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

Jason DeBacker (), Lucas Goodman, Bradley Heim, Shanthi Ramnath and Justin Ross

National Tax Journal, 2018, vol. 71, issue 4, 687-706

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S corporations, reduced the amount of guaranteed payments to partners when the preferential rate on such payments was repealed.

Date: 2018
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