Paul L. Caron
Dean




Tuesday, July 27, 2021

Brown: How Race Plays Into Tax Policing

The Atlantic:  The IRS Is Targeting the Poorest Americans, by Dorothy Brown (Emory):

AtlanticSenate Republicans recently killed a proposed increase in funding for the IRS that would have helped pay for the Biden administration’s infrastructure bill. The beneficiaries of that omission will be wealthy taxpayers, who regularly manage to stay just beyond the law’s reach with their tax-avoidance strategies. This is all too familiar. As my research shows, rich white Americans tend to get tax rules designed for their benefit. Quashing the funding that could have helped the IRS more aggressively pursue elite tax fraud is yet another example.

Without increased funding, the IRS will continue targeting low-income taxpayers for audits, particularly those claiming the earned-income tax credit.

The EITC is a wage subsidy available to low-income workers. The typical EITC recipient makes less than $20,000 annually. In 2018, according to the IRS, the EITC lifted about 3 million children out of poverty.

But EITC calculations are extremely complicated, with a high error rate, in part because in 1998, Congress decided to increase audit funding instead of making the EITC simpler—a move that gained the support of then-President Bill Clinton, who viewed the increased audits as the price to be paid in order to keep the EITC. Today, EITC claimants are audited at a rate roughly equal to the top-earning Americans (1.4 percent versus 1.6 percent). The dollar amount of low-income Americans’ tax liability is negligible when compared with those making millions.

Moreover, while almost half of all EITC-eligible filers are white, an analysis by ProPublica found that the counties with the highest audit rates were “poor, rural, mostly African American and in the South.” Predominantly Black counties have higher audit rates than predominantly white ones because of the large number of EITC claimants living there.

If not for ProPublica’s reporting and the research of a former economist at the IRS, we wouldn’t even know this information. Last year, IRS Commissioner Charles Rettig told the Senate Finance Committee that he doesn’t tolerate racial discrimination and yet acknowledged later that the IRS doesn’t collect audit statistics by race. Research suggests that employers discriminate against applicants with stereotypically Black names, and the IRS has access to taxpayer names on tax returns. If Rettig doesn’t have the data, how can he be confident that the IRS is not discriminating on the basis of race when it comes to audits? ...

Providing increased funding for the IRS to conduct audits is a necessary step toward a more equitable tax system. Rich white Americans should pay their fair share of taxes. The wealthy use the judicial system to enforce contracts that benefit them at the expense of others, they use federally supported transportation systems, and they use a host of other government services at disproportionate rates. But instead of paying up, they lobby members of Congress to rig the system in their favor, escaping the scrutiny of auditors. The ultimate lesson learned from the infrastructure package is that Republicans support defunding law enforcement—when wealthy, white taxpayers benefit.

https://taxprof.typepad.com/taxprof_blog/2021/07/brown-how-race-plays-into-tax-policing.html

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