Wharton Public Policy Initiative Issue Briefs

Publication Date

10-28-2019

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Volume

7

Number

8

Document Type

Brief

Summary

Many observers have asserted that the reduced corporate tax rate instituted by the 2017 Tax Cuts and Jobs Act (TCJA) has transformed entity choice for business owners, incentivizing owners of businesses structured as sole proprietorships or passthrough entities to incorporate their businesses and to use these new corporations as pocketbook investment vehicles to invest in and hold portfolio investments, substantially reducing wealthy individuals’ tax obligations and Treasury’s tax collections. This brief offers a different view, and discusses why predictions of widespread conversions to the corporate form at a substantial cost to the fiscal position of the U.S. are overstated. The brief explores the various purported tax advantages to incorporating, both when business owners are looking to invest substantial profits in portfolio assets, as well as when retained earnings are reinvested in the business and produce ordinary income.

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View on Penn Wharton PPI Website

https://whr.tn/IssueBriefV7N8

Keywords

tax, taxation, corporate tax law, tax law and jobs act, TCJA, incorporation

The Tax Cuts and Jobs Act’s Incorporation “Incentive”

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