What Is Pass-Through Income, and Why Is It So Important?
Tax reform has gotten a lot of attention lately, and the focus of many lawmakers in crafting a tax bill has been ensuring that American businesses can compete against their rivals on the global economic stage. Yet one fact that has come out during lawmakers' deliberations is that much of the business income the American economy generates is what's known as pass-through income, so it's critical that any reform efforts address the businesses that create pass-through income in order to provide a holistic bill.
The proposed reduction in the corporate tax rate from 35% to 20% has gotten by far the most attention among reform advocates. The argument made by those who favor the provision is that tax rates for corporations abroad are generally lower than what you find in the U.S., so companies have looked for ways to avoid U.S. taxes that have had a negative impact on the nation's economic prospects. Moves like the tax inversion strategies that businesses have followed to change their tax homes to lower-tax jurisdictions have threatened to substantially reduce the amount of tax the IRS can collect, and even those businesses that remain in the U.S. seek to take advantage of any deductions, credits, and other tax breaks available to offset their sometimes excessive tax liability.
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Source: Fool.com
