Archive
The Economic Consequences of Excess Men: Evidence from a Natural Experiment in Taiwan
As sex ratio imbalances have become a problem in an increasing number of countries, it is important to understand their consequences. With the defeat of the Kuomintang Party in China, more than one million soldiers and civilians, mainly young males, retreated to Taiwan in the late 1940s. Initially, the soldiers from mainland China were not allowed to marry. The ban was relaxed in 1959, however, suddenly flooding the marriage market with a large number of eligible bachelors. The operational ratio of males to females at marriageable age peaked at nearly 1.2 in the 1960s. Using data from multiple sources, we find that during times of high marriage competition, young men are more likely to become entrepreneurs, work longer hours, save more, and amass more assets. The findings highlight the important role of biological forces in shaping human economic behavior.
New From the GAO
New GAO Reports
Source: Government Accountability Office
1. Department of Defense’s Waiver of Competitive Prototyping Requirement for Enhanced Polar System Program. GAO-12-983R, August 23.
http://www.gao.gov/products/GAO-12-983R
2. Entrepreneurial Assistance: Opportunities Exist to Improve Programs’ Collaboration, Data-Tracking, and Performance Management. GAO-12-819, August 23.
http://www.gao.gov/products/GAO-12-819
Highlights – http://www.gao.gov/assets/650/647268.pdf
Open For Business: How Immigrants Are Driving Small Business Creation In The United States
Open For Business: How Immigrants Are Driving Small Business Creation In The United States
Source: Partnership for a New American Economy
“Open For Business: How Immigrants Are Driving Small Business Creation In The United States” analyzes the increasing importance of foreign-born entrepreneurs on U.S. economic growth and job creation. Picking up and moving to another country is brave and risky, so perhaps it is not surprising that immigrants are venturing out and starting new businesses at a rate that far outpaces their share of the population. From local neighborhood shops to America’s largest companies, immigrant business owners contribute more than $775 billion dollars in revenue to our annual Gross Domestic Product and employ one out of every ten American workers at privately-owned companies across the country.
Key findings of the report include:
- Immigrants started 28% of all new U.S. businesses in 2011, despite accounting for just 12.9% of the U.S. population
- Over the last 15 years, immigrants have increased the rate by which they start businesses by more than 50 percent, while the native-born have seen their business generation rate decline by 10 percent
- Immigrants are now more than twice as likely to start a business as the native-born
- Immigrants start more than 25% of all businesses in seven of the eight sectors of the economy that the U.S. government expects to grow the fastest over the next decade. These include health care and social assistance (28.7%), construction (31.8%), retail trade (29.1%) and leisure and hospitality (23.9%), among others
New From the GAO
New GAO Reports and Testimony
Source: Government Accountability Office
+ Reports
1. Federal Buildings Fund: Improved Transparency and Long-term Plan Needed to Clarify Capital Funding Priorities. GAO-12-646, July 12.
http://www.gao.gov/products/GAO-12-646
Highlights – http://www.gao.gov/assets/600/592378.pdf
2. Medicaid: Providers in Three States with Unpaid Federal Taxes Received Over $6 Billion in Medicaid Reimbursements. GAO-12-857, July 27.
http://www.gao.gov/products/GAO-12-857
Highlights – http://www.gao.gov/assets/600/593096.pdf
3. Ownership by Minority, Female, and Disadvantaged Firms in the Pipeline Industry. GAO-12-896R, August 2.
http://www.gao.gov/products/GAO-12-896R
4. Federal Fleets: Overall Increase in Number of Vehicles Masks That Some Agencies Decreased Their Fleets. GAO-12-780, August 2.
http://www.gao.gov/products/GAO-12-780
Highlights – http://www.gao.gov/assets/600/593248.pdf
5. Cancellation of the Army’s Autonomous Navigation System. GAO-12-851R, August 2.
http://www.gao.gov/products/GAO-12-851R
6. Iraq and Afghanistan: State and DOD Should Ensure Interagency Acquisitions Are Effectively Managed and Comply with Fiscal Law. GAO-12-750, August 2.
http://www.gao.gov/products/GAO-12-750
Highlights – http://www.gao.gov/assets/600/593262.pdf
7. Secure Communities: Criminal Alien Removals Increased, but Technology Planning Improvements Needed. GAO-12-708, July 13.
