New GAO report underscores importance of better data to study race and taxa

Although the federal income tax system may appear “colourless” or race-neutral to some, it can reduce or increase racial inequality, new one Government Accountability Office (GAO) Report This explains why better data is necessary for a more complete understanding of the effects of the tax system.

The IRS does not collect data on tax filers’ race and ethnicity, and other federal agencies do not routinely include these breakdowns in their tax analysis. But for years scholars Books And letters has drawn attention to how the federal tax code and its administration can exacerbate long-standing racial inequalities in housing, wealth, education and employment.

Given that a executive Order from President Biden and various Congress the hearing has prompted Treasury Department and other federal agencies to find out more, the GAO discusses solutions for integrating tax and demographic data (see figure).

In its report, the GAO highlights how the gap between tax and demographic data hinders the analysis of tax provisions based on race and ethnicity. Along with reviewing the literature and legal regulations, GAO interviewed 21 tax law professors and tax policy researchers, as well as officials from the IRS, Treasury and U.S. Census Bureau.

Gao also used the Urban Institute Transfer Income Model (TRIM3) To examine what existing data suggest regarding federal tax provisions and the relationship between income, gender and race and ethnicity. For some tax provisions – such as the Earned Income Tax Credit and the Child Tax Credit – they found disparities in average credit amounts and qualifications that went beyond income variance.

Other examples reinforce the need for better data. For example, the GAO breakdown of capital gains by family may not entirely account for some famous racial disparities sources of income and wealth. The paucity of data by race and ethnicity undermines modeling that benefits from multiple large tax priorities affecting overall tax liabilities.

As the GAO notes, the Treasury has determined that the IRS is not allowed to collect demographic data based on race and ethnicity under current law, unless required by tax administration. This Isolates the IRS from several other federal agencies, such as the Social Security Administration, the Federal Reserve Board, and the Department of Labor.

There are concerns that if the IRS collects this data in the future, for example, through a survey, it could have a “cooling effect” on voluntary compliance or the data could be misused for tax audits (a 2019 publica Investigation discussed how audits can disproportionately affect communities of color already).

Instead, the Federal Tax Research Office separate from the rest of the IRS can use the Current Population Survey, the American Community Survey, and the Consumer Finance Survey to match respondents’ demographic information to taxpayer data. However, the Treasury notes to the GAO that Titles 13 and 26 of the United States Code may limit the data-sharing ability of the U.S. Census Bureau and the IRS.

For its part, the Treasury’s Office of Tax Analysis is focused on developing and fine-tuning an attribution approach to estimate taxpayer demographic characteristics without directly linking taxpayer information to any self-reported demographic information. TPC is expanding us too microsimulation model To estimate the distributional impacts of tax policies by race and ethnicity (more on why this is challenging and what we are doing) Here,

Altogether, sing report Concludes that Congress should consider revising laws preventing inter-agency data sharing and that the Treasury should fully evaluate the feasibility of alternative methods for linking taxpayer and demographic data.

Policy makers, tax administrators, researchers and the general public will benefit from a better understanding of how taxes intersect with issues of racial equity. Getting more and more data would be the first step in that direction. The complexities of taking that step forward cannot deter us from going further.