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Part 8 of a series about Taxing Businesses After the 1980s tax reform the decline in savings and the increase in consumption caused domestic investment to fall, swamping any increase due to incentives from lower taxes on high incomes. Data source: Federal Reserve Economic Data The codes used to download data:  W171RC1Q027SBEA .   Net domestic investment, Billions of Dollars, Quarterly, Seasonally Adjusted Annual Rate W170RC1Q027SBEA    Gross domestic investment, Billions of Dollars, Quarterly, Seasonally Adjusted Annu ..read more

Part 7 of a series about Taxing Businesses   As corporate savings decreased (as a consequence of increasing the number of pass-through businesses), it was not replaced by personal savings but by personal consumption. Since the 1980s, consumption as a percent of GDP, went from around 60% to 68% mostly due to more money spent on services. Data source: Federal Reserve Economic Data The codes used to download data:  DDURRE1A156NBEA   Durable goods DSERRE1A156NBEA    Services DNDGRE1A156NBEA   Nondurable goods ..read more

Part 6 of a series about Taxing Businesses In the 1980s the effective top rate on pass-throughs (unearned) was dropped to match the corporate rate on profits, making pass-through businesses more desirable than in the past since with pass-throughs owners were not double taxed. As a consequence, these tax changes created an incentive to change the business structure from C corporation to pass-throughs. The double taxation of corporate profits had provided an incentive for corporations to retain earrings (to save) but a pass-through's profit is tax indifferent between saving and consumption (ther ..read more

Part 5 of a series about Taxing Businesses Although profits and therefore corporate tax receipts varied with the business cycle, the corporate tax receipts generally declined from the 1950s to late 1970s, falling to less than 3% of GDP in the bad economy due to inflation and oil shocks.  However Federal tax receipts collected from corporate tax code never returned to previous values when the economy recovered because the number of c corporations declined and the number of pass-throughs increased. With the increase in pass-throughs one would expect the receipts from individual income tax return ..read more

Part 4 of a series about Taxing Businesses This is an intriguing graph showing the decline of companies listed in the United States on the stock exchange. (These companies would be corporations whose's stocks are freely traded on a stock exchange, not pass-throughs). The tax changes in the 80s provided a tax incentive to change the business structure from C corporation to pass-throughs like LLCs. Originally, the IRS was very strict as to when a business could be treated a pass-through entity, however, that changed on ..read more

Part 3 of a series about Taxing Businesses Combining the different scenarios from the previous two posts in the series, I highlighted the lowest marginal rate available to US businesses (one version with pass-though business income taxed as earned income the second taxed as unearned income). These graphs, showing how different business structures are taxed a different top rate and that the business structure that offered the lowest marginal rate has changed over a 99-years. Lowest Marginal Rate: Earned Income Scenario After 1970, pass-through businesses taxed as earned income via the individu ..read more

Part Two of a series about Taxing Businesses A C corporation is subject to the corporate income tax. While the income from business structures like S corporations, partnerships, LLC's and sole proprietorships are taxed under the individual income tax and therefore not subject to the corporate tax code.   However, when owners want to extract income from a C corp, they are subject to a second level of taxation, either though taxes on dividends payments or through a capital gains tax on the sale of their share of the business. Double Taxation: Scenario I A C corp first pays taxes on their profit ..read more

Part one of my series: Taxing Businesses In my earlier post on the number of returns and net income by business structure, you can see the share of business returns filed by C corporations has dropped 16.6% to 4.9% 1980-2012 with pass-through businesses filing the majority of business returns. However, sole proprietorships, although the majority of pass-through businesses, are less than 10% of net business income. So, I have created a series of graphs looking at the top tax rates on C corporations vs pass-throughs, focused on the effective top rates for high incomes businesses. Since pass-thro ..read more

I am graphing the average combined federal taxes on our single earner family of four with three combinations of tax rates:  Income only Income & Payroll (the employee part of social security and medicare) Income & Payroll (both the employer and employee part of social security and medicare) For comparison, you can see how the top marginal individual income taxes  rates for the highest earners dropped since the 1950s while the social insurance taxes (i.e. the payroll marginal tax rates) increased.  Keep in mind the Tax Policy Center calculate these rates for:  4 person family including ..read more