Implications of tax loss asymmetry for owners of S corporations by Lucas Goodman, Elena Patel and Molly Saunders-Scott
By: Goodman, Lucas W
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Contributor(s): Patel, Elena Spatoulas | Saunders Scott, Molly J.
Material type: 
ArticleSubject(s): EMPRESAS FAMILIARES | EMPRESAS PEQUEÑAS Y MEDIANAS | IMPUESTOS | PERDIDAS | COMPENSACION DE PERDIDAS | ESTADOS UNIDOS
In:
American Economic Journal : Economic Policy v. 15, n. 1, February 2023, p. 342-369Summary: We study tax loss asymmetry for S corporate owners. These owners use most losses contemporaneously, reducing the tax asymmetry compared to C corporations. However, these owners face distortions due to the progressive individual tax schedule. The value of this asymmetry is approximately $3.5 billion per year. We find that this asymmetry creates disincentives for risky investment and causes allocative inefficiencies among loss and gains owners. Finally, we simulate the effects of certain provisions of the Tax Cuts and Jobs Act; we estimate that these provisions—especially section 199A—reduce the behavioral distortions of the asymmetry for S corporate owners.
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We study tax loss asymmetry for S corporate owners. These owners use most losses contemporaneously, reducing the tax asymmetry compared to C corporations. However, these owners face distortions due to the progressive individual tax schedule. The value of this asymmetry is approximately $3.5 billion per year. We find that this asymmetry creates disincentives for risky investment and causes allocative inefficiencies among loss and gains owners. Finally, we simulate the effects of certain provisions of the Tax Cuts and Jobs Act; we estimate that these provisions—especially section 199A—reduce the behavioral distortions of the asymmetry for S corporate owners.
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