correct. But the data in this report doesn’t really tell the whole story when considering the tax rates on “enterprise” versus the tax rates on entities when claiming that there is “foregone” tax revenue or that the use of partnerships over corporations has some causative relationship with income inequality (the article didn’t actually say that, granted). The majority of these partnerships that are “reaping huge tax breaks” are just holding companies for family assets, most of which are capital assets that generate capital gain income. You’d be a fool to put those in a corporation and suffer ordinary income tax rates on that income, then the double-whammy of dividend tax rates on top of it when you distribute the income. The alternative in those situations is not that these assets would be held in a c-corp, but rather that they would just be held in trust or outright, thus still providing beneficial capital gains tax rates to the owner. So I wouldn’t consider the tax revenue differential on holding those assets in partnership vs. c-corp form to be foregone tax revenue.

Here’s the link to the article:

And here’s the report:

I’ll read it and come back with additional thoughts/corrections/comments.


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