Equitable Tax Policy Demands Household Data on Race, Gender

Congress should restructure current laws that regulate how the Internal Revenue Service accesses and utilizes taxpayer data to better gauge how tax laws and pandemic-related tax breaks impact different Americans, according to a new oversight report.

The U.S. Government Accountability Office issued the report on Wednesday and found that federal laws that prohibit entities like the IRS from collecting demographic data in relation to tax histories hinder the development of a more inclusive tax policy, because the agency cannot capture tax laws’ effect on different races and genders. 

“The lack of taxpayer data that are consistently linked to demographic information limits analysts and policymakers’ ability to determine how tax policies and their administration might differentially affect households by race, ethnicity and sex,” the report reads. 

Other federal agencies, such as the U.S. Census Bureau and Social Security Administration, are able to collect demographic data from Americans submitting federal filings. Social Security data has been shared with the Department of Treasury’s Office of Tax Analysis to analyze legislative proposals and current tax law, but still lacks information on race and ethnicity. 

GAO argues that lawmakers should consider revising current protocol to facilitate data sharing within these agencies for a more accurate window into the impacts of the tax code. 

“If Congress were to modify these laws, it could improve Census and IRS’s ability to conduct interagency data matching for the purposes of statistical analyses of tax policies,” GAO officials wrote. 

One specific law the report highlights as useful for better interagency data sharing is Title 13 in U.S. Code, which staunchly protects the privacy of Americans’ data  collected by the Census Bureau.

GAO official suggest Congress expands the existing authority the Census Bureau is granted under Title 13 to the Treasury, 

Underpinning the GAO’s report is research that outlines the racial biases in historic tax policy that primarily benefit white Americans, such as rate structures and  itemized and mortgage interest deductions.

“To balance the equity of the U.S. tax system with other policy goals, it is important for policymakers to understand the potential unintended disparities in how the tax system treats different households,” the report reads. “The tax code could also have important interactions with households of different familial, racial and ethnic compositions, even though it does not explicitly reference race, ethnicity or sex.”

To demonstrate how a tax-demographic analysis could be conducted, GAO simulated tax outcomes from 2017 Census data, and found disparities based on race, sex and ethnicity, even after researchers applied controls for slight income differences. 

“These provisions, though designed to encourage saving for all, likely disproportionately benefit those who are wealthier, because they require that households have resources to save,” the authors concluded.

In response, Treasury officials did not agree or disagree with the GAO’s findings, and Census, IRS and the Secretary of Commerce’s office sent technical responses. 

The report was first requested by Senate Finance Committee Chair Sen. Ron Wyden, D-Ore., who issued a statement thanking the GAO for its work and pledging review on current tax policy.

“Policy is most often made through the tax code, but we don’t have concrete data on how the countless credits and deductions benefit different demographic groups,” Wyden said. “If we’re going to improve policy as it relates to child care, education and housing we need a clear picture. I’m committed to ensuring policy makers can obtain this greatly needed information from the Office of Tax Analysis and the Joint Committee on Taxation.”