GAO Outlines Tax Code Inequity, Urges Congress to Facilitate Interagency Data Sharing
In a recent audit, the Government Accountability Office (GAO) determined current federal law impedes the development of more inclusive tax policies. The restriction of demographics collection and the sharing of data between agencies continues the racial, ethnic, and gender disparities in eligibility and amounts of tax attributes.
According to the GAO, the Internal Revenue Service (IRS) can collect demographic data explicitly references in the tax code. This does not include data collection on a taxpayers’ race, ethnicity, and sex directly from tax returns, forms, or surveys. This is related to mitigating the possibility of real or perceived bias by IRS examiners.
While not currently collected, GAO posits that data analysis 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 expressed concerns that direct collection of demographic information by the agency could significantly impact voluntary compliance. However, some suggested that the data could be safeguarded from examiners and other non-research uses given the possibility of inadvertent exposure and reactions.
GAO utilized data from the U.S. Census Bureau to identify potential tax code disparities. White households claimed approximately 75 percent of itemized deductions rather than the standard deduction, according to the GAO, and Asian households were more likely to itemize than other households. White households also appeared to have higher rates of eligibility and be more likely to claim the Child Tax Credit (CTC) at higher amounts than Asian, Black, American Indian, and Native Alaskan households. As for the Earned Income Tax Credit (EITC), Hispanic households appeared to be more likely to claim the attribute than most other households, while Asian households were less likely.
In its recommendation, GAO urged Congress to reconsider the laws governing interagency data sharing in a secure manner that protects the confidentiality of taxpayer demographic data. Such reforms would allow for more accurate, consistent, and systematic analyses of the effects of existing and proposed tax policies on taxpayers’ demographics.
In a statement Wednesday, Senator Ron Wyden (D-OR), Chairman of the Senate Finance Committee, expressed his appreciation for the study.
“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,” Senator Wyden said. “If we’re going to improve policy as it relates to childcare, education, and housing, we need a clear picture.”
The audit findings are only estimates since the data is from the Census Bureau. GAO also could not provide information on the taxpayers’ actual use of potential attributes, only their probable eligibility.