http://www.gao.gov/products/GAO-12-708
Highlights – http://www.gao.gov/assets/600/592416.pdf
+ Testimony
1. Service-Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud and Abuse Remains, by Richard J. Hillman, managing director, forensic audits and investigative service, before the Subcommittees on Economic Opportunity and Oversight and Investigations, House Committee on Veterans’ Affairs. GAO-12-967T, August 2.
http://www.gao.gov/products/GAO-12-967T
New From the GAO
New GAO Reports and Testimony
Source: Government Accountability Office
+ Reports
1. Influenza Pandemic: Agencies Report Progress in Plans to Protect Federal Workers but Oversight Could Be Improved. GAO-12-748, July 25.
http://www.gao.gov/products/GAO-12-748
Highlights – http://www.gao.gov/assets/600/592990.pdf
2. Medicare: CMS Needs an Approach and a Reliable Cost Estimate for Removing Social Security Numbers from Medicare Cards. GAO-12-831, August 1.
http://www.gao.gov/products/GAO-12-831
Highlights – http://www.gao.gov/assets/600/593216.pdf
3. Medicaid Expansion: States’ Implementation of the Patient Protection and Affordable Care Act. GAO-12-821, August 1.
http://www.gao.gov/products/GAO-12-821
4. Counter-Improvised Explosive Devices: Multiple DOD Organizations are Developing Numerous Initiatives. GAO-12-861R, August 1.
http://www.gao.gov/products/GAO-12-861R
5. Service-Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud and Abuse Remains. GAO-12-697, August 1.
http://www.gao.gov/products/GAO-12-697
Highlights – http://www.gao.gov/assets/600/593237.pdf
6. Contingency Contracting: Agency Actions to Address Recommendations by the Commission on Wartime Contracting in Iraq and Afghanistan. GAO-12-854R, August 1.
http://www.gao.gov/products/GAO-12-854R
7. Ensuring Drug Quality in Global Health Programs. GAO-12-897R, August 1.
http://www.gao.gov/products/GAO-12-897R
+ Related Product
Survey on States’ Implementation of the Patient Protection and Affordable Care Act (GAO-12-944SP, August 2012), an E-supplement to GAO-12-821. GAO-12-944SP, August 1.
http://www.gao.gov/products/GAO-12-944SP
+ Testimony
1. Medicare: Action Needed to Remove Social Security Numbers from Medicare Cards, by Kathleen M. King, director, health care, and Daniel Bertoni, director, education, workforce, and income security issues, before the Subcommittees on Social Security and Health, House Committee on Ways and Means GAO-12-949T, August 1.
http://www.gao.gov/products/GAO-12-949T
Business Dynamics Statistics Briefing: Where Have All the Young Firms Gone?
Business Dynamics Statistics Briefing: Where Have All the Young Firms Gone?
Source: Social Science Research Network
The Census Bureau’s Business Dynamics Statistics (BDS) provides data on business dynamics for U.S. firms and establishments with paid employees. This briefing highlights some key features of the most recent BDS update, which now has data through 2010. As the most complete public-use dataset allowing for the analysis of business dynamics in the United States, the BDS is a key source of knowledge about the changing state, as well as the national, economy.
The new BDS data release shows that, in 2010, 394,000 startups created 2.3 million jobs (these were not simply establishment openings but new firms whose establishments also were new to the economy). This reflects substantial job creation in a time of anemic overall economic activity. Over the same period from March 2009 to March 2010, the net job creation from all U.S. private sector firms was – 1.8 million jobs. Without the contribution of business startups, the net employment loss would have been substantially greater.
Visas for Entrepreneurs: How Countries are Seeking Out Immigrant Job Creators
Visas for Entrepreneurs: How Countries are Seeking Out Immigrant Job Creators
Source: Migration Policy Institute
Across the advanced industrialized world, even governments that are skeptical about the benefits of immigration tend to open their doors to the so-called "best and the brightest" — exceptionally skilled immigrants who bring new knowledge and innovations. For both economic and political reasons, the higher the skill level of prospective immigrants, the fewer restrictions governments tend to impose to entry.
Immigrant entrepreneurs are among the most desirable of these highly skilled newcomers —especially immigrants behind high-tech and high-growth startups that policymakers find particularly appealing. Most governments want to boost entrepreneurship, but reliable and feasible policies to do so have proved elusive. In recent years, however, policymakers have often turned to immigration as a small but direct channel to facilitate startups by increasing the supply of willing and able entrepreneurs.
