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Factsheet: What the research says about taxing pass-through corporations such as banks, retail outlets, and other private, closely held firms—enjoys unique tax advantages. Furthermore, as part of the 2017 Tax Cuts and Jobs Act, these entities were granted a substantial, regressive tax benefit known as the Section 199A deduction, or the qualified business income deduction.
Why are these tax preferences provided to pass-through entities, and are they truly warranted? This factsheet examines the available academic research regarding the growth of pass-through businesses and how their lenient regulation and preferential tax treatment exacerbate wealth and income inequality in the United States, while also creating efficiency losses that hinder national economic growth. Additionally, this document explores the various avenues for tax evasion and avoidance utilized by many pass-through owners, which deplete essential resources from the public treasury.
