Many businesses are taxed as flow-through enterprises—the income from the business is passed through to the owners and taxed under the individual income tax. The three main types of flow-through businesses are sole proprietorships, partnerships, and S corporations. President Obama has proposed allowing the top two marginal tax rates to return to their pre-2001 levels (36 and 39.6 percent respectively), which would affect the rate at which flow-through business income is taxed relative to if all the 2001-2003 tax cuts were extended.

TPC has produced several estimates on the potential impact of raising the top two rates on taxpayers reporting flow-through business income

• Distribution of Business Income by Statutory Marginal Tax Rate, 2011
  This table shows the number of taxpayers and amount of business income by statutory marginal tax rate under the president’s proposals.  It is based on a broad measure of business income, consisting of all income reported on Schedules C, E, and F. 
• Sources of Flow-Through Business Income by Statutory Marginal Tax Rate, 2011
  This table breaks all business income into the three main sources—nonfarm sole proprietorships, partnerships, and S corporations—by statutory marginal tax rate under the president’s proposals.
• Distribution of Flow-Through Business Income by Source and Statutory Marginal Tax Rate, 2011
  This table shows the distribution of each of the three main sources of flow-through business income by size of income receipt and statutory marginal tax rate under the president’s proposals.

See Related TaxVox Posts:
Joseph Rosenberg, “More on Individual Tax Rates and Small Businesses,” TaxVox, August 13, 2010.
Eric Toder, “Déjà vu All Over Again,” TaxVox, August 9, 2010.
Howard Gleckman, “The Bush Tax Cuts and Small Business: What We Know,” TaxVox, August 4, 2010.