Small Business Quarterly Bulletin
Small Business Quarterly Bulletin (PDF)
Source: U.S. Small Business Administration
While small firms with 20-499 employees provided three-quarters of the net employment growth since the end of the downturn, more recently, even the very small firms (fewer than 20 employees) and large firms (500 or more employees) showed solid net increases (Chart 4). Increases were driven by existing firms, as birth and death employment essentially netted each other out leaving little to no impact on the overall employment level. The decline in employment from births over the last decade has been accompanied by a corresponding decline in employment from deaths.
The number of births has risen since the end of the downturn and deaths have declined; when combined they are referred to as business churn. Business churn is needed to keep the economy from stagnating, and churn has been declining. However, the lower churn rate seems to follow the overall decline in the economy by about 18 months.
Overall, the small business trends are positive with the employment increases mentioned above, proprietors’ income up, and business bankruptcies trending down over the last few years.
CRS — Legal Authorities Governing Federal Contracting and Subcontracting with Small Businesses
Legal Authorities Governing Federal Contracting and Subcontracting with Small Businesses
Source: Congressional Research Service (via Open CRS)
Congress has generally broad authority to impose requirements upon the federal procurement process, or the process whereby agencies obtain goods and services from the private sector. One of the many ways in which Congress has exercised this authority is by enacting measures intended to promote contracting and subcontracting with “small businesses” by federal agencies. Among other things, these measures (1) declare a congressional policy of ensuring that a “fair proportion” of federal contract and subcontract dollars are awarded to small businesses; (2) establish government-wide and agency-specific goals for the percentage of contract and/or subcontract dollars awarded to small businesses; (3) require or authorize agencies to conduct competitions in which only small businesses may compete (i.e., set-asides), or make noncompetitive awards to them in circumstances when such awards could not be made to other businesses; and (4) task the Small Business Administration (SBA) and officers of the procuring agencies with reviewing and helping to restructure proposed procurements so as to maximize opportunities for small business participation. Small business contracting and subcontracting are complicated topics, in part, because numerous statutes–implemented by multiple agencies and subject to interpretation by multiple judicial and administrative tribunals–require or authorize particular actions by federal agencies.
See also: Federal Contracting and Subcontracting with Small Businesses: Issues in the 112th Congress
New From the GAO
New GAO ReportsSource: Government Accountability Office
1. Consumer Product Safety Commission: A More Active Role in Voluntary Standards Development Should Be Considered. GAO-12-582, May 21.
http://www.gao.gov/products/GAO-12-582
Highlights – http://www.gao.gov/assets/600/590991.pdf
2. Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity. GAO-12-549, May 14.
http://www.gao.gov/products/GAO-12-549
Highlights – http://www.gao.gov/assets/600/590829.pdf
3. Moving to Work Demonstration: Opportunities Exist to Improve Information and Monitoring. GAO-12-490, April 19.
http://www.gao.gov/products/GAO-12-490
Highlights – http://www.gao.gov/assets/600/590227.pdf
4. Management Report: Opportunities for Improvement in the Bureau of Consumer Financial Protection’s Internal Controls and Accounting Procedures. GAO-12-528R, May 21.
http://www.gao.gov/products/GAO-12-528R
CBO — H.R. 3987, Small Business Protection Act of 2012
H.R. 3987, Small Business Protection Act of 2012
Source: Congressional Budget Office
H.R. 3987 would limit the authority of the Small Business Administration (SBA) to set certain size standards for the purpose of establishing eligibility for various federal assistance programs. The bill also would broaden the amount of information provided to the public when the SBA proposes or modifies a size standard.
Based on information from the SBA, CBO estimates that implementing H.R. 3987 would cost $12 million over the 2013-2017 period, assuming appropriation of the necessary amounts. CBO estimates that enacting H.R. 3987 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply.
H.R. 3987 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would not affect the budgets of state, local, or tribal governments.
