Howard Gleckman discussed some of the facts and issues regarding the role of small businesses in the debate on the expiring 2001 and 2003 tax cuts. Eric Toder expressed a strange sense of déjà vu. While everyone agrees that changes in the top two marginal tax rates would affect only a small share of individuals who report business income on their tax returns, proponents of full extension point out that those high-income individuals receive a large fraction of net positive business income. (JCT has estimated that fraction at 50 percent; TPC’s estimate is closer to 45 percent.) But what is less well known is what that business income consists of. How much represents the income of the neighborhood grocer or the owner of a small manufacturing firm? And how much represents the income of highly-paid professionals who take their income in the form of partnership shares, such as partners in law firms, accounting firms, and Wall Street hedge funds?
