In a recent audit, the Government Accountability Office (GAO) determined current federal law prevents the development of more inclusive tax policies. Restricting the collection of demographic data and sharing data between agencies perpetuates racial, ethnic, and gender disparities in eligibility and tax attribute amounts.
According to the GAO, the Internal Revenue Service (IRS) may collect demographic data explicitly referenced in the tax code. This does not include collecting data on a taxpayer’s race, ethnicity, and gender directly from tax returns, forms, or surveys. This is related to mitigating the possibility of actual or perceived bias by IRS reviewers.
Although not currently collected, GAO posits that analyzing data along these lines would allow governmental and nongovernmental entities to determine whether tax policies disproportionately benefit or penalize particular groups.
For the study, GAO interviewed 21 experts and reviewed related literature, including studies that found implicit bias. Officials have expressed concerns that the agency’s direct collection of demographic information could have a significant impact on voluntary compliance. However, some have suggested that the data could be shielded from reviewers and other non-research uses given the possibility of inadvertent exposure and feedback.
The GAO used US Census Bureau data to identify potential tax code discrepancies. According to the GAO, white households claimed about 75% of itemized deductions rather than the standard deduction, and Asian households were more likely to itemize than other households. White households also appeared to have higher eligibility rates and be more likely to claim the Child Tax Credit (CTC) at higher amounts than Asian, Black, Native American and Alaska Native households. When it comes to Earned Income Tax Credit (EITC), Hispanic households seemed to be more likely to claim the attribute than most other households, while Asian households were less likely.
In its recommendation, the GAO urged Congress must reconsider laws governing interagency data sharing in a secure manner that protects the privacy of taxpayer demographics. Such reforms would allow for more accurate, consistent, and systematic analyzes of the effects of existing and proposed tax policies on taxpayer demographics.
In a statement Wednesday, Sen. Ron Wyden (D-OR), chairman of the Senate Finance Committee, Express his appreciation for the study.
“Policy is most often crafted through the tax code, but we don’t have hard data on how the myriad credits and deductions benefit different demographic groups,” Sen. Wyden said. said. “If we want to improve childcare, education and housing policy, we need a clear picture.”
The findings of the audit are only estimates since the data comes from the Census Bureau. GAO also could not provide information on the actual use of potential attributes by taxpayers, only their likely eligibility.