+ Full Report (PDF)
2010 Business Dynamics Statistics (BDS)
2010 Business Dynamics Statistics (BDS)
Source: U.S. Census Bureau
This Census Bureau brief highlights the most recent update to the Business Dynamics Statistics, which found that U.S. business startups have been declining since the 1980s and especially during the 2008-2009 recession. The report concludes that the U.S. has become less entrepreneurial as a result of the decline in startups and the lack of activity by young businesses. The BDS, which provides annual statistics from 1976 to 2010 by firm age and size, is crucial to understanding current and historical U.S. entrepreneurial activity. The BDS results from collaboration between the U.S. Census Bureau’s Center for Economic Studies and the Ewing Marion Kauffman Foundation, the largest American nonprofit organization that focuses on entrepreneurship. Internet address: <http://www.kauffman.org/bds2012>.
Further information on the BDS release can be found at <http://www.census.gov/ces/dataproducts/bds/data.html>.
Taxes in the States: Rankings, and Right and Wrong Directions
Taxes in the States: Rankings, and Right and Wrong Directions
Source: Small Business and Entrepreneurship Council
While we all face the same federal tax code, the story on state and local taxes can and does vary considerably state by state. And that most certainly matters as to where entrepreneurs and investors decide to take risks, that is, where to start up, build and invest in businesses, and therefore where jobs are created and where people live.
The just-published “Business Tax Index 2012: Best to Worst State Tax Systems for Entrepreneurship and Small Business” from the Small Business & Entrepreneurship Council (which I author each year) is an annual ranking of the 50 states and District of Columbia according to 18 different broad tax costs.
This index gets at how heavily tax burdens, state by state, fall on the entrepreneurial sector of the economy. Given that entrepreneurship and investment are the sources of innovation, economic growth and job creation, everyone should be concerned about such burdens.
As noted in the report, the 18 measures are: 1) state’s top personal income tax rate, 2) state’s top individual capital gains tax rate, 3) state’s top corporate income tax rate, 4) state’s top corporate capital gains tax rate, 5) any added income tax on S-Corporations, 6) whether or not the state imposes an alternative minimum tax on individuals, 7) whether or not the state imposes an alternative minimum tax on corporations, 8) whether or not the state’s personal income tax brackets are indexed for inflation, 9) property taxes, 10) consumption-based taxes (i.e., sales, gross receipts and excise taxes), 11) whether or not the state imposes a death tax, 12) unemployment taxes, 13) whether or not the state has a tax limitation mechanism, 14) whether or not the state imposes an Internet access tax, 15) “Amazon” taxes, 16) gas tax, 17) diesel tax, and 18) wireless taxes.
The bottom line is that these taxes reduce the incentives and/or resources available for building businesses, serving consumers and expanding employment.
So, which states rank the best? Well, the top 15 states on this year’s “Business Tax Index” are: 1) South Dakota, 2) Texas, 3) Nevada, 4) Wyoming, 5) Washington, 6) Florida, 7) Alaska, 8)Alabama, 9) Ohio, 10) Colorado, 11) Mississippi, 12) Michigan, 13) South Carolina, 14) Tennessee, and 15) Missouri.
+ Business Tax Index 2012: Best to Worst Tax Systems for Entrepreneurship and Small Business
Financing of firms in developing countries : lessons from research
This paper reviews and synthesizes theoretical and empirical research on the role of finance in developing countries. First, the paper presents the stylized facts about firms in developing nations as well as the legal, financial and broader institutional framework in which these firms operate. Next, the paper focuses on the financing choices available to small and medium firms in developing countries and highlights areas needing additional research.
+ Full Paper (PDF)
Does a picture paint a thousand words ? evidence from a microcredit marketing experiment
Female entrepreneurship is low in many developing economies partly because of constraints on women’s time and mobility, which are often reinforced by social norms. This paper analyzes a marketing experiment designed to encourage women to adopt a new microcredit product. A brochure with the same content but two different covers was randomly distributed among male and female borrowing groups. One cover featured five businesses run by men, while the other showed identical businesses run by women. Men and women responded to psychological cues. Among men who were not business owners, had lower measured ability and whose wives were less educated, the responses to the female brochure were more negative, as did female business owners with low autonomy within the household. Women with relatively high levels of autonomy had a similar negative response to the male brochure, while there was no effect on female business owners with autonomy. Overall, these results suggest that women’s response to psychological cues, such as positive role models, may be affected by their level of autonomy at home, and more intensive interventions may be required for more disadvantaged women.
+ Full Paper (PDF)
Clear and Present Danger: Planning and New Venture Survival Amid Political and Civil Violence
Clear and Present Danger: Planning and New Venture Survival Amid Political and Civil Violence
Source: Harvard Business School
Strategy theory often takes for granted the role of state institutions in providing stable, predictable environments in which new firms are founded. Yet, many states around the world (such as Iraq, Sudan, South Sudan, Syria, and the Democratic Republic of Congo) lack political institutions of sufficient strength to ensure personal safety and public order, thereby creating environments where civil and political violence can ferment. This paper explores the impact of such violence on new venture processes. Results show that comprehensive planning was negatively correlated with venture survival in such environments. While there are implications for strategy theory, the study is also relevant to entrepreneurs and organizations promoting new venture planning in less-developed countries, particularly those experiencing political and civil turmoil. Currently, prospective entrepreneurs are taught the importance of business planning by both universities and non-governmental organizations that offer entrepreneurial training. But this study suggests that such training will have mixed effects on new venture survival, depending on the extent to which these entrepreneurs pursue ventures in violent and uncertain environments. In such contexts where governments fail to maintain public safety and order, these training programs may actually increase the likelihood of new venture failure. Key concepts include:
- This paper theorizes and tests how contexts characterized by weak political institutions and ensuing high levels of violence create uncertain and unpredictable environments that alter entrepreneurial behavior and disrupt resource flows and organizational routines, thereby increasing new venture failure rates.
- In contexts of high uncertainty as a result of violence, the benefits of comprehensive planning vanish as prior predictions become obsolete and even harmful to venture survival.
- Strategy theories often assume specific types of environments. But it is important to consider carefully the macro institutional factors.
+ Full Paper (PDF)
Veteran-owned Businesses and their Owners—Data from the Census Bureau’s Survey of Business Owners
Veteran-owned businesses in general. Census estimated that in 2007:
• There were 2.45 million businesses with majority ownership by veterans.• 491,000 of these firms were employers, and 1.956 million were non-employers.• These veteran-owned firms had sales/receipts of $1.220 trillion, 5.793 million employees, and an annual payroll of $210 billion.• Veteran-owned firms represented 9.0 percent of all U.S. firms.• 12.2 percent of all owners of SBO-respondent firms were veterans.• 8.3 percent of all respondent veteran owners had service-connected disabilities.
New From the GAO
New GAO Reports and Testimonies
Source: Government Accountability Office
+ Reports
1. DOD Financial Management: Implementation Weaknesses in Army and Air Force Business Systems Could Jeopardize DOD’s Auditability Goals. GAO-12-134, February 28.
http://www.gao.gov/products/GAO-12-134
Highlights - http://www-dev.gao.gov/assets/590/588903.pdf
2. Reporting Foreign Accounts to IRS: Extent of Duplication Not Currently Known, but Requirements Can Be Clarified. GAO-12-403, February 28.
http://www.gao.gov/products/GAO-12-403
3. Medical Devices: FDA Has Met Most Performance Goals but Device Reviews Are Taking Longer. GAO-12-418, February 29.
http://www.gao.gov/products/GAO-12-418
Highlights - http://www-dev.gao.gov/assets/590/588970.pdf
4. Federal Advisory Groups: DOT and DOE Can Take Steps to Better Assess Duplication Risk and Enhance Usefulness. GAO-12-472, March 29.
http://www.gao.gov/products/GAO-12-472
Highlights - http://www-dev.gao.gov/assets/590/589749.pdf
5. Defense Acquisitions: Assessment of Selected Weapon Programs. GAO-12-400SP, March 29.
http://www.gao.gov/products/GAO-12-400SP
Highlights - http://www.gao.gov/assets/590/589696.pdf
Podcast - http://www.gao.gov/multimedia/podcasts/589328
6. Operational Contract Support: Management and Oversight Improvements Needed in Afghanistan. GAO-12-290, March 29.
http://www.gao.gov/products/GAO-12-290
Highlights - http://www-dev.gao.gov/assets/590/589709.pdf
+ Testimonies
1. Transportation: Key Issues and Management Challenges, by Phillip R. Herr, managing director, physical infrastructure issues, before the Subcommittee on Transportation, Housing and Urban Development, And Related Agencies, House Committee on Appropriations. GAO-12-581T, March 29.
http://www.gao.gov/products/GAO-12-581T
2. Mortgage Financing: FHA and Ginnie Mae Face Risk-Management Challenges, by Mathew J. Scirè, director, financial markets and community investment, before the Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, House Committee on Appropriations. GAO-12-578T, March 29.
