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

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  • Jason DeBacker
  • Lucas Goodman
  • Bradley T. Heim
  • Shanthi P. Ramnath
  • Justin M. Ross

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S corporations, reduced the amount of guaranteed payments to partners when the preferential rate on such payments was repealed.

Suggested Citation

  • Jason DeBacker & Lucas Goodman & Bradley T. Heim & Shanthi P. Ramnath & Justin M. Ross, 2018. "Pass-Through Entity Responses to Preferential Tax Rates: Evidence on Economic Activity and Owner Compensation in Kansas," National Tax Journal, National Tax Association;National Tax Journal, vol. 71(4), pages 687-706, December.
    • Handle: RePEc:ntj:journl:v:71:y:2018:i:4:p:687-706
    DOI: 10.17310/ntj.2018.4.05
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    Cited by:

    1. Trey Malone & Antonios M. Koumpias & Per L. Bylund, 2019. "Entrepreneurial response to interstate regulatory competition: evidence from a behavioral discrete choice experiment," Journal of Regulatory Economics, Springer, vol. 55(2), pages 172-192, April.
    2. DeBacker, Jason & Heim, Bradley T. & Ramnath, Shanthi P. & Ross, Justin M., 2019. "The impact of state taxes on pass-through businesses: Evidence from the 2012 Kansas income tax reform," Journal of Public Economics, Elsevier, vol. 174(C), pages 53-75.

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