There's a new study from the Tax Foundation, which finds that most of the top 1 percent of earners we hear so much about are businessmen and entrepreneurs, not just a crowd of Scrooge McDucks diving in their bullion-filled swimming pools. From the Tax Foundation's press release:
Business income could amount to as much as 65 percent of all the income earned by the top one percent of earners ($317,000 and up in 2004). The report concludes that 55 percent of all income taxes in 2004 will be paid by business owners. High-income business owners ($200,000 or more) will pay most of that ? 37.4 percent of all income taxes.
Why so much business income on personal returns?
The rapid increase in business income reported on individual tax returns can be traced to laws that have persuaded businesses to organize themselves as S-Corporations, Limited Liability Corporations, sole proprietorships and partnerships, instead of as regular C-Corporations that report their profits to the IRS on corporate income tax returns. Many regular C-Corporations have even jumped through the administrative hoops necessary to convert to S-Corporations. These firms are mostly small businesses, and they report their profits on the individual tax returns of the business owners. As a result, tax cuts not only help them personally but enable their businesses to grow. (emphasis mine)