What does ‘pass-through taxation’ primarily prevent?

Pass-through taxation is a tax structure that primarily prevents double taxation on business profits. In traditional corporate taxation, a corporation's profits are taxed at the corporate level, and then dividends distributed to shareholders are taxed again as personal income. This leads to what is commonly referred to as double taxation.

With pass-through taxation, business income is taxed only once, at the individual owner's tax rate, rather than at both the corporate and individual levels. This structure applies to entities such as sole proprietorships, partnerships, and S corporations. By allowing profits to "pass through" to the owners’ personal tax returns, it simplifies the tax process for small businesses and avoids the burden of double taxation, making it more favorable for business owners.

The other options may relate to issues in the tax system, but they do not directly address the primary purpose of pass-through taxation, which revolves specifically around preventing the dual taxation of business earnings.