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Does the Federal Income Tax Favor Small Business?

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Publication Date: January 2008

Publisher(s): Tax Policy Center

Author(s): Eric Toder

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Fiscal future; Wealth and Retirement; Savings; Business Taxation

Type: Paper


Small business is the source of our entrepreneurial genius, creativity, and productivity. Nonetheless, a substantial portion of our economic activity occurs within large corporations, non-profits and public enterprises. This paper discusses how the federal income tax treats firms of different sizes. It reviews specific provisions favoring small businesses and more general aspects of the federal income tax that may differentially affect firms of different sizes and also discusses how opportunities for tax avoidance and costs of complying with the tax law affect businesses of different size.