Eric Zwick

Business in the United States: Who Owns it and How Much Tax Do They Pay?

“Pass-through” businesses like partnerships and S-corporations now generate over half of US business income and account for much of the post-1980 rise in the top-1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings: (1) relative to traditional business income, pass-through business income is substantially more concentrated among high-earners; (2) partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships; and (3) the average federal income tax rate on US pass-through business income is 19%—much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980’s low level, strong but straightforward assumptions imply that the 2011 average US tax rate on total US business income would have been 28% rather than 24%, and tax revenue would have been approximately

Stimulating Housing Markets

100 billion higher.

Kinky Tax Policy and Abnormal Investment Behavior

This paper studies temporary policy incentives designed to address capital overhang by inducing asset demand from buyers in the private market. Using variation across local geographies in ex ante program exposure and a difference-in-differences design, we find that the First-Time Homebuyer Credit induced a cumulative increase in home sales of 397 to 546 thousand, or 7.8 to 10.7 percent, nationally. We find little evidence of a sharp reversal of the policy response; instead, demand comes from several years in the future. The program likely sped the process of reallocating homes from distressed sellers to high value buyers, which stabilized house prices. The response is concentrated in the existing home sales market, implying the stimulative effects of the program were less important than its role in accelerating reallocation.

Do financial frictions amplify fiscal policy? Evidence from business investment stimulus

This paper documents tax-minimizing investment, in which firms accelerate capital purchases near fiscal year-end to reduce taxes. Between 1984 and 2013, average investment in fiscal Q4 exceeds the average of fiscal Q1 through Q3 by 37%. Q4 spikes occur in the U.S. and internationally. Research designs using variation in firm tax positions and the 1986 Tax Reform Act show that tax minimization causes spikes. Spikes increase when firms face financial constraints or higher option values of waiting. We develop an investment model with tax asymmetries to rationalize these patterns. Models without purchase-year, tax-minimization motives are unlikely to fit the data.