Edward Fox (Michigan), Zachary Liscow (Yale), and Michael Love (Columbia) have posted “How to Tax Business? Economic Rents, Legibility, and the Corporate-Pass-Through Divide” on SSRN. Here is the abstract:

We reevaluate the choice between entity-level and pass-through taxation in light of two transformative U.S. trends. First, as business taxation converges toward a cash flow tax via expensing, pass-through taxation’s variable rate structure generates inefficient investment incentives and negative tax rates, whereas entity taxation offers necessary stability and better targets economic rents. Second, the explosion of complex, multi-tiered partnerships has rendered a growing share of business activity illegible to enforcement. Since entity taxation better targets economic rents and acts as a necessary “circuit breaker” against this inadministrable complexity, we discuss policy reforms to shift the tax treatment of large firms.