Martin A. Sullivan (Tax Analysts) has published Why Not Tax Large Passthroughs as Corporations?, 131 Tax Notes 1015 (June 6, 2011):

Most large profitable American businesses must pay the corporate income tax. Others are completely exempt from it. The unfairness of this is so plain even a 5-year-old can understand it. … The essence of reform is getting rid of loopholes — hopefully to pay for lower tax rates. There is no better corporate tax loophole than complete exemption from corporate tax. …

Table 3 demonstrates the unfairness and inefficiency of current law. Not only are large corporations avoiding corporate tax, they are doing so while smaller competitors in the same industry pay significant tax. Compare the last two columns of the table. The cohort of 339 manufacturing S corporations with an average of $429.3 million in receipts pays no corporate tax. Meanwhile, 801 manufacturing C corporations — much smaller than their S corporation brethren, with an average of $99.3 million in receipts — pay an average of $3.3 million in corporate tax. What policy purpose is served by taxing small manufacturers more than large manufacturers? [Click on chart to enlarge.]

 

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