Daniel I. Halperin, Corporate Rate Reduction and Fairness to Passthrough Entities, 147 Tax Notes 1299 (2015).
Abstract: There is considerable support for reducing the corporate tax rate but not for a corresponding reduction in individual rates. Since it seems likely that corporate rate reduction would have to be financed by reduction or even elimination of many tax preferences for business income equitable treatment of pass-throughs is a vexing problem. The article suggests a possible approach to fairness to pass-throughs which follows from recognition of the actual benefit of reducing corporate rates that I described in 2010. I showed that under the assumption that the combined rate of tax on corporate income (the corporate level tax plus the tax on distributions) is equivalent to the individual marginal rate applied to partnership income, the impact of reduced corporate rates was SOLELY to permanently reduce the tax burden on the RETURN ON REINVESTED EARNINGS to the lower corporate rate, whether or not these earnings were distributed. The return on INVESTED CAPITAL would continue to be taxed in full at individual rates even if distribution is deferred. If this is so, we can achieve equivalent treatment of pass-throughs if we can identify earnings from the reinvestment of business profits and, similar to the treatment of capital gain, limit the tax rate on these earnings to no more than the corporate rate.