http://www.gao.gov/products/GAO-12-578T
Highlights - http://www-dev.gao.gov/assets/590/589693.pdf
3. HUD Information Technology: More Work Remains to Implement Necessary Management Controls, by Valerie C. Melvin, director, information management and technology resources issues, before the Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, House Committee on Appropriations. GAO-12-580T, March 29.
http://www.gao.gov/products/GAO-12-580T
Highlights - http://www-dev.gao.gov/assets/590/589712.pdf
4. Entrepreneurial Assistance: Efficiency and Effectiveness of Fragmented Programs Are Unclear, by William B. Shear, director, financial markets and community investment, before the Senate Committee on Small Business and Entrepreneurship. GAO-12-601T, March 29.
http://www.gao.gov/products/GAO-12-601T
CBO — Small Firms, Employment, And Federal Policy
Small Firms, Employment, And Federal Policy
Source: Congressional Budget Office
Small firms, widely believed to promote job growth, both create and eliminate jobs at higher rates than large firms do. Although small firms account for a disproportionate share of net job growth, that greater growth is driven primarily by new small firms.
…
Policies that help reduce the cost to small firms of complying with federal regulations could promote employment growth. But policies favoring small firms could also discourage them from growing in order to retain that preferential treatment. Moreover, easing some regulations for small firms could cause certain problems, such as pollution, to persist more than if regulations were applied uniformly across firms of different sizes.
CRS — Who Earns Pass-Through Business Income? An Analysis of Individual Tax Return Data
Who Earns Pass-Through Business Income? An Analysis of Individual Tax Return Data
Source: Congressional Research Service (via Federation of American Scientists)
Pass-through businesses—sole proprietorships, partnerships, and S corporations—generate more than half of all business income in the United States. Pass-through income is, in general, taxed only once at the individual income tax rates when it is distributed to its owners. In contrast, the income of C corporations is taxed twice; once at the corporate level according to corporate tax rates, and then a second time at the individual tax rates when shareholders receive dividend payments or realize capital gains. This leads to the so-called “double taxation” of corporate profits.
This report analyzes individual tax return data to determine who earns pass-through business income and bears the burden of taxes on that income. The analysis finds that over 82% of net pass-through income is earned by taxpayers with an adjusted gross income (AGI) over $100,000, although these taxpayers account for just 23% of returns filed. A significant fraction of pass- through income is concentrated among upper-income earners. Taxpayers with AGI over $250,000, for example, receive 62% of pass-through income, but account for just over 6% of returns with pass-through income. A closer look at S corporations and partnerships shows passive income accounts for 10% and 25%, respectively, of their total income. This analysis, when combined with research on the corporate tax burden, suggests that higher-income taxpayers will generally bear most of the burden from increased pass-through taxes.
A number of proposed and scheduled tax changes would result in pass-throughs paying higher taxes. Several lawmakers and the Obama Administration, for example, have expressed interest in taxing large pass-throughs as corporations, which would subject some pass-throughs to an additional layer of taxation. Pass-through taxation could also increase if a tax reform that includes lower corporate tax rates that are paid for by the elimination or reduction of certain business tax benefits is enacted. Additionally, the scheduled expiration of the 2001/2003 tax cuts at the end of this year could increase taxes on pass-throughs by increasing individual tax rates. Lastly, a new 3.8% tax on passive income that was enacted as part of the Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152) is set to take effect in 2013. The tax may apply to some pass-throughs.
While the analysis of these proposed and scheduled changes suggests that higher-income taxpayers will generally bear most of the burden from increased pass-through taxes, there are circumstances that could raise congressional concern. For example, an across-the-board expiration of the 2001/2003 individual tax rates will increase taxes for all pass-through owners. One option for preventing the tax burden from increasing for lower and middle class business owners is to allow the reduced rates to expire only for higher-income earners.
Concern has also risen over the new 3.8% tax on passive income and its effect on pass-throughs. The distributional analysis in this report shows, however, most S corporation and partnership income is the active type, and active business income is exempt from the 3.8% tax. The share of income that is passive, and potentially subject to the new tax, overwhelmingly accrues to higher- income taxpayers—77% of passive partnership income and 93% of passive S corporation income went to taxpayers with AGI over $250,000. Sole proprietors could generally be expected to be exempt from the tax since most of their income is likely active.
