Implications of Tax Loss Asymmetry for Owners of S Corporations

Lucas Goodman, Elena Patel and Molly Saunders-Scott

American Economic Journal: Economic Policy, 2023, vol. 15, issue 1, 342-69

Abstract: We study tax loss asymmetry for S corporate owners. These owners use most losses contemporaneously, reducing the tax asymmetry compared to C corporations. However, these owners face distortions due to the progressive individual tax schedule. The value of this asymmetry is approximately $3.5 billion per year. We find that this asymmetry creates disincentives for risky investment and causes allocative inefficiencies among loss and gains owners. Finally, we simulate the effects of certain provisions of the Tax Cuts and Jobs Act; we estimate that these provisions—especially section 199A—reduce the behavioral distortions of the asymmetry for S corporate owners.

JEL-codes: D22 G32 H25 H32 K34 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:aea:aejpol:v:15:y:2023:i:1:p:342-69

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DOI: 10.1257/pol.20200311

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