Podcast Summary
IRS Audit Disparity: Black Taxpayers Disproportionately Targeted: Black taxpayers are disproportionately audited by the IRS due to institutional priorities and selection processes, not explicit bias, resulting in a 'doom loop' where eligible taxpayers do not respond to audit notices and are deemed ineligible for the EITC
A study conducted by researchers from universities and the US Treasury Department discovered a disturbing disparity in IRS audits. Black taxpayers are three to five times more likely to be audited than others, despite the IRS not collecting data on taxpayer race. This disparity is linked to the Earned Income Tax Credit (EITC), a program meant to help lower income wage earners with dependents. The IRS disproportionately audits this pool of taxpayers, which is disproportionately black. The reasons for this disparity are not due to explicit bias but rather institutional priorities and selection processes. The IRS audits this group because it's cheaper and easier to audit low-income taxpayers, and a significant number of them do not respond to audit notices, leading to them being deemed ineligible for the credit. This situation creates a "doom loop," where the IRS sends out audit notices, some eligible taxpayers do not respond, and the IRS deems them ineligible, perpetuating the cycle.
The cycle of increased audits for problematic taxpayers: Budget cuts forced the IRS to prioritize cheaper audits, leading to a focus on lower-income taxpayers and a cycle of increased audits for those with problematic tax records.
The IRS's focus on auditing lower-income taxpayers, particularly those claiming the Earned Income Tax Credit, has led to a cycle of increased audits for problematic taxpayers. This "doom loop" is a result of budget cuts leading the IRS to prioritize cheaper audits. Meanwhile, Dorothy Brown, a Georgetown law professor and tax lawyer, unintentionally became an expert on the intersection of race and taxes. Her book, "The Whiteness of Wealth," highlighted how race shapes the tax system and impoverishes Black Americans. Her work inspired Daniel Ho's research on racial disparities in tax audits. Brown's accidental exploration of this topic demonstrates how deeply intertwined race and taxes are in America.
Tax policy's hidden impact on racial inequality: Tax policies disproportionately affect black married couples due to historical systemic racism and lower wages, perpetuating economic inequality
Tax policy is deeply interconnected with race, and this connection is often overlooked. Dorothy's personal experience of noticing her parents paying more taxes when they were married despite earning similar incomes led her to explore this issue further. Her research revealed that tax laws disproportionately affect married couples earning similar wages, but historically, this issue has been particularly impactful for black married couples due to systemic racism leading to lower wages for black labor. Therefore, the tax system, through policies such as higher tax brackets and phased-out benefits for married couples, can perpetuate economic inequality.
Marriage Penalty Disproportionately Affects Black Couples: Historically, the marriage penalty in the tax code has disadvantaged Black families, particularly those where both partners work and contribute equally, hindering their economic advancement.
While marriage is often touted as a solution to financial instability for the Black community, the marriage penalty in the tax code disproportionately affects Black couples, particularly those where both partners work and contribute equally. This penalty, which results in higher taxes for married couples compared to unmarried ones, has historically disadvantaged Black families, who have been excluded from many New Deal provisions despite paying taxes. The penalty was more pronounced for middle-income couples until the Trump tax cuts in 2017, which eliminated the marriage penalty for most couples earning less than $600,000. However, the earn income tax credit couples are still subjected to the marriage penalty. The tax code's historical bias against Black families is a significant barrier to their economic advancement.
Historical housing policies perpetuated racial disparities: Federal policies like redlining and exclusion of black veterans from home loan benefits led to disproportionate homeownership and wealth accumulation among whites, perpetuating racial disparities in housing today
The history of housing policy in the United States has perpetuated racial disparities in homeownership and wealth accumulation. During the New Deal and post-World War II era, federal policies such as redlining and the FHA's refusal to insure loans in black neighborhoods, and the exclusion of black veterans from home loan benefits, disadvantaged black Americans. This resulted in a disproportionate number of white Americans becoming homeowners and accumulating wealth through homeownership tax subsidies. To this day, most black homeowners live in racially diverse or all black neighborhoods, while most white homeowners live in all-white neighborhoods. The preferences of white homebuyers have shaped the market, making it difficult for black homeowners to build wealth in integrated neighborhoods without facing discrimination and other challenges. This history highlights the need to address systemic racism in housing policies and work towards creating more equitable opportunities for all Americans to build wealth through homeownership.
Tax system's impact on Black Americans' home ownership and student loan debt: The tax system disproportionately affects Black Americans' financial well-being through home ownership disparities and limited student loan deduction benefits, leading to substantial debt and home affordability challenges.
The tax system disproportionately impacts the financial well-being of Black Americans in various ways, particularly when it comes to home ownership and student loan debt. Home ownership for Black Americans does not yield the same benefits as it does for white Americans due to systemic inequalities. Additionally, tax policies, such as the interest deduction cap on student loans, limit the ability of Black college graduates to fully utilize this deduction, exacerbating their debt burden. Marriage only adds to their financial challenges, as the deduction cap applies to each individual, making it difficult for them to afford a home while dealing with their student debt and the marriage penalty. These issues contribute to the high dropout rate and substantial debt among Black college students. Overall, the tax system plays a significant role in perpetuating financial disparities between Black and white families.
Racial disparities in tax policy and student debt: IRS audits disproportionately affect Black Americans due to tax policy and student debt, contributing to the racial wealth gap. Calls for investigation and action to address systemic racism in these areas.
The racial wealth gap in the United States is significantly impacted by policies related to student debt and taxation, particularly affecting Black Americans. Dorothy Brown's research on tax policy and racial disparities has inspired further studies, leading to scrutiny of racial disparities in IRS audits. Senator Ron Wyden has pressed the new IRS head to address these issues and provide explanations and corrective actions within 60 days of confirmation. The extent of these disparities and their long-term implications for wealth gaps is not yet fully quantified, but the conversation highlights the need for further investigation and action to address systemic racism in tax policy and other areas.
IRS acknowledges racial disparities in tax auditing: IRS plan to address racial disparities in tax auditing is a step towards reducing racial wealth gap, but addressing the root cause requires addressing tax policies that perpetuate it.
The IRS has announced a plan to modernize its tax collection system, which includes addressing potential racial disparities in auditing. This acknowledgement of racial disparities in the tax system is a significant step forward, as it has long been known that tax policies perpetuate the racial wealth gap. Dorothy Brown, who won a tax law to stay away from race, has uncovered the connection between race and taxes, highlighting how the tax code disadvantages black taxpayers while advantaging white taxpayers. This issue is often overlooked, but it's a major contributor to the racial wealth gap. The IRS's plan to address these disparities is a step in the right direction, but it's important to remember that the tax code perpetuates this gap every April 15th. Therefore, addressing the racial wealth gap requires ensuring that it's not perpetuated by tax policies. The Code Switch team, including Gene Debbie and Laurie Lissar-Raga, produced this insightful episode on the topic, which also includes a fun Dungeons & Dragons episode. You can subscribe to Code Switch wherever you get your podcasts to hear